The solution seemed almost elegant in its simplicity: What to do with thousands of miles of unwanted, unused railroad tracks? Turn them into recreational trails for biking and hiking, with the caveat that if ever needed in the future, they'd be returned to the railroads.
Best of all, the Congressional Budget Office said it wouldn't cost the federal government a thing. With minimal debate, Congress in 1983 passed a three-sentence amendment that created the Rails-to-Trails program.
But what started out as a well-intentioned law has turned into a major legal liability for taxpayers. During the past year alone, the federal government has shelled out $49 million to people who own land abutting the trails, according to the Treasury Department's Judgment Fund database.
It's only the beginning. The Justice Department says 8,000 claims by property owners remain pending, spawning a whole new practice area — takings class actions. The landowners argue that converting rail lines into recreational trails represents a new use of their property, one for which they are entitled to compensation from the government under the Fifth Amendment. To date, the courts have agreed, and plaintiffs lawyers predict the ultimate liability for taxpayers could top $500 million.
Those who support the program find the litigation explosion deeply troubling. "It's the perfect storm," said Andrea Ferster, general counsel of the nonprofit Rails-to-Trails Conservancy, who called a line of decisions by the U.S. Court of Appeals for the Federal Circuit supporting the takings claims "outrageous."
"The irony is that the U.S. doesn't even get a deed. At the end of the day, [the claimants] still get to keep the property," she said.
Even Arent Fox partner Mark "Thor" Hearne II, who has collected hundreds of thousands of dollars in contingent fees successfully representing property owners, agrees the system is flawed. "Why should U.S. taxpayers have to fund the acquisition of property the federal government doesn't even own?" he asked.
He's adamant that property owners — some of whom now have well-used trails cutting through the middle of their land — are entitled to compensation, but says the government is making a difficult situation worse. The Rails-to-Trails program "is a great concept," Hearne said. "But the way they set up the system is crazy."
When railroads were at their peak about 100 years ago, there were 272,000 miles of tracks spanning the country. By the 1970s, though, trucks had eclipsed trains for commercial shipping and several major railroads went bankrupt. Others started abandoning their tracks.
The government faced a dilemma. It wanted to preserve the rail corridors for future transportation needs, recognizing that if railroads simply gave up their unused lines, it would be nearly impossible ever to put the network back together.
For Congress, the answer was "rail banking" — a railroad removes its tracks and sells, leases or donates the out-of-service corridor to a public or private trail sponsor, with an explicit agreement that the land could be reclaimed for future rail use if needed.
There are now, according to the conservancy, about 1,400 rail-trails around the country — wide routes, gently banked and often scenic, popular with bikers, hikers and joggers. Some have even reverted back to rails. In Maryland, for example, a branch of the Capital Crescent Trail is slated for conversion to light-rail service.
The key legal challenge came when Vermont landowners J. Paul and Patricia Preseault protested that the law was not a valid exercise of Congress' commerce clause power, and that it was unconstitutional because it took private property without just compensation.
The case went to the U.S. Supreme Court, which in 1990 unanimously found the law was valid. The court also held that the Preseaults' takings claim could go forward. "We find that rail-to-trail conversions giving rise to just compensation claims are clearly authorized," Justice William Brennan Jr. wrote, even though "Congress did not explicitly promise to pay for any takings," and there was "no doubt that Congress meant to keep the costs of [the law] to a minimum."
The high court didn't decide whether the Preseaults were entitled to money for their specific claim. The Court of Federal Claims, which hears suits for money damages against the government, subsequently considered the question and said no. So did a three-judge panel of the U.S. Court of Appeals for the Federal Circuit.
But in a surprise move, the Federal Circuit on its own decided to re-hear the case en banc, writing that it "raised important issues of Constitutional dimension, and that it was not certain the property owners were wrong in their claims."
What prompted the court to re-open the case is not clear. However, The Washington Post in 1998 reported that four of the six judges who went on to rule against the government had previously attended a free, five-day seminar at a resort in Montana that was underwritten by conservative foundations and focused on property rights and the environment.
