Case 1:08-cv-00618-JCC-TRJ Document 19 Filed 11/24/2008 Page 1 of 32 UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF VIRGINIA ALEXANDRIA DIVISION NORFOLK SOUTHERN RAILWAY COMPANY, Plaintiff, v. Case No. 1:08-CV-618 CITY OF ALEXANDRIA, et al., Defendants. NORFOLK SOUTHERN RAILWAY COMPANY’S AND RSI LEASING, INC.’S BRIEF IN SUPPORT OF MOTION FOR SUMMARY JUDGMENT Preliminary Statement This is a Federal preemption case. The City of Alexandria (“City”) has unilaterally issued Permits to Norfolk Southern Railway Company (“NSRC”) and its contractor, RSI Leasing, Inc. (“RSI”), containing restrictions on NSRC’s ethanol transloading operation at its Van Dorn Yard (the “Yard”) located in Alexandria, Virginia. Not only does CityOrdinance 5-2- 27 (the “Ordinance”) and the permits issued thereunder (the “Permits” and, collectivelywiththe Ordinance, the “Regulations”) burden interstate commerce, they represent the City’s admitted attempt to shut down the transloading operation entirely. The City’s attempt to restrict the ethanol transloading operation is precisely the type of local regulation Congress sought to eliminate through the Interstate Commerce Commission Termination Act, 49 U.S.C. §10105 (“ICCTA”), the Federal Railroad SafetyAct, 49 U.S.C. §20106(a.) (“FRSA”) and the Hazardous Materials Transportation Act, 49 U.S.C. § 5125 (“HMTA”). Because the Regulations are part of a pre-permitting requirement for NSRC to operate its ethanol transloading facility, and because they burden interstate commerce, the Regulations are preempted under ICCTA. Because the Regulations, as applied to the Facility, relate to railsafety, theyare preempted under FRSA. The Regulations, as applied to railand Case 1:08-cv-00618-JCC-TRJ Document 19 Filed 11/24/2008 Page 2 of 32 motor carriers operating at the Facility, conflict with and pose an obstacle to the purposes of Congress in creating a nationally uniform regulatoryprogramgoverning the transportationof hazardous materials, and thus are preempted under HMTA. Statement ofUndisputed Facts 1. NSRC is a “rail carrier,” as defined in ICCTA, engaged in interstate commerce and a “railroad carrier,” as defined in FRSA, operating an interstate railroad system in multiple states. Included as part of the system is the Yard. Stipulation of Facts (“Stip.”) 1, 3. 2. Encompassed within the Yard is a separate, segregated area, the “Facility,” that is used for transloading ethanol fromrail tank cars to tank trucks (“trucks”). Stip. 3-4. 3. NSRC owns, contracted for the construction of, and bore all costs related to the construction of the Facility. NSRC handles all matters associated with its ownership ofthe Facility, including its maintenance, addressing security, safety and environmental issues, and paying taxes for the Facility. Stip. 5-6; Affidavit of David Lawson (attached as Exhibit 1) ¶ 9. 4. Ethanol is a hazardous material regulated by the United States Department of Transportation (“DOT”). Stip. 7. 5. Shippers contract with NSRC to have ethanol shipped to the Yard for transloading. A charge for the transloading of ethanol at the Facility is included (“bundled”) in the price for the overalltransportation of ethanol. Stip. 8-10. 6. Ethanol arrives at the Facility in railroad tank cars that hold approximately 29,000 gallons. The Facility can hold up to 20 tank cars on a specially designed unloading trackand up to three rail cars can be transloaded at a time. While transloading operations currently are conducted from 7 am to 6 pm, the Facility is capable of operation 24 hours a day, 365 days a year. Stip. 15; Affidavit of Douglas McNeil(attached as Exhibit 2) ¶ 4. 2 Case 1:08-cv-00618-JCC-TRJ Document 19 Filed 11/24/2008 Page 3 of 32 7. Ethanol from one tank car will fill approximately 3.5 trucks. Since the Facility opened, the number of trucks into which ethanol is transloaded at the Facility has varied from dayto daydepending upon a number of factors. A report indicating the number of trucks accessing the Facility is attached as Exhibit 3. Stip. 16. 