Examining the DOT v. AAR Supreme Court decision regarding Amtrak

The Court held that Amtrak is a governmental entity for purposes of determining the validity of the metrics and standards under Section 207 of the Passenger Rail Investment and Improvement Act of 2008 (PRIIA). Justice Anthony Kennedy wrote the opinion joined by seven other Justices, including Justice Samuel Alito, who concurred with a separate opinion. Justice Clarence Thomas concurred in the result, but not the reasoning and offered a lengthy concurring opinion with a free-ranging separation of powers discussion.

The Court reversed a District of Columbia Court of Appeals decision holding that Amtrak was a private entity and invalidating the Section 207 metrics, but remanded the case to the lower court for an initial determination of issues not previously decided there, provided the lower court first determines the issues are properly before it.

PRIIA 207 and the metrics

Section 207(a) of PRIIA provides that “the Federal Railroad Administration and Amtrak shall jointly, in consultation with the Surface Transportation Board, rail carriers over whose rail lines Amtrak trains operate … develop new or improve existing metrics and minimum standards for measuring the performance and service quality of intercity passenger train operations, including cost recovery, on-time performance and minutes of delay, ridership, on-board services, stations, facilities, equipment, and other services.” 49 U.S.C. §24101 note (Supp. V 2011).

Although primarily designed to evaluate Amtrak’s performance, the metrics have other important purposes. First, if Amtrak service falls below minimum standards in the metrics for two consecutive quarters, then upon filing of a complaint by Amtrak (or a state sponsor of Amtrak service or a host railroad), the STB is required to initiate an investigation regarding the service (1). If in the investigation the STB determines that Amtrak’s failure to meet the minimum standards was caused by a host railroad’s failure to provide preference to Amtrak passenger trains, the STB can award damages against a host railroad. 49 U.S.C. §24308(f); see 49 U.S.C. §24308(c). Second, pursuant to PRIIA §207(c), “[t]o the extent practicable” Amtrak and its host railroads are to incorporate the metrics into their access agreements. 49 U.S.C. §24101 note (Supp. V 2011).

In March 2009, FRA and Amtrak issued a draft version of the metrics and sought comments from the other stakeholders identified in Section 207, including host railroads. Host railroads took issue with many aspects of the draft metrics and especially those formulated to measure on-time performance. In May 2010, FRA and Amtrak issued the final version of the metrics.

AAR’s challenge and the District Court decision

In August 2011, the Association of American Railroads (AAR) filed suit in the U.S. District Court for the District of Columbia, arguing that Section 207 violated the nondelegation doctrine and the Fifth Amendment’s due process clause by placing legislative and rulemaking authority in the hands of Amtrak, a private entity (2).

In May 2012, the district court granted summary judgment in favor of the government on both claims. The court held that Amtrak was a government entity with respect to the due process claim (3). The court noted that Amtrak’s status with respect to the nondelegation claim was less clear, but that even if Amtrak was a private entity, Section 207 would survive because the government retained sufficient control over promulgation of the metrics (4). AAR appealed.

D.C. Circuit decision

In July 2013, the United States Court of Appeals for the District of Columbia Circuit (D.C. Circuit) reversed, holding that Section 207 “constitutes an unlawful delegation of regulatory power to a private entity (5).” The decision was based upon the conclusion that Amtrak was a private entity for purposes of the nondelegation clause. The D.C. Circuit noted that many characteristics of Amtrak made it like the government, but that Amtrak is by statute “not a department, agency or instrumentality of United States Government”; and that Amtrak is “operated and managed as a for-profit corporation.” Ass’n of Am. R.R. v. Dep’t of Transp., 721 F. 3d at 674-75.

With facts on both sides, the D.C. Circuit looked at the “functional purposes that the public-private distinction serves when it comes to delegating regulatory power.” Id. at 675. Two things were of most importance to the Court—delegating government power to private parties “saps our political system of democratic accountability” and “disinterested government agencies ostensibly look to the public good, not private gain,” which makes delegations to private entities “particularly perilous.” Id. Thus, “Amtrak may not compete with the freight railroads for customers, but it does compete with them for use of their scarce track.” Id.

In addition, the Court noted that Section 207 directs Amtrak and its hosts to incorporate the metrics into their operating agreements. Id. at 676.

Finally, the Court distinguished Lebron v. National Railroad Passenger Corp., 513 U.S. 374, 378-400 (1995)(“Lebron”), wherein the Supreme Court held that Amtrak was part of the government for purposes of the First Amendment. The Court noted that the Supreme Court’s holding regarding the status of Amtrak for purposes of the First Amendment in Lebron did not dictate the same result with respect to all other constitutional provisions including the government’s structural powers at issue in the present case. Id. at 676-77.

