Toledo, Peoria & Western Ry. v. Surface Transp., 05-1920.

• Decision Date: 07 September 2006
• Docket Number: No. 05-1920.,05-1920.
• Parties: TOLEDO, PEORIA & WESTERN RAILWAY, Petitioner, v. SURFACE TRANSPORTATION BOARD and United States of America, Respondents, and Keokuk Junction Railway Company, Intervenor-Respondent.
• Court: U.S. Court of Appeals — Seventh Circuit

462 F.3d 734

TOLEDO, PEORIA & WESTERN RAILWAY, Petitioner, v. SURFACE TRANSPORTATION BOARD and United States of America, Respondents, and Keokuk Junction Railway Company, Intervenor-Respondent.

No. 05-1920.

United States Court of Appeals, Seventh Circuit.

Argued January 13, 2006.

Decided September 7, 2006.

J. Timothy Eaton (argued), Shefsky & Froelich, Chicago, IL, for Petitioner.

Raymond A. Atkins (argued), Surface Transportation Board, Office of the General Counsel, John P. Fonte, Robert B. Nicholson, Department of Justice, Washington, DC, for Respondents.

William A. Mullins (argued), Baker & Miller, Washington, DC, for Intervenor.

Before RIPPLE, KANNE and ROVNER, Circuit Judges.

RIPPLE, Circuit Judge.

On April 9, 2003, Keokuk Junction Railway Company ("KJRY") filed with the Surface Transportation Board (the "STB")¹ a "feeder line" application under the Staggers Rail Act of 1980, 49 U.S.C. § 10907.² By this application, KJRY sought a court order mandating the sale of a rail line owned by Toledo, Peoria & Western Railway ("TP&W"). After extensive litigation on the subject, the STB granted this application, having found that KJRY had met the statutory requirements; it set the line's net liquidation value, which is composed of the salvage value of the line's track and other materials plus the value of land owned in fee by TP&W, at $3,940,756. TP&W subsequently filed a petition for reconsideration, which the STB granted in part and denied in part. Specifically, the STB found error in its previous valuation analysis and revised the value of the line upward to $4,165,742.

TP&W subsequently filed a petition in this court seeking review of the order of the STB; it contends that the STB erroneously calculated the constitutional minimum value of the line. According to TP&W, the STB should have valued the track and other materials using current market prices of steel rather than a 14-month average. In addition, TP&W submits that the STB should have considered rebuttal evidence from TP&W, which called into question the validity of the land-title analysis performed by KJRY's experts. Further, according to TP&W, the STB should have compensated TP&W for the value of tax credits for which it would be eligible over the next three years under the American Jobs Creation Act of 2004, 26 U.S.C. § 45G. For the reasons set forth in the following opinion, we deny TP&W's petition for review.

I BACKGROUND

A. Facts

For a number of years, TP&W has operated a 76-mile rail line in West Central Illinois, which runs from its junction with KJRY near La Harpe, Illinois, to its junction with Union Pacific Railroad Company at Hollis, Illinois ("La Harpe-Hollis Line" or "line"). In December 2000, TP&W sold its right to operate this line and the majority of its rail materials to SF & L Railway Inc. ("SF & L") for approximately $2.18 million. The sale was challenged and, finding that SF & L's purpose was to abandon and salvage the line, the STB revoked SF & L's authority to acquire the line and directed that TP&W retake possession. See SF & L Railway, Inc. — Acquisition & Operation Exemption — Toledo, Peoria & W. Railway Corp. Between La Harpe & Peoria, Illinois, STB Finance Docket No. 33996 (Oct. 15, 2002).

Subsequently, on April 9, 2003, KJRY filed a "feeder line" application under 49 U.S.C. § 10907 seeking the forced sale of the line. KJRY claimed in its application that TP&W "clearly and persistently refused to make the necessary efforts to provide adequate service to shippers who transport traffic on the Line," A.R. 207572 at 22, and that KJRY's purchase of the line would improve significantly service on the line, see id. at 26-27. It offered to purchase the line with or without the Mapleton Spur, a 2.5-mile connecting segment of the line at Milepost 123 that runs through an industrial park. The application calculated the constitutional minimum value of the line according to its net liquidation value ("NLV"), which is defined by its net salvage value ("NSV") plus its land value. See 49 U.S.C. § 10907(b)(2). KJRY estimated the NLV of the line to be $3,393,363, a sum comprised of $3,283,504 for TP&W's track and other materials and $109,859 for its real estate. With regard to salvage value, KJRY relied on the description of TP&W's assets prepared by TP&W in a previous effort to sell the western segment of the line, applied current market prices and subtracted the estimated cost of removal. With regard to land valuation, KJRY noted in its application that it lacked information about TP&W's real estate holdings necessary to perform an accurate land valuation. According to KJRY, it had filed discovery requests for copies of TP&W's deeds, valuation maps and real estate records; TP&W refused these requests, contending that the documents were publicly available. In the absence of this information, KJRY estimated the value of TP&W's land at $100,000, premised on the assumption that TP&W held marketable title to 50% of the right-of-way — a total of 864 acres — and that its parent company, RailAmerica, owned in fee the remainder of the land.³

