Dakota, Minn. & Eastern R.R. Corp. v. South Dakota
| Decision Date | 06 December 2002 |
| Docket Number | No. CIV. 02-4083.,CIV. 02-4083. |
| Parties | DAKOTA, MINNESOTA & EASTERN RAILROAD CORP., Plaintiff, v. State of SOUTH DAKOTA; William Janklow, 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 |
Brian J. Donahoe, Michael D. Bornitz, Kimberly R. Wassink, Cutler & Donahoe, Sioux Falls, SD, for Plaintiff.
Brent A. Wilbur, Neil K. Fulton, May, Adam, Gerdes & Thompson, Pierre, SD, for Defendant.
This matter came before the Court for trial on August 14, 2002. At the trial, both parties presented evidence and argument regarding the eminent domain issues initially decided by the Court in entering the preliminary injunction. Both parties have now filed post-trial briefs as requested by the Court. The following opinion resolves the claims of the Plaintiff with respect to those issues regarding eminent domain. Still pending before the Court, however, is the Plaintiff's 4-R Act claim in which the Plaintiff alleges that the Defendant violated federal law in discriminating against railroads with respect to tax credits and assessments. The parties are in the process of conducting discovery with regard to the 4-R Act claim, and that claim will be dealt with in a subsequent opinion of the Court.
The Plaintiff, Dakota, Minnesota & Eastern Railroad Corp. (DM & E) filed an action against the State of South Dakota, Governor William Janklow, in his official capacity, and the Transportation Commission of the South Dakota Department of Transportation seeking declaratory and injunctive relief. DM & E's main claims are that the State's modifications of its eminent domain statutes regarding railroads are unconstitutional and preempted by federal law. DM & E moved for a preliminary injunction enjoining the State from enforcing its eminent domain statutes pending the outcome of this litigation. The Court entered a preliminary injunction enjoining enforcement of S.D.C.L. 49-16A-75.3(1),(2), & (4) and denied the preliminary injunction with respect to the remainder of the challenged statutes.
DM & E is a railroad operating in interstate and intrastate commerce as a common carrier. In 1986 a group of investors created DM & E and purchased the Chicago & North Western Railroad Company. At the time of the purchase, the railroad was, and still is, in dire need of repair and improvement. In an effort to raise the revenue necessary to complete the repairs, DM & E decided to expand into new markets. In 1998, DM & E began the process of extending its track into an area of Wyoming known as the "Powder River Basin" in order to access significant markets for low sulfur coal mined in the basin. As part of this new project, referred to as the PRB project, DM & E plans to construct new track in the Powder River Basin as well as improve and reconstruct DM & E's existing lines.
In order to acquire the approval necessary to construct the PRB project, DM & E filed an application with the Surface Transportation Board (STB), a federal agency, seeking authority under 49 U.S.C. § 10901 to construct and operate new rail lines in South Dakota, Wyoming and Minnesota, and to rebuild much of its existing mainline track. The application was filed on February 20, 1998. The STB conducted an extensive review of the proposed project including analysis of the environmental implications of the project, the degree of environmental mitigation required, the financial fitness of the project, the effect of the project on public transportation, and whether bypasses should be constructed around certain areas. After comprehensive review, the STB issued its decision on January 28, 2002 authorizing the PRB project. The STB decision details the mitigation required, finds that DM & E has demonstrated financial fitness to carry the project through to completion and specifically rejects all bypass alternatives posed, primarily on environmental grounds.
Although the STB conducted an extensive review of the project, the Board did not address the issue of eminent domain. In the Final Environmental Impact Statement, the STB stated the following:
Eminent domain proceedings are regulated by state law and not administered by the Board. In rail construction cases before the Board, the Board determines whether the construction is inconsistent with the public convenience and necessity under 49 U.S.C. 10901 but the applicant is responsible for the acquisition of land necessary for execution of the proposed project. The Board has encouraged DM & E to negotiate with affected communities and individuals if the construction is approved to develop private agreements regarding the acquisition and use of land. DM & E has worked with the Landowner Advisory Board to develop a Land Use Mitigation Policy and Plan that addressed project impacts on private lands. In the event that the proposed project is approved and DM & E cannot reach agreements with landowners, eminent domain proceedings may be pursued as an avenue of last resort.
