Consolidated Rail Corporation v. Grand Trunk Western Railroad Company

Filing 195

ORDER granting in part and denying in part 171 Motion for Summary Judgment. Signed by District Judge Nancy G. Edmunds. (CHem)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION

CONSOLIDATED RAIL CORPORATION
and NORFOLK SOUTHERN RAILROAD
COMPANY,
Plaintiffs/Counter-Defendants,
v.

Case No. 09-cv-10179

GRAND TRUNK WESTERN RAILROAD
COMPANY,

Honorable Nancy G. Edmunds

Defendant/Counter-Plaintiff/ThirdParty Plaintiff,
v.
CSX TRANSPORTATION, INC.,
Third-Party Defendant.
/

OPINION AND ORDER GRANTING IN PART AND DENYING IN PART
DEFENDANT’S MOTION FOR SUMMARY JUDGMENT [171]
This matter comes before the Court on Defendant’s motion for summary judgment
on Plaintiffs’ claim that Defendant breached the 1996 Trackage Rights Agreement. For
the reasons set forth below, Defendant’s motion is GRANTED in part and DENIED in
part.
I.

Facts
A. Third Amended Complaint

1

On January 19, 2012, this Court granted Plaintiffs’ motion for leave to file a ThirdAmended Complaint. The Third Amended Complaint alleged a new breach of contract
claim against Defendant, for breaching the 1996 Trackage Rights Agreement (“TRA”).
Defendant opposed this motion, arguing that Plaintiffs failed to allege that Conrail had
any damages and Norfolk Southern did not have standing. In granting Plaintiffs’ motion
to amend the complaint, this Court recognized that Count V of the Third Amended
Complaint reads, “Conrail and Norfolk Southern have suffered monetary damages in the
form of increased expenses, lost opportunities and lost revenues as a result of
[Defendant’s] failure to uphold its obligations under the [TRA].” (Third Am. Compl. ¶
90.) On January 17, 2012, Plaintiffs presented the Shared Assets Area Operating
Agreement (“SAAOA”) for Detroit between Conrail, Norfolk Southern, and CSX to the
Court for the first time. The Court relied on the SAAOA, which provides that Conrail will
bill Norfolk Southern and CSX each month for 102% of the amount of each
reimburseable expense. Conrail effectively acquires a 2% profit on any expenses it
incurs and later bills to Norfolk Southern. This Court determined Plaintiffs’ allegation of
Conrail’s loss of the 2% profit was enough to state a claim and granted Plaintiffs leave
to amend.
B.

Evidence of Conrail’s Damages During Discovery

Plaintiffs’ First Amended Complaint and Second Amended Complaint alleged that
only Norfolk Southern suffered damages as a result of the claims pled therein (see
Second Amended Complaint, ¶¶ 58, 75, and 82). Despite the fact that Plaintiffs did not
originally allege that Conrail suffered any damages, Defendant sought discovery on any
possible claim for damages incurred by either Conrail or Norfolk Southern.
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On May 8, 2009, Plaintiffs filed their initial disclosures, which indicates, “Conrail
seeks damages representing the losses incurred as a result of [Defendant’s] refusal to
allow Conrail access to the tracks at issue to service Korneffel. At this time, Conrail is
not able to make the calculation associated with these damages and will supplement
these disclosures accordingly.” (Def. Mot. Ex. 5.) Defendant’s first set of requests for
production of documents and materials included “Documents or materials relating to any
and all damages claimed to have been suffered or which you claim will be suffered by
you in your Complaint.” (Def. Mot. Ex. 4.) On June 26, 2009, Plaintiffs objected to this
request as “premature and unduly burdensome.” (Id.) Defendant claims that Plaintiffs
never supplemented either of these responses, despite their obligation to do so under
Rule 26(e)(1)(A).
In October 18, 2009, Defendant sent out a Rule 30(b)(6) notice for witness(es) to
testify regarding “[t]he basis for computation of any and all damages sought by Conrail.”
(Def. Mot. Ex. 1, ¶ 58.) Plaintiffs designated James Schaaf, Group Vice President of
Metals for Norfolk Southern, as their 30(b)(6) witness as to damages for Norfolk
Southern and Conrail. Schaaf testified that he understood that he would be testifying
regarding damages that were allegedly incurred by Norfolk Southern and Conrail.
(Schaaf Dep. 98:19-99:1, April 21, 2010.)
Schaaf testified that Conrail is not a commercial entity, is not party to any
agreements with customers, and all commercial activities relating to any customer is
handled by Norfolk Southern or CSX. (James Schaaf Dep. 48:4-10; 51:9-11, Aug. 3,
2010.) At Schaaf’s deposition, Plaintiffs produced a spreadsheet entitled “Estimated NS
Damages.” Furthermore, Schaaf testified that all the loss he calculated was for Norfolk
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Southern and that Conrail really suffered no damages because it was acting as Norfolk
Southern’s agent. (Schaaf Dep. 283:15-284:5, April 21, 2010; Schaaf Dep. 70:11-20,
Aug. 3, 2010.) Schaaf also testified:
Q.

