# Opposition Brief — North Rockland Central School District v. Consolidated Rail Corp.

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Opposition Brief
- **Published:** January 1, 1995
- **Citation:** 515 U.S. 1122

## Text

Nos. 94-1776; 94-1787; 94-1789 Yevviona twin
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IN THE

Supreme Court of the Gnited tates

OCTOBER TERM, 1994 =

12 1992

CLERK

NORTH ROCKLAND CENTRAL SCHOOL DISTRICT,
Petitioner,
Vv.
CONSOLIDATED RAIL CORPORATION,
Respondent.

ERIE COUNTY,
Petitioner,
Vv.
CONSOLIDATED RAIL CORPORATION,
Respondent.

STATE BOARD OF EQUALIZATION AND ASSESSMENT

OF THE STATE OF NEW YORK AND DAVID GASKELL,

IN HIS OFFICIAL CAPACITY AS EXECUTIVE DIRECTOR

OF THE DIVISION OF EQUALIZATION AND ASSESSMENT
AND HIS SUCCESSORS IN OFFICE,
Petitioners,
Vv.
CONSOLIDATED RAIL CORPORATION,

Respondent.

On Petitions for Writ of Certiorari to the United
States Court of Appeals for the Second Circuit

CONSOLIDATED BRIEF IN OPPOSITION

GREGORY G. FLETCHER JOHN F. FANSMITH

Counsel of Record Associate General Counsel
BAKER, DONELSON, BEARMAN CONSOLIDATED RAIL

& CALDWELL CORPORATION
20th Floor Two Commerce Square
First Tennessee Building 2001 Market St., Floor 16-A
165 Madison Avenue Philadelphia, PA 19103
Memphis, TN 38103
(901) 526-2000

{additional counsel listed on inside front cover} h ¥%

JAMES W. MCBRIDE JAMES N. BLAIR
BAKER, DONELSON, BEARMAN LOSELLE, GREENWALT, KAPLAN,

& Caldwell BLAIR & ADLER
801 Pennsylvania Ave., N.W. Two Grand Central Tower
Suite 800 42nd Floor
Washington, D.C. 20004 140 East 45th Street

New York, New York 10017

Counsel for Respondent

QUESTIONS PRESENTED

Dissatisfied with the petitioners’ presentation of the
questions presented, respondent states the questions as
follows:

I. Whether a federal court may determine the true
market value of railroad property under U.S.C. §11503 (a
statute which forbids states from taxing rail transportation
property at discriminatory ratios of assessed value to true
market value) based on appraisal methods different from
the state’s "chosen valuation method?"

II. Whether a federal court may certify a
defendants’ class under Fed. R. Civ. Pro. 23(b)(3) where
the class is comprised of more than 700 taxing jurisdictions
(each of which collects property taxes from the same
railroad-taxpayer), where the amount of tax in most
jurisdictions is based on railroad values fixed by a common

State agency, and where the principal dispute involves the
true market value of the railroad’s property and the
validity under federal law of the taxable values
determined by the state agency?

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i PERLE CTS SD ie UNE RAE EAC MIS SA Al Rae i BS RR ey By a!

LIST OF PARTIES TO THIS PROCEEDING AND
RULE 29.1 STATEMENT

Petitioners are four co-defendants who have filed
three separate petitions for certiorari: pétitioner in No.
94-1776 is North Rockland Central School District ("North
Rockland"), a tax levying and collecting jurisdiction within
Rockland County, New York; petitioner in No. 94-1787
is Erie County, New York ("Erie County"), a subdivision
of the State of New York and a tax levying and collecting
jurisdiction; and petitioners in No. 94-1789 are the State
Board of Equalization and Assessment of the State of
New York, an agency of the State of New York, and
David Gaskell, the Executive Director of the Division of
Equalization and Assessment (referred to collectively as
the "SBEA").

Respondent in all three cases is the plaintiff below,
Consolidated Rail Corporation ("Conrail"), a wholly-owned
subsidiary of Conrail, Inc., the shares of which are publicly
traded. Subsidiaries and affiliates of Conrail, Inc. and
Consolidated Rail Corporation that are not wholly-owned
are:

Akron & Barberton Belt Railroad Company;
Albany Port Railroad Corporation;

Amtech Logistics Corp.;

Belt Railway Company of Chicago;

Calumet Western Railway Company;

CU Energy Partnership, L-P.;

Indiana Harbor Belt Railroad Company;
Lakefront Dock & Railroad Terminal Company;
Locomotive Management Services;

Nicholas, Fayette & Greenbrier Railroad Company;
Peoria & Pekin Union Railway Company;

ii

Triple Crown Services Company;
TTX Company; and
Railroad Association Insurance, Ltd.

TABLE OF CONTENTS

Page
QUESTIONS PRESENTED .nscccvcccccccsess ili
LIST OF PARTIES TO THIS PROCEEDING .... iv
TABLE. Gi CAG RMTEE cessive sccesecscones vi
TABLE OF AUTHORITIES 2... ccc cscccsvnces Vili
ee GL eT Tere Cre Te TET Tee 3
Bak me errr rrr rT eer rer TTT errr 3
STATUTORY PROVISIONS INVOLVED ...... 4
COUNTERSTATEMENT OF THE CASE ...... 5
1. 49 U.S.C. $11503 and Prior Decisions of
This Court Interpreting It. ......... 5
2. The New York Litigation. ............ 6
REASONS FOR DENYING THE WRIT ....... 11
1. The Petitions Seek Review of an Order
on Appeal From an Interlocutory
oo eee eee ee eee ee See ee ee 11

IV

2. The First Question Presented (Whether
A State’s "Chosen Valuation
Method" Is Subject To Challenge) Is
Not Sufficiently "Clear-cut" And
Informed By The Record To
Warrant Certiorari. ..........+-.-

3. With Regard to the Issue of Class
Certification, No Conflict Exists
Among the Circuit Courts, or
Between the Decisions Below and
the Decisions of This Court. .......

