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Union Pacific Railroad Co. v. Kansas City Southern Railway Co.

August 12, 2009

UNION PACIFIC RAILROAD COMPANY, PLAINTIFF,
v.
KANSAS CITY SOUTHERN RAILWAY COMPANY, AND GATEWAY EASTERN RAILWAY COMPANY, DEFENDANTS.



The opinion of the court was delivered by: Reagan, District Judge

MEMORANDUM AND ORDER FOLLOWING BENCH TRIAL

I. INTRODUCTION AND PROCEDURAL POSTURE

On April 26, 2007, Plaintiff Union Pacific Railroad Company ("UP") filed this action (Doc. 2) alleging that Defendants Kansas City Southern Railway Company ("KCSR") and Gateway Eastern Railway Company ("GWER") breached a 1993 Settlement Agreement by refusing to permit UP to use approximately two miles of railroad trackage between points known as Q Tower and Willows Tower in East St. Louis, Illinois. UP's complaint sought damages incurred from the alleged breach, a declaratory judgment determining that the 1993 Agreement is binding and remains in effect, and a permanent injunction prohibiting KCSR and GWER from further preventing UP's use of the trackage.

On September 9, 2008, this Court issued a Memorandum and Order (Doc. 97) in which the Court denied UP's Motion for Summary Judgment on the issue of liability (Doc. 53). The Court found that ambiguity in the language of Paragraph 7 of the December 20, 1993 Agreement between Plaintiff and Defendants-the contract provision on which this case turns-created a genuine issue of material fact regarding the meaning of that paragraph and prevented granting UP's motion (Doc. 97, p. 11).

In that same September 9, 2008 Order, this Court granted the Motion for Summary Judgment on Damages (Doc. 82) filed by KCSR and GWER. The Court found that even assuming arguendo that the 1993 Agreement does include a grant of trackage rights at Paragraph 7, that agreement cannot be put into effect (and Union Pacific cannot legally use the trackage) until the STB grants the exemption [allowed under 49 C.F.R. § 1180.2(d)] or otherwise authorizes the transaction. (Doc. 97, p. 15).

Thus, on September 15, 16, and 17, 2008, this matter proceeded to trial to resolve the proper interpretation of Paragraph 7 of the December 20, 1993 Agreement (the "1993 Agreement") and to determine whether Plaintiff is entitled to a declaratory judgment (Count II) or to injunctive relief (Count III) based upon an alleged right to access the railroad trackage at issue.

The Court, having heard the evidence and examined the exhibits, and further having reviewed and considered the entire record in the case, including the Final Pretrial Order ("FPO") dated June 6, 2008 (Doc. 73) and the various pleadings filed by the parties, hereby makes the following findings of fact and conclusions of law pursuant to FEDERAL RULE OF CIVIL PROCEDURE 52.

II. FINDINGS OF FACT

As a preliminary matter, the Court notes that no evidence was presented in this case from anyone involved in the negotiation or drafting of the 1993 Agreement. Accordingly, in order to interpret Paragraph 7, the Court must look to the language of the 1993 Agreement, the timing and sequence of events surrounding the 1993 Agreement, and the conduct of the parties.

A. The Parties

1. Union Pacific Railroad Company ("UP") is a corporation incorporated under the laws of the State of Delaware. FPO, Agreed To Issues of Fact, No. 3.

2. UP's principal place of business is located in Omaha, Nebraska. FPO, Agreed to Issues of Fact, No. 4.

3. In 1996, as part of a proposed merger between Southern Pacific Transportation Company ("SP") and UP, SP and UP were placed under common operating control. FPO, Agreed to Issues of Fact, No. 5.

4. The Denver and Rio Grande Western Railroad Company ("D&RGW"), St. Louis Southwestern Railway ("SSW"), and SPCSL Corp. ("SPCSL") were all subsidiaries of SP. FPO, Agreed to Issues of Fact, No. 6.

5. On June 30, 1997, the D&RGW and SPCSL Corp. were merged into UP. FPO, Agreed to Issues of Fact, No. 7.

6. On September 30, 1997, SSW was merged into SSW Merger Corp. FPO, Agreed to Issues of Fact, No. 8.

7. Also on September 30, 1997, SSW Merger Corp. was merged into UP. FPO, Agreed to Issues of Fact, No. 9.

8. On or about February 1, 1998, UP was merged with and into SP. FPO, Agreed to Issues of Fact, No. 10.

9. As of February 1, 1998, the separate corporate existence of UP ceased. FPO, Agreed to Issues of Fact, No. 11.

10. SP was the surviving corporation in the merger. FPO, Agreed to Issues of Fact, No. 12.

11. As of the day and time of the merger, SP, as the surviving corporation, changed its corporate name to "Union Pacific Railroad Company." FPO, Agreed to Issues of Fact, No. 13.

