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American National Bank & Trust Company Of Chicago v. Regional Transportation Authority

September 2, 1997






Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 81 C 431 James F. Holderman, Judge.

Before BAUER, COFFEY and RIPPLE, Circuit Judges.

RIPPLE, Circuit Judge.

ARGUED MAY 28, 1997


American National Bank and Trust of Chicago, as trustee of land trust number 107796-01, and for the beneficial owner of the land trust that owns the property involved in this case, filed a three-count complaint against the Regional Transit Authority and Metra (collectively, "RTA") relating to the RTA's renovation of the LaSalle Street Station in downtown Chicago. The RTA filed two compulsory counterclaims, alleging that the beneficial interest holder had breached its agreement with the RTA and had failed to pay other costs of delay that it caused the RTA. After a four-week trial, the jury returned a verdict for the plaintiffs on two counts and awarded a little over $24.5 million. The jury found for the RTA on one of American National's claims and on both counterclaims; on these latter claims, the jury awarded the RTA just over $782,000. The district court denied the parties' post-trial motions, and the parties appealed. We affirm the judgment of the district court.


A. Facts

This case involves the operation of a commuter rail line running from Joliet, Illinois to Chicago. The RTA took over operation of the service from the Chicago & Rock Island Railroad Company ("Rock Island") after Rock Island filed for bankruptcy protection in 1975. The RTA acquired its rights to operate the commuter line from the trustee in Rock Island's bankruptcy proceeding. However, the background of the current dispute dates back to June 26, 1851. On that date, the Northern Indiana Railroad ("Northern Indiana") and the Rock Island entered into a contract to create a co-tenancy in a rail line from the south side of Chicago to downtown, including a depot at LaSalle Street. Under this contract, Northern Indiana agreed to construct and maintain a rail line that would connect Northern Indiana's line with the Rock Island line, which ran into the City. In return, Rock Island granted to Northern Indiana, their successors and assigns a "one-half, in common and undivided," interest in

the line of the said Chicago and Rock Island Railroad lying between the point of the junction of the road so to be built, from the Indiana State line, with said Chicago and Rock Island Railroad, and the terminus in the City of Chicago, and of the Depot in the City of Chicago, with the one undivided half of all the lands, rights of way and appurtenances, depot lands and privileges acquired or hereafter to be acquired for joint use. R.169, Ex.1 at 2.

Both parties also had an equal undivided interest in the rights and privileges "in surveying, locating and constructing the said road, its depot and appurtenances, and using, running or repairing the same." Id. Finally, the contract provided that the parties would divide the cost of repairs in proportion to each business on the jointly owned and operated section of the rail line. For many years, the Rock Island and Northern Indiana entered into numerous agreements confirming and supporting each party's right to continue railroad operation on the right of way and allocating the cost of maintaining the right of way for continued rail use. Northern Indiana's interest in the property was eventually acquired by the Penn Central Corporation.

In 1975 the Rock Island filed for bankruptcy, and a bankruptcy trustee, William M. Gibbons, was appointed. From 1975 to 1979, the trustee operated Rock Island's commuter line from Joliet to Chicago. In 1980 the RTA was authorized to operate the service and sought to acquire Rock Island's rights of way and equipment through the exercise of its power of eminent domain. After some negotiation between the RTA and the trustee, the RTA acquired the necessary rights to continue to operate the rail service for $35 million. The rights that it acquired are set forth in a November 12, 1982 Stipulation, a September 6, 1984 Supplement to the Stipulation and a September 6, 1984 Final Judgment Order (collectively, "1984 Judgment Order"). With respect to the property at issue in this appeal *fn1 -- the North Parcel -- the 1982 Stipulation provided that the RTA acquired

[a] permanent relocatable easement interest for commuter railroad purposes in and to all of the rights, titles or interests of William M. Gibbons, Trustee . . ., subject to:

(i) Existing easements, leases, licenses, ordinances and agreements, delineated in [various exhibits], and

(ii) All existing rights, titles or interests of the Penn Central Corporation, successors and assigns, and

. . .

