National Railroad Passenger Corporation v. Southeastern Pennsylvania Transportation Authority

 United States Court of Appeals
         FOR THE DISTRICT OF COLUMBIA CIRCUIT



Argued December 10, 2021           Decided December 30, 2022

                        No. 21-7021

   NATIONAL RAILROAD PASSENGER CORPORATION, DOING
                 BUSINESS AS AMTRAK,
                      APPELLEE

                              v.

      SOUTHEASTERN PENNSYLVANIA TRANSPORTATION
                     AUTHORITY,
                     APPELLANT


        Appeal from the United States District Court
                for the District of Columbia
                    (No. 1:19-cv-00537)


     W. Eric Pilsk argued the cause for appellant. With him on
the briefs were Charles A. Spitulnik and Paul A. Cunningham.

     Sean Marotta argued the cause for appellee. With him on
the brief were Neil K. Gilman and Catherine E. Stetson.
    Before: ROGERS* and RAO, Circuit Judges.†

    Opinion of the Court filed by Circuit Judge RAO.

     RAO, Circuit Judge: This case concerns the allocation of
rail properties and rail service in the Philadelphia region. The
National Railroad Passenger Corporation—better known as
Amtrak—connects Philadelphia to cities up and down the
Northeast Corridor. The Southeastern Pennsylvania
Transportation Authority, or SEPTA, operates local commuter
trains in Philadelphia and its suburbs. Amtrak and SEPTA
dispute ownership of the Commuter Easement that grants
access to Amtrak’s Philadelphia-area rail lines and stations.
The original owner of the Easement was the now-defunct
Consolidated Rail Corporation (“Conrail”). SEPTA claims that
a series of federal rail statutes gave it an option to acquire the
Easement from Conrail, and that it exercised that right in 1982.
Amtrak claims that when SEPTA tried to acquire the Easement,
Amtrak exercised a contractual right of first refusal and
purchased the Easement, and therefore SEPTA has no right to
access Amtrak’s lines and stations.

    The district court agreed with Amtrak and held the
Easement was never effectively conveyed to SEPTA. We
reverse. Because SEPTA had a public right to acquire the
Easement, Amtrak had no authority to block Conrail from
giving it to SEPTA.




*
 Judge Rogers took senior status after oral argument in this case.
†
  Senior Circuit Judge Silberman was a member of the panel and
participated in oral argument before his death on October 2, 2022.
Judges Rogers and Rao have acted as a quorum with respect to this
opinion. See 

(d).
                                 3
                                 I.

                                 A.

     In response to a series of rail bankruptcies that threatened
the viability of intercity rail travel, Congress passed the
Regional Rail Reorganization Act of 1973 (“Reorganization
Act”). See 

 Stat. 985 (1974) (codified as
amended at 45 U.S.C. §§ 701–797m). In order to turn the
Northeast Corridor “into an economically viable system
capable of providing adequate and efficient rail service,”
Congress created three new entities. 

(b)(2). The
first was the Railway Association, an advisory body with
delegated authority to develop a comprehensive Final System
Plan for reallocating the properties of the Corridor’s bankrupt
railroads among still-viable service providers. See 

 §§ 711–
12, 716–17. Second, Congress created a Special Court to order
the conveyance of these properties in the manner set out in the
Final System Plan, see id. §§ 719(b), 743(b)(1), and vested that
court with “original and exclusive jurisdiction” over all
disputes relating to the Plan, id. § 719(e). Finally, Congress
created Conrail, a private, for-profit railroad company charged
with providing rail service on some of the defunct companies’
lines. See id. §§ 741–42.

    The Railway Association published the Final System Plan
in 1975.1 The Plan made three property designations that are
central to this case. First, it directed that Philadelphia-area lines
and stations primarily used for passenger service between
northeastern cities would be initially conveyed to Conrail and
then immediately reconveyed to Amtrak. Second, the Plan

1
  Pursuant to the Reorganization Act, the Railway Association
submitted the Final System Plan to Congress, and the Plan was
“deemed approved” when neither house passed a resolution of
disapproval. See 

(a).
                               4
“reserve[d] to ConRail appropriate trackage rights for the
operation of commuter services” along the lines given to
Amtrak, as well as a right to access and use associated
“[s]tations, yards, [and] maintenance and service facilities.”
Third, the Plan directed that Conrail’s rights to use and access
Amtrak’s Philadelphia-area lines and stations would be
“available for purchase or lease” by SEPTA, consistent with 

(c)(1)(D), if SEPTA chose to provide commuter
service itself. The Plan referred to this purchase-or-lease right
as SEPTA’s “option interest.”

