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Illinois Mine Subsidence Insurance Fund v. Union Pacific Railroad Co.

United States District Court, C.D. Illinois

April 11, 2018

ILLINOIS MINE SUBSIDENCE INSURANCE FUND, Plaintiff,
v.
UNION PACIFIC RAILROAD COMPANY, Defendant.

          OPINION

          TOM SCHANZLE-HASKINS, U.S. MAGISTRATE JUDGE

         This matter comes before the Court Plaintiff's Motion for Leave to File First Amended Complaint (d/e 16) (Motion). For the reasons set forth below, the Motion is ALLOWED.

         STATEMENT OF FACTS

         Plaintiff alleges in the current Complaint that in 2014 and 2015, two homes in Macoupin County, Illinois (Macoupin County), suffered damage from mine subsidence. Country Mutual Insurance Company (Country Mutual) issued homeowner's insurance policies on both homes that included coverage for mine subsidence. Country Mutual had a reinsurance agreement with Plaintiff Illinois Mine Subsidence Insurance Fund (Fund). The Fund paid $163, 600 and $71, 400, respectively, to indemnify Country Mutual for moneys paid to the homeowners for the covered losses. The Fund brings this action under its subrogation rights against Defendant Union Pacific Railroad Company (Union Pacific). Notice of Removal (d/e 1), Exhibit A, Complaint of the Illinois Mine Subsidence Insurance Fund (Complaint), ¶¶ 40-50. The Fund alleges that Union Pacific is liable for the losses due to the subsidence because Union Pacific is the successor to the Superior Coal Company (Superior) which had operated the mines that subsided.

         The Fund alleges that the Chicago & Northwestern Railway Company (CNW) established Superior in 1903 to operate coal mines. CNW owned 19, 995 of the 20, 000 outstanding shares of Superior. The five directors of Superior each owned one of the remaining five shares of Superior stock. The directors of Superior were officers or employees of CNW. The directors each owned a share of Superior stock because a director had to be a stockholder. Superior's place of business was located in CNW's general office. Complaint, ¶¶ 4-8, 14-17, 19(a); see Gillespie Community Unit School Dist. No. 7, Macoupin County v. Union Pacific Railroad Co., 2015 IL App (4th) 1408771 ¶¶ 12-66, 43 N.E.3d 1155, 252-60 ( Ill. App. 4th Dist. 2015).

         In 1954, CNW's Board of Directors adopted a resolution to cease all of Superior's mining operations because of CNW's decreasing demand for coal. CNW Board also instructed Superior to cease mine operations on June 1, 1954 unless a purchaser of Superior's assets had been located. Complaint, ¶ 29-30.

         On September 14, 1956, CNW's Board of Directors passed a resolution stating that it was in the best interest of CNW that Superior be dissolved. In October 1956, Superior filed a statement of its intent to dissolve. The statement recited that CNW's Board of Directors had resolved that the proper officers of CNW would arrange for the dissolution of Superior. Complaint, ¶¶ 35-36.

         In December 1956, Larry Provo, President of Superior and Vice President of CNW, and E.A. Vik, Secretary of Superior and Secretary of CNW, executed a deed transferring all of Superior's land and mineral rights in Macoupin County to CNW. Superior made the transfer without receiving any consideration. Complaint, ¶ 37.

         In 1957, Superior was dissolved. Superior's assets, together with those liabilities which could not be fully liquidated prior to dissolution, were transferred to and assumed by CNW. The Fund alleges that Superior's liability for mine subsidence damage was not and could not be fully liquidated prior to Superior's dissolution. Complaint, ¶¶ 9.

         In 1970, CNW sold all of its assets and liabilities to North Western Employees Transportation Corporation. In 1972, North Western Employees Transportation Corporation changed its name to Chicago and North Western Transportation Company. In 1994, Chicago and North Western Transportation Company changed its name to Chicago and North Western Railway Company (New CNW). In October 1995, New CNW merged with Defendant Union Pacific. Union Pacific became the successor corporation after the merger. Complaint, ¶¶ 10-13.

         From 1996 to 2008, Union Pacific paid the Fund more than $900, 000.00 to reimburse the Fund for losses to at least 20 insured structures due to subsidence in properties over mines operated by Superior. The releases signed by Union Pacific stated that Union Pacific was “the successor in interest” to CNW and Superior. The releases released Union Pacific, CNW, and Superior. The releases were contractual releases and not merely recitals. Complaint, ¶ 39.

         Based on these and additional allegations not pertinent here, the Complaint asserts a claim that Union Pacific's predecessor CNW was the alter ego of Superior, and so, was liable for damages caused by the subsidence of Superior's Macoupin County mines. Complaint, ¶¶ 14-39, 51-59.

         The Fund now moves to amend the Complaint to assert a claim that the transfer of Superior's assets to CNW and the dissolution of Superior was a de facto merger through which CNW assumed all of the liabilities of Superior.

         The proposed Amended Complaint alleges the following. On September 14, 1956, CNW's Board of Directors passed a resolution to dissolve Superior. On October 12, 1956, the shareholders of Superior executed a statement of intent to dissolve, and that in December 1956, Provo, President of Superior and Vice President of CNW, and Vik, Secretary of Superior and Secretary of CNW, executed a deed transferring all of Superior's land and mineral rights in Macoupin County to CNW. Superior made the transfer without receiving any ...


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