Florida county asks U.S. Supreme Court to reverse Virgin Trains ruling

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Indian River County, Florida, has filed a 186-page petition for a writ of certiorari asking the U.S. Supreme Court to overturn an appeals court ruling against the county's lawsuit challenging the U.S. Department of Transportation and Virgin Trains USA.

USDOT and Virgin Trains, also known as Brightline and All Aboard Florida, have 30 days to respond to the petition, filed Monday, but Indian River County Attorney Dylan Reingold said he anticipates they will request an extension of time to file briefs.

A Brightline train arrives in Miami in 2018, before a rebranding as Virgin Trains USA. Its Florida service is currently suspended, citing the coronavirus.

The county's petition should give the Supreme Court pause for consideration, Reingold said.

"The brief laid out how the courts improperly deferred to the Department of Transportation’s informal views without finding the statute ambiguous or applying the traditional statutory interpretive tools used by the courts," he said.

Private citizens raised $200,000 to pay for the county's costs of filing the petition. That led the Indian River County Commission on Feb. 18 to reverse a previous decision against pursuing a high court review of the December 2019 ruling of the U.S. Court of Appeals for the District of Columbia.

In that ruling, a three-judge panel for the appellate court found that USDOT "permissibly and reasonably determined" that the Virgin Trains/Brightline project qualified for tax-exempt private activity bond financing. The court also concluded that the project's environmental studies and permits complied with the National Environmental Policy Act.

"If the Supreme Court takes jurisdiction, the county will fund the remaining briefing and argument" in the case, Reingold said.

Virgin's higher-speed passenger train will travel through Indian River County on Florida's east coast without stopping, in the $4 billion the second phase of its project between West Palm Beach and Orlando. It's currently under construction and expected to be completed in 2022. Bond financing for this segment is at issue in the county’s case.

On March 25, Virgin Trains stopped passenger service between its only completed rail segment, the 70 miles between Miami and West Palm Beach, due to the spread of COVID-19 in South Florida, a hotspot for the disease. The company laid off 250 workers and has not said when service will resume. It was losing money operating the truncated version of its planned 230-mile Orlando-Miami route.

Representing Indian River County in the case before the Supreme Court will be MoloLamken LLP, a law firm that focuses on complex litigation, and J. Michael Luttig, a former federal judge of the United States Court of Appeals for the Fourth Circuit.

At issue in the case is how USDOT interpreted federal law to approve allocations of PABs to Virgin Trains. USDOT has approved $600 million for the first phase of the project from Miami to West Palm Beach, which is not part of the litigation, and two separate allocations of $1.15 billion and $950 million to build phase two.

More recently, the USDOT has approved $1 billion of PABs for Virgin Trains' West Expansion project connecting Las Vegas with Victorville, California, according to the Build America Bureau website. The Las Vegas project is not part of the litigation in Florida.

Indian River County attorneys contend that the lower courts deferred to the USDOT's "informal interpretation" of federal law to enable the Virgin Trains/Brightline to qualify for tax-exempt PABs to finance phase 2 of its project.

"The court of appeals thus held that a proposed passenger railway was eligible for a $2.1 billion bond allocation to finance more than 160 miles of new track because a freight railway with an adjacent track was awarded $9 million in highway funds to improve railway-highway crossings," the petition says, referring to funding for the freight train company, Florida East Coast Railway.

The USDOT, in a position accepted by the appellate court, said that the project was eligible for credit assistance under Title 23 of the U.S. Code as long as it "benefits" from federal Title 23 expenditures, "even if the facility does not receive, has never received, and is not even eligible to receive such assistance," the county's brief said.

The appellate court invoked Skidmore v. Swift & Co., a 1944 Supreme Court ruling enabling it to defer to the USDOT's interpretation of the code, according to the county's attorneys.

"But the court did not itself undertake an effort to engage in statutory construction, let alone determine, after doing so, that the statute was ambiguous," the brief said. "Worse, the court of appeals ended up deferring to an agency construction that did nothing to reconcile itself with the statute’s clear text."

The federal courts, the attorneys said, are in wide disagreement about when they need to use the customary tools of exploring a statute's construction.

That exploration would begin with looking at the plain language of the statute to discover its original intent and ordinary meaning, according to the Legal Information Institute at Cornell Law School.

"This court cannot long afford to allow this disagreement to persist," the petition said. "The failure to obey Skidmore’s prescriptions threatens judicial surrender of the constitutional responsibility 'to say what the law is.'"

Susan Mehiel, with the nonprofit Alliance for Safe Trains advocacy group and an opponent of the Virgin Trains project, said the county's petition points to a national problem among the courts.

"What I find most amazing about [Indian River County's] brief is how the attorneys have masterfully related the courts' decisions to an overarching national problem with the courts abdicating their responsibility to interpret law," Mehiel said via email.

Mehiel said she believes that Congress didn’t intend for the Virgin Trains project to qualify for PAB financing because the company didn't receive Title 23 funding.

"We will now see if the phrase 'follow the letter of the law' has any meaning with the high court," she said.

In an annual report released April 29, the train company said it was experiencing record ridership from November 2019 to mid-March 2020, but in light of COVID-19 and the "unprecedented impact on travel activity" passenger train service was suspended on March 25.

"On April 1, 2020, the Florida governor issued a 30-day stay-at-home order for the state of Florida," the report said. "The suspension of service is not expected to have a material net financial impact on our business and we have access to ample operating liquidity to withstand a protracted slowdown in the travel market."

The company said it is continuing to monitor the situation and evaluate an appropriate time to resume service.

"In the meantime, we will focus on developing key new partnerships and business opportunities," the report said, adding that the company continues to "progress aggressively" on construction activity, including the build-out of its project to Orlando as well as construction on two new train stations in South Florida.

The company has also entered into an agreement to build a station at Walt Disney World.

For the year ending Dec. 31, 2019, Virgin Trains said it carried 1.01 million passengers, a year-over-year increase of 75%, and recognized $22.1 million of total revenues, an increase of 122%. Interest costs increased by $32.7 million due to the issuance of the Series 2019A and 2019B PABs.

Total invested equity of $1.038 billion decreased $4.5 million due to the net loss of $188.9 million during the year, which was offset by $184.4 million of capital contributions from Virgin Train's parent company, the report said. The company had a net loss of $116.2 million in 2018.

Virgin Trains USA LLC is a subsidiary of Florida East Coast Industries. FECI is owned by Fortress Investment Group LLC, which was sold to Japan’s SoftBank Group Corp. in December 2017.

Correction: Attorney J. Michael Luttig does not live in Indian River County. The original version of the story said he did.

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Lawsuits Transportation industry Private activity bonds Florida Florida Development Finance Corp.
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