DAKOTA, MINNESOTA & EASTERN RAILROAD CORPORATION, APPELLEE/CROSS v. STATE OF SOUTH DAKOTA, APPELLANTS/CROSS
Docket: 03-1046, 03-1179
Court: Court of Appeals for the Eighth Circuit; March 23, 2004; Federal Appellate Court
Dakota, Minnesota & Eastern Railroad Corporation (DM&E) purchased the deteriorated rail system of the Chicago & North Western Railroad in 1986. In 1998, DM&E sought federal approval to construct new rail lines and refurbish existing tracks in South Dakota to access low sulfur coal from Wyoming. In response, South Dakota amended its eminent domain statutes (1999 S.D. Laws ch. 222), imposing new restrictions on railroads. DM&E filed a lawsuit against the State and its officials to block enforcement of these amendments, claiming they conflicted with federal law.
After a bench trial, the district court issued a permanent injunction against four provisions of Chapter 222 but upheld a fifth as severable. Both parties appealed: the Governor argued the injunction infringed on the State's Eleventh Amendment immunity and Tenth Amendment rights, while DM&E cross-appealed regarding the severability ruling. Upon review, the appellate court vacated part of the injunction due to uncertainties about subject matter jurisdiction, modified the remainder, and affirmed the district court's findings on the conflict between state and federal law. The amendments required railroads to obtain state authority for eminent domain, placing the burden of proof on them to demonstrate public use consistent with public necessity.
Chapter 222, codified at 49-16A-75.3, establishes criteria for the Governor and the Commission to determine if a railroad's use of eminent domain aligns with public necessity. The criteria include that the use must aim to provide transportation for South Dakota commodities, be proposed by a financially capable applicant, involve good faith negotiations for property acquisition, include a detailed plat of the proposed construction, and allow utilities access to the right-of-way without fees.
The Surface Transportation Board approved DM. E's application in January 2002, noting that while eminent domain is governed by state law, the applicant must acquire necessary land. If agreements with landowners are not reached, eminent domain may be pursued as a last resort.
DM. E sought to enjoin Chapter 222, leading the district court to find that 49-16A-75.3(1) discriminated against interstate commerce, thus invalid under the dormant Commerce Clause. Subsections (2) and (4) were also enjoined as they conflicted with federal law and imposed restrictive regulations on interstate railroad operations. Additionally, subsection (5) was found to violate the Takings Clause of the Fifth Amendment. However, subsection (3) was upheld as it did not conflict with federal law. The court rejected DM. E's argument for severability and did not enjoin the remaining provisions of Chapter 222.
The Governor contends that South Dakota's sovereign immunity under the Eleventh Amendment prevents a federal court from issuing an injunction against him in his official capacity. However, the district court dismissed this argument, citing the Ex parte Young doctrine, which allows for injunctive relief against state officials in certain circumstances despite the Eleventh Amendment. While the Supreme Court's decision in Idaho v. Coeur d'Alene Tribe limited the application of Ex parte Young in cases that significantly affect state sovereignty, the district court clarified that this case does not involve state-owned lands or challenge the state's eminent domain authority. Instead, it focuses on whether the state has improperly exercised its eminent domain powers concerning a federally approved railroad project. The injunction sought aims to align the state's regulatory actions with federal law, thus falling within the Ex parte Young framework. The court emphasized that the analysis of Ex parte Young should be straightforward, as established in Verizon Md. Inc. v. Pub. Serv. Comm'n, which affirmed that a complaint must allege an ongoing federal law violation and seek prospective relief. Consequently, the district court's ruling allowing the injunction against the Governor stands.
The Governor asserts that the injunction against certain state statutes oversteps federal authority under the Commerce Clause and breaches the Tenth Amendment, referencing Supreme Court decisions in New York v. United States and Printz v. United States. These arguments are deemed meritless. The district court's injunction was based on findings that the state statutes discriminated against interstate commerce, conflicted with federal regulations, or infringed upon the Fifth Amendment's Takings Clause—issues well within federal jurisdiction. The Governor did not challenge the district court's application of federal law, undermining his argument regarding federal overreach.
