Opinion
Lead Bankruptcy Case No. 19-18905-TBM Bankruptcy Case No. 20-12313 Jointly Administered Under Bankruptcy Case No. 19-18905
2021-09-02
IN RE: SAN LUIS & RIO GRANDE RAILROAD, INC., Debtor. In re: Saratoga and North Creek Railway, LLC, Debtor.
William Cross, James T. Markus, Jennifer M. Salisbury, Zachary Sanderson, Markus Williams Young & Hunsicker LLC, Denver, CO, for Trustee. Harley J. Goldstein, Goldstein & McClintock LLLP, Chicago, IL, Douglas T. Tabachnik, Law Offices of Douglas T. Tabachnik, Freehold, NJ, for Creditor Committee.
William Cross, James T. Markus, Jennifer M. Salisbury, Zachary Sanderson, Markus Williams Young & Hunsicker LLC, Denver, CO, for Trustee.
Harley J. Goldstein, Goldstein & McClintock LLLP, Chicago, IL, Douglas T. Tabachnik, Law Offices of Douglas T. Tabachnik, Freehold, NJ, for Creditor Committee.
ORDER GRANTING MOTION FOR PARTIAL SUMMARY JUDGMENT
Thomas B. McNamara, United States Bankruptcy Judge
I. Introduction.
This dispute pits two Colorado short-line railroads against each other. The Debtor, San Luis and Rio Grande Railroad, Inc. (the "SL&RG"), is the owner and operator of a historic 150-mile railway in the shadow of the Spanish Peaks. The main line pushes westward from Walsenburg, Colorado, over La Veta Pass (reputedly the highest rail passage in the United States) toward the Sacred Mountain: Tsisnaasjiní (as known by the Navajo) and also called Blanca Peak. From there, the main track continues to the transportation hub of Alamosa, Colorado, and even further west to Sugar Junction near Monte Vista, Colorado which is the agricultural heartland of the San Luis Valley. At that junction, the SL&RG connects to the San Luis Central Railroad (the "SLC"), a small feeder railway which heads north about 13 miles to Center, Colorado, where it dead ends in potato and barley country. The SLC owns 149 railway cars. For outbound national traffic from Center, the SLC sends its loaded cars south to the Monte Vista Junction, where they are interchanged to the SL&RG. Then, the cars travel east through Alamosa and on to Walsenberg, where they are interchanged with the Union Pacific Railroad. Thence, the railcars can reach anywhere in the continental United States. Inbound traffic flows in reverse. The SLC operation depends entirely on transportation over the SL&RG — there is no other way to go.
The SL&RG also extends south from Alamosa to Antonito, Colorado, near the New Mexico border. However, operations on that segment are not at issue.
And therein is the rub. The SLC asserts that the SL&RG owes money to the SLC for "car hire." "Car hire" is a railroad term of art which means: "[c]ompensation to be paid by a user to an owner for use of a car." 49 C.F.R. 1033.1(a)(2). Compensation paid for car hire "may include, but need not be limited to, hourly and mileage rates." Id. The idea is to compensate railcar owners (like SLC) for the use of their equipment. 49 U.S.C. § 11122 ("the [car hire] regulations ... shall encourage the purchase, acquisition, and efficient use of freight cars"). By statute, "compensation to be paid for each type of freight car shall be determined by the expense of owning and maintaining that type of freight car, including a fair return on its cost ...." Id. The rate of car hire compensation may be set by private contract or through Federal transportation statutes and regulations which reference the Association of American Railroads (the "AAR") Circular No. OT-10 Code of Car Service Rules and Code of Car Hire Rules (separately, the "AAR Car Service Rules" and the "AAR Car Hire Rules," and together, the "AAR Rules"). Both the SL&RG and SLC are subscribing railroads in the AAR and have agreed to the AAR Rules.
Although the SL&RG acknowledges that some amounts are due to the SLC for car hire, the SL&RG asserts a type of offset based upon an alleged special agreement (which the SL&RG characterizes as a "reclaim"). Furthermore, on May 21, 2020, the SL&RG unilaterally imposed Tariff No. SLRG 8000, which was later amended by Tariff No. 8000-A on January 21, 2021 (the "Tariff"). The Tariff, as amended, states:
The SLC disputes that the charge applied to cars through the Tariff is properly characterized as a "tariff." Nonetheless, for ease of reference in this Order, the Court will use the term "Tariff" to refer to the charge imposed in Tariff 8000 as amended by Tariff 8000-A.
The following charge will apply on all cars owned and controlled by the San Luis Central Railroad Company moved empty in interchange service between the Union Pacific Railroad Company at Walsenburg, Colorado and the San Luis Central Railroad Company at Monte Vista, Colorado: $225.00 per car.
The SLC refuses to pay the Tariff and contends that AAR Car Service Rule 2 prohibits the imposition of the Tariff. Meanwhile, the SL&RG demands that the SLC pay the Tariff.
All of the foregoing sounds fairly far afield from typical bankruptcy issues. However, the SL&RG is in the midst of a railroad reorganization under Subchapter IV of the Bankruptcy Code. 11 U.S.C. § 1161 et seq. Recently, the SLC filed its "Motion for Allowance and Payment of Administrative Expense for Car Hire and for Other Related Relief" (Docket No. 487, the "Administrative Expense Motion"), wherein the SLC asked this Court to adjudicate the dispute over car hire and the Tariff. Among other things, the SLC asserted that AAR Car Service Rule 2 prohibits the imposition of the Tariff. Then, the SLC asked this Court to order the SL&RG to pay car hire administrative expenses to the SLC, allow the SLC's pre-petition claim for car hire, and cancel the Tariff.
Thereafter, William A. Brandt Jr., the Chapter 11 Trustee for the SL&RG (the "Trustee") submitted an Objection to the Administrative Expense Motion (Docket No. 501, the "Objection") and filed his "Motion for Partial Summary Judgment on San Luis Central Railroad's Motion for Allowance and Payment of Administrative Expense Claim." (Docket No. 524, the "Summary Judgment Motion.") In the Summary Judgment Motion, the Trustee asked the Court to "find, as a matter of law, [AAR] Car Service Rule 2 does not preclude the Trustee from imposing a tariff or charge for the return of empty SLC-owned freight cars ...." So, the Summary Judgment Motion is very narrowly tailored. The SLC responded in opposition to the Summary Judgment Motion. (Docket No. 547, the "Opposition.") The Court conducted a hearing on the Summary Judgment Motion and Opposition. Having considered the issues, the Court determines that AAR Car Service Rule 2 does not prohibit the imposition of the Tariff. Nothing in either the AAR Car Service Rules or the companion AAR Car Hire Rules governs the imposition of transportation charges by a railroad for its services. Instead, transportation rates are established by the railroad carrier under the ambit of 49 U.S.C. §§ 10701, 10702 and 10704, which framework is separate and apart from the AAR Rules. Having resolved the narrow summary judgment question, the Court leaves for another day all the other myriad disputes between the SL&RG and SLC including, among others: whether the Tariff really is a "tariff"; whether the Trustee is entitled to impose the Tariff by statute; whether the Tariff is reasonable; whether the Trustee owes the SLC for car hire (and in what amount); and whether there is a special agreement between the SL&RG and SLC for "reclaim" which offsets any car hire compensation which might otherwise be owed.
II. Jurisdiction and Venue.
The contest between the SL&RG and SLC (as framed by the Administrative Expense Motion, Objection, Summary Judgment Motion, and Opposition) raises uncommon and challenging jurisdictional issues. Bankruptcy courts are not typically called to adjudicate transportation disputes between railroads. However, both the SLC and the Trustee contend that this Court has jurisdiction to resolve such matters. Both parties ask that this Court exercise such jurisdiction and proceed forward.