4. The Second Issue Raised By The SBEA
(Whether §11503 Requires A State
To Apply The Same Method Of
Valuing Commercial Industrial
Property As It Uses For Railroads)
Meets None Of The Criteria Of
Supreme Court Rule 10. ........-.

5. The SBEA’s Third Issue (Whether
§11503 Requires A Sales Assessment
Ratio Study) Meets None Of The
Criteria Of Supreme Court Rule
rr er re ee ee ee

o

No Special Or Important Reasons Exist
For Granting The Writ. ...........

7. The Cost Savings Predicted If Certiorari
Is Granted Are Unlikely. ..........

oi & 6). ¢ | re ee ee

12

20

22

23

FURS TE be Peds ceeewin chad abi vssa ss 28

vi

TABLE OF AUTHORITIES

Cases Page

Aloha Airlines v. Director of Taxation of Hawaii, 464 U.S.
FE a eke bi hark bho keds eee neks 23

American Construction Co. v. Jacksonville, Tampa & Key
ON My 190 Was Sie CRE) on vnc vcccccasvess 11

Brotherhood of Locomotive Firemen and Enginemen vy.
Bangor & Aroostook R.R., 389 U.S. 327 (1967) .... 11

Burlington Northen R.R. v. Oklahoma Tax Comm’n., 481
Se COTE A a koa eed eee ke ower ons 4,6

Chesapeake Western Ry. v. Forst, 938 F.2d 528, (4th Cir.
1991), cert denied, __ US. __, 112 S.Ct. 1577, 118
Ree ME EUITD 6 5 hha ee eda wb hee ews bees 8

Clinchfield R.R. v. Lynch, 784 F.2d 545
oe in De ETS ETT ee SO EE en:

Hanson v. East Lincoln Township, 814 F.2d 410 (7th Cir.
a Pee eee ere ee ree Pere nmr 20

Matter of Brooklyn Union Gas, 65 N.Y.2d 472, 492
Fe ae Oe EE os 65 49 4550 ok 18

Ogilvie v. State Board of Equalization, 492 F. Supp. 446,
451 (D.N.D. 1980), aff'd, 657 F.2d 204
Ree Ge SEs hee eseo hes oe be eek een oe

People ex rel. Lehigh Valley Ry. v. Harris, 168 Misc. 685, 6
Oy. Ya 796 (Sap. Ce. 1958) ow cc ccc ccc ccees 18

Vii

People ex rel. Lyford v. Allen, 286 App. Div. 621, 146
NM. 2h SCENE «bec ccdecaveneeskvsaeeeaas 18

People ex rel. New York Central R.R. v. Thompson,
156 Misc. 536, 282 N.Y.S. 269 (Sup. Ct. 1935) ..... 18

Randolph Central School District v. Alrich, ___ USS.
113 S. Ce. 440, 121 L.2idk. 2d 359 (1992) .... 2.2000. 12

Richmond Fredericksburg & Potomac R.R. v. Forst, 4 F.3d
re | eee er ee reer ee Te 24

Souther Ry. v. State Board of Equalization, 715 F.2d 522,
523 (11th Cir. 1983) cert. denied, 465 U.S. 1100

SOD Sb c oe ke eee kkd bOcEE NOS POs eee 23
Ticor Title Insurance Co. v. Brown, __ US. , 1148.
em. Be RF eo. | Peer ere 25
United States v. General Motors Corp., 323 U.S. 373,
Se reer reer ee ee ee eee ee 12
Virginia Military Institute v. United States, US ;
113 SCX. 2634, 124 Ls G5 (1999) .w cae seas 11
Statutes and Rules Page
Ce a eo ba Ae eee passim
yA eR err re ere Sa eee ere 5
PG, tae ea i a vo dan ee 0k ae be eee 7
Pi, Bes Ss sO Ab ee ead es been ek es 9, 19, 20

viii

Other Authorities
7 AC. Wright, A. Miller, and M. Cane, Federal Practice

and Procedures, $1775 (2d ed. 1986)............ 20
Newberg on Class Actions, Vol 1, $4.65
(36 OG. TOPE) on ccc cst ences eeuecsesese 19, 20

Nos. 94-1776; 94-1787; 94-1789

IN THE
Supreme Court of the United States

OCTOBER TERM, 1994

NORTH ROCKLAND CENTRAL SCHOOL DISTRICT,
Petitioner,
v.

CONSOLIDATED RAIL CORPORATION,
Respondent.

ERIE COUNTY,
Petitioner,
v.

CONSOLIDATED RAIL CORPORATION,
Respondent.

STATE BOARD OF EQUALIZATION AND ASSESSMENT
OF THE STATE OF NEW YORK AND DAVID GASKELL,
IN HIS OFFICIAL CAPACITY AS EXECUTIVE DIRECTOR
OF THE DIVISION OF EQUALIZATION AND
ASSESSMENT AND HIS SUCCESSORS IN OFFICE,
Petitioners,
v.

CONSOLIDATED RAIL CORPORATION,
Respondent.