(iv) The rights of the Trustee under Paragraph 6A herein . . . . R.315, Ex.D at 5-6.

Paragraph 6A of the Stipulation states:

[I]n the segments of real property between 17th Street and Congress Street, described in Exhibit A, that the Trustee shall have all sub-surface rights as aforesaid, as well as all air rights above a plane over the surface of the property at a height sufficient to accommodate the use of the property for commuter rail purposes . . . . In addition the Trustee shall have such rights in and to the surface (not irreconcilable with the RTA commuter service and facilities) as are necessary to use, develop and/or implement the air rights and sub-surface rights for any lawful purposes. Id. at 13. *fn2

The Supplement to the Stipulation provided that, incident to the RTA's permanent relocatable easement, the RTA had acquired the right of entry onto the trustee's retained rights for the maintenance and repair of its facilities. It was also understood, according to the Supplement, that safety concerns might require "changes or modifications to the presently existing structures, improvements, and any other facilities." R.315, Ex.E at 2. "Incident to the exercise of such right of entry, the RTA agrees that it will not unreasonably interfere with the retained rights of the Trustee . . . ." Id. In addition, the RTA agreed to indemnify the trustee and his assigns from any claims, damages, losses or expenses arising from the RTA's exercise of this right.

In short, the RTA acquired from the trustee a permanent, relocatable easement and other rights to operate the commuter rail service. One such other right was the right of entry to maintain, repair or rebuild the facilities, including the LaSalle Street Station. In exercising this right of entry, however, the RTA could not interfere unreasonably with the rights retained by the trustee and had to indemnify the trustee for any damages arising from the RTA's repair or maintenance activities. The trustee, on the other hand, retained the rights to develop the air and sub-surface, including necessary incidental rights, as long as in developing these rights he did not unreasonably interfere with the RTA's exercise of its rights.

In June 1984, the bankruptcy trustee sold his retained rights in the property to the Chicago Pacific Corporation ("CPC"). CPC negotiated with the RTA to try to develop a plan by which the LaSalle Street Station (by this time in great need of repair and renovation) could be renovated and by which the CPC could develop its air rights. However, no agreement between these parties was reached, and subsequently the CPC merged with the Maytag Corporation. By 1989 the RTA had failed to reach an agreement with Maytag as to how the two could develop the property, and the RTA decided to proceed with its construction plans. It awarded a contract to Kiewit Western Company ("Kiewit") to rebuild the LaSalle Street Station. Also in 1989, Maytag sold its interest in the property to American National Bank & Trust, as trustee. The beneficial interest holder of this land trust was a real estate group, VMS. W/H Limited Partnership No. 17 ("WH") acquired VMS' rights and is the current beneficial owner of the land trust. *fn3 Soon after the RTA began working on renovating the station, WH asked the RTA to cease its construction operations until the two could coordinate their plans -- the RTA's renovation of the LaSalle Street Station and WH's proposal to develop its air rights. WH believed that the RTA was required to cease its operations until the two sides could coordinate their plans; the RTA disagreed. After negotiation, the two parties reached a compromise on March 20, 1990: The parties entered into a Lump Sum Agreement, under which the RTA agreed to cease construction until July 13, 1990; WH agreed to provide notice to the RTA of WH's commitment to proceed with a coordinated infrastructure or to pay up to $500,000 and allow operations to resume again on July 14. WH also agreed to reimburse the RTA for its contractors' delay costs.

During the hiatus, the parties tried to reach agreement on a coordinated infrastructure plan, one which would support the LaSalle Street Station without inhibiting the RTA's ability to run the commuter rail service and which would also support an elevated platform or raft on which WH could construct high-rise buildings. Essentially, WH would, in coordination with the RTA, build stilts to support an elevated platform that would sit above the train station. It was necessary that the parties coordinate their infrastructure designs and construction so that the same caissons, foundational supports, would support both the LaSalle Street Station and WH's contemplated platform. The coordination was necessary because, if WH did not build its caissons at the same time and in the same location as the RTA, it would have been nearly impossible for WH to build its caissons at all without having to interrupt train service significantly and possibly to tear down some of the structures that the RTA already would have built. The costs to WH would be very significant. Under the proposed plan, WH's platform would be well supported and sturdy enough that another developer would be able to construct a high-rise building on the raft.

