SIOUX FALLS, S.D. — The Dakota, Minnesota & Eastern Railroad’s expansion could derail because of a state law on eminent domain, the company’s president testified at a court hearing, a wire service reported.
Kevin Schieffer said he can’t start looking for investors, let alone secure the roughly $2 billion needed for the project, until the land use issue is resolved.
“There aren’t people out there rubbing their hands together ready to write a $2 billion check,” Schieffer said. “Uncertainty and instability will drive away any investor.”
The DM&E wants U.S. District Judge Lawrence Piersol to strike down the 1999 law that requires the governor’s approval before railroads can use eminent domain to acquire land from owners who are unwilling to sell.
The hearing was on DM&E’s request for a preliminary injunction, a court order that would bar the state from enforcing the law while the legal battle proceeds.
“We need an immediate decision of some sort to get started,” Schieffer said.
Piersol said he would rule soon. He also wants to schedule a trial in the next couple months. Piersol did not rule on the state’s request to dismiss the case.
Neil Fulton of Pierre, a lawyer for the state, argued that the preliminary injunction does nothing to help the DM&E raise money and should not be granted.
The railroad can try to get money from the state later if it can show irreparable harm due to any delays, he said.
“If the DM&E can show some violation of their rights, they can go to court to recover damages,” Fulton said.
He acknowledged the law is “not perfectly drafted.” But the state has the right to balance eminent domain with the obligation to protect landowners, Fulton argued.
“This is an issue of core state sovereignty,” he said. “Private landowners need some additional protection.”
Piersol questioned several provisions of the law, including one that requires a railroad to give specifics on maintenance facilities, even when they do not affect landowners alone the line.
“It looks kind of like piling on,” Piersol said.
The federal Surface Transportation Board approved the DM&E project in January.
The Brookings-based company plans to build new tracks from western South Dakota into Wyoming coal fields and upgrade its existing track across South Dakota and Minnesota. The railroad then could haul low-sulfur coal from the Powder River Basin in Wyoming to power plants in Midwestern and Eastern states.
Schieffer said the legal fight already has ruined the DM&E’s chances of starting construction this season. And if the case lingers, next year also could be in doubt, which would add enough time and expense to possibly scuttle the project, he said.
“One of the fundamental problems with this is it looks bizarre to anyone in the financial community who looks at it,” Schieffer said.
Fulton asked why the railroad didn’t sue earlier after the law passed in 1999. Schieffer and his lawyer, Brian Donahoe of Sioux Falls, said the company could not take the state to court until it had federal approval on the project.
Donahoe argued the law is unconstitutional because it interferes with interstate commerce. “This particular statute is a roadblock,” he said.
Besides working on the Powder River Basin project, the DM&E has an agreement to acquire I&M Rail Link, which operates track in five states that connects Chicago and St. Paul, Minn., with Kansas City, Mo.
Schieffer said he hopes to have financing lined up for that deal by July. “That’s in the hands of God and about a dozen bankers,” he said.
Schieffer said the DM&E board has decided to keep the merged company’s headquarters in South Dakota, though he did not say if it would remain in Brookings.
Even if the IMRL deal goes through, it leaves the railroad’s future in question – especially west of Pierre, Schieffer said.
“That would be the segment most at risk,” he said.