The Bond Validation Case was heard on September 27th in Judge Michael Kenny’s courtroom. What was expected to be a very dry case turned out to be quite interesting. The High-Speed Rail Authority had only one attorney pleading their case but there were 5 attorneys addressing the court from the defendants' side, all with slightly different approaches.
Example of a more interesting part: The High-Speed Rail Authority attorney, Stephanie Zook told the court all the Rail Authority was required to do was to submit the request for the bonds to the High-Speed Train Finance Committee but they were under no obligation to provide evidence in order to get the ok to sell $8.5 billion in bonds. It was the Finance Committee's job to decide if the bonds were desirable or necessary. The judge then asked about her assertions that the Authority had “unfettered discretion” and seemed to be inquiring about the Finance Committee's ability to make a decision without any evidence. The judge asked what if the High-Speed Train Finance committee decided to flip a coin, heads they get the money, tails they don’t, would that be ok? Deputy AG Zook paused for a moment and said yes, as long as the Authority made the request.
Note: The writ standard when challenging an Agency or committee is whether their action was arbitrary and capricious. The act of flipping a coin could certainly be an example of an arbitrary act according to legal observers, some of whom cringed when the AG’s office said, yes flipping of a coin would be ok.
This is the case was filed by the High-Speed Rail Authority and is an attempt to offer assurances to investors if they buy California General Obligation Bonds, that their investment is safe. Some municipalities and agencies do this as a precaution against last minute lawsuits that could cause issues for important projects or bond offerings to go haywire at the last minute and it is rare that anyone objects. In this case it’s different. It’s controversial because of the lawsuits surrounding the project. See Tangled web: the story of three lawsuits. http://www.examiner.com/article/tangled-web-three-high-speed-rail-suits-intertwined
The High-Speed Rail Authority represented by Deputy Attorney General Stephanie Zook, brought this lawsuit and challenged anyone who had issues with the validation of the bonds to come forward. And come forward they did including Stuart Flashman, co-counsel on the Tos/Fukuda/Kings County suit, Bobbie Ross from the Howard Jarvis Taxpayers Association. Ray Carlson representing the Kings County Water District and Citizens for California High-Speed Rail Accountability (CCHSRA), Blaine Green representing Union Pacific Railroad and Tom Fehr representing Eugene Voiland who addressed the court briefly at the end of the hearing. There were others who chose not to address the court that filed briefs as well.
The Plaintiff’s Stand
Basically as reported in an earlier article, the Attorney General’s (AG) office wanted the judge to look at the narrow scope, are the bonds ok to authorize for sale. Bottom line: The AG’s office is asking the court to validate that bonds issued and declare they are a valid debt to give confidence to the bond purchasers. The Authority was given the right to sell bonds in the Prop1A ballot measure.
Zook said the Federal Government is currently spending their money and they needed assurances. “Even a delay in terms of reaching a judgment is something that is material to the federal government and requires a report, that’s how urgent this issue is.” The bond sale is in February. She stated, “It was urgent, every day is more critical.”
Note: While the Authority is currently using federal money, some of that money cannot be used for administrative costs. The AG’s office contends they need a decision before the next bond sale, which was in the February to April 2014 timeframe.
Note: The state is currently not matching the federal funds at this time and has until April 2014 to make good with their matching contribution or find another source of funds if they sell the bond money.
Zook claims the Rail Authority didn’t need to provide any evidence as to why they needed the money. She stated there is no room second guess the decision for the Rail Authority; it was within their discretion to request the bonds be sold.
Hear the 8-minute opening for Deputy AG Stephanie Zook. http://youtu.be/xKgPRBWZGTw
Note: This is the same High-Speed Rail Authority that Judge Michael Kenny ruled had abused their discretion and did not submit a legal funding plan. According to the judge, the statute indicated in plain English when and under what conditions the funding plan was to be made and the Authority did not observe the law. See the article on this ruling
The Defendants:
Stuart Flashman co-counsel for Tos/Fukuda/Kings County case, told the judge there was no evidence presented to the High-Speed Train Finance committee (Finance Committee) that proved the bonds were necessary or desirable. None of key players assigned to this committee were present; everyone assigned a substitute for the meeting.