A.

A.
Q.
A.

So in effect, Conrail has suffered no damages in this, but you have
suffered, that being you, NS has suffered, correct? That is all I'm
trying to get at, is that fair to say, because ultimately you are
responsible?
I'm not clear that I can fully answer that question as to whether or not
Conrail had damages and you may want to ask a Conrail person that
question, but I -- but I have tried to the best of my ability to explain to
you that any of the expenses that are incurred with respect to these
shipments, that we as the owner will bore those expenses on behalf
of our agent.
***
I’m saying that the damages that have been presented for Norfolk
Southern are those which are listed here.
And you don’t have any knowledge of Conrail damages, correct?
Again, I will tell you, no, I do not.

(Schaaf Dep. 71:17-73:2, Aug. 3, 2010.)
C.

Norfolk Southern Standing

In 1996, at the time Conrail and Defendant entered into the TRA, Conrail was still
an independent commercial entity in direct competition with Norfolk Southern. In June
1997, Norfolk Southern, Conrail, and CSX submitted their merger agreement to the
Surface Transportation Board (“STB”) for approval. The STB is an economic regulatory
agency, created by Congress to resolve rate and service disputes and review mergers
in the railroad industry.

4

On July 20, 1998, the STB, in its Decision No. 89, “approv[ed] applicants’ request
to override antiassignment and other similar clauses in Conrail’s Trackage
Agreements.”1 (“Decision 89”) The STB further stated:
[Norfolk Southern] shall have the right to operate and use the . . . Shared
Assets . . . including those presently operated by [Conrail] under trackage
rights or leases . . . as fully as [Conrail] itself had possessed the right to use
them, notwithstanding any provision of law, agreement, order, document, or
otherwise, purporting to limit or prohibit [Conrail]’s unilateral assignment of
its operating rights to another person or persons, or purporting to affect those
rights in the case of a change of control.
(Id. at 168.) The TRA in this case is a joint facility contract in the Detroit Shared Assets
Area, entered into on May 1, 1996 and is therefore, covered by this STB Decision.
II.

Standard
Summary judgment is appropriate only when there is “no genuine issue as to any

material fact and the moving party is entitled to judgment as a matter of law.” Fed. R.
Civ. P. 56(c). The central inquiry is “whether the evidence presents a sufficient
disagreement to require submission to a jury or whether it is so one-sided that one party
must prevail as a matter of law.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251-52
(1986). Rule 56(c) mandates summary judgment against a party who fails to establish
the existence of an element essential to the party’s case and on which that party bears
the burden of proof at trial. Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986).
The moving party bears the initial burden of showing the absence of a genuine
issue of material fact. Celotex, 477 U.S. at 323. Once the moving party meets this
burden, the non-movant must come forward with specific facts showing that there is a
1

 There was one exception to this blanket override, but it does not relate to the TRA at
issue in this case.
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genuine issue for trial. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574,
587 (1986). In evaluating a motion for summary judgment, the evidence must be
viewed in the light most favorable to the non-moving party. Adickes v. S.H. Kress &
Co., 398 U.S. 144, 157 (1970). The non-moving party may not rest upon its mere
allegations, however, but rather “must set forth specific facts showing that there is a
genuine issue for trial.” Fed. R. Civ. P. 56(e). The mere existence of a scintilla of
evidence in support of the non-moving party’s position will not suffice. Rather, there
must be evidence on which the jury could reasonably find for the non-moving party.
Hopson v. DaimlerChrysler Corp., 306 F.3d 427, 432 (6th Cir. 2002).
III.

