Am. Trucking Associations, Inc. v. N.Y. State Thruway Auth.

• Decision Date: 10 August 2016
• Docket Number: 13 Civ. 8123 (CM)
• Citation: 199 F.Supp.3d 855
• Parties: AMERICAN TRUCKING ASSOCIATIONS, INC., Wadhams Enterprises, Inc., Lightning Express Delivery Service Inc., and Ward Transport & Logistics Corp., Plaintiffs, v. NEW YORK STATE THRUWAY AUTHORITY, New York State Canal Corp., Thomas J. Madison, Jr., Howard Milstein, Donna J. Luh, E. Virgil Conway, Richard N. Simberg, Brandon R. Sall, J. Rice Donald, Jr., and Jose Holguin-Veras, Defendants.
• Court: U.S. District Court — Southern District of New York

199 F.Supp.3d 855

AMERICAN TRUCKING ASSOCIATIONS, INC., Wadhams Enterprises, Inc., Lightning Express Delivery Service Inc., and Ward Transport & Logistics Corp., Plaintiffs,

v.NEW YORK STATE THRUWAY AUTHORITY, New York State Canal Corp., Thomas J. Madison, Jr., Howard Milstein, Donna J. Luh, E. Virgil Conway, Richard N. Simberg, Brandon R. Sall, J. Rice Donald, Jr., and Jose Holguin-Veras, Defendants.

13 Civ. 8123 (CM)

United States District Court, S.D. New York.

Signed August 10, 2016

Andrew Emanuel Tauber, Evan M. Tager, Matthew A. Waring, Richard B. Katskee, Thomas Wolf, Mayer Brown LLP, Washington, DC, Richard Pianka, Arlington, VA, for Plaintiffs.

David Philip Holgado, Gibson, Dunn & Crutcher, LLP, Los Angeles, CA, Eva Lenore Dietz, Office of the New York State Attorney General, New York, NY, for Defendants.

DECISION AND ORDER GRANTING PLAINTIFFS' MOTION FOR PARTIAL SUMMARY JUDGMENT AND DENYING DEFENDANTS' CROSS MOTION FOR SUMMARY JUDGMENT

McMahon, Chief Judge.:

The complaint in this case challenges the constitutionality of the New York State Thruway Authority's use of New York Thruway toll revenue to maintain the New York State Canal System, which an anachronistic provision of the New York State Constitution obligates the State to maintain in perpetuity.

Plaintiffs, commercial trucking companies that use the Thruway while engaging in interstate commerce and their national trade association,¹ contend that the Thruway's toll rates violate the so-called Dormant Commerce Clause, because they are inflated to cover the cost of improving and maintaining a canal system that Plaintiffs do not use and that affords them no benefit.

This Court originally granted the Defendants' motion to dismiss the case without prejudice because the State of New York was a necessary party; its joinder would have required the case to be litigated in the New York Court of Claims, rather than in a federal court. (See Dkt. No. 28.) However, the United States Court of Appeals for the Second Circuit overturned that decision, with two members of the panel concluding that the State was not a necessary party, and all three agreeing that the Attorney General, who appears here as counsel for the Thruway Authority, will adequately protect the interests of the State. See Am. Trucking Ass'n, Inc. v. New York State Thruway Auth. , 795 F.3d 351, 360, 362 (2d Cir.2015) ; id. at 362 (Newman, J., concurring). The case was remanded for a decision on the merits. Id. at 360.

Plaintiffs have moved for partial summary judgment on the issue of liability and seek a trial on the issue of damages. Defendants have cross-moved for summary judgment dismissing the complaint.

The motions raise two issues for decision.

The first is whether the claims herein asserted are barred by limitations or by laches.

They are not.

The second is which side is correct on the merits.

The answer is: Plaintiffs. To the extent that toll revenues collected from interstate truckers are used to maintain the Canal System—which has great economic, historic and recreational value for the State of New York and many of its constituent communities, but no transportation or other associated value to Plaintiffs—the incorporation of those expenses into the Thruway's toll rates, and their collection from the Plaintiffs, violates the Dormant Commerce Clause.

BACKGROUND

The extensive history that underlies this lawsuit is recited by the Second Circuit in Judge Jacobs's majority opinion. See Am. Trucking , 795 F.3d at 354–56.

Briefly, the New York State Thruway Authority (the "Thruway Authority") is a public benefit corporation created by the New York State Legislature in 1950. Its stated purpose was to "finance, construct, reconstruct, improve, develop, maintain or operate" something called "the thruway system" (the "Thruway") together with incidental facilities. Pub. Auth. L. § 352, 353.

The Thruway Authority is authorized to charge fees for the use of the Thruway "or any part thereof necessary ... to produce sufficient revenue to meet the expense of maintenance and operation and to fulfill the terms of any agreements made with the holders of its notes or bonds." Pub. Auth. L. § 354(8).