CONSOLIDATED BRIEF OF RESPONDENT IN
OPPOSITION TO PETITIONS FOR WRIT OF
CERTIORARI TO THE UNITED STATES COURT OF
APPEALS FOR THE SECOND CIRCUIT

OPINIONS BELOW

The opinion of the United States Court of Appeals
for the Second Circuit (reprinted in Appendix A to the
petitions, pp. Al-A27) is reported at 47 F.3d 473. The
oral findings of the United States District Court for the
Southern District of New York, dated January 7, 1994
(reprinted in Appendix A to the petitions, pp. A28-A43)
are unreported; the preliminary injunction order entered
by the district court January 25, 1994 (reprinted in
Appendix A to the petitions, pp. A44-A49) is unreported.
The order of the district court certifying the defendants’
class (reprinted in Appendix A to the petitions, pp. A50-
A54) is unreported.

JURISDICTION

The jurisdictional grounds are adequately stated in
the petitions. The petitions seek review of an
interlocutory order of the Second Circuit affirming the
grant of a preliminary injunction and the certification of
a defendants’ class.

STATUTORY PROVISIONS INVOLVED

This case involves Section 306 of the Railroad
Revitalization and Regulatory Reform Act of 1976, Pub.
L. No. 94-210, 90 Stat. 54 (1976) ("Section 306"), now
codified at 49 U.S.C. §11503.

The language of 49 U.S.C. $11503 as codified
differs from the language of Section 306. The codification
cannot, however, be construed as making any substantive
change to the meaning of Section 306. See, Pub. L. No.
95-473, $3(2), 92 Stat. 1466 (1978); Burlington Northern
R.R. v. Oklahoma Tax Comm’n., 481 U.S. 454, 458 n.1
(1987). Section 306 is reprinted in Appendix A to this
Brief; the provisions of 49 U.S.C. §11503 are reprinted in
Appendix A to the petitions, pp. A55-A57.

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COUNTERSTATEMENT OF THE CASE

Dissatisfied with petitioners’ respective statements
of the case, Conrail adopts as its counterstatement the
Second Circuit’s description of the case as set forth in
Appendix A to the petitions, pp. Al through All, and
states the following:

1. 49 U.S.C. §11503 and
Prior Decisions of This Court Interpreting It.

The federal statute at issue in this case, 49 U.S.C.
§11503, prohibits state tax discrimination against interstate
rail carriers and declares certain state conduct - such as
the discriminatory assessment of rail transportation
property for ad valorem tax purposes - an unreasonable
burden on interstate commerce. $11503(c) expressly
confers jurisdiction on federal district courts to grant such
equitable relief as may be necessary to prevent violations
of the Act, notwithstanding 28 U.S.C. $1341, the amount
in controversy or the citizenship of the parties.

The specific subsection at issue, §11503(b)(1),
prohibits a state or its subdivisions from assessing rail
transportation property at a higher ratio of assessed value
to “true market value" than other commercial and
indusirial property in the same assessment jurisdiction. As
is apparent from the statutory formula prescribed by
§11503(b)(1), an unlawful assessment can result from the
overvaluation of railroad property relative to its true
market value; from the underassessment of other
commercial and industrial property relative to its true
market value; or from a combination of both factors.

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In Burlington Northen R.R. v. Oklahoma Tax
Comm’n., 481 U.S. 454 (1987), this Court reversed a
Tenth Circuit decision which held that a railroad could not
complain under §$11503 of the overvaluation of its
property by state officials absent a "strong showing of
purposeful overvaluation...with discriminatory intent."’
This Court ruled that "in order to compare the actual
assessment ratios [under $11503(b)(1)], it is necessary to
determine what the ‘true market values’ are." 481 U.S. at
461. This Court rejected the proposition that state-
determined values are "not subject to further judicial
scrutiny in the federal courts," 481 U.S. at 462, but
reserved the issue of whether a railroad may "challenge in
the district court the appropriateness of the accounting
methods by which the State determined the railroad’s
value." 481 U.S. at 464 n.5.?

2. The New York Litigation.

In this case, Conrail’s real property was subjected
to ad valorem tax in New York for the 1993 tax year
based on assessed values calculated by the SBEA and
certified by the SBEA to local assessors. The SBEA’s
aggregate assessments of Conrail’s New York property for
the 1993 tax year exceeded those calculated by the SBEA
for 1992 by more than 70%.

' Burlington Northern R.R. v. Oklahoma Tax Comm’n., No. 85-
1657 (10th Cir. May 2, 1986) slip op at 3, rev'd, 481 U.S. 454 (1987).

2

The only other case to come before this Court under §11503,
Dept. of Rev. of Oregon v. ACF Industries, Inc., __ U.S. __, 114
S.Ct. 843, 127 L.Ed.2d 165 (1992), involved §11503(b)(4), a subsection
not at issue in this case.

In calculating Conrail’s assessments, the SBEA
used a valuation procedure which the SBEA has described
as a "cost approach.”® In essence, the SBEA estimated
the "reproduction cost new less depreciation (RCNLD)"
of Conrail’s track structure and improvements and the
value of Conrail’s land. The SBEA then multiplied these
cost estimates by a statutorily-prescribed "economic
factor’ which reduced the SBEA’s cost estimates to a
"taxable value."®

Based on an independent appraisal which
considered Conrail’s capitalized income, the market value
of Conrail’s debt and equity securities, and the
depreciated historical cost of Conrail’s assets, Conrail filed
this suit alleging that the "true market value" of its real
property in New York was less than half the SBEA’s
estimate of “taxable value," and that the SBEA’s
assessments of Conrail’s property were discriminatory
within the meaning of $11503(b)(1). Conrail sought a
preliminary and permanent injunction prohibiting the
further assessment, levy or collection of the discriminatory
portion of Conrail’s 1993 ad valorem taxes.