The Judge questioned Flashman if they couldn’t trust the senior people and their selection of a substitute. Flashman argued no one knew how they were selected or what their backgrounds were. He also stated we have no idea if they were the first choice or the 4thor 5th tier. Flashman said later that it is an interesting question, does the mere fact that someone selects a substitute “does that imbue him or her with the wisdom and knowledge of the person they replaced?”
At the Finance Committee when the agenda item came up for the approval of the Authority’s Declarations to sell the bonds, there was public comment, 3 against the action and one in favor of High-Speed Rail in general. The committee moved directly to approve the bond request. There were no questions, there was no discussion and it was accomplished in 1 minute and 43 seconds.
Flashman finished with asking the court how the committee made its determination. He said, “ I don’t think you can say the committee’s determination was careful, conscientious or balanced, in fact I think one has to say just the opposite, it was proforma, slipshod, it was slovenly. In fact, It was nothing more than rubber stamp approval with no thought or consideration. “
Flashman explained there had to be a weighing of evidence in order to determine if the issuance of bonds was a desirable or necessary act. The judge thought that the HSR resolution had findings in the document and after reviewing it again in open court, it was confirmed that the Rail Authority did not include findings in the resolutions just as the plaintiff attorney had told him
He adds in his closing that the judge looks at the purpose of spending of the bonds. Are those bonds going to be used for purpose that the bond measure specified which is to build a true high-speed rail system. Hear Flashman’s 10 minute closing. http://youtu.be/2Tm7beTDeCo
Howard Jarvis Taxpayers Association:
Bobbie Ross, attorney representing the Howard Jarvis Taxpayers Association, insisted the court should not validate bonds since this was not the project the public voted for. She contended it was also a violation of the state constitution. She also believes they needed a legal funding plan in order to go forward.
After Union Pacific spoke to the court, Ross added another reason that the reason that the validation should not be approved, is that the High-Speed Rail Authority may not be able to obtain a right of way for the San Francisco to San Jose corridor since they don’t have approval of Union Pacific who has exclusive rights in respect to intercity passenger rail operating on that 50 mile route.
Ray Carlson GRISWOLD, LaSALLE, COBB, DOWD & GIN, L.L.P representing Kings County Water District and Citizens for California High-Speed Rail Accountability (CCHSRA)
Ray Carlson reminded the court that the case was premature and requested “a stay” (postpone the proceedings) until after the Atherton appeal is decided. Because if the court rules that there is the preemption of the California Environmental Quality Act (CEQA), one of the provisions of Prop1A can’t be complied with. He added that you can’t sell the bonds because that’s what not what the voters approved.
The judge questioned Carlson and asked if the statute referred to only CEQA. Carlson said,” the law refers to clearances plural necessary to proceed to construction. He added that In the Tos case the Authority construed that to mean “CEQA and only CEQA.”The Authority has abandoned that position because the STB, quote, 'took jurisdiction.’ over the train project.”
Carlson advised the court that there were other bonds issued, more than $331.5 million according to a letter written Deputy Attorney General Michele Inan on September 18th, 2013 and there was no validation case filed for the issuance of those bonds.
Regarding the time line Carlson adds, “To suggest the filing of this validation case and the need to issue these bonds has created an urgency that should somehow drive the process of this court is something I don’t agree with.”
“Design, build contracts take time. It will be a while before anything is built, the design isn’t done yet.” Carlson also cautioned, “it’s not wise to start building until the Authority has a contiguous right of way, and that’s not going to happen anytime soon. There are about 350 parcels that have to be acquired and that doesn’t even include parcels for temporary construction easements.”
