Dakota, Minn. & Eastern R.R. Corp. v. Rounds

• Decision Date: 28 March 2006
• Docket Number: No. CIV 02-4083.,CIV 02-4083.
• Parties: DAKOTA, MINNESOTA & EASTERN RAILROAD CORP., Plaintiff, v. Michael ROUNDS, in his official capacity as Governor of the State of South Dakota; and the Transportation Commission of the South Dakota Department of Transportation, an executive agency of the State of South Dakota, Defendants.
• Court: U.S. District Court — District of South Dakota

422 F.Supp.2d 1073

DAKOTA, MINNESOTA & EASTERN RAILROAD CORP., Plaintiff, v. Michael ROUNDS, in his official capacity as Governor of the State of South Dakota; and the Transportation Commission of the South Dakota Department of Transportation, an executive agency of the State of South Dakota, Defendants.

No. CIV 02-4083.

United States District Court, D. South Dakota, Southern Division.

March 28, 2006.

Brian J. Donahoe, Michael D. Bornitz, Kimberly R. Wassink, Meredith A. Moore, Cutler & Donahoe, Sioux Falls, SD, for Plaintiff.

Brent A. Wilbur, Neil K. Fulton, May, Adam, Gerdes & Thompson, Pierre, SD, for Defendant.

MEMORANDUM OPINION AND ORDER

PIERSOL, District Judge.

After this Court issued enjoined the State of South Dakota from enforcing S.D.C.L. §§ 49-16A-75.3(1),(2),(4) & (5) and enjoined the State of South Dakota from enforcing S.D. Admin. R. 70:08:01:03 and 70:08:01:04, Plaintiff and Defendants both appealed to the Eighth Circuit Court of Appeals. The Eighth Circuit vacated the injunction with regard to S.D.C.L. § 49-16A-75.3(5) because of uncertainty as to this Court's subject matter jurisdiction, modified the injunction to restrain only the Governor of the State of South Dakota, and otherwise affirmed this Court's order. 362 F.3d 512 (8th Cir.2004).

The Eighth Circuit expressed doubt that the Takings Clause claim involving S.D.C.L. § 49-16A-75.3(5) was ripe for adjudication. Given the complexity of the ripeness issue and the fact that the issue had not been addressed by the parties on appeal, the Eighth Circuit remanded this aspect of the case to this Court for whatever further proceedings this Court should deem appropriate. 362 F.3d at 521. This Court ordered briefing on the issues of ripeness and this Court's subject matter jurisdiction as it pertains to the Takings Clause claim involving S.D.C.L. § 49-16A-75.3(5). This Court further directed the parties to submit any materials they may deem relevant in support of their positions on the ripeness issue, and to advise the Court as to their positions regarding the need for an evidentiary hearing. The parties requested and received a continuation of the briefing schedule to allow them to have the issues involved in the remand resolved by legislative action in the 2005 Legislative Session of the South Dakota Legislature. After being unable to resolve the issues by legislative action in the 2005 Legislative Session the final briefs on the ripeness and Takings Clause issues were submitted. Neither of the parties submitted additional materials or requested an evidentiary hearing.

The parties recently submitted a Joint Notice as to Amendment of S.D.C.L. § 49-16A-75.3(5). Doc. 122. Attached to this notice is a copy of Senate Bill 157, which was passed by both houses in the 2006 South Dakota Legislative Session and signed into law by Governor Rounds on March 7, 2006. Senate Bill 157 amends S.D.C.L. § 49-16A-75.3(5) to provide that electric utilities, public utilities, gas utilities, municipal utilities, municipal power agencies, joint action agencies, consumers power districts, pipeline companies, telecommunication companies, and rural water systems have the right to "cross over or under the railroad right-of-way for the placement of facilities, upon payment of a reasonable fee, subject to reasonable regulation and negotiation in good faith as to location, placement, and compensation, when the placement of facilities is outside the public right-of way." The parties acknowledge that in the absence of a referendum or challenge in the court system, and upon taking effect on July 1, 2006, the amendment of S.D.C.L. § 49-16A-75.3(5) will render the case at hand moot.

