Appeals court to hear oral arguments about Virgin Trains USA

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A federal court will hear oral arguments next week in an appeal filed by Indian River County, Florida, whose attorneys contend that private activity bond allocations for the Virgin Trains USA passenger train project violate federal laws.

Attorneys for Indian River County, the U.S. Department of Transportation and Virgin Trains USA will present their sides of the case to the U.S. Court of Appeals for the District of Columbia Circuit on Tuesday.


Indian River County is appealing the Dec. 24, 2018, ruling of U.S. District Judge Christopher Cooper in which he granted motions for summary judgment sought by the USDOT and Virgin Trains USA, also known as Brightline and All Aboard Florida (AAF). The private company is building a passenger train system to link Miami and Orlando.

Cooper’s ruling cleared legal obstacles for the PABs at the federal district court level, and the company has sold the debt using the Florida Development Finance Corp. as the conduit issuer.

Since federal litigation over the project began in 2015, the USDOT has authorized three tranches of tax-exempt PABs: $600 million issued in 2017; $1.15 billion issued in April; and $950 million issued in June. The $600 million of bonds issued in 2017 were redeemed in conjunction with the April sale.

The passenger train company is in the midst of rebranding itself as Virgin Trains USA, though the train cars still run under the name of Brightline. The company owners began developing the project as All Aboard Florida (AAF).

In phase 1 of the project, passenger service between West Palm Beach and Fort Lauderdale began in January 2018, and service to Miami was added four months later.

From January through July this year, Virgin Trains said it carried a total of 565,061 passengers and recognized $12.7 million of total revenues, an increase of 142% and 287%, respectively, over the prior year.

“The strong year-over‐year results are due to the addition of service to Miami in May 2018 as well as the rapid adoption of our service by repeat customers over the past 12 months,” the company said in its July ridership report.

The company is in the process of determining where it might construct three train stations in south Florida, in addition to those that already exist in Miami, Fort Lauderdale and West Palm Beach.

In June, Virgin Trains USA broke ground on phase 2 of the project between West Palm Beach and Orlando. Company officials said it’s estimated to cost $4 billion and is expected to begin service in 2022.

The segment will pass through Indian River County along the state’s east coast where elected officials and community organizations have spoken of safety concerns related to plans for 32 daily passenger trains at speeds up to 110 mph.

On Tuesday, attorney Philip E. Karmel will argue on behalf of Indian River County that Judge Cooper erred by upholding an “erroneous conclusion” by the USDOT that the passenger train benefited from funding under Title 23, the federal code defining projects eligible for credit assistance.

In court filings, Karmel said federal funding under Title 23 was used by the Florida Department of Transportation to benefit the Florida East Coast Railway for safety improvements, on tracks that would later also be used by the passenger train. For much of its route, including the portion through Indian River County, the Virgin Trains USA passenger service will share tracks and right of way with the Florida East Coast, which has operated there since the 19th century.

“There is nothing in the record to indicate that FDOT’s real purpose in directing federal highway funds to FECR for safety improvements at its grade crossings was to benefit AAF’s passenger rail project,” wrote Karmel, a partner in the New York office of Bryan Cave Leighton Paisner.

Indian River County also contends that the train project wasn’t eligible for the PABs because it didn’t receive funding under Title 23, and that the USDOT failed to take the “required hard look” at environmental impacts of the project, and in doing so violated the National Environmental Policy Act.

AAF Holdings LLC, which is developing and operating the passenger train project, intervened in the federal appeal. AAF Holdings is a subsidiary of Florida East Coast Industries LLC. Both are owned by Fortress Investment Group.

AAF’s final appeal brief filed in July said the district court properly granted summary judgment under Section 142 of the Internal Revenue code, which defines the exempt facility bonds that can be issued. Those include qualified highway or surface freight transfer facilities.

“The district court’s grant of summary judgment on the Section 142 claim may therefore be affirmed on the grounds that the county lacks a legal basis to pursue relief under Section 142,” the brief said. “The county’s challenge also fails on its merits.”

The USDOT’s allocation of PABs is supported by the plain language of IRS code, “which provides that such bonds may be used to fund any surface transportation project which receives federal assistance under Title 23,” the brief said.

“AAF’s passenger rail project is unquestionably a surface transportation project, and the project has received federal assistance under Title 23 in the form of funding for improvements to the shared rail corridor in which AAF has an easement and now operates,” the company’s attorneys wrote in the brief.

It also said the county’s claims under NEPA “also lack merit” as the record reflects that the Federal Railroad Administration “took a very hard look at the environmental impacts associated with the project.”


USDOT made similar arguments in its final brief, and added that the project received assistance under Title 23 from a total of $11.2 million that was spent to improve railway-highway crossings throughout the north-south corridor along Florida’s east coast.

The funding was for AAF’s “corporate sibling the Florida East Coast Railway, which owned the railroad right-of-way,” the USDOT brief said.

Florida East Coast Railway was sold to Grupo Mexico Transportes in July 2017, and AAF operates on the corridor with a permanent easement.

Tuesday’s oral arguments will be heard by an appellate panel consisting of Chief Judge Merrick B. Garland, Judge Sri Srinivasan, and Judge Harry T. Edwards.

With Virgin Trains expanding into Brevard and Indian River counties, State Sen. Debbie Mayfield, a Republican whose district includes Indian River County, announced in a column Sunday that she plans to introduce a bill for next year’s session that will address gaps in train regulations to improve safety for residents and visitors to the state.

“I feel that it is urgent that we pass legislation to protect our communities,” Mayfield wrote.

According to the Alliance for Safe Trains, 90 people have died on Florida’s railways since Jan. 1, 2018. Some 52 of those deaths involved Virgin Trains and Florida East Coast Railway freight trains, the grassroots organization said.

While some of deaths have been attributed to people trying to beat trains by going around lowered crossing arms and suicides, the alliance said its goal is to see the state implement more effective safety measures or move railroad tracks out of densely populated areas.

Mayfield said her legislation will be based on recommendations of a study done in 2018 that examined existing and planned passenger rail operations, including higher-speed passenger rail across the state.

The Florida Passenger Rail System Study, conducted by CPCS Transcom Inc., found that there are gaps in federal and state regulations governing higher-speed rail, Mayfield said, adding that her bill will seek to clarify FDOT’s role in overseeing passenger rail with respect to maintenance, safety, revitalization, and expansion.

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Transportation industry Private activity bonds Infrastructure Florida Development Finance Corp. DOT Florida Washington DC
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