Bankruptcy courts, like all federal courts, are courts of limited jurisdiction. Federal courts possess "only that jurisdiction which has been conferred upon them by Congress." Tafoya v. U.S. Dep't of Justice , 748 F.2d 1389, 1390 (10th Cir. 1984) (citing U.S. v. Nixon , 418 U.S. 683, 94 S.Ct. 3090, 41 L.Ed.2d 1039 (1974) ). And, "[a] federal court must in every case, and at every stage of the proceeding, satisfy itself as to its own jurisdiction ...." Citizens Concerned for Separation of Church & State v. City & Cnty. of Denver , 628 F.2d 1289, 1301 (10th Cir. 1980) (citing Treinies v. Sunshine Min. Co. , 308 U.S. 66, 60 S.Ct. 44, 84 L.Ed. 85 (1939) ). So, irrespective of the views of the SLC and the Trustee, the Court must independently assess its jurisdiction.
A. The Court Has General Bankruptcy Jurisdiction Over the Dispute.
The United States Constitution grants Congress the power "[t]o establish ... uniform Laws on the subject of Bankruptcies throughout the United States." U.S. Const. Art. I § 8, cl. 4. The legislature used that power when it enacted the modern Bankruptcy Code. Congress vested United States district courts with "original and exclusive jurisdiction of all cases under title 11" and "original but not exclusive jurisdiction of all civil proceedings arising under title 11, or arising in or related to cases under title 11." 28 U.S.C. § 1334(a) and (b). Pursuant to 28 U.S.C. § 157(a), "[e]ach district court may provide that any and all cases under title 11 and any or all proceedings arising under title 11 or arising in or related to a case under title 11 shall be referred to the bankruptcy judges for the district." The United States District Court for the District of Colorado (like every district court in the country) has provided by rule for automatic reference to bankruptcy judges. D.C. Colo. L. Civ. R. 84.1(a) ("A case or proceeding brought under or related to Title 11, United States Code, shall be referred automatically to the bankruptcy judges of this district under 28 U.S.C. § 157.") And, under 28 U.S.C. § 151, "[i]n each judicial district, the bankruptcy judges in regular active service shall constitute a unit of the district court to be known as the bankruptcy court for that district." Bankruptcy judges are "judicial officer[s] of the district court." Id .
The SLC invoked bankruptcy jurisdiction by filing (along with two other creditors) an Involuntary Bankruptcy Petition against the SL&RG. (Docket No. 1.) After the Involuntary Petition, neither the SL&RG nor any other party in interest responded. So, on November 7, 2019, the Court issued an "Order for Relief." (Docket No. 18.) Accordingly, the SL&RG is in the midst of a bankruptcy railroad reorganization under Subchapter IV of the Bankruptcy Code. 11 U.S.C. § 1161 et seq. Thus, the Court has original and exclusive jurisdiction over the SL&RG bankruptcy case.
Through the Administrative Expense Motion, the SLC is asserting a post-petition claim against the SL&RG estate based on 11 U.S.C. § 503(b). "Adjudication of [an] administrative expense priority claim is a core proceeding under 28 U.S.C. § 157(b)(2)(A) (matters concerning administration of the estate), (b)(2)(B) (allowance or disallowance of claims against the estate), and (b)(2)(O) (other proceedings affecting the liquidation of assets of the estate)." In re Blair Oil Invs., LLC , 588 B.R. 579, 583 (Bankr. D. Colo. 2018) ; see also W.A. Lane Co. v. Anderberg-Lund Printing Co. (In re Anderberg-Lund Printing Co.) , 109 F.3d 1343, 1346 (8th Cir. 1997) ("A claim for an administrative expense pursuant to section 503(b) is a core proceeding for which the bankruptcy court has jurisdiction under 28 U.S.C. § 157(b)(2)."); In re Morreale , 626 B.R. 571, 580 (Bankr. D. Colo. 2020) (same); In re TriStar Fire Protection, Inc. , 466 B.R. 392, 396 (Bankr. E.D. Mich. 2012) (allowance of administrative expense "is a core proceeding under 28 U.S.C. § 157(b)(2)(B) and (L), over which the Court has jurisdiction pursuant to 28 U.S.C. §§ 1334(a) and 157(a)."). SLC also is asserting a pre-petition claim for car hire. Allowance or disallowance of pre-petition claims is the heartland of bankruptcy jurisdiction. 28 U.S.C. § 157(b)(2)(B) ("core proceedings include ... allowance or disallowance of claims against the estate ....").
Arguably, because SLC relies on 11 U.S.C. § 503(b) as the basis for administrative expense priority and also is asserting a pre-petition claim, the Court has exclusive jurisdiction over the dispute under 28 U.S.C. § 1334(a). However, at a minimum, the Court has original but not exclusive jurisdiction because "[m]atters arising under section 503(b) of the Bankruptcy Code are matters that may only arise in a bankruptcy case and, thus, the bankruptcy court is empowered to enter final orders with respect to the same." In re Stainless Sales Corp. , 579 B.R. 836, 839 (Bankr. N.D. Ill. 2017). Both the SLC and the Trustee concur that the Court has general bankruptcy jurisdiction to resolve the Administrative Expense Motion, Objection, Summary Judgment Motion, and Opposition. Thus, the Court concludes that it is empowered, as a matter of bankruptcy jurisdiction, to adjudicate the dispute at least on the issue presented at this stage.
B. The Court May Have Jurisdiction over the Dispute under the Interstate Commerce Commission Termination Act.
Assuming that the Court has original but not exclusive bankruptcy jurisdiction to adjudicate the contest between the SLC and the SL&RG, the Trustee contends that the Court also has jurisdiction under the Interstate Commerce Commission Termination Act of 1995 (the "ICCTA"), 49 U.S.C. § 10101 et seq. The ICCTA is a comprehensive law enacted by the Legislative Branch to govern interstate rail and surface transportation. Through the ICCTA, Congress "abolished the ... Interstate Commerce Commission and substantially deregulated the rail and motor carrier industries." Pejepscot Indus. Park, Inc. v. Maine Cent. R.R. Co. , 215 F.3d 195, 197 (1st Cir. 2000). In place of the Interstate Commerce Commission (the "ICC"), Congress created the Surface Transportation Board (the "STB"). Under the ICCTA,
[t]he jurisdiction of the [Surface Transportation] Board over
(1) transportation by rail carriers, and the remedies provided in this part with respect to rates, classifications, rules (including car service, interchange, and other operating rules), practices, routes, services, and facilities of such carriers ...
is exclusive. Except as otherwise provided in this part, the remedies provided under this part with respect to regulation of rail transportation are exclusive and preempt the remedies provided under Federal or State law.
49 U.S.C. § 10501(b). The STB has the authority to regulate rail car service and rail car hire, including the rate of compensation paid for the use of freight cars. 49 U.S.C. §§ 10745, 11121 and 11122.
"Read in isolation, [the ICCTA] language appears to grant the STB exclusive jurisdiction over any claim involving ‘transportation by rail carriers.’ " Pejepscot , 215 F.3d at 199. However, notwithstanding the role of the STB and its seeming exclusivity, Congress also established jurisdiction for federal courts to adjudicate certain disputes under the ICCTA. 49 U.S.C. § 11704 provides:
(a) A person injured because a rail carrier providing transportation or service subject to the jurisdiction of the Board ... does not obey an order of the Board, except an order for the payment of money, may bring a civil action in a United States District Court to enforce that order under this subsection.
(b) A rail carrier providing transportation subject to the jurisdiction of the Board under this part is liable for damages sustained by a person as a result of an act or omission of
that carrier in violation of this part ....
(c)(1) A person may file a complaint with the Board under section 11701(b) of this title or bring a civil action under subsection (b) of this section to enforce liability against a rail carrier providing transportation subject to the jurisdiction of the Board ....
