United States: RE: Bakken Crude-by-Rail: Environmental Groups Ask New York State To Regulate DOT-111 Tank Cars

A recent state-law challenge by environmental groups to an aspect of crude-by-rail transportation has teed up the question of federal supremacy over railroad regulation. Because federal law generally preempts state regulation of railroads, the environmental groups must fashion their state-law challenges to invoke a traditional area of state regulation – in many instances, land use.[1] But a recent petition filed by environmental groups in New York State attempts to finagle state regulation over an aspect of rail transportation traditionally preempted by federal law.[2]

The bottom line is this: Bakken players will continue to face state-law challenges to any midstream or end-user project that transports or receives crude by rail. Effectively managing and combating these challenges will require both Bakken players' and trade associations' proactive involvement to monitor and attack environmental groups' state-law challenges that push the boundaries of permissible state regulation.

With a high-volume horizontal hydraulic fracturing moratorium, New York State represents one of the most unfriendly environments for unconventional shale development.[3] It comes as no surprise, then, that the state has emerged as a battleground for Bakken crude-by-rail transportation.

New York State officials have been active in calling on other states and federal regulators to tighten crude-by-rail safety.[4] Most recently, New York State asked North Dakota to implement regulations that require "stabilization" of Bakken crude prior to shipment.[5] Increasingly hostile opposition plagues projects involving crude-by-rail. One company's application to modify an existing facility stalled because the New York State Department of Environmental Conservation ("NYSDEC") has extended the public comment period four times.[6] And the same company completely abandoned a separate permit application for an oil terminal expansion.[7] Fueled by these results, environmental groups are pushing harder in New York State.

On October 20, 2014, Earthjustice, on behalf of numerous petitioners, filed a petition with the NYSDEC requesting a summary abatement order "prohibiting receipt and storage of Bakken crude oil in DOT-111 tank cars" at two transloading facilities and throughout the state of New York.[8]

The petition claims to invoke the state's regulatory power over the transloading facilities.[9] But by seeking a blanket prohibition on crude oil "receipt and storage" in DOT-111s, the thrust of the petition actually asks the state to regulate a vessel in which federal regulations allow railroads to transport crude.

If New York State regulators were to acquiesce to the petition's demands, the action would impermissibly encroach on federal supremacy over the regulation of railroads.[10] Although a proposed federal rule would phase out crude oil transportation in outdated tank cars, current federal law authorizes the transportation of most crude in DOT-111s.[11] Because federal law preempts state regulation over railroads, states lack the power to prohibit the vessel in which railroads carry crude oil to transloading facilities.

Anticipating the federal preemption issue, the petition advances two counterarguments. First, the petition argues that federal law governs transloading facilities only when rail carriers own them and that the challenged facilities belong to non-rail carriers.[12] But the petition mischaracterizes the scope of its request. Prohibiting the "receipt and storage" of Bakken crude in DOT-111s at the challenged facilities would effectively prevent federally authorized use of the tank cars. The petition's request impermissibly reaches past mere regulation of the transloading facility by, in effect, dictating to rail carriers which tank cars New York State will permit.

Second, the petition relies on the Second Circuit's decision in Berman Enterprises, Inc. v. Jorling[13] for the proposition that the NYSDEC may issue summary abatement orders even in areas that federal law preempts.[14] But the petition conveniently ignores both the facts of Jorling and the narrow holding of the Second Circuit.

In Jorling, the NYSDEC issued a summary abatement order that banned a company's use of individual barges to transport crude oil, in part because one barge sank and the company had repeatedly violated state law.[15] In stark factual contrast here, the petition seeks to invoke summary abatement powers to ban an entire class of transportation vessel – DOT-111 tank cars – from service within New York State.[16] In Jorling, the district court specifically upheld the state's power to regulate barge licensing because "[p]articular classes of vessels are not barred from New York harbors."[17] But the petition asks the NYSDEC to bar a class of transportation vessel, which puts the current situation in direct conflict with a crucial fact in Jorling.

Furthermore, the Second Circuit never actually affirmed the district court's preemption holding.[18] The Second Circuit noted that the district court's "scholarly analysis" rejected the federal preemption claims.[19] But the court stated, in dicta with no discussion or analysis, only that: "Preliminarily, we agree with Judge Weinstein's rejection of Berman's claim that federal law preempts any state regulation of Berman's barges in New York Harbor."[20]

But the court then continued to affirm the district court's dismissal of Berman's claims based on grounds entirely unrelated to federal preemption.[21] The petition's assertion that the Second Circuit affirmed New York State's power to issue summary abatement orders in areas that federal law preempts misconstrues the Jorling opinion.

Even though the petition rests on untenable legal grounds, and the NYSDEC will likely take no action on it, the petition still signals a potential trend that environmental groups will increasingly stretch the boundaries of states' regulatory powers to attack the transportation of crude oil by rail.