8. RSI conducts the transloading operation pursuant to a contract with NSRC. A copyofthe contract is attached as Exhibit 4. RSI has eight employees that work at the Facility, seven of whom are transloaders and one of whom is the Facility manager. Stip. 19. 9. RSI has no role in communicating with customers, marketing, or pricing the transloading services, nor does RSI have any role in arranging for tank cars of ethanol to be transported to the Facility, or for tank trucks to be transported from the Facility. Stip. 20. 10. On April 25, 2008, the City informed NSRC that, pursuant to the original City Ordinance 5-2-27, NSRC would need a permit to operate its Facility. NSRC took the position that it did not need a permit from the City, and did not apply for a permit. Stip. 24. 11. At the May27, 2008 CityCouncil meeting, the Mayor of Alexandria stated publiclyto NSRC “We are going to do everything we can to cease operations, shut you down and get you outofthe city--okay--plain and simple.” City Council Meeting Video at 2:18:40. 12. The minutes from the meeting of the May 27, 2008 City Council meeting state that “the city would do everything it could to get Norfolk Southern to cease operations, shut it down and get them out of the city.” Minutes of May 27, 2008 City Council Meeting. 13. The Mayor and City Council issued a formal statement stating “the city is moving forward [to do] everything we can to shut down [the transloading facility].” Statement ofthe Mayor and CityCouncil on the Norfolk Southern Ethanol Transloading Facility. 14. On June 3, 2008, the City issued a Permit to NSRC pursuant to the original City 3 Case 1:08-cv-00618-JCC-TRJ Document 19 Filed 11/24/2008 Page 4 of 32 Ordinance 5-2-27 (“Original Ordinance”). A copy of the Original Ordinance is attached as Exhibit 5. The Permit issued thereunder is attached as Exhibit 6. Stip. 26. 15. On June 14, 2008, the City amended Ordinance 5-2-27. A copyofthe amended Ordinance (the “Ordinance”) is attached as Exhibit 7. Stip. 28. 16. Attached collectively as Exhibit 8 are allPermits issued pursuant to the amended Ordinance either to NSRC or to RSI. Stip. 29. 17. The City did not comply with 49 U.S.C. §§ 5125(c) or 5112(b), as implemented by DOT in 49 C.F.R. Part 397, Subpart C, in implementing either the routeor time of day restrictions contained in the Permits. FactualBackground NSRC is a “rail carrier” as defined in ICCTA and a “railroad carrier” as defined in FRSA and is engaged in interstate commerce operating an interstate rail system. Stip. 1. NSRC owns the Yard, at which NSRC, with its own employees operates several transfer, local, and through trains daily. Stip. 15; McNeilAff. ¶ 4. Encompassed within the Yard is a separate area (the “Facility”), used for the transloading ofethanol fromtank cars to trucks, that is segregated by physical barriers, including berm, spill containment and fences. Stip. 15. NSRC owns, contracted for the construction of, and bore all costs associated with constructing the Facility. Lawson Aff. ¶ 8. NSRC performs all transportation-related services associated with the Facility, including transporting cars to and from the Facility. NSRC markets the services available at the Facility, and markets, negotiates and enters into contracts with customers concerning the transportation services offered at the Facility. Lawson Aff. ¶¶ 5, 8-9; Stip. 6. NSRC inspects and maintains all transportation equipment within the Facility, including the tracks, ballast, cross ties, switches and other like fixed infrastructure other than that provided by RSI. Lawson Aff. ¶ 9. NSRC addresses fire, security, safety and 4 Case 1:08-cv-00618-JCC-TRJ Document 19 Filed 11/24/2008 Page 5 of 32 environmental issues at, and pays any taxes for the Facility. Stip. 5-6. Ethanol is a motor fuel classified and regulated as a hazardous material by DOT. Ethanol generallyis combined with unleaded gasoline at blending facilities with a resulting mixture to be provided to localgasoline filling stations for use in commercial and private vehicles. Stip. 7. Pursuant to NSRC’s transportation contracts with its customers, NSRC transports ethanol shipments to the Facility in rail tank cars and has arranged for the transloading of ethanol from tank cars into tank trucks so that the