Kansas City Southern Railway Company, et al., Plaintiffs-Appellants,
Sny Island Levee Drainage District, a political subdivision of the State of Illinois, Defendant-Appellee.
April 5, 2016
from the United States District Court for the Central
District of Illinois. No. 13-3144 - Richard Mills, Judge.
Wood, Chief Judge, and Bauer and Williams, Circuit Judges.
Island Levee Drainage District ("the District" or
"Sny") was organized in 1880 in the Circuit Court
of Pike County, Illinois, to protect the District from
flooding and surface water runoff from the Mississippi River.
The Kansas City Southern Railway Company ("KC") and
the Norfolk Southern Railway Company ("Norfolk")
both operate main line railways over the Mississippi River
Flood Plain in the District. The District is permitted under
state law to assess properties within its territory in order
to maintain the levees. The Railroads have now sued the
District for the second time, alleging, as they did in the
earlier case, that the District used an assessment
calculation formula that discriminated against them in
violation of the Railroad Revitalization and Regulatory
Reform Act (the "4-R Act"), 49 U.S.C. § 11501.
After a 12-day bench trial, the district court found for Sny.
Its finding was supported by the evidence, and so we affirm.
Illinois Drainage Code allows drainage districts to levy
three different types of taxes on entities within the
district: "original assessments, " "annual
maintenance assessments, " and "additional
assessments." 70 ILCS 605/5-1. Original assessments are
used for construction of new levees. The District has had in
place an annual maintenance assessment, authorized by the
Pike County Circuit Court, since construction of its original
levees; there are approved periodic increases. The annual
assessment has been based on a per-acre formula since its
establishment in 1961; it is adjusted for inflation.
Additional assessments are permitted for maintenance projects
that exceed the annual maintenance assessment budget.
2009, facing a budget shortage, the District adopted a new
methodology-not based on acreage-for calculating the annual
assessment to be levied on interstate properties owned by
railroads, pipelines, and utilities. The new methodology was
developed by Sny attorney David Human and Klingner &
Associates engineer James Powell. It purported to calculate
assessments based on the benefits the District conferred on
each property. The Railroads sued over the 2009 change, and
the case made its way to this court. We found the annual
assessment discriminatory because the District maintained
per-acre taxes for most types of property, reserving the
benefit basis only for the railroads, pipelines, and
utilities. Kansas City S. Ry. v. Koeller, 653 F.3d
496 (7th Cir. 2011). The latter group accounted for only 8
out of the 700 properties in the District.
found Human's and Klingner's numbers, which estimated
benefits for the railroads, pipelines, and utilities at $280
per acre, to be unreliable. They assumed property values
without any supporting evidence, implemented an unexplained
8% "capitalization rate, " made different
assumptions about flooding when calculating railroad benefits
than pipeline and utility benefits, and ultimately
"refined" the numbers when they came out too high.
Id. at 502.
result, we enjoined the District from collecting the annual
assessment, which we found to be a tax within the meaning of
subsection (b)(4) of the 4-R Act, pursuant to the new
formula. 49 U.S.C. § 11501(b)(4). The relevant
comparison class, we found, was a "functional" one
that included other commercial and industrial properties but
not agricultural or residential ones. Koeller, 653
F.3d at 509. While we acknowledged that reasonable
distinctions between different types of property, such as
improved and unimproved land, could support a taxation rate
that reflects the difference, we also cautioned that a
discriminatory assessment is one that "imposes a
proportionately heavier tax on railroading than other
activities." Id. at 510-11 (quoting
Burlington N. R. Co. v. City of Superior, Wis., 932
F.2d 1185, 1187 (7th Cir. 1991)). The District had not taxed
other commercial and industrial properties proportionally to
the Railroads. To the contrary, it was charging eight of the
other entities in the comparison class nothing and treating
six as though they were agricultural properties. We stated,
"[i]f ... the Drainage Code requires [the commissioners]
to assess all property on a 'benefit basis' then
[the] entire scheme should reflect that." Id.
our July 2011 decision, the District has chosen not to
collect annual assessments from the Railroads at all, rather
than revert back to collection under the per-acre formula. It
has continued to collect its annual assessment from
non-railroad and non-interstate properties in the District on
a per-acre basis.
2011, with the 2009 case pending, the District began the
process for a one-time additional assessment. The Pike County
Circuit Court has the authority to approve, and historically
has approved, occasional "additional assessments"
in accordance with the Drainage Code, for things such as
extra repair work, construction, enlargement or repair of
pumping plants, and the payment of legal obligations incurred
by the District. 70 ILCS 605/5-1. The circuit court approved
an additional assessment of $5, 853, 162 in December 2011,
and asked Sny to file an assessment roll showing how it would
be distributed. Sny again relied on Klingner to develop the
assessment roll. But this time, the engineers spent a full
year calculating the benefit amount for every property in the
District. Sny filed an assessment roll based on the new
benefit calculations that distributed the assessment
according to the benefit that each property obtained from the
existence of the levee and drainage works. After the
Railroads and the Illinois Rural Electric Cooperative filed
objections, the circuit court denied the Cooperative's
objection and approved the assessment roll in July 2013 as to
all properties except the Railroads, reserving the question
of the Railroads for the federal district court to determine.
The roll identified the tax on KC as $91, 084.59 if paid in
one installment or $103, 612.52 if paid in five annual
installments, and on Norfolk as $102, 976.18 in one
installment or $117, 139.71 in five.
federal district court took 12 days to evaluate the competing
expert evidence from the Railroads and the District,
ultimately finding that the Railroads had not shown that the
District's methodology was discriminatory. Kansas
City S. Ry. ...