CMC Real Estate Corp. v. Iowa Dept. of Transp., Rail and Water Div., 90-802

• Decision Date: 18 September 1991
• Docket Number: No. 90-802,90-802
• Citation: 475 N.W.2d 166
• Parties: CMC REAL ESTATE CORPORATION, Appellant, v. IOWA DEPARTMENT OF TRANSPORTATION, RAIL AND WATER DIVISION; and Iowa Department of Inspections and Appeals, Appeals and Fair Hearings Division, Appellees, Dickens Cooperative Elevator Company, Intervenor-Appellee.
• Court: Iowa Supreme Court

Page 166

475 N.W.2d 166

CMC REAL ESTATE CORPORATION, Appellant, v. IOWA DEPARTMENT OF TRANSPORTATION, RAIL AND WATER DIVISION; and Iowa Department of Inspections and Appeals, Appeals and Fair Hearings Division, Appellees, Dickens Cooperative Elevator Company, Intervenor-Appellee.

No. 90-802.

Supreme Court of Iowa.

Sept. 18, 1991.

Bennett A. Webster and James L. Pray of Gamble, Riepe, Webster, Davis & Green, Des Moines, for appellant.

Bonnie J. Campbell, Atty. Gen., Merrell M. Peters, Acting Gen. Counsel, and David Ferree and Mark Hunacek, Asst. Attys. Gen., for appellees.

Harold W. White of the Fitzgibbons Brothers Law Office, Estherville, for intervenor-appellee.

Considered by McGIVERIN, C.J., and LARSON, CARTER, SNELL and ANDREASEN, JJ.

McGIVERIN, Chief Justice.

Petitioner CMC Real Estate Corporation (CMC), a successor in interest to the Chicago, Milwaukee, St. Paul and Pacific Railroad Company (Milwaukee Railroad), filed this judicial review action challenging the respondent Iowa Department of Transportation's (DOT) fixing of lease terms on property owned by CMC and occupied by intervenor Dickens Cooperative Elevator Company (Coop). The district court reviewed the DOT's decision and upheld the terms of the lease agreement ordered by the DOT. We agree and affirm.

I. Background facts and proceedings. Coop has, since 1938, leased land located in Dickens, Iowa, from the Milwaukee Railroad or CMC, its successor in interest. Coop built grain storage facilities, including several permanent structures, on the leased land, which is located adjacent to the railroad tracks. Coop uses its convenient access to railway transportation to receive farming supplies, including fertilizer, and to transport corn and soybeans from the grain storage facility to purchasers.

In 1976, the Milwaukee Railroad and Coop entered into a five-year lease of the property located in Dickens at an annual rental rate of $1,300. In 1981, after the Milwaukee Railroad had entered into bankruptcy, the trustee of the Milwaukee Railroad agreed to a five-year extension of the lease with Coop at an annual rental rate of $1,450. On November 25, 1985, CMC became the successor in interest to the Milwaukee Railroad.

The 1981 extension of the 1976 lease expired in 1986. CMC sought to re-lease the property to Coop for 3 years at an annual rate of $11,200. Coop, dissatisfied with CMC's proposed lease rate, filed an application with the DOT pursuant to Iowa Code section 327G.62 (1985), seeking an order fixing just and equitable lease terms on the property leased to it by CMC.

DOT transferred the matter to the department of inspections and appeals for a contested case administrative hearing before a hearing officer. See Iowa Code § 327G.62 (1987); 761 Iowa Admin.Code 13.20. After conducting an evidentiary hearing, the hearing officer ordered the parties to execute a five-year extension to the parties' current lease with three modifications. Those modifications were an adjustment of the annual rental rate to $4,993.65, a yearly adjustment of the rent as reflected by the consumer price index, and elimination of all unilateral termination provisions. Both parties to the lease appealed to the DOT. See Iowa Code § 10A.202(1)(d); Iowa Code § 17A.15(5).

The DOT, after reviewing the administrative file and the transcript of the administrative hearing, affirmed all terms of the hearing officer's decision, except that it reduced the annual rent to $3,121.

CMC then filed a petition for judicial review in district court. See Iowa Code § 17A.19. The district court affirmed the DOT's final order.

CMC appealed. See Iowa Code § 17A.20. We now consider CMC's challenges attacking the constitutionality of section 327G.62 and the propriety of the DOT's decision fixing the lease terms.

II. CMC's "taking" argument. CMC contends that section 327G.62 violates both United States and Iowa constitutional requirements that private property shall not be taken for public use without just compensation. U.S. Const. amend. V; Iowa Const. art. I, § 18. Relying on Loretto v. Teleprompter Manhattan CATV Corp., 458 U.S. 419, 102 S.Ct. 3164, 73 L.Ed.2d 868 (1982), CMC also argues that the DOT's actions constituted a taking because the DOT's fixing of the lease terms took away CMC's property rights in the land leased to Coop, including its right to possess, use and dispose of its property. See id. at 435, 102 S.Ct. at 3176, 73 L.Ed.2d at 882. CMC asserts that Coop's occupation of its property is factually similar to the situation found in Loretto and, thus, we should hold that a taking occurred.