Analysis
A.

Conrail Damages

Rule 26 provides that a party must automatically disclose:
A computation of each category of damages claims by the disclosing
party—who must also make available for inspection and copying under Rule
34 the documents or other evidentiary material, unless privileged or protected
from disclosure, on which each computation is based, including materials
bearing on the nature and extent of injuries suffered.
Fed. R. Civ. P. 26(a)(1)(A)(iii). Discovery disclosures must be supplemented as new
information comes to light. Fed. R. Civ. P. 26(e).
If a party fails to disclose such information during discovery, it may not use that
information against the opposing party at trial, unless the failure to disclose was
substantially justified or is harmless. Fed. R. Civ. P. 37(c)(1); See also Park West
Galleries, Inc. v. Global Fine Art Registry, LLC, No. 08-cv-12247, 2008 U.S. Dist. LEXIS
22872, at*17 (E.D. Mich. March 12, 2010) (Zatkoff, J.) (granting a motion in limine to

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exclude evidence of damages that were not disclosed until well after the time of
discovery and the lack of disclosure was neither substantially justified nor harmless);
Fairlane Car Wash, Inc., v. PJJ Enterprises, LLC, No. 07-cv-10165, 2008 U.S. Dist.
LEXIS 33576 (E.D. Mich April 24, 2008) (Cleland, J.) (granting the defendant’s motion
to preclude the plaintiffs’ claim for damages where the plaintiffs waited until three
months after discovery to claim a certain category of damages and never provided the
defendant with the necessary information and evidence in support of such damages or
an opportunity to access the same).
It is well-established that an organization served with a Rule 30(b)(6) deposition
notice is obligated to produce a witness knowledgeable about the subjects in the notice
and to prepare that witness to testify not just to his own knowledge, but the
corporation’s knowledge. Prosonic Corp. v. Stafford, No. 07-cv-0803, 2008 U.S. Dist.
LEXIS 80778 (S.D. Ohio June 2, 2008).
[I]f a party designates someone to testify on that party's behalf on the issue
of evidence possessed by the party to support its claims or defenses, and the
witness either disclaims any knowledge of such evidence or provides a
limited amount of testimony on the subject, the organization may not use any
evidence beyond that at trial (unless, of course, it has provided it in another
way such as through initial disclosures or discovery responses and the
testimony at the 30(b)( 6) deposition is not inconsistent with those other
disclosures).
Id. at *6-7. Damages are an element of a breach of contract claim, and if there are no
damages, then there can be no breach of contract action and granting summary
disposition is appropriate. New Freedom Mortg. Corp. v. Globe Mortg. Corp., 281 Mich.
App. 63, 69-70 (2008) (citations omitted).

7

In this case, Plaintiffs did not present any damages for Conrail until January 17,
2012, seven months after the close of discovery. Plaintiffs allege that Conrail’s
damages were disclosed in Schaaf’s depositions. Specifically, they contend that
Conrail’s operating expenses are principally fixed costs and Conrail was harmed by
Defendant’s breach of the TRA because Conrail moved fewer cars, which increased
Conrail’s fixed costs per car by reducing its overall net operating revenue. The section
of Schaaf’s deposition that Plaintiffs reference, however, reads:
Ultimately all expenses that are incurred by Conrail go to their owners, in
which [NS is] one. So whatever damages or increased cost that they
incurred, go back to Norfolk Southern as their owner. They are an operating
agent on our behalf. Expenses that they incur as the normal course of
business go back to their owners based on the business that they are doing
for us. So that is in fact any damages that were incurred would be incurred
by Norfolk Southern and our agent, and we are responsible for our agent.
They are acting on our behalf.
(Schaaf Dep. 68:22-69:8, Aug. 3, 2010.)
Plaintiffs assert that because Conrail is an agent of Norfolk Southern that it is
damaged because “if the principal is damaged through the use of an agent, the agent is
damaged as well.” (Pls. Resp. 6.) Plaintiffs, however, do not cite a single case for this
assertion and do not offer any evidence of how Conrail has been damaged, except for
the 2% markup on expenses as provided for in the SAAOA.
Plaintiffs further argue that even if Conrail cannot demonstrate damages, that it
should be able to sustain a breach of contract claim on nominal damages. Plaintiffs cite
to STB Decision 89 for this claim, but the pages to which they refer have nothing to do
with Plaintiffs’ statement in their brief.

