Western Real Estate Business

OCT 2017

Western Real Estate Business magazine covers the multifamily, retail, office, healthcare, industrial and hospitality sectors in the Western United States.

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44 • October 2017 • Western Real Estate Business www.REBusinessOnline.com the project, pending full CEQA com- pliance. In its decision, the California Su- preme Court recognized that the Surface Transportation Board (STB), through the ICCTA, "has exclusive jurisdiction over transportation by rail carrier" and that "[the STB's] remedies are exclusive and expressly preempt state remedies 'with respect to regulation of rail transportation.'" Specifically, California cannot require a private rail carrier to comply with CEQA as a precondition to operating a rail line. This, the Court acknowl- edged, would constitute impermis- sible state regulation of rail transpor- tation. Even so, the California Supreme Court found that requiring a publi- cally owned rail project to comply with CEQA does not necessarily run afoul of the ICCTA. First, "the ICCTA does not broadly preempt all historic state police powers over health and safety or land-use matters, to the ex- tent state and local regulation and remedies with respect to these issues do not discriminate against rail trans- portation, do not purport to govern rail transportation directly, and do not prove unreasonably burdensome to rail transportation." Second, in requiring a state-owned project to comply with CEQA, the state was not regulating a rail project — which would be prohibited — but, rather, was engaging in an act of self- governance. Importantly, the Court acknowledged that its ruling would likely impact NWPCo's operations of the railway; however, it concluded that such an impact "is merely deriva- tive of the state's efforts at self-gover- nance…" As a result of its findings, the Cali- fornia Supreme Court reversed the Court of Appeal's decision that CEQA was categorically preempted by the ICCTA, and sent the matter back to the lower court for further proceed- ings consistent with its ruling. In providing a detailed, nuanced decision based in the specific facts of the case, rather than issuing a bright-line test as to CEQA applicabil- ity, Friends of the Eel River will likely lead to increased litigation (includ- ing more suits involving California's High Speed Rail) as stakeholders try to clarify the limits of this decision and test its boundaries. For example, while the California Supreme Court has now held that the ICCTA does not categorically preempt CEQA, im- portant questions remain: when does a state's exercise of its police powers become "unreasonably burdensome" to rail transportation? At what point does a "merely derivative" impact upon a private company contracted to run a publically owned rail project become the kind of direct regulation by the state that is prohibited by the ICCTA 2 ? Only time (and further liti- gation) will tell. This ruling, however, does not nec- essarily mean that progress on Cali- fornia's rail projects will be stalled or prohibited, pending the outcome of the litigation: notably, the Court declined to issue an injunction stop- ping progress on, or operation of, the NCRA's rail line while the Court of Appeal revisits the case. As such, CEQA litigation may not be the silver bullet to prevent progress on Califor- nia's railways. In the end, Friends of the Eel River likely raises more questions than it answers, and both property owners and rail operators should stay abreast of how future courts apply this land- mark ruling. n 1 On August 2, 2017, the United States Court of Appeals for the Ninth Cir- cuit ("Ninth Circuit") concluded that it lacked jurisdiction to rule on the merits of a 2014 STB decision, which found that the ICCTA categorically preempted CEQA with respect to the Fresno-Bakersfield segment of California's High Speed Rail line. The Ninth Circuit reasoned that the 2014 STB decision was "purely advisory" and, therefore, not binding. This means that the California Supreme Court's decision in Friends of the Eel River remains the law of the land in California with respect to the ICCTA and CEQA. In other words, winter is not coming for CEQA (at least for now). 2 Given that many rail projects are public-private partnerships, this is likely to become an increasingly thorny issue. Southern California most Important Regional Hub for Trucking, logistics, Housing & Retail Opportunities. The Right ty at the Right Time The scal Times ranking of U.S. Cities with populations over 200,000: #1 Irvine, CA #2 Fontana, CA #9 Washington, DC #29 Las Vegas, NV #115 New York, NY FONTANA CALIFORNIA Jerry Edgett (9 09 ) 350-6741 jedgett@fntana.org www.fntana.org

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