In its complaint and motion papers, Conrail sought
preliminary relief under Fed. R. Civ. Pro. 65(d) against

> Brief For Defendants-Appellants before the Second Circuit,
p.6.

* New York Real Property Tax Law (RPTL), §489-hh.

> The SBEA multiplied Conrail’s "taxable value” within each
jurisdiction by the SBEA’s "state equalization rate” to produce
Conrail’s "railroad ceiling” - or its maximum assessed value - within
each jurisdiction. See Affidavit of Peter Mafilios, Nov. 17, 1993, 1919,
20.

the SBEA and all New York assessing, levying or
collecting jurisdictions who had used the SBEA’s "railroad
ceilings” as the basis for taxing Conrail’s rail transportation
property. In the alternative, Conrail sought certification
of a defendants’ class (comprised of the more than 700
New York assessing, levying or collecting jurisdictions to
which Conrail pays ad valorem tax annually) and
requested a preliminary injunction against the class.

Petitioners opposed Conrail’s motion for
preliminary injunction and moved to dismiss on the
ground that the district court had no jurisdiction under
§11503 to consider a challenge to the SBEA’s "chosen
valuation method," and that Conrail was limited merely to
challenging errors in the SBEA’s "application" of its

"chosen valuation method." Petitioners relied on
Chesapeake Western Ry. v. Forst, 938 F.2d 528, (4th Cir.
1991), cert. denied, __ U.S. __, 112 S.Ct. 1577, 118

L.Ed.2d 220 (1992), in which the Fourth Circuit held that
$11503 "does not provide a basis for parties to challenge
a State’s preferred accounting method." Petitioners (other
than the SBEA) also opposed class certification.

The district court below granted Conrail’s motion
for preliminary injunction,® and the Second Circuit
affirmed, declining to follow Chesapeake. The Second
Circuit stated:

The Chesapeake court viewed the method of
appraisal as a matter of state policy that

® The SBEA states in its petition, p.9, that the preliminary
injunction was granted "[wjithout an evidentiary hearing.” This is
true; but no party requested the opportunity to produce live witnesses
and all evidence was submitted on affidavit and counter-affidavit.

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was beyond the reach of the 4-R Act. We
do not accept that interpretation of the
statute. What the 4-R Act prohibits is
discrimination against railroads in the ratios
of two sets of numbers: assessed values and
true market values of the railroad’s property
vis-a-vis those of other commercial and
industrial properties. To avoid the
prohibited discrimination, the SBEA must
apply the same valuation standards and
methods to the railroad property as are
used on the commercial and industrial
properties to which it is compared. If the
Act were to be interpreted, as defendants
would have it, so that the SBEA could
adopt a special appraisal method for
railroads alone, then the whole
nondiscrimination objective of the statute
could be circumvented.

47 F.3d at 482; App. A to petitions, pp. A19-20.

The district court also certified a defendants’ class
(comprised of all New York assessing, levying or collecting
jurisdictions to which Conrail pays ad valorem tax) under
Fed. R. Civ. Pro. 23(b)(3). Reviewing the certification
order under principles of "pendant appellate jurisdiction,"
the Second Circuit affirmed, holding that the case met
each of the criteria of Fed. R. Civ. Pro. 23(a)(1) through
(a)(4), and that common issues predominated within the
meaning of Rule 23(b)(3).

This case has proceeded through discovery as a
class action for more than fifteen months and no class
member has opted out. Discovery in this case is virtually

complete, except for the exchange of expert witness
reports and the depositions of the parties’ experts. This
case has also been preliminarily consolidated for trial with
a related case involving the 1994 tax year, in which a
preliminary injunction has also issued.’

Consolidated Rail Corporation v. State Board of Equalization
and Assessment of the State of New York, No. 94 Civ. 6764 (CLB),
(S.D.N.Y., complaint filed Sept. 16, 1994).

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REASONS FOR DENYING THE WRIT

1. The Petitions Seek Review of an Order on Appeal
From an Interlocutory Decree.

Generally, this Court will await final judgment in
the lower courts before exercising its certiorari jurisdiction
irrespective of whether the case meets the criteria of
Supreme Court Rule 10.° Virginia Military Institute v.
United States, __ US. , 113 S.Ct. 2431, 2432, 124
L.Ed.2d 651 (1993). Under long-established principles,
this Court will not review an order of the circuit court on
appeal from an interlocutory decree unless certiorari is
"necessary to prevent extraordinary inconvenience and
embarrassment in the conduct of the cause." American
Construction Co. v. Jacksonville, Tampa & Key West Ry.,
148 U.S. 372, 382-385 (1893); see also, Brotherhood of
Locomotive Firemen and Enginemen v. Bangor & Aroostook
RR, 389 US. 327, 328 (1967); generally, R. Stern, E.
Gressman, & S. Shapiro, Supreme Court Practice $4.18, pp.
224-226 (6th Ed. 1986).