Regarding the anti-commandeering principle, which prohibits Congress from forcing states to implement federal regulatory schemes, the court clarified that this doctrine does not limit federal court authority to mandate state compliance with federal law. In this instance, South Dakota voluntarily delegated its eminent domain powers regarding federally regulated railroads, leading to the district court enjoining only those state law provisions that conflicted with federal law or constitutional provisions.
On the severability issue, the district court chose not to enjoin certain subsections of state law that do not conflict with federal law, arguing they are severable from the invalidated provisions. DM. E contends that the entire statute should be enjoined, claiming the legislature would not have enacted it without the problematic sections. The court upheld the district court's decision, noting that under South Dakota law, remaining provisions can stand if they are independent and the legislature intended them to remain effective without the invalid sections. The burden rests on DM. E to demonstrate that the legislature would not have enacted the statute without the invalid parts.
Chapter 222 amended the eminent domain statute, introducing several key changes:
1. Railroads must now obtain a determination from the Governor or the Transportation Commission that their use of eminent domain serves a public purpose, a shift from the previous requirement of simply filing a petition with the circuit court.
2. The Transportation Commission has been granted rulemaking authority.
3. The burden of proof has shifted to the railroad to demonstrate "public use consistent with public necessity," contrasting with the prior system where the railroad's determination was generally binding unless proven otherwise.
4. Railroads are required to negotiate in good faith for property acquisition before invoking eminent domain.
5. Certain conditions imposed by the statute were deemed contrary to federal law by the district court.
Despite the invalid provisions, it was acknowledged that the first four changes enhance state control over eminent domain and protect landowners, and that the South Dakota Legislature likely would have enacted these provisions independently.
A specific provision, requiring railroads to allow designated entities use of their right-of-way without fees, was found unconstitutional by the district court as a "regulatory taking," due to a lack of justification that the easement's impact was proportional to the project.
Under the Takings Clause of the Fifth Amendment, a property owner can challenge regulatory takings in federal court, but the claim must be ripe for review, meaning a final decision must be made by the relevant government entity regarding the regulation's application. Furthermore, a property owner cannot claim a violation of the Just Compensation Clause unless they have exhausted state procedures for compensation and been denied.
The district court's order granting DM. E a preliminary injunction did not address the Takings Clause claim or the enforcement of statute 49-16A-75.3(5), which was only considered in the subsequent permanent injunction order. This order made a brief mention of ripeness without referencing key precedents like Williamson County or Suitum. The challenge to subsection (5) raises significant ripeness concerns, as it remains unclear whether the statute requires a taking of railroad property. Subsection (5) allows other entities to use the right-of-way without fee, raising questions about who grants easements and who compensates for them. If the railroad must pay for property while granting free easements, it may result in a permanent physical taking, but the district court did not explore the railroad's right to just compensation under South Dakota law. Given these complexities, the Takings Clause claim may not be ripe. Consequently, the injunction against enforcing 49-16A-75.3(5) is vacated, and the matter is remanded to the district court for further proceedings. The injunctions against 49-16A-75.3(1), (2), and (4) are modified and affirmed, while the December 6, 2002, order is upheld in other respects.
Claims against the State and the Transportation Commission were dismissed due to Eleventh Amendment protections, leading the district court to grant injunctive relief against "the State of South Dakota," which has been modified to restrain only "the Governor of the State of South Dakota." Three cases from other circuits have partially relied on Coeur d'Alene Tribe to dismiss claims for equitable relief against state officials, but two were decided prior to the Verizon decision, and the third was decided shortly after without citing Verizon. There are concerns regarding DM. E's assertion that statutes 49-16A-75 to -75.3 are non-severable, as DM. E appears to assume that if these statutes are fully enjoined, prior statutes would be revived. Generally, prior law is revived if an amending statute is invalidated entirely, unless legislative intent indicates otherwise. This legislative intent issue remains unresolved in DM. E's favor. Should DM. E argue that federal law mandates the revival of prior state law, it risks raising Tenth Amendment anti-commandeering issues. Conversely, if DM. E claims that the injunction need not revive prior law due to the retention of part of amended 49-16A-75, it concedes that some provisions of 49-16A-75 to -75.3 may be severable. The conclusion that valid portions of Chapter 222 are severable under state law negates the need to address these additional legal issues. Most cases cited by the district court in its takings analysis, such as Dolan and Nollan, did not discuss ripeness as they were appeals from final state court decisions where no taking was found.