Juxtaposing 49 U.S.C. § 10501(b) and § 11704 leads to some confusion as to the respective jurisdictional roles of the STB and the federal courts. However, the majority view is that federal district courts have concurrent jurisdiction with the STB on at least some ICCTA issues, including car hire disputes. Norfolk S. Ry. Co. v. Baltimore & Annapolis R.R. , 715 Fed. Appx. 244, 249 (4th Cir. 2017) (unpublished) (appellate court determined that "federal courts retain original jurisdiction, concurrent with the STB over [car hire] disputes governed by the ICCTA"); Pejepscot , 215 F.3d at 199-205 (holding that federal district court had concurrent jurisdiction with STB over shipper's claim that rail carrier violated ICCTA requirement for rail carrier to provide service upon reasonable request); Union Pac. R.R. Co. v. Baltimore & Annapolis R.R. Co. , 2009 WL 3633349 n.1 (D. Md. Oct. 27, 2009) (implicitly acknowledging concurrent jurisdiction between federal district court and STB in car hire dispute); San Luis Cent. R.R. Co. v. Springfield Terminal Ry. Co. , 369 F. Supp. 2d 172 (D. Mass. 2005) (same). Of course, this Court is not a federal district court. Instead, under 28 U.S.C. § 151, this Court only "constitute[s] a unit of the district court." So, there is some further jurisdictional disconnect vis-à-vis this Court's ability to adjudicate ICCTA-oriented disputes. On the other hand, the SLC contends that only this Court — not the STB — may adjudicate the current controversy. Such contention effectively disclaims concurrent jurisdiction. In the end, it is enough to say for now that the Court may have jurisdiction to resolve the dispute under the ICCTA too.
If all the foregoing were not confusing enough, there is yet another complication: the doctrine of primary jurisdiction (which may come into play if there is concurrent jurisdiction as between the Court and the STB). The doctrine of primary jurisdiction applies to claims "properly cognizable in court that contain some issue within the special competence of an administrative agency." Reiter v. Cooper, 507 U.S. 258, 268, 113 S.Ct. 1213, 122 L.Ed.2d 604 (1993). In those circumstances, "a court may leave an issue for agency determination when it involves the special expertise of the agency and would impact the uniformity of the regulated field." DeBruce Grain, Inc. v. Union Pac. R.R. Co., 149 F.3d 787, 789 (8th Cir. 1998). According to the United States Supreme Court:
No fixed formula exists for applying the doctrine of primary jurisdiction. In every case the question is whether the reasons for the existence of the doctrine are present and whether the purposes it serves will be aided by its application in the particular litigation.
U.S. v. W. Pac. R.R. Co. , 352 U.S. 59, 64, 77 S.Ct. 161, 1 L.Ed.2d 126 (1956) (invoking primary jurisdiction doctrine and holding that issues of railroad tariff construction and reasonableness should be referred to the ICC). While there is no "fixed formula" for the primary jurisdiction doctrine, commonly applied considerations include:
(1) whether the agency determination l[ies] at the heart of the task assigned the agency by Congress; (2) whether agency expertise [i]s required to unravel intricate, technical facts; and (3) whether,
though perhaps not determinative, the agency determination would materially aid the court.
Pejepscot , 215 F.3d at 205 (quoting Mashpee Tribe v. New Seabury Corp ., 592 F.2d 575, 580 (1st Cir. 1979) ) (directing district court to refer shipper's ICCTA claim to STB). In the special context of rail transportation, courts also have applied the doctrine of primary jurisdiction when the dispute "involve[s] issues related to national rail policy, and a judicial ruling could affect rail transportation throughout the country." DeBruce Grain , 149 F.3d at 789-90 (affirming trial court decision to refer rail car distribution dispute to STB); see also Chlorine Inst., Inc. v. Soo Line R.R. , 792 F.3d 903 (8th Cir. 2015) (affirming trial court's invocation of primary jurisdiction doctrine to refer railroad dispute over hazardous materials transportation to STB).
C. The Court Exercises Jurisdiction Over the Dispute.
The Court is sorely tempted to refer this dispute between the SL&RG and the SLC to the STB for resolution. However, ultimately, there are strong grounds for the Court to retain the matter. First, the Court has general bankruptcy jurisdiction to adjudicate the controversy under 28 U.S.C. §§ 157 and 1334. The SLC brought the dispute in this Court and is seeking payment of an administrative expense under a part of the Bankruptcy Code: 11 U.S.C. § 503(b). "A claim for an administrative expense pursuant to section 503(b) is a core proceeding for which the bankruptcy court has jurisdiction under 28 U.S.C. § 157(b)(2)." Anderberg-Lund Printing , 109 F.3d at 1346. The SLC also has submitted a pre-petition claim which it seeks to liquidate. Both the SLC and the Trustee concur that this Court has general bankruptcy jurisdiction to issue final judgment on the issues presented. Second, during oral argument, the SLC disclaimed the existence of any concurrent jurisdiction with the STB. See Entergy Serv., Inc. v. Union Pac. R.R. Co. , 99 F.Supp.2d 1080, 1089 (D. Neb. 2000) ("the primary jurisdiction doctrine only applies where the agency and the courts have concurrent jurisdiction."). Third, even if the Court has concurrent jurisdiction with the STB (under either 28 U.S.C. §§ 157 and 1334 and/or 49 U.S.C. § 11704 ), the Court determines that it would be inappropriate to defer to the STB under the doctrine of primary jurisdiction (at least at this stage).
Again, both the SLC and the Trustee repeatedly have reaffirmed that they wish for the Court to decide the dispute. The SLC contends that because there is no concurrent jurisdiction with the STB, the doctrine of primary jurisdiction does not come into play at all. The Trustee accepts that there may be concurrent jurisdiction with the STB, but still argues that the Court should move ahead. Under these circumstances, both sides have effectively waived presentation of the issues to the STB. Baltimore & Annapolis R.R. , 2009 WL 3633349. Like this case, Baltimore & Annapolis R.R . involved an action to recover unpaid car hire charges under the AAR Rules. The Baltimore & Annapolis R.R . court considered the primary jurisdiction doctrine and decided: "Although the Surface Transportation Board ("STB") has primary jurisdiction over disputes such as this one under 49 U.S.C. §§ 10501(b) and 11704(c)(1), the parties have waived any such jurisdictional claim by failing to asset it." Id. at *1, n.1.
The SLC repeatedly has changed its legal positions. In the Opposition, the SLC argued that "the application of principles of ‘primary jurisdiction,’ compels the conclusion that the Court should refer the matter [the dispute] to the panel charged with making formal interpretations and resolving disputes related to contractual provisions of the AAR Rules, namely the AAR Arbitration Panel." Opp'n at 3; see also Opp'n at 12-15 (" ‘Primary Jurisdiction’ Strongly Suggests the Court Should Refer the Matter to the AAR Arbitration Panel."). However, the doctrine of primary jurisdiction only applies to claims "properly cognizable in court that contain some issue within the special competence of an administrative agency." Reiter, 507 U.S. at 268, 113 S.Ct. 1213 ; see also DeBruce Grain, 149 F.3d at 789 ("a court may leave an issue for agency determination when it involves the special expertise of the agency and would impact the uniformity of the regulated field."); Entergy Serv ., 99 F. Supp. 2d at 1089 (same). The SLC failed to identify any legal authority for invoking the primary jurisdiction doctrine to send a dispute to arbitration to be conducted outside of an administrative agency. In any event, at oral argument, the SLC shifted again. Most recently, the SLC contended that the Court does not have concurrent jurisdiction with the STB and, therefore, the doctrine of primary jurisdiction is inapplicable. Thus, the SLC has waived any primary jurisdiction doctrine arguments.