KJRY's April 2003 application was found to be deficient by the STB. See Keokuk Junction Railway Co. — Feeder Line Acquisition — Line of Toledo, Peoria & W. Railway Corp. Between La Harpe & Hollis, Ill., STB Docket 34335, 2003 WL 21043073 (May 9, 2003). In pertinent part, the STB rejected KJRY's claim that the line did not have a going concern value ("GCV"); it found that, because the Mapleton Spur has the ability to continue to earn profit, requiring the sale of this portion of the line to KJRY mandated compensation for income earned from its operation. Id. at *3 (holding that KJRY's offer to accord TP&W trackage rights over the Spur "is neither the equivalent of, nor a reasonable substitute for, an actual GCV estimate").⁴ The STB offered KJRY an opportunity to perform a GCV estimate and file it with the STB along with supporting data. Accordingly, KJRY amended its application on June 9, 2003; it calculated the GCV of the line, assuming exclusive service over the Spur by KJRY, to be $3,461,434. To arrive at this sum, KJRY used TP&W's operating data from 1998 — the most recent data available to KJRY — which showed that TP&W earned appropriately $1,412,830 in shipments moving to and from the Mapleton Spur. KJRY subtracted from this number estimated operating expenses of $1,059,623, yielding an annual income from the Spur of $353,208. This in turn produced a GCV of $3,461,434. See A.R. 208011.

Alternatively, KJRY proposed the following: "KJRY will purchase all of the Line, except the Mapleton Spur, and then allow TP&W to retain sole access at the Mapleton Spur. . . . KJRY will grant TP&W access over the Line between Hollis and the Mapleton Spur at no trackage rights charge[.]" Id. at 20. Under this scenario, according to KJRY, TP&W would be entitled to the NLV of the line not including the Spur, which it calculated as $3,284,605 (the Spur is the only portion of the line with a GCV).⁵

TP&W filed its response to KJRY's application on October 16, 2003. In pertinent part, TP&W challenged KJRY's calculations of the line's constitutional minimum value. TP&W urged the STB to treat the eastern and western portions of the line as "two easily severable properties," "apply[ing] the NLV to the Western End and the GCV to the Eastern End, which includes the Mapleton Spur." A.R. 209135 at 39. Under this approach, according to TP&W, the line should be valued at $6,854,797. In the alternative, assuming that it would be compensated only for its liquid assets — track, materials and real estate — TP&W submitted that KJRY erred in calculating the salvage value of the track and materials because it relied upon "five-year old track charts." Id. at 41. TP&W's expert, Mark Garvin, instead based his analysis on recent records of TP&W's assets, dividing the materials into three categories: relay steel; reroll steel; and scrap. Id., Ex.E. He then compared the quantities of each with current market prices and subtracted removal costs. He calculated the western portion of the line's NSV to be $4,410,920. According to TP&W, KJRY also erred in valuing TP&W's real estate. TP&W presented the real estate analysis of Todd Cecil, its Vice President of Real Estate, who estimated that TP&W owned 672 acres of land. Id., Ex.F. Cecil valued this land as an "assembled corridor," assuming that the property would be purchased for use as a rail line: He divided the land into parcels for the purpose of comparing them to the price of sale for similarly-sized properties in the area, and then added an "[e]nhancement [f]actor" to reflect the value of the land as a "ready-made, assembled corridor" to the purchaser. Id. at 113. In all, Cecil estimated that TP&W's real estate was worth $7,009,497. This produced an NLV of $9,218,759.

KJRY filed a reply to TP&W's response on November 7, 2003, in which it withdrew its offer to purchase the Mapleton Spur. See A.R. 209359 at 5 ("KJRY remains willing to purchase just the line, from Hollis to La[]Harpe, without the Mapleton Spur, and to grant TP&W access from Hollis . . . to the point of connection with the Mapleton Spur without a trackage rights charge so that TP&W could continue to serve the shippers on the Mapleton Spur."). With its reply, KJRY also included the real estate analysis of Brian D. Mooty.⁶ Mooty analyzed approximately 200 deeds to determine the "type of ownership interest conveyed based on the language contained in each of the deeds." See id., Ex.10 at 1. He concluded, on the basis of this language, that TP&W owned 31.657 acres in fee⁷ and that the remainder of the deeds did not convey to TP&W marketable title but rather only an easement over the land. See also id., Ex.10 at 3 (noting, for example, that some of the deeds contained the qualifying language, "occupied and used by the Railway," and that TP&W's interest in this type of land ceases when the "easement ownership interest ceases" ...