Rather than dismiss these questionable challenges, Bakken players that rely on crude-by-rail transportation should actively monitor these emerging challenges and, where permitted, intervene to aggressively argue that federal law preempts state regulation over most aspects of crude-by-rail transportation.

[1] See Rapanos v. United States, 547 U.S. 715, 738 (2006) (Scalia, J., plurality opinion) ("Regulation of land use . . . is a quintessential state and local power.").
[2] See EARTHJUSTICE, Petition for Summary Abatement Order: Receipt and Storage of Bakken Crude Oil in DOT-lll Tank Cars at Albany Terminals Operated by Global Companies, LLC and Buckeye Partners, LP (2014).
[3] See Colin Sullivan, NATURAL GAS: N.Y. Enviros Demand Cuomo Scrap Fracking Environmental Impact Study, E & E PUBLISHING (July 9, 2014), ("A moratorium in the Empire State against high-volume horizontal fracking has been in place since 2008.").
[4] See State's Actions on Transport of Crude Oil, N.Y. State Dep't of Envtl. Conservation, (last visited Nov. 13, 2014) (listing New York State's actions to improve crude-by-rail safety).
[5] Letter from Joseph J. Martens, Comm'r of N.Y. State Dep't of Envtl. Conservation, & Joan McDonald, Comm'r of N.Y. State Dep't of Transp., to Jack Dalrymple, Governor of North Dakota (Oct. 21, 2014). See Blake Sobczak, BAKKEN SHALE: N.Y. Tells N.D.: Clean Up Your Crude, E & E Publishing (Oct. 22, 2014).
[6] See State's Actions on Transport of Crude Oil, N.Y. State Dep't of Envtl. Conservation, (last visited Nov. 13, 2014) ("Due to broad public and community interest in the activities, [NYS]DEC further extended the comment period. On May 21, the comment period was further extended to August 1. On July 30, the comment period was again extended to September 30. On September 26, [NYS]DEC extended the comment period to November 30.").
[7] Energywire, TRANSPORT: N.Y. Crude-by-rail Terminal Plans Dropped, E & E Publishing (Nov. 13, 2014).[8] See Earthjustice, supra note 2, at 31. A summary abatement order allows the NYSDEC commissioner to order a person to "discontinue, abate or alleviate" a condition that "presents an imminent danger to the health or welfare of the people of the state or results in or is likely to result in irreversible or irreparable damage to natural resources." N.Y. Envtl. Conserv. Law § 71-0301 (2014).
[9] See Earthjustice, supra note 2, at 28 ("The Albany Terminals are primarily subject to state, not federal, regulatory authority.").
[10] See generally Interstate Commerce Commission Termination Act of 1995, Pub. L. No. 104-88, 109 Stat. 803 (1995) (preempting state regulation over railroads).
[11] See Hazardous Materials: Enhanced Tank Car Standards and Operational Controls for High-Hazard Flammable Trains, 79 Fed. Reg. 45016, 45025 (Aug. 1, 2014) (listing the DOT-111 tank car as an available option to ship all packing group designations of Class 3 flammable liquids, which includes most crude oils).
[12] See Earthjustice, supra note 2, at 29 (citing Hi Tech Trans, LLC – Petition for Declaratory Order – Newark, N.J., STB F.D. No. 34192, 2003 WL 21952136, at *4 (S.T.B. Aug. 14, 2003)).
[13] Berman Enter., Inc. v. Jorling, 3 F.3d at 602 (2d Cir. 1993); see also Berman Enter., Inc. v. Jorling, 793 F. Supp. 408 (E.D.N.Y. 1992).
[14] See Earthjustice, supra note 2, at 5 ("Moreover, the United States Court of Appeals for the Second Circuit has sustained the Commissioner's summary abatement powers in the face of a federal preemption challenge in remarkably similar circumstances involving imminent harm from transportation of oil and sludge in barges."); see id. at 29–30 ("Significantly, the Second Circuit has affirmed [NYS]DEC's use of a summary abatement order in circumstances analogous to the present matter. . . . In an analysis of federal preemption that the U.S. Court of Appeals for the Second Circuit later affirmed and lauded as 'scholarly,' the district court rejected the barge owners' preemption claim . . . ." (internal citations omitted) (emphasis added)).
[15] Jorling, 793 F. Supp. at 411.
[16] See Earthjustice, supra note 2, at 31 ("Petitioners respectfully request that the Commissioner immediately issue a Summary Abatement Order prohibiting receipt and storage of Bakken crude oil in DOT-111 tank bars by Global and Buckeye at the Albany Terminals, or at any other facility in the State of New York . . . ." (emphasis added)).
[17] Jorling, 793 F. Supp. at 411 (emphasis added).
[18] Jorling, 3 F.3d at 606.
[19] Id.
[20] Id.
[21] Id. at 607–08

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