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Wheeler v. Material Recovery of Erie

September 10, 2009


The opinion of the court was delivered by: Sean J. McLaughlin United States District Judge



Presently pending before the Court is the Plaintiffs' Petition for Review of STB Decision (hereinafter "Petition").*fn1 All Defendants, including the Surface Transportation Board, have filed responses in opposition to the Plaintiff's Petition. For the reasons that follow, Plaintiffs' Petition will be denied.


A. The Federal Railbanking Act

In 1983, Congress enacted Section 8(d) of the National Trails Systems Act, 16 U.S.C. § 1247(d) (hereinafter, the "Railbanking Act") to preserve the country's rapidly disappearing railway corridor infrastructure for future rail service and energy efficient transportation uses by permitting inactive corridors to be used on an interim basis as trails. The Railbanking Act is triggered when a railroad desires to terminate its common carrier obligation to provide freight rail service on a line, an action requiring approval from the Surface Transportation Board ("STB"). 49 U.S.C. § 10903. When a qualified entity desires to negotiate with the railroad concerning the preservation of a corridor for future rail and interim trail use, it must request that the STB issue a railbanking order (known as a Certificate of Interim Trail Use ("CITU") or, as in this case, a Notice of Interim Trail Use ("NITU")) by filing a statement of willingness to assume legal or financial responsibility over the corridor until such time as it is needed again for rail service. 49 C.F.R. § 1152.29(a). Where a NITU or CITU is issued and a railbanking agreement is reached between a railroad and a trail sponsor, the corridor remains subject to the federal authority of the STB for so long as the trail use continues, and the corridor remains intact and potentially available for reactivated rail service. Birt v. STB, 90 F.3d 580, 583 (D.C. Cir. 1996).

A trail sponsor may transfer an interim trail use authorization to another trail sponsor by submitting to the STB a copy of the governing NITU, a statement of willingness from the proposed trail sponsor to assume financial responsibility for the trail, and the date on which responsibility for the interim trail will transfer. See 49 CFR 1152.29(f)(1). Upon such request, the STB will reopen the abandonment proceeding, vacate the existing NITU, and issue a new NITU reflecting that the new trail sponsor is now responsible for the trail. Id.

Railbanking is voluntary on the part of the railroad. The Railbanking Act does not require the railroad to transfer the right of way for that purpose, nor impose any new obligations or restrictions on the railroads. Rather, it allows the railroad to choose either to discontinue rail operations "for an indefinite period while preserving the rail corridor for possible reactivation of service in the future," Preseault v. ICC, 494 U.S. 1, 6 n.3 (1990), or to fully abandon the right of way and thereby permit state laws of reversion to take effect.

Prior to discontinuing service and abandoning a railway line, a railroad must obtain authorization from the STB. Such authorization, once granted, is permissive, rather than mandatory.

Thus, to consummate an abandonment and trigger reversionary interests, the railroad must take further action manifesting a clear objective intent to abandon. See Lucas v. Township of Bethel, 319 F.3d 595, 603 n. 11 (3rd Cir. 2003); Birt, 90 F.3d at 585. For abandonments authorized after January 23, 2007, STB rules require railroads to file a letter notifying the STB and the public within one year after the effective date of the authorization or 60 days after an STB decision terminating interim trail use when the railroad exercises the authority to abandon. See 49 CFR 1152.29(e)(2). Once abandonment is fully consummated, the railway line is no longer part of the interstate rail network and is removed from the STB's jurisdiction. Birt, 90 F.3d at 585.

B. Factual Backdrop of this Case

This case involves a six-mile long strip of land (the "Trail") that, prior to 1973, served a railway line owned and operated by Penn Central Railroad. Penn Central did not hold title to the land in fee simple, but rather, according to Plaintiffs, possessed an easement for railroad purposes, obtained by condemnation awards and releases. The Plaintiffs are the owners of the parcels of land adjacent to the Trail, as well as possessors of the reversionary interests in the Trail itself.