8

The only support for Conrail’s alleged damages, then, appears to be the SAAOA.
Defendant states that the first time it saw the SAAOA was seven months after the close
of discovery, as an exhibit to Plaintiffs’ reply to their motion for Leave to File a Third
Amended Complaint. Defendant argues that because Plaintiffs never produced the
SAAOA to Defendant during discovery, it cannot now be considered as evidence of
damages. Plaintiffs contend, however, that the SAAOA is a public record and
Defendant had access to it since 1999. Plaintiffs further argue that the fact that
Defendant never asked Schaaf or any other witness specifically about the SAAOA does
not preclude Conrail from eliciting such testimony at trial, since it was clear that there
was an operating and/or ownership agreement between Norfolk Southern and Conrail
and Defendant was free to inquire into its terms.
In this case, Plaintiffs failed to disclose any damages sustained by Conrail during
the discovery period. They did not comply with Rule 26, failing to disclose their
damages computations, and they did not supplement their initial lack of disclosure with
those figures later on. Plaintiffs presented a 30(b)(6) witness who disclaimed any
knowledge of damages on behalf of Conrail, on whose behalf he was designated to
testify about damages. It was not until two weeks before the scheduled trial, and seven
months after the close of discovery, that Plaintiffs presented the SAAOA as a basis for
Conrail’s damages.
In their response, Plaintiffs do not cite any authority, nor do they respond to the
Rules of Civil Procedure and cases cited by Defendant. Instead, Plaintiffs argue that
Defendant’s motion for summary judgment should be denied because it merely repeats
arguments previously considered and rejected by this Court and is essentially a motion
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to reconsider. Plaintiffs are correct that Defendant presents the same arguments in this
motion as it did in its opposition to Plaintiffs’ motion for leave to amend. Plaintiffs do not
take into consideration, however, the different standards a court utilizes in deciding
whether to granting leave to amend as opposed to whether to grant summary judgment.
While this Court allowed Plaintiffs to file a Third-Amended Complaint, the Court
needed to find only that Plaintiffs alleged damages and stated a claim upon which relief
could be granted. In deciding this motion for summary judgment, the Court now assess
the evidence that would be admissible and determines if there is an issue of material
fact. Based on the fact that Plaintiffs failed to disclose any evidence of damages on
behalf of Conrail until the eve of trial, this Court precludes Plaintiffs from presenting that
the SAAOA as evidence of Conrail’s damages.
Even if the SAAOA is a public document, Plaintiffs failed to comply with their
discovery obligations and never disclosed their alleged damages. This Court will not
penalize Defendant because it did not go on a fishing expedition to make Plaintiffs’
damages claims for them. Plaintiffs have failed to present any evidence of damages in
a timely fashion, and accordingly, Defendant’s motion for summary judgment as to
Conrail’s claim for breach of contract is GRANTED.
B.

Norfolk Southern Standing

Defendant argues that Norfolk Southern has no standing to claim a breach of
contract under the TRA because (1) Norfolk Southern is neither a party to nor an
intended beneficiary of the TRA and (2) Decision 89 does not entitle Norfolk Southern to
claim contract damages in Conrail’s stead. Plaintiffs contend, however, that Norfolk
Southern has standing to enforce the TRA as provided under the SAAOA and Decision
10

89 and under Section 15 of the TRA itself. Plaintiffs have never claimed and do not
claim now that Norfolk Southern was a party to the TRA or an intended third-party
beneficiary and this Court agrees that Norfolk Southern was neither of those things.
1.

