Hawkeye Land Company v. Iowa Utilities Board

Citation: Not availableDocket: 13–0146

Court: Supreme Court of Iowa; May 23, 2014; Iowa; State Supreme Court

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Hawkeye Land Company appealed a district court ruling that upheld the Iowa Utilities Board's (IUB) decision permitting ITC Midwest, an independent transmission company, to utilize the "pay-and-go" procedure established under Iowa Code section 476.27, which governs railroad crossings. This statute allows utilities to pay a standard fee of $750 to the owner of the railroad right-of-way for crossing easements, designed to facilitate utility crossings over railroad tracks.

Hawkeye Land, which owns the easement rights but does not operate a railroad, contested the application of the statute to itself and ITC Midwest, arguing that it does not qualify as a "railroad" and that ITC Midwest is not a "public utility" under the statute's definitions. Additionally, Hawkeye Land claimed the $750 fee is insufficient compensation, asserting that the fair value for such crossings should be around $30,000 based on their previous easement transactions. They further alleged that the pay-and-go procedure violates the takings clause of the Iowa Constitution and sought recovery of denied attorney fees, costs, and expenses.

The court determined that while the statute does apply to Hawkeye Land, ITC Midwest is not classified as a public utility eligible for the pay-and-go procedure. Consequently, the Supreme Court of Iowa reversed the district court's judgment and IUB's decision based on statutory grounds, opting not to address the constitutional issues or the other claims raised by Hawkeye Land.

In 2000, the Iowa Senate adopted a resolution to study issues related to railroad rights-of-way crossings by utilities, prompting discussions among representatives from various Iowa utilities and railroad companies. The resolution aimed to address legal and practical challenges faced by utilities in securing crossings and the fees imposed by railroads. Utilities expressed dissatisfaction with the complexity and length of the application process and proposed a streamlined pay-and-go system, allowing them to pay a one-time fee for crossing without awaiting further approvals. Railroads emphasized the need for safety and their right to establish crossing fees.

Hawkeye Land, which owns the rights to grant easements along over two thousand miles of Iowa railroad tracks (acquired during the bankruptcy of the Chicago, Rock Island and Pacific Railroad), became an important participant in these discussions. They highlighted issues related to the expenses incurred in managing easements and argued that their revenue did not offset the associated risks. Both utilities and railroads identified Hawkeye Land as a source of the delays and high fees in the crossing application process.

The Iowa Utility Board (IUB) facilitated meetings among the parties, aiming to develop a master crossing agreement. By October 31, 2000, IUB reported on the positions of the stakeholders, recognizing Hawkeye Land as a third party with a legitimate interest in the property and affirming its willingness to participate in resolving the issues. Further meetings occurred in 2001 to advance this goal.

Meetings among the parties were largely successful, culminating in an agreement on a standardized pay-and-go crossing procedure, though they reached an impasse on insurance, indemnity, and compensation issues, preventing the adoption of a master agreement. The Iowa Utilities Board (IUB) reported in January 2001, and utilities were understood to be pursuing legislation on crossing matters. Subsequently, a bill allowing public utilities to cross railroad rights-of-way was introduced and enacted as S.F. 515, 79th G.A. Reg. Sess. Iowa 2001, creating a framework for the pay-and-go process and empowering IUB to set rules for crossings. Under Iowa Code 476.27, utilities can construct crossings by notifying IUB and paying a $750 fee. Railroads can petition for additional compensation under special circumstances, and parties can appeal IUB's damage determinations to district court, following eminent domain procedures.

ITC Midwest was not involved in the discussions leading to the passage of this legislation, nor were other independent transmission companies, which were authorized by FERC in 1996 but had no operational presence in Iowa at that time. The 1996 FERC action allowed traditional utility companies to unbundle their services. In 2003, Iowa acknowledged independent transmission companies by enacting Iowa Code section 390.8, enabling cities to invest in such companies. IUB recognized ITC Midwest as an independent transmission company in 2007, approving its acquisition of transmission assets from Interstate Power and Light Company (IPL). At that point, ITC Holdings was the only publicly traded entity dedicated solely to transmission in the U.S. Independent transmission companies fall under federal regulation, which resulted in IUB losing jurisdiction over IPL's transmission assets following their sale to ITC Midwest, as FERC would oversee transmission charges to IPL’s retail customers.