The two sides held numerous technical and non-technical meetings. Many hours were spent revising and re-revising construction plans. As the end of the construction hiatus approached, however, there were still a number of issues that had not been resolved: Some of the engineering problems had not been finally solved; the parties disagreed as to how much of a construction bond WH should post; and the parties were at loggerheads over whether WH would retain the RTA's protest rights against the RTA's contractors relating to the amount of the contractor's delay costs WH had agreed to pay.

Several days before the July 13 deadline, Kiewit presented the RTA with a $1.2 million bill for costs associated with the several-month delay. The RTA asked WH to pay this amount, but WH thought that the amount was too high. The RTA went back to its contractor, and the bill was reduced to $692,000. WH still refused to pay. On July 13, the deadline to which the parties had agreed, WH sent a letter to the RTA stating that WH was reviewing the RTA's final position on some of the unresolved issues, which WH had only recently received. Therefore, according to the letter, WH was not prepared to provide the RTA a definite answer on whether WH would proceed with development of its air rights. *fn4 The letter concluded by suggesting that the principals should meet to resolve and finalize any outstanding issues. Because WH had failed to provide notice that it would proceed by July 13, the RTA recommenced construction on July 14. The renovation of the LaSalle Street Station was completed in 1992. In this suit, WH maintained that the RTA's unilateral construction of the station made it impossible for it to develop its air rights over the station.

B. District Court Proceedings

American National Bank and Trust, as trustee of trust number 107796-01 (beneficial interest holder, WH), filed suit in federal district court on June 2, 1993. WH's basic contention was that, by recommencing construction, the RTA has prevented WH from exercising its development rights, thus making such rights virtually worthless. Because the RTA did not coordinate with WH to construct caissons suitable to support both the station and the raft, WH cannot build any caissons at all. Specifically, the three-count complaint alleged that, by recommencing construction on July 14, 1990, the RTA (1) breached the 1984 Judgment Order, (2) was obligated to indemnify WH for any costs -- i.e., the lost economic value of WH's rights -- associated with the RTA's renovation of the LaSalle Street Station, and (3) trespassed on WH's rights (those that had been retained by the bankruptcy trustee and that were subsequently acquired by WH). In response, the RTA filed two counterclaims: (1) that WH had breached the Lump Sum Agreement and therefore owed the RTA $500,000 and (2) that WH had failed to reimburse the RTA, as WH had agreed to do, for delay costs incurred. In addition to filing this suit, WH (as the successor to Northern Indiana) filed another suit in state court for inverse condemnation and trespass. That case involved the South Parcel. There WH alleged that the RTA's construction invaded its rights as successor to the co-tenancy of Northern Indiana, which WH had acquired from the Penn Central Corporation. On appeal, the Illinois Appellate Court held in favor of the RTA based on the 1851 contractual rights the RTA had acquired from Rock Island.

In the present case, the district court conducted a four-week trial to resolve these complicated issues. At trial the parties presented a plethora of witnesses to support each side's position: the RTA's witnesses testifying that, in building the station, the RTA was well within its rights and did not unreasonably interfere with WH's air rights; WH's witnesses testifying to its commitment to make the coordinated construction a reality, notwithstanding the many hurdles that the RTA placed in its path. There were also a number of witnesses who testified as to the alleged damages that WH sustained.

The jury returned a verdict in favor of American National (WH) on its first two claims; the jury found that the RTA had breached the 1984 Judgment Order and had breached its duty to indemnify WH for economic losses associated with the RTA's exercise of its right of entry to repair the station. The jury awarded American National $24,544,830. The jury found for the RTA on the remaining claim (trespass) and on the RTA's two counterclaims, breach of the Lump Sum ...

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