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Indian River County v. Rogoff

United States District Court, District of Columbia

August 16, 2016

INDIAN RIVER COUNTY, et al., Plaintiffs,
PETER M. ROGOFF, et al., Defendants. MARTIN COUNTY, FLORIDA, et al., Plaintiffs,


          CHRISTOPHER R. COOPER United States District Judge.

         Fourteen months ago, the Court denied preliminary-injunction motions filed by two Florida counties, Indian River and Martin, which sought to invalidate the U.S. Department of Transportation’s (“DOT’s”) authorization of $1.75 billion in tax-free bonds to be issued to finance a private passenger-rail project known as All Aboard Florida. The Court found that the counties had not met their burden of demonstrating standing because they had failed to show that enjoining DOT’s authorization would significantly increase the likelihood of halting construction on Phase II of the project, the portion that runs through their borders. In other words, Plaintiffs did not demonstrate that an injunction would redress their claimed injury. The Court then granted the counties’ request to conduct jurisdictional discovery against the project’s owner and operator, AAF Holdings, LLC (“AAF”), a second-level subsidiary of the private-equity and asset-management firm Fortress Investments Group. This discovery was designed to provide Plaintiffs an opportunity to uncover evidence to support their assertion that, without the ability to issue $1.75 billion in tax-free private activity bonds (“PABs”), AAF would be significantly less likely to proceed with the project.

         After the close of jurisdictional discovery, DOT (the named defendant in these cases) and AAF (which intervened as a defendant) both moved to dismiss, again arguing that Plaintiffs lack standing because AAF will complete the project with or without PABs. A lengthy hearing followed comprehensive briefing by both counties, DOT, and AAF. Having reviewed Plaintiffs’ several-thousand-page evidentiary submission, including an expert declaration, as well as declarations from AAF officers, the Court concludes that the counties have now met their burden of demonstrating standing. The call is a close one, to be sure. But based on the present record, the Court finds that invalidating DOT’s decision to authorize $1.75 billion in PABs would significantly increase the likelihood that AAF would not complete Phase II of the project. The Court will therefore deny Defendants’ motions to dismiss on that ground.

         On the merits, both counties allege violations of the National Environmental Policy Act (“NEPA”), the National Historic Preservation Act (“NHPA”), the Department of Transportation Act (“DTA”), and Martin County additionally alleges a violation of Section 142 of the Internal Revenue Code, as amended by the Safe Accountable Flexible Efficient Transportation Equity Act (“SAFETEA”). Because Plaintiffs have alleged facts showing that the AAF project qualifies as major federal action, the Court will deny Defendants’ motions to dismiss Plaintiffs’ NEPA, NHPA, and DTA claims. But because Martin County’s asserted interests do not arguably fall within the zone of interests to be protected or regulated by Section 142 of the Internal Revenue Code, the Court will grant Defendants’ motions to dismiss with respect to that claim.

         I. Background

         The history of the All Aboard Florida project and this litigation are discussed at length in the Court’s prior opinion on the counties’ preliminary injunction motion. See Indian River Cnty. v. Rogoff, 110 F.Supp.3d 59, 63-66 (D.D.C. 2015). What follows is a brief overview of the most relevant facts that bear on Defendants’ present motions to dismiss.

         AAF, whose parent company is owned by investment funds managed by the Fortress Investments Group, aims to renew passenger service along the existing corridor of the Florida East Coast Railway (“FECR”) by constructing and operating an express railway between Orlando and Miami. Although the project will be privately owned and operated, AAF has sought public assistance to finance its construction. Among other sources of financing, AAF requested that DOT exempt from federal taxes, subject to certain conditions, $1.75 billion in private activity bonds to be issued by a Florida development agency. AAF would be solely responsible for marketing and repaying the bonds. Indian River and Martin Counties, which are located on the Atlantic coast of Florida, south of Orlando and north of Palm Beach, contend that construction and operation of the railway will cause a variety of environmental harms to them and their residents.[1]

         The project is divided into two phases. In Phase I, AAF intends to provide rail service linking West Palm Beach, Fort Lauderdale, and Miami. Phase I has received private funding and is in development; in fact, it is nearly complete. AAF and the Federal Railroad Administration (“FRA”), an agency of the Department of Transportation, studied the environmental effects of Phase I and issued a Finding of No Significant Impact. In Phase II of the project, AAF seeks to expand the line north from West Palm Beach to Cocoa and then inland to Orlando.

         The project requires a significant capital expenditure. AAF currently estimates the cost of both phases at over $2.9 billion, excluding $600 million worth of land and easements that it has already acquired. Thus far, AAF and its parent company, Florida East Coast Industries (“FECI”), have spent over $612 million on development and construction and expect to commit to spending an additional $200 million. See AAF’s Mot. Dismiss IRC 6.

