Dakota, Minnesota & E. R.R. v. South Dakota

• Decision Date: 23 March 2004
• Docket Number: No. 03-1179.,No. 03-1046.,03-1046.,03-1179.
• Parties: DAKOTA, MINNESOTA & EASTERN RAILROAD CORPORATION, Plaintiff — Appellee/Cross Appellant, v. State of SOUTH DAKOTA, et al., Defendants — Appellants/Cross Appellees.
• Court: U.S. Court of Appeals — Eighth Circuit

362 F.3d 512

DAKOTA, MINNESOTA & EASTERN RAILROAD CORPORATION, Plaintiff — Appellee/Cross Appellant, v. State of SOUTH DAKOTA, et al., Defendants — Appellants/Cross Appellees.

No. 03-1046.

No. 03-1179.

United States Court of Appeals, Eighth Circuit.

Submitted: October 23, 2003.

Filed: March 23, 2004.

COPYRIGHT MATERIAL OMITTED

Counsel who presented argument on behalf of the appellant was Neil K. Fulton, Pierre, SD. Additional attorney appearing on the brief was Brent A. Wilbur.

Counsel who presented argument on behalf of the appellee was Brian James Donahoe, Sioux Falls, SD. Additional attorney appearing on the brief was Mark E. Salter.

Before LOKEN, Chief Judge, LAY and BOWMAN, Circuit Judges.

LOKEN, Chief Judge.

In 1986, the Dakota, Minnesota, & Eastern Railroad (DM & E) purchased the deteriorated interstate rail system of the Chicago & North Western Railroad. In 1998, seeking new revenues to fund needed repairs, DM & E applied to the federal Surface Transportation Board for authority under 49 U.S.C. § 10901 to construct new rail lines and to rebuild existing track in South Dakota and elsewhere in order to access low sulfur coal mined in the Powder River Basin area of Wyoming. South Dakota then substantially amended its statute delegating the State's eminent domain power to railroads so as to place onerous new restrictions on railroads seeking to exercise that power. 1999 S.D. Laws ch. 222, §§ 4-7 (collectively, "Chapter 222"). DM & E responded by commencing this action against the State, its Governor, and the South Dakota Transportation Commission to enjoin the enforcement of Chapter 222 as contrary to federal law.

After a bench trial, the district court granted permanent injunctive relief, enjoining the State¹ from enforcing four provisions of Chapter 222. The court declined to enjoin enforcement of a fifth provision, concluding that it is severable from the invalid provisions. Dakota, Minn., & E. R.R. v. South Dakota, 236 F.Supp.2d 989 (D.S.D.2002). Both parties appeal. Neither challenges the district court's detailed analysis of the extent to which the five provisions conflict with federal law. Rather, the Governor argues that the court's injunction violates the State's Eleventh Amendment immunity and the Tenth Amendment, while DM & E cross-appeals the district court's severability ruling. Reviewing these issues of law de novo, we vacate one aspect of the injunction because of uncertainty as to the court's subject matter jurisdiction, modify the remainder in accordance with footnote 1, and affirm.

I. Background.

Prior to 1999, the South Dakota eminent domain statutes provided that "[a] railroad may exercise the right of eminent domain in acquiring right-of-way as provided by statute." S.D. CODIFIED LAWS § 49-16A-75 (1993). Chapter 222 amended § 49-16A-75 by adding the proviso, "but only upon obtaining authority from 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." Chapter 222 went on to grant the commission rulemaking power and to place the burden of proving "public use consistent with public necessity" on the applicant railroad. See S.D. CODIFIED LAWS §§ 49-16A-75.1 and -75.2 (2003). Then, in a provision now codified at § 49-16A-75.3, Chapter 222 specified criteria to be used by the Governor and the Commission in determining 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 ... along with any related facilities ... 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 ... 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 the use of the right-of-way for the placement of underground facilities, without fee, subject to reasonable regulation as to location and placement.

Following extensive review, the Surface Transportation Board approved DM & E's application under the applicable federal statutes in January 2002. Regarding eminent domain, the Final Environmental Impact Statement stated:

Eminent domain proceedings are regulated by state law and not administered by the Board. In rail construction cases... 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.... 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.