IUB recognized it lacked jurisdiction over ITC Midwest under Iowa Code chapter 476, as ITC Midwest is not classified as a public utility. However, it noted that under Iowa Code chapter 478, it retains jurisdiction over electric transmission lines, allowing supervision over their construction and regulation. One dissenting IUB member expressed concern about diminished influence over transmission issues due to the loss of rate regulation authority and noted that IUB is perceived as more accessible than FERC. The ongoing debate about IUB's jurisdiction over independent transmission companies highlights whether ITC Midwest qualifies as a "public utility" under the crossing statute. Twenty-four parties intervened in a 2007 action, primarily other energy companies that objected to ITC Midwest's sale, fearing it would weaken IUB’s ability to protect consumer interests and lead to increased transmission costs. The Municipal Coalition emphasized that IUB would have to implement FERC rates, limiting its ability to contest high returns, which is easier at the state level. Despite acknowledging potential negative impacts on ratepayers, IUB approved the sale, citing substantial benefits, with a belief that ITC Midwest's focused investment strategy would ultimately benefit electricity users.

In the current dispute, ITC Midwest sought to construct three power line crossings intersecting Union Pacific railroad tracks in Franklin County. ITC Midwest followed the necessary procedures, obtaining IUB's permission and Union Pacific's approval, and attempted to compensate Hawkeye Land with statutory payments for easements. However, Hawkeye Land rejected the payments and subsequently filed a complaint with IUB, arguing that IUB lacked jurisdiction over it, as it does not fit the definitions of "railroad" or "railroad corporation" in Iowa Code section 476.27.

Hawkeye Land argued that $750 was insufficient compensation for each of the crossings constructed by ITC Midwest, citing special circumstances and the benefits of an independent operator managing the transmission system. This structure is expected to benefit small producers and renewable energy users. Hawkeye Land presented evidence of other easement sales to support a claim of $30,000 as just compensation per crossing. Multiple parties intervened in the administrative proceedings, including energy cooperatives and municipal utilities.

On October 14, 2010, an Administrative Law Judge (ALJ) issued a proposed decision rejecting Hawkeye Land’s claims, concluding that the crossings were standard and that there was nothing unusual about them. The ALJ described the crossings as consisting of four wires with no poles in the right-of-way and determined that they did not diminish the value of Hawkeye Land's property. Hawkeye Land appealed this decision, contesting the application of the crossing statute, the compensation amount, and the denial of litigation expenses.

The Iowa Utilities Board (IUB) reviewed the case, broadening the scope to include whether ITC Midwest qualifies as a "public utility" under Iowa law. On September 20, 2011, IUB affirmed that ITC Midwest is not a public utility but determined it could utilize the pay-and-go procedure under Iowa Code section 476.27, which applies to companies transporting electricity for public utilities. IUB ruled that Hawkeye Land falls under this statute as a successor in interest to a railroad corporation and confirmed that $750 was just compensation for the crossings without special circumstances. IUB also denied Hawkeye Land’s request for attorney fees and litigation expenses. Hawkeye Land subsequently filed two appeals regarding IUB’s ruling, with the appeal process governed by specific sections of Iowa law.

Iowa Code section 476.27(5)(a) and (b) delineate the framework for appeals related to decisions made by the Iowa Utilities Board (IUB). Specifically, appeals concerning determinations other than damages for public utility rights must follow chapter 17A. Hawkeye Land initially appealed IUB's refusal to award damages exceeding the $750 crossing fees under chapter 6B, which was subsequently stayed by the district court. In a separate action, Hawkeye Land appealed other IUB rulings and contested the constitutionality of the $750 fee as a taking. The district court affirmed IUB’s rulings and dismissed the constitutional claim, prompting Hawkeye Land to appeal further.

The scope of review for the appellate court is defined by chapter 17A, which governs agency ruling reviews. The district court acts in an appellate capacity, and the appellate court reviews whether the district court appropriately applied the law. The burden lies with the party asserting the invalidity of the agency action. A key aspect of the appeal is the deference owed to IUB's interpretation of the crossing statute, which is contingent upon whether the legislature has granted the agency interpretive authority over the statute. If such authority is clear, the agency’s interpretation is upheld unless deemed irrational or unjustifiable. If not, the court reviews potential erroneous interpretations of law.

The resolution of the appeal hinges on the interpretation of specific terms within section 476.27, particularly “public utility” and “railroad corporation.” The inquiry focuses on whether the legislature explicitly vested IUB with the authority to interpret these terms, necessitating a thorough review of the statute’s language, context, purpose, and practical considerations to ascertain legislative intent regarding interpretive power.

