Winamac Southern Railway Company v. Toledo Peoria & Western Corporation
Filing
58
OPINION AND ORDER: DENYING 46 Plaintiff's Motion for Summary Judgment; GRANTING IN PART 52 Defendant's Motion for Summary Judgment as to issue that pltf is not entitled to assign its rights under trackage rights agreement and DENIED IN PART re breach of trackage rights agreement. Signed by Judge Rudy Lozano on 7/9/12. (jld)
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF INDIANA
SOUTH BEND DIVISION
WINAMAC SOUTHERN RAILWAY,
COMPANY,
Plaintiff,
v.
TOLEDO, PEORIA AND WESTERN,
CORPORATION,
Defendant.
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NO. 3:09-CV-86
OPINION AND ORDER
This matter is before the Court on: (1) Plaintiff’s Motion for
Summary Judgment (DE# 46), filed on December 30, 2011; and (2)
Defendant and Counterclaimant’s Cross-Motion for Summary Judgment
(DE# 52), filed on February 23, 2012.
For the reasons set forth
below, Defendant’s Cross-Motion for Summary Judgment is GRANTED in
part and DENIED in part.
To the extent Defendant seeks summary
judgment on the issue that Plaintiff is not entitled to assign its
rights under the trackage rights agreement, this motion is GRANTED.
To the extent Defendant seeks summary judgment on the issue that
Plaintiff’s
assignment
constitutes
a
material
breach
trackage rights agreement, this motion is DENIED.
motion for summary judgment is DENIED.
of
the
Plaintiff’s
BACKGROUND
On February 5, 2009, Plaintiff, Winamac Southern Railway
Company (“Winamac”), filed a complaint for declaratory relief
against, Defendant, Toledo, Peoria and Western Railway Corporation
(“Toledo”),
and
Toledo
filed
a
counterclaim
against
Winamac.
Essentially, the dispute centers around whether the trackage rights
agreement (“TRA”) between Winamac and Toledo allows Winamac to
assign its rights under the TRA and whether the TRA has been
terminated due to Winamac’s assignment.
Both parties have filed motions for summary judgment on these
issues.
DISCUSSION
Facts
The material facts of this case are undisputed.
The three
miles of rail track at issue begin at mile-post 71.5 at Van,
Indiana and extend east to mile-post 74.5 at Logansport, Indiana
(“the trackage rights line”). Winamac obtained overhead or “bridge
trackage rights” to the trackage rights line in 1995 in connection
with the sale of several railroads to A&R Line, Inc. (“A&R”).
Around March of 1994, Winamac purchased seventy-five miles of
railroad extending from Kokomo, Indiana through Logansport, Indiana
to Winamac, Indiana and Bringhurst, Indiana from the State of
Indiana.
In
1995,
Winamac
sold
the
section
of
Logansport, Indiana to Winamac, Indiana to A&R.
the
track
from
As a condition of
the sale, Winamac retained bridge trackage rights to the Winamac
Line which connected two of Winamac’s otherwise disconnected lines.
This agreement is memorialized in the TRA.
In 2002, A&R merged into Toledo, Peoria & Western Corporation
(“Toledo”) and Toledo succeeded to A&R’s interests.
The TRA
contains ten articles containing specifications as to the terms and
volume of use, terms for repair, maintenance and renewal, terms for
access fees, liability and termination. The provisions at issue in
this litigation are Section 2.01 and Article 7.
Section 2.01 of the TRA states:
Common Usage of Facilities. [Winamac’s] use of the
Facilities shall be in common with [Toledo] and any other
use of the Facilities, and [Toledo’s] right to use the
Facilities shall not be diminished by the Agreement.
[Toledo] shall retain the sole right to grant to other
persons rights of any nature in the facilities.
Article 9 states, in pertinent part:
In the event of any
Default and Termination.
substantial failure on the part of [Winamac] to perform
its obligation under this Agreement and its continuance
in such default for a period of five (5) days after
written notice given in accordance with Section 10.01 by
[Toledo], [Toledo] shall have the right at its option,
after first giving two (2) days notice thereof by written
notice given in accordance with Section 10.01, and
notwithstanding any waiver by [Toledo] of any prior
breach thereof, to terminate the Trackage Rights and
[Winamac’s] use of the Facilities.
Winacamc hired U.S. Rail Corporation (“U.S. Rail”) to manage
its
operations.
Winamac
and
U.S.
Rail
executed
a
Railroad
Operating Lease wherein Winamac leased its rights, including its
trackage rights under the TRA, to U.S. Rail.
Toledo notified
Winamac that it believed Winamac’s assignment of its rights under
the TRA to U.S. Rail constituted a substantial failure of Winamac’s
obligation to perform under the TRA, justifying termination if not
cured.