He also reminded the court that there is no reason why these two meetings (HSR board meeting approving resolution and the High-Speed Train Finance Committee meeting) were held on March 18th, 2013 back to back.
He said it reminded him of what Churchill said about Russia, “It is a riddle wrapped in mystery surrounding by an enigma.” He feels there is no evidence, no reason why those two meetings were back to back. There was no explanation as to the sequence of events, failure to show why these meeting came about at the time and circumstances they did. There was no evidence presented. “The Authority said they’re valid because they are valid, it was simply an A=A argument. “
Union Pacific Railroad
Union Pacific represented by Blaine Green. He was there to protect the interests of Union Pacific and said they did not take a position on the validation however if the judge was to affirm the validation of the bonds, he asked the court to limit the scope and the decision should not be an overall endorsement of the Prop 1A bond measure.
He explained because design and routing decisions are undecided and it is impossible to verify with the information the Authority has provided, if trip time requirements can be met or if in making those trip times, can be done so without disrupting UP’s freight operations.
Note: HSR Authority switched to a blended approach for the 50 miles along the San Jose to San Francisco corridor in the April 2012 business plan and that makes 30 minutes a near impossibility for express travel according to many experts. The blended system is loosely defined as using the same existing infrastructure of commuter, freight and high-speed rail trains.
Union Pacific was concerned that the blended system might be a permanent arrangement as promoted by Senator Jerry Hill’s in SB 557, which was recently signed into law. This bill states bond funds can’t be used to build dedicated tracks for high-speed rail on the peninsula. The bill is an attempt to limit the tracks to “primarily” two tracks. Green says this type of legislation makes it more difficult for the high-speed rail project to meet it’s trip time requirements and to avoid disruption to Union Pacific operations as required in a Memorandum of Understanding Union Pacific signed with the Authority.
Green reiterated that Union Pacific is a national freight carrier that has “exclusive rights for intercity passenger use between San Francisco and San Jose” and has not been addressed by the HSR Authority in either the validation procedure or separately with Union Pacific.
What could happen?
Unlike the proceedings of the Tos/Fukuda/Kings County Suit, many left the courtroom scratching their heads. This is a highly technical case. What would the court decide? Rather than a clear yes or no ruling, observers commented about the possibility of several outcomes:
· One is the court could require that the High-Speed Rail Authority and the High-Speed Train Finance Committee go back and redo the documents that would show some level of evidence as to why they need such a large amount of funds validated. They would essentially have a redo of the entire procedure.
· The court might advise that the Authority should not be requesting all the $8.5 billion dollars because most of that money is for construction. Perhaps the court might ask the Authority to request a far lessor amount such as $300 million in bonds to tide them over with administrative expenses until decisions are made on the other court cases.
· The court could come back with his ruling after the other two cases are decided without issuing a formal postponement. Tos/Fukuda/Kings County case is scheduled for November 8th. No date has been set for the Atherton Appeal case but attorneys involved in that case believe it might be early next year. Remember the bond sales begin in February 2014 so there is time.
· If the court moved to say yes and agree to let stand the High-Speed Train Finance committee actions, they could amend the scope of the validation decision as Union Pacific’s representative indicated.
If the state wins and the court agrees with the AG office argument and rules only on the narrow definition of what they are asking for, it would be a great moral victory and a shot in the arm for the High-Speed Rail Authority. If the defendants lose, it would not affect other cases on the docket such as the Prop1A case since it doesn’t appear to influence how the money is spent.
The ruling could come immediately or as late as 90 days.
All significant briefs for both sides for the Validation case can be found at this site:
http://transdef.org/HSR/Validation.html All other related suits have legal briefs also filed at this site.
Kathy Hamilton has written several recent articles on the current lawsuits, listed by the most recent articles first. See them on her site: http://www.examiner.com/transportation-policy-in-san-francisco/kathy-hamilton