The petitions in this case seek review of an
interlocutory order of the Second Circuit affirming the

. Although a conflict exists between the Fourth Circuit’s

decision in Chesapeake and the Second Circuit’s decision here, no
conflict exists between this case and the Ninth Circuit’s decision in
Burlington Northern R.R. v. Dept. of Rev., 23 F.3d 239 (9th Cir. 1994),
despite the SBEA’s assertions to the contrary. (SBEA petition, p.18).
In Burlington Northern, the trial court permitted the railroad to
introduce proof of its true market value by “valuation methods"
different from those used by the state and rejected certain of the
State’s appraisal "methods." Although the district court deferred to
the state’s techniques under Washington’s burden of proof rules, it
did not circumscribe in any way the railroad’s appraisal evidence.

11

district court’s grant of a preliminary injunction and
certification of a defendants’ class. The decisions of the
courts below are based on a partial record and
preliminary findings of fact, and are not final. This Court
should decline to exercise its jurisdiction to decide the
issues presented until it has had the benefit of a full
evidentiary record, final findings of fact and conclusions of
law by the district court, and final appellate review by the
court of appeals.

2. The First Question Presented (Whether A State’s
"Chosen Valuation Method" Is Subject To Challenge) Is
Not Sufficiently "Clear-cut" And Informed By The Record
To Warrant Certiorari.

Although certiorari may be granted in an
interlocutory case where there exists "an important and
clear-cut issue of law that is fundamental tc the further
conduct of the case," Randolph Central School District v.
Alrich, __ US. , 113 S. Ct. 440, 121 L.Ed.2d 359
(1992); United States v. General Motors Corp., 323 USS.
373, 377 (1945), this is not such a case. The first question
presented, while simply stated, is not sufficiently "clear-
cut" for this Court to make a studied and informed
decision at this stage of the proceedings.

In Burlington Northen R.R. v. Oklahoma Tax
Comm’n., 481 U.S. 454 (1987), this Court held
unequivocally that federal courts have jurisdiction under
§11503 to determine railroad valuation issues. This case
presents the narrower question of wheiher such
jurisdiction is somehow limited by a state’s choice of
railroad valuation "methods." If certiorari is granted,
petitioners will no doubt endorse a_ restrictive
interpretation of federal jurisdiction along the lines of

12

a

Chesapeake, notwithstanding Congress’ objectives and the
absence of any language in §11503 which circumscribes
the federal courts’ power to determine "true market
value." Conrail, by contrast, will advocate a plain-
language interpretation of §11503 which allows railroads
to establish the "true market value” of their property by
any valuation technique consistent with generally-accepted
appraisal principles.

To evaluate the parties’ arguments regarding the
proper construction of $11503(b)(1), this Court should
have a clear picture of the purpose and financial theory
underlying the competing "methodologies" involved in this
case, and of the full economic and practical consequences
of foreclosing federal judicial scrutiny of a state’s "chosen
valuation method." The continued efficacy of §11503 as
an anti-discrimination measure may depend on this
Court’s construction, and this Court should not undertake
the analysis without a solid legal and factual predicate.

At this preliminary stage of the proceedings, there
are a number of legal and factual disputes and positional
uncertainties bearing on the question presented, the
existence of which argues forcefully against a grant of
certiorari. These include:

a. What is the reach of the jurisdictional rule

advocated the petitioners? If certiorari is granted,
petitioners apparently will urge upon this Court a variant
of the Chesapeake rule, which precludes federal judicial
scrutiny of a state’s "chosen valuation method" but permits
a railroad to challenge the state’s "application" of its
method. 938 F.2d at 531. However, no lower court has
yet defined what constitutes "methodology" or what

13

constitutes "application" of methodology.’ In the context
of this case, the SBEA has not yet defined what it means
by its "chosen valuation method," nor defined what it
means by "application." While the basic steps of the
SBEA’s railroad appraisal procedure are well known, it is
not clear which specific steps the SBEA regards as
sacrosanct and which steps are subject to challenge.'°

For example, one of the steps in the SBEA’s
appraisal procedure involves calculation of an "economic
factor," by which the SBEA reduces its estimate of the
railroad’s “reproduction cost new less depreciation” to a
“taxable value." Conrail’s experts have attacked the
economic factor as an arbitrary adjustment that is utterly
meaningless from a market value perspective. Is Conrail
permitted to challenge the SBEA’s economic factor under
the "application" exception to the Chesapeake rule, or is
Conrail foreclosed from any challenge to the SBEA’s
economic factor because it represents the state’s "chosen
valuation method?"

Because there has been no trial, the parameters of
the restrictive rule endorsed by petitioners in theory have
not been defined in practice, nor subjected to lower court
consideration. Without a full factual record, it is

. The Seventh Circuit has described the distinction between

"methodology" and “application of methodology” as "ephemeral."
Burlington Northern R.R. v. James, 911 F.2d 1297, 1301 (8th Cir.
1990).

10 It is not sufficient for the SBEA to claim that every step in
its process of calculating railroad ceilings is "methodology" immune
from challenge. If adopted, such an interpretation would gut
Burlington Northern R.R. v. Oklahoma Tax Comm’n., and require the
federal court merely to accept the state’s appraised value.

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impossible for any appellate court to determine where the
line between "methodology" and "application" should be
drawn or, for that matter, whether it can or should be
drawn at all.

b. What is the purpose of the valuation procedure
to which the SBEA would require federal courts to defer?
The SBEA itself has taken contradictory positions on this
issue: on the one hand the SBEA asserts that its valuation
procedures are designed to calculate a "partial exemption"
known as the "railroad ceiling," not to “value railroad
property for purposes of a property tax."’’ On the other
hand, the SBEA asserts that its railroad ceilings are
"established by using a standard method of valuation
chosen by the state legislature known as the cost
approach."””