Decision 89 and the SAAOA

Defendant argues that Decision 89 does not apply to the facts of this case
because the rights granted in Decision 89 are subject to the SAAOA, which provides
that Conrail has the exclusive right to perform switch movements from a yard within the
Detroit Shared Assets Area to a local industry within the Shared Assets Area.
Alternatively, Defendant argues that even if Decision 89 applies, it grants Norfolk
Southern the right only “to operate and use” the shared assets, not to assert contractual
rights and damage claims. Decision 89 states:
Shared Assets Areas And Operating Agreements. Both CSXT and NSR will
be permitted to serve shipper facilities located within the three SAAs . . .,
which will be owned, operated, and maintained by Conrail for the exclusive
benefit of CSX and NS. CSXT and NSR will enter into as SAA Operating
Agreement with CRC in connection with each of the SAAs . . .
***
(3) The Detroit SAA encompasses all Conrail trackage and access rights east
of the CP-Townline . . . and south to and including Trenton . . . .
(Def. Mot. Ex. 2, at 31.)
The segment of tracks that is the subject of the current dispute is located in the
“Detroit SAA,” which is one of Conrail’s Retained Assets under the SAAOA. According
to Decision 89:
[B]oth the Allocated Assets conveyed to CSX and NS as well as the Retained
Assets made available by Conrail to CSX or NS or both will be enjoyed and
used by CSX and NS (subject to the terms of the governing agreements) as
if the carrier in question were itself Conrail. Applicants similarly intend that
the SAAs will be used, enjoyed, and operated as fully by CSX and NS as if
each of them were Conrail.
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(Def. Mot. Ex. 2, at 33.) Decision 89 further provides that following the division of
Conrail’s assets, “all transportation services performed by [Conrail] will be performed as
agent or subcontractor of CSXT or NSR.” (Def. Mot. Ex. 2, at 34.)
Defendant argues that Decision 89 does not apply because the SAAOA
specifically designated the rail services at issue in this lawsuit to Conrail, not Norfolk
Southern. Defendant relies on Section 3(d) in the Operations section of the SAAOA,
which indicates that “at the request of and as an agent for [Norfolk Southern and CSX],
[Conrail] shall perform Switching and Yard Services required by [Norfolk Southern or
CSX] within the Shared Assets Area . . . (Def. Mot. Ex. 3, at 12.) The SAAOA also
states that “Switching and Yard Services and other services performed by [Conrail] for
[Norfolk Southern or CSX] under this Agreement shall be performed as an agent for,
and for the account of, [Norfolk Southern or CSX].”
The language of the SAAOA is clear that Conrail will perform this service at the
request of and as an agent for Norfolk Southern or CSX. Conrail is not operating as an
independent carrier, but merely the agent to its owners. The SAAOA even recognizes
that the transfer or exchange of freight traffic between Conrail and one of its owners
within the Shared Assets Area “shall not constitute an interchange of freight traffic or
freight rail cars for purposes of determining rates, routes, divisions or interline
settlements relating to any such freight traffic.” (Def. Mot. Ex. 3, at 13). This statement
indicates that the SAAOA intends for Conrail and Norfolk Southern (or CSX) to be
treated as the same entity with regard to third parties. The fact that Norfolk Southern
uses an agent to deliver freight in certain areas is not meant to limit its rights under the
SAAOA.
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Additionally, the first page of the SAAOA indicates that Conrail, Norfolk Southern,
and CSX:
[D]esire that the Shared Assets shall be owned, operated and maintained by
CRC and used by or for the exclusive benefit of CSXT and NSR, and that
CSXT and NSR shall each have full and equal rights to use the Shared
Assets to provide competitive railway freight transportation services to, from
and between all places within the Shared Assets Area.
Def. Mot. Ex. 3, at 1 (emphasis added). The SAAOA defines the Shared Assets to
mean “tracks . . . and rights related thereto, which [Conrail] owns, leases or otherwise
has the right to operate over . . .” Def. Mot. Ex. 3, at 6 (emphasis added).
The SAAOA intended for Conrail’s rights to extend to Norfolk Southern and CSX,
not for those rights to be limited. The fact that the SAAOA provided that Norfolk
Southern had to use Conrail as its agent in that particular area does not mean that
Conrail is operating as a separate entity and is not meant to curtail Norfolk Southern’s
rights.
Defendant argues that Decision 89, even if applicable to this case, gives Norfolk
Southern and CSX the right to operate and use the Shared Assets, but not contractual
rights to damage claims. Defendant relies on the language indicating that CSX and
Norfolk Southern “shall have the right to operate and use” the Shared Assets, including
those presently operated by Conrail under trackage rights or leases. (Def. Mot. Ex. 2, at
168.) Defendant further relies on Decision 89’s order, which states that CSX and
Norfolk Southern “may conduct . . . operations over the routes of Conrail as provided for
in the application, including those presently operated by [Conrail] under trackage rights
or leases . . . as fully and to the same extent as [Conrail].” (Def. Mot. Ex. 2, at 175.)