Moreover, even if the SLC and the SL&RG had not waived referral to the STB, the special bankruptcy context suggests that applying the doctrine of primary jurisdiction would be inappropriate at this stage. Since neither the SLC nor the SL&RG advocated for referral to the STB, neither has presented any legal support for making such a referral in the context of a bankruptcy. In the Court's own research, the Court has been unable to locate any case law support for deferring to the STB in the context of a railroad reorganization. It is not even clear that the STB would entertain such referral. After all, the SLC contends that the current issues are merely a contract dispute which the STB may decline to adjudicate. In any event, the unique railroad bankruptcy context also suggests that the Court should retain and adjudicate the dispute. Congress created a special part of the Bankruptcy Code authorizing bankruptcy courts to preside over the reorganizations of railways. This dispute may have a significant impact of the reorganization of the SL&RG. Furthermore, bankruptcy cases generally move rapidly. The reorganization process (including potential sale of the railway) may be thwarted if the Court refers the dispute to the STB, which likely would cause further delay, disruption, and expense. The trial on the merits of the controversy between the SLC and the Trustee is set to commence in the Court in less than two months. The case is at a substantially advanced stage. Finally, as neither party advocated referral to the STB, the Court has no grounds to conclude that the STB has specialized legal acumen on the legal issues currently at play. Importantly, with respect to the Summary Judgment Motion and Opposition, the central issue is interpretation of text. The Court regularly examines and interprets texts of all types including statutes, regulations, rules, and contracts. Numerous federal courts also have decided issues about car hire under the AAR Rules without referral to the STB. See Norfolk S. , 715 Fed. Appx. 244 (in dispute over car hire charges appellate court determined that while federal court and STB had concurrent jurisdiction, trial court did not abuse its discretion in deciding car hire dispute and resulting damages without referral to STB); Springfield Terminal , 369 F. Supp. 2d 172 (deciding not to refer car hire dispute to STB); Baltimore & Annapolis R.R ., 2009 WL 3633349 (adjudicating car hire dispute without referral to STB); First Union Rail Corp. v. Springfield Ry. Terminal Co. , 2007 WL 1612717 (W.D.N.C. May 31, 2007) (granting summary judgment in car hire dispute); but see Engelhard Corp. v. Springfield Terminal Ry. Co. , 193 F. Supp. 2d 385 (D. Mass. 2002) (referring some car hire claims under AAR Rules to STB). Furthermore, neither party has presented a basis for the Court to conclude that agency expertise is required to unravel intricate, technical facts pertaining to the Summary Judgment Motion and Opposition. As the Court will explain below, the relevant facts are undisputed at this stage. So, the Court will retain jurisdiction and decide the narrow legal issue presented in the Summary Judgment Motion and Opposition.
D. Venue Is Proper in the Court.
Venue is proper in the Court pursuant to 28 U.S.C. §§ 1408 and 1409. Neither the SLC nor the Trustee has contested the Court's venue.
III. Procedural Background.
On April 12, 2021, the SLC filed its Administrative Expense Motion. As set forth in the Administrative Expense Motion, the SLC asked this Court for the following relief:
(1) to determine SLC has an allowable and immediately due and payable administrative expense pursuant to 11 U.S.C. § 503(b)(1)(A) for car hire in the amount of $39,583.23, through January, 2021; (2) to determine that going forward, the Trustee may not make any reduction for special reclaim to the amounts invoiced by SLC for car hire, and that the Trustee must pay SLC car hire invoices in full as they come due as allowable administrative expenses; (3) to determine that the amount of SLC's pre-petition claim is $109,587.49; (4) to direct the Trustee to cancel Freight Tariff SLRG 8000-A and to discontinue billing SLC for freight tariff charges for the movement of empty SLC railcars, or attempting to use freight tariff charges as an offset to SLC's car hire charges; and (5) to grant SLC such other relief as is proper under the facts and circumstances of this case.
(Docket No. 487 at 14.) Thereafter, the Trustee filed his Opposition to the Administrative Expense Motion. (Docket No. 501.) The Court set the Administrative Expense Motion and Opposition for a two-day trial starting on September 9, 2021. (Docket No. 516.)
Thereafter, the Trustee filed his Summary Judgment Motion. In the Summary Judgment Motion, the Trustee focused only on the Tariff Issue and asked the Court to "find, as a matter of law, Car Service Rule 2 does not preclude the Trustee from imposing a tariff or charge for the return of empty SLC-owned freight cars [and] enter partial summary judgment in the Trustee's favor on that issue in connection with the Admin Expense Motion filed by SLC ...." (Docket No. 524 at 10.) Then, the SLC responded in opposition to the Summary Judgment Motion. (Docket No. 547.) On August 19, 2021, the Court conducted a hearing on the Summary Judgment Motion and Opposition, during which the Court heard fulsome legal argument from both the Trustee and the SLC.
IV. Summary Judgment Legal Standards.
Motions for summary judgment are governed by Fed. R. Civ. P. 56, as incorporated herein by Fed. R. Bankr. P. 7056. Summary judgment is appropriate if the pleadings, depositions, answers to interrogatories, admissions, or affidavits show that there is "no genuine dispute of material fact and the moving party is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a) ; see also Celotex Corp. v. Catrett , 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) (quoting Fed. R. Civ. P. 56(c) ). The moving party bears the initial burden of identifying the basis for its motion and designating those portions of the record which it believes entitles it to judgment. Fed R. Civ. P. 56(c) ; Celotex , 477 U.S. at 323, 106 S.Ct. 2548. In response, the nonmovant "must do more than simply show that there is some metaphysical doubt as to the material facts ...." Matsushita Elec. Indus. Co. Ltd. v. Zenith Radio Corp. , 475 U.S. 574, 586-87, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). Instead:
[T]he nonmovant that would bear the burden of persuasion at trial may not simply rest upon its pleadings; the burden shifts to the nonmovant to go beyond the pleadings and "set forth specific facts" that would be admissible in evidence in the event of trial from which a rational trier of fact could find for the nonmovant.... To accomplish this, the facts must be identified by reference to affidavits, deposition transcripts, or specific exhibits incorporated therein.
Adler v. Wal-Mart Stores, Inc. , 144 F.3d 664, 671 (10th Cir. 1998) (citations omitted). See also Savant Homes, Inc. v. Collins , 809 F.3d 1133, 1137 (10th Cir. 2016) (same); Llewellyn v. Allstate Home Loans Inc ., 711 F.3d 1173, 1181 (10th Cir. 2013) (nonmoving party has the affirmative duty of coming forward with evidence supporting his claim at summary judgment); Bausman v. Interstate Brands Corp. , 252 F.3d 1111, 1115 (10th Cir. 2001) (same).
In reviewing a motion for summary judgment, the Court must "view the facts and evidence in the light most favorable to the nonmoving party." Morris v. City of Colo. Springs , 666 F.3d 654, 660 (10th Cir. 2012). But, unsupported, conclusory allegations will not create an issue of fact, and the non-moving party must do more than provide its subjective interpretation of the evidence. Tran v. Sonic Indus. Servs. , Inc., 490 Fed. Appx. 115, 117-118 (10th Cir. 2012) (unpublished) ("Summary judgment is appropriate if the non-moving party cannot adduce probative evidence on an element of its claim upon which it bears the burden of proof.") (citing Rohrbaugh v. Celotex Corp. , 53 F.3d 1181, 1183 (10th Cir. 1995) ). "A party cannot rely entirely on pleadings, but must present significant probative evidence to support its position." Hansen v. PT Bank Negara Indonesia (Persero) , 706 F.3d 1244, 1247 (10th Cir. 2013) (citing Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 249, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) ). And, "[i]f the nonmoving party fails to make a sufficient showing on an essential element with respect to which [it] has the burden of proof, judgment as a matter of law is appropriate." Id . However, "when the evidence could lead a rational fact-finder to resolve a dispute in favor of either party, summary judgment is improper." C.L. Frates & Co. v. Westchester Fire Ins. Co. , 728 F.3d 1187 (10th Cir. 2013).
Summary judgment need not be an all-or-nothing exercise disposing of every cause of action. Instead, a moving party may seek partial summary judgment disposing of certain claims or deciding important but discrete legal issues. Fed. R. Civ. P. 56(a) ("A party may move for summary judgment, identifying each claim or defense — or the part of each claim or defense — on which summary judgment is sought."). The ability of the Court to enter partial summary judgment "serves the purpose of speeding up litigation by eliminating before trial matters wherein there is no issue of fact." Fed. R. Civ. P. 56(a) Advisory Committee Notes.
V. Undisputed Facts.
The critical first step in adjudicating a motion for summary judgment is to identify the undisputed facts. Only then can the Court apply the law to the facts and reach a legal conclusion. Fed. R. Civ. P. 56(a) ("The court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.") Procedural rules, including Fed. R. Civ. P. 56(c) and 56(e) as well as L.B.R. 7056-1 govern the presentation and contravention of facts.