Although the SBEA’s "railroad ceilings" are
indisputably used by local assessors as the basis for
railroad taxes in the vast majority of New York assessing
jurisdictions, the SBEA’s "railroad ceilings” are not based

n "true market value" estimates, nor were they designed
to be. If the SBEA’s method is not intended to reflect or
estimate "true market value,” it will do so only by
coincidence.

It must be emphasized that no witness for the
SBEA (or any other defendant) has yet testified that the
values calculated for Conrail’s property by the SBEA
represent "true market value." Although the SBEA asserts

11

p.6.

Brief of Defendants-Appellants before the Second Circuit,

12 Ibid.

15

in its petition, p.8, that "the SBEA calculated the true
market value of Conrail’s property for 1993 as $974
million,” no one from the SBEA has testified that $974
million was a "true market value" estimate for Conrail’s
realty, or that $974 million was intended to represent "true
market value." Indeed, the SBEA employee who
calculated the number expressly disavowed on deposition
any opinion that $974 million represents "true market
value" and described the number instead as, "[T]he
resulting number after applying the economic factor to the
estimated reproduction cost. I would not call it a true
market value."

Thus, this Court should not be asked to foreclose
federal judicial scrutiny of the SBEA’s valuation
procedures until discovery and trial are complete and this
Court knows the real purpose of the SBEA’s procedures.

c. Do the S ’s valuati ocedu e )
with normal railroad appraisal principles, such _ that
reasonably knowledgeable persons would d the result

as_an indicator of "true market value"? No lower court
has ever decided whether, under the Chesapeake rule, a
state’s methodology must bear some relationship to
generally accepted appraisal principles in order to be
immune from challenge.'* Although the SBEA asserts

_ Deposition of Peter Mafilios, Aug. 2, 1994, pp. 100-102.

‘4 In Conrail’s view, even if Chesapeake is correct, the

methodology chosen by the state must at the very least be capable of
determining true market value if correctly applied. If the state does
not even attempt to determine true market value, but rather applies
a mechanistic formula that was never designed to produce an
indicator of true market value, railroads must be able to challenge
that formula in court.

16

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that its valuation procedures are consistent with normal
appraisal principles,’* its valuation procedures
indisputably resulted in a 70% increase in Conrail’s
assessments in a single year without any significant change
in Conrail’s inventory of property in New York during the
year. If the SBEA’s valuation procedures produced the
correct market value in 1992, how can they produce a
number 70% higher in 1993 and still be correct?!“

Conrail’s experts have also described the SBEA’s
procedures as disconnected from market value and
economically arbitrary. Since the courts below have
addressed this issue in only preliminary fashion, Conrail
respectfully submits that this Court should have the
benefit of a full evidentiary record and the analysis of the
lower courts before deciding it.

d. What are the requirements of New York law

with respect to the valuation of railroad property?

Petitioners make much of the requirements of New York
law regarding the valuation of railroad real property and

'3 Brief of Defendants-Appellants before the Second Circuit,
p.6.

'4 The SBEA asserts in its petition, p.10, that the district court
"implicitly affirmed the correctness of the state’s chosen valuation
method” by basing its 1993 injunction on the SBEA’s 1992 railroad
ceilings for Conrail. This is incorrect for two reasons: (1) the district
court’s injunction was plainly intended to enjoin the tax windfall to
local jurisdictions resulting from the 70% increase in Conrail’s
assessments between 1992 and 1993, not to "affirm" any method; and
(2) the SBEA’s valuation method changed between 1992 and 1993.
Which "chosen valuation method" did the district court "implicitly
affirm": the SBEA’s 1992 method, or the 1993 method which
produced a 70% increase in assessed value?

17

assert that New York law "prohibits the use of the ‘unitary
method’ as well as a capitalization and stock and debt
approach to value." (SBEA petition, p.11.) Although
Conrail denies the state’s methods are controlling under
§11503, Conrail also disputes the petitioners’
characterization of New York law.

Before establishment of New York’s "railroad
ceiling" procedure in 1961, reproduction cost was
presumed to be the upper limit of taxable value for
railroad realty. People ex rel. Lyford v. Allen, 286 App.
Div. 621, 146 N.Y.S. 186, 188 (1955). Other evidence of
value was admissible, however, to establish a lower value.
Lyford; People ex rel. Lehigh Valley Ry. v. Harris, 168 Misc.
685, 6 N.Y.S.2d 794 (Sup. Ct. 1938); People ex rel. New
York Central R.R. v. Thompson, 156 Misc. 536, 282 N.Y.S.
269 (Sup. Ct. 1935). Although reproduction cost was
incorporated into the "railroad ceiling" procedure, this
procedure was designed to fix tax limits and does not
purport to estimate "true market value." Because of the
existence of the railroad ceiling procedure, the
“permissible approaches" to valuing railroad real property
from a market value perspective have not been examined
by New York courts for more than 30 years. (The
seminal "specialty property” cases in New York which
approve of reproduction cost, e.g, Matter of Brooklyn
Union Gas, 65 N.Y.2d 472, 492 N.Y.S.2d 598 (1985) do
not involve railroads.)

Contrary to the SBEA’s assertions, certain aspects
of New York’s current "railroad ceiling" procedure do
incorporate "unitary" concepts, such as the SBEA’s use of
uniform data for estimating the cost of track structure
throughout the state and the SBEA’s use of system-wide
earnings to calculate the "economic factor." Furthermore,

18

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in its own public documents, the SBEA has described its
current system as "duplicative, poorly understood, and
fragmented," and has strongly endorsed a_ unitary
approach to valuing railroad property.'°

All of the foregoing legal and factual subissues
underscore the practical and semantical difficulty of
crafting a jurisdictional rule based on_ perceived
distinctions between "method" and "application of method"
and argue against certiorari at this time.