         To fund Phase II of the project, AAF applied for a $1.6 billion loan through the Railroad Rehabilitation and Improvement Financing program (“RRIF”). RRIF is both a loan and loan-guarantee program administered by the FRA for the development and improvement of railroad tracks, equipment, and facilities. See 49 C.F.R. § 260.5. RRIF loans are subject to NEPA review of the proposed project’s environmental effects. See id. § 260.35. FRA has been acting as the lead agency in preparing an Environmental Impact Statement (“EIS”) and Record of Decision to determine the environmental effects of Phase II prior to making a final determination as to AAF’s loan application. FRA, in cooperation with the U.S. Army Corps of Engineers, U.S. Coast Guard, and Federal Aviation Administration, issued a draft EIS in September 2014 and a final EIS (“FEIS”) in August 2015. The FEIS analyzed a wide range of potential environmental and other consequences of the project and “identifie[d] and evaluate[d] measures that would avoid, minimize, or mitigate impacts that would result from the Project.” FEIS 7-1. FRA has not issued a Record of Decision, nor has it made a determination as to AAF’s loan application under the RRIF program.

         While the RRIF application process was ongoing, AAF requested that DOT exempt from federal taxes $1.75 billion in PABs to finance the remainder of the project. Reininger Decl. Ex. F, Letter from Michael Reininger to Paul Baumer, Office of Infrastructure Finance and Innovation, DOT (Aug. 15, 2014) (“PAB Request”). PABs are bonds issued by state or local government agencies to finance projects of public utility. Under Section 11143 of Title XI of the Safe, Accountable, Flexible, Efficient Transportation Equity Act (“SAFETEA”), Pub L. 109-59 (2005), DOT may designate up to $15 billion in PABs as tax-exempt in order to encourage private development of certain types of transportation projects by giving project owners access to lower-interest debt than might otherwise be available. Reininger Decl. Ex. G. The PABs at issue here would be issued by the Florida Development Finance Corporation (“FDFC”), a Florida development agency, and then sold to investors by AAF, which would be solely responsible for the repayment obligation. Reininger Decl. ¶ 46.

         AAF’s application letter to DOT described the PAB financing as “the linchpin for completing our project” and “a crucial factor in ensuring our project is financed and completed.” PAB Request 1. The letter explained that AAF would use the bond proceeds “across the length of [the] passenger rail system, including the Miami-to-West Palm Beach segment.” Id. The letter concluded, “[W]e are fully committed to deploying the time, energy and resources necessary to complete this project. . . . The private activity bonds . . . will enable us to bring a safe, efficient, cost-effective and environmentally friendly transportation alternative to South and Central Florida.” Id. at 2.

         DOT provisionally authorized the requested $1.75 billion PAB allocation in December 2014. Reininger Decl. Ex. H, Letter from Peter M. Rogoff, Under Secretary of Transportation, to Michael Reininger (Dec. 22, 2014). The authorization came with several conditions, including that (1) DOT’s authorization would automatically expire if the bonds were not issued by July 1, 2016; (2) “regardless of whether [AAF] pursues the RRIF [loan] application, . . . [it must] facilitate FRA’s completion of the environmental review process;” (3) AAF cannot “use the bond proceeds until 45 days following the issuance of the Final [EIS;]” and (4) AAF must “complete and implement the measures specifically set forth in the EIS . . . to avoid, minimize, or mitigate any adverse effects of the Project on the environment.” Id. Having received two extensions, AAF now has until January 1, 2017 to issue the bonds. DOT did not conduct a separate environmental review of the project, apart from FRA’s ongoing review in connection with the RRIF loan application, before issuing the provisional authorization.

         The counties and related plaintiffs filed suit against DOT and two of its officials alleging that DOT’s provisional authorization of PABs prior to the completion of the FRA’s ongoing NEPA review violated NEPA as well as Section 106 of the National Historic Preservation Act and Section 4(f) of the Department of Transportation Act, which set forth procedures for reviewing projects that use land that has been determined to be environmentally or historically significant. Martin County also contends that the All Aboard Florida project is not an eligible use for the bond proceeds under the section of the Internal Revenue Code that authorizes the PAB allocation. AAF has intervened as a defendant in both cases.

         Although the two cases have not been joined, the parties noticed them as related and the counties’ preliminary-injunction motions proceeded along parallel tracks. After the Court denied Plaintiffs’ preliminary-injunction motions in May 2015, it allowed them to conduct jurisdictional discovery to determine the likelihood that AAF would abandon Phase II of the project absent PAB financing. See Minute Order, July 7, 2016. Following the close of jurisdictional discovery, Defendants moved to dismiss the cases under Federal Rule of Civil Procedure 12(b)(1) on the ground that Plaintiffs lack standing, and under Rule 12(b)(6) on the ground that they have failed to state any viable claim.