shippers/receivers can continue to transport the ethanol for ultimate delivery to sites determined by the shippers/receivers. Stip. 9. NSRC charges for the transportation of ethanol to the Facility, and bundled within that transportation charge is the cost for transloading the ethanol fromthe tank cars into tank trucks at the Facility. Stip. 10. At present, one train dailyenters the Yard transporting rail tank cars loaded with ethanol shipped from various locations in the mid-western and western United States. The loaded ethanol tank cars are placed at the Facility by an NSRC train switch crew on the specially designed unloading track. Stip. 12. The ethanol in the tank cars is then transloaded from the rail cars to empty tank trucks by NSRC’s contractor, RSI. Stip. 13, 19. A NSRC train switch crew pulls the empty tank cars after they have been unloaded so the cars can be returned to their origins or otherwise used in the interstate rail transportation system. Stip. 14. The ethanol arrives at the Facility in tank cars that hold approximately 29,000 gallons each. Ethanol fromone tank car will fill approximately 3.5 trucks. Since the Facility opened, the number of trucks into which ethanol is transloaded at the Facility has varied from day to day depending upon a number of factors. Stip. 15-16. After the ethanol is transloaded into trucks, it is transported to various gasoline blending facilities outside of the city. The Facility is capable of operating around the clock, but currently 5 Case 1:08-cv-00618-JCC-TRJ Document 19 Filed 11/24/2008 Page 6 of 32 operates between 7 am to 6 pm Monday through Friday. Stip. 17; McNeilAff. ¶ 4. RSI conducts the transloading operation pursuant to a contract with NSRC (the “RSI Agreement”), which defines RSI’s responsibilities at the Facility. A copyofthe Agreement is attached as Exhibit 4. Stip. 19. Pursuant to the Agreement, NSRC pays RSI for performing the transloading services based on the volume of ethanol transloaded. Exhibit 4. RSI has no role in communicating with customers, marketing, or pricing the transloading services, nor does RSI have any role in arranging for ethanol to be transported to the Facility, or for trucks to transport ethanol fromthe Facility. Stip. 20. NSRC maintains oversight responsibility at the Facility. RSI regularly consults with NSRC with regard to anything not directly associated with the physical transloading of ethanol. Affidavit ofTonyRosenthal (attached as Exhibit 9) ¶¶ 8-9. With regard to transloading operations, NSRC advises RSI as to policies and procedures, and can direct the manner of its operations. Lawson Aff. ¶¶ 9-11. On or about April 25, 2008 the City notified NSRC that a permit was necessary to operate the Facility. Stip. 24. NSRC took the position that it did not need to obtain a permit from the City and did not apply for a permit. Stip. 25. On June 3, 2008, the City nonetheless issued a Permit pursuant tothe original Ordinance. Stip. 26. By letter dated June 4, 2008, NSRC reiterated its position that the City did not have authority to issue the Permit, and that, as applied to the Facility, the Regulations were preempted and inapplicable. Stip. 27. NSRC directed its contractor, RSI, that it need not comply with the Permit. Stip. 30. After NSRC notified the City that it did not have the authority to issue the Permit, the Citybegan a concerted effort to close the Facility. At a City Council meeting held on May27, 2008, the CityAttorneyinformed the City Council in open session that he would draft an amendment to the original Ordinance to make clear that Alexandria had jurisdiction to regulate 6 Case 1:08-cv-00618-JCC-TRJ Document 19 Filed 11/24/2008 Page 7 of 32 the Facility. The Mayor stated publicly to NSRC at the meeting “We are going to do everything we can to cease operations, shut you down and get you out of the City--okay--plain and simple.” The minutes from the meeting specifically state that “The city would do everything it could to get Norfolk Southern to cease operations, shut it down and get them out of the city.” A formal statement issued by the Mayor and City Council specifically states that “[T]he