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Association of American Railroads v. United States Department of Transportation

United States Court of Appeals, District of Columbia Circuit

April 29, 2016

Association of American Railroads, Appellant
United States Department of Transportation, et al., Appellees

Argued November 10, 2015

On Remand from the Supreme Court of the United States

Thomas H. Dupree Jr. argued the cause for appellant. With him on the briefs were Amir C. Tayrani, Lucas C. Townsend, and Louis P. Warchot.

David B. Rivin, Jr., Andrew M. Grossman, Shannen W. Coffin, and Michael J. Edney were on the brief for amici curiae Chamber of Commerce of the United States, et al. in support of appellant.

Richard B. Katskee and Craig W. Canetti were on the brief for amicus curiae Association of Independent Passenger Rail Operators in support of appellant. Dan Himmelfarb entered an appearance.

Christopher J. Paolella was on the brief for amicus curiae Professor Alexander Volokh in support of plaintiff-appellant.

Michael S. Raab, Attorney, U.S. Department of Justice, argued the cause for appellees. With him on the brief were Benjamin C. Mizer, Principal Deputy Assistant Attorney General, Vincent H. Cohen, Jr., Acting U.S. Attorney, and Mark B. Stern, Daniel Tenny, Patrick G. Nemeroff, Attorneys, Paul M. Geier, Assistant General Counsel for Litigation, U.S. Department of Transportation, Peter J. Plocki, Deputy Assistant General Counsel for Litigation, and Joy Park, Attorney.

Before: Brown, Circuit Judge and Williams and Sentelle, Senior Circuit Judges.


Brown, Circuit Judge

With the Rail Passenger Service Act of 1970, Congress created Amtrak, a for-profit corporation indirectly controlled by the President of the United States. This public venture into private enterprise was, and remains, unprecedented. With the Passenger Rail Investment and Improvement Act of 2008 (PRIIA), Congress piled anomaly on top of anomaly. See 122 Stat. 4907. It endowed this wholly unique statutory creature with agency powers, authorizing it to regulate its resource competitors. See PRIIA § 207(a). It further permitted, under certain conditions, an arbitrator of unspecified constitutional authority to issue binding final agency rulings. Id. § 207(d).

The first time this case was before us, we invalidated PRIIA as an unconstitutional delegation of regulatory power to what we believed was a private entity. Ass'n of Am. R.R. v. Dep't of Transp., 721 F.3d 666, 677 (D.C. Cir. 2013). The Supreme Court reversed. Dep't of Transp. v. Ass'n of Am. R.R., 135 S.Ct. 1225 (2015). It held that Amtrak's designation and operation as a for-profit corporation doesn't mean we can't also consider it a governmental entity. Id. at 1232–34.

For the freight operators who challenged PRIIA, however, that decision left three questions unanswered. Conceding Amtrak's governmental status, the operators- represented by the Association of American Railroads-ask: Does it violate due process for an entity to make law when, economically speaking, it has skin in the game? Does it violate the Appointments Clause for Congress to vest appointment power of a principal officer in the Surface Transportation Board? And is a government corporation whose board is only partially comprised of members appointed by the President constitutionally eligible to exercise regulatory power? We decline to reach the latter question, but we side with the freight operators on the former two. We conclude PRIIA violates the Fifth Amendment's Due Process Clause by authorizing an economically self-interested actor to regulate its competitors[1] and violates the Appointments Clause for delegating regulatory power to an improperly appointed arbitrator.


Since this controversy's factual and legal backdrop has been ably set forth now on two occasions, once in our prior opinion and again in the Supreme Court's, we needn't spill much more ink repeating what's already been said. However, some recitation of the pertinent statutory scheme is necessary, as well as a brief update on the procedural history of this case.

Section 207 of PRIIA tasks Amtrak and the Federal Railroad Administration (FRA) with jointly developing performance metrics and standards as a means of enforcing Amtrak's statutory priority over other trains. See PRIIA § 207(a). These standards are intended to measure 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." Id. In the event Amtrak and FRA can't agree on the composition of these "metrics and standards, " either "may petition the Surface Transportation Board to appoint an arbitrator to assist the parties in resolving their disputes through binding arbitration." Id. § 207(d). Once these metrics and standards have been finalized, Amtrak and its host rail carriers "shall incorporate" them into their operating agreements "[t]o the extent practicable." Id. § 207(c).

In our prior ruling, we determined PRIIA constituted an unconstitutional delegation of legislative authority to a private entity. See Ass'n of Am. R.R., 721 F.3d at 677. In our view, "[t]hough the federal government's involvement in Amtrak is considerable, " the fact that "Congress has both designated it a private corporation and instructed that it be managed so as to maximize profit" disqualified it from exercising regulatory power. Id. The Supreme Court reversed. See Dep't of Transp., 135 S.Ct. at 1228. Relying on Lebron v. Nat'l R.R. Passenger Corp., 513 U.S. 374 (1995), the Court concluded "Amtrak is a governmental entity, not a private one, for purposes of determining the constitutional issues presented in this case." Dep't of Transp., 135 S.Ct. at 1233. The Court remanded the case for us to consider the freight operators' remaining challenges to the constitutionality of PRIIA "to the extent they are properly before" us. Id. at 1234.