3. With Regard to the Issue of Class Certification, No
Conflict Exists Among the Circuit Courts, or Between the
Decisions Below and the Decisions of This Court.

Two petitioners, Erie County and North Rockland,
argue that the Second Circuit "erred" in affirming the
district court’s decision to certify a defendants’ class under
Fed. R. Civ. Pro. 23(b)(3). However, these petitioners
merely reargue the merits of the district court’s
certification order and cite no conflict among the circuits
with respect to the appropriateness of a defendants’ class
under Fed. R. Civ. P. 23(b)(3).

The class certification issue is not appropriate for
certiorari because there is no disagreement among the
federal courts (or even the commentators) that a
defendants’ class may be certified under Rule 23(b)(3).
See, eg. Newberg on Class Actions, Vol. 1, §4.66
(3d ed. 1992) and the cases cited therein. While some
courts and commentators have argued that Rule 23(b)(2)
does not allow certification of a defendants’ Class, no

1S SBEA Survey of Railroad and Utility Taxation Among the

States, December 1993.

19

similar controversy surrounds Rule 23(b)(3). See, e.g., 7A
C. Wright, A. Miller and M. Cane, Federal Practice and
Procedure, §1775 (2d ed. 1986); Newberg on Class Actions,
Vol. 1, $4.65 (3d ed. 1992). Thus, Erie County’s citation
of a Rule 23(b)(2) case for the proposition that the lower
courts are "confused," Hanson v. East Lincoln Township,
814 F.2d 410 (7th Cir. 1987), proceedings deferred, 484 U.S.
1001 (1987), is simply inapposite.

Petitioners argue that New York assessing
jurisdictions "[{act] independently in fixing the assessed
values of Conrail’s taxable properties within [their]
boundaries" and that the district court erred in identifying
questions of law and fact which are common to the
members of the class and which predominate. (Erie
County petition, p.21.) However, the district court
specifically rejected petitioners’ factual premise and held
that the vast majority of New York’s assessing jurisdictions
actually tax Conrail’s property on the basis of taxable
values fixed by the SBEA, not by local assessors. Thus,
although petitioners continue to dispute the facts, they
present no legal issue worthy of certiorari.

4. The Second Issue Raised By The SBEA (Whether
§11503 Requires A State To Apply The Same Method Of
Valuing Commercial and Industrial Property As It Uses
For Railroads) Meets None Of The Criteria Of Supreme
Court Rule 10.

The SBEA presents the question of whether
§11503 “require[s] a state to apply the same method of
valuing other commercial and industrial property as it
applies to rail transportation property." (SBEA petition,
p.i.) This is not an issue insofar as Conrail is concerned,

20

and is based on a misreading of the Second Circuit’s
opinion.

The Second Circuit’s decision does not "require"
states to value commercial and industrial property in any
particular manner. The Second Circuit merely observes
that, if cost, market and income approaches are used for
commercial and industrial properties to estimate market
value, those approaches should also be considered for
railroad properties. The Second Circuit does not reverse
the $11503 equation as petitioners Suggest, nor require
states to treat commercial and industrial properties in the
same way railroads are treated. As in all §11503 cases,
New York remains free to tax its citizens in any form it
chooses, so long as it does not tax the railroad industry in
a discriminatory manner.

Thus, the SBEA’s second question presented is a
non-issue which merits no consideration by this Court.

5. The SBEA’s Third Issue (Whether §11503 Requires A
Sales Assessment Ratio Study) Meets None Of The
Criteria Of Supreme Court Rule 10.

The SBEA argues that the lower courts erred by
accepting Conrail’s preliminary statistical evidence
regarding the "ratio of assessed value to true market
value" of other commercial and industrial property. The
SBEA asserts that §11503(c) "requires" proof by a
‘random sampling method known as a sales assessment
ratio study," and that Conrail’s evidence was not a sales
assessment ratio study. (SBEA petition, pp. 24-26.)

The SBEA cites no conflict among the decisions of
the lower courts on this evidentiary issue because none

21

exists. The lower courts have long recognized that, while
§11503(c) expresses an evidentiary preference for the
results of a sales assessment ratio study, courts have wide
discretion to consider other evidence. See, e.g., Clinchfield
R.R. v. Lynch, 784 F.2d 545, 554 (4th Cir. 1986) (personal
property studies); Ogilvie v. State Board of Equalization,
492 F. Supp. 446, 451 (D.N.D. 1980), aff'd, 657 F.2d 204
(10th Cir. 1981) (appraisals of public utilities).

The SBEA’s real complaint is that the district court
accepted Conrail’s statistical evidence, particularly
Conrail’s calculation of the state-wide average level of
assessment for commercial and industrial property (which
was based on the SBEA’s own data). It must be
emphasized, however, that Conrail also introduced
preliminary evidence of pervasive discrimination on a
jurisdiction-by-jurisdiction basis (also using the SBEA’s
commercial and industrial data and_ estimation
procedures). Furthermore, at the trial of this case,
Conrail intends to introduce sales assessment ratio study
analyses of unlawful discrimination on a jurisdiction-by-
jurisdiction basis.

Thus, as the Second Circuit has already held, the
district court did not abuse its discretion in accepting
Conrail’s preliminary statistical proof of the level of.
assessment of other commercial and industrial property,
and the SBEA has presented no ground for certiorari on
this issue.

