Indian River Cnty. v. Rogoff

• Decision Date: 16 August 2016
• Docket Number: Case No. 1:15-cv-00632 (CRC),Case No. 1:15-cv-00460 (CRC)
• Citation: 201 F.Supp.3d 1
• Parties: INDIAN RIVER COUNTY, et al., Plaintiffs, v. Peter M. ROGOFF, et al., Defendants. Martin County, Florida, et al., Plaintiffs, v. Department of Transportation, et al., Defendants.
• Court: U.S. District Court — District of Columbia

201 F.Supp.3d 1

INDIAN RIVER COUNTY, et al., Plaintiffs,
v.
Peter M. ROGOFF, et al., Defendants.

Martin County, Florida, et al., Plaintiffs,
v.
Department of Transportation, et al., Defendants.

Case No. 1:15-cv-00460 (CRC)
Case No. 1:15-cv-00632 (CRC)

United States District Court, District of Columbia.

Signed August 16, 2016

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Philip E. Karmel, Bryan Cave, LLP, New York, NY, Daniel C. Schwartz, Bryan Cave, LLP, Washington, DC, for Plaintiffs.

Luther L. Hajek, U.S. Department of Justice, Denver, CO, Alison D. Garner, U.S. Deparment of Justice, Washington, DC, for Defendants.

MEMORANDUM OPINION

CHRISTOPHER R. COOPER, United States District Judge

Fourteen months ago, the Court denied preliminary-injunction motions filed by two Florida counties, Indian River and Martin,

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which sought to invalidate the U.S. Department of Transportation's ("DOT's") authorization of $1.75 billion in tax-free bonds to be issued to finance a private passenger-rail project known as All Aboard Florida. The Court found that the counties had not met their burden of demonstrating standing because they had failed to show that enjoining DOT's authorization would significantly increase the likelihood of halting construction on Phase II of the project, the portion that runs through their borders. In other words, Plaintiffs did not demonstrate that an injunction would redress their claimed injury. The Court then granted the counties' request to conduct jurisdictional discovery against the project's owner and operator, AAF Holdings, LLC ("AAF"), a second-level subsidiary of the private-equity and asset-management firm Fortress Investments Group. This discovery was designed to provide Plaintiffs an opportunity to uncover evidence to support their assertion that, without the ability to issue $1.75 billion in tax-free private activity bonds ("PABs"), AAF would be significantly less likely to proceed with the project.

After the close of jurisdictional discovery, DOT (the named defendant in these cases) and AAF (which intervened as a defendant) both moved to dismiss, again arguing that Plaintiffs lack standing because AAF will complete the project with or without PABs. A lengthy hearing followed comprehensive briefing by both counties, DOT, and AAF. Having reviewed Plaintiffs' several-thousand-page evidentiary submission, including an expert declaration, as well as declarations from AAF officers, the Court concludes that the counties have now met their burden of demonstrating standing. The call is a close one, to be sure. But based on the present record, the Court finds that invalidating DOT's decision to authorize $1.75 billion in PABs would significantly increase the likelihood that AAF would not complete Phase II of the project. The Court will therefore deny Defendants' motions to dismiss on that ground.

On the merits, both counties allege violations of the National Environmental Policy Act ("NEPA"), the National Historic Preservation Act ("NHPA"), the Department of Transportation Act ("DTA"), and Martin County additionally alleges a violation of Section 142 of the Internal Revenue Code, as amended by the Safe Accountable Flexible Efficient Transportation Equity Act ("SAFETEA"). Because Plaintiffs have alleged facts showing that the AAF project qualifies as major federal action, the Court will deny Defendants' motions to dismiss Plaintiffs' NEPA, NHPA, and DTA claims. But because Martin County's asserted interests do not arguably fall within the zone of interests to be protected or regulated by Section 142 of the Internal Revenue Code, the Court will grant Defendants' motions to dismiss with respect to that claim.

I. Background

The history of the All Aboard Florida project and this litigation are discussed at length in the Court's prior opinion on the counties' preliminary injunction motion. See Indian River Cnty. v. Rogoff , 110 F.Supp.3d 59, 63–66 (D.D.C.2015). What follows is a brief overview of the most relevant facts that bear on Defendants' present motions to dismiss.