A. The Trustee's Undisputed Facts.
In this dispute, the Trustee presented only eleven alleged undisputed facts. All of the alleged undisputed facts were supported with citations to "particular parts of materials in the record, including depositions, documents ... affidavits or declarations, ... interrogatory answers, or other materials ...." Fed. R. Civ. P. 56(c)(1) ; Summary Judgment Motion at 4-6. The Trustee's proposed undisputed facts are as follows:
Fact No. 1. The SLRG owns and operates a railroad (the "SLRG Line") that is approximately 150 miles long that primarily supports the transportation of grain, minerals, specialty rock products and produce in Colorado.
Fact No. 2. The SLRG Line connects with SLC's rail line just east of Monte Vista, Colorado, at Sugar Junction.
Fact No. 3. SLC-owned freight cars are received on the SLRG Line at Sugar Junction and transported by SLRG to the Union Pacific rail line at Walsenburg, Colorado.
Fact No. 4. Empty SLC-owned freight cars are received from the Union Pacific line at Walsenburg and returned via the SLRG Line to SLC at Sugar Junction.
Fact No. 5. The AAR [the Association of American Railroads] has established the Car Service and Car Hire Agreement, which includes a comprehensive set of Car Hire Rules and Car Service Rules, which the AAR has published in a document referred to as Circular No. OT-10 (the "AAR Rules").
Fact No. 6. Car Service Rule 2 provides:
A. Handling of Cars: Unless covered by a Car Service order or directive, foreign cars not needed for loading must have doors closed and may be:
1. Delivered to the home road at any junction, subject to Rule 6.
2. Forwarded to the road (including the haulage rights carrier-tenant) from which originally received under load, at the junction where received, except that when handled in road haul service, cars of direct connection ownership may not be delivered empty to a road which does not have a direct connection with the car owner. If the junction where received under load is also a junction with the car owner, the car must be delivered to the owner at that junction.
3. Returned to the delivering road (including the haulage rights carrier-tenant) when handled only in switching service, unless at a junction with the home road.
4. Stored (applies only to boxcars, as authorized in 49 C.F.R. 1039.14(c)(1)(ii), that are not moving under empty mileage charges).
B. Notification of Intention to Store Cars: The holding railroad must notify the Car Service Officer of the owning railroad of its intention to store cars under the provisions of this rule. Notification must:
1. Be transmitted by midnight of the third day after cars were released from inbound load or received at initial storage or loading point in one of the following manners: a. TRAIN II message, or b. by telephone confirmed in writing.
2. Include the initial and number of individual cars.
3. Include the date and location cars were released empty or received at initial storage point.
C. Definition of Junction: "Junction" as used in this rule means stations where roads interchange cars at a common point or within switching limits over their own lines, or an intermediate line or lines, or a car ferry or float within such limits. Roads so interchanging cars shall be considered direct connections. This information should be registered in the Industry Reference Junction and Interchange File and when the interchange is other than over their own rails, the channel through which the interchange is effected must be shown.
Fact No. 7. Both SLC and the Debtor have subscribed to the AAR Rules, thereby agreeing to "abide by and enforce the rules prescribed for the handling of and settlement of freight cars."
Fact No. 8. After the bankruptcy filing the Trustee imposed a freight tariff against SLC for movement of empty SLC-owned freight cars on the SLRG Line. San Luis & Rio Grande Railroad Company Freight Tariff SLRG 8000.
Fact No. 9. The SLC Tariff applies on all empty freight cars owned or controlled by SLC moved between the Union Pacific line at Walsenburg and the SLC-owned line at Sugar Junction.
Fact No. 10. Under the direction of the Trustee, SLRG charged and invoiced SLC for fees imposed under the SLC Tariff beginning in June 2020.
Fact No. 11. SLC has not commenced any proceeding or filed any complaint with the Surface Transportation Board (the "STB") regarding the SLC Tariff and the STB has not made any determinations with respect to the SLC Tariff.
In the Opposition, the SLC did not contest Fact Nos. 1-2, 5-7, and 9-11. Thus, each of those facts is deemed undisputed and accepted. Fed. R. Civ. P. 56(c) and (e) ; L.B.R. 7056-1(b), (c) and (d). Nevertheless, in the Opposition, the SLC stated: "SLC disputes the facts set forth in paragraphs 9, 10 and 14 [Fact Nos. 3, 4 and 8] of the Trustee's Motion and restates them as follows ...." Opp'n. at 4. But, on closer examination, it is quite apparent that the SLC has not properly contravened Fact Nos. 3, 4 and 8 either. The SLC did not cite admissible evidence actually contesting Fact Nos. 3, 4 and 8 and showing the existence of a genuine dispute of material fact. Instead, the SLC merely attempted to "restate" Fact Nos. 3, 4 and 8 in a fashion it apparently perceives is more favorable to the SLC. For example, with respect to Fact No. 3, the SLC just "restated" Fact No. 4 by adding the following after the word "cars": "that are loaded with commodities being shipped by rail pursuant to request and instructions of shippers located on the SLC line." That restatement has no real significance, is not supported by admissible evidence, and does not negate proposed Fact No. 3. So, the Court rejects the additional language. With respect to Fact No. 4, the SLC purports to change the text by adding the following italicized phrases: "Empty SLC owned freight cars are received from the Union Pacific line at Walsenberg pursuant to the Car Service Rules and returned pursuant to the Car Service Rules via the SLRG Line to SLC at Sugar Junction." Again, the SLC failed to properly contravene Fact No. 4 and the additions are not supported by admissible evidence. Instead, the SLC merely is attempting to insert a legal conclusion about the AAR Car Service Rules. The Court rejects the rework. Finally, with respect to Fact No. 8, the SLC proposes to add some text at the end of Fact No. 8 about the Tariff: "without designating any party, including SLC, that would be liable for payment of the tariff in the absence of a request for transportation service to move empty SLC cars." Again, the SLC has not disputed that the Trustee imposed the Tariff. And, the actual text of the Tariff is already before the Court. (Docket No. 487-5.) The SLC "restatement" merely attempts to improperly interject legal conclusions and argument about the meaning of the Tariff. So, the Court rejects the proposed addition.
The SLC cited Paragraph Nos. 19, 21, and 27 of the Affidavit of Edward A. Burkhardt (Docket No. 487-1) as a basis for the additional language. However, those parts of the Affidavit do not support the additional proposed text.
The SLC cited Paragraph No. 19 of the Affidavit of Edward A. Burkhardt (Docket No. 487-1) as a basis for the additional language. However, that portion of the Affidavit does not support the additional proposed text. In fact, the "Car Service Rules" are not even referenced in Paragraph 19 of the Affidavit.
The Court has carefully reviewed each of the eleven proffered undisputed facts asserted by the Trustee and compared such facts to the record citations. Every alleged undisputed fact is accurate and fully supported in accordance with Fed. R. Civ. P. 56 and L.B.R. 7056-1. And, as set forth above, the SLC has not properly contravened any of the eleven undisputed facts. Therefore, the Court finds the foregoing eleven facts advanced by the Trustee are undisputed and accepted for purposes of the Summary Judgment Motion and Opposition. Hereinafter, the Court refers to such facts as the "Trustee's Undisputed Facts."
B. The SLC Additional Undisputed Facts.
In the Opposition, the SLC also presented eight "additional facts" that it contends are undisputed. Opp'n at 4-6; L.B.R. 7056-1(b)(4) (contemplating possible submission of "additional facts" in opposition to a motion for summary judgment). The SLC's proposed additional undisputed facts are as follows:
Additional Fact No. 1. In the opinion of expert Frederic W. Yocum, as shown in his affidavit submitted herewith, the Car Service Rules and Rule 2 in particular require rail carriers to return empty cars to their owners without attempting to impose any charge, including a freight tariff charge.
Additional Fact No. 2. Mr. Yocum is not aware of any situation in which a rail carrier attempted to charge the owner of a railcar being returned empty after having received the revenue for the loaded movement.
