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In re Chicago

decided: December 12, 1988.

IN THE MATTER OF CHICAGO, ROCK ISLAND AND PACIFIC RAILROAD COMPANY, DEBTOR. APPEAL OF TEXAS NORTH WESTERN RAILWAY COMPANY, PETITIONER-APPELLANT,
v.
DIAMOND SHAMROCK REFINING AND MARKETING COMPANY AND THE ATCHISON, TOPEKA AND SANTA FE RAILWAY COMPANY, RESPONDENTS-APPELLEES



Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 75 B 2697 -- Frank J. McGarr, Judge.

Bauer, Chief Judge, Wood, Jr. and Ripple, Circuit Judges.

Author: Ripple

RIPPLE, Circuit Judge.

Texas North Western Railway Company (TNW) petitioned the district court for the enforcement of two orders that the court entered during its supervision of the reorganization of the Chicago, Rock Island and Pacific Railroad Company (Rock Island). The orders (Order No. 443 and Order No. 519) approved the conveyance to TNW of Rock Island's interests in 97.4 miles of railway. On cross-motions for summary judgment,*fn1 the district court concluded that the orders themselves created no substantive property rights in favor of TNW and that Rock Island possessed no property or contractual interests in the right-of-way at issue in this case that it could have transferred to TNW. We affirm.

I

Facts

This case involves TNW's claim to a one-mile strip of land in Section 399 of Moore County, Texas. The one-mile strip is a right-of-way at the end of 97.4 miles of railway that the Rock Island trustee conveyed to TNW in November 1982 by a "deed without warranty of any kind." The right-of-way consisted of the final portion of an industry spur servicing the Diamond Shamrock facilities in Section 399. The sale of Rock Island's rights in this railway to TNW was approved by the district court in Order No. 443, and a modification of the terms of the sale was approved in Order No. 519. When TNW attempted to provide service to the Diamond Shamrock facilities, its access was barred. TNW argues that, by barring its access to the Section 399 right-of-way and allowing Santa Fe access to its plant, Diamond Shamrock has violated its rights under the court orders approving the sale.

The circumstances surrounding Rock Island's acquisition of the one-mile strip and its subsequent treatment of that property are crucial to our analysis of the issues presented by this appeal. Rock Island received different property interests in the north and south halves of Section 399. Rock Island acquired its interest in the north half by a deed ("the Garland Deed") containing a reversion clause. That clause provided that the property would revert to the grantors or their successors "in the event said property ceases to be used for railroad purposes." This deed is dated December 11, 1936.

Rock Island's property interest in the south half is limited to its interest in a 40-year lease conveyed to it by Diamond Shamrock. Diamond Shamrock acquired the lease in 1936, and conveyed it to Rock Island by a series of instruments in 1937 and 1938. Rock Island's leasehold, therefore, expired in 1976 at the end of the lease term. TNW, however, claims a continuing contractual interest in the disputed right-of-way on the basis of ten contracts for the construction, operation, maintenance, extension, and relocation of track entered into by Diamond Shamrock and Rock Island between 1936 and 1969. See Appellant's Br. at 7-9; Appellees' Br. at 4-5.

Rock Island filed for bankruptcy in 1975. On August 23, 1979, a Rock Island derailment destroyed 1000 feet of track on the spur in Section 399. This derailment cut off the Diamond Shamrock facilities from rail service. Five days later, a strike forced Rock Island to discontinue service. Although Rock Island's contracts with Diamond Shamrock contained a repair obligation, Rock Island failed to make the necessary repairs. Diamond Shamrock was forced to make the repairs at its own expense and to arrange for alternative transportation of material into and out of its facilities. Trucks were used to carry material between the Diamond Shamrock facilities and the Santa Fe main line at Etter, Texas.

Service by Rock Island itself never resumed. Service, however, was resumed temporarily by a consortium of railroads acting as "directed service carriers" pursuant to ICC order. In March 1980, all rail service stopped. This prompted Diamond Shamrock to operate its own rail service through a private contractor. Rock Island's failure to provide any maintenance to the tracks forced Diamond Shamrock to engage in a substantial program of track repair and reconstruction. See Appellees' Br. at 6-9. This repair work included the replacement of a trestle destroyed by a flood at a cost of $234,000. Ultimately, Diamond Shamrock arranged for Santa Fe to oversee the rebuilding of the track in Section 399. In October 1981, Santa Fe itself began providing rail service to Section 399 pursuant to agreements with Diamond Shamrock.

Sale negotiations between the Rock Island trustee and TNW's predecessor corporation (TeCe) began in 1980. During these negotiations, the parties were aware of the ongoing relationship between Diamond Shamrock and Santa Fe. See Appellees' Br. at 9. The district court finally approved the sale agreements growing out of these negotiations in Order No. 443 as modified by Order No. 519.

II

Analys ...


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