BNSF Ry. Co. v. Town of Cicero
| Citation | 592 F.Supp.3d 716 |
| Decision Date | 21 March 2022 |
| Docket Number | Case No. 21-cv-3072 |
| Parties | BNSF RAILWAY COMPANY, Plaintiff, v. TOWN OF CICERO, ILLINOIS, Defendant. |
| Court | U.S. District Court — Northern District of Illinois |
Benjamin Joseph Horwich, Pro Hac Vice, Rebecca Leigh Sciarrino, Pro Hac Vice, Teresa A. Reed Dippo, Pro Hac Vice, Munger, Tolles & Olson LLP, San Francisco, CA, Holly Hannah Campbell, Renato T. Mariotti, Thompson Coburn LLP, Chicago, IL, Sara Lynne Chamberlain, Thompson Coburn LLP, St. Louis, MO, for Plaintiff.
Cynthia Sara Grandfield, K. Austin Zimmer, Michael Aaron Albert, Del Galdo Law Group, LLC, Berwyn, IL, for Defendant.
Plaintiff BNSF Railway Company operates a major railyard in the Chicagoland area, one of its largest facilities in the entire country. It sits in the Town of Cicero. The facility is so big that it take up almost 10% of the entire town. BNSF has laid down stakes in Cicero, and it depends on the Town for water and sewer. That dependence means that BNSF, an out-of-state railroad, is a fat target.
The Town of Cicero recently passed an ordinance that increased BNSF's sewer bill from $6,643 to $90,300 per month. That's an increase of over 1,000%. Added up, BNSF's sewer bill to the Town of Cicero would be over $1,000,000 each year.
The Town of Cicero didn't increase the bill because BNSF started using more water and sewage services. And it didn't increase the rates for other types of users, either. Instead, the Town Board passed a new Sewer Rate Ordinance that would increase the rates for railroads, and only railroads.
Cicero charges a flat rate for residential service, and charges commercial and industrial customers – like Citgo, ExxonMobil, and Walmart – based on how much water they use. But for railroads, Cicero charges by the acre. And in the ordinance in question, Cicero changed the rate from $27.42 to $350 per acre. That's a big difference for a big railyard.
When a bill for $90,300 unceremoniously arrived, BNSF reached out to the Town of Cicero, assuming that it was a mistake. But Cicero demanded full payment. And then it tightened the screws. Cicero told BNSF that if it didn't pay, the Town would shut off BNSF's water and sewer, dig up and remove pipes, and force the property to be vacated as a health hazard.
That increase put BNSF in a tight spot. A railyard isn't so easy to move. It's not easy to go someplace else. After months of trying, BNSF couldn't get Cicero to change course. So it filed suit.
BNSF advanced three claims, seeking a declaratory judgment and injunctive relief. BNSF claims that the ordinance (1) regulates railroad transportation and thus is preempted by the Interstate Commerce Commission Termination Act, (2) imposes a discriminatory tax in violation of the Railroad Revitalization and Regulatory Reform Act of 1976, and (3) violates the dormant Commerce Clause.
The Town of Cicero moved to dismiss for failure to state a claim. For the reasons stated below, Defendant's motion is denied.
At the motion to dismiss stage, the Court must accept as true the well-pleaded allegations of the complaint. See Lett v. City of Chicago , 946 F.3d 398, 399 (7th Cir. 2020). The Court "offer[s] no opinion on the ultimate merits because further development of the record may cast the facts in a light different from the complaint." Savory v. Cannon , 947 F.3d 409, 412 (7th Cir. 2020).
BNSF Railway Company operates one of the largest freight railroad networks in North America. See Cplt., at ¶¶ 14, 16 (Dckt. No. 1). It ships goods on trains. As a result, it owns and operates railyards and railroad rights-of-way across America.
One of BNSF's railyards is in the Town of Cicero. Id. at ¶¶ 14, 17. The Cicero railyard is an intermodal rail and maintenance yard. Id. at ¶ 17. Intermodal shipping moves goods in containers from point A to point B using multiple forms of transportation. Id. For example, in intermodal shipping, a freight container might arrive in the Pacific Northwest on a ship, before getting loaded onto a truck. Id. at ¶¶ 17, 18. The truck takes the container to a railyard, where it is transferred to a train. Id. That train then moves the container to a rail hub (like the one in Cicero). Id. Eventually, the goods reach their destination after another leg of travel via rail or truck. Id.
The Cicero railyard is a major transportation hub, linking the Midwest to the Pacific Northwest. Id. at ¶ 18. It often serves as the final destination for foreign imports. Id. And passenger railroad services like Amtrak and Metra pass through BNSF's Cicero railyard daily. Id.
BNSF employs hundreds of people in the surrounding area. Id. at ¶ 19. A big business has big needs, including water and sewer. BNSF's Cicero railyard is connected to the Town of Cicero's utilities, including Cicero's combined storm/sanitary sewer system. Id. at ¶¶ 20, 23.