Additional Fact No. 3. Mr. Yocum is aware of situations in which a rail carrier charged the owner of a railcar in order to move empty cars at the request of the owner, such as those covered by the tariffs which the Trustee has submitted as Exhibits F through I to the Trustee's Response [Docket #501]. However, each of those tariffs has very specific conditions that must be met in order to make them applicable, such as the owner sending cars in need of repair to a major repair facility. None of the conditions in those tariffs apply in this case.
Additional Fact No. 4. The long-standing and universal practice within the rail industry is to return empty cars to their owner without attempting to impose any freight tariff charge.
Additional Fact No. 5. The Trustee has not attempted to charge other rail carriers to move empty cars even though there are several rail carriers,
such as Union Pacific and Burlington Northern, that routinely have loaded cars delivered to SLC and empties returned over the SLRG line.
Additional Fact No. 6. SLC has never requested SLRG or the Trustee, by means of a bill of lading or otherwise, to move empty SLC cars back to the SLC line, indicating that the empty cars are being moved in accordance with the Car Service Rules rather than a request by SLC or any other entity for transportation services.
Additional Fact No. 7. Even though empty SLC cars are received on the SLRG line from Union Pacific and have been moved over the lines of other rail carriers and from the customer of the shipper that unloaded the car, the Trustee has not attempted to impose any freight tariff charge on any of those entities.
Additional Fact No. 8. The Burkhardt Affidavit accurately describes the process and events by which a typical shipment of a loaded car from SLC to the destination designated by the shipper and the return of the empty car to SLC, indicating that no railroad other than SLRG attempts to impose any charge, including a freight tariff, on the return of the empty car.
In his Reply in support of the Summary Judgment Motion, the Trustee did not address any of the eight additional facts asserted by the SLC. And, at the hearing on the Summary Judgment Motion, the Trustee contested only proposed Additional Fact No. 1, contending that such alleged fact was impermissible opinion testimony from an expert on the ultimate issue upon which the Court is called to decide in contravention of Fed. R. Evid. 701 and 702. The SLC responded by arguing that an expert may opine on the ultimate issue under Fed. R. Evid. 704 ("An opinion is not objectionable just because it embraces an ultimate issue.") The Court sustains the Trustee's objection and will not consider Additional Fact No. 1 for a myriad of reasons. First, the SLC mischaracterizes proposed Additional Fact No. 1. It is not a "fact" at all. Instead, as the text reveals, it is merely an "opinion": "In the opinion of expert Frederic W. Yocum ... the Car Service Rules and Rule 2 in particular require rail carriers to return empty cars to their owners without attempting to impose any charge, including a freight tariff charge." (emphasis added.) Opinions really have no place in the summary judgment context in which the Court is called upon to determine whether "there is no genuine dispute as to any material fact ...." Fed. R. Civ. P. 56(a). Furthermore, the proffered opinion is directed at an ultimate issue of law (not fact). Effectively, the expert is attempting to testify on the legal interpretation of AAR Car Service Rule 2. However, an expert may not present a legal conclusion instructing the trier of fact "how it should decide the case." Specht v. Jensen , 853 F.2d 805, 808 (10th Cir. 1988) ("we conclude the expert in this case was improperly allowed to instruct the jury on how it should decide the case."). Furthermore, "testimony on ultimate issues of law ... is inadmissible because it is detrimental to the trial process." Id . at 809. Put another way, the proposed expert testimony fails the basic Fed. R. Evid. 702(a) hurdle of "help[ing] the trier of fact to understand the evidence or to determine a fact in issue." Proposed Additional Fact No. 1 does not help the Court in any way. Ultimately, the Court (not an expert) must decide whether AAR Car Service Rule 2 prohibits the imposition of a tariff or charge for the return of empty SLC-owned freight cars. Anderson v. Suiters , 499 F.3d 1228, 1237 (10th Cir. 2007) ("While expert witnesses may testify as to the ultimate matter at issue, Fed. R. Evid. 704(a), this refers to testimony on ultimate facts; testimony on ultimate questions of law, i.e., legal opinions or conclusions is not favored."); U.S. v. Jensen , 608 F.2d 1349, 1356 (10th Cir. 1979) ("[A]n expert witness cannot state legal conclusions ....").
While the Court will not consider Additional Fact No. 1, the Trustee conceded Additional Fact Nos. 2-8. Since proposed Additional Fact Nos. 2-8 were not controverted by the Trustee, they will be accepted by the Court. Hereinafter, the Court refers to such seven additional facts as the "SLC Additional Undisputed Facts."
VI. Legal Analysis and Conclusions.
Through the Summary Judgment Motion, the Court is called upon to decide a single and discrete legal question:
Does AAR Car Service Rule 2 preclude the Trustee from imposing a tariff or charge for the return of empty SLC-owned freight cars?
The question sounds quite simple and depends, of course, on the text of AAR Car Service Rule 2. Car Service Rule 2 is titled: "Empty Foreign Cars Not Needed for Loading." The text of AAR Car Service Rule is accurately set forth in Trustee's Undisputed Fact No. 6, set forth above. Review of the text of AAR Car Service Rule 2 unequivocally proves that the Rule does not mention tariffs or charges for the return of empty freight cars. The Trustee essentially argues that the summary judgment analysis starts and ends with that observation. In other words, since the topic of tariffs or charges for the return of empty cars is not addressed, the Trustee contends that, as a matter of legal interpretation, AAR Car Service Rule 2 simply does not and cannot prohibit the imposition of tariffs or charges for the return of empty freight cars.
The SLC's counter-position is much more circuitous, convoluted, and complex. The SLC acknowledges that AAR Car Service Rule 2 "does not expressly address whether a tariff may or may not be imposed on the return of empty cars." Opp'n at 3. Indeed, the SLC agrees that "Car Service Rule 2 is obviously silent on whether the Trustee (or any similarly-situated person/entity) may impose a tariff for its obligation to return empty cars." Opp'n at 10. But, those observations about the text are not the end for the SLC. The SLC suggests that AAR Car Service Rule 2 is "an ambiguous contractual provision" (presumably because it does not address whether a tariff may or may not be imposed on the return of empty cars). Opp'n at 2. The SLC contends that the Court should apply Colorado contract law to confirm that AAR Car Service Rule 2 is ambiguous. According to the SLC, the topic of tariffs or charges for the return of empty freight cars is "naturally within the scope" on AAR Car Service Rule 2, but somehow was left out of the text. Under these circumstances, the SLC invites the Court to consider "extrinsic evidence of the historical non-imposition of charges or tariffs" for the transportation of empty freight cars. Opp'n at 10. According to the SLC, if the Court considers such extrinsic evidence, then the Court will reach the conclusion that AAR Car Service Rule 2 "strongly implies that the return of empty cars is an obligation for which the Trustee may not impose any charge, including a freight tariff." Opp'n at 9 (emphasis in original). Thus, the SLC advocates denial of the Summary Judgment Motion.
Resolving the competing legal positions of the Trustee and the SLC requires the Court to divert into an analysis of the context and history of AAR Car Service Rule 2 as well as the AAR Rules. Then, the Court must determine the correct method for interpreting AAR Car Service Rule 2. The Trustee advocates for standard statutory interpretation. The SLC wants the Court to apply Colorado law governing private contracts. After deciding on the correct method of interpretation, the Court will decide the summary judgment question.
A. The Context and History of AAR Car Service Rule 2.
The dispute between the SLC and the SL&RG involves "car service" and "car hire." As a matter of federal transportation law, car service and car hire have well-developed and distinct meanings. " ‘[C]ar service’ includes ... the use, control, supply, movement, distribution, exchange, interchange, and return of locomotives, cars, other vehicles, and special types of equipment used in the transportation of property by rail carrier ...." 49 U.S.C. § 10102(2). To simplify, car service generally pertains to the use and movement of railway equipment. On the other hand, "car hire" means: "[c]ompensation to be paid by a user to an owner for use of a car." 49 C.F.R. 1033.1(a)(2). So, car hire deals with payment for use of railway equipment.
