by Gary Taylor
United States Court of Appeals for the Federal Circuit, September 28, 2022
This case originated in the United States Court of Federal Claims (Why? Read this) when Jeffrey Memmer and eleven other Indiana landowners (landowners) brought suit seeking compensation for an alleged taking arising from the application of the National Trails System Act (NTSA) to the abandonment of railway easements by Indiana Southwestern Railway Company. Landowners claimed they held reversionary interests in the property which were “taken” under the NTSA. It’s complicated. Bear with me.
The Surface Transportation Board (STB) has authority to regulate the construction, operation, and abandonment of most rail lines in the United States. A rail carrier must either file an application with, or seek exemption from, the STB if it intends to abandon or discontinue a rail line. At the same time, the NTSA allows a rail carrier to instead negotiate an agreement with a locality or a private trail sponsor to convert the railroad’s right-of-way into a recreational trail. If a rail carrier agrees to negotiate an agreement with a trail sponsor, the STB will issue a Notice of Interim Trail Use or Abandonment (NITU). The NITU provides for a negotiation period during which the railroad can discontinue service on the rail line and salvage track and materials. If no agreement is reached with a locality or trail sponsor during the negotiation period the railroad may file a notice of consummation of abandonment with the STB, thus abandoning the line. If an agreement is reached, however, trail use of the right-of-way is authorized and abandonment by the railroad is blocked indefinitely, subject to restoration of the right-of-way for railway purposes. Because it is possible to again put the right-of-way to use as a railway, the NTSA process is known as “railbanking.”
Another possibility is that after an application for abandonment is filed with the STB another party may make an Offer of Financial Assistance (OFA) to subsidize the operation of the rail line to keep it open. This could be a local government, for example, or an entity such as a grain elevator that makes consistent use of the line. If an OFA is proffered those negotiations take precedence over any proposed or ongoing negotiations with a trail sponsor.
It is possible that the railbanking process and conversion of property to use as a recreational trail can result in a takings claim. It depends on state property law of the state in which the line is situated. A taking occurs when state law reversionary property interests that would otherwise vest in the adjacent landowners are blocked from so vesting by the NTSA. In other words, state property law in some states is interpreted to automatically revert the right-of-way to adjacent landowners, while in other states no such reversionary right exists.
In the present case, Indiana Southwestern submitted a notice of exemption from abandonment proceedings on October 25, 2010, stating that it would consummate abandonment of its rail lines on or after January 15, 2011. In response, the STB published a notice on November 12, 2010 stating that the deadline for railbanking requests was ten days later, on November 22, 2010, and that absent third party intervention, Indiana Southwestern could abandon the lines on December 14, 2010. The notice indicated that Indiana Southwestern was given until November 12, 2011, to file a notice of consummation of abandonment, if it chose to do so. A few days after the STB’s notice was published, the Indiana Trails Fund (Fund) submitted a request for the Board to issue a NITU for the rail corridor to permit negotiations with Indiana Southwestern about railbanking. The STB also received notice from the Town of Poseyville, Indiana of its intent to file an OFA, which took precedence over the Fund’s request. After several months of negotiations with the Town, the Town’s offer fell through. An NITU was then issued that became effective May 23, 2011, and the Fund and Indiana Southwestern proceeded to negotiate. Ultimately they failed to execute a trail-use agreement, even after four extensions of the NITU. The final NITU deadline lapsed on November 8, 2013; however, Indiana Southwestern chose not to consummate the abandonment of the rail line at that time. In the meantime while the NITU was pending, Indiana Southwestern executed a contract with A&K Materials (A&K) to purchase and remove the rails on the rail line except those in rail crossings and move the ties from the center of the rail line. A&K completed its work by early February of 2012.
Indiana Southwestern did eventually submit a new notice of exemption to start the process over in 2021. No potential trail sponsors came forward, and no NITU issued, so Indiana Southwestern consummated the abandonment of the line on August 31, 2021. As a result, the landowners’ fee simple interests became unencumbered by any railway easements on that date.
While all this was going on, litigation ensued (which presumably why you are still reading this post). The landowners claimed that a permanent categorical taking occurred with the issuance of the first NITU, because the evidence was that Indiana Southwestern would have abandoned the line absent the NSTA-mandated NITU; that evidence being that no rail traffic had moved over the line for at least two years and that they hired A&K to remove the rails regardless of the outcome of negotiations. The federal government countered by arguing that there was no government action resulting in a change to the landowners property interests “when a railroad requests abandonment authority (from the STB) and then chooses not to exercise that authority.”
The Federal Circuit Court of Appeals disagreed with the government that a physical taking cannot occur when a NITU ends without either a trail-use agreement or the consummation of the railroad’s abandonment:
The NITU in this case, as in similar cases, was a government action that compelled continuation of an easement for a time; it did so intentionally and with specific identification of the land at issue; and it did so solely for the purpose of seeking to arrange, without the landowner’s consent, to continue the easement for still longer, indeed indefinitely, by an actual trail conversion….Thus, once initiated, a NITU can effect a “mandated continuation” of an easement by the STB that provides a right of occupation by someone other than the landowner.Memmer v. US, slip opinion p. 15
The Court then addressed the duration of the physical taking. The Landowners argued that the temporary taking lasted from May 23, 2011 (the issuance of the first NITU) until August 31, 2021 (when the rail line was finally abandoned) because the requirements for abandonment under Indiana law were satisfied when the railroad removed the rails, yet their reversionary rights were still blocked until the railroad consummated the abandonment. The government argued that the taking ended upon expiration of the NITU (and its extensions) on November 8, 2013 because it was on that date that the United States was no longer responsible for mandating the continuation of the easement.
The Court agreed with the government’s position because, from November 8, 2013 forward the decision rested solely in the hands of Indiana Southwestern. “A takings claim must be predicated on actions undertaken by the United States….It is always the railroad’s choice that ultimately impacts the duration of the taking….Moreover, acceptance of [landowners’] argument would effectively contradict the STB’s authority to regulate abandonment which Congress granted over one hundred years ago.”
The Court remanded the case to the Court of Federal Claims for a determination of the compensation and interest due to the landowners as a result of the temporary taking of their property from May 23, 2011 to November 8, 2013.