6. No Special Or Important Reasons Exist For Granting
The Writ.

Petitioners argue this case is important because the
decision below has an "impact on the comity between the

22

federal courts and state governments that is essential to
the principles of federalism," and the preliminary
injunction has “affected virtually every local municipal
budget in New York State.""© (SBEA petition, p. 27;
Erie County petition, p. 25.)

As this Court noted in Aloha Airlines v. Director of
Taxation of Hawaii, 464 US. 7, 14 n. 10 (1983),
impairment and disruption of state finances are inevitable
consequences of congressional regulation of state taxation.
As this Court specifically held in Burlington Northern R.R.
v. Oklahoma Tax Comm’n., 481 U.S. at 464, comity and
disruption to local finances are irrelevant considerations
in §11503 cases. See also, Southern Ry. v. State Board of
Equalization, 715 F.2d 522, 523 n.1 (11th Cir. 1983), cert.
denied, 465 U.S. 1100 (1984).

Conrail’s property in New York comprises less than
1% of the taxable value in the vast majority of New York
assessing jurisdictions in which it operates. If a portion of
those taxes is unlawfully exacted, it cannot be collected,
irrespective of good purposes for which it might be used.

7. The Cost Savings Predicted If Certiorari Is Granted
Are Unlikely.

Petitioners assert that immediate review is
necessary to furnish guidance on the further conduct of
the case and to aid them in the selection of valuation
experts. Petitioners argue that, if this Court grants
certiorari and forecloses federal judicial scrutiny of the

16 ‘This is hyperbole; Conrail operates in less than one-third of

the municipal districts of the state leaving more than two-thirds
unaffected by this litigation.

23

state’s "chosen valuation method," petitioners will be
spared the expense of retaining valuation experts to rebut
the appraisals of Conrail’s experts. (SBEA petition, p.29;
Erie County petition, p.25.)

This argument presupposes that, if this Court
endorses petitioners’ restrictive rule, Conrail’s
overvaluation claim will disappear and obviate the
necessity for any valuation experts. This will not
happen.'’ Although a successful petition by the
defendants might result in fewer factual issues to be tried,
the remaining valuation issues will be substantial and
complex, and valuation experts will still be necessary on
both sides. Thus, the economies petitioners predict are
chimerical.

The real issue raised by this case is what factors
and evidence of "true market value” may the district court
consider in determining the "true market value" of railroad
property. Even the restrictive Chesapeake rule recognizes
that railroads are entitled to produce "independent
evidence" of their true market value, provided the railroad
"limits its evidence to factors that may properly be taken
into account under the State’s chosen methodology."
Richmond Fredericksburg & Potomac R.R. v. Forst, 4 F.3d
244, 250 (4th Cir. 1993) (explaining Chesapeake). Thus,
Conrail intends to introduce expert evidence at trial
regarding the SBEA’s "misapplication" of its own
methodology so there will be sufficient facts on the record
for an appellate court to review the trial court’s decision

17 Unless this Court reverses Burlington Northem RR. v.
Oklahoma Tax Comm’n. ‘and holds that overvaluation claims are not
legally cognizable under §11503, Conrail will be litigating its true
market value in federal court.

24

Ld
aS

On appeal even if this Court eventually decides that
Chesapeake is correct. Since the SBEA and the other
petitioners will likely reject Conrail’s expert testimony on
"misapplication" issues and rely on expert witnesses of
their own, the petitioners will have to pay valuation
experts regardless of the legal framework within which
they testify.

It must be emphasized that petitioners have already
engaged valuation experts familiar with the case. In
opposing Conrail’s application for preliminary injunction
in the 1994 case, petitioners tendered expert witnesses
who use many of the same railroad valuation techniques
advocated by Conrail’s experts. Some of these same
petitioners’ experts have also assisted petitioners’ counsel
in planning and conducting documentary discovery in this
case. Thus, petitioners have already retained experts who
have performed substantial work on this case and, in
seeking certiorari, petitioners simply hope to avoid paying
some of these experts for preparing "true market value"
appraisals. While such cost savings may be of practical
importance to the litigants, they are no reason for granting
certiorari. See, e.g, Ticor Title Insurance Co. v. Brown,
__ US. ___, 114 S. Ct. 1359, 1362, 128 L.Ed.2d 33
(1994).

CONCLUSION

Although 49 U.S.C, §11503 is important legislation,
the principal issue presented by the petitions raises
numerous subsidiary issues of law, of fact, and of
judgment that should be analyzed within the context of a
full record, including final analysis by the courts below.
Denial of the petitions at this stage of the proceedings
does not preclude petitioners from raising these same
issues in a later petition after final judgment. The
petitions should, therefore, be denied.

26

Respectfully Submitted,

Gregory G. Fletcher
Counsel of Record
Baker, Donelson,
Bearman & Caldwell
20th Floor

First Tennessee Bldg.
165 Madison Avenue
Memphis, TN 38103
(901) 526-2000

James W. McBride

Baker, Donelson,

Bearman & Caldwell

801 Pennsylvania Ave. NW
Suite 800

Washington, D.C. 20004

James N. Blair

Loselle, Greenawalt, Kaplan,
Blair & Adler

Two Grand Central Tower
42nd Floor

140 East 45th Street

New York, New York 10017

John F. Fansmith
Associate General Counsel
Consolidated Rail Corp.
Two Commerce Square
2001 Market Street,

Floor 16-A

Philadelphia, PA 19103

27

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386012_1677%3A2. Public record. Not legal advice.