Congress empowered the STB, a federal agency, to regulate car service and car hire in the United States. With respect to car service, 49 U.S.C. § 11121 provides:
(a)(1) A rail carrier proving transportation ... shall furnish safe and adequate car service and establish, observe, and enforce reasonable rules and practices on car service ....
(2) The Board may require a rail carrier to file its car service rules with the Board.
(b) The Board may designate and appoint agents and agencies to make and carry out its directions related to car service ....
Similarly, with respect to car hire, 49 U.S.C. § 11122 states:
(a) The regulations of the Board on car service shall encourage the purchase, acquisition, and efficient use of freight cars. The regulations may include —
(1) the compensation to be paid for the use of a locomotive, freight car, or other vehicle;
(2) the other terms of any arrangement for the use by a rail carrier of a locomotive, freight car, or other vehicle not owned by the rail carrier using the locomotive, freight car, or other vehicle .... and
(3) sanctions for nonobservance.
(b) The rate of compensation to be paid for each type of freight car shall be determined by the expense of owning and maintaining that types of freight car, including a fair return on its cost giving consideration to current costs of capital, repairs, materials, parts, and labor. In determining the rate of compensation, the Board shall consider the transportation use of each type of freight car, the national level of ownership of each type of freight car, and other factors that affect the adequacy of the national freight car supply.
Thus, the STB ultimately is responsible for regulating car service and car hire. But, the STB (and its predecessor, the ICC) have exercised their regulatory powers for car service rules and car hire rules mostly in a cooperative fashion with the railway industry.
Car service and car hire rules for railway transportation were developed over more than a century by the federal government, working closely in tandem with railroads and their associations. Baltimore & Ohio R.R. Co. v. New York, New Haven and Hartford R.R. Co. , 196 F. Supp. 724 (S.D.N.Y. 1961) (after the Esch Car Service Act of 1917 (40 Stat. 101), the ICC "created the Bureau of Car Service to administer its powers under the Act; this Bureau worked directly with the American Railway Association's Commission on Car Service to help it establish and enforce reasonable rules and practices with respect to car service"); see also Boston & Maine R.R. v. U.S. , 162 F. Supp. 289 (D.Mass. 1958) (discussing historical development of car hire and car service rules). The United States Supreme Court explained some of the history:
The country's railroads long ago abandoned the custom of shifting freight between the cars of connecting roads, and adopted the practice of shipping the same loaded car over connecting lines to its ultimate destination. The freight cars of the Nation thus became in essence a single common pool, used by all roads. This practice necessarily required some arrangements for eventual return of a freight car to the lines of the road which owned it, and in 1902 the railroads through their trade association dealt with this and related problems in a code of car-service rules with which the roads agreed amongst themselves to comply.
U.S. v. Allegheny-Ludlum Steel Corp. , 406 U.S. 742, 743, 92 S.Ct. 1941, 32 L.Ed.2d 453 (1972) ; see also Chicago, R.I. & P. Ry. Co. v. U.S. , 284 U.S. 80, 90, 52 S.Ct. 87, 76 L.Ed. 177 (1931) (explaining history of car service and car hire rules as well as governmental administrative involvement).
The AAR or its predecessor — working with the ICC — developed AAR Car Service Rule 2 pertaining to the movement of empty cars in the first half of the last century. In Matter of Boston & Maine Corp. , 600 F.2d 307, 308 (1st Cir. 1979) ("Since 1930, the rules of the Association of American Railroads (AAR) for determining net rental balances for freight car rentals (per diem charges) have had the sanction of the Interstate Commerce Commission.") In 1950, the ICC approved the AAR Rules. U.S. v. Atl. & E. Carolina Ry. Co., 238 F. Supp. 551, 552 (E.D.N.C. 1964) ("The procedure for establishing per diem rental charges on such cars was approved by the Interstate Commerce Commission in its report effective October 7, 1950."); Joint Petition for Rulemaking on Railroad Car Hire Compensation Decision , Ex. Parte No. 334 Sub-No. 8 at 2 (STB Apr. 9, 1997) (citing Assoc. of Am. R.Rs. — Agreement , 277 I.C.C. 413 (ICC 1950)).
Finally, in 1969, the ICC adopted AAR Car Service Rules 1 and 2 as federal government regulations. Allegheny-Ludlum Steel, 406 U.S. at 742-3, 92 S.Ct. 1941 ("The effect of the [Interstate Commerce] Commission's order now under review is to promulgate two of these rules [AAR Car Service Rules 1 and 2] as the Commission's own."); Id. at 743 n.1, 92 S.Ct. 1941. Thereafter, several railroads and shippers sought to enjoin the enforcement of such rules. Id . at 743, 92 S.Ct. 1941. The United States Supreme Court held that the ICC's "action in promulgating these rules [AAR Car Service Rules 1 and 2] was substantively authorized by the Echs Act and procedurally acceptable under the Administrative Procedures Act." Id. at 758, 92 S.Ct. 1941.
The version of AAR Car Service Rule 2 at issue in Allegheny-Ludlum Steel , 406 U.S. 742, 92 S.Ct. 1941, is substantially similar to the current version of AAR Car Service Rule 2.
So, at that stage and for some time thereafter, AAR Car Service Rule 2 was a formal federal government regulation. 49 C.F.R. 1033.2 (1969) ; 34 Fed. Reg. 14172 (Sept. 4, 1969). However, later, AAR Car Service Rule 2 was removed from the Code of Federal Regulations as a separate federal regulation. Investigation of Adequacy of Railroad Freight Car Ownership, Car Utilization, Distribution Rules, and Practices, 362 I.C.C. 844, 1980 WL 14207 (July 18, 1980) ("While it is in the public interest to rescind mandatory [car service and car hire] rules [in 49 C.F.R. § 1033], we nevertheless retain authority to oversee car service activities...."). Notwithstanding, the current STB regulations make several references to the AAR Rules. See 49 C.F.R. §§ 1033.1(a)(6) and 1033.1(c)(2)(ii). In Baltimore & Annapolis R.R., the Court went so far as to declare that Circular OT-10 (the AAR Rules) "has been adopted as part of the STB's regulations." Baltimore & Annapolis R.R., 2009 WL 3633349, at *1. That may be an overstatement. But, there still is a close relationship between the AAR Rules, including AAR Car Service Rule 2, and federal regulation.
B. The Method of Interpreting AAR Car Service Rule 2.
The SLC and the Trustee propose two different approaches to construing AAR Car Service Rule 2. The Trustee invites the Court to apply a statutory construction approach. Similar to statutes, federal regulations are interpreted by "applying general rules of statutory construction, beginning with the plain language of the regulations." Time Warner Ent. Co., L.P. v. Everest Midwest Licensee, L.L.C. , 381 F.3d 1039, 1050 (10th Cir. 2004). The historical development of Car Service Rule 2 supports a statutory construction approach. After all, AAR Car Service Rule 2 was adopted as a federal regulation by the ICC. And, the United States Supreme Court endorsed such rule-making. Allegheny-Ludlum Steel, 406 U.S. at 742-3, 92 S.Ct. 1941. Nevertheless, as part of deregulation of the railway industry, AAR Car Service Rule 2 (and all the AAR Rules) later were removed from the Code of Federal Regulations. So, the regulatory analogy is not perfect. However, before the Trustee filed his Summary Judgment Motion, the SLC appeared to endorse a regulatory view of AAR Car Service Rule 2. In the Administrative Expense Motion, the SLC contended: "The STB has exercised its regulatory authority and delegated certain car hire and car service responsibilities to the Association of American Railroads." Administrative Expense Motion at 4 (emphasis added). The concept of "regulatory delegation" (a phrase also used by the Trustee) suggests that AAR Car Service Rule 2 should be interpreted using principles of statutory interpretation.
