Kansas City Southern Railroad Company et al v. Borrowman et al
Filing
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OPINION (See Written Opinion): The Sny Island Levee Drainage District's 2009, 2010, and 2011 assessments are hereby ENJOINED. The District is free to craft a non-discriminatory assessment pursuant to the Seventh Circuit's instructions, uti lizing the same assessment formula for Plaintiff railroad carriers as for the comparison class of taxpayers, and justifying any disparate treatment.FURTHERMORE, the Clerk of the Court is directed to remit to Plaintiff Kansas City Southern Railway Com pany and Plaintiff Norfolk Southern Railway Company the money paid by those entities to this Court in case no. 10-3127, as follows: 1. $171,088.26, plus any interest earned (less ten percent (10%) of interest earned owing to the Court), pay able to Kansas City Southern Railway Company;2. $187,834.68, plus any interest earned (less ten percent (10%) of interest earned owing to the Court), payable to Norfolk Southern Railway Company. The checks shall be made payable to the respective railroads and shall bemailed to: Paul M. Brown, Thompson Coburn, LLP, One US Bank Plaza, St. Louis, MO 63101. Entered by Judge Sue E. Myerscough on 6/29/2012 (VM, ilcd) Modified on 6/29/2012 to correct a typographical error. (VM, ilcd).
E-FILED
Friday, 29 June, 2012 04:27:45 PM
Clerk, U.S. District Court, ILCD
IN THE UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF ILLINOIS
SPRINGFIELD DIVISION
KANSAS CITY SOUTHERN
RAILWAY COMPANY and
NORFOLK SOUTHERN
RAILWAY COMPANY
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Plaintiffs,
v.
RUSSELL E. KOELLER,
et al.,
Defendants.
No. 09-3094
No. 10-3127
OPINION
SUE E. MYERSCOUGH, U.S. District Judge:
This matter is before the Court on the Defendants’ Motion to Consolidate
and for Entry of Judgment (“Motion”). See d/e 25. On June 21, 2012, this Court
held a hearing on the Motion. See Minute Entry of June 21, 2012. At the hearing,
with the agreement of the parties, this Court consolidated cases 09-3094 and 103127 pursuant to Federal Rule of Civil Procedure 42(a). For the reasons discussed
below, the Motion is GRANTED.
I. BACKGROUND
Plaintiffs Kansas City Southern Railway Company and Norfolk Southern
Railway Company own property in the Sny Island Levee Drainage District
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(“District”). The District functions pursuant to the Illinois Drainage Code. See 70
ILCS 605/1-1 et seq. The District operates a surface water control system, the
maintenance and upkeep of which is funded through assessments levied on
properties within the District. Historically, the District levied assessments on all
properties on a per-acre basis but, beginning in 2009, the District began assessing
railroads, pipelines, and utilities (“RPU”) based on the estimated benefits RPU
properties received from the surface water control system. With the exception of
six commercial and industrial properties that were not assessed, all other properties
continued to be assessed on a per-acre basis, plus an additional $10-per-acre fee.
The RPU “benefits-based” assessment scheme resulted in massive fee increases for
Plaintiff railroad carriers.
In response to the increased 2009 assessments, Plaintiffs brought suit
against Defendants (case no. 09-3094) in this Court alleging the assessments were
discriminatory under the anti-tax discrimination provisions of the Railroad
Revitalization and Regulatory Reform Act (“4-R Act”). See 49 U.S.C. § 11501.
Plaintiffs deposited the disputed 2009 assessment payments in the Registry of the
Court.
Plaintiffs filed an identical cause of action (case no. 10-3127) in response to
the 2010 “benefits-based” assessments levied by the District against Plaintiffs.
Plaintiffs deposited the 2010 and 2011 assessments in the Registry of the Court.
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U.S. District Judge Jeanne E. Scott ruled in favor of the District in case no.
09-3094. See Kansas City S. Ry. v. Borrowman, No. 09-3094, 2010 U.S. Dist.
LEXIS 44701, at *15 (C.D. Ill. May 6, 2010). Specifically, Judge Scott held that
Plaintiffs had failed to establish that “the ratio of the assessed value to true market
value of rail transportation exceed[ed] by at least 5 percent the ratio of assessed
value to true market value of other commercial and industrial property in the same
assessment jurisdiction.” See Kansas City S. Ry., 2010 U.S. Dist. LEXIS 44701,
at *11–12, 15 (quoting 49 U.S.C. § 11501(c)). Plaintiffs had not submitted any
“evidence relating to the true market value of lands within the District.” Kansas
City S. Ry., 2010 U.S. Dist. LEXIS 44701, at *14. Because Plaintiffs had failed to
meet their burden of demonstrating discriminatory impact, they had failed to prove
a violation of the 4-R Act. See id. at *13. Judge Scott declined to enjoin the
assessment as discriminatory. See id. at *15.
Plaintiffs appealed, and the parties filed a Joint Motion to Stay the
Proceedings in case no. 10-3127 until final judgment has been rendered in case no.
