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Chicago and Western Indiana Railroad Co. v. Atchison

December 29, 1969


Major, Senior Circuit Judge, and Kiley and Fairchild, Circuit Judges. Fairchild, Circuit Judge (concurring in part, dissenting in part).

Author: Major

MAJOR, Senior Circuit Judge.

These appeals, No. 17376 by The Atchison, Topeka and Santa Fe Railway Company (hereinafter called Santa Fe or the lessee), and No. 17377 by Chicago and Western Indiana Railroad Company (hereinafter called Western Indiana or the lessor), are concerned with the same general subject matter and have been consolidated here for review. The cases were heard and decided by District Judge James B. Parsons on the pleadings, with certain affidavits and exhibits attached thereto. In the beginning we set forth a brief statement of the facts, with the various claims as shown by the pleadings, the issues arising therefrom and the rulings of the district court thereon.

The rights and obligations of the parties are dependent upon the covenants contained in a 999-year lease entered into May 21, 1887, between Western Indiana as lessor and the predecessors of Santa Fe, to the rights and obligations of which Santa Fe has succeeded. By the terms of the lease Santa Fe acquired the privilege, in common with other railroads, of using certain described tracks and other facilities of Western Indiana in the operation of its trains in and out of Dearborn Street Station, Chicago, Illinois.

On September 1, 1963, Pete Sherrard, an employee of Western Indiana, was working as a switchtender at the 12th Street tower in the railroad yard. His duties involved the operation of manual switches under the direction of the supervisory personnel of Western Indiana. Western Indiana admitted that while Santa Fe train No. 19, "The Chief," was departing from the Dearborn Street Station, Sherrard negligently and carelessly threw the operating lever on a crossover switch over which the rear portion of the train was passing. The last two cars were derailed but remained connected with the train. The derailed cars were dragged southward until they collided with the switch tower, demolishing it and substantially destroying the interlocker system. Following the accident, Western Indiana removed the wreckage and made temporary provision for the movement of trains entering and departing from the station. Thereafter, it constructed a new switch tower and completely replaced the interlocker system.

On January 15, 1965, Western Indiana by its complaint sought to recover from Santa Fe the entire cost of such replacement under lessee's Covenant 6 of the lease or, in the alternative, to require Santa Fe to pay its engine and car mileage proportion of said expenditure in accordance with lessee's Covenant 5. (It is agreed that under this covenant Santa Fe would be required to pay 46.01% of the expenditure.) The parties agreed that Covenant 5 of the lease applied to the expenditure of $33,225.06 for clearing the wreckage and for temporary facilities permitting operation. Consequently, Santa Fe agreed to and, in accordance with Covenant 5, paid its user proportion (46.01%) of that cost, or $15,316.75.

Santa Fe by its answer denied liability under either Covenant 5 or Covenant 6, but admitted liability under Covenant 14.

The district court held that Covenant 6 was not applicable.*fn1 Western Indiana acquiesces in this ruling. The court also held that Covenant 5 was not applicable but that Santa Fe's liability was controlled by Covenant 14, which required it to pay one-sixth (16.67%) of the expenditure made by Western Indiana on account of "improvements or betterments." On that basis judgment was entered in favor of Western Indiana in the amount of $35,691.39.

Western Indiana appeals from this judgment in its favor on the premise that the court erred in calculating Santa Fe's liability on the formula provided in Covenant 14 rather than that in Covenant 5.

On February 9, 1965, Santa Fe, in connection with its answer to Western Indiana's complaint, filed a counterclaim consisting of two counts. In Count 1, it alleged that the derailment was proximately caused by the negligence of Western Indiana, and recovery was sought from it for money expended and to be expended in clearing the wreckage, repairing its cars and operating other scheduled passenger trains over the property of Western Indiana during the course of making repairs. In Count 2, recovery was sought for money expended and to be expended in discharge of liability to passengers and employees resulting from the negligent conduct of Western Indiana.

On May 17, 1966, Western Indiana filed a supplement to its complaint in which it alleged that Leo V. Harrison, a member of Santa Fe's train crew, obtained a judgment against it for damages sustained as a result of the train derailment. A portion of the judgment was satisfied by Western Indiana's insurer, and reimbursement was sought against Santa Fe for the balance in the amount of $75,000.

The district court held that by the terms of Covenant 6 of the lease the admitted negligence of Western Indiana was imputed to Santa Fe. Based on this conclusion the court held that Western Indiana was entitled to recover from Santa Fe the $75,000 which it paid to settle the personal injury judgment of Leo V. Harrison. Further, and for the same reason, it denied Santa Fe's right to recover on the claims asserted in its counterclaim. Accordingly, judgment was entered in favor of Western Indiana in the amount of $75,000 on its supplemental complaint, and also in its favor on Santa Fe's counterclaim. From this judgment Santa Fe appeals (No. 17376).

As already noted, in No. 17377 Western Indiana relied primarily upon Covenant 6 as a basis for the recovery sought or, in the alternative, upon Covenant 5. In response to Santa Fe's motion for partial summary judgment, the district court held that neither 5 nor 6 was applicable but that Santa Fe's liability was determined by Covenant 14. Inasmuch as Western Indiana raises no question here as to the correctness of that ruling as it pertains to Covenant 6, we need not be concerned with that covenant on this facet of the case.

Covenant 5 in pertinent part provides:

"Santa Fe shall pay to Western Indiana its proportion of the expenses 'incurred or paid by the lessor in maintaining its organization, in maintaining and keeping in the thorough repair and working condition' the jointly leased premises, 'and in supervising and managing the same * *'."

Covenant 14 in pertinent part provides:

"And whereas, it may become necessary for the lessor to construct viaducts at street crossings on the portions of the main line herein leased, and to make improvements or betterments and acquire additional property for the common use of all the tenant companies of the lessor, the lessee hereby agrees, that in such event it will provide and pay one-sixth of the cost thereof."

Western Indiana on brief here makes the following statement which clearly delineates the issue for decision:

"The single issue presented by this appeal is whether the sum of $122,247.87 expended by Western Indiana in rebuilding or restoring its extensively destroyed interlocking tower, and the machines located therein, should be paid for by Santa Fe under the provisions of Covenant FIFTH of the covenants of the lessee contained in the 1887 Lease, or Covenant FOURTEENTH of the covenants of the lessee contained in said lease. Covenant FIFTH is that governing expenses incurred or paid by Western Indiana in 'maintaining and keeping in thorough repair and working condition the main track or tracks, passenger depot, terminal facilities, and other property' covered by the lease. Covenant FOURTEENTH governs the making of improvements or betterments to the leased property and the acquisition of additional property for use in common. Under covenant FIFTH, Santa Fe would owe to Western Indiana 46.103% of the expenditure; under Covenant FOURTEENTH, Santa Fe would owe 16.67%."

Thus, the issue is whether the expenses incurred by Western Indiana in the construction of a new tower building and interlocker were for "maintenance and repair" under Covenant 5, or for "improvements or betterments" under Covenant 14.

Western Indiana devotes much of its argument to a consideration of numerous other covenants in the lease, presumably to demonstrate what was intended by Covenants 5 ...

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