     SEPTA did not initially exercise its purchase-or-lease
option, choosing instead to pay Conrail to offer commuter
service on its behalf. In 1976, Conrail therefore acquired the
bankrupt rail companies’ Philadelphia-area tracks, stations,
and associated facilities and handed over to Amtrak those
properties designated by the Plan. At the same time, Conrail
and Amtrak memorialized Conrail’s rights to access and use
Amtrak’s lines and stations through the Commuter Easement
that is at the heart of this case.

     The Commuter Easement’s terms expressly identified it as
the “easement and right … contemplated for retention by
[Conrail] under the Final System Plan” so that Conrail could
provide “commuter passenger service to the full extent required
by the [Reorganization] Act.” Cf. Trustees of Prop. of Penn
Cent. Transp. Co. v. Consol. Rail Corp., 

 (Reg’l Rail Reorg. Ct. 1978) (“The transfer of [Northeast
Corridor] … properties from ConRail to Amtrak was thus not
a purchase in the ordinary sense but a division of rights in the
conveyed properties between two governmentally supported
corporations in a manner designed to effectuate the
transportation plans of Congress.”). The Easement entitled
Conrail to operate commuter service on Amtrak’s tracks and to
use Amtrak’s terminals and stations jointly with Amtrak. In
                                5
return, Conrail agreed to pay Amtrak the cost of operating the
rail service. Finally, if Conrail ever “elect[ed] to abandon or
assign” the Easement to a third party, Conrail agreed to give
Amtrak “a first option to acquire such easement, or portion
thereof, at the purchase price of one dollar ($1.00).”

                                B.

     By the early 1980s, it had become increasingly clear that
the railroad reforms had not achieved their stated purposes.
Conrail, in particular, was hemorrhaging money. Congress
decided to wind down Conrail’s commuter operations and to
transfer its commuter service to local commuter entities.
Northeast Rail Service Act of 1981 (“NERSA”), 

, 

, 644–45 (codified at 

). Under NERSA, Conrail would no longer provide
commuter services. 

 § 1136, 95 Stat. at 647 (codified at 45
U.S.C. § 744a). Local transportation authorities could take
over Conrail’s commuter services. Id. § 1137, 95 Stat. at 647–
49 (repealed 1994). Pursuant to NERSA, SEPTA executed a
transfer agreement with Conrail in which SEPTA committed to
provide commuter service in the Philadelphia region as of
January 1, 1983, and Conrail agreed to convey the Commuter
Easement (among other rail properties) to SEPTA before that
date.

     Amtrak got wind of SEPTA and Conrail’s talks in August
1982. Amtrak wrote to Conrail, insisting that Conrail could not
give the Easement to SEPTA without allowing Amtrak to
exercise its right of first refusal. In response, Conrail explained
that Congress had given SEPTA a statutory right in NERSA to
acquire the Easement, and so Conrail was required to convey
the Easement to SEPTA. Conrail then conferred with the
Department of Transportation, which directed Conrail to
convey the Easement to SEPTA. On December 22, 1982,
                               6
Amtrak invoked its right of first refusal and tendered the one-
dollar payment to Conrail. Conrail returned the payment,
explaining again that it was required to convey the Easement
to SEPTA.

     On December 29, Amtrak instituted an arbitration
proceeding against Conrail, seeking a declaration that Conrail
could not convey the Easement to SEPTA without first
permitting Amtrak to exercise its right of first refusal. SEPTA
was not a party to the Amtrak-Conrail arbitration agreement,
and so was not joined in the arbitration proceeding. Two days
later, Conrail conveyed the Easement to SEPTA via a quitclaim
deed. SEPTA immediately began operating commuter service
on the lines formerly run by Conrail.

