DoT v AAR

Apparently the Association of American Railroads, an association of freight railroads, sued Amtrak and the Federal Railroad Administration. The lawsuit was motivated by the belief that the metrics and standards governing performance and scheduling of passenger rail service was hurting their freight rail services (because the passenger rail service in question runs on their freight lines). It claimed that Amtrak’s participation in determining those metrics and standards was unconstitutional.

This strikes me as a bizarre argument.

The (procedural) legal theory is that Amtrak is technically a private corporation and that Congress cannot delegate lawmaking power to a private corporation. Since the establishment of standards is a lawmaking power, Amtrak can’t participate directly in the establishment of standards. Those standards *must* be established entirely by a governmental entity – which can take input from private entities, but must make its decisions independently.

This is bizarre for three reasons.

The first reason it’s a bizarre argument has to do with the history and purpose of Amtrak. Amtrak was formed by the federal government for the express purpose of rescuing the financially failing passenger rail services, consolidating them into one entity, and then preserving passenger rail service. The consolidation meant that existing companies, which (a) owned track, (b) ran freight rail operations, and (c) ran passenger rail operations, were broken up – the passenger rail operations were pulled out and assigned to Amtrak, but the freight operation and rail ownership remained in the hands of the original company. This meant that inevitably Amtrak’s passenger rail would be running on the tracks owned by the previous owner of the passenger rail operation – and that meant that in order for Amtrak to achieve its goal of preserving passenger rail service, there had to be some ground rules in terms of the operation and use of that track, and those ground rules had to be skewed in Amtrak’s favor. Drafting these rules using the ordinary agency drafting process, with Amtrak simply an interested outsider on equal footing with other interested outsiders, would not achieve the goals of the enabling legislation.

You could, of course, argue that valid goals do not make a law constitutional, and that the Congress was required to find a way to achieve the goals of the enabling legislation that didn’t involve Amtrak actually having a hand in the decision making process. But that leads to the next reason-for-bizareness:

The second reason it’s a bizarre argument is that, while it’s true that Amtrak is technically a private corporation, that technicality has always been something of a polite fiction. While it is officially seperate from the US government, and while it has corporate form, the Secretary of Transportation owns all of the preferred stock and most of the common stock, and is one of the nine members of the Board of Directors. Seven of the remaining eight members of the Board of Directors are appointed by the President and confirmed by the Senate. Congress exercises control of the salary of board members, and has established detailed qualification rules for who can serve as a member of the board; meanwhile, the President can remove board members at his sole discretion. Furthermore, Congress and the President control Amtrak’s priorities and operations and the federal government provides much of its funding.

It’s a *convenient myth* that Amtrak is not a government entity. In reality, it clearly is a government entity in everything except name.

The third reason it’s a bizarre argument is this: as a practical matter, for most regulatory agencies, whoever the dominant players in their industry are already have a huge amount of influence over the outcome of the regulation. People from those companies are the people who know enough about the issues under regulation to be nominated and confirmed to leadership positions in the agency; people in the agency will end up going to jobs in these companies. The regulatory agency and the company are distinct, but the interests and conceptual mindsets of the people running the agency and the people running the company are closely aligned, and *someone* with different interests and conceptual mindsets needs to watch all such regulatory agencies with an eye for the moment when regulatory capture turns to corruption of the agency’s purpose.

So how different is it, really, to conscript the company for whose benefit the regulations are being drafted into the process of drafting them? There’s a risk of corruption, sure, but it’s not clear to me that it’s a substantially greater risk of corruption than exists in the case of simple regulatory capture. The outcome needs to be watched carefully by those with different interests and conceptual frames – but that was always true.

The one clear difference is that if the company is directly involved in the formation of the rules, then those who are watching can’t do anything about it if they discover corruption. With a government agency, public pressure can be brought to bear on the agency to undo the effects of the corruption – and while that may not work or may be only marginally successful depending on the political climate, it has a *chance* to work. There’s no way to bring such pressure to bear on a corporation.

But that brings us back to point #2: Amtrak is so completely under the control of the state that it’s just as vulnerable to political pressure as any other government-controlled entity.

So the argument of the Association of American Railroads, and the decision of the Court of Appeals for the District of Columbia Circuit, relies entirely on mindless formalism: Amtrak has the *form* of a private corporation and therefore it can’t be involved in policy-making to this extent.

Thankfully, the Supreme Court rejected that today. In a 9-0 decision (http://www.supremecourt.gov/opinions/14pdf/13-1080_f29g.pdf) it ruled that Amtrak is acting as a government entity, and dismissed this particular Constitutional challenge. “The practical reality of federal control and supervision prevails over Congress’ disclaimer of Amtrak’s governmental status.”

It’s particularly nice to see Justice Scalia signing on to an opinion that uses this premise as its basis; it’s unusual for him to reject mindless formalism in favor of examination of practical reality.

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2 thoughts on “DoT v AAR

  1. Very well said. I have one extremely minor disagreement. If I am not mistaken, Justice Scalia, in a prior written opinion held that Amtrak was a governmental rather than a “private” entity, so I was not surprised by his vote.

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  2. That’s reasonable. I’m not familiar with precedent in this area, so I can’t draw on that – I just have a strong sense that *in general* Justice Scalia is among the people most likely to adhere to a rigid formalism.

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