UNION PACIFIC RAILROAD CO. v. CHICAGO TRANSIT AUTHORITY (July 25, 2011)

The Union Pacific Railroad Company owns a 2.8 mile right-of-way running between Chicago and Oak Park, Illinois. UP itself operates three railroad tracks on the right-of-way. Since the early 1960s, UP has leased approximately 40% of the right-of-way to the Chicago Transit Authority. The CTA runs two railroad tracks parallel to UP’s. A written lease has defined the rights and obligations of UP and CTA over the years. For example, CTA must maintain its tracks in good condition, is limited to providing passenger transportation, and must reimburse UP 40% of any joint maintenance expenses. UP, on the other hand, maintains the right-of-way and all joint facilities and has agreed to use non-standard inspection and maintenance procedures because of the proximity of the lines to each other. The CTA pays monthly rent to UP, recalculated every 10 years under a formula contained in the lease. The monthly rent increased from approximately $25,000 to approximately $90,000 when it was recalculated for the 2002-2012 lease period. The parties discussed a one-time permanent easement fee instead of a monthly rent but did not reach an agreement. In 2006, CTA issued an ultimatum. It offered approximately $7.5 million for a perpetual easement or, if that was not acceptable, it would condemn the property. UP declined and, making good on its threat, the CTA instituted condemnation proceedings. UP brought suit for an injunction, maintaining that the Interstate Commerce Commission Termination Act preempted the condemnation. Judge Dow (N.D. Ill.) granted summary judgment to UP, concluding that the condemnation was both categorically preempted and preempted "as applied." The CTA appeals.

In their opinion, Seventh Circuit Judges Flaum, Manion, and Evans affirmed. The Court addressed the underlying legal principles. Under the Supremacy Clause, federal law preempts state law that interferes with it. Congress enacted the Interstate Commerce Commission Termination Act in 1995, which gave the Surface Transportation Board exclusive jurisdiction over railroad transportation regulation. "Transportation" includes a railroad's property, facilities, and equipment that are related to the movement of passengers or property. The Court found it clear that UP and the right-of-way were covered by the statute. In addressing whether the condemnation was preempted by the statute, the Court discussed the Board's two approaches to preemption. Some state action is preempted on its face, notwithstanding its rationale. That is referred to as categorical preemption. Other state action may be preempted depending on the degree of interference with railroad operations, which is referred to as "as applied" preemption. The district court adopted the Board's approaches and found the condemnation preempted under both approaches. The Court, on the other hand, concluded that the categorical preemption approach should be used only when looking at a rule of general applicability. A condemnation is not such a rule. By definition, it relates to a specific parcel of property and each instance has a different factual setting. The Court found support for its conclusion in the Board's cases. Applying the "as applied" analysis, the Court agreed with the district court. The CTA argued that is already using the right-of-way and its condemnation is defined as being coextensive with the lease. Therefore, it argues, the condemnation can not be considered an interference at all. In fact, it is nothing more than maintaining the status quo. The Court found the CTA's logic flawed. First, the CTA’s use of the property significantly interferes with UP transportation. The fact that UP agreed to that interference, in return for significant monthly rent, does not change the nature of interference. Preemption only comes into play when the interference is forced by regulation, not when it is agreed to by contract. Second, the Court disagreed with the CTA’s assertion that the condemnation is coextensive with the lease. For example, the lease has a termination clause. If the CTA stops using the tracks for passenger transportation or otherwise fails to live up to its obligations under the lease, the lease terminates. There would be no such provision after a condemnation.