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Wheeling & Lake Erie R. Co. v. Public Utility Com'n of Com. of Pa.

March 31, 1998



Before: Mansmann, Nygaard and Garth, Circuit Judges

The opinion of the court was delivered by: Nygaard, Circuit Judge.

(Opinion Filed: March 31, 1998)


In this appeal we must decide whether assessing a railroad for a portion of the construction and maintenance costs of a bridge intersecting its right-of-way constitutes a discriminatory tax under the Railroad Revitalization and Regulatory Reform (4-R) Act of 1976, 49 U.S.C. § 11501.*fn1 The district court held that the assessment was a discriminatory tax. We will reverse.

I. Background

The Wheeling & Lake Erie Railway Company subleases a railroad right-of-way passing under "Old Washington Pike" in Scott Township, Allegheny County, Pennsylvania. The bridge supporting that highway became so deteriorated that it was closed in 1982. The Township procured the necessary approvals from the Pennsylvania Public Utility Commission and constructed a new bridge at the Township's initial expense. The Commission then ordered Wheeling to pay 3% of the total construction costs of the bridge replacement project and 15% of the maintenance costs of the new bridge (excluding costs of snow and ice removal).*fn2 The Commission also assessed another railroad, whose tracks pass under the same span, 3% and 15% respectively. That railroad is not a party. The Pennsylvania Department of Transportation was to pay 7% of the construction costs. The Township was to pay the remaining 87% of the construction costs and 70% of the maintenance costs, with an 80% reimbursement for construction costs coming from Pennsylvania's Billion Dollar Bridge Project Fund.

Wheeling filed this action requesting declaratory and injunctive relief from the construction and maintenance costs. It argued that the assessment was a discriminatory tax in violation of the 4-R Act. All parties filed motions for summary judgment. In its order granting Wheeling's motion, the district court declared that the assessment was an unlawfully discriminatory tax under the 4-R Act. The court also enjoined the defendants from assessing or collecting the construction and maintenance costs from Wheeling. The Commission and the Township appealed separately. We consolidated the appeals.

II. Eleventh Amendment Immunity

The Commission did not raise its Eleventh Amendment *fn3 argument before the district court. Nonetheless, Eleventh Amendment immunity can properly be raised for thefirst time on appeal. See Edelman v. Jordan, 415 U.S. 651, 658, 94 S. Ct. 1347, 1363 (1974) ("the Eleventh Amendment sufficiently partakes of the nature of a jurisdictional bar so that it need not be raised in the trial court"); Bolden v. Southeastern Pa. Trans. Auth., 953 F.2d 807, 812 (3d Cir. 1991).

The Eleventh Amendment bars suits against unconsenting states in federal courts. See Seminole Tribe of Fla. v. Florida, ___ U.S. ___, 116 S. Ct. 1114, 1122 (1996). There are two exceptions: Congress may abrogate a state's immunity, id., and parties may sue state officers for prospective injunctive and declaratory relief. See Idaho v. Coeur d'Alene Tribe of Idaho, ___ U.S. ___, 117 S. Ct. 2028, 2034 (1997); Seminole, ___ U.S. at ___, 116 S. Ct. at 1132; Ex parte Young, 209 U.S. 123, 28 S. Ct. 441 (1908); Balgowan v. New Jersey, 115 F.3d 214, 217 (3d Cir. 1997). Here, the parties do not dispute that the Pennsylvania Public Utility Commission is an arm of the Commonwealth of Pennsylvania protected by Eleventh Amendment principles of sovereign immunity.*fn4 Also, Pennsylvania has not given its consent to be sued in federal court. *fn5 The question remaining is whether any exceptions to immunity apply.

A. Congressional Abrogation of Immunity

A valid abrogation of Eleventh Amendment immunity requires Congress to "unequivocally express[ ] its intent to abrogate the immunity" and to act "pursuant to a valid exercise of power." Seminole, ___ U.S. at ___, 116 S. Ct. at 1123 (quoting Green v. Mansour, 474 U.S. 64, 68, 106 S. Ct. 423, 426 (1985)). Here, the parties agree that section 11501(c)*fn6 is an unmistakably clear expression of Congress's intent to abrogate states' immunity regarding violations of section 11501(b). However, the parties disagree on whether the statute is a valid exercise of congressional power.

