SB
2358 HOUSE TESTIMONY
Good morning Mr. Chairman and members of the House Transportation
Committee. My name is Keith
Brandt. I am President of
the North Dakota Grain Dealers Association and the General Manager of
Plains Grain and Agronomy at Enderlin, ND and three other nearby
locations. Right now I am
on the Canadian Pacific Railway. But
most of my 25 years in the grain elevator business was spent at
locations on the Burlington Northern Railroad at Galesburg, Mayville and
Hunter.
Thank you Chairman Weisz for cosponsoring this bill.
We asked for this bill so as to curb the railroads’ abuse of
its lessees and others it serves through high lease and site sale costs,
and unconscionable liability shifting provisions in these agreements.
Our legal counsel, Brian Bjella, who wrote this bill, is here
this morning to explain more about what we are trying to get at and how
this bill would accomplish that.
Our Association and its members are generally free market
thinking people. The
railroad will no doubt say today that the market should determine lease
rates, site costs and indemnity provisions.
But what we have here is NOT a free market of several willing
buyers and sellers. It is
instead a railroad holding life or death powers over a business that, in
many cases, located on the railroad’s property to give the railroad
business. The business
entity made improvements to the property in the form of its own
structures. But the
location of those structures can now be used against the business by
railroad demands that must be met, or it becomes a matter of getting off
the railroad property.
This power over lessees and purchasers of railroad property has
been displayed since this bill passed the Senate 46-0 on February 20. Immediately that very day the Canadian Pacific Railway sent
some letters out saying negotiations on leases and sales were suspended
and that some lessees might have to demolish their improvements and
remove them from railroad property.
Those we know of who received such letters thought it was pretty
strong-armed tactics.
The Burlington Northern has been in and out of the site sale
business over the past dozen years or so.
At one point they were attempting to sell a certain number of
sites each year. Then the
emphasis shifted to raising the lease prices.
The minimum was arbitrarily set at $1,200 per year.
Most elevators were paying more than that.
Then when it came to selling the property, BNSF multiplied the
annual lease cost by an arbitrary factor of 10.
So if you were paying $2,500 per year on a lease of two acres the
sales price was automatically $25,000.
There didn’t seem to be any relationship with surrounding
property values. This leads
to situations such as:
In a western North Dakota town a grain elevator
is quoted a price of nearly $50,000 for between three and four acres of
property on which its facilities sit.
A different western North Dakota elevator, in an even
smaller town along the BNSF, was quoted $12,000 plus $1,000 processing
fee for less than two acres. He
ended up buying the property for $10,000 total.
During this process he asked the railroad if he could pay for a
third party appraiser. The
railroad said no, it would put the value on the property.
The elevator manager feels the property could possibly sell for a
third of the value the railroad first put on it.
The buyer receives a quitclaim deed and is responsible for having
the property platted to have the legal description suitable for
taxation.
A grain elevator in a small northeastern North Dakota
town was quoted $43,000 for the 2.5 acres its facilities sit on.
This fellow actually did better than most, he got them down to
$21,000. This is yet another example of the railroad taking advantage
of the shipper because they have him over the barrel.
Another eastern North Dakota elevator was asked $31,000 for
little over three acres. They
got their quitclaim deed for a little under $20,000.
These quitclaim deeds release the selling railroad from any
liability for latent defects, including the environmental condition of
the property. But the
railroad maintains mineral rights and the full right and privilege to
remove them at anytime.
An oil company in northern North Dakota paid nearly $300,000 in
damages and attorneys’ fees because of an accident caused by a sticky
brake on the railroad’s grain car. The Canadian Pacific Railway has announced that repair to its main line switches leading into an industry will be that industry’s responsibility, notwithstanding the fact that some of the wear on the switch is due to through traffic, not industry traffic. In addition, some or all track agreements allow the railroad to use the industry’s track at will, thus creating more wear that the industry is expected to pay for. This can run into the hundreds of thousands of dollars.
You may have heard that there is an arbitration system under the
National Grain and Feed Association to supposedly resolve these
problems. But less than 1/3
of North Dakota grain elevators are members of that Association.
And there are some inherent flaws in the arbitration process.
For instance, arbitrators cannot change lease terms that have
been unilaterally imposed by the railroad.
So the only thing arbitable about these ridiculous indemnity
clauses is whether they have been applied correctly.
Secondly, depending on an arbitration system means going to that
system time after time after time.
We have told the BNSF it should remove these ridiculous clauses
from their leases. They
refuse. So that is why we
come to you to try to remedy the situation in state law. I will try to respond to any questions you may have. I would appreciate you allowing our legal counsel Mr. Bjella to be the next speaker here in favor of SB 2358. Thank you.
|