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Chicago Coating Co., LLC v. United States

United States Court of Appeals, Federal Circuit

June 11, 2018

UNITED STATES, Defendant-Appellee

          Appeal from the United States Court of Federal Claims in No. 1:14-cv-00625-TCW, Judge Thomas C. Wheeler.

          Michael James Smith, Stewart, Wald & McCulley, LLC, St. Louis, MO, argued for plaintiffs-appellants. Also represented by Steven Wald.

          Edward Carlos Thomas, Environment and Natural Resources Division, United States Department of Justice, Washington, DC, argued for defendant-appellee. Also represented by Jeffrey H. Wood, Erika Kranz.

          Before Reyna, Clevenger, and Wallach, Circuit Judges.


         In this "rails-to-trails" case, Chicago Coating Company and Ignacio and Benjamin Martinez (collectively "Appellants") seek just compensation for an alleged Fifth Amendment taking of their reversionary interest in land within a dormant rail corridor. When faced with cross motions for summary judgment, the United States Court of Federal Claims ("the trial court") determined that the deeds between Appellants' predecessors-in-interest and the original railroad conveyed the property to the railroad in fee simple. Appellants, however, contend that the deeds conveyed only an easement, which terminated when the land was no longer used for railroad purposes. Thus, the Government's proposal to allow the corridor to be converted into a recreational trail allegedly constituted a taking of their reversionary interest in the easement. We disagree, and affirm the decision of the trial court.


         Congress granted the United States Surface and Transportation Board ("STB")[1] regulatory authority over rail carriers who intend to discontinue or abandon any part of their railroad line. 49 U.S.C. §§ 10501(b), 10903 (2015). A discontinuance allows a rail carrier to "cease operating a line for an indefinite period while preserving the rail corridor for possible reactivation of service, " while abandonment removes the line from the national rail system and terminates the railroad's common carrier obligation for the line. Preseault v. Interstate Commerce Comm'n, 494 U.S. 1, 5 n.3 (1990) (Preseault I).[2] Originally, if a railroad requested to abandon a line, the STB could either consummate the abandonment within one year of the request, 49 C.F.R. § 1152.29(e)(2) (2016), or exempt the line from formal abandonment proceedings under 49 U.S.C. § 10903, and provide an expedited review process, 49 U.S.C. § 10502(a) (2015); 49 C.F.R. § 1152.50 (2016).

         But in 1983, Congress enacted Amendments to the National Trails System Act of 1968, which created an alternative process to abandonment, called "railbanking." 16 U.S.C. § 1241 et seq. (2006) ("Trails Act"). Railbanking maintains the STB's jurisdiction over the dormant corridor, but allows a third party to assume the financial and managerial responsibilities of the right-of-way, preserve the right-of-way for future rail use, and, in the interim, convert the corridor into a recreational trail. Preseault I, 494 U.S. at 6-7.

         In order to railbank a corridor, the railroad must first initiate abandonment proceedings before the STB. 49 C.F.R. §§ 1152.29, 1152.50. The party interested in acquiring the corridor must then request that the STB issue a Certificate of Interim Trail Use ("CITU") or a Notice of Interim Trail Use ("NITU"), [3] 49 C.F.R. § 1152.29(c)-(d), which will issue if the railroad is willing to negotiate an agreement, Preseault I, 494 U.S. at 7 n.5. If an agreement is reached, the STB suspends the abandonment proceedings, which "shall not be treated, for purposes of any law or rule of law, as an abandonment of the use of such rights-of-way for railroad purposes." 16 U.S.C. § 1247(d) (2014). Railbanking thus prevents any state law reversionary interests in the corridor from vesting. If an agreement is not reached, the abandonment proceedings may continue. 49 C.F.R. § 1152.29(d)(1).

