7th Circuit upholds dismissal of Indiana Harbor rail lease litigation

A lease dispute between the majority and minority owners of Chicago-area rail switch carrier Indiana Harbor Belt Railroad was properly dismissed, the 7th Circuit Court of Appeals ruled Thursday.

Soo Line Railroad, which does business as Canadian Pacific Railroad, owns 49% of Indiana Harbor Belt, while Consolidated Rail Corp. has 51%. Consolidated is indirectly owned by rail carriers Norfolk Southern and CSX.

Indiana Harbor had a 99-year contract executed in 1906 to lease the tracks for annual rent of $150,000, and the track owners would pay Indiana Harbor operating and maintenance expenses for their proportional use of those tracks. Near the turn of the century, Consolidated Rail was paying over $2 million a year in expenses.

But Consolidated stopped using the tracks, and thus stopped paying under the contract, in 1999 and thereafter. When it came time to renew Indiana Harbor’s lease of the tracks, its board “split 4-3 along company lines to approve a new agreement at a total annual rent of $5 million and with terms that Canadian Pacific insists transferred ownership of Indiana Harbor’s assets to the track owners,” Judge Amy St. Eve wrote.

“Canadian Pacific alleges that during these negotiations, Consolidated Rail and its parent companies used their power as majority shareholders to force Indiana Harbor into an atrocious deal. Indiana Harbor’s board had obtained an independent appraisal estimating that a fair annual rent for the tracks was $1.3 million and unanimously resolved to offer that much, but they were rebuffed.

“Its suit centered on a trackage rights agreement — a contract governing one railroad’s use of another’s track — that the Indiana Harbor Belt Railroad Company had signed with its majority shareholders at a price that Canadian Pacific, the minority shareholder, alleged was detrimental to Indiana Harbor’s profitability,” St. Eve wrote.

“Canadian Pacific, though, had a problem. The Surface Transportation Board (STB) has exclusive authority to regulate trackage rights agreements, or to exempt such agreements from its approval process, and it had exempted Indiana Harbor’s agreement. The defendants argued that, by effect of this exemption authority, two statutes — 49 U.S.C. §§ 10501(b) and 11321(a) — independently preempted Canadian Pacific’s claims,” the judge continued. “The district court agreed with both arguments, but in this appeal we focus on only one. The court concluded that § 11321(a) preempted the claims and noted that Canadian Pacific had made no argument otherwise. Because we agree that Canadian Pacific failed to contest this basis for dismissal, we affirm the judgment on grounds of waiver.

“… Despite having ample opportunity to do so, Canadian Pacific never alleged that Consolidated Rail used the tracks or allowed others to use them after 1999, so it did not state a plausible claim based on the failure to pay expenses after that date,” the 7^th Circuit held.

The case is Soo Line Railroad Company d/b/a Canadian Pacific v. Consolidated Rail Corporation, et al., 19-3100.