         II. Legal Standards

         In response to a Rule 12(b)(1) motion to dismiss, the plaintiff bears the burden of establishing jurisdiction by a preponderance of the evidence. See Lujan v. Defenders of Wildlife, 504 U.S. 555, 561 (1992). In order for the Court to have subject-matter jurisdiction over a challenge to agency action, the plaintiff must have standing to sue. Haase v. Sessions, 835 F.2d 902, 906 (D.C. Cir. 1987) (“The defect of standing is a defect in subject matter jurisdiction.”). A court may examine materials outside the pleadings as it deems appropriate in order to resolve the question of its jurisdiction. See Scolaro v. D.C. Bd. of Elections & Ethics, 104 F.Supp.2d 18, 22 (D.D.C. 2000), aff’d, 2001 WL 135857 (D.C. Cir. Jan. 18, 2001) (citing Herbert v. Nat’l Acad. of Scis., 974 F.2d 192, 197 (D.C. Cir. 1992)).

         A motion to dismiss for failure to state a claim under Rule 12(b)(6) should be granted if the allegations in a complaint do not “contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). Although well-pleaded factual allegations must be accepted as true, legal assertions devoid of factual support are not entitled to this assumption. See Kowal v. MCI Commc’ns Corp., 16 F.3d 1271, 1276 (D.C. Cir. 1994).

         III. Analysis

         A. Standing

         The Court is powerless to address the sufficiency of the allegations in the counties’ complaints unless they have standing to bring their claims. To establish standing, a plaintiff must demonstrate (1) an “injury in fact” that is “concrete and particularized” and “actual or imminent, ” and that is also (2) fairly traceable to the defendant’s conduct and (3) likely to be redressed by a favorable judgment. Defenders of Wildlife, 504 U.S. at 560-61. When the plaintiff’s alleged injury “‘depends on the unfettered choices made by independent actors not before the courts and whose exercise of broad and legitimate discretion the courts cannot presume either to control or to predict, ’” then the plaintiff must “adduce facts showing that those choices have been or will be made in such manner as to produce causation and permit redressability of injury.” Id. at 562 (quoting ASARCO Inc. v. Kadish, 490 U.S. 605, 615 (1989)). “The facts . . . must show that the [defendant’s] action is at least a substantial factor motivating the third parties’ actions[.]” Cmty. for Creative Non-Violence v. Pierce, 814 F.2d 663, 669 (D.C. Cir. 1987). “The greater number of uncertain links in a causal chain, the less likely it is that the entire chain will hold true.” Fla. Audubon Soc. v. Bensten, 94 F.3d 658, 670 (D.C. Cir. 1996).

         Here, the counties’ burden is to show that invalidating the PAB authorization would significantly increase the likelihood that AAF would abandon Phase II of the project. See Utah v. Evans, 536 U.S. 452, 464 (2002) (holding that a favorable decision must “significant[ly] increase . . . the likelihood that [Plaintiffs] would obtain relief that directly redresses the injury suffered”). They have met their burden here with their second bite at the apple.

         As DOT correctly observes, see DOT’s Mot. Dismiss IRC 18, the Court essentially made three findings in its opinion denying Plaintiffs’ preliminary-injunction motions that led it to conclude that Plaintiffs had failed to demonstrate their standing to sue: first, that AAF had credibly committed to proceeding with the project even without PAB financing; second, that Plaintiffs had not shown that AAF would be unable to obtain alternative financing in the event its PAB authorization fell through; and third, that Plaintiffs had not shown that relying on alternative financing would imperil the financial viability of the project. See Indian River Cnty., 110 F.Supp.3d at 69-70. The present record-compiled following jurisdictional discovery and viewed in light of developments since the Court’s prior ruling-calls each of those findings into doubt. While it is certainly plausible that AAF would proceed to complete Phase II in the absence of PABs, Plaintiffs have demonstrated a substantial likelihood that AAF could not or would not do so if PAB financing were unavailable.

         1. AAF’s Commitment to the Project

         AAF continues to insist that it “intends to complete the Project, with or without tax-exempt private activity bond financing.” First Decl. P. Michael Reininger ¶ 59. The company acknowledges that “enjoining the allocation of federal tax-exempt status would certainly disrupt the current financing plan, make the project more expensive to complete, and may delay its progress.” Id. ¶ 58. Yet a ruling in Plaintiffs’ favor “would not imperil the Project, ” id., the company’s president explains, because “AAF would proceed with conventional financing, such as taxable bonds, which will necessarily require a higher interest rate and therefore cost far more.” Id. ¶ 60; see also id. ¶ 61 (“Th[e] increased cost would obviously be significant to AAF, but would not prevent it from moving forward with the Project. AAF is committed to the Project and believes it will be able to obtain alternative funding, if need be.”).