The dispute centers largely around Seminole, which overruled Pennsylvania v. Union Gas Co., 491 U.S. 1, 23, 109 S. Ct. 2273, 2286 (1989) (holding that Congress could validly abrogate a state's sovereign immunity pursuant to its Commerce Clause powers). In Seminole, the Court noted that it had previously recognized only one other source of congressional power to abrogate states' sovereign immunity --the Fourteenth Amendment. Seminole, ___ U.S. at ___, 116 S. Ct. at 1125 (citing Fitzpatrick v. Bitzer, 427 U.S. 445, 96 S. Ct. 2666 (1976)). Thus, after Seminole, the only remaining source of congressional power to abrogate states' Eleventh Amendment immunity is the Fourteenth Amendment. Congress promulgated the 4-R Act pursuant to its Commerce Clause powers because of the interstate nature of the railroad industry. Section 11501 announces Congress's concern that discriminatory taxation "unreasonably burden[s] and discriminate[s] against interstate commerce." 49 U.S.C. § 11501(b); see also 49 U.S.C. § 10101 (listing the purposes and policies of railroad regulation). However, when determining the sources of Congress's authority to legislate, we may look beyond the expressed constitutional basis in a statute's preamble or legislative history. See Fullilove v. Klutznick, 448 U.S. 448, 478, 100 S. Ct. 2758, 2774-75 (1980). The Supreme Court directs us to:

"proceed to the consideration whether [§ 11501] is "appropriate legislation" to enforce the Equal Protection Clause, that is . . . whether [§ 11501] may be regarded as an enactment to enforce the Equal Protection Clause, whether it is "plainly adapted to that end" and whether it is not prohibited by but is consistent with "the letter and spirit of the constitution." "

Katzenbach v. Morgan, 384 U.S. 641, 651, 86 S. Ct. 1717, 1724 (1966). In a later examination of Morgan, the Court established that to answer this inquiry:

"[i]t was enough that the Court could perceive a basis upon which Congress could reasonably predicate a judgment that application of literacy qualifications within the compass of § 4(e) would discriminate in terms of access to the ballot and consequently in terms of access to the provision of administration of government programs."

Fullilove, 448 U.S. at 477, 100 S. Ct. at 2774 (citing Morgan, 384 U.S. at 652-53, 86 S. Ct. at 1722). *fn7 The legislative history of the statute before us shows "Congress was aware that the railroads" `are easy prey for State and local tax assessors" in that they are "nonvoting, often nonresident, targets for local taxation," who cannot easily remove themselves from the locality.' " Department of Rev. of Or. v. ACF Indus., 510 U.S. 332, 336, 114 S. Ct. 843, 847 (1994) (quoting Western Air Lines, Inc. v. Board of Equalization, 480 U.S. 123, 131, 107 S. Ct. 1038, 1043 (1987) (quoting S. Rep. No. 91-630, at 3 (1969))). Moreover, another court of appeals has held that the very purpose of section 11501 was to remedy discrimination against railroads:

"Until this law was passed, as pointed out by the appellants, states could constitutionally classify railroads differently from all other taxpayers for the imposition of state taxes without violating the equal protection clause of the Fourteenth Amendment. It was the obvious purpose of Congress to put an end to this practice, where such treatment of the railroads as a class was discriminatory in effect."

Alabama Great S. R.R. Co. v. Eagerton, 663 F.2d 1036, 1040 (11th Cir. 1981) (emphasis added). The Supreme Court has also said that "[c]orrectly viewed, § 5 [of the Fourteenth Amendment] is a positive grant of legislative power authorizing Congress to exercise its discretion in determining whether and what legislation is needed to secure the guarantees of the Fourteenth Amendment." Morgan, 384 U.S. at 651, 86 S. Ct. at 1723-24.

It is evident to us that Congress recognized the potential for state and local taxing authorities to discriminate against railroads in violation of their Equal Protection rights under the Fourteenth Amendment. We conclude that Congress had the power, pursuant to Section Five of the Fourteenth Amendment, to promulgate section 11501, and did so to protect the railroads. Therefore, Congress validly abrogated Eleventh Amendment immunity, and the district court properly exercised jurisdiction over this lawsuit.

