The U.S. Department of Justice has suffered a string of recent defeats over compensating landowners for the conversion of old railways into public trails, potentially exposing the government to millions of dollars in liability.

Lawyers in the DOJ Environment and Natural Resources Division are fighting on two fronts — in the U.S. Court of Federal Claims and in the U.S. Court of Appeals for the D.C. Circuit — to limit the number of future claims in these so-called “rails-to-trails” cases.

For the government, the trails cases make up the fastest-growing area of Fifth Amendment “takings” litigation against the United States, and DOJ is currently grappling with more than 10,000 claims, according to a report the department published this year. Thousands of miles of abandoned railway lines have been turned over to public use since the 1980s in at least 33 states, including Florida, Kansas, Pennsylvania and Texas.

In one pending case in the Washing­ton-based federal claims court — a property rights dispute about land in Arizona along the U.S.-Mexico border — DOJ has taken a position in the litigation that lawyers for the landowners describe as an “egregious” attempt to stall the civil action and to shirk liability altogether.

The Justice Department, according to the Arent Fox team representing eight families as name plaintiffs, wants a claims court judge to ignore an order from the Federal Circuit that soundly favored the property holders. The appeals court last December ruled against DOJ, sending the case back to Federal Claims Judge Robert Hodges Jr. to determine the compensation for the property owners.

In the eyes of the plaintiffs, the unanimous appellate court ruling could not be more clear: The government is liable and needs to pay up. The Justice Department doesn’t see it that way, and now the government’s legal team is urging Hodges to dismiss the suit, saying it was filed outside a six-year window in which to pursue damages. A Justice Department spokesman, Wyn Hornbuckle, citing the pending litigation, declined to comment on the case.

Arent Fox litigation partner Mark “Thor” Hearne II, the lead attorney for the Arizona plaintiffs, said in a Sept. 30 court filing that DOJ “invites this court into a Hall of Mirrors, a trip down the rabbit hole into a world where lower courts disregard” the rulings of a higher authority.

The DOJ strategy, he said, highlights a win-at-all-cost approach in an effort to block subsequent claims for compensation. A federal claims judge in an unrelated trails case ruled against DOJ on Oct. 25, continuing the string of losses.

“The decision of the Federal Circuit arose on fully briefed, fully argued motions on every aspect of liability,” Hearne said in an interview. “The government argued its entire point on liability — every feature of it. It’s particularly outrageous that the Department of Justice would try to reargue liability now.”

Hodges will hear the dispute in November.

PROPERTY RIGHTS

The plaintiffs in the case, Ladd v. U.S., own land on which the El Paso & Southwestern Railroad built an 80-mile line in southern Arizona more than a hundred years ago. The rail line has since washed away.

Name plaintiffs Jack and Marie Ladd filed in 2007, a year after a federal regulatory agency, the Surface Transportation Board, issued a notice of interim recreational trail use. The notice allowed San Pedro Railroad, which acquired the right-of-way, to remove the tracks and sell the easement for public recreation.

Hearne said the plaintiffs, who include Arizona ranchers, have been unable to freely use their land, including fighting erosion.

Hodges, the federal claims judge, dismissed the complaint, saying the government is not liable because there was no property “taking” under the Fifth Amendment. Neither the government nor a third party developed the land. There was no physical occupation, the judge said.

In the Federal Circuit, which has exclusive jurisdiction over the trails cases, Chief Judge Randall Rader, sitting with judges Richard Linn and Kimberly Moore, heard the dispute in September 2010.

“They’ve been physically ousted from possession of their land,” Hearne told the panel. “The government destroyed their property interest that they enjoyed under Arizona law.” The Justice Department’s James Gette, a seasoned environmental law trial attorney, said the railroad has not decided whether it wants to give up its right to continue to run rails over the line at some point in the future.

Writing for the panel, Moore rejected the DOJ position that the interim trail-use notice was nothing more than a temporary regulatory hold on the property. The Federal Circuit panel reversed the dismissal of the case, remanding it for a determination of compensation owed to the plaintiffs.

DOJ was not happy. Gette asked the full appeals court to reverse the panel and, specifically, to strike the sentence about compensation from the ruling. The en banc court in May rejected a rehearing, and the court did not remove the sentence remanding the case for a determination of how much money the property owners should receive.

Now, the case is back in the federal claims court, and the plaintiffs and DOJ are quarreling over the next steps.

The negotiations to establish a trail on the old rail line failed, Gette said in a recent court filing. “No trail has ever been established. No trail agreement has ever been reached. No property interest has ever been acquired by the United States or the proposed trail sponsor.” Gette said an actual trail is “the touchstone of a physical takings claim.”

The Washington-based nonprofit Rails-to-Trails Conservancy has backed the Justice Department in the Ladd case as a friend of the court. Andrea Ferster, the conservancy’s general counsel, criticized the plaintiffs’ legal team for speaking in “rhetoric and hyperbole.”

Ferster said the landowners have “over-read the Federal Circuit decision not to rehear the case and to strike that one sentence.” One plausible scenario, Ferster said, is that the Federal Circuit thought it “too silly a clarification” to remove a sentence from an opinion.

The Federal Circuit, Ferster said, was clear in its ruling that the Justice Depart­ment has continued to dispute the nature of the property rights in the case.

Hodges, the presiding judge in the dispute, said in an order in August that “we will reach the question of valuation of damages once liability is established.”

For Hearne, the work fighting for the landowners will continue. He said legal fees in the case now top more than $2 million.

The fair course for DOJ, Hearne said, is to compensate the landowners for their loss and not to “manipulate the legal process” to make it so costly that property owners will abandon claims. “That’s a repugnant legal strategy,” he said.

Mike Scarcella can be contacted at mscarcella@alm.com.