DM & E then commenced this action to enjoin enforcement of Chapter 222. Though recognizing that federal law leaves the use of eminent domain by railroads to state law, the district court enjoined § 49-16A-75.3(1) as invalid under the dormant Commerce Clause because it intentionally discriminates against interstate commerce. The court also enjoined §§ 49-16A-75.3(2) and (4). Based on findings that DM & E could not obtain financing for the federally-approved Powder River Basin project under these oppressive restrictions, the court concluded that subsections (2) and (4) regulate interstate railroad operations in a manner that is conflict-preempted by the Interstate Commerce Commission Termination Act of 1995, 49 U.S.C. § 10501(b), and is invalid under the dormant Commerce Clause. The court enjoined § 49-16A-75.3(5) as violating the Takings Clause of the Fifth Amendment, made applicable to the States by the Fourteenth Amendment. However, based upon testimony that DM & E always negotiates in good faith with landowners, the court concluded that § 49-16A-75.3(3) does not conflict with federal law. The court rejected DM & E's severability argument and declined to enjoin enforcement of the remaining provisions of Chapter 222.

II. The Eleventh Amendment Issue.

The Governor argues that South Dakota's sovereign immunity reflected in the Eleventh Amendment bars this federal court decree enjoining the Governor from acting in his official capacity. The district court rejected the argument, agreeing with DM & E that injunctive relief may be granted against the Governor under the exception to Eleventh Amendment immunity commonly referred to as the Ex parte Young doctrine. Under Ex parte Young, 209 U.S. 123, 159-60, 28 S.Ct. 441, 52 L.Ed. 714 (1908), the Eleventh Amendment bars damage relief against the States, but it does not prohibit "certain suits seeking declaratory and injunctive relief against state officers." Idaho v. Coeur d'Alene Tribe, 521 U.S. 261, 269, 117 S.Ct. 2028, 138 L.Ed.2d 438 (1997). In Coeur d'Alene Tribe, a divided Supreme Court held that the Ex parte Young doctrine did not authorize injunctive relief against state officials that would "diminish, even extinguish, the State's control over a vast reach of lands and waters long deemed by the State to be an integral part of its territory." 521 U.S. at 282, 117 S.Ct. 2028.

Relying primarily on Coeur d'Alene Tribe, the Governor argues that the Ex parte Young doctrine does not extend to this case because "regulation of eminent domain is as much a core sovereign interest of South Dakota as regulating submerged lands was for Idaho." But the comparison either proves too much or is unsound. On the one hand, the police power, too, is a "core sovereign interest," but Coeur d'Alene Tribe cannot apply to every suit for injunctive relief against a state official's exercise of the police power — that would effectively overrule the Ex parte Young doctrine, despite the Court's express declaration to the contrary in Coeur d'Alene Tribe, 521 U.S. at 269, 117 S.Ct. 2028. On the other hand, if the comparison is based on the fact that eminent domain is the power by which a State acquires ownership of lands, and state-owned lands were at issue in Coeur d'Alene Tribe, the two cases are not comparable. This lawsuit does not involve lands that South Dakota owns, nor does it challenge the State's power to take land by eminent domain. Rather, as the district court explained, DM & E's claim turns on whether the State has used the statute delegating its eminent domain power to regulate and control a federally approved railroad project. 236 F.Supp.2d at 1007. Thus, the injunction DM & E seeks is within the traditional purview of Ex parte Young because it seeks "to bring the State's regulatory scheme into compliance with federal law." Coeur d'Alene Tribe, 521 U.S. at 289, 117 S.Ct. 2028 (O'Connor, J., concurring); see Duke Energy Trading & Mktg., L.L.C. v. Davis, 267 F.3d 1042, 1053-54 (9th Cir.2001), cert. denied, 535 U.S. 1112, 122 S.Ct. 2327, 153 L.Ed.2d 159 (2002).

The lead opinion in Coeur d'Alene Tribe...