     After the arbitration panel ruled in Amtrak’s favor, Amtrak
asked SEPTA to provide a quitclaim deed for the Easement.
SEPTA declined and recorded its deed in the appropriate
Pennsylvania counties. To comply with the arbitration panel’s
decision, however, Conrail gave Amtrak a second quitclaim
deed to the Easement. Amtrak again asked SEPTA to convey
its Easement to Amtrak, and SEPTA again refused. Amtrak
took no further action to clarify the Easement’s ownership.
Amtrak now claims that, upon its receipt of the second
quitclaim deed from Conrail, the Easement merged into
Amtrak’s title to the underlying properties and was
extinguished by operation of law.

     In the final months of 1982—when Amtrak, SEPTA, and
Conrail were haggling over the Easement—Amtrak and
SEPTA separately negotiated an agreement over their shared
use of Amtrak’s Philadelphia-area rail properties, which they
finalized on December 23 (“Access and Services Agreement”).
Amtrak agreed to “permit SEPTA access to the [Northeast
Corridor] and provide the type and level of services currently
                               7
provided to SEPTA by Conrail.” In return, SEPTA agreed to
pay Amtrak $795,000 per month for the “use of [Amtrak’s]
facilities and for [its] provision of services and train
operations.” These “services” and “operations” were not ones
to which the owner of the Easement was entitled by right.
Rather, as explained above, the Easement simply entitled its
owner to access and use Amtrak’s lines and stations, not to also
receive rail-related “services” and operational support from
Amtrak. The parties’ Access and Services Agreement remains
in effect today.

     Amtrak and SEPTA also eventually executed a thirty-year
lease (“Station Lease”), pursuant to which Amtrak gave
SEPTA access to forty-seven of its stations in the Philadelphia
region. SEPTA, in turn, paid Amtrak a nominal annual rent of
one dollar and agreed to maintain the stations on Amtrak’s
behalf.

                              C.

     In the run-up to the Station Lease’s expiration in 2019,
Amtrak and SEPTA began negotiating a new agreement.
Instead of the one dollar that SEPTA had been paying, Amtrak
requested an “annual fair market rent of $1.5 million … with
an annual escalation rate of 2%.” Petition by Se. Penn. Transp.
Auth. for Relief Under 

, 

,
at *2 (S.T.B. Mar. 27, 2019) (cleaned up). This would be in
addition to the monthly $795,000 that SEPTA paid under the
Access and Services Agreement. SEPTA insisted that, as the
Easement’s owner, it was entitled to use Amtrak’s stations for
a far smaller amount—namely, the costs Amtrak incurs by
permitting SEPTA to use its stations to provide commuter
service. According to Amtrak, this was the first time SEPTA
had claimed ownership of the Easement since the early 1980s.
                                8
The parties’ negotiations broke down, and this litigation
ensued.

     Seeking a declaration that SEPTA did not own the
Easement, Amtrak sued SEPTA in the U.S. District Court for
the District of Columbia. SEPTA counterclaimed, asking for a
declaration that it owned the Easement, a declaration that it had
a statutory right under the Plan and NERSA to access Amtrak’s
stations, and an injunction prohibiting Amtrak from denying it
access to them. Both parties moved for summary judgment.

      The district court held that SEPTA did not own the
Easement. See Nat’l R.R. Passenger Corp. v. Se. Penn. Transp.
Auth. (“SEPTA II”), 

, 33 (D.D.C. 2021). By
its terms, the Easement gave Amtrak a right of first refusal if
Conrail “shall elect to abandon or assign” it to a third party.
The court reasoned that NERSA permitted SEPTA to enter
negotiations over Conrail’s properties but did not guarantee
that such negotiations would succeed. See 

. Conrail’s
decision to convey the Easement was therefore an election,
triggering Amtrak’s right of first refusal. See 

.

      The district court next found that Amtrak validly exercised
its right of first refusal when it tendered the required one-dollar
consideration to Conrail, and that Conrail’s rejection of
Amtrak’s payment was ineffective. 

 Finally, the court
rejected SEPTA’s argument that it had a “statutory right to the
Commuter Easement” that “trumps Amtrak’s right of first
refusal.” 

. Because Amtrak had properly exercised its
right of first refusal and subsequently acquired the Easement,
SEPTA did not own it.