See Supplemental Affidavit of Dana L. Nelson, Doc. 37, Final Environmental Impact Statement, page 33.
In 1999, while DM & E was awaiting approval of the STB, the State of South Dakota enacted changes in its state eminent domain laws with respect to railroads. Prior to 1999, S.D.C.L. 49-16A-75 reads as follows: "A railroad may exercise the right of eminent domain in acquiring right-of-way as provided by statute." This prior law was a clear delegation of the State's eminent domain power to railroads with only the restriction that the railroad comply with the procedures outlined for the exercise of eminent domain contained in S.D.C.L. 21-35. The 1999 amendments significantly changed the law and added three new statutes. South Dakota eminent domain law as it regards railroads is now controlled by S.D.C.L. 49-16A-75 through 49-16A-75.3 which read in total as follows:
Powers — Eminent domain — Authorization by Governor or commission. A railroad may exercise the right of eminent domain in acquiring right-of-way as provided by statute, but only upon obtaining authority from the Governor or if directed by the Governor, or the commission, based upon a determination by the Governor or the commission that the railroad's exercise of the right of eminent domain would be for a public use consistent with public necessity. The Governor or the commission shall consider the requirements of §§ 49-16A-75.1 to 49-16A-75.3, inclusive, when granting or denying an application for authority to use eminent domain. The decision to grant or deny an application shall be made after reasonable notice and opportunity to be heard, pursuant to chapter 1-26.
Any appeal, pursuant to chapter 1-26, taken from a decision of the Governor or the commission shall be handled as an expedited appeal by the courts of this state.
S.D.C.L. 49-16A-75.
Commission to promulgate rules for railroad seeking to exercise eminent domain. The commission shall in accordance with chapter 1-26, promulgate rules:
(1) Establishing a form upon which a railroad may apply for authority to exercise the right of eminent domain (2) Specifying the information to be submitted by an applicant; and
(3) Administering applications for authority to exercise the right of eminent domain.
Railroad carries burden of proof to show public necessity. The applicant has the burden of proving by a preponderance of the evidence that the exercise of the right of eminent domain is a public use consistent with public necessity.
Criteria for eminent domain as a public use consistent with public necessity. A railroad's exercise of the right of eminent domain is a public use consistent with public necessity only if the use of eminent domain:
(1) Has as its purpose providing railroad transportation to shippers in South Dakota for commodities produced, manufactured, mined, grown, used, or consumed in South Dakota;
(2) Is proposed by an applicant with the financial resources necessary to complete the proposed construction or reconstruction along with any related facilities, construction, or mitigation which are necessary to protect against harm to the public safety, convenience, or other adverse socioeconomic or environmental impact, as evidenced by a financing commitment from a lender or an investor or a combination of each with adequate capitalization and resources to fulfill its commitment to build and complete the project;
(3) Is proposed by an applicant who has negotiated in good faith to privately acquire sufficient property without the use of eminent domain;
(4) Is proposed by an applicant who has filed a plat, as required by § 49-16A-64, and that plat sets forth the route of the road to be constructed or reconstructed, identifies each affected landowner, and specifies the location, along with construction methods and engineering specifications for all main lines, sidings, yards, bridges, crossings, safety devices, switches, signals, and maintenance facilities; and
(5) Provides that electric utilities, public utilities, telecommunication companies, and rural water systems have the right to use the right-of-way for the placement of underground facilities, without fee, subject to reasonable regulation as to location and placement.
Kevin Schieffer, the president and chief executor officer of DM & E, testified extensively at the preliminary injunction hearing held in this matter regarding the obstacles that these statutes pose to the PRB project.1 As CEO of DM & E, Schieffer has been involved in several financing...
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