The Supreme Court decision

The Supreme Court said the D.C. Circuit’s conclusion that Amtrak was a private entity relied principally on the fact that (by statute) Amtrak is not a department, agency or instrumentality of the government and is operated and managed as a for-profit corporation. DOT v. AAR, slip op. at 6-7. The Supreme Court noted that “Congressional pronouncements, though instructive as to matters within Congress’ authority to address, are not dispositive of Amtrak’s status as a governmental entity for purposes of separation of powers analysis under the Constitution.” Id. at 7. (Citations omitted). The Court began its analysis by reviewing Amtrak’s ties with the government. Among other things, the Court noted that Amtrak’s Board composition suggested that Amtrak was controlled by the government (6). It said the “political branches exercise substantial, statutorily mandated supervision over Amtrak’s priorities and operations (7).” The Court noted that Congress conducts frequent oversight hearings of Amtrak and that Amtrak depends on annual federal financial support. Id. at 8-9. The Court concluded that “Amtrak was created by the Government, is controlled by the Government, and operates for the Government’s benefit.” Id. at 10.

Next, the Court explained that Lebron “teaches that, for purposes of Amtrak’s status as a federal actor or instrumentality under the Constitution, the practical reality of federal control and supervision prevails over Congress’ disclaimer of Amtrak’s governmental status.” Id. at 11.

Although Lebron involved individual rights under the First Amendment, the “structural principals secured by the separation of powers protect the individual as well.” Id. at 11. (Citations and internal quotations omitted).

What the Court Remanded – The Court noted that “substantial questions respecting the lawfulness of the metrics and standards – including questions implicating the Constitution’s structural separation of powers and the Appointments Clause may still remain in the case.” Id. at 2 (citations omitted.) The Court provided (8) the D.C. Circuit with a summary of issues that might be before it:

• AAR’s argument that the selection of Amtrak’s president (by the Amtrak Board rather than by Presidential appointment with Senate confirmation) calls into question Amtrak’s structure under the Appointments Clause.

• AAR’s argument that Section 207(d)’s arbitration provision violates the nondelegation principle and the Appointments Clause (9).

• AAR’s argument that Section 207 violates the Fifth Amendment’s due process clause by placing legislative and rulemaking authority in the hands of Amtrak.

• The Government’s argument that the metrics do not reflect “rulemaking” authority and do not give Amtrak the authority to regulate other entities and thus do not implicate the nondelegation principle.

NOTES

1. The STB also is required to initiate an investigation upon the filing of such a complaint if Amtrak’s on time performance falls below 80 percent for two consecutive calendar quarters. National Railroad Passenger Corp. – Section 213 Investigation Of Substandard Performance On Rail Lines Of Canadian National Railway Company, Docket No. NOR 42134 (STB served December 19, 2014).

2.The AAR, an association representing the interests of large freight railroads (including all of the major Amtrak host railroads), sought declaratory relief, an order vacating the metrics and injunctive relief.

3. Ass’n of Am. R.R. v. DOT, 865 F. Supp. 2d 22, 29-31 (D.D.C. 2012). The district court relied upon the functional analysis in Lebron.

4. Id. at 26-34.

5. Ass’n of Am. R.R. v. Dep’t of Transp., 721 F. 3d 666, 668 (D.C. Cir. 2013). The court of appeals noted that there was some authority for addressing the validity of the delegation under the due process clause, but said its own precedent treated the issue under separation of powers. Id. at 671, n. 3. Thus, the Court never reached the AAR’s due process argument, see id. at 677, although the Court veered very close to the due process issue in its discussion of Amtrak’s private entity status. See Id. at 675.

6. Amtrak’s Board is composed of nine members, one of whom is the Secretary of Transportation; seven other board members are appointed by the President and confirmed by the Senate; these eight members select Amtrak’s president, who is the ninth board member. Id. at 7-8.

7. Id. at 8. In addition, Amtrak must submit numerous annual reports to Congress and the President; Amtrak is subject to the Freedom of Information Act in any year in which it receives federal funds; and Amtrak has an Inspector General. Id.

8. The Court’s preface says: “On remand, the Court of Appeals, after identifying the issues that are properly preserved and before it, will then have the instruction of the analysis set forth here.” Id. at 12.

9. See also Alito concurring opinion, slip op. 3-9.

Kevin Sheys is a partner in the Washington, D.C. office of the law firm of Nossaman LLP and focuses his practice on railroad infrastructure projects and regulatory issues. Contact him at [email protected] and follow him on Twitter @ksheys.

Nossaman is counsel to Amtrak in proceedings before the Surface Transportation Board related to the Metrics & Standards. Amtrak was not a party to the DOT v. AAR case in any stage.