In fixing the lease terms between CMC and Coop, the DOT relied on section 327G.62, which provides:

When a disagreement arises between a railroad corporation, its grantee, or its successor in interest, and the owner, lessee, or licensee of a building or other improvement, including trackage, used for receiving, storing, transporting, or manufacturing an article of commerce transported or to be transported, situated on a present or former railroad right-of-way or any land owned or controlled by the railroad corporation, its grantee, or its successor in interest, as to the terms and conditions on which the article is to be continued or removed, the railway corporation, its grantee, or its successor in interest, or the owner, lessee, or licensee may make written application to the department and the department shall notify the department of inspections and appeals which shall hear and determine the controversy and make an order as is just and equitable between the parties, which order shall be enforced in the same manner as other orders of the department.

For purposes of this appeal we will assume, without deciding, that the DOT's actions in fixing the lease terms in accordance with section 327G.62 constituted a taking. ¹ We make this assumption because even if a taking did occur, that taking was for a public use and just compensation was paid. Thus, no constitutional error occurred. See Easter Lakes Estates, Inc. v. Polk County, 444 N.W.2d 72, 75 (Iowa 1989) ("takings" doctrine is premised on the notion that private property cannot be taken for public use without paying adequate compensation).

A. The public use issue. CMC contends that section 327G.62 does not satisfy the constitutional requirement that a person's property may not be taken for the benefit of another without a justifying public purpose even though compensation is paid. See Hawaii Hous. Auth. v. Midkiff, 467 U.S. 229, 239, 104 S.Ct. 2321, 2328, 81 L.Ed.2d 186, 196 (1984).

It is initially for the legislature to determine whether private property is being taken for a public use. Simpson v. Low-Rent Hous. Agency of Mount Ayr, 224 N.W.2d 624, 627 (Iowa 1974); see also Hawaii Hous. Auth., 467 U.S. at 239, 104 S.Ct. at 2329, 81 L.Ed.2d at 196. Courts should not substitute their judgment for the legislature's judgment as to what constitutes a public use unless the use is palpably without reasonable foundation. Id. at 241, 104 S.Ct. at 2329, 81 L.Ed.2d at 197. The Iowa legislature enacted section 327G.62 to promote the valid public purpose of protecting businesses located on property owned by railroads, or their successors in interest, from the unequal bargaining position that results when such companies, which invest in permanent physical structures on that land and rely on access to the railroad in operation of their businesses, are forced to submit to later unjust lease terms demanded by railroads or their successors in interest. See generally In re Chicago, Rock Island & Pac. R.R., 794 F.2d 1182 (7th Cir.1986); In re Chicago, Rock Island & Pac. R.R., 772 F.2d 299 (7th Cir.1985), cert. denied, 475 U.S. 1047, 106 S.Ct. 1265, 89 L.Ed.2d 574 (1986); In re Chicago, Rock Island & Pac. R.R., 753 F.2d 56 (7th Cir.1985). Protection of these businesses, the legislature feels, furthers the public interest of maintaining a healthy Iowa economy. Accord In re Chicago, Rock Island & Pac. R.R. 772 F.2d at 302 ("The propriety of State regulation of grain elevators as a business 'affected with a public interest' has been settled law ever since Munn v. Illinois, 4 Otto 113, 125-32, 94 U.S. 113, 125-32, 24 L.Ed. 77 (1876)."). We cannot say that this public purpose is without foundation. Therefore, we must conclude that if any taking occurred in this case, pursuant to section 327G.62, that taking was for a public use.

CMC argues that Missouri Pacific Railway v. Nebraska, 164 U.S. 403, 17 S.Ct. 130, 41 L.Ed. 489 (1896), compels a contrary conclusion. However, we believe it is distinguishable.

In Missouri Pacific, the state board of transportation ordered a railroad company to grant an association of farmers the right to erect and maintain a grain elevator on the land of the railroad company. The Court held that the state's action constituted a taking of private property for private use in violation of due process. Id. at 417, 17 S.Ct. at 135, 41 L.Ed. at 495. The Court's determination that the property was not taken for public use rested on the fact that the state lacked a justifying public purpose. See Hawaii Hous. Auth., 467 U.S. at 241, 104 S.Ct. at 2329, 81 L.Ed.2d at 197. The present case is distinguishable because we have identified a public purpose justifying the state's alleged taking: the protection of businesses already located on property owned by railroads, or their successors in interest, from potentially unequal bargaining positions.

Finally, we note that the case before us is distinguishable from Ferguson v. Illinois Central Railroad, 202 Iowa 508, 210 N.W. 604 (1926). Ferguson held, under the predecessor to section 327G.62, that the board of railroad commissioners could not constitutionally order a railroad company to furnish a private party with a site on its property, and to fix the rental for such site, in order to enable the party to erect on such site a private coal shed from which to sell coal for gain. As in Missouri...