D.C. Circuit Review – Reviewed: Is Amtrak “Company A”?

by Aaron Nielson — Sunday, May 1, 2016@Aaron_L_Nielson

Imagine three companies—let’s call them A, B, and C. Each manufactures cars. Imagine further that Congress authorizes A to regulate B and C, and A uses that power to benefit itself, for instance by requiring B and C to provide valuable inputs to A on preferential terms. Would that be constitutional?

Certainly not, at least not without upending precedent. Indeed, at oral argument last year in American Association of Railroads v. Department of Transportation, i.e., the Amtrak case, Justice Kennedy asked essentially that question, and the Government—although obviously disputing the question’s applicability—seemed to acknowledge that such a hand-off of regulatory power “would present nondelegation problems.” That acknowledgment is unsurprising. Ever since Carter v. Carter Coal Co. in 1936, it has been common ground that “federal lawmakers cannot delegate regulatory authority to a private entity. To do so would be ‘legislative delegation in its most obnoxious form.’”

This week, the D.C. Circuit—on remand from the Supreme Court—applied this A, B, C logic (albeit under the label “due process” rather than “nondelegation”*) and concluded that Amtrak could not promulgate “metrics and standards” for the rail industry. (It also found a violation of the Appointments Clause.) This case may end up having a return trip to the Supreme Court. Whether it should, however, boils down to one straightforward question: Is Amtrak “Company A”? After all, if Amtrak is A, then everyone agrees the scheme is unconstitutional.

So is Amtrak Company A?

Before tackling that question, let’s back up. Amtrak is unusual. As Justice Kennedy explained for the Supreme Court last year, “Amtrak was created by the Government, is controlled by the Government, and operates for the Government’s benefit.” This is why Amtrak, at least for constitutional purposes, is the Government. Yet Congress has also declared that Amtrak “shall be operated and managed as a for-profit corporation” and “is not a department, agency, or instrumentality of the United States.” Instead, “Amtrak is encouraged to make agreements with the private sector and undertake initiatives that are consistent with good business judgment and designed to maximize its revenues and minimize Government subsidies.”

As co-blogger and friend Daniel Hemel (who does not think Amtrak is A) explains, “Amtrak doesn’t own most of the tracks that its trains run on; instead it uses (and pays for the right to use) tracks owned by freight railroads. In 1973 Congress required the freight railroads to give Amtrak preference over their own trains on their tracks and at junctions and crossings.” Yet Amtrak still has problems. “So in 2008 Congress passed the [Passenger Rail Investment and Improvement Act of 2008 (“PRIIA”)] with the hope of making sure that the freight railroads would clear the way for Amtrak’s trains to run on time.”

The PRIIA, however, has its own problem: it appears to give Amtrak regulatory power, but does not repeal Amtrak’s statutory obligation to act as a private entity. In particular, Section 207(a) of the PRIIA provides:

Within 180 days after the date of enactment of this Act, the Federal Railroad Administration and Amtrak shall jointly, in consultation with the Surface Transportation Board, rail carriers over whose rail lines Amtrak trains operate, States, Amtrak employees, nonprofit employee organizations representing Amtrak employees, and groups representing Amtrak passengers, as appropriate, 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.

Section 207(c), in turn, mandates that, “[t]o the extent practicable, Amtrak and its host rail carriers shall incorporate the metrics and standards developed under subsection (a) into their access and service agreements.”

And Section 207(d) provides:

If the development of the metrics and standards is not completed within the 180-day period required by subsection (a), any party involved in the development of those standards may petition the Surface Transportation Board to appoint an arbitrator to assist the parties in resolving their disputes through binding arbitration.

After Amtrak and the FRA developed metrics and standards, an association of railroads brought suit, claiming that the metrics and standards violate the private nondelegation doctrine. The D.C. Circuit (per Judge Brown, for whom I clerked, and Judges Sentelle and Williams) agreed that this scheme unconstitutionally delegated regulatory power to a private company. The Supreme Court, however, did not. Instead, it concluded that no matter what the U.S. Code says, Amtrak is the Government, at least for constitutional purposes. Thus, the private nondelegation doctrine cannot apply. Yet concluding that Amtrak is the Government potentially raises other constitutional problems. Accordingly, the Court remanded.

The D.C. Circuit (with the same panel) has now issued its latest decision. It has concluded that even though Amtrak is the Government for constitutional purposes, its profit-maximizing duty combined with its power to regulate violates due process. The panel also concluded that the arbitration provision conflicts with the Appointments Clause because the arbitrator engages in “binding arbitration” that cannot be undone by any other agency; thus, the panel reasoned, the arbitrator exercises “significant authority pursuant to the laws of the United States” but has no supervisor, meaning he or she is a “principal officer.” (Indeed, as Justice Scalia explained at oral argument, the arbitrator is “supervised by nobody.”) The panel did not reach whether the Amtrak President must be appointed by the U.S. President.

With this background, we can start to answer whether Amtrak is Company A.

