Late last week, the D.C. Circuit Court of Appeals struck down the federal Passenger Rail Investment and Improvement Act of 2008 (PRIIA). Among other things, PRIIA authorizes Amtrak to regulate its competitors. Now, you may be wondering how Amtrak can regulate its competitors when it essentially has a monopoly on all passenger rail traffic in the country. The issue is that there is a limited amount of train tracks, or rail, and PRIIA allows Amtrak to regulate who receives priority of use–passenger trains or freight trains. Priority of use is important because schedules for deliveries, maintenance, and even choice of routes are directly impacted by those decisions. The Association of American Railroads, a group of freight train operators, challenged PRIIA, asking whether it violates “due process for an entity to make law when, economically speaking, it has skin in the game.” On remand from the Supreme Court, which last year held that Amtrak can be considered a governmental entity, the D.C. Circuit held that PRIIA violates the Due Process Clause of the Fifth Amendment because it allows an “economically self-interested actor to regulate its competitors.”
The opinion, authored by Judge Janice Rogers Brown, raises two important points. First, Amtrak, even though considered a governmental entity by the Supreme Court, is organized as a for-profit corporation and is required by Congress to maximize profit. Second, PRIIA authorizes Amtrak to regulate rail resources, so because of its profit motive, it is not only likely, but required that Amtrak will regulate to its own economic benefit at the expense of other rail users.
Notably, the D.C. Circuit based its decision on a New Deal-era case, Carter v. Carter Coal Co., 298 U.S. 238 (1936). In that case, the Supreme Court struck down a law that allowed a majority group of coal producers to regulate certain activities of a minority group of competing producers where the minority members had no choice but to accept the majority’s decisions. The law was “so clearly a denial of rights safeguarded by the due process clause of the Fifth Amendment” because the economic self-interest of the majority created an “intolerable and unconstitutional interference with personal liberty and private property” of the minority producers. The D.C. Circuit agreed with the Carter Coal decision in this case “that the due process of law is violated when a self-interested entity [(Amtrak)] is ‘intrusted with the power to regulate the business . . . of a competitor.'”
The D.C. Circuit opinion is important for economic liberty because not only does it confirm that Carter Coal remains good law–a proposition questioned by many progressive academics–but it also provides strong language to pair with last year’s Supreme Court decision limiting self-interested regulators in North Carolina Board of Dental Examiners v. FTC. While the decisions have key differences, the overall theme is that the courts will not allow self-interested market participants to regulate their competitors however they want. In North Carolina that meant the Dental Board, which was comprised solely of dentists elected by other dentists, was not solely a governmental entity operating for the public interest, and therefore, must have proper active supervision by the State in order to avoid anti-trust liability for anti-competitive actions. You can read more about the North Carolina case here.
Whether it’s a state licensing board or a statutorily created for-profit corporation, the courts have made it clear that self-interested, anti-competitive actions under color of law do not get a free pass. If you know anything about rational basis review, this should come as a welcome relief.