No Condemnation of CTA’s Leased Railroad

CHICAGO (CN) - Federal law pre-empts the Chicago Transit Authority's attempts to condemn rail owned by Union Pacific Railroad, the 7th Circuit ruled.

CTA has operated Green Line L trains on 2.8 miles of track leased from the Union Pacific Railroad since 1962. The track runs east to west from Laramie Avenue in Chicago to Harlem Avenue in Oak Park.

The lease gives CTA right-of-way for two of the five tracks on the stretch, which it can use only for passenger transportation and must maintain in good condition. CTA must also reimburse Union Pacific for 40 percent of regular maintenance, since the 5-foot separation between the tracks forces railroad to modify its inspection and maintenance procedures. As long as CTA upholds its obligations under the lease, it retains right-of-way in perpetuity.

Every 10 years, CTA and Union Pacific determine a monthly rent for the next 10-year period based on a pre-set formula specified in the lease. From 1992-2002, the monthly rent was about $25,000. When the parties met to negotiate the 2002-2012 lease terms, the formula mandated an increase to $90,000.

In July 2006, CTA offered Union Pacific about $7.5 million for a "perpetual easement" on the land, threatening to condemn the property if the offer was not accepted. After Union Pacific declined, CTA began condemnation proceedings with the Illinois Commerce Commission.

Union Pacific sought an injunction, arguing the Interstate Commerce Commission Termination Act, which gives the federal Surface Transportation Board authority to regulate railroad transportation, pre-empts state or local action and therefore the condemnation.

U.S. District Judge Robert Down Jr. had ruled in favor of Union Pacific, finding that condemnation is pre-empted because it qualifies as "regulation" under the act.

CTA appealed and the 7th Circuit affirmed Monday.

"Here, there is no dispute that Union Pacific and its 2.8-mile right of way fall under the act," Judge Daniel Manion wrote for a three-judge panel. "Instead, the question at issue is whether the proposed state condemnation establishing a perpetual easement over the right of way is a regulation of railroad transportation preempted by the act."

"If the CTA were not already using the right of way, there is no question that the condemnation would be preempted by federal law because it would have a significant impact on railroad transportation by preventing Union Pacific from using the property for railroad transportation and by unreasonably interfering with existing transportation on the neighboring tracks," Manion added.

CTA argued that the condemnation would not change the status quo of activity on the railway and would not prevent or unreasonably interfere with Union Pacific's operations because its desired perpetual easement is coextensive with the current terms of the lease.

The three-judge panel rejected this theory.

"The CTA ... is asking us to expand the meaning of 'no unreasonable interference' to a case where the use of property has a significant impact on railroad transportation but is the same before and after a condemnation," Manion wrote. "We decline to do so in this case. Even though there may be no change in the state of railroad operations on the Right of Way, the condemnation is preempted by federal law because it is a regulation, and not a contract or other agreement that has the effect of preventing and unreasonable interfering with railroad transportation."

Union Pacific's property interest in the land was not limited to the monthly lease value, the court found.

"The right to reclaim the property is valuable despite not knowing whether the CTA will willingly or unwillingly vacating the property in the foreseeable future," the ruling states.

"The CTA can always ask Union Pacific to enter into a new lease arrangement for the Right of Way with financial terms more acceptable to the CTA, but an attempt to obtain such an arrangement by regulation is preempted by federal law," Manion concluded.

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