09-3094. See d/e 20. This Court granted the Motion. See Text Order June 30,
2010.
The Seventh Circuit subsequently reversed Judge Scott’s judgment in case
no. 09-3094, holding that 49 U.S.C. § 11501(c) need not be satisfied for the award
of injunctive relief pursuant to § 11501(b)(4). Kansas City S. Ry. v. Koeller, 653
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F.3d 496, 512 (7th Cir. 2011). That is, Plaintiffs need not establish that “the ratio
of the assessed value to true market of rail transportation exceed[s] by at least 5
percent the ratio of assessed value to true market value of other commercial and
industrial property in the same assessment jurisdiction” to receive injunctive relief
under § 11501(b)(4). Id. at 512 (quoting 49 U.S.C. § 11501(c)). The Seventh
Circuit then found the 2009 assessments discriminatory and remanded to this Court
with instructions to enjoin the 2009 assessments. See Kansas City S. Ry., 653 F.3d
at 512–13.
The parties filed a Joint Status Report, Consent to Release of Funds, and
Joint Motion for Stay of Proceedings with this Court, noting the parties had agreed
to mediation and requesting the Court remit to Plaintiffs the 2009 assessments held
in the Registry of the Court. See d/e 106. This Court granted the Motion,
remitting the 2009 assessments to Plaintiffs. See d/e 108. The parties attempted
mediation without success.
On October 17, 2011, Defendants filed the Motion to Consolidate and for
Entry of Judgment. See d/e 25.
II. ANALYSIS
In an opinion reversing Judge Scott’s judgment in case no. 09-3094, the
Seventh Circuit Court of Appeals concluded that the District’s 2009 assessment
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discriminated against Plaintiff railroad carriers in violation of 49 U.S.C. §
11501(b)(4). See Kansas City S. Ry., 653 F.3d at 511.
The Seventh Circuit compared the District’s assessments made against
Plaintiff railroad carriers to those the District made against pipelines, utilities, and
commercial and industrial properties within the District. Id. at 509. Those
properties, then, constituted “the class of taxpayers with whom the railroads are to
be compared” in determining discrimination. Id. at 508 (quoting Union Pac. R.R.
v. Minn. Dep't of Rev., 507 F.3d 693, 695 (8th Cir. 2007)).
The Seventh Circuit held the 2009 assessments were discriminatory
because, without reason or justification, they “impose[d] a proportionately heavier
tax” on Plaintiff railroad carriers than on the comparison class of taxpayers.
Kansas City S. Ry., 653 F.3d at 510 (quoting Burlington N. R.R. v. City of
Superior, 932 F.2d 1185, 1187 (7th Cir. 1991)). That is, the District “did not tax
all industrial and commercial property equally.” Kansas City S. Ry., 653 F.3d at
511. Specifically, the process used to assess the railroad carriers was
“questionable at best,” id., and “resulted in a greater assumed benefit (and thus
corresponding cost) for the railroads” than for the comparison class of taxpayers.
Id. at 511–12 (noting the “decreased maintenance costs” and “increased physical
efficiency” valuations were calculated differently for the railroads than for other
properties).
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The Seventh Circuit further stated that the discrepancies in assessments
between comparable properties “support[ed] the inference that the District had an
‘intent to discriminate’” against Plaintiff railroad carriers. Id. at 511 (quoting
Kansas City S. Ry., 2010 U.S. Dist. LEXIS 44701, at *14). “Intent matters in
determining whether a justification for disparate treatment is sufficient or is
nothing but a pretext.” Kansas City S. Ry., 653 F.3d at 511. The Seventh Circuit
concluded that the unjustified discrepancy in formulating assessments for
comparable properties, then, constituted discrimination in violation of 49 U.S.C. §
11501(b)(4). Id. at 511–12.
The Seventh Circuit remanded to this Court with directions to “enjoin the
2009 assessment, while at the same time leaving the District free to go back to the
drawing board and craft an assessment that is non-discriminatory . . . .” Id. at 513.
The Seventh Circuit noted that “[i]f . . . the Drainage Code requires [the District] to
assess all property on a ‘benefit basis’ then [the] entire scheme should reflect that”
for all properties. See id. at 512. The Seventh Circuit further noted that Plaintiffs,
on appeal, argued that the court should “enjoin the District from collecting an
assessment in excess of the $10-per-acre increase plus the 2008 assessment.” Id. at
513. The Seventh Circuit stated that such an injunction “is a step too far.” Id.
Defendants’ Motion to Consolidate and for Entry of Judgment requests that
Defendants be permitted “to return to Pike County Circuit Court for further
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proceedings in accordance with the decision of the Seventh Circuit Court of
Appeals.” Defs.’ Mot. 4. Defendants assert that this is now a matter for state
courts, as this Court may not levy or assess state taxes. See id. Plaintiffs’
Response argues the only options available to the District in reassessing the 2009,
2010, and 2011 assessments, however, are (1) fully exempting Plaintiffs from the
assessment or (2) requiring Plaintiffs to pay the 2008 fee plus $10 per acre, as
these were the two methods applied to non-RPU commercial and industrial
taxpayers. See d/e 26. Plaintiffs assert that this Court has authority to order the
District to levy the assessments as such. See id. Moreover, Plaintiffs argue that
the District is not permitted, according to the Illinois Drainage Code, to reopen past
assessments levied on properties not owned by Plaintiffs. See id.