On January 2, 2009, Toledo advised Winamac that it was
terminating the TRA pursuant to Article 7.
Motion for Summary Judgment Standard
The standards that generally govern summary judgment motions
are familiar. Pursuant to Rule 56(c) of the Federal Rules of Civil
Procedure, summary judgment is proper only if it is demonstrated
that there is no genuine issue as to any material fact and that the
moving party is entitled to judgment as a matter of law.
See
Nebraska v. Wyoming, 507 U.S. 584, 590 (1993); Celotex Corp. v.
Catrett, 477 U.S. 317, 322-23 (1986).
In other words, the record
must reveal that no reasonable jury could find for the nonmovant.
Karazanos v. Navistar Int'l Transp. Corp., 948 F.2d 332, 335 (7th
Cir. 1991); see also Anderson v. Liberty Lobby, Inc., 477 U.S. 242,
250 (1986).
In deciding a motion for summary judgment, a court
must view all facts in the light most favorable to the nonmovant.
Anderson, 477 U.S. at 255; Nucor Corp. v. Aceros Y Maquilas De
Occidente, 28 F.3d 572, 583 (7th Cir. 1994).
The burden is upon the movant to identify those portions of
"the
pleadings,
depositions,
answers
to
interrogatories,
and
admissions on file, together with the affidavits," if any, that the
movant believes demonstrate an absence of a genuine issue of
material fact.
Celotex, 477 U.S. at 323.
Once the movant has met
this burden, the nonmovant may not rest upon mere allegations but
"must set forth specific facts showing that there is a genuine
issue for trial."
Fed. R. Civ. P. 56(e); Becker v. Tenenbaum-Hill
Assocs., Inc., 914 F.2d 107, 110 (7th Cir. 1990); Schroeder v.
Lufthansa German Airlines, 875 F.2d 613, 620 (7th Cir. 1989).
"Whether
a
fact
is
material
depends
on
the
substantive
law
underlying a particular claim and 'only disputes over facts that
might affect the outcome of the suit under governing law will
properly preclude the entry of summary judgment.'"
Walter v.
Fiorenzo, 840 F.2d 427, 434 (7th Cir. 1988) (citing Anderson, 477
U.S. at 248).
"[A] party who bears the burden of proof on a particular issue
may not rest on its pleading, but must affirmatively demonstrate,
by specific factual allegations, that there is a genuine issue of
material fact which requires trial." Beard v. Whitley County REMC,
840 F.2d 405, 410 (7th Cir. 1988) (emphasis in original); see also
Hickey v. A.E. Staley Mfg., 995 F.2d 1385, 1391 (7th Cir. 1993).
Therefore, if a party fails to establish the existence of an
essential element on which the party bears the burden of proof at
trial, summary judgment will be appropriate.
Where the parties
file cross-motions for summary judgment, the Court must consider
each motion, but despite the parties' agreement that no genuine
issue of material fact exists, the parties must still establish
their rights to judgment as a matter of law.
Grabach v. Evans, 196
F. Supp. 2d 746, 747 (N.D. Ind. 2002).
Declaratory Judment
Winamac has filed a declaratory judgment complaint, Toledo
filed a counterlcaim, and both parties are seeking summary judgment
regarding whether Winamac’s rights under the TRA are assignable
and, if not, whether Winamac’s assignment constitutes a material
breach of the TRA.
Declaratory judgment actions allow prompt
settlement of actual controversies and establish the legal rights
and obligations that will govern the parties’ relationship in the
future.
Hyatt Int’l Corp. v. Coco, 302 F.3d 707, 711 (7th Cir.
2002).
Courts
have
discretion
in
deciding
whether
to
provide
declaratory relief. Five factors to be weighed in deciding whether
to grant declaratory relief include: “(1) whether the judgment
would settle the controversy; (2) whether the declaratory judgment
action would serve a useful purpose in clarifying the legal
relations at issue; (3) whether the declaratory remedy is being
used merely for the purpose of ‘procedural fencing’ or ‘to provide
an arena for a race for res judicata’; (4) whether the use of a
declaratory action would increase friction between our federal and
states courts and encroach on state jurisdiction; and (5) whether
there is an alternative remedy that is better or more effective.”
NUCOR, 28 F.3d at 579.
The parties agree that declaratory relief is appropriate here.
Indeed, they are both seeking it.
Moreover, after examining the
five factors enunciated in NUCOR, this Court believes declaratory
relief to be warranted.
The TRA does not allow Toledo to assign or lease its rights.
Typically, “unless the parties have agreed otherwise, contract
rights are freely assignable. . ..”
199,
205
(7th
assignment
Cir.