Neither our analysis nor our Conclusion is affected by the recent decisions cited by the Commission. It cites Wilson- Jones v. Caviness, 99 F.3d 203 (6th Cir. 1996), as

employing the correct post-Seminole analysis for determining whether an act of Congress, generally regarded to be within its Commerce Clause powers, can also be justified by the Fourteenth Amendment. The Commission reads Wilson-Jones to hold that, barring an explicit congressional recitation of authority under the Fourteenth Amendment, only statutes that remedy discrimination against a class of persons that Fourteenth Amendment jurisprudence has already identified as deserving special protection can be regarded as enactments to enforce the provisions of the Fourteenth Amendment.

We disagree with this narrow reading of Wilson-Jones. There, the Court found no evidence that the core provisions of the Fair Labor Standards Act, before being amended by the Equal Pay Act, were enacted pursuant to Section Five of the Fourteenth Amendment. Although the Court feared the implications of an expansive rule "that an act is valid [merely] if it is rationally related to achieving equal protection of the laws," it expressly admitted that its "opinion might be different if Congress madefindings that a particular group needed legal protection to remedy some sort of invidious discrimination not directly addressed by federal precedent." Wilson-Jones, 99 F.3d at 209, 210 n.4. Here, however, the remedial nature of section 11501's constitutional protection is evident, despite the lack of an explicit congressional statement. We believe that Congress was within its discretion when it found that railroads need special protection from local tax assessors. Therefore, we reach a different Conclusion than the Court in Wilson-Jones.*fn8

Nor is our result affected by City of Boerne v. Flores, ___ U.S. ___, 117 S. Ct. 2157 (1997), in which the Supreme Court declared the Religious Freedom Restoration Act unconstitutional. The Court found that the Act was "so out of proportion to a supposed remedial or preventive object that it cannot be understood as responsive to, or designed to prevent, unconstitutional behavior. It appears, instead, to attempt a substantive change in constitutional protections." Id. at ___, 117 S. Ct. at 2170. In so holding, the Court reasoned that "[i]f Congress could define its own powers by altering the Fourteenth Amendment's meaning," it would be "difficult to conceive of a principle that would limit congressional power." Id. at ___, 117 S. Ct. at 2168. Here, section 11501 is not out of proportion to its objective, nor does it substantively change any constitutional protections.

We recently decided College Savings Bank v. Florida Prepaid Post-secondary Education Expense Board, Nos. 97- 5055, 97-5086, 1997 WL 749514 (3d Cir. Dec. 5, 1997), in which we held that the right to be free of false advertising is not a constitutionally protected intangible property right. Therefore, the Due Process Clause of the Fourteenth Amendment was not implicated, and we concluded that the Trademark Remedy Clarification Act of 1992 did not abrogate Florida's immunity because it did not further the purposes of the Fourteenth Amendment. College Savings Bank, however, was expressly limited to its facts, id. at *9, and did not concern the Equal Protection Clause. It does not contradict our decision. Similarly, there is no dissonance between our decision in In re Sacred Heart Hospital of Norristown, No. 97-1126, 1998 WL 3627 (3d Cir. Jan. 8, 1998), and our decision here. In Sacred Heart, we did not distinguish between the Bankruptcy Clause and the Commerce Clause (both Article I powers) as being inappropriate sources of congressional power to abrogate states' Eleventh Amendment immunity. Id. at *5. Further, we found "no evidence suggesting that § 106(a) [of the Bankruptcy Code] was enacted pursuant to any constitutional provision other than Congress' Bankruptcy Clause power." Id. at *6. Here, however, we have found such evidence in section 11501's legislative history and judicially-recognized anti-discrimination purpose.

In sum, section 11501 is a valid exercise of congressional power under Section Five of the Fourteenth Amendment, thus effectively abrogating the Commission's Eleventh Amendment immunity.*fn9 We now turn to the merits of the appeal. III. The 4-R Act

Wheeling argues that the assessment of construction and maintenance costs violates section 11501 because it is an illegal tax that discriminates against railroads. *fn10 The district court agreed, concluding that the assessments were"taxes" within the meaning of section 11501. Because this issue involves the interpretation of federal statutory law, our review is plenary. See In re TMI, 89 F.3d 1106, 1112 (3d Cir. 1996). Unfortunately, the 4-R Act does not define "tax." We must, therefore, begin by determining the appropriate rule of construction.