The Iowa Utilities Board (IUB) has been determined to possess interpretive authority over certain legislative provisions, specifically section 476.103, where the legislature clearly vested this authority in IUB. However, in contrast, the legislature did not grant IUB interpretive authority over section 476.53(4)(c)(2), despite granting it broad powers under section 476.2(1). The analysis emphasizes the need to focus on specific statutory language and definitions when assessing agency authority. In the case of section 476.27, several factors indicate that IUB lacks interpretive authority over terms related to the crossing statute. First, section 476.27(1) provides statutory definitions for "public utility" and "railroad," which limits IUB's interpretive capacity. Second, the delegation of eminent domain power under section 476.27 has constitutional implications, necessitating strict legislative authorization. Lastly, section 476.27(2) requires IUB to consult the Iowa Department of Transportation (IDOT) when adopting rules, indicating shared decision-making authority rather than exclusive control. Consequently, IUB's interpretations of the crossing statute will be reviewed for correction of errors at law, as it lacks the interpretive authority in this context.

Hawkeye Land presents multiple grounds for appealing the district court and IUB decisions. It contends that the crossing statute is inapplicable to both itself and ITC Midwest. Alternatively, it argues that the pay-and-go procedure outlined in Iowa Code section 476.27 contravenes the takings clause of article I, section 18 of the Iowa Constitution. Additionally, Hawkeye Land claims entitlement to attorney fees, appraisal costs, and direct expenses. The court determines that the crossing statute does not apply to ITC Midwest, thus rendering the constitutional issue unnecessary for resolution.

Iowa Code section 476.27 establishes a pay-and-go procedure enabling public utilities to exercise eminent domain to facilitate electricity crossings over railroad tracks, bypassing traditional eminent domain processes. This statute requires public utilities to notify railroads of intended crossings and pay a standard fee of $750. Railroads can petition the IUB for additional compensation under special circumstances. 

Article I, section 18 of the Iowa Constitution mandates just compensation for property taken for public use, aligning with the Federal Takings Clause. For a party to exercise eminent domain, it must demonstrate legislative authorization, constitutional compliance of the enabling statute, fulfillment of preconditions, and adherence to statutory requirements. Hawkeye Land argues that the crossing statute is unconstitutional because it lacks a jury determination for just compensation and allows the condemner to take property for a nominal payment without securing the property owner's rights, shifting the burden to the owner to seek additional compensation post-taking.

The applicability of the statute hinges on specific definitions within section 476.27. If the case can be resolved on statutory grounds, the court will not address Hawkeye Land's constitutional challenge, adhering to the principle of avoiding unnecessary constitutional questions. Hawkeye Land disputes its classification as a "railroad" or "railroad corporation," and ITC Midwest's classification as a "public utility" under section 476.27.

Jurisdiction over the controversy is determined through statutory interpretation, specifically of section 476.27, with the court aiming to discern legislative intent based on the statute's clear language. Legislative intent is derived from the explicit terms rather than inferred meanings, and both the inclusion and exclusion of terms play a crucial role. Statutes related to eminent domain require strict construction, emphasizing compliance with their expressed intent.

Hawkeye Land contends it is not subject to section 476.27, arguing it neither owns nor operates a railroad, nor is it a successor to a railroad corporation. Section 476.27(1)(f) defines a ‘railroad’ or ‘railroad corporation’ as an entity involved with the ownership or management of a railroad right-of-way, while section 476.27(1)(g) outlines what constitutes a ‘railroad right-of-way.’ Hawkeye Land's property interest does not align with the definition of a ‘former railroad right-of-way,’ as the relevant right-of-way is currently active.

However, the court concludes that Hawkeye Land's ownership of the right to grant easements along the active railroad tracks qualifies as an 'other interest in real estate' under sections 476.27(1)(g)(1) and (g)(2). The court will also consider whether Hawkeye Land qualifies as the 'successor in interest' of a railroad corporation, noting that there is no universally applicable definition of ‘successor’ across legal contexts.

In Howard Johnson Co. v. Detroit Local Joint Exec. Bd., the court addressed the complexity of determining whether a party qualifies as a successor in interest. The court emphasized that a party may be deemed a successor for certain purposes but not others, and that the determination should consider the interests of the parties involved and the underlying policy of the relevant law. Given the challenges implicated in successorship issues, including varying factual scenarios and the absence of clear congressional direction, it is crucial to focus on the specifics of each case.

Hawkeye Land contends that it does not meet the definition of "successor in interest" as articulated in Grundmeyer v. Weyerhaeuser Co., which describes a successor as one who continues to hold the same rights as the original owner without a change in ownership, typically indicating statutory succession. Hawkeye Land argues it possesses different rights than the original railroad owner, the Chicago, Rock Island and Pacific Railroad, asserting that it is a mere transferee of distinct rights created by a bankruptcy trustee, rather than a direct successor.

