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Hawkeye Land Co. v. City of Iowa City

Court of Appeals of Iowa

April 18, 2018

HAWKEYE LAND COMPANY, Plaintiff-Appellant,
CITY OF IOWA CITY, IOWA, Defendant-Appellee, and IOWA INTERSTATE RAILROAD, LTD., Intervening Defendant/Intervening Counter-Plaintiff-Appellee.

          Appeal from the Iowa District Court for Johnson County, Sean W. McPartland, Judge.

         Hawkeye Land Company appeals from an adverse judgment in its claims against the City of Iowa City and the intervening party, Iowa Interstate Railroad, Ltd. AFFIRMED.

          Andrew Potter, Cedar Rapids, and Jon M. McCright and Matthew J. Nagle of Lynch Dallas, P.C., for appellant.

          Eric R. Goers, Assistant City Attorney, Iowa City, for appellee city.

          Stephen J. Rynn and James D. Helenhouse of Fletcher & Sippel LLC, Chicago, Illinois, and Onna B. Houck, Cedar Rapids, for appellee railroad.

          Heard by Danilson, C.J., and Vaitheswaran and Bower, JJ.

          DANILSON, Chief Judge.

         Hawkeye Land Company appeals from an adverse judgment in its claims against the City of Iowa City and an intervening party, Iowa Interstate Railroad, Ltd. The central issue is which entity-Hawkeye Land Company or Iowa Interstate Railroad, Ltd.-has the right to grant at-grade crossings in Iowa City.[1] The district court found in favor of Iowa Interstate Railroad, Ltd. We agree and therefore affirm.

         I. Background Facts and Proceedings.

         In 2011, The City of Iowa City wanted to develop a new industrial park. As a part of the development, the city wanted to construct a new street-Compass Drive-over the right-of-way of Iowa Interstate Railroad, Ltd. (IAIS). The construction involved the right to construct the street but also utility crossing rights and accompanying sidewalks. In short, an issue arose concerning who had the authority to grant the rights sought by the City. To answer this question, we are required to review the property rights the parties purchased from the original owner, the Chicago, Rock Island and Pacific Railroad Company.

         The property rights of the Chicago, Rock Island and Pacific Railroad were ordered liquidated during bankruptcy proceedings, and its assets were abandoned, sold, disbursed, or scrapped. In 1983, a reorganized company known as Chicago Pacific Corporation (CPC) became the successor to the railroad's remaining assets, which included the "bundle of rights" CPC had in the rail line from Council Bluffs, Iowa, to Bureau, Illionois. The bundle of rights was divided into three categories: (1) the rail corridor and operating rights, (2) the utility and associated easement rights, and (3) the mineral rights.[2] CPC also had rights in rail lines facing abandonment and in various ancillary properties and defunct rail lines.

         In 1984, Heartland Rail Corporation (Heartland) bought the rail corridor running from Council Bluffs to Bureau to prevent its abandonment and preserve rail access for its shareholders. Heartland later transferred its interest in the rail line between Council Bluffs and Chicago-including the tracks in Iowa City-to IAIS, an interstate common carrier operating rail services.

         Following the bankruptcy, CPC made the decision to divest itself of its remaining rights, and approached Rick Stickle, who previously was a salvage contractor for CPC and is the owner of Hawkeye Land Company. On July 1, 1985, Hawkeye purchased the utility and associated easement rights from CPC.

         We find additional background information in a prior supreme court case, Hawkeye Land Co. v. Iowa Utilities Board:

In 2000, the Iowa Senate issued a concurrent resolution "relating to a study of the issues involving railroad rights-of-way crossings by utilities." S. Con. Res. 119, 78th G.A. (Iowa 2000). Senate Concurrent Resolution 119 proposed that representatives from Iowa utilities-including electricity, natural gas, telephone service, and rural water service-meet with railroad representatives to consider legislative solutions that might "resolve legal and practical problems and differences of opinion" between the parties. Id. [The Iowa Utilities Board] IUB was to facilitate the meetings. Id.
The problems referred to in the resolution related to the requirements utilities had to fulfill in order to secure a railroad crossing and the fees railroads charged utilities for crossings. The utilities were dissatisfied with the complexity of the application process and the time it took to obtain permission to cross railroad tracks. The utilities also complained that the railroads charged excessive fees for crossings. The utilities proposed a pay-and-go system under which utilities could notify a railroad of a desired crossing, pay a one-time fee, and then move forward with construction- without awaiting individual review and approval by the railroads. The railroads sought to ensure that utility crossings would be safe and would not create liability for the railroads. The railroads also advocated for their right, as property owners, to set their own fees for railroad crossings. Legislators had introduced and considered bills in the house and senate relating to these issues, and the resolution sought additional input from the interested parties. Id.
Hawkeye Land was actively involved in the resulting discussions. Hawkeye Land owns the right to grant easements along more than two thousand miles of Iowa railroad track, but does not own the railroad track itself. It purchased this property right in 1985, during bankruptcy proceedings for the Chicago, Rock Island and Pacific Railroad. The bankruptcy trustee separated ownership of the physical railroad tracks from the right to grant easements along and across the tracks. . . .
Hawkeye Land wrote a letter to IUB in August 2000 presenting its position on railroad-crossing issues. Hawkeye Land noted that easement fees were the company's revenue source and commented: "Hawkeye incurs costs in generating those easements and when one considers the lack of regard for a recorded document and the exposure that Hawkeye incurs because of this ignorance, overall the revenue does not match the risk." Hawkeye Land offered to meet with IUB and the other parties to discuss crossing issues.
Both the railroads and the utilities acknowledged Hawkeye Land as an interested party. The Iowa Utility Association pointed to Hawkeye Land as a source of the problems they identified; namely, that Hawkeye Land's crossing application process took too long and it charged exorbitant fees.[3]The railroads summarized the progress the railroads and utilities had made in negotiations. Under the topic of "Absentee Managers/Land Management Companies, " the railroads commented "Hawkeye is a unique situation that the Railroads are powerless to address, but it appears that Hawkeye is at the table and will participate in resolving the issues."

