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Wisconsin Central Limited v. Public Service Commission Of Wisconsin

September 13, 1996




Appeal from the United States District Court for the Eastern District of Wisconsin. No. 96 C 192 William E. Callahan, Magistrate Judge.

Before COFFEY, MANION, and KANNE, Circuit Judges.

KANNE, Circuit Judge.



The plaintiffs, railroads doing business in the State of Wisconsin, filed this lawsuit in response to rules promulgated by the Public Service Commission of Wisconsin ("PSC"), which has jurisdiction "to supervise and regulate every public utility" in Wisconsin. WIS. STAT. sec. 196.02(1). The railroads sought declaratory and injunctive relief based upon their assertions that the rules run afoul of several provisions of the Constitution of the United States and that PSC exceeded the scope of the authority delegated to it by the Wisconsin legislature. The district court denied the request for an injunction, and the railroads now appeal pursuant to 28 U.S.C. sec. 1292(a)(1).


In 1992, the Wisconsin Court of Appeals decided a case between Wisconsin Central, Ltd., and PSC concerning Wisconsin Southern Gas Company's placement of natural gas transmission facilities at several locations through Wisconsin Central's right-of-way. Wisconsin Central, Ltd. v. Public Service Comm'n, 490 N.W.2d 27 (Wis. Ct. App. 1992). In the wake of that lawsuit, several disputes erupted between Wisconsin utility companies and railroads regarding the placement of utility transmission facilities on or across railroad right-of-ways. Motivated in part by these simmering conflicts between utilities and railroads, an organization known as Municipal Electric Utilities of Wisconsin petitioned PSC on May 18, 1994, to adopt rules regarding the compensation and conditions required for utilities to place transmission facilities in or across railroad right-of-ways.

PSC issued a notice of hearing and proposed rulemaking to create chapter PSC 132 of the Wisconsin Administrative Code, "relating to compensation and conditions for the placement of utility facilities in [a] railroad right-of-way." The notice stated that PSC was empowered to issue the rules pursuant to the authority vested in it by the Wisconsin legislature. See WIS. STAT. secs. 196.04(4), 227.11(2)(a), (c). *fn1 Following the comment period, PSC issued its order adopting the proposed rules on November 9, 1995. This order states that the rules accomplish, among other things, the following:

3. Unless otherwise agreed to by the parties, or unless the railroad can show special circumstances, set compensation to be paid by a utility placing facilities within a railroad right-of-way at $500, whether the facilities are on public or private property. This compensation is a one-time payment.

4. State that the one-time payment compensates a railroad for direct expenses incurred as a result of the facilities construction, including inspection, administration, flagging, marking, and other direct expenses and, in the case of a private crossing, also compensates the railroad for the placement of the facilities in the right-of-way.

5. Precludes a railroad from requiring a gas utility to encase underground steel gas facilities. However, gas public utilities are required to meet all state and federal safety regulations, including any concerning casing.

Order of the Public Service Commission Adopting Rules, Docket No. 1-AC-153 (Nov. 9, 1995).

The rules were codified at chapter PSC 132 of the Wisconsin Administrative Code. Several provisions of those rules are pertinent to this appeal:

PSC 132.01 Purpose. . . . (2) These rules shall be applicable to all future facilities and, except as provided in s. PSC 132.03(1), shall be applicable to all existing facilities if agreements concerning existing facilities do not exist, expire, or are terminated.

. . .

PSC 132.03 Compensation. (1)(a) Unless otherwise agreed to by the parties and subject to sub. (2), a public utility which locates its facilities within the right-of-way of a railroad shall compensate the railroad $500 for each crossing. The payment shall be a one-time payment, in lieu of any license fees, to reimburse the railroad for expenses incurred by the railroad as a result of the construction of the facilities and, in the case of a private crossing, to compensate the railroad for the locating of the facilities within the right-of-way.

. . .