Here on remand, the freight operators advance the three challenges to PRIIA described above. Because these claims are still before us pursuant to the district court's summary judgment ruling, our review is de novo. See Edwards v. District of Columbia, 755 F.3d 996, 1000 (D.C. Cir. 2014).


Before we reach the merits of the freight operators' challenge, we first pause to consider whether their claims are properly preserved. Our responsibility as an appellate court is to review the decisions of lower tribunals, and "[t]he very word 'review' presupposes that a litigant's arguments have been raised and considered in the tribunal of first instance." Freytag v. C.I.R., 501 U.S. 868, 895 (1991). Where a claim was not properly preserved below, our authority to decide it on appeal is "strictly circumscribed." Puckett v. United States, 556 U.S. 129, 134 (2009).

Given the unique procedural history of this case, preservation questions attach to each of the freight operators' three claims. We conclude the due process claim was properly preserved, and the arbitration clause claim is properly before us due to the government's waiver, the detailed merits briefing, and the purely legal and potentially jurisdictional nature of the issue. The freight operators' board of directors argument is a much closer call, but because our ultimate disposition in this case does not require us to consider it, we offer no opinion here as to whether it was properly preserved.


In its summary judgment, the district court declined to reach the freight operators' due process argument because it was, in the court's view, "outside the scope of [the] Complaint" and not "raised in [the freight operators'] initial brief." 865 F.Supp.2d 22, 31 (D.D.C. 2012). We disagree. The freight operators raised the argument they now advance on appeal at every stage of this litigation-in their complaint and in each brief, from summary judgment to their prior appeal before this panel to their appeal to the Supreme Court.

The district court's opposite conclusion derives from a misreading of the complaint. The freight operators asserted two claims. AAR Compl. 16–17. The first was unconstitutional nondelegation to a private entity, the sole issue addressed in our prior opinion. Id. at 16. The second, though, was due process. Specifically, the freight operators alleged, at paragraphs 53 and 54 under a heading titled "Violation of the United States Constitution (Due Process), " PRIIA is unconstitutional because it (1) vests rulemaking authority in the hands of interested private parties, and (2) empowers Amtrak with power to enhance its commercial position relative to other market participants. Id. at 16–17.

The district court did not overlook the due process claim entirely, but did fail to notice the freight operators' complaint made not one, but two due process arguments. The court rejected the freight operators argument because their complaint's due process claim was "premised on Amtrak's status as a private entity." 865 F.Supp.2d at 29. However, that is only half-true. Paragraph 53 of the complaint alleged the PRIIA "violates the due process rights of regulated third parties" by "[v]esting the coercive power of the government in interested private parties." AAR Compl. At 17. Then, paragraph 54 outlined a separate due process theory, one premised on Amtrak's status as a government entity operating as a market participant. It alleged PRIIA also "violates the due process rights of the freight railroads because it purports to empower Amtrak to wield legislative and rulemaking power to enhance its commercial position at the expense of other industry participants." Id. The freight operators' due process claim thus can only be seen as premised solely on Amtrak's status as a private entity by reading paragraph 54 as redundant of 53, a view we do not share, especially considering our well-established practice of "constru[ing] the complaint liberally, granting [the] plaintiff the benefit of all inferences that can be derived from the facts alleged." Barr v. Clinton, 370 F.3d 1196, 1199 (D.C. Cir. 2004).

Our reading of the freight operators' complaint is corroborated by their summary judgment briefing, which attacks PRIIA's constitutionality "even if Amtrak were somehow deemed a government agency." District Court ECF No. 12 at 15–16. In two cogent, detailed paragraphs, the freight operators made their case, explaining why Amtrak's wielding of regulatory authority as a market participant violated due process and belying the district court's view of the argument as "raised only cursorily." 865 F.Supp.2d at 32. To be sure, the freight operators could have made a more robust due process argument, as they did in their briefing here on appeal. But what they did below was enough to preserve the issue for our review.


The freight operators failed to preserve their arbitration clause claim. They never so much as hinted at this argument until their first brief filed in our court. That said, several considerations convince us that deciding the arbitration claim is an appropriate exercise of our appellate authority.

First, and most important, the government never argued the arbitration claim was not properly preserved. Instead, the government devoted more than eight pages of its brief to the merits of the claim without mentioning preservation.[2] This objection is waivable and the government seems to have waived any waiver argument. See United States v. Layeni, 90 F.3d 514, 522 (D.C. Cir. 1996) ("Arguments not raised in the district court are generally deemed waived on appeal . . . . The government, however, has waived the waiver argument by not raising it."); United States v. Quiroz, 22 F.3d 489, 490– 91 (2d Cir. 1994) ("[W]hen [the government] has neglected to argue on appeal that a defendant has failed to preserve a given argument . . . courts have consistently held that the government ...

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