847 N.W.2d 199, 202-03 (2014).

         But negotiations between the utilities and Hawkeye broke down and the utilities companies turned their efforts to legislation, resulting in a pay-and-go process under Iowa Code section 476.27 (2009). See Hawkeye Land, 847 N.W.2d at 203. "Pursuant to section 476.27 and its related regulations, a public utility can erect a crossing over a railroad right-of-way by submitting a notification of intent to construct and paying a onetime standard crossing fee of $750 for each crossing." Id. Hawkeye challenged the statute, asserting the provision did not apply to its property interest and the $750 crossing fee for utilities was an unconstitutional taking. Id. at 209.

         Our supreme court concluded Hawkeye was a successor in interest to a railroad corporation and, thus, subject to section 476.27:

If the right to grant easements had never been separated from ownership of the remaining fee, Union Pacific would be required to comply with section 476.27 as the railroad owning the tracks. Separating the right to grant easements from the bundle of property rights does not exempt the easement from section 476.27. We also reject the notion that the owner must obtain its property rights directly from a railroad in order to be a successor in interest to a railroad corporation. Under Hawkeye Land's interpretation of section 476.27, a railroad could avoid the pay-and-go procedure by using a straw man to transfer ownership of a crossing easement to a third party. We will not open such a loophole. Rather, we are to "'seek a reasonable interpretation which will best effectuate the purpose of the statute.'"
The legislative history of section 476.27 reinforces our conclusion that the legislature intended that statute to cover Hawkeye Land. Hawkeye Land participated in the meetings and discussions leading up to the passage of section 476.27. The legislature was aware of Hawkeye Land's existence and its interest in the railroad crossings, which explains why the legislature did not simply limit the ambit of section 476.27 to railroads. The legislature knew Hawkeye Land had purchased the right to grant easements indirectly from the Chicago, Rock Island and Pacific Railroad. By defining "railroad right-of-way" broadly to include successors in interest to railroad corporations, the legislature ensured the procedures of section 476.27 could not be avoided by conveying crossing easements to separate entities.

Id. at 212-13 (citations omitted).

         The supreme court did not reach Hawkeye's constitutional claim because it found the party seeking to invoke the pay-and-go provision-ITC Midwest, an independent transmission company-was not a public utility and could not invoke the provision.[4] Id. at 219.

          On February 25, 2011, the City sent a "notice of intent to construct utility crossing" to Hawkeye, which stated that in connection with the City's construction of Compass Drive, the City "intends to construct three utility crossings (storm sewer, potable water, and sanitary sewer) under the railroad right-of-way and railroad tracks, the easement rights to which Hawkeye Land Company lays claim." The City enclosed a check for $2250 ($750 for each of the three crossings). The City sent another notice and another check for $2250 to Hawkeye on May 16, 2011, because the project had not begun "within the 120 days allowed under Iowa Administrative Code [rule] 199-42.3(4)."

         On September 6, 2011, IAIS and the City entered into an "agreement for railroad crossing improvement project, " acknowledging that IAIS operated a railroad upon tracks going east/west in the City and the City had "initiated a project to construct a new north/south street to be named Compass Drive, and to improve an already present agricultural crossing there to urban standards with accompanying utilities, " which "require[d] the installation of a new street-railroad grade crossing with crossing signals and gate arms and with associated drainage improvements on [IAIS's] railroad right-of-way."[5]

         On October 12, 2011, Hawkeye filed this action against the City for damages based upon the City's installation of Compass Drive crossing the rail line. IAIS intervened in the action. The parties waived ...

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