Penn Central Corporation v. U.S. Railroad Vest Corporation Beverly D. Crone, Auditor of St. Joseph County

Citation: 955 F.2d 1158Docket: 91-2608

Court: Court of Appeals for the Seventh Circuit; March 3, 1992; Federal Appellate Court

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The case involves Penn Central Corporation as the plaintiff-appellant against U.S. Railroad Vest Corporation and others as defendants-appellees, concerning a legal challenge to an Indiana law that allows for the acquisition of abandoned railroad property through a simple affidavit process, potentially infringing upon due process rights under the Fourteenth Amendment. The court, led by Circuit Judge Posner, questions whether the law's application to abandoned railroad property and the possibility of recovering the property through a quiet-title action alters its constitutionality.

During the reorganization of Penn Central Transportation Company in the 1970s, its operational assets were transferred to Conrail while Penn Central retained other assets, including what it claims are abandoned rail lines in Indiana. The distinction between two types of abandonment is crucial: one refers to abandonment of rail service sanctioned by the Interstate Commerce Commission, while the other relates to relinquishing property title. Penn Central contends that it owns the land in fee simple beneath its tracks, arguing that the abandonment of rail service does not affect its property rights.

The land was acquired by predecessors of Penn Central under ambiguous deeds, where the presumption is that such deeds convey an easement rather than outright ownership. The court references various cases to illustrate the legal precedent regarding property rights and easements, emphasizing the principle of minimizing transaction costs through undivided ownership when the reason for land division ceases to exist.

The railroad holds fee simple title to various strips of land, which are currently usable only by adjacent landowners. Before these strips can be utilized effectively, negotiations between the railroad and neighboring landowners must occur, or the railroad's interest may diminish through adverse possession. Abandonment of railroad service leads to a cleaner termination of the railroad's interest. Railroads possess eminent domain but should not overreach in property acquisition, taking only what is necessary for a right of way. 

Following the enactment of a 1987 Indiana statute (Ind.Code 8-4-35-4 through -7), railroad rights of way are deemed abandoned if the Interstate Commerce Commission (ICC) authorizes abandonment and the railroad removes its infrastructure. Upon abandonment, the railroad's interest transfers to the owner of the underlying fee simple property or the adjoining landowner, who can establish record title by filing an affidavit. The railroad must then provide a quitclaim deed within 180 days, failing which the new owner can record the affidavit to claim title.

Several Indiana property owners have filed affidavits claiming abandoned rail lines from Penn Central, leading to a lawsuit against these owners, a corporate entity assisting in claims, and a county auditor who plans to record the railroad's interest based on the affidavits. Penn Central sought a preliminary injunction against enforcement of the statute, which was denied, and it has appealed. The district judge ruled the statute constitutional within Indiana's broader legal framework, which includes quiet-title actions, stating that the statute only applies to genuinely abandoned rights of way, preventing misuse against properties the railroad still owns.

The defendants argue that Penn Central lacks standing in this case because it has not demonstrated actual ownership of the properties claimed under the relevant statute. The court finds this argument perplexing, noting that the statute is explicitly aimed at Penn Central and similar railroad property owners in Indiana. The statute mandates that Penn Central issue quitclaim deeds upon the filing of affidavits; failure to do so allows the affiant to obtain record title simply by recording their claim. If Penn Central has no legitimate property interest, it raises the question of who would be harmed by the statute. Although it is possible that Penn Central only holds expired rights of way, this cannot be definitively concluded at this early stage. Some of the deeds suggest that land may have been granted to Penn Central's predecessors in fee simple, indicating a potential interest that warrants further examination.

Regarding the merits of the appeal, the court reiterates that a state cannot take property without providing an opportunity for a predeprivation hearing unless justified by emergencies or other exceptional circumstances. The defendants contend that even though the Indiana statute does not provide for a hearing, Penn Central could seek one under Indiana's quiet-title statute. While the defendants are correct that the right to a hearing does not have to be in the same statute that allows for deprivation, the court expresses skepticism about the feasibility of obtaining a timely hearing before the 180-day period expires, during which the affiant can claim title to the property. Although Penn Central could request a preliminary injunction in its quiet-title suit, there is no guarantee that a timely hearing would be conducted before the affiant could record the property as their own, especially given the time required for the railroad to investigate its property rights.

Statutes of limitations for real property suits are long, potentially due to the extensive precomplaint investigations required. Assuming a railroad could initiate a suit three months after receiving notice of a property claim, it would have only an additional three months to secure a determination of its rights before losing them. Indiana lacks a Speedy Trial Act for quiet-title actions, which are historically viewed as cumbersome and slow. Defendants are practically obligated to ensure that the railroad can realistically achieve a preliminary determination of rights within 180 days, yet no such assurances are available. A review of six Indiana quiet-title cases since 1985 reveals that none resulted in a decision within 180 days. The fastest case, Mickle v. Kirk, took 223 days to reach a prejudgment possession order. Other cases took significantly longer, with resolutions ranging from 10 months to over two years. The railroad typically learns of title challenges only upon receiving statutory notice, complicating its ability to respond efficiently. Even if a determination takes five years, due process still mandates a predeprivation hearing for temporary deprivations, although the feasibility of such hearings diminishes as the duration of deprivation increases relative to the postdeprivation hearing timeline.

The document asserts that while quiet-title actions typically do not require a predeprivation hearing for brief intervals, the potential duration of years for the railroad to recover its property justifies such a hearing. The defendants argue that the quiet-title process itself allows for this hearing, but this claim lacks sufficient evidence. Even if the defendants intended to invoke the cost-benefit analysis from Mathews v. Eldridge, they would still not prevail. A predeprivation hearing is deemed reasonable given the substantial benefits of preventing property grabs from the railroad, contrasted with minimal costs to Indiana taxpayers or neighboring landowners. A straightforward summary proceeding would suffice without undermining adjacent landowners' interests. The absence of a hearing provision in Indiana's right-of-way statute appears to be an oversight with constitutional significance. While the statute effectively addresses title clarity, it fails to afford the railroad an opportunity to assert its rights before they are permanently extinguished. The text also references other statutes that allow property owners to retain their interests, highlighting a lack of similar protections for railroads following service cessation.

The court acknowledges that while Penn Central's property claims are not frivolous, they lack sufficient support from a particular argument regarding the status of nonrail assets. The argument posits that a previous court ruling elevated these assets to fee-simple status, which the court refutes, clarifying that the ruling only affirmed ownership free from creditors' claims and did not address rights against neighboring landowners. The court sees no grounds for the defendants to oppose a permanent injunction against the enforcement of a statute deemed unconstitutional. Although the court will not unilaterally convert the case to seek a permanent injunction, it encourages the parties to do so to prevent redundancy in proceedings. If the Indiana statute is indeed unconstitutional, Penn Central is entitled to a permanent injunction, rendering its request for a preliminary injunction moot. The decision is reversed.