This case is about that sewer system, and specifically the rate that Cicero charges railroads like BNSF for sewer use.
Cicero's Sewer Rate Ordinance establishes different sewer rates for different types of property. Id. at ¶ 21. Specifically, the ordinance categorizes property as (1) residential; (2) commercial and industrial; (3) railroad yards and rights-of-way; or (4) commercial and industrial outside Cicero's border. It charges each type of property a different rate. Id. ; see also Cicero, Illinois, Code of Ordinances ch. 98 § 98-266 (Dckt. No. 1-1).
In December 2020, Cicero's Board of Trustees adopted Ordinance No. 72-20, amending the Sewer Rate Ordinance's section on railroads. See Cplt., at ¶ 24 (No. 1). Ordinance No. 72-20 stated that the ordinance's purpose is to "increase rates for railroad yards and rights-of-way to ensure the proper operation and maintenance of combined waterworks and sewage system." Id. at ¶ 25.
The new ordinance increased the monthly sewer rates charged to railroads, from $27.42 per acre to $350 per acre. Id. at ¶¶ 24, 26. As a result, BNSF's monthly sewer bill soared from $6,643.04 to $90,300. Id. at ¶ 26.
All the while, sewer rates for residential properties and for commercial and industrial properties remained the same. Id. Residential properties must pay a bimonthly sewer rate of $26.59, while local commercial and industrial properties must pay based on actual water consumption. Id. at ¶ 27.
The Board adopted the ordinance at a meeting that lasted only 15 minutes. Id. at ¶ 41. Cicero didn't tell BNSF (or any other railroad) that it planned to amend the sewer rates. Id. at ¶ 30. The Board meeting's agenda provided the only notice of the change, stating that "a vote would be taken on ‘An Ordinance Amending Chapter 98, Section 98-266 Of The Code of Ordinances Of the Town Of Cicero, Illinois, Regarding Sewer Rates For The Town of Cicero, County of Cook, State of Illinois.’ " Id. at ¶ 31.
BNSF first learned about the rate increase when it received its February 2021 sewer bill totaling $90,300. That one bill exceeded BNSF's sewer charges for the entire previous year. Id. at ¶ 33. At first, BNSF thought the bill was a mistake. Id.
Eventually, BNSF found out about the new ordinance and reached out to Cicero President Larry Dominick to express concern about the Sewer Rate Ordinance. Id. at ¶ 34. BNSF thought that the ordinance "was arbitrary and capricious, discriminatory, lacked an adequate basis in law, and was contrary to federal and state law." Id.
Cicero gave BNSF the back of its hand (if not a clenched one). Cicero refused to acknowledge BNSF's concerns and instead demanded full payment, including any late penalties. Id. at ¶ 35. On March 16, 2021, Cicero's attorney wrote BNSF saying: Id.
BNSF, through counsel, continued to reach out to Cicero. During multiple telephone conferences between BNSF's counsel, Cicero's counsel, and other Cicero officials, BNSF sought information and justification for the sewer rate increase. Id. at ¶ 36. But Cicero wouldn't provide any information. Id.
With bills piling up, including an $18,060 late penalty per month, BNSF looked for ways to avoid penalties while still investigating and disputing the rate increase. Id. at ¶ 37. It asked Cicero if the town had a refund process in place. Id. BNSF wanted to pay its bill, including the higher rate and late penalties, but also leave open the opportunity to recover excess payments if court challenges resulted in a determination that BNSF overpaid. Id.
Cicero didn't identify a refund process. Id. at ¶ 38. Instead, on May 19, 2021, Cicero sent BNSF a 60-day notice of termination. Id. The notice demanded immediate payment of $395,450.88 and stated that if the bill wasn't paid BNSF's sewer service "WILL BE SHUT OFF, DISCONTINUED, AND DISCONNECTED (SIXTY) 60 DAYS FROM MAY 20, 2021." Id. The notice went on to state that "IF THE TOTAL BILL IS NOT PAID AND THE SEWER IS DISCONTINUED AND DISCONNECTED, THE PROPERTY WILL BECOME A HEALTH DEPARTMENT PROBLEM" and "WILL HAVE TO BE VACATED." Id.
Ripping up the railyard would have cataclysmic effects on BNSF, and on interstate shipping in America more generally. BNSF needs water and sewer services to operate the railyard. Id. at ¶ 39. Without water and sewer, BNSF would have to shut down the entire facility. Id. And that shutdown, in turn, would render a "major transportation hub inoperable" and thus "significantly disrupt rail and intermodal service, severely impact interstate commerce, and harm BNSF, its customers, and its employees." Id.
So the Town of Cicero gave BNSF a choice, but it wasn't much of a choice. BNSF needed to pay more than $1 million each year...
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