    SEPTA timely appealed. “We review the District Court’s
grant and denial of summary judgment de novo.” Mayo v.
Reynolds, 

 (D.C. Cir. 2017).
                                 9
                                II.

     The parties do not dispute our subject matter jurisdiction
on appeal.2 Nonetheless, we have an independent obligation to
“assure ourselves of both the district court’s and our own
jurisdiction.” Wagner v. FEC, 

 (D.C. Cir.
2013).

     The Reorganization Act’s Special Court was created to
order the conveyances of rail properties and resolve disputes
regarding such conveyances. City of N.Y. v. Nat’l R.R.
Passenger Corp., 

 (D.C. Cir. 2015). In
1996, the Special Court’s jurisdiction over disputes related to
the Final System Plan was transferred to the District Court for
the District of Columbia. See 

(b)(2). We have
read this grant of jurisdiction “to include any issue relating to
conveyance orders or agreements entered pursuant to
conveyance orders,” including a “deed implementing a
[Reorganization] Act conveyance order.” City of N.Y., 

 (cleaned up); see also 

(e)(2). Here,
the Easement was created pursuant to a conveyance order: in
its conveyance to Amtrak, Conrail reserved an easement,
securing Conrail’s trackage rights under the Final System Plan.
To determine whether the Easement was properly acquired by
SEPTA requires interpreting the language of the Final System
Plan and the Easement created pursuant to it. Because this case

2
  SEPTA argued below that the district court lacked jurisdiction
because of a jurisdiction stripping provision in NERSA, § 1137, 95
Stat. at 652. The district court denied SEPTA’s motion to dismiss
Amtrak’s complaint for lack of subject matter jurisdiction because
Congress repealed this jurisdiction stripping provision nearly three
decades ago. See Nat’l R.R. Passenger Corp. v. Se. Penn. Transp.
Auth. (“SEPTA I”), 

, 4 (D.D.C. 2019) (citing Act
of July 5, 1994, 

, 

, 1379, 1392
(49 U.S.C. prec. § 101)).
                               10
raises an issue relating to conveyance orders, the district court
had jurisdiction under 

(e)(2), and we have
jurisdiction under 

.

                               III.

     Turning to the merits, we conclude that SEPTA possessed
a public right to acquire the Easement in 1982, and therefore
Amtrak’s right of first refusal—a provision inserted into the
Easement’s operating agreement between Conrail and
Amtrak—could not impede SEPTA’s exercise of its option
rights under the Plan.

                               A.

     It is an ancient principle that “privatorum conventio iuri
publico non derogat”—or simply that private contracts cannot
abrogate public laws. DIG. 50.17.45.1 (Ulpian, Ad Edictum
30). The Supreme Court has long recognized this principle,
explaining, “Contracts, however express, cannot fetter the
constitutional authority of Congress. … If the regulatory statute
is otherwise within the powers of Congress, therefore, its
application may not be defeated by private contractual
provisions.” Connolly v. Pension Benefit Guar. Corp., 

, 223–24 (1986). This principle explains why SEPTA’s
right to acquire the Easement persisted despite Amtrak’s right
of first refusal.

     The Final System Plan, developed pursuant to a statutory
directive and deemed approved by Congress, entitled SEPTA
to acquire the Easement from Conrail.3 As explained above, the
Plan “reserve[d] to ConRail appropriate trackage rights for the

3
 SEPTA also argues that NERSA entitled it to acquire the Easement.
Because the Final System Plan gave SEPTA a right to acquire the
Easement from Conrail, we need not address that argument.
                               11
operation of commuter services” on Amtrak’s lines, as well as
access to associated stations. Separately, the Plan provided
SEPTA may purchase or lease Conrail’s trackage rights on
lines given to Amtrak, along with Conrail’s interests in the
stations, structures, and facilities “associated with [the same]
rail lines.” Under the Plan, Conrail’s rights were contingent: it
was entitled to use Amtrak’s properties to provide commuter
service only if SEPTA chose not to purchase or lease Conrail’s
rights to use Amtrak’s lines and stations. If SEPTA elected to
do so, then Conrail was required to sell or lease those rights to
SEPTA.