In 1973, Penn Central petitioned for, and was granted, permission to abandon service on the line. (Complaint ¶ 17). In 1976, Penn Central quitclaimed the Trail and the railway line to Bessemer & Lake Erie ("B&LE"), a subsidiary of Defendant Canadian National Railway. From 1976 until 1989, the Trail remained unused. (Complaint ¶ 21).

In August, 1989, B&LE entered into a contingent agreement with Defendant Material Recovery to convey its quitclaim interest in the Trail to Material Recovery as part of the process of railbanking the Trail. (Complaint ¶22). On January 8, 1990, the Surface Transport Board ("STB") granted a NITU to B&LE and, subsequently, the Trail was railbanked and transferred to Material Recovery. (See January 8, 1990 Decision of the Interstate Commerce Commission ("1990 ICC Decision"), Complaint, Ex. B; Complaint ¶ 24). From 1990 to 1997, Material Recovery salvaged what remained of the railway line and removed the underlying fill, but, according to Plaintiffs, never developed hiking or biking trails on the Trail. (Complaint ¶ 25).

In 1997, Material Recovery had entered into bankruptcy and, as part of the bankruptcy proceeding, sought leave to grant the Pennsylvania Electric Company ("Penelec") a utility easement over the Trail. (Complaint ¶ 26; Complaint, Ex. D). The Plaintiffs subsequently intervened in the bankruptcy proceeding and objected to the proposed sale, raising for the first time the argument that their reversionary interests in the Trail's right of way had vested prior to 1990 as a result of the railway line falling out of use. (Complaint ¶ 27). The Bankruptcy court referred the Plaintiffs' challenge to Material Recovery's ownership of the Trail to the STB. In 1997, the STB reopened the 1990 proceedings and issued a decision clarifying and re-affirming the railbanked status of the Trail. The STB reviewed the history of the Trail described above and concluded that, in 1990, the Trail had been properly railbanked. (1997 Decision of the Surface Transportation Board ("1997 STB Decision"), Complaint, Ex. C). It further stated that, "[b]ased on the evidence presented, we conclude that the property has not reverted to adjacent landowners." (Id). The STB couched its decision, however, as an "advisory opinion" because it recognized that the property was under the jurisdiction of the bankruptcy court, and that, therefore, the final determination of legal ownership rested with that court. The STB further observed that "any agreement of sale between [Materials Recovery and Penelec] would require the continued preservation of the right-of-way for recreational use by the public or for reconversion to rail use" and that "to ensure continued railbanked status of the right-of-way, [Materials Recovery and Penelec] must comply with 49 C.F.R. 1152.29(f)." (Id). That regulation provides in pertinent part:

(1) When a trail user intends to terminate trial use and another person intends to become a trail user by assuming financial responsibility for the right-of-way, then the existing and future trail users shall file, jointly:

(i) A copy of the extant CITU or NITU; and

(ii) A Statement of Willingness to Assume Financial Responsibility by the new trail user.

(2) The parties shall indicate the date on which responsibility for the right-of-way is to transfer to the new trial user. The Board will reopen the abandonment or exemption proceeding, vacate the existing NITU or CITU; and issue an appropriate replacement NITU or CITU to the new trail user.

(Id). (citing 49 C.F.R.1152.29(f)). Ultimately, the bankruptcy court permitted Material Recovery to sell a utility easement over the Trail right-of-way to Penelec, but declined to make a determination as to ultimate ownership. (Bankruptcy Court Order, Complaint, Ex. D). Plaintiffs did not appeal the STB's decision of 1997.