         Following the enactment of the amended Trails Act, property owners who believed they had a reversionary interest in property lying in dormant rail corridors began claiming that railbanking constituted a taking of their property. In Preseault I, the Supreme Court recognized that the process of railbanking could constitute a taking, 494 U.S. at 12-17, and this court subsequently held that the establishment of a recreational trail to preclude the reversion of an easement may also be a taking, Preseault v. United States, 100 F.3d 1525, 1550 (Fed. Cir. 1996) (en banc) (Preseault II). Thus, in these rails-to-trails takings cases, the threshold question is whether the claimant has a compensable property interest in the land allegedly taken, which is often answered by analyzing the original deeds that conveyed the property to the railroad. Preseault I, 494 U.S. at 16; Preseault II, 100 F.3d at 1533.

         This case involves two segments of land that are part of a rail corridor in Cook County, Illinois, now operated by Burlington Northern Santa Fe Railway ("BNSF"). On December 21, 2012, BNSF initiated proceedings before the STB to abandon the corridor. On January 29, 2013, the Chicago Department of Transportation filed a petition with the STB indicating its interest in negotiating a railbanking and interim trail use agreement for the corridor. When BNSF did not object, the STB issued an NITU on April 9, 2013. The STB gave BNSF until April 9, 2014, to negotiate an agreement, after which the corridor would be abandoned. However, after numerous extensions, BNSF has neither reached a railbanking agreement nor abandoned the corridor. The opportunity for negotiation continues. Decision of the U.S. Surface Transp. Bd., Docket No. AB-6-428-X (Mar. 6, 2018) (extending the STB's decision and NITU until August 28, 2018).

         On July 18, 2014, Appellants filed a takings claim in the trial court, alleging that they are the fee owners of certain parcels of land within the corridor and that the STB's issuance of the NITU constituted a Fifth Amendment taking of their interest in that land.[4] As evidence of ownership, Appellant Chicago Coating Company, as the successor-in-interest, provided a deed from Daniel and Harriet Jones, dated April 22, 1878 ("the Jones Deed"). The deed states, in part:

The Grantors . . . for and in consideration of Ten Dollars in hand paid, convey and quit claim to [the Grantees] all interest in the following described Real Estate to wit: The right of way for rail road purposes over and across a strip of land fifty (50) feet in width being twenty five (25) feet on each side of the centre line of the track of the railroad known as the "Chicago and Southern Railroad" as the same is now located and built through over and across [the described land] . . . .
. . .
But this grant is upon the express condition [that the Grantee] shall cause such premises to be used by some regularly incorporated Railroad Company [as part of a railway operation] and whenever a breach of any or either of these conditions shall appear . . . [the Grantor] shall have the right to reenter said premises and to own, use, occupy and enjoy the same as if the grant first above mentioned had never been made. And the said Grantor hereby expressly waive[s] and release[s] any and all rights under and by virtue of any and all laws of said State of Illinois in relation to the exemption of homestead.

         Appellants Ignacio and Benjamin Martinez, as the successors-in-interest, provided a deed from John and Marjory Edward Wilkins, dated April 1, 1875 ("the Wilkins Deed"). The deed states, in part:

[The Grantor] in consideration of the construction of a railroad across the premises hereinafter described and of a permanent railroad station . . . [the Grantor] hath granted sold and conveyed and by these presents do grant bargain sell convey and warrant to the [Grantee], that certain strip or parcel of land situate in the city of Chicago in the County of Cook and state of Illinois to wit: a strip of land running forty feet in width and running diagonally across [the land] so long as said party of the [Grantee] shall use the said strip of land for the purpose of a railroad, and shall maintain and use a station at the point of intersecting of Kedzie Avenue and Swift streets and no longer.
. . .
It is also understood that if [the Grantee] shall ever abandon or cease to use said strip of land for the purpose of a railroad or omit to carry out any of the agreements or perform any of the conditions here made and to be performed, then and in such case his conveyance shall be null and void, and the [Grantees] hereby agree thereupon to reconvey by ...

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