In 1992, the New York Public Authority Law redefined the term "thruway system" to include the State's historic barge canals and their adjacent lands (hereinafter, the "Canal System"). Pub. Auth. L. § 351(12). To facilitate the incorporation of the Canal System into the "thruway system," the New York State Legislature transferred jurisdiction over canal lands and all assets, equipment, and property associated therewith (the historic Erie Canal, which runs between Albany and Buffalo, being the principal such asset) to the Thruway Authority. Canal L. § 6. A brand new New York State Canal Corporation ("Canal Corporation")—which is named as a defendant in this action, along with the Thruway Authority and several of its officers and directors (collectively, "Defendants")—was created as a subsidiary of the Thruway Authority. Pub. Auth. L. § 382(3). Finally, although the Thruway Authority is an autonomous public corporation independent of the State of New York, see Mancuso v. NY State Thruway Authority , 86 F.3d 289, 296 (2d Cir.1996), it was deemed to be the "state for purposes of such management and control [of the Canal System] but for no other purpose," Canal L. § 6(1).

All this was done to remove the expense of maintaining the Canal System and its assets from the backs of New York State taxpayers. They were saddled with this obligation by virtue of a well-intentioned but short-sighted provision of the New York State Constitution, adopted in the 19th century, which provides:

The legislature shall not sell, abandon or otherwise dispose of the now existing or future improved barge canal, the divisions of which are the Erie canal, the Oswego canal, the Champlain canal, and the Cayuga and Seneca canals, or of the terminals constructed as part of the barge canal system; nor shall it sell, abandon or otherwise dispose of any portion of the canal system existing prior to the barge canal improvement which portion forms a part of, or functions as a part of, the present barge canal system; but such canals and terminals shall remain the property of the state and under its management and control forever.

N.Y. Const. art. XI, § 1. As admitted by the Thruway Authority, the 1992 Canal Law amendments "resulted in the State of New York['s] no longer having to provide for the operation and maintenance of the Canal System with money from the state's General Fund." (Defs.' Counterstatement of Material Facts in Opp'n to Pls.' Mot. for Partial Summ. J. (Dkt. No. 49) ("Defs.' Rule 56.1 Counterstatement") at ¶ 20.) The law thus effectively insulated the Canal System and its operations from the whims of the taxpayers or from more pressing demands for public funds.

The canals and adjacent lands are presently used for many purposes, most of them recreational, some of them educational, but very few of them related to transportation.

And therein lies the rub.

MATERIAL AND UNDISPUTED FACTS

The parties spar with each other over numerous issues that are not, in the end, material to the decision on the instant motions. For present purposes, a number of relevant facts are undisputed. I list them here.

1. The Thruway Authority collected the following amounts in toll revenue from motorists between the years 2010 and 2014:²

2010: $641.2 million

2011: $634.1 million

2012: $637.7 million

2013: $637.7 million

2014: $664.1 million.

2. The total operating expenses (excluding depreciation and amortization) for the Thruway Authority for non-canal expenses in those same years was:³

2010: $402.3 million

2011: $414.1 million

2012: $407.7 million

2013: $351.1 million

2014: $358.7 million.

3. By the Thruway Authority's own reckoning (see Defs.' Rule 56.1 Statement ¶ 2, Fig. 1 (hereinafter "Figure 1")) and admission (see Defs.' Rule 56.1 Counterstatement ¶¶ 63-64), the Thruway Authority has spent over $1.1 billion on the Canal System since 1992—$1.06 billion of which came from tolls collected from motorists on the Thruway.

4. In the years 2010-2015, the Thruway Authority contributed the following amounts for operating expense of the Canal System:⁴

2010: between $61.6 million and $66.3 million

2011: between $67.7 million and $81.3 million

2012: between $65.8 million and $74.7 million

2013: between $68.1 million and $70.1 million

2014: between $65.9 million and $92.9 million.

5. Revenues derived from commercial users of the barge canals themselves cover an infinitesimal portion of the cost of running the Canal System. Between 1994 and 2014 actual canal revenues totaled just $41.18 million—less than the cost of running the Canal System in any single year since the Thruway Authority took it over (see Undisputed Fact 4)—and averaged $1.96 million per year. (See Figure 1.) In its most "profitable" year, 2012, revenues from canal users generated no more than $3.94 million. (See Figure 1; Pls.' Counterstatement of Material Facts in Opp'n to Defs.' Cross-Mot. for Summ. J. (Dkt. No. 57) ("Pls.' Rule 56.1 Counterstatement") at ¶ 2.)

6. By contrast, since 1994, per the Authority's figures, total Canal System costs were $1.5 billion. (See Figure 1.)

7. Simple mathematics reveals that revenues from canal users covered, on average, just over one fifth of one percent of Canal System costs. (See Undisputed Facts 5 and 6; see also Figure 1.)

8. There are sources of revenue available to the Thruway Authority other than highway tolls and canal user fees, and at least theoretically some or even all of those funds could be used to fund the Canal System's operating costs.⁵ Total non-toll revenues for the years 2010-2014 were as follows:⁶

2010: $33.1 million

2011: $33.4 million

2012: $35.3 million

2013: $33.9 million

2014: $34.7 million.

(See Defs.' Rule 56.1 Counterstatement ¶¶ 78, 82, 88, 94, 100.)

9. These "other revenue sources," however, do not begin to cover the shortfall between annual revenues from canal user fees and the annual...