1991).
provision
in
the
United States v. Doe, 940 F.2d
“[P]arties
contract,
may
include
prohibiting
an
(1)
antithe
assignment of rights, (2) the assignment of duties, or (3) both.
But, careful detail must be given to the language of the such
provision.”
Traicoff v. Digital Media, Inc., 439 F.Supp.2d 872,
879 (S.D. Ind. 2006).
Construction of the terms of a written contract, including an
anti-assignment clause, is a question of law.
Ruse v. Bleeke, 914
N.E.2d 1, 14 (Ind. Ct. App. 2009)(citing Berkel & Co. Contractors,
Inc. v. Palm & Assocs., Inc., 814 N.E.2d 649, 655 (Ind. Ct. App.
2004).
“The goal of contract interpretation is to ascertain and
give effect to the parties’ intent.
When interpreting the meaning
of the words used in a contract, [the court] must first determine
if the contract is ambiguous.”
Id.
If it is no ambiguity, the
Court will “give the terms of [the] contract their plain and
ordinary meaning.
Id.
Toledo argues that the TRA does not contain an anti-assignment
clause and is therefore assignable. Citing Traicoff, Toledo argues
that Section 2.01 does not use the requisite language to prohibit
assignment.
explicit
Simply put, Toledo posits that the TRA must include
language
forbidding
assignments
effective anti-assignment clause.
in
order
to
be
an
Despite Toledo’s insistence,
there is nothing in Indiana law that requires an anti-assignment
clause to contain the word “assignment,” in order to preclude an
assignment.
Rather than requiring some sort of magical language,
what an anti-assignment clause needs is clarity; in order to be
effective, the clause needs to clearly preclude an assignment.
Tellingly, in Traicoff, the court was faced with a contract
that “merely prohibit[ed] the assignment of ‘the contract,’ but
failed
to
detail
whether
the
prohibition
assignment of rights, duties, or both.
Id.
applie[d]
to
the
Because the “contract
fail[ed] to clearly state that the anti-assignment provision was
intended to prohibit [the] assignment of rights,” the court found
that the anti-assignment clause did not preclude the assignment of
rights.
Id. at 880.
In no way did Traicoff hold that the word
“assignment” must be used in an anti-assignment clause in order to
preclude assignment.
Instead, Traicoff found only that an anti-
assignment clause must clearly detail the prohibited assignment.
That is exactly what Section 2.01 does.
Section 2.01 states that
Toledo “shall retain the sole right to grant to other persons
rights of any nature in the Facilities.”
This Court finds that
Section 2.01 is unambiguous in prohibiting Winamac from assigning
(or leasing) any of its rights to any third party.
This is true
when read in isolation or in context of the entire TRA.1
There is a question of fact as to
whether Toledo’s assignment materially breached the TRA.
According to Article 7 of the TRA, Toledo may terminate the
agreement upon Winamac’s substantial failure to perform.
Toledo
acknowledges that courts often decline “to hold as a matter of law
that a breach of a covenant restricting assigning and subletting is
always material.”
Ct. App. 2007).
Collins v. McKinley, 871 N.E.2d 363, 375 (Ind.
Whether such a breach is material is “generally a
question of fact to be decided by the trier of fact.”
Id.
this
because
acknowledgment,
instant
litigation
however,
involves
Toledo
the
argues
heavily
that
regulated
Despite
the
railroad
industry, which has many potential hazards, this Court should hold
that the breach of a contractual provision prohibiting assignment
is a material breach as a matter of law.
The problem with Toledo’s argument is that it is not well
developed.
Toledo fails to convince this Court that Winamac’sbr
breach constitutes a material breach as a matter of law.
Toledo
does not cite to a single piece of legal authority that has found
such a breach constitutes a material breach simply because the
1
Winamac offers extrinsic evidence in an effort to show that the
parties’ intent was to allow assignment of its rights under the TRA. However,
because the TRA’s language is unambiguous, the Court will not look beyond the
four corners of the contract. Dave’s Excavating, Inc. v. City of New Castle,
959 N.E.2d 369, 367-77 (Ind. Ct. App. 2012).
contract in question involved the railroad industry.
CONCLUSION
For the reasons set forth below, Defendant’s Cross-Motion for
Summary Judgment is GRANTED in part and DENIED in part.
To the
extent Defendant seeks summary judgment that Plaintiff is not
entitled to assign its rights under the trackage rights agreement,
this motion is GRANTED.
To the extent Defendant seeks summary
judgment that Plaintiff’s assignment constitutes a material breach
of
the
trackage
rights
agreement,
this
motion
is
DENIED.
Plaintiff’s motion for summary judgment is DENIED.
DATED:
July 9, 2012
/s/RUDY LOZANO, Judge
United States District Court
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