Kansas City Southern Railway Co. v. Koeller
2011 U.S. App. LEXIS 15402
| 7th Cir. | 2011Background
- Sny Island Levee Drainage District funds operations through annual maintenance assessments on benefited lands under Illinois Drainage Code; railroads own small parcels within the district.
- In 2008-2009, Sny Island deviated from per-acre assessments by applying a benefit-based, non-per-acre method to RPU properties (railroads, pipelines, utilities), increasing 2009 charges significantly for railroads.
- The district employed a multi-step, ad hoc ‘benefit’ calculation (assistance from a lawyer and a district treasurer) to derive high benefit figures, then applied a 6.6% assessment ratio to produce large increases for Kansas City Southern and Norfolk Southern.
- Municipal lands within districts were exempted from the new assessment; several non-RPU commercial/industrial properties outside municipal limits were inconsistently treated, creating what railroads alleged as discrimination.
- The Railroads sued under 49 U.S.C. § 11501(b)(4) alleging the 2009 assessment was “another tax” and discriminatory; Pike County Court approved the petition and the district sent bills in January 2009.
- The district court held the assessment was a tax but concluded there was no proven discriminatory impact; the Railroads appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the 2009 maintenance assessment is an 'other tax' under § 11501(b)(4). | Railroads contend the district’s levy falls within the catch-all 'another tax' category. | Sny Island argues the assessment is a general maintenance charge or fee, not a tax, and thus not within § 11501(b)(4). | Yes; the assessment is a tax under § 11501(b)(4). |
| Whether the District's tax discriminates against rail carriers. | Eight municipal properties were exempt while six non-municipal commercial properties were treated like agricultural land, showing discriminatory treatment against Railroads. | Any discriminatory effects were inadvertent or justified by the district's interpretation of the Drainage Code; intent is irrelevant. | Discrimination established; district's disparate treatment against Railroads was impermissible. |
| What is the proper comparison class for evaluating discrimination under § 11501(b)(4). | Compare railroads to all commercial/industrial taxpayers universal approach. | Compare railroads to other commercial/industrial taxpayers (functional approach); avoid universal or purely competitive classes. | Functional middle-ground: compare railroads to other commercial and industrial taxpayers. |
| What remedy is appropriate for a discriminatory § 11501(b)(4) violation. | Request an injunction to stop discriminatory collection and require non-discriminatory future assessments. | Limit relief to curtailing the discriminatory aspects without invalidating the entire assessment regime. | Remand with injunction limited to eliminating discriminatory effects; allow non-discriminatory repleading of assessments. |
Key Cases Cited
- CSX Transp., Inc. v. Alabama Dep't of Rev., 131 S. Ct. 1101 (2011) (broad interpretation of 'tax' under 4-R Act; catch-all scope of § 11501(b)(4))
- Houck v. Little River Drainage Dist., 239 U.S. 254 (1915) (tax vs. special assessment; public burden vs. local improvements)
- Head Money Cases (Edye v. Robertson), 112 U.S. 580 (1884) (fee vs. tax distinction; revenue-raising vs. special-purpose levy)
- Superior Court v. Burlington Northern R.R. Co., 932 F.2d 1186 (7th Cir. 1991) (tax vs. exaction; discrimination against railroads; general revenues vs. targeted cost-sharing)
- Empress Casino Joliet Corp. v. Balmoral Racing Club, Inc., 651 F.3d 722 (7th Cir. 2011) (distinguishing taxes, fees, and exactions for Tax Injunction Act purposes)
- Kansas City S. Ry. Co. v. Road Improvement Dist. No. 6, 256 U.S. 658 (1921) (taxing district authority and general revenues vs. targeted assessments)
- Atchison, Topeka, and Santa Fe Ry. Co. v. Arizona, 78 F.3d 438 (9th Cir. 1996) (functional vs. competitive comparison for discrimination analysis)
- Lohman v. Burlington Northern Santa Fe Ry. Co., 193 F.3d 984 (8th Cir. 1999) (competitive comparison risks disadvantaging railroads; use functional class)
- McNamara v. Kansas City S. Ry. Co., 817 F.2d 368 (5th Cir. 1987) (reason for not overly narrow comparison group)
- Johnson v. De Grandy, 512 U.S. 997 (1994) (state actions; not directly on 4-R Act but related to jurisdiction/claims)
- Burlington Northern R.R. Co. v. Wisconsin Dep't of Rev., 59 F.3d 55 (7th Cir. 1995) (example of targeting railroads in taxation; discrimination analysis)