First, it seems hard to say that the metrics and standards are not regulatory. As Justice Kagan explained at oral argument, the scheme sure “seems kind of regulatory.” No doubt this issue will continue to be litigated, but for purposes here, let’s assume that the metrics and standards are regulatory.

Second, the fact that the Federal Railroad Administration plays a role may be irrelevant. Imagine a company with a policy that requires two supervisors to agree in writing before hiring anyone. One is biased while the other is not. A qualified person with the protected characteristic applies and is not hired. No one thinks that a discrimination claim could not be brought because one of the two supervisors was not biased. (Indeed, the Supreme Court, rightly, has already upheld even less direct theories of causation.) The same presumably would be true if those same two supervisors were tasked with creating performance standards for the company, at least for purposes of the proximate cause analysis. Moreover, the reason that the arbitrator is fair game for challenge (even though no arbitration occurred) may also demonstrate why the FRA’s participation in the process would not remove the taint of Amtrak’s participation, assuming that a taint exists. The Supreme Court has already held that compromising-forcing mechanisms can be challenged. An arbitrator is a compromise-forcing mechanism, but so is Amtrak’s veto over FRA’s preferences (and vice versa). It is fair to doubt that the FRA would have promulgated the same metrics and standards if Amtrak did not have co-equal authority. (Currin v. Wallace, perhaps the best case for the Government, is premised on the fact that the competitors there could only veto, not impose, regulations.)

Third, it also seems hard to say that Amtrak does not compete with other railroads. To be sure, freight and passenger railroads sell different products. But both compete for a scarce resource: track time. In any event, according to this amicus brief, there are private passenger trains that compete directly with Amtrak. Hemel, to be sure, doubts that competition for track time counts as “competition” because the government competes with industry all the time for resources like expert lawyers. And he is right about that. But due process questions are often ones of degree rather than kind and the nexus here seems quite tight; the primary function—indeed, the whole point—of Amtrak and the other railroads is to operate trains on railroad tracks. Moreover, Hemel’s analysis may be double dipping on his “Amtrak is not self-interested” argument. After all, if Congress empowered one investment bank to regulate other investment banks regarding how lawyers are hired at investment banks, that might very well violate Carter Coal. This suggests that the real question is whether Amtrak is self-interested, and not whether non-self-interested agencies can participate in the market.

So finally, fourth, we come to the rub: Is Amtrak inherently biased against other railroads because of Amtrak’s economic “self-interest”? Hemel again says no: “quite a few federal agencies operate under a statutory mandate to raise enough revenue so that they can fund themselves.” And again, that’s true. But the comparison may be too quick. The due process concern, after all, is one of motive. Ordinarily, when an agency is instructed to impose fees to pay for its operations, that agency is not inherently biased against the companies it regulates. In other words, nothing in such an agency’s mission incentivizes it to use its fee power to make regulatory decisions for the purpose of improving its own competitive position or with a diminished regard for a rival’s legitimate claims, i.e., such an agency would not be using its authority with a competitor’s inevitable preference for itself and natural animus against its rivals. Not so if Company A is the regulator, especially remembering that due process is often a question of degree more than kind.

So it seems to me that this is where the real fight should be. On one hand, Amtrak is the Government, which may suggest that it does not have an inherent bias because Congress created it for public purposes. On the other hand, the mere fact that it is the Government does not mean that it could not be inherently biased, especially if federal law requires it to act in a self-interested way. If Congress, for instance, ordered an agency to ruthlessly compete with the companies it regulates then presumably the use of regulatory power by that agency would raise due process concerns, no different from empowering a private actor to use that same power. Put another way, if a state were to “deputize” biased entities and give them regulatory power over their rivals, all the while telling them that despite being deputized, they should “continue to act as private entities and exclusively look out for their own self-interest,” wouldn’t that be a due process problem? In fact, we know that this would present an antitrust problem, even if the deputized entities were to take an oath to faithfully serve the public. Surely the threat of bias would be far more serious if such entities were affirmatively ordered by statute to not be neutral.

Thus, the most important question in this case may not be one of constitutional principle, but rather one of statutory interpretation: When it comes to these metrics and standards, has Congress told Amtrak to act in the public interest (as Congress sometimes does, for instance by requiring Amtrak to provide “reduced fares to the disabled” and “ensure mobility in times of national disaster”) or instead has Congress told Amtrak act as a private company (as is the default)? The D.C. Circuit attempted to answer this question by observing that “the Government identifies no way in which Amtrak’s special obligations in any way obstruct it from the pure pursuit of profit in the standard-setting exercise that is before us.”

If the United States has a good response to that key sentence (which it well might), then the D.C. Circuit’s analysis is shaky. Otherwise, isn’t Amtrak Company A?