     Conrail’s access rights were memorialized in the
Easement, which entitled Conrail to enjoy all the rights to
access and use Amtrak’s lines and stations designated to it in
the Plan. But Conrail’s rights remained subject to the Plan’s
condition—namely, that SEPTA would not “purchase or lease”
Conrail’s rights for its own use. In 1982, SEPTA did just that,
informing Conrail that it had chosen to purchase all the
property rights Conrail used to provide commuter service.
Under the Plan, Conrail was required to convey to SEPTA its
rights to access and use Amtrak’s lines and stations. At the
time, these rights took the form of the Easement.

     Because Conrail was required by the Plan to convey the
Easement to SEPTA on SEPTA’s exercise of its option,
Amtrak’s contractual right of first refusal could not block the
conveyance.4 On this point, the Court’s decision in Preseault
v. ICC, 

 (1990), is instructive. That case centered on
an easement for train lines that traversed private land in
Vermont. After the lines went unused for many years, the
Special Court converted the lines into pedestrian trails. Under

4
 Amtrak could have invoked its right of first refusal to block the
Easement’s conveyance to other third parties, just not to SEPTA.
                               12
Vermont law, that would have extinguished the easement by
abandonment. See Lague, Inc. v. Royea, 

 (Vt.
1989); cf. RESTATEMENT (THIRD) OF PROPERTY: SERVITUDES
§ 7.4 (AM. L. INST. 2000). Congress, however, had specified
that the conversion of a federally regulated rail line into a
pedestrian trail did not constitute abandonment. See 

(d). As the Court recognized, that congressional
directive trumped the property owner’s reversionary interest
under state law. See Preseault, 494 U.S. at 5–9. Here, likewise,
SEPTA’s right under the Plan to acquire Conrail’s access to
Amtrak’s rail properties trumped Amtrak’s right of first refusal
under the Easement.

     When it considered this same question in 1982, the
Railway Association—the entity that drafted the Final System
Plan—came to the same conclusion. The Final System Plan, it
explained, “granted two independent sets of trackage rights
over the Corridor concurrently.” First, “Conrail was granted
such trackage rights as were necessary” for the Northeast
Corridor properties transferred from Conrail to Amtrak—the
trackage rights disputed here. Second, the Plan “also reserves
the same appropriate trackage rights … for transportation
authorities,” in the form of an option interest to purchase those
rights from Conrail. Therefore, “Conrail’s title [to the
Easement] was subject” to SEPTA’s trackage rights granted
under the Final System Plan. “These rights had no termination
date associated with them and, therefore, continue to the
present time.” In other words, Conrail reserved its right to the
Easement when it transferred the Northeast Corridor properties
to Amtrak, but it did so subject to SEPTA’s independent
“option interest” to purchase the Easement.

     In sum, SEPTA maintained its option to lease or purchase
trackage rights under the Plan, and this public option could not
                                 13
be abrogated by the private conditions Conrail and Amtrak
placed on the Easement’s ownership.

                                 B.

     Amtrak raises two primary arguments against this
conclusion, but neither is persuasive.5 First, Amtrak points out
that the Plan did not, by its terms, give SEPTA a right to acquire
the Easement and that “[t]he rights discussed in the Final
System Plan are distinct from the rights contained in the
Commuter Easement.” Of course, the Plan did not specifically
identify the Easement by name, since that instrument postdated
the Plan. But the Plan did entitle SEPTA to purchase or lease
from Conrail the same rights designated to Conrail for the
provision of commuter service. In 1982, Conrail’s rights took
the form of the Easement. Short of conveying the Easement to
SEPTA, therefore, Conrail had no way to honor SEPTA’s
option right to “purchase” them.