The court finds that the definition from Grundmeyer does not apply here, as that case dealt with corporate liabilities, while the current statute involves a specific property right related to easements over railroad tracks previously owned by a railroad. Therefore, the rights held by Hawkeye Land stem from the railroad's bankruptcy, whereby the easement rights were transferred through a series of transactions, indicating that Hawkeye Land is not merely a remote transferee but involved in a more nuanced property right transition.

The term “successor in interest” in section 476.27(1)(g) encompasses ownership of the right to cross railroad tracks, not just ownership of a railroad. Hawkeye Land, as the holder of easement rights to grant such crossings—rights previously held by a railroad—qualifies as a successor in interest under this statute, regardless of the fact that it acquired these rights from a bankruptcy-created entity rather than directly from a railroad. The court rejected Hawkeye Land’s arguments that sought to limit the interpretation of the statute, emphasizing that separating easement rights from the underlying property does not exempt them from compliance with section 476.27. The court further argued that allowing indirect transfers would create loopholes, undermining the statute's intent. Legislative history supports the conclusion that the statute was designed to encompass entities like Hawkeye Land, which participated in its development and had an interest in crossing rights. The definition of “railroad right-of-way” is thus satisfied in this case, affirming that Hawkeye Land's easement rights are subject to section 476.27.

Additionally, Hawkeye Land contends that ITC Midwest is not a "public utility" under the same statute, arguing that it has not been authorized by the legislature to exercise eminent domain powers. The statute's definition of “public utility” is pivotal in determining the applicability of the crossing statute.

A "crossing" refers to the construction and maintenance of a facility over, under, or across a railroad right-of-way by a public utility, as defined in Iowa Code section 476.27(1)(b). According to section 476.27(2)(b), a public utility placing its facilities in a railroad right-of-way must pay a one-time fee of $750 for each crossing, effectively allowing it to condemn easement rights for this fee. Section 476.27(7) states that this provision supersedes any conflicting laws regarding crossings involving public utilities. 

The analysis must determine if ITC Midwest qualifies as a public utility under this statute. Section 476.27(1)(e) expands the definition of public utility but does not include independent transmission companies. Section 476.1 defines a public utility as any entity that furnishes gas or electricity to the public for compensation. ITC Midwest does not directly provide electricity to the public but rather delivers it to utilities, acknowledging it does not fit the public utility definition in section 476.1. The Iowa Utilities Board (IUB) previously recognized that ITC Midwest would not be classified as a public utility after its acquisition of electric transmission assets, confirming that it provides transmission service rather than direct electricity to the public. No party claims ITC Midwest is a "person furnishing electricity to five or fewer persons" under section 476.27(1)(e). IUB attempted to address the issue of independent transmission companies with Iowa Administrative Code rule 199—42.11.

The relevant rule allows a public utility to assign rights to cross railroad right-of-way to entities under its control or those merged with it. ITC Midwest is not classified as a public utility because it does not provide electricity to the public and does not fall under the broader definition in section 476.27(1)(e). A principle of statutory construction implies that the explicit listing of entities as public utilities excludes others not mentioned. The legislature's omission of "includes but is not limited to" in section 476.27(1)(e) indicates a deliberate choice to define public utilities in a closed manner. The Iowa Utilities Board (IUB) acknowledged that independent transmission companies were not operating in Iowa when the crossing statute was enacted but allowed for their potential operation by permitting the transfer of crossing rights to financially responsible entities acquiring transmission assets. However, IUB cannot broaden the definition of public utility through rulemaking beyond what the statute allows. This aligns with previous court rulings emphasizing that agencies cannot expand or limit statutory authority through rules. Concerns over the broadening definition of "utility" were acknowledged by Hawkeye in 2001, prompting the legislature's specific listing of public utility entities. The selective use of phrases in legislative definitions emphasizes intentionality in limiting the scope of public utilities to those expressly listed.