The week’s other cases are also interesting, though some are quite technical:

  • Hospital of Barstow, Inc. v. NLRB: There is a hard question lurking in this case, but for now, it has been put off. Recall that last fall the D.C. Circuit decided that the Regional Director of the NLRB had authority to certify a union election even though the NLRB itself lacked a quorum. Those decisions prompted some unhappy sentiments. This case is related to that scuffle. As Judge Srinivasan (joined by Judges Tatel and Kavanaugh) explained, although “Regional Directors [could] continue to direct representation elections when their actions were ‘subject to eventual review by the Board,’” the question here is whether “they also retain[ed] authority to direct representation elections when, as in this case, the parties agreed that a Regional Director’s actions would be final?” The panel did not answer that question. Instead, it remanded “to enable the Board to render a interpretation as to whether, under the quorum statute, Regional Directors retained power over representation elections notwithstanding the lapse of a Board quorum in the circumstances presented by this case.” Perhaps we will see this case again.
  • Holmes v. FEC: The fight is not over in this case either. Under federal law, if someone (with standing) alleges that sections of the “Federal Election Campaign Act is unconstitutional,” the district court must “immediately” “certify” the challenge “to the United States court of appeals for the circuit involved . . . sitting en banc.” Even so, it is understood that “frivolous” issues don’t need to be certified. But what does that mean? What if a plausible argument may be foreclosed by precedent—is the argument “frivolous”? Judge Randoloph, joined by Judge Henderson (Chief Judge Garland was recused) concluded (in part) that the district court here erred by not certifying whether the “per election” limits on campaign contributions is constitutional: “The linchpin of plaintiffs’ argument is that contributing $5,200 to a candidate in a general election in one lump sum cannot be considered corrupting because Congress determined that contributing $5,200 to a candidate in two installments ($2,600 for a primary election and $2,600 for a general election) is not corrupting.” Because “it is entirely possible to mount a non-frivolous argument against what might be considered ‘settled’ Supreme Court constitutional law,” the panel concluded the issue was for the en banc court. (This is a highly streamlined version of the analysis; there is much more to this case, including a discussion of Buckley v. Valeo.)
  • Via Christi Hospitals Wichita v. Burwell: This opinion (by Judge Pillard, joined by Judges Millett and Williams) addresses a complicated reimbursement question. In particular, “Via Christi Health Center seeks an upward adjustment of the capital-asset depreciation reimbursement paid to its predecessor hospitals under a since curtailed Medicare regulation.” Here is the core of the Court’s analysis: “The Secretary reasonably interpreted the bona fide sale requirement as limited to arm’s length transactions between economically self-interested parties. The Secretary concluded that St. Francis’s transfer of its assets to Via Christi was not an arm’s-length transaction in which each party sought to maximize its economic benefit. Her determination was supported by substantial evidence, and was not arbitrary, capricious or otherwise unlawful.” (Equally technical is NRDC v. NRC: This is a NEPA decision authored by Judge Brown and joined by Judges Rogers and Kavanaugh. I am not even going to try to summarize it. Suffice it to say, “this litigation spans many years and many volumes” and “an NRC regulation excludes plants like Limerick from conducting a subsequent SAMA analysis; NRDC argues that this general regulation does not account for new circumstances. Such an argument similarly amounts to a collateral attack on the agency’s regulation—an attack which should properly have been brought through a rulemaking petition or via the waiver process.”)
  • United States v. Stubblefield: Because this blog is dedicated to regulation, I also won’t spend too long on this opinion by Judge Brown (joined by Judges Tatel and Millett). This will suffice: “This case is, at its core, a fact-intensive dispute over probable cause. Witness descriptions of a serial robber—a middle-aged black man of short build and facial disfigurement—helped produce a police sketch, which was then used in canvassing efforts, which netted an identification, which led police officers to the identified suspect, and their approach prompted that suspect, Mark Stubblefield, to flee for two blocks until he was apprehended and arrested. We are asked to decide whether, in view of this totality of circumstances, probable cause to arrest Stubblefield existed. We hold that it did.”

There you go—a week’s worth of cases, summarized for easy reading on the Acela.

 

* The confusion comes from Carter Coal itself: “This is legislative delegation in its most obnoxious form; for it is not even delegation to an official or an official body, presumptively disinterested, but to private persons whose interests may be and often are adverse to the interests of others in the same business. . . . The difference between producing coal and regulating its production is, of course, fundamental. The former is a private activity; the latter is necessarily a governmental function, since, in the very nature of things, one person may not be entrusted with the power to regulate the business of another, and especially of a competitor. And a statute which attempts to confer such power undertakes an intolerable and unconstitutional interference with personal liberty and private property. The delegation is so clearly arbitrary, and so clearly a denial of rights safeguarded by the due process clause of the Fifth Amendment, that it is unnecessary to do more than refer to decisions of this court which foreclose the question.”

 

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About Aaron Nielson

Professor Nielson is an associate professor at Brigham Young University Law School. Before joining the academy, Professor Nielson was a partner in the Washington, D.C. office of Kirkland & Ellis LLP (where he remains of counsel). He also has served as a law clerk to Justice Samuel A. Alito, Jr. of the U.S. Supreme Court, Judge Janice Rogers Brown of the U.S. Court of Appeals for the D.C. Circuit, and Judge Jerry E. Smith of the U.S. Court of Appeals for the Fifth Circuit. All views expressed are the author's alone. Follow him on Twitter @Aaron_L_Nielson.

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