5
  We also reject Amtrak’s threshold claim that SEPTA’s request for
declaratory relief is untimely. Amtrak maintains SEPTA should have
sued in the 1980s, after the arbitration decision in favor of Amtrak.
But Conrail had delivered the Easement to SEPTA, and SEPTA was
not bound by the arbitral award because it was not a party to the
arbitration agreement. 21 WILLISTON ON CONTRACTS § 57:19 (4th
ed.). Moreover, Amtrak permitted SEPTA to use its stations for one
dollar per year plus maintenance costs—terms consistent with
SEPTA’s ownership of the Easement. SEPTA had no reason to
invoke the Easement until 2019, when the parties disputed the terms
for a new station lease. In general, the statute of limitations for a
declaratory judgment does not begin to run until “a substantial
controversy” materializes. See MedImmune, Inc. v. Genentech, Inc.,

 (2007). Such controversy did not materialize until
2019, and SEPTA’s claim is therefore timely under any statute of
limitations identified by the parties.
                               14
     Attempting to distinguish SEPTA’s Plan rights from its
claim to the Easement, Amtrak points out that, in order to gain
access to Amtrak’s lines and stations, SEPTA was required to
negotiate a “reasonable reimbursement of costs” with Amtrak.

(c). Amtrak suggests, in other words, that
SEPTA did not have a unilateral right to acquire the Easement,
because it was required by NERSA to contract with Amtrak for
access to its lines and stations. But that same reasonable-
reimbursement condition also attached to Conrail’s initial
trackage and station access rights. That is why, in the
Easement, Conrail agreed to reimburse Amtrak for the cost of
operating rail service. The distinction that Amtrak posits is no
distinction at all. Conrail had a property right under the Plan to
use Amtrak’s lines and stations in order to provide commuter
service and was required to provide reasonable reimbursement
to exercise that right. Similarly, SEPTA had an option under
the Plan to purchase or lease from Conrail the right to use
Amtrak’s lines and stations, so long as SEPTA provided a
reasonable reimbursement to Amtrak if and when it chose to
exercise its option.

      Second, Amtrak argues that even if the Plan gave SEPTA
such an acquisition right, the Plan could not compel Conrail “to
convey something Conrail never received—a Commuter
Easement free of Amtrak’s right of refusal.” For the reasons
given above, this argument rests on the false premise that
Conrail and Amtrak were free to insert a right of first refusal
clause that would be effective against SEPTA. Because the
Plan gave SEPTA a right to purchase Conrail’s rail properties,
and because Conrail’s right to use and access Amtrak’s lines
and stations took the form of the Easement, Amtrak’s right of
first refusal was a legal nullity with respect to SEPTA. That is
to say, Conrail was required to convey the Easement to SEPTA
and Amtrak’s right of first refusal could not block that
conveyance.
                              15
     The district court’s additional reasons for rejecting
SEPTA’s ownership claim over the Easement also fail to carry
the day for Amtrak. The district court explained that there was
no conflict between SEPTA’s option under the Plan and
Amtrak’s right of first refusal because Conrail could have
simply leased access to Amtrak’s properties and there would
have been no property left in Conrail’s control for SEPTA to
purchase. Nat’l R.R. Passenger Corp. v. Se. Penn. Transp.
Auth. (“SEPTA I”), 

, 4 (D.D.C. 2019). But
this hypothetical arrangement is not the case before us. Conrail
did, in fact, retain the Easement. And SEPTA chose to purchase
all of Conrail’s property rights for the provision of commuter
service, which included the Easement. As the bearer of a public
“option interest” under the Plan, it was SEPTA’s prerogative
to choose whether, when, and how to purchase or lease
Conrail’s “trackage rights for the operation of commuter
services.”

     The district court also observed that since 1982, SEPTA
and Amtrak have entered into agreements governing their
shared use of Amtrak’s properties. The district court reasoned
that if SEPTA in fact owned the Easement, these agreements
would have been unnecessary. See SEPTA II, 518 F. Supp. 3d
at 33. We find, however, that the parties’ course of dealings is
not inconsistent with SEPTA’s ownership of the Easement.
While SEPTA leased stations from Amtrak, it paid just one
dollar for them. On the other hand, SEPTA paid Amtrak
considerable sums under the Access and Services Agreement,
which is still in effect and extends beyond rights under the
Easement.

                             ***

    For the foregoing reasons, we hold that the Final System
Plan gave SEPTA a right to acquire the Easement, that
                             16
Amtrak’s right of first refusal could not block the Easement’s
conveyance to SEPTA, and that the Easement was validly
conveyed from Conrail to SEPTA in 1982. The judgment of the
district court is therefore

                                                    Reversed.