The exclusion of independent transmission companies from section 476.27(1)(e) indicates that the legislature did not intend for such entities to utilize the procedures outlined in that section. The Consumer Advocate contends that ITC Midwest qualifies as a public utility under section 476.1, particularly focusing on the term "furnish," which is defined as providing necessary services for compensation. The Consumer Advocate argues that the legislature's choice of the broad term "furnish" instead of more specific verbs implies inclusivity of various utility functions. However, the critical phrase is "to the public," as ITC Midwest supplies electricity to other utilities rather than directly to the public. Accepting ITC Midwest's position would require interpreting the definition to allow for indirect provision of services, which is not supported by the clear language of the statute. Relevant case law reinforces that "to the public" necessitates a direct transaction. The Consumer Advocate's interpretation conflicts with precedent, particularly the Northern Natural Gas definition, which limits "to the public" to entities that directly provide services. Additionally, the Consumer Advocate's reference to Comes v. Microsoft Corp. is inapplicable since that case involved a broader interpretation of a remedial statute, whereas section 476.27, which involves eminent domain, must be strictly construed. Consequently, the language of section 476.1(1) remains more restrictive, not allowing for indirect claims.

Section 476.1(1) identifies a business as a public utility based on its direct relationship with the public, with no allowance for indirect relationships. ITC Midwest acknowledges it does not meet the definition of a public utility under this section, yet claims a broader classification under section 476.27. The Iowa Utilities Board (IUB), ITC Midwest, and intervenors argue that the context of the case requires an expansive reading of the public utility definition due to the crossing statute's purpose. They reference section 476.27(7), described as a “catch-all” provision, which asserts that it governs railroad crossings involving public utilities, even amidst conflicting laws.

ITC Midwest contends that the crossings in Franklin County qualify under section 476.27 because it transmits electricity for public utilities. The Consumer Advocate argues that despite the legal separation from IPL, the transmission system continues to serve the public utility functions of the integrated system. However, the court disagrees with the expansion of section 476.27 to include non-public utility entities. It maintains that the unambiguous statutory definitions should not be judicially modified and that specific statutes take precedence over general ones in the event of conflict.

Section 476.27(2)(b) permits only public utilities to utilize the pay-and-go procedure for crossing railroad tracks, while section 476.27(1)(e) defines public utility as entities that furnish electricity to the public, excluding independent transmission companies. The court refuses to interpret section 476.27(7) as creating internal conflicts and ultimately disagrees with claims that the policy behind the statute necessitates inclusion of independent transmission companies, asserting that ITC Midwest must adhere to the outlined procedures to promote public convenience and necessity.

ITC Midwest plays a crucial role in the electricity supply chain by providing transmission services that connect electricity generation to distribution for public utilities. The Iowa Utilities Board (IUB) found that ITC Midwest primarily carries electricity for public utilities and contended that prohibiting ITC Midwest from utilizing section 476.27 procedures would hinder electricity delivery. IUB, ITC Midwest, and intervenors argue that the exclusion of independent transmission companies from the definition of public utility in section 476.27(1)(e) was a legislative oversight due to their non-existence in Iowa at the law's enactment, despite prior federal authorization for such companies. IUB suggests that the legislature intended to include independent transmission lines within the statute's provisions.

However, the court declines to interpret the statute to include independent transmission companies, emphasizing that legislative intent must be derived from the language used rather than speculative intentions. The court notes that the omission may not be an oversight, as the legislature had opportunities to amend the definition in subsequent years but did not do so. It highlights the distinction between state and federal regulation of independent transmission companies and concludes that the legislature is within its rights to differentiate between public utilities and independent transmission entities. The court prioritizes the statute's clear language over policy arguments presented by the appellees.

A public utility is permitted to cross railroad tracks using a pay-and-go procedure, but this authority does not extend to other entities. Statutory language that is clear and unambiguous does not require further exploration of legislative intent; such policy changes must be addressed to the legislature. Statutes granting eminent domain powers are to be strictly interpreted. The Iowa Utilities Board (IUB) lacks constitutional authority to extend these powers to entities not specified in section 476.27(1)(e). Allowing IUB to interpret the crossing statute to apply to independent transmission companies would constitute an unconstitutional delegation of power. The principle of constitutional avoidance suggests statutes should be construed to avoid potential constitutional issues. It is concluded that ITC Midwest does not qualify as a public utility under the crossing statute and therefore lacks legislative authorization to exercise eminent domain powers under section 476.27. IUB's decision to allow ITC Midwest to utilize the crossing statute was legally insufficient and erroneous, as affirmed by the district court. Since section 476.27 does not allow this procedure for ITC Midwest, the court does not address Hawkeye Land’s constitutional arguments. Compensation owed to Hawkeye Land for the crossing easements will adhere to Iowa Code chapter 6B, which outlines the procedures for condemning private property for public projects. The district court's order affirming IUB's ruling is reversed, and the case is remanded for IUB to vacate its decision.