The full court first determined that the railroad in 1899 did not buy the Preseaults' land outright — if it had, that would have been the end of the case, since the railroad could dispose of its property as it saw fit.
Instead, it has obtained the Preseaults' land by an easement. According to the Federal Circuit, which holds exclusive jurisdiction over such takings cases, the terms of the easement did not include using the property for a recreational trail. "The nature of the usage is clearly different," the court held, making the trail "an unauthorized invasion of the land."
The court found that the Preseaults were owed money and that the bill was "properly laid at the doorstep of the Federal Government," not the state of Vermont. In 2002, the government paid the Preseaults $234,000 for the land, $318,000 in interest and $895,000 in attorney fees — a total of $1.45 million.
The en banc decision, Preseault v. U.S., technically didn't have precedential value, since it was decided by a plurality of judges, not a majority. Nonetheless, it has been widely cited and has spawned a cottage industry of takings class actions.
In 1990, the Justice Department's Environment and Natural Resources Division was litigating one Rails-to-Trails case against one claimant. By 2002, there were 17 cases with 4,550 claimants. And now, according to DOJ, there are about 80 cases pending with 8,000 claimants. A department spokesman declined to comment, citing the pending litigation.
The courts have consistently been willing to certify the cases as class actions — a first in the takings area — agreeing that the property owners are similarly situated and have comparable claims. Plaintiffs lawyers are entitled to attorney fees if they win, and also typically take a percentage of the total settlement.
"The only way to bring these cases is on a contingency fee basis," said Hearne of Arent Fox, who is litigating more than a dozen trails act cases. "There's no way [individual] owners can fund them." The average payout for a property owner ranges from about $15,000 to $60,000, he said, and the cases are expensive to litigate, involving expert witnesses poring over 100-year-old property deeds.
The biggest payment to date — $33.5 million — came earlier this year in Raulerson v. U.S., which was filed in 2010 by 250 property owners in South Carolina in the U.S. Court of Federal Claims. The settlement included $11 million in attorney fees to class counsel Thomas Stewart, a partner at Baker Sterchi Cowden & Rice in Kansas City, Mo., who said his record against the government in trails cases is 24-0.
The plaintiffs argued that, under South Carolina law, the railroad abandoned its easement when it stopped using the tracks. "But for operation of the Trails Act, the Plaintiffs would have the exclusive right to physical ownership, possession and use of their property free of any easement," according to the complaint.
The government essentially conceded liability, declining to dispute that the trail use was beyond the scope of the original easement. Instead, the real fight was over damages.
During a June 2011 federal claims court hearing before Judge Lawrence Margolis, the government tried to lowball the taxpayers' tab. The plaintiffs were entitled to "the difference in fair market value of the property before and after the taking," said DOJ trial attorney Peter Whitfield, according to a court transcript.
The "before" value, he said, was what the property was worth with the railroad easement, which he argued was never technically abandoned. The "after" value, he continued, was the land with the railroad easement plus the trail. By that reckoning, the trail wouldn't make much difference in the value of the land.
Stewart sharply disagreed, calling the government's position "so contrary to basic property law that it's hard to know where to start." He argued the "before" value was the land free and clear, with no easement at all — which is what he said the property owners would have had but for the trails act. As for after, he said that was the value of the land saddled with an easement for a trail as well as potential future use as a railroad, a major hit in value. "The federal government must pay just compensation," he said.
In April, the government paid the property owners $33.5 million for 25 miles of trail, or more than $1 million per mile, an indication that the plaintiffs' theory of valuation prevailed.
In an interview, Stewart said much bigger cases are in the pipeline. "We don't bring 'em unless we can win 'em," he said.
"I'm neither for nor against trails," he said. "Some make a heck of a lot of sense and are beautiful." But others "are in Iowa, with 30 miles of cornfield in every direction and a paved asphalt strip running through the middle.…And then I wonder, 'What in the world was the government thinking?' "
Contact Jenna Greene at email@example.com.