What to Consider if You Have a Rail Line on Your Property

David E. Benz, counsel in Thompson Hine’s Transportation practice group.

WASHINGTON, DC—Is there a freight rail line on your property? If so, do you know what the implications are? Those are a few of the questions locally based David E. Benz, counsel in Thompson Hine’s Transportation practice group, addresses in the exclusive commentary below. “If you are a business owner, then the rail line on your property may be used for your business operations—such as transportation of various commodities, whether raw materials or manufactured goods,” he says. “Alternatively, you may not be a current user of rail transportation, yet you still may have a rail line on your property.” In either case, Benz explains, it is advisable to consider the many consequences arising from a rail line’s presence because they could prove materially relevant to the operations of your business. The article below provides a brief overview of some legal and commercial implications of having a freight rail line on your property. The views expressed are the author’s own. Track Ownership Ownership of the track is one consideration. Sometimes the owner of the actual track – the “steel on the ground” – is not the same as the owner of the underlying real estate; it is possible, for example, that an easement is held by the owner of the track across your property. Conversely, if you do own the track, then you likely also have the track’s maintenance obligation unless it has been contractually assumed by another party. Federal law might apply to such track maintenance because safety requirements of the Federal Railroad Administration (FRA) apply not just to tracks owned by railroads, but also to some tracks owned by non-railroads. Therefore, if you own a rail line, it is possible that you need to comply with FRA track safety standards. Track Usage Usage of the track is also important. If a railroad operates on the track, then, depending on the character of both the railroad and the track, a common carrier obligation may attach to the railroad’s operations, meaning that the railroad must provide rail service on “reasonable request” pursuant to 49 U.S.C. § 11101. Most railroads are common carriers subject to this obligation; these include not only well-known names like Norfolk Southern and BNSF, but also hundreds of smaller regional and “short-line” railroads. However, occasionally what appears to be a typical railroad is actually a private switching carrier that is neither subject to common carrier law nor authorized for common carrier operations. Such carriers generally operate in and near industrial or port facilities under contract with the facility owner. Rail lines owned by common carriers are either common carrier lines under 49 U.S.C. § 10901 or “excepted track” under 49 U.S.C. § 10906. A common carrier obligation only attaches to § 10901 track. Distinguishing between common carrier track and excepted track requires evaluation of details related to the track and how it is used; in close calls, the determination is made by the federal Surface Transportation Board (STB).   Agreements Many agreements could apply and impart rights and liabilities regarding the rail line on your property. For example, if a common carrier railroad is operating on track that you own, you may have an Industry Track Agreement (ITA), Side Track Agreement or other similar agreement pursuant to which the operations occur. If you do not have an ITA but such rail operations are nonetheless occurring on your track, then there are strategic considerations involved in whether to create an ITA and otherwise formalize this aspect of your relationship with the railroad. Many railroads have significant market power, and there is no common carrier obligation requiring railroads to operate on privately-owned track. In other words, the railroad might require onerous liability terms in an ITA. These considerations must be balanced, of course, with issues of insurance and risk management. Absent an agreement prohibiting such use, the railroad might use a privately-owned track for the storage or switching of third parties’ rail cars – meaning that rail cars containing unknown commodities could occasionally be on your track. In an ITA, you could attempt to limit the presence of third-party rail cars, or set the terms for such use as part of your negotiating strategy. If the track on your property is owned by a railroad, you may have an Easement Agreement, Track Lease or some other agreement with the railroad. An Easement Agreement would likely represent permission granted to the railroad to construct the track and then operate via that track on your property; your business may not even be a user of the rail transportation provided. A Track Lease suggests a more involved relationship with the local railroad. A Track Lease is customarily used when a railroad, as the lessor, leases certain of its track to a rail customer, as the lessee, so that the customer can store rail cars and/or operate its private switching locomotives on the track. Preemption When rail lines are involved, preemption of state and local law is possible depending on the ownership and usage of the relevant rail line. Preemption is potentially game-changing for various disputes. For example, state and local governments are not permitted to require pre-construction or pre-operation permits for certain kinds of track or rail-related facilities; this means that local opposition cannot prevent construction or operation of covered track and facilities. As a second example, preemption also generally bars state law nuisance complaints about noise and vibration from certain rail operations. The determination of state law property rights is generally not preempted, however, meaning that issues like interpreting an easement agreement and establishing exact property boundaries remain under state and local law. Rail Operations by Your Business If your business conducts rail operations on the rail line using a trackmobile or locomotive, various other considerations come into play. Numerous FRA regulations could apply to such operations in areas such as employee training, drug testing and locomotive safety standards. However, these rail operations would be exempt from FRA regulations if the so-called “plant railroad” exception applies. A careful assessment of the circumstances surrounding the rail operations is necessary to determine whether they represent a “plant railroad” free from FRA rail operation standards. If your business is providing rail operations of any kind, this also raises the question of STB licensing and whether unauthorized common carrier operations are being provided. Unless the goal is to be a common carrier railroad, your business needs to be very careful in providing any rail services for neighboring businesses or other third parties. Although it is possible to provide private rail switching services to a third party without implicating the STB’s regulation of common carriers, extreme caution should be exercised. If STB jurisdiction is implicated, then such rail services could be considered unauthorized common carrier operations in violation of the STB’s licensing statutes. Rail operations also may implicate the railroad retirement system. If your business does own or operate a common carrier railroad, then your rail employees are entitled to special railroad retirement and unemployment benefits administered by the Railroad Retirement Board (RRB) under federal law. These benefits exceed those available to non-railroad employees, and covered employers must pay special payroll taxes for their railroad employees. Reporting and recordkeeping obligations also apply to such employers pursuant to RRB regulations. Track Crossings Crossings of rail lines are frequently an issue. Crossings include not just vehicular and pedestrian crossings on the surface but also wires and pipelines, whether overhead or underground. Obviously, safety issues are implicated in any crossing, and your business should have a Crossing Agreement apply regardless of whether you own the rail line being crossed or the roadway, wire or pipe doing the crossing. If safety would be comprised or rail operations would be unreasonably hindered by a crossing, it may be lawful for a railroad to prohibit a crossing of its rail line. At the same time, many entities wishing to build public roads, wires or pipelines may have the right of eminent domain under state law. Again, evaluation of the relevant facts would enable your business to best make use of applicable law. Conclusion This article is intended to provide a brief introduction to some of the many issues that can arise in dealing with and benefitting from a rail line on your business property. We hope this article has been helpful as you consider the various legal and practical implications arising from the existence of such a rail line.