12. KCSR is a corporation incorporated under the laws of the State of Missouri. FPO, Agreed to Issues of Fact, No. 14.

13. KCSR's principal place of business is in Kansas City, Missouri. FPO, Agreed to Issues of Fact, No. 15.

14. GWER is a corporation incorporated under the laws of the State of Illinois. FPO, Agreed to Issues of Fact, No. 16.

15. GWER's principal place of business is in Illinois. FPO, Agreed to Issues of Fact, No. 17.

16. GWER is a wholly-owned subsidiary of KCSR. FPO, Agreed to Issues of Fact, No. 18.

17. In 2001, Gateway Western Railway Company ("GWWR") was merged into KCSR. Plaintiff's Complaint, Paragraph 6, Defendants' Answer, Paragraph 6.

B. The Subject Railroad Track

18. The railroad track at issue (hereafter the "Subject Track") is located between "Q" Tower and Willows Tower in East St. Louis, Illinois, running from railroad milepost 238.7 to railroad milepost 236.8. FPO, Agreed to Issues of Fact, No. 19.

19. The Subject Track is a 1.9-mile line of railroad which connects to the Rose Lake Yard on the Illinois side of the St. Louis Gateway. FPO, Agreed to Issues of Fact, No. 20.

C. SP's Use of the Subject Track Prior to January 28, 1994

20. During the early 1990s, there were three major Class One railroads that operated in the western United States and did business in the St. Louis Gateway area: SP, through SSW; Burlington Northern; and Union Pacific. Batory Depo., p. 72:19-73:18. There were also three major eastern Class One railroads - Norfolk Southern, CSX, and Consolidated Rail Corporation - that did business in the St. Louis Gateway area but did not operate across either the Merchants Bridge or the MacArthur Bridge into St. Louis, Missouri. Rather, each of the western railroads came across a Mississippi River bridge to effectuate its interchange with the eastern railroads at various locales in the East St. Louis, Illinois area commonly referred to as the St. Louis Gateway. Batory Depo., p. 73:2-18.

21. One of the eastern railroads with which SP interchanged traffic through the St. Louis Gateway to move traffic to eastern markets was Conrail. Batory Depo., p. 75:8-18. One of the ways that SP had access to Conrail was through use of the Subject Track. Batory Depo., p. 75:19-23; Trial Tr., Vol. I, p. 92:9-14.

22. SP used the Subject Track to reach Rose Lake Yard where SP interchanged traffic with Conrail. Trial Tr., Vol. II, p. 9:16-20.

23. In 1991, the Subject Track was owned by Conrail. Tr. Tr. Vol. I, p. 92:9-14.

24. In 1991, Rose Lake Yard was owned by Conrail. Trial Tr., Vol. III, p. 81:2-7.

25. In 1991, SP's use of the Subject Track to interchange with Conrail at Rose Lake Yard was governed by an Interchange Agreement dated June 24, 1991, between Conrail and SSW, a subsidiary of SP (the "1991 Interchange Agreement").*fn1 Plaintiff's Ex. 2, Trial Tr., Vol. I, p. 101:22-102:13.

26. Under the 1991 Interchange Agreement, Conrail granted SSW Operating Rights (a defined term) over the Subject Track for the purpose of SSW using the track for delivery and receipt of interchange traffic with Conrail at Rose Lake Yard. Plaintiff's Ex. 2, §§ 1 and 2. The Operating Rights were limited to the sole purpose of delivery and receipt of interchange traffic between SSW and Conrail. Id.

27. Under the 1991 Interchange Agreement, there was "no charge for SSW's use of the Subject Trackage as such use is granted for the sole purpose of accessing the Interchange Track(s)." Plaintiff's Ex. 2, § 4.

28. Also under the 1991 Interchange Agreement, Conrail was to maintain, repair, and renew the Subject Trackage at its sole cost and expense, but Conrail did not guarantee the condition of the Subject Trackage or that operation thereover would not be interrupted. Plaintiff's Ex. 2, § 5.