In Department of Revenue of Oregon v. ACF Industries, 510 U.S. 332, 114 S. Ct. 843 (1994), the Court held that nonrailroad property tax exemptions were not prohibited by subsection (b)(4).

"When determining the breadth of a federal statute that impinges upon or pre-empts the States' traditional powers, we are hesitant to extend the statute beyond its evident scope. We will interpret a statute to pre- empt the traditional state powers only if that result is "the clear and manifest purpose of Congress." "

Id. at 345, 114 S. Ct. at 850-51 (citations omitted).

We have decided two cases dealing with the statutory interpretation of "taxes" in a similar context. In National Railroad Passenger Corp. v. Pennsylvania Public Utility Commission, 848 F.2d 436 (3d Cir. 1988) (hereinafter Amtrak), the issue was whether "any taxes or other fees" covered levies against Amtrak for building and maintaining the Cassatt Avenue bridge. Id. at 438 (interpreting 45 U.S.C. § 546b (recodified at 49 U.S.C. § 24301(l))). That decision outlined the declining history of intercity rail passenger service in America and Congress's efforts to revitalize it. Id. at 438. Congress rationalized Amtrak's exemption by theorizing that cities would gladly pay a user contribution to maintain rail passenger service. Id. In Amtrak, we reasoned, "[w]hether such`special assessments' will be construed as `taxes' depends on the context in which the terms are raised." Id. Additionally, we instructed that "the meaning of the word `tax' is a matter of federal law deduced from congressional policy underlying the statute, rather than from state tax labels developed in an entirely unrelated legal context." Id. at 439. After noting that exemptions from taxation usually do not apply to such assessments, we adopted some general rules:

"When a tax exemption is granted to certain private entities, the statutory language is construed closely because it affords a special privilege not available to others. Likewise, when a statute waives the federal government's freedom from local taxation, that language is also narrowly construed because it defeats the immunity shielding the federal government. In interpreting an exemption statute, the intention of the legislative body is pivotal."

Id. Amtrak, we concluded, was not an ordinary private firm; Congress intended it to be exempt from state and local taxes and fees to the same extent as the federal government. Thus, under a liberal reading of that statute, the bridge assessment was within the meaning of the statutory phrase "taxes or other fees." Id. at 439-40.

Likewise, in Southeastern Pennsylvania Transportation Authority v. Pennsylvania Public Utility Commission , 826 F. Supp. 1506 (E.D. Pa. 1993) (hereinafter SEPTA ), aff'd 27 F.3d 558 (3d Cir. 1994) (unpublished table decision), the same issue arose under a different statute, which confers Amtrak's tax immunity upon certain commuter authorities.

See 49 U.S.C. § 24501(g). The district court found that Congress intended the phrase "taxes or other fees" in section 24501(g) to have the same broad meaning as our Amtrak decision found Congress to have given to identical language in section 24301(l). Id. at 1525-26.

Amtrak and SEPTA involved the interpretation of statutes with different purposes and histories from the statute at issue here. Nonetheless, we believe the reasoning underlying those cases is instructive regarding the principles of statutory construction applicable here. The statutes in Amtrak and SEPTA were construed broadly because those entities had tax immunity comparable to that of the federal government. In contrast, we must interpret section 11501 strictly here, because Wheeling is a private entity benefitting from a special provision exempting it from discriminatory taxation. Thus, we must consider the context in which the term "tax" is raised and the congressional policy underlying section 11501 to determine if it was the clear and manifest purpose of Congress to include such assessments within that provision.

As the Commission, Scott Township, and the Department of Transportation all point out, there is nothing in the legislative history that sheds light on what Congress meant by the word "tax" in section 11501(b)(4). See generally Alabama Great S. R.R. Co. v. Eagerton, 663 F.2d 1036, 1041 (11th Cir. 1981). Moreover, they maintain that because assessing railroads for such improvements was commonplace when the 4-R Act was enacted and Congress did not address that practice in either the Act or the legislative history, then Congress did not ...

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