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Kansas City Southern Railway Co. v. Borrowman

May 6, 2010

KANSAS CITY SOUTHERN RAILWAY COMPANY AND NORFOLK SOUTHERN RAILWAY COMPANY, PLAINTIFFS,
v.
BRADY LEE BORROWMAN, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Jeanne E. Scott, District Judge

OPINION

This cause came before the Court on April 6, 2010, for a bench trial. Plaintiff Kansas City Southern Railway Company (KCSR) appeared by its counsel Paul M. Brown, and Plaintiff Norfolk Southern Railway Company (NSR) appeared by its counsel Everett B. Gibson. Defendants Brady Lee Borrowman, Russell E. Koeller, Dan Lundberg, Michael H. Reed, and Sny Island Levee Drainage District (Sny Island or District) appeared by their counsel Harry B. Wilson and JoAnn Tracy Sandifer. At the conclusion of the trial, the Court took the matter under advisement. The parties have submitted proposed findings of fact, conclusions of law, and post-trial briefs. See Plaintiffs' Amended Proposed Findings of Fact, Conclusions of Law, and Form of Judgment (d/e 71); Plaintiffs' Post Trial Brief (d/e 72); Defendants' Amended Proposed Findings of Fact and Conclusions of Law (d/e 70); Defendants' Post-Trial Brief (d/e 73).

The following constitutes the Court's findings of fact and conclusions of law pursuant to Federal Rule of Civil Procedure 52. See Fed. R. Civ. P. 52(a)(1). For the reasons set forth below, the Court enters judgment in favor of Defendants and against Plaintiffs.

FACTS

In 1880, the Circuit Court of Pike County, Illinois (Pike County Court), organized Defendant Sny Island to design, construct, and operate a levee and drainage system that would protect the lands within its borders from flooding. Today, Sny Island functions pursuant to the Illinois Drainage Code, 70 ILCS 605/1-1 et seq. Sny Island is approximately 60 miles long, encompassing roughly 113,396 acres of land located in Adams County, Calhoun County, and Pike County. Of these lands, 99.5 percent are devoted to agricultural use. The remaining lands consist of residential, commercial, utility, and pipeline properties. Plaintiffs, who operate interstate railroads that cross through Sny Island, are 2 of 700 landowners within the District's boundaries. KCSR and NSR own 212.32 and 145.17 acres, respectively, within the District.

Defendants Borrowman, Koeller, and Lundberg, are commissioners of Sny Island, and Defendant Reed is Sny Island's superintendent and treasurer. The Illinois Drainage Code empowers Sny Island's commissioners to "levy assessments upon the lands and other property benefited [sic] to pay the cost thereof and the expenses incident thereto." 70 ILCS 605/4-18. The Pike County Court has authorized the commissioners to levy an annual assessment against benefitted lands. If the commissioners want to increase the annual maintenance assessment, they must petition the Pike County Court for authority to do so. 70 ILCS 605/4-19.

Prior to 2009, Sny Island assessed landowners within its boundaries by one method: it divided its operating budget by the number of benefitted acres, and then assessed a per-acre fee to each landowner based on the number of acres owned, with a per-tract elevation adjustment. Sny Island did not distinguish among residential, industrial, commercial, and agricultural lands, beyond assessing lands within a municipality a flat $5 fee per lot without adjustment for elevation. Prior to 2009, Sny Island assessed KCSR and NSR in this manner.

However, in 2009 Sny Island altered its assessment method. Heavy rainfall and flooding of the Mississippi River in the spring and early summer of 2008 had forced the District to operate at heightened levels, sandbagging, patrolling, and pumping water almost continuously for several months. During this same time period, the price of diesel fuel, which the District used to operate the pumps, went up significantly, putting an even greater strain on the District's financial resources. The revenue from the annual maintenance assessments was insufficient to meet Sny Island's financial needs, and the commissioners were forced to tap into the District's emergency reserve. By the summer of 2008, the District's emergency reserve was nearly depleted. The commissioners decided that they needed to raise the annual maintenance assessment in order to keep the District operating.

The commissioners met on February 12, 2008, and voted to develop a new assessment method in conjunction with David Human, an attorney from St. Louis, Missouri. On March 27, 2008, the commissioners met again and proposed a $5-per-acre, elevation-adjusted assessment increase for lands not owned by railroads, pipelines, and utilities. The commissioners also decided that they would assess lands owned by railroads, pipelines, and utilities (RPU) on a benefit basis, as opposed to a per-acre basis.*fn1 The commissioners anticipated that Sny Island's operating budget for 2009 would be approximately $1.5 million, a $650,000 increase from the 2008 operating budget.

On April 3, 2008, the commissioners met, affirmed their decision to assess RPU lands on a benefit basis, and voted to increase the assessment on other lands by $5 per acre. The commissioners decided not to assess any amount to lands within municipalities because the costs of mailing the assessment materials and collecting the assessment monies were greater than the potential assessment revenue. The commissioners believed that all commercial and industrial properties within the District, with the exception of RPU lands, fell within municipal limits.

The commissioners met again on June 10, 2008, and decided that they would need even more revenue than initially estimated for the 2009 operating budget. The commissioners estimated that they would need to generate $1.3 million more in 2009 than in 2008. They voted to rescind the $5-per-acre increase for non-RPU lands, and decided to increase the assessment on these lands by $10 per acre. Approximately 692 of the 700 landowners within Sny Island's boundaries fell within this category. Most of the non-RPU properties were agricultural, while 14 were commercial and a few were residential. The non-RPU lands' average assessment increased from $8.50 per acre in 2008 to $18.50 per acre in 2009.

On July 31, 2008, the commissioners had a telephone conference with Human to discuss the assessment methodology for RPU lands. After this conversation, and for reasons that are still unclear to the Court, Human calculated that the District provided a $280-per-acre benefit to non-RPU lands, based on average market values, cash rent projections, and capitalization assumptions. Human prepared worksheets for the commissioners, who met again on August 1, 2008, to discuss the projected benefits the District provided to RPU lands.

To determine the benefit RPU lands derived from Sny Island, Human assumed a hypothetical flood without the benefit of drainage levees, and then determined on an individual basis how much money the property owners would need to expend to repair structural damage, and how much financial loss they would suffer if their lands became unusable due to the flood. Human then multiplied the benefit by an assessment ratio of 6.6 percent. He came up with this percentage by dividing the average per-acre assessment for non-RPU lands in 2009 ($18.50) by the per-acre benefit derived by non-RPU lands ($280). Using the 6.6 percent ratio, the proposed total assessment for RPU lands in the District was $423,926.07. Under this analysis, the District would have levied a $110,958.07 assessment against KCSR, and a $122,761.51 assessment against NSR. However, the commissioners instructed Human to refine the assessment.

When all was said and done, the District proposed an annual maintenance assessment of $85,544.26 for KCSR, and a $93,917.34 assessment for NSR.*fn2 KCSR's 2008 assessment had been $1,773.94, and NSR's 2008 assessment had been $1,126.56; KCSR's assessment rate increased 4700 percent, and NSR's rate increased 8000 percent. Had Plaintiffs' lands been assessed in the same ...


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