29. The 1991 Interchange Agreement also contained provisions regarding its term and assignability. Under Section 12, the 1991 Interchange Agreement remained in force and effect "until terminated by either party upon thirty (30) days written notice to the other party." Plaintiff's Ex. 2, § 12. The 1991 Interchange Agreement could not be assigned by either party without the prior written consent of the other party. Id., § 13.

D. SP's Physical Use of the Subject Track Prior to and After January 28, 1994

30. Through the testimony of its witness Jeffrey Grinnell, UP's Director of Joint Facilities, UP admitted that from approximately 1991 until it ceased its use of the Subject Track in 1997, it used the Subject Track to run approximately one intermodal train per week. Trial Tr., Vol. I, p. 131:16-18; Trial Tr., Vol. II, p. 8:17- 9:20.

E. GWWR's Petition for Construction of the "Jug Handle"

31. Prior to 1992, GWWR entered into a haulage agreement with the Atchison, Topeka, Santa Fe Railroad ("ATSF") where GWWR agreed to move cars for ATSF eastbound from Kansas City into the East St. Louis area. Trial Tr., Vol. I, p. 78:12-79:14.

32. GWWR's delivery of ATSF cars to CSX Transportation, Inc. ("CSX") in the East St. Louis area required GWWR to stop the trains and perform a time consuming "runaround move." Trial Tr., Vol. I, p. 82:3-84:3; Plaintiff's Ex. 12.

33. To eliminate the need for this time consuming runaround move, GWWR sought to construct a line of railroad called the "Jug Handle" that would create a direct connection in East St. Louis. Trial Tr., Vol. I, p. 84:7-21; Plaintiff's Ex. 12.

34. On or about October 13, 1992, GWWR petitioned the Interstate Commerce Commission ("ICC") for approval to construct and operate the Jug Handle. Plaintiff's Ex. 12.

35. In support of its petition for ICC approval to construct the Jug Handle, GWWR filed a verified statement by J. Reilly McCarren, GWWR's President. Plaintiff's Ex. 12.

36. In his verified statement, McCarren described the time-consuming runaround move GWWR was required to make to interchange with CSX at CSX's Cone Yard. Plaintiff's Ex. 12. He also described GWWR's financial position and the operating efficiency that would be gained by allowing the construction of the Jug Handle. Id.

37. McCarren's verified statement was introduced into evidence by UP to support UP's argument regarding what GWWR may have been willing to bargain for in the 1993 Agreement. Trial Tr., Vol. I, p. 121:16-20; Trial Tr., Vol. III, p. 17:13-19:4.

38. On or about October 13, 1992, GWWR also filed a petition with the ICC seeking to have the ICC order the Terminal Railroad Association of St. Louis ("TRRA")*fn2 and UP's affiliate SPCSL to allow the Jug Handle to cross a track owned by the TRRA and a track owned by the SPCSL. Plaintiff's Trial Ex. 8.

39. The TRRA and SPCSL objected to the proposed construction. Trial Tr., Vol. I, p. 90:21-25. SP also objected to GWWR's proposed completion of the Jug Handle Track; the installation of the crossover diamond over the Joint Facility Track; and the construction of the connecting track. Trial Transcript, Vol. I, p. 90:21-25.

40. In addition, on December 30, 1992, SPCSL Corp. filed a lawsuit against GWWR in the United States District Court for the Eastern District of Missouri captioned SPCSL Corp. v. Gateway Western Railway Co., Case No. 92-CV-2202. The complaint in that action alleged that GWWR had transferred control over GWWR to the ATSF in breach of a Joint Facility Agreement between SPCSL and GWWR providing each party with an undivided one-half interest in the ownership and use of certain rail lines. Plaintiff's Trial Ex. 7.

41. As a result of TRRA's and SPCSL's opposition to the construction of the Jug Handle and SPCSL's lawsuit, the construction of the Jug Handle was delayed. Trial Tr., Vol. I, p. 95:8-96:13.

42. UP did not provide any testimony regarding the likelihood of success of any of TRRA's or SPCSL's oppositions to GWWR's petitions or of SP's lawsuit against GWWR.

F. GWER Negotiates the Purchase of the Subject Track

43. On April 30, 1993, GWER and Conrail entered into a Purchase and Sale Agreement wherein Conrail agreed to sell the Subject Track to GWER (the "Purchase and Sale Agreement"). ...


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