In 2005, Material Recovery and the Northwest Pennsylvania Trail Association ("NWPTA") entered into an agreement whereby the NWPTA purchased property unrelated to the Trail from Material Recovery. In addition, the parties entered into a separate agreement styled a "Donation Agreement" that contemplated the future donation of the Trail to NWPTA on or before January 3, 2006. (Agreement of Sale and Donation Agreement, Defendants' Concise Statement of Material Facts, Exs. D and E) ("Donation Agreement"). The Donation Agreement provided that Material Recovery's "obligation to transfer the property [was] contingent on . . . completion of all necessary railbanking documents and filings with the [STB] to preserve the property's interim trail status." Until such time as the proper STB authorization could be obtained, the Donation Agreement provided that NWPTA would lease and maintain the right-of-way, pay the real estate taxes, and indemnify Material Recovery for any liability associated with the Trail's use.

On April 11, 2006, Plaintiffs filed the instant action, alleging that Materials Recovery and the NWPTA had violated the provisions of 49 C.F.R. 1152.29(f) resulting in an abandonment of the property and the triggering of Plaintiffs' reversionary interests. Given the procedural impediments occasioned by their failure to have appealed either the 1990 or 1997 STB Orders, Plaintiffs styled their action as one to enforce the 1997 Order, specifically, the directive in the 1997 STB advisory opinion that required the parties to comply with the applicable regulatory provision for a transfer of ownership of a railbanked property, 49 C.F.R. 1152.29(f). (See Transcript of Hearing on Motion to Dismiss ("Transcript"), January 18, 2007, p. 28). Defendants moved for dismissal and/or summary judgment.

On March 30, 2007, this Court issued a Memorandum Order and Opinion noting that:

Each of the issues raised - whether the Donation Agreement and subsequent use of the Trail by the NWPTA triggered the requirements of 49 C.F.R. 1152.29, whether 1997 STB Order has been violated, and, ultimately, and whether either of those events might result in an abandonment and reversion of the Trail to the Plaintiff property owners - are precisely the type of issues that the STB routinely considers. See, e.g., Barclay v. U.S., 443 F.3d 1368, 1374 (Fed. Cir. 2006) ("The disposition of reversionary interests [is] subject to the [STB's] exclusive and plenary jurisdiction to regulate abandonments of railroad rights of way."); Grantwood Village v. Missouri Pacific R. Co., 95 F.3d 654, 657 (8th Cir. 1996) ("The ICC has exclusive and plenary authority to determine whether a rail line has been abandoned. . . ").

Accordingly, Plaintiffs' action was remanded to the STB in order to utilize their "institutional knowledge of this particular case as a result of having considered these issues in both 1990 and 1997, their familiarity with their own 1990 and 1997 orders, and their general experience in dealing with issues of this nature." Id.

Pursuant to the referral, Plaintiffs filed a Petition for Declaratory Order in STB Finance Docket No. 35082, Victor Wheeler, et al. - Petition for Declaratory Order - Rail Line in Erie County, PA. In that action, Plaintiffs pressed several arguments before the Board in support of their contention that the Trail had been abandoned and that their reversionary interests had been triggered. First, Plaintiffs asserted that Material Recovery transferred the property to a new trail sponsor, NWPTA, without complying with 49 C.F.R. 1152.29(f) resulting in an abandonment of the property and the triggering of Plaintiffs' reversionary interests. They also alleged that Material Recovery failed to meet its financial responsibilities in various particulars relative to the Trail, again allegedly resulting in an abandonment and a corresponding reversion of their property interests. Finally, Plaintiffs reiterated the argument that they had advanced in the 1997 STB proceeding that the right of way had been abandoned by Penn Central prior to 1990 and, therefore, the 1990 NITU had been improperly issued.

Shortly thereafter, Material Recovery and NWPTA filed a motion to reopen the 1990 proceeding, AB-88 (Sub-No. 5X), to substitute NWPTA as the trail sponsor pursuant to the transfer provisions of 49 CFR 1152.29(f). In conjunction therewith, NWPTA submitted the appropriate statement of willingness to assume financial responsibility for the trail, as per the regulations. ...

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