(The following story by Kevin Woster appeared on the Rapid City Journal website on January 25, 2009.)
RAPID CITY, S.D. — It’s a question of good faith.
Bill Janklow and Jeff Hurd say the Dakota, Minnesota & Eastern Railroad hasn’t shown it. Brian Donahoe says it has.
Now, it’s up to the South Dakota Transportation Commission to decide which lawyers are right, with the fate of a multibillion-dollar railroad expansion project and the rights of affected landowners hinged on the decision.
The state Transportation Commission heard closing arguments Thursday in DM&E’s hotly contested application for eminent-domain authority, a government-backed power to condemn private land when purchase offers and negotiations fail. To get that authority, DM&E officials must prove that they have met the “good faith” standard in their attempts to buy private land needed for a controversial improvement and expansion project.
Janklow, a former four-term South Dakota governor who represents landowners opposing DM&E’s eminent-domain application, praised the potential of the project during his closing argument. If built, it will increase sales and property taxes and produce crucial jobs for South Dakota, Janklow said.
“Let’s make no mistake about it. This is a heck of a deal if it goes through,” he said.
But the question before the commission isn’t the worth of the project. It’s DM&E’s failure to act in good faith with landowners, Janklow said.
The company, which has been purchased by Canadian Pacific Railway, used a faulty standard to estimate property values and made uneven offers to landowners with similar property based on whether they had cooperated with the railroad, he said.
The process also was full of fraud and secrecy, he said.
“Did they play by the rules? You’re the refs, and if they didn’t play by the rules, you’ve got to blow the whistle and make them go back and do it right,” Janklow said.
Rapid City lawyer Jeff Hurd made similar arguments on behalf of the disaffected landowners he represents. Hurd focused on a landowner’s advisory board established by DM&E, ostensibly to represent the interests of property owners along the line. But most landowners on the board were either not directly affected by the line or got bonus deals, Hurd said.
“The DM&E used the landowner advisory board to sell the project,” he said. “They were the shills for the railroad.”
Sioux Falls lawyer Brian Donahoe said the national Surface Transportation Board affirmed the public interest of the project by authorizing its construction. DM&E followed state law in making bona fide offers to landowners to cover the value of the land to be purchased and the damage the rail line would likely do, he said.
Landowners who allowed access to their property for appraisals and cooperated with the railroad were able to get better offers than those who didn’t, he said. But all offers were at the least based on a study of market values in the area and came in near the upper end of the price range, Donahoe said.
“What happened here with the market studies, we went to the higher end of the range,” he said. “That’s good faith.”
DM&E has reached some level of agreement with more than 40 of the 101 landowners along the proposed new route from Wall to the Wyoming line. About 35 are still in some level of discussion or negotiation. And about two dozen are at an impasse.
The railroad still wants to negotiate and will only use condemnation authority when it’s clear that offers and negotiations have failed, Donahoe said.
“They’re only going to exercise it when they can’t come to an agreement,” he said.
It’s a fairly straight-forward question made complicated by detailed and conflicting arguments from lawyers on both sides. The Transportation Commission handled the contested case hearing much like a trial and picked as the hearing officer Robert Miller of Pierre, a retired chief justice of the state Supreme Court.
Miller gave Janklow, Hurd and Donahoe until late February to file versions of their arguments and proposed conclusions. Then, Miller will review those materials and make a recommendation to the commission, which members can approve, reject or modify.
Miller will have dozens of exhibits and hundreds of pages of testimony and arguments to consider. Commissioners will dig into as much of that as they need to decide whether to abide by Miller’s recommendation.
“They’ll undoubtedly be churning this over in their minds,” state Department of Transportation lawyer Bill Nevin said of commission members. “It has taken us a while to get here.”
And it’s unlikely to be settled even after the commission rules. The decision can be challenged in circuit court and appealed to the state Supreme Court. Nevin said he won’t be surprised by a court challenge.
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Timeline
Since DM&E first applied to the state for eminent-domain authority in November of 2006:
— The state Legislature approved and Gov. Mike Rounds signed a law to streamline the process.
— Disaffected landowners along the proposed rail extension from Wall to the Wyoming coal fields tried but failed to gather enough petition signatures to refer that law to a public vote.
— Canadian Pacific assumed control of DM&E last fall. DM&E President Kevin Schieffer left the company in October 2008.
— The state Transportation Commission heard five days of testimony in a hearing in Rapid City earlier this month, followed by an afternoon of closing arguments in Fort Pierre on Thursday.