(2)(a) In this subsection: . . . 2. "Special circumstances" means unique characteristics of a parcel of property which enhances its value above that of a typical parcel of railroad right-of-way. "Special circumstances" may include the parcel's relationship to other property, the existence of unique topography or natural resources or other unusual characteristics.

(b) A railroad may petition the commission for compensation greater than the amount under sub. (1) if the railroad and the public utility cannot agree on compensation and the railroad incurs extraordinary direct expenses as a result of the construction of the facilities or believes that special circumstances exist. If a petition is filed, the commission shall determine whether extraordinary direct expenses are incurred or whether special circumstances exist and the amount of compensation to be paid to the railroad.

. . .

PSC 132.04 Casing. A railroad may not require a gas public utility to encase any steel pipeline facilities installed within the railroad's right-of-way. A gas public utility shall determine whether and how its facilities should be cased and shall comply with all applicable state and federal pipeline safety rules and regulations.

. . .

PSC 132.06 Notification of construction; emergencies; repair and maintenance. 1. Unless otherwise agreed to by the parties, a railroad or public utility shall, at its own expense, notify the other of emergencies, planned repair and construction or similar operations within a railroad right-of-way if the operation may affect the other. Except for emergencies, initial notification of intent to construct shall be made not less than 21 days before construction and notification of actual construction shall be made not less than three working days before construction begins.

. . .

PSC 132.10 Disputes. (1) Unless otherwise agreed to by the parties:

(a) A railroad may not refuse to permit a public utility to construct facilities within a right-of-way solely because of a dispute between the parties concerning compensation for or conditions to the right of placing the facilities within the railroad right-of-way.

(b) Subject to sub. (2), a public utility may proceed with construction while the dispute is resolved under s. PSC 132.03(2), s. 196.04(4), Stats., or another method mutually selected by the parties.

(2) If a public utility constructs facilities within the railroad right-of-way while a dispute is pending and, after notice and hearing, the commission determines that the facilities are located in an unreasonable location or constructed in an unsafe manner, the commission may order the public utility to remove or modify the facilities at the utility's expense. WIS. ADMIN. CODE sec. PSC 132 (Jan. 1996).

The railroads filed this lawsuit on February 22, 1996, in the Eastern District of Wisconsin. Count one of the complaint alleges that certain elements of these rules violate the following provisions of the Constitution of the United States: the Contract Clause of Article I, the Takings Clause of the Fifth Amendment, and the Due Process Clause of the Fourteenth Amendment. In count two of the complaint, the railroads invoke the district court's supplemental jurisdiction under 28 U.S.C. sec. 1367 and allege that the PSC exceeded the scope of its delegated authority under Wisconsin law in crafting the rules. The complaint requests a declaratory judgment and both preliminary and permanent injunctive relief on both counts.

On the same day, the railroads also filed a motion for a preliminary injunction and a temporary restraining order under FED. R. CIV. P. 65(a) and (b), respectively. In their Rule 65 motion, the railroads also alleged that sec. PSC 132.04 created an imminent threat to public safety by allowing natural gas utilities to install uncased carrier pipe beneath railbeds.

In addition to denying the substance of the railroads' allegations, PSC raised three affirmative defenses in its answer to the complaint. It stated that the district court should dismiss the case for lack of jurisdiction pursuant to the Eleventh Amendment and for improper venue under 28 U.S.C. sec. 1391. In the alternative, PSC stated that the district court should abstain from deciding the case because the railroads' complaint raises issues implicating vital state regulatory concerns and WIS. STAT. sec. 227.40 provides for the exclusive avenue of judicial review of any rule promulgated under Wisconsin law. In its brief opposing the railroads' Rule 65 motion, PSC denied that the casing provision of the rules presented any danger to the public and presented evidence in support of its position.

At a hearing conducted on March 7, 1996, in the district court, *fn2 the railroads indicated that they had already received fourteen notices of intent to place utility facilities in their right-of-ways since the adoption of the rules and that they expected a deluge of similar notices as warmer weather more conducive to installation approached, thereby demonstrating the need for immediate injunctive relief. They also reiterated their concern that the ...

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