S.D.C.L. § 49-16A-75.3(5) currently provides that a "railroad's exercise of the right of eminent domain is a public use consistent with public necessity only if' the exercise of that right "[p]rovides that electric utilities, public utilities, telecommunication companies, and rural water systems have the right to the use of the right-of-way for the placement of underground facilities, without fee, subject to reasonable regulation as to location and placement." The Eighth Circuit explained as follows its concern that S.D.C.L. § 49-16A-75.3(5) may not mandate a taking of railroad property:

First, we are not certain that the statute mandates a taking of railroad property. Subsection (5) provides that other entities must "have the right to the use of the right-of-way ... without fee." No doubt that entails the grant of easements of some value, but who will grant the easements and who will pay for them? If the railroad exercising eminent domain need not pay the landowner for the value of the future easements because the railroad is acquiring something less than a fee simple absolute property interest, then the withheld easements are never "taken" from the railroad. Someone else—the State, the selling landowner, or the easement beneficiaries—will pay some value for them. Second, if the railroad exercising eminent domain must pay the landowner full value for the property, and then grant free easements to the entities named in subsection (5), the end result appears to be a permanent physical taking of a property interest. But the district court did not address whether the railroad would have a right to recover just compensation under the South Dakota eminent domain laws.

362 F.3d at 520-521.

In response to the above concern, DM & E correctly contends that the railroads in exercising their right of eminent domain will be required to pay fair market value without any discount for the potential future easements granted to any electric utilities, public utilities, telecommunication companies, and rural water systems. This contention is based upon case law establishing that a landowner whose property is taken for public use, or damaged, is entitled to compensation to be determined at the time of the taking, the damaging or the substantial interference with the landowner's rights. See City of Brookings v. Mills, 412 N.W.2d 497, 499 (S.D.1987). Fair market value is the proper measure of compensation where land is taken permanently, and fair market value does not mean speculative or remote value. See State Highway Comm'n v. American Memorial Parks, Inc., 82 S.D. 231, 245, 144 N.W.2d 25, 32 (1966). The Railroad further argues that there can be no discount for the potential future easements in the absence of new contrary state law allowing railroads to pay less than full value for property taken and that this new law, if it existed, would have to set market value for future easement potential in advance, and require the market value for future easement potential to be deducted from compensation paid by the railroads to the landowners. Defendants do not dispute the established measure of just compensation set forth in the cases cited to by DM & E, and Defendants do not contend there is any low or mechanism in place in South Dakota that allows railroad to pay less than full value for property taken and that sets market value for future easement potential in advance of establishing just compensation. The Railroad will pay full value for the property at the time of taking. Even if one of the entities enjoying the free use of an easement does not permanently use the easement, but at some time abandons that use, that is still a taking without compensation from the railroad. See SDDS, Inc. v. State, 650 N.W.2d 1 (S.D.2002)(damages awarded for temporary taking); Mills, 412 N.W.2d at 501 (loss of use constitutes de facto taking).

The Eighth Circuit, in remanding this case on the issue of ripeness, requested consideration of and analysis of the holding in Williamson County Reg'l Planning Comm'n v. Hamilton Bank, 473 U.S. 172, 105 S.Ct. 3108, 87 L.Ed.2d 126 (1985), and its progeny. 362 F.3d at 520-521. In Williamson County Reg'l Planning Comm'n v. Hamilton Bank, the United States Supreme Court developed a two-part test which requires that a taking claim will not be considered ripe for judicial review unless a claimant (1) has requested from the applicable agency a final decision regarding the application of the challenged regulations to the property, and (2) the claimant has similarly sought monetary compensation through the procedures provided by the state. 473 U.S. at 186 and 195, 105 S.Ct. 3108. If a claim is unripe, federal courts lack subject matter jurisdiction and the claim must be dismissed. However, the Supreme Court in Williamson conditioned the state procedures requirement upon both the availability and adequacy of the state's process. The Court explained, "If a state provides an adequate procedure for seeking just compensation, the property owner cannot claim a violation of the Just Compensation Clause [in the federal courts] until it has used the procedure and been denied just compensation." 473 U.S. at 195, 105 S.Ct. 3108. See also McKenzie v. City of White Hall, 112 F.3d 313 (8th Cir.1997).

In Suitum v. Tahoe Reg'l Planning Agency, 520 U.S. 725, 117 S.Ct. 1659, 137 L.Ed.2d 980 (1997), the Supreme Court again considered whether a claim was ripe for adjudication in the context of a landowner's action for compensation under 42 U.S.C. § 1983. The landowner alleged that a regional planning agency committed an unconstitutional regulatory taking when it determined that a residential lot was ineligible for development. In Suitum, the Supreme Court discussed as follows Williamson County's ripeness requirements in the context of local zoning decisions:

Leaving aside the question of how definitive a local zoning decision must be to satisfy Williamson County's demand for finality, two points about the requirement are clear: it applies to decisions about how a takings plaintiff's own land may be used, and it responds to the high degree of discretion characteristically possessed by land-use boards in softening the strictures of the general regulations they administer. As the Court said in MacDonald [Sommer &...