city is moving forward [to do] everything we can to shut down this facility….” The City amended the Ordinance on June 14, 2008 in an attempt to extend its application to cover the Facility. Stip. 28. The first Permit issued by the City is to NSRC, listing the Facility address. Exhibit 6. Subsequent Permits were issued to NSRC’s contractor, RSI, again listing the Facility address. Exhibit 8. While the City has issued several Permits from time to time, they all are temporary in nature, typicallylasting for 30 days, and they all contain the following restrictions: Hauling is permitted Monday through Friday, 7 am to 7 pm only. Hauling is limited to a maximum of 20 trucks per day. In addition, the Permits dictate the route tank trucks must use when hauling ethanol fromthe Facility. However, the City did not comply with 49 U.S.C. §§ 5125(c) or 5112(b) in setting either the route or time of day restrictions. While the number of trucks into which NSRC transloads ethanol varies from day to day, NSRC has transloaded into many more than 20 trucks on several days, and into as many as 41 trucks on a single day. Stip. 16. If the City had been enforcing the requirements contained in the Permits, NSRC and RSI would have been in violation of the Permits, and subject to criminal sanctions, on more than 75 occasions since beginning operations in April, 2008. Stip. 16. If enforced, the restriction on the number of trucks that could access the Facility, and the time during which transloading could take place, would impact the number of tank cars that could be transloaded, notwithstanding the number of tank cars in the interstaterail system bound 7 Case 1:08-cv-00618-JCC-TRJ Document 19 Filed 11/24/2008 Page 8 of 32 for the Facility, resulting in delayed delivery of ethanol as well as congestion at the Yard and downstream elsewhere on the NSRC rail system, creating a backup not only for ethanol customers but other NSRC customers. McNeilAff. ¶¶5-6. Further, the return flow of tank cars to ethanol processing facilities for re-loading would be interrupted, instead being held in-transit storage awaiting transloading. McNeilAff. ¶ 5. Faced with potential criminal sanctions for the continued operation of its ethanol Facility absent compliance with the Regulations, NSRC filed this Complaint, seeking, among other things, a declaration that both the Ordinance, as applied to the Facility, and the Permits are preempted byICCTA, FRSA and HMTA. The City filed an Answer and Counterclaim seeking a declaration that it is authorized to regulate as set forth in the Ordinance. In addition, the City filed a third party claim against RSI seeking the same declaration. Meanwhile, on June 17, 2008, one day after NSRC filed this action, the City filed a Petition for Declaratory Order with the Surface Transportation Board (“STB” or “Board”) seeking a Board determination of whether the Facility is a railroad facility covered by ICCTA. On July 1, 2008, NSRC filed its response. On November 6, 2008, the Board directed NSRC to provide certain additional information in order for the Board to make its final determination. NSRC’s Response is due on November 26, 2008. Argument The City’s Regulations as applied both to NSRC’s Facility and the tank cargo trucks transporting ethanol fromthe Facility, are preempted bythe express preemptive provisions of three federal statutes, i.e. ICCTA, FRSA, and HMTA. I. THE ORDINANCE AND PERMITS ARE EXPRESSLY PREEMPTED BY ICCTA ICCTA created the STB, granting it exclusive jurisdiction over transportation by rail carriers. 