The high-speed rail project (HSR) faces many serious legal challenges. The next HSR board meeting will be held this Tuesday in Sacramento and has scheduled a two hour closed session on legal issues, before their public meeting begins. They will be discussing four actions they have pending in the courts.
The latest one decided was the Prop 1A suit. (Tos,Fukuda, Kings County) The court ruled against the High-Speed Rail Authority, which was no doubt a stunning surprise for the board members and the Governor. Judge Michael Kenny ruled they abused their discretion and approved an illegal funding plan in opposition to the terms of the voter bond measure, Prop 1A. A remedies hearing, which will decide the consequences, is on the docket for November 8, 2013.
There is also a challenge regarding an old environmental case, referred to as the Atherton case, and is in the courts at the appellate level. The Attorney General’s (AG) office is making the case that California Environmental Quality Act (CEQA) doesn’t apply to the Rail Project. This is related to a Surface Transportation Board ruling that the high-speed rail project would come under their guidance, which might knock out the CEQA process for the project. The Atherton case could be heard late 2013 or more likely early 2014.
No doubt they will discuss the bond validation hearing since it comes up first in less than three weeks.
The bulk of this article is about the Validation hearing. On September 27, 2013, the rail authority and the AG’s office will once again re-enter Judge Kenny’s court but this time for a Validation Hearing. The Rail Authority initiated this lawsuit and basically sued the world. They want the bonds validated that are sold in connection with this project to give buyers and future buyers of California bonds confidence that they will be valid, no matter what.
This is the same judge that ruled that the authority abused its power and did not legally comply with Prop 1A with the funding plan they prepared back in November 2011.
There are many legal nuances and technical issues with validation hearings that even the most experienced attorneys have never encountered in their lifelong practice. The purpose of this article is to discuss the general issues in layman’s terms so the public has a better understanding of the legal challenges facing the high-speed rail project.
The original Treasury meeting for the bonds to be authorized:
For the record on March 18, 2013, there was no evidence presented at the hearing, no discussion before the vote, no questions, only statements by the public. There was no other paper trail sent to the committee earlier as verified by a public records request (PRR) by California Advocating Responsible Rail Design (CARRD) in Rita Wespi's declaration. CARRD’s public records request concluded that the Authority sent no documents to the finance committee prior to the documents the High-Speed Rail Authority voted on that very morning at the High-Speed Rail Authority meeting held at the Treasury building that same morning.
So in effect, other than the Authority declaration saying “We want the money” and the committee voting “ok,” it was essentially a rubber stamp which authorized $8.95 billion dollars to be sold. Not now, but when Treasurer Bill Lockyer says it’s time. See the original article written at the time of the meeting. There was public comment and can be read in the Finance meeting transcript after Kathy Hamilton's declaration listed as Exhibit A.
Why the case isn’t a slam-dunk
You would think based on the last ruling by Judge Kenny that this would be a slam-dunk and that the Authority would lose hands down but it is not that simple. The High-Speed Rail Authority wants Judge Kenny to consider the validity of any general obligation bonds that will be sold in the future for this project. They do not want considered what happens with the money after the state sells the bonds and receives the bond proceeds. This very narrow window of action is all the Rail Authority want the judge to consider.
Here are some excerpts from the Authority’s brief:
“The fact that ten parties have opposed this validation action underscores its necessity. Bond issuances for infrastructure projects are usually routine matters, but opponents of the high-speed rail project are using every device available to halt its progress. To secure the certainty that underwriters, purchasers, and the State as bond issuer require, a validation judgment is needed to ensure that the bonds themselves cannot be called into question in future litigation.
Although the bonds and resolutions at issue are unquestionably valid, Plaintiffs anticipate that Defendants will argue that bond proceeds will be spent on a project that is allegedly different from the project specified in Proposition 1A on the November 4, 2008 General Election ballot. Leaving the merits of these claims aside, Plaintiffs do not seek to validate the use of the bond proceeds, only the bonds themselves. Any challenges to how the bond proceeds can be spent may be brought later and have no impact on this validation action.”
While the HSR Authority maintains anyone may sue about the spending of the bond funds later, they are asking the judge that “once declared valid, any challenges (including pending challenges) based on uses of proceeds of the bonds, commercial paper notes, or refunding bonds will not affect the determination of validity of the bonds, commercial paper notes, and refunding bonds, or the determination of validity of any contracts related lo the issuance and sale of the bonds, commercial paper notes, or refunding bonds.”
Logic says one wouldn’t need to authorize bonds for sale if there wasn’t a lawful program to sell them for. What would happen if the bonds were sold and the project was stopped? The state would be on the hook to pay interest for billions of dollars for a project that could essentially go belly up. Kevin Dayton, President & CEO of Labor Issues Solutions, LLC and Dayton Public Policy Institute in California. made that very argument in the March 18th hearing but no answers were forthcoming from the finance committee. See the article he wrote about his public commentary.
The Authority’s entire brief can be found here.
The opposing side arguments:
The opposing side says you must review the requirements behind the bond validation request in order to find out if authorizing these bonds complies with the California constitution and the laws concerning issuance of general obligation bonds. There is also a question of how the Treasury meeting was conducted and what were their responsibilities in doing so.
Who answered the complaint?
Union Pacific Railroad, the Jarvis Foundation, the Litigants for the Tos/Fukuda/Kings County (Prop 1A) suit, the Kings County Water District and Citizens for California High-Speed Rail Accountability (CCHSRA), the Bethel Christian School in Bakersfield and an individual named Eugene Voiland who appears to be associated with the University of Merced are some of the respondents to the Authority’s suit.
Union Pacific Railroad has told the judge in their brief that they are nervous about the blended program. They are concerned about the high-speed rail trains running on the same tracks as their freight trains and worried it will interfere with their ability to grow their business in the future. They are not sure the Authority can meet the travel time requirements particularly with the Blended plan.
In their legal brief they explained they told the Authority of their unhappiness with the blended plan right after the publication of the April 2012 business plan. A public records request (PRR) came up empty. The High-Speed Rail Authority denied they had possession of any communication that supports UPPR’s statements other than the validation brief itself which was quoted in the PRR.
Most people and organizations that responded to this validation complaint incorporated the recent ruling that the Authority is not following Prop 1A. The judge ruled the funding plan was Illegal and the High-Speed Rail Authority abused its discretion.
You have to know that back when the Authority brought this validation suit to court, they could not have imagined that they would lose the first round of the Tos/Fukuda/Kings County known as the Prop1A lawsuit. This verdict will be used against them like a club in this validation hearing.
Whether or not the Authority wishes to restrict the discussion of the validation of the bonds or not, it’s gotta be on the top of everybody’s mind including the judge’s, “Why do you need to validate bonds for a project that is on shaky grounds. What’s the rush?” Perhaps the court will find that the validation case should be postponed until the civil suit, Prop 1A case makes its way through the courts.
Read the Authority’s Validation filing and all the other organizations that answered the complaint on TRANSDEF’s site: http://transdzrg/HSR/Valtion.html there is an excellent summary of the validation as well all the other lawsuits in play.
For more information about all suits including the Prop 1A lawsuit (Tos/Fukuda/Kings County) go to the same link indicated above, look left and you can find all the information on both sides of the argument.