Yet the Seventh Circuit did not issue specific instructions concerning how
past discriminatory assessments should be remedied. Indeed, it is uncertain, based
on the Seventh Circuit’s opinion, whether this Court may direct the District to
reopen past assessments levied on properties not owned by Plaintiffs and, if so,
how the District should proceed in reassessing those properties. Moreover, this
Court is constrained from so ordering by the Illinois Drainage Code’s decree that
“[n]o appeal shall affect the validity of any order or judgment as to any tract of
land or other property not directly involved in such appeal.” 70 ILCS 605/12-16.
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How this Court should remedy the discriminatory assessments made against
Plaintiffs is unclear. While the Seventh Circuit rejected an injunction mandating
the $10-per-acre increase plus the 2008 assessment, the Seventh Circuit did not
specify the content of the injunction. See Kansas City S. Ry., 653 F.3d at 512–13.
Although the Seventh Circuit did not provide for a specific remedy, this
Court notes that the Illinois Drainage Code allows for retrospective modifications
of defective assessments. Specifically, the Drainage Code permits reassessment of
assessments that have “been annulled,” “held not legally made,” or held “invalid.”
70 ILCS 605/5-22. The Drainage Code also permits assessments of lands that, “by
reason of omission, mistake, irregularity or improper or insufficient notice or for
any other reason not affecting the merits of the assessment, . . . [have] been omitted
from an assessment role[.]” Id. The District commissioners may therefore
“petition the [Pike County Court] praying that the defects be cured and that an
assessment be levied against such lands.” Id. In so doing, the District
commissioners may remedy the discriminatory assessments levied against
Plaintiffs. Indeed, assessing Plaintiffs at the 2008 level plus $10 per acre may in
fact remedy the discrimination, but again the Seventh Circuit has noted that such
an injunction from this Court would be “a step too far.” See Kansas City S.
Ry,653 F.3d at 513.
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Moreover, this Court is mindful of the “need to protect each sovereign's
governmental operations from undue interference by the other.” Davis v. Mich.
Dep’t. of Treasury, 489 U.S. 803, 814 (1989). Imposing strict directions on the
District in levying assessments draws perilously close to the imposition of state
taxes by a federal body. See id. at 818 (noting that the “direct imposition of a state
tax” is “a remedy beyond the power of a federal court”). Without further guidance
from the Seventh Circuit, this Court cannot violate principles of intergovernmental
tax immunity.
This Court must follow the Seventh Circuit’s direction. The Seventh Circuit
has resolved the federal question in this case, finding the disputed assessments
discriminatory in violation of 49 U.S.C. § 11501(b)(4). Determining an
appropriate remedy is now best-suited for resolution in state courts. See Moses
Lake Homes, Inc. v. Grant Cnty., 365 U.S. 744, 752 (1961) (noting that federal
courts may not levy or assess state taxes). That is, Illinois courts are in the “best
position" to interpret the Illinois Drainage Code, as state courts have “special
expertise” in analyzing state law. See Davis, 489 U.S. at 818. This Court must
therefore follow the Seventh Circuit’s mandate, enjoining the discriminatory
assessments and “leaving the District free to go back to the drawing board and
craft an assessment that is non-discriminatory, as [the Seventh Circuit has]
explained that concept.” Id.
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III. CONCLUSION
THEREFORE, the Sny Island Levee Drainage District’s 2009, 2010, and
2011 assessments are hereby ENJOINED. The District is free to craft a nondiscriminatory assessment pursuant to the Seventh Circuit’s instructions, utilizing
the same assessment formula for Plaintiff railroad carriers as for the comparison
class of taxpayers, and justifying any disparate treatment.
FURTHERMORE, the Clerk of the Court is directed to remit to Plaintiff
Kansas City Southern Railway Company and Plaintiff Norfolk Southern Railway
Company the money paid by those entities to this Court in case no. 10-3127, as
follows:
1. $171,088.26, plus any interest earned (less ten percent (10%) of interest
earned owing to the Court), payable to Kansas City Southern Railway
Company;
2. $187,834.68, plus any interest earned (less ten percent (10%) of interest
earned owing to the Court), payable to Norfolk Southern Railway Company.
The checks shall be made payable to the respective railroads and shall be
mailed to: Paul M. Brown, Thompson Coburn, LLP, One US Bank Plaza, St.
Louis, MO 63101.
IT IS SO ORDERED.
ENTERED: June 29, 2012
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FOR THE COURT:
s/Sue E. Myerscough
SUE E. MYERSCOUGH
UNITED STATES DISTRICT JUDGE
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