49 U.S.C. §10501(b). Specifically, 49 U.S.C. §10501(b) states: 8 Case 1:08-cv-00618-JCC-TRJ Document 19 Filed 11/24/2008 Page 9 of 32 The jurisdiction of the [Surface Transportation] Board over – (1) transportation by rail carriers, and the remedies provided in this part withrespect to … routes, services, and facilities of such carriers; and (2) the construction, acquisition, operation, abandonment, or discontinuance ofspur, industrial, team, switching, or side tracks, or facilities, even if the tracks are located, or intended to be located, entirely in one State, is exclusive. Except as otherwise provided in this part, the remedies provided under this part with respect to regulation of rail transportation are exclusive and preempt the remedies provided under Federal or State law. 49 U.S.C. §10501(b). Thus, pursuant to ICCTA, the STB is vested with exclusive jurisdiction withrespect to regulation of“transportation by rail carriers.” ICCTA expansively defines “transportation” to include: “yard, property, facility, instrumentality, or equipment of anykind related to the movement ofpassengers or property, or both, byrail, regardless of ownership or an agreement concerning use.” 42 U.S.C. §10102(9). Thus, ICCTA imposes on railroads a regulatoryscheme that courts have recognized as “among the most pervasive and comprehensive offederal regulatory schemes.” City of Auburn v. United States, 154 F.3d 1025, 1029(9th Cir. 1998) (citing Chicago &N.W. Transp. Co. v. Kalo Brick &Tile Co., 450 U.S. 311, 318 (1981)). Courts have interpreted the exclusive jurisdiction provisions of 49 USC 10501(b) broadly, emphasizing that “it is difficult to imagine a broader statement of Congress’s intent to preempt state regulatoryauthorityover railroad operations.” Id. at 1030 (quoting CSX Transp., Inc. v. Ga.Pub. Serv.Comm’n, 944 F. Supp. 1573, 1581 (N.D. Ga. 1996)). [T]here is no evidence that Congress intended any… state role under the ICCTA to regulate the railroads. *** [T]he congressional intent to preempt this kind of state and local regulation of rail lines is explicit in the plain language of ICCTA and the statutory framework surrounding it. Id. at 1031. One central purpose of Congress in enacting ICCTA was specifically to eliminate the few areas where states had regulatory authority over railroad facilities and operations. See, e.g., Friberg v. Kan. City S.Ry.Co., 267 F.3d 439, 443 (5th Cir. 2001); CSX Transp., Inc. v. Ga. Pub. Serv. Comm’n, 944 F. Supp. 1573, 1583 (N.D. Ga. 1996); H.R. No. 104-311, 104th 9 Case 1:08-cv-00618-JCC-TRJ Document 19 Filed 11/24/2008 Page 10 of 32 Congress 1st Sess. at 82-83 (1995), reprinted in 1995 U.S.C.C.A.N. 793, 807-808. As the STB has held, “to come within the preemptive scope of 49 USC 10501(b), [the] activities under [scrutiny] must be both: (1) transportation; and (2) performed by, or under the auspices of, a rail carrier.” STB Finance Docket No. 34192 (Sub-No. 1), Hi Tech Trans, LLC-- Petition for Declaratory Order--Newark, NJ (served August 14, 2003), slip op. at 5. See also, N.Y. Susquehanna &W. R. Corp. v. Jackson, 500 F.3d 238, 247, 249 (3d Cir. 2007) (the transloading, performed by the rail carrier’s contractor, of material from trucks to a railcar comes within the preemptive scope of 49 USC 10501(b)); Canadian Nat’l Ry. Co. v. Rockwood, (Civil Case No. 04-40323), 2005 U.S. Dist. LEXIS 40131, at *9 (E.D. Mich. June 1, 2005) (same as to the transloading of material from a railcar to trucks). If the activity sought to be regulated is covered by 49 U.S.C. §10501(b), the analysis then turns to whether the regulation itself unreasonablyinterferes with interstate commerce. See, e.g., Jackson, 500 F.3d at 254. If the regulation under scrutiny consists of a pre-permitting or pre-clearance regulation, further analysis is hardly necessary, because the reservation of the localjurisdiction of the right to withhold authority to conduct transportation perforce constitutes an unreasonable interference with interstate commence. The Second Circuit summarized the law as follows: The [Surface] Transportation Board has likewise ruled that “state and local permitting or preclearance requirements (including environmental requirements) are preempted because by their nature they unduly interfere with interstate commerce.” Green Mountain R.R. Corp. v. Vermont, 404 F.3d 638, 642 (2d Cir. 2005) (citation omitted). ICCTA applies in the instant case because the transloading operation at the Facility is transportation by or under the auspices of NSRC, a rail carrier. It does not matter that the actual transloading is done by NSRC’s contractor, RSI, nor that the City will claim that the Ordinance merelyregulates truck traffic to and from the Facility. Moreover, because compliance with the 10