13

Defendant fails to acknowledge the very next order, which states that CSX and
Norfolk Southern “may use, operate, perform, and enjoy the Allocated Assets and the
assets in the Shared Assets Areas consisting of assets other than routes (including,
without limitation, the Existing Transportation Contracts) . . . to the same extent as
[Conrail] itself could.” (Id.)
Defendant states that if the STB had intended to go beyond granting operating
and use rights and overriding non-assignment clauses, it would have done so in explicit
language. The Court finds that the STB did exactly that. Because the Court finds that
the language of the STB to be clear and unambiguous, the Court does not find it
necessary to refer this question to the STB under the doctrine of primary jurisdiction.
Defendant maintains that Plaintiffs needed to formally assign the TRA to Norfolk
Southern for the benefit of the contract to run to Norfolk Southern. This, however,
disregards the language of the SAAOA and Decision 89, which unambiguously
designates Conrail as an agent to Norfolk Southern and gives Norfolk Southern the right
to use and enjoy the assets in the Shared Assets Area to the same extent as Conrail
itself could. The 1996 TRA is one of those assets.
The Court finds that Defendant has fallen far short of establishing that there is a
sufficient factual basis to determine that Norfolk Southern lacks standing. Defendant’s
motion for summary judgment against Norfolk Southern for lack of standing is DENIED.
2.

The TRA

Plaintiffs argue that even if Decision 89 and the SAAOA does not give Norfolk
Southern standing to enforce the TRA, that standing is granted under Article 15 of the
TRA itself. Article 15 states:
14

This Agreement shall inure to the benefit of and be binding upon the
successors and assigns of the parties hereto, including, without limitation, the
successors and assigns of GTW's interest in the Trackage or any portion
thereof. Neither party hereto shall transfer or assign this Agreement, or any
of its rights, interests or obligations hereunder, to any person, firm, or
corporation without obtaining the prior written consent of the other party to
this Agreement; provided, however, that such consent shall not be necessary
if such transfer or assignment is to a purchaser, successor or assign of all or
substantially all of the rail properties of one of the parties or to a purchaser,
successor or assign of GTW's interest in the Trackage or any portion thereof.
(Def. Mot. Ex. 1.) Prior to 1999, Conrail operated as an independent company. In
1999, Norfolk Southern and CSX acquired 58% and 42% of most of Conrail’s assets,
respectively, and joint control of certain retained or “shared” assets. Defendant
acknowledges that Conrail is owned by Norfolk Southern (58%) and CSX (42%). (See
Def. Second Amended Counterclaim ¶¶ 3-4.)
It appears from the language of the TRA, then, that Norfolk Southern and CSX
are purchasers of substantially all of the rail properties of one of the parties and,
therefore, Conrail could transfer or assign its rights under the TRA to Norfolk Southern
and CSX. Defendant argues, however, that Plaintiffs never assigned the TRA to Norfolk
Southern.
While Section 15 could give Norfolk Southern rights under the TRA, there is no
indication that the assignment is self-executing and Plaintiffs have not alleged that they
assigned the TRA to Norfolk Southern. Accordingly, under the TRA, without
consideration of the SAAOA and Decision 89, Norfolk Southern does not have standing
to enforce the TRA unless Conrail actively assigns Norfolk Southern those rights.
IV.

Conclusion

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For the foregoing reasons, Defendant’s motion for summary judgment is
GRANTED in part and DENIED in part.

s/Nancy G. Edmunds
Nancy G. Edmunds
United States District Judge
Dated: February 16, 2012
I hereby certify that a copy of the foregoing document was served upon counsel of record on
February 16, 2012, by electronic and/or ordinary mail.
s/Carol A. Hemeyer
Case Manager

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