AAF, whose parent company is owned by investment funds managed by the Fortress Investments Group. aims to renew passenger service along the existing corridor of the Florida East Coast Railway ("FECR") by constructing and operating an express railway between Orlando and Miami. Although the project will be privately owned and operated. AAF has sought public assistance to finance its construction.

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Among other sources of financing. AAF requested that DOT exempt from federal taxes. subject to certain conditions. $1.75 billion in private activity bonds to be issued by a Florida development agency. AAF would be solely responsible for marketing and repaying the bonds. Indian River and Martin Counties. which are located on the Atlantic coast of Florida. south of Orlando and north of Palm Beach. contend that construction and operation of the railway will cause a variety of environmental harms to them and their residents.¹

The project is divided into two phases. In Phase I. AAF intends to provide rail service linking West Palm Beach. Fort Lauderdale. and Miami. Phase I has received private funding and is in development; in fact. it is nearly complete. AAF and the Federal Railroad Administration ("FRA"), an agency of the Department of Transportation, studied the environmental effects of Phase I and issued a Finding of No Significant Impact. In Phase II of the project, AAF seeks to expand the line north from West Palm Beach to Cocoa and then inland to Orlando.

The project requires a significant capital expenditure. AAF currently estimates the cost of both phases at over $2.9 billion, excluding $600 million worth of land and easements that it has already acquired. Thus far, AAF and its parent company, Florida East Coast Industries ("FECI"), have spent over $612 million on development and construction and expect to commit to spending an additional $200 million. See AAF's Mot. Dismiss IRC 6.

To fund Phase II of the project, AAF applied for a $1.6 billion loan through the Railroad Rehabilitation and Improvement Financing program ("RRIF"). RRIF is both a loan and loan-guarantee program administered by the FRA for the development and improvement of railroad tracks, equipment, and facilities. See 49 C.F.R. § 260.5. RRIF loans are subject to NEPA review of the proposed project's environmental effects. See id. § 260.35. FRA has been acting as the lead agency in preparing an Environmental Impact Statement ("EIS") and Record of Decision to determine the environmental effects of Phase II prior to making a final determination as to AAF's loan application. FRA, in cooperation with the U.S. Army Corps of Engineers, U.S. Coast Guard, and Federal Aviation Administration, issued a draft EIS in September 2014 and a final EIS ("FEIS") in August 2015. The FEIS analyzed a wide range of potential environmental and other consequences of the project and "identifie[d] and evaluate[d] measures that would avoid, minimize, or mitigate impacts that would result from the Project." FEIS 7-1. FRA has not issued a Record of Decision, nor has it made a determination as to AAF's loan application under the RRIF program.

While the RRIF application process was ongoing, AAF requested that DOT exempt from federal taxes $1.75 billion in PABs to finance the remainder of the project. Reininger Decl. Ex. F, Letter from Michael Reininger to Paul Baumer, Office of Infrastructure Finance and Innovation, DOT (Aug. 15, 2014) ("PAB Request"). PABs are bonds issued by state or local government

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agencies to finance projects of public utility. Under Section 11143 of Title XI of the Safe, Accountable, Flexible, Efficient Transportation Equity Act ("SAFETEA"), Pub L. 109-59 (2005), DOT may designate up to $15 billion in PABs as tax-exempt in order to encourage private development of certain types of transportation projects by giving project owners access to lower-interest debt than might otherwise be available. Reininger Decl. Ex. G. The PABs at issue here would be issued by the Florida Development Finance Corporation ("FDFC"), a Florida development agency, and then sold to investors by AAF, which would be solely responsible for the repayment obligation. Reininger Decl. ¶ 46.

AAF's application letter to DOT described the PAB financing as "the linchpin for completing our project" and "a crucial factor in ensuring our project is financed and completed." PAB Request 1. The letter explained that AAF would use the bond proceeds "across the length of [the] passenger rail system, including the Miami-to-West Palm Beach segment." Id. The letter concluded, "[W]e are fully committed to deploying the time, energy and resources necessary to complete this project. ... The private activity bonds ... will enable us to bring a safe, efficient, cost-effective and environmentally friendly transportation alternative to South and Central Florida." Id. at 2.

DOT provisionally authorized the requested $1.75 billion PAB allocation in December 2014. Reininger Decl. Ex. H, Letter from Peter M. Rogoff, Under Secretary of Transportation, to Michael Reininger (Dec. 22, 2014). The authorization came...