         AAF undoubtedly desires to complete the entire project, if it can. But information adduced by Plaintiffs’ through jurisdictional discovery raises legitimate questions about its commitment to doing so without PABs. First of all, PAB-based financing is not just the “current financing plan” for the project-it appears to be the only financing plan.___.___.[2] This strikes the Court as unusual given the uncertainty surrounding the PAB issue, particularly for a company that has expressed its concern with “keep[ing] the Project on schedule and avoid[ing] delay losses.” Id. ¶ 60. ___-casts some doubt as to whether AAF is truly serious about moving forward with Phase II of the project regardless of the outcome of this lawsuit. It also indicates that AAF may have simply assumed that alternative financing would be available___. Although the declarations of AAF’s president are certainly entitled to weight, the company’s ___undercuts AAF’s professed commitment to proceed and its statement that it “has been exploring other sources of financing.” It also makes more likely that AAF was not exaggerating in its application letter to DOT when it described the PAB financing as “the linchpin for completing our project” and “a crucial factor in ensuring our project is financed and completed.” PAB Request 1 (emphases added).[3]

         Furthermore, based on Plaintiffs’ representation of the discovery they received, ___.[4] ___. Not only does this fact call into question the plausibility of AAF's assertion that it could substitute PAB financing (in part) with private equity, but it also raises another question: How can AAF be so sure that equity investors are waiting in the wings___?

         To be sure, AAF has put its money where its mouth is. Yet its financial commitment to the project thus far is heavily weighted toward Phase I. As to Phase II, AAF has spent approximately $182 million, including nearly $57 million to acquire land and easements, an $8 million contribution to the Orlando Intemiodal Transportation Center, and $2.3 million to relocate utilities. It has also pledged $10 million of its assets as collateral for a $10 million irrevocable letter of credit to secure 3.5 years of lease payments at the Orlando station. See Third Reininger Decl. ¶ 7. That spending, according to Plaintiffs' financial expert, adds up to about 13% of the total estimated capital cost of the Phase II portion of the project. See Decl. William H. Purcell ¶ 113. That compares to $430 million AAF has already spent on Phase I, for an overall investment of $612 million (in addition to $600 million worth of land and easements that have been committed to the overall project). See Third Reininger Decl. ¶ 7.

         The difference in spending on the two phases is mainly due to the fact that construction is nearly complete on Phase I: New stations are actively being built in Miami, Fort Lauderdale, and West Palm Beach, and AAF is currently upgrading tracks, grade crossings, bridges, and fiber between Miami and West Palm Beach. See id. ¶¶ 4-5. There is no dispute that construction of Phase I is well beyond the point of no return. See Hr’g Tr. 94:20-21. Construction has not yet begun on Phase II, however, where “preparations . . . are now nearly complete” (or were at the time AAF filed its motion to dismiss). See id. ¶ 3; see also id. ¶ 5 (“The designs for the West Palm Beach to Cocoa Beach line segment are expected to be completed [in February], and the designs for the Cocoa Beach to Orlando line segment are expected to be completed shortly thereafter.”).

         A demonstrated financial commitment to a construction project is certainly important in assessing whether an injunction against government action would affect the project owner’s continuation of the project. See Sierra Club v. Dep’t of Energy, 825 F.Supp.2d 142, 151 (D.D.C. 2011) (finding that enjoining a government loan guarantee would be unlikely to stop completion of a power plant that was already substantially underway). But in this context it is important to recognize the difference between AAF’s demonstrated financial commitment to, and the actual progress it has made toward completing, the first and second phases of the project. AAF views “[t]he connection of Orlando to West Palm Beach, Fort Lauderdale and Miami [as] important to the [overall] project, ” and-given the economies of scale-the Court credits AAF’s representation “that the volume of passenger use on the longest haul, Miami to Orlando, will allow the Project to be far more profitable than it would be were it limited to Miami, Fort Lauderdale, and West Palm Beach”-that is, Phase I. Second Reininger Decl. ¶ 4. Still, in its FEIS connected to the RRIF loan, FRA concluded that “Phase I has independent utility (that is, it could be advanced and serve a transportation need even if Phase II were not constructed).” FEIS S-1. Those assertions are not mutually exclusive by any means. The point is simply that Phase I can (and will, for a time) operate independently of Phase II, and AAF could theoretically cut its losses by scrapping ...

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