On the other hand, the SLC now characterizes AAR Car Service Rule 2 as merely a "private contract," asserting, among other things: "the issue is solely one of contract interpretation"; "Car Service Rule 2 ... is a private contractual agreement"; and "[t]he critical question in this case — whether [AAR Car Service] Rule 2 precludes the imposition of a freight tariff — involves a matter of interpretation of a private contract." Opp'n at 2, 11. The SLC further asserts that AAR Car Service Rule 2 is ambiguous as a matter of Colorado contract law. Then, since AAR Car Service Rule 2 supposedly is ambiguous, the SLC seeks to introduce "extrinsic evidence of the non-imposition of charges or tariffs" to establish that AAR Car Service Rule 2 actually prohibits the imposition of tariffs or other charges for the return of empty cars. Opp'n at 10. The SLC's argument is a complex and winding road premised entirely on the AAR Rules merely being a private contract. It is the linchpin of the SLC's legal position.
There is some facial allure to the SLC's contract contention. After all, the AAR Rules bear the heading "Car Service and Car Hire Agreement." AAR Rules at 2. That heading is followed by the following:
The subscribing railroad company promises and agrees with each railroad company severally which subscribes and files a counterpart hereof .... that the subscribers will abide by and enforce the
rules prescribed for the handling and settlement for freight cars and included in the Codes of Car Service and Car Hire Rules, promulgated by the Association. Further, That the subscribing railroad company agrees to the creation of a Business Services Group with plenary powers, as provided in Car Hire Rule 19, and which Group ... shall cooperate with the Surface Transportation Board in all car service matters on and between all railroads ....
AAR Rules at 2. The words "agreement" and "agrees" are words commonly used in contracts. Both the SL&RG and the SLC are railroads that have subscribed to the AAR Rules. Trustee's Undisputed Fact No. 7; AAR Rules at 6. According to the lists contained in the AAR Rules, there are approximately 853 other railroads that also are subscribers to the AAR Rules.
Aside from the text of the AAR Rules, the SLC relies heavily (perhaps exclusively) on Springfield Terminal , 369 F. Supp. 2d at 173, for the proposition that the AAR Rules are a contract. Opp'n at 8. The SLC quotes Springfield Terminal as follows in a parenthetical: (Circular No. OT-10 [AAR Rules] "is a contract under which the parties agreed to abide by the Code of Car Hire Rules issued by the Association of American Railroads (‘AAR’), and industry trade group."). Opp'n at 8. The quotation sounds quite compelling. However, unfortunately (especially because the SLC was a party in the Springfield Terminal case and should know better), the SLC has mischaracterized the Springfield Terminal decision and its holding. In fact, the Springfield Terminal case suggests that the AAR Rules are not a private contract.
The illustrate the point, a short detour into the Springfield Terminal decision is necessary. In that case, the SLC sued another railway for car hire charges under the AAR Rules, which the SLC suggested were a state law contract supporting a state law cause of action. Citing to the SLC's complaint in Springfield Terminal , the court noted that SLC contended "[t]he Agreement is a contract under which the parties agreed to abide by the Code of Car Hire Rules issued by the Association of American Railroads, an industry trade group." Id . at 173. But, that passage is not a holding of the Springfield Terminal court as the SLC now suggests. Instead, that passage was merely a recitation of an allegation in the SLC's own complaint — nothing more. Instead, ultimately, the Springfield Terminal court decided against the SLC.
The Springfield Terminal court identified the question:
The issue for this Court is whether the Agreement [the AAR Rules] is a contract that falls within [ 49 U.S.C.] § 10709 and thus the "exclusive remedy" is a state-law cause of action. Typically, contracts pursuant to § 10709 have involved the purchase of rail carrier services by a shipper. A review of caselaw revealed no contracts involving car hire enforced under state law. [Defendant] argues that the Agreement should not be treated as a voluntary contract within the scope of the statutory exception because it has regulatory force and receives continued regulatory oversight.
Id . at 176. The Court ultimately concurred with the defendant's argument and determined that "the state-law cause of action for breach of the Agreement [the AAR Rules] is preempted." Id . at 177. The Springfield Terminal court also decided that the STB "has primary jurisdiction over these matters [i.e. , claims by the SLC to recover car hire]. Id . at n. 5. And, the case proceeded no further in court. So, the Springfield Terminal decision suggests that the AAR Rules are not a private contract because the AAR Rules have regulatory force and receive continued regulatory oversight by the STB. Indeed, counsel for the SLC acknowledged that he had misread the Springfield Terminal decision at the hearing on the Summary Judgment Motion.
Other than the mischaracterized Springfield Termination decision, the SLC has not been unable to cite any case law support for the proposition that the AAR Rules are merely a private contract. And, the Court, through its own independent research has been unable to locate precedent suggesting that the AAR Rules are simply a contract entered into between private parties. With respect to AAR Car Service Rule 2, the SLC's argument fails to recognize the historical evolution of AAR Car Service Rule 2, including that it was adopted as a formal federal regulation in 1969. And, the AAR Rules are referenced today in the current federal regulations. 49 C.F.R. §§ 1033.1(a)(6) ad 1033.1(c)(2)(ii).
In any event, the SLC insists that the Court should apply Colorado contract law to AAR Car Service Rule 2. This contention illustrates why the AAR Rules are not a typical private contract. The SLC refers the Court to a handful of Colorado decisions (state and federal) construing contracts under Colorado law and finding various provisions ambiguous: Moncrief v. Williston Basin Interstate Pipeline Co. , 174 F.3d 1150, 1173 (10th Cir. 1999) ; Stroh Ranch Dev., LLC v. Cherry Creek S. Metro. Dist. No. 2 , 935 F. Supp. 2d 1052 (D. Colo. 2013) ; Cheyenne Mountain Sch. Dist. v. Thompson , 861 P.2d 711, 715 (Colo. 1993). But, the question arises, why apply Colorado law at all? Unlike most contracts, the AAR Rules do not contain a choice of law provision. And, there are 853 other railroad subscribers to the AAR Rules (most of whom, judging by their names) are not Colorado companies. So, it seems quite a stretch for the SLC to contend that the AAR Rules are effectively a Colorado contract governed by Colorado law. Confronted with the issue at oral argument, counsel for the SLC retreated a bit and suggested that the law governing the AAR Rules shifts depending on the nature of the dispute and the parties. So, according to the SLC, the AAR Rules might be governed by all 50 States' law. For example, a dispute between railroads from Mississippi and Alaska concerning AAR Car Service Rule 2 supposedly would be governed under Mississippi or Alaska law; but the same AAR Car Service Rule 2 is governed by Colorado law if both railroads are in Colorado – again, a very anomalous result, to say the least. And, then, counsel for the SLC suggested that maybe federal common law for contracts should apply. But, there is no federal common law of contracts applicable for contracts in which the federal government is not a party and no federal statute is implicated. See Rodriguez v. F.D.I.C., ––– U.S. ––––, 140 S. Ct. 713, 717, 206 L.Ed.2d 62 (2020) ("Judicial lawmaking in the form of federal common law plays a necessarily modest role under a Constitution that vests the federal government's ‘legislative Powers’ in Congress and reserves most other regulatory authority to the States."); N. Side Lumber Co. v. Block, 753 F.2d 1482, 1484 (9th Cir. 1985) ("[f]ederal common law of contracts applies to contracts with the federal government ...."). And, the SLC has not supplied any supposed federal common law of contracts rule of decision for the dispute.
All the foregoing problems with choice of law strongly suggest that the AAR Rules are not a typical private contract as the SLC suggests. Instead, the AAR Rules are just that — a series of industry rules — which at one time were federal regulations and now are quasi-regulatory because of the regulatory supervision of the STB. Another way of looking at it is that the STB has effectively delegated part of its statutory responsibility for regulatory oversight of car service and car hire issues to the AAR.
During oral argument, the Trustee analogized the AAR Rules to the Rules of Professional Conduct governing lawyers. Rules of Professional Conduct typically are developed by industry (State Bar Associations) and approved by the State Judiciaries. All lawyers in a State Bar agree to be bound by the Rules of Professional Conduct; so in that sense, just as with the AAR Rules, the Rules of Professional Conduct might be characterized as a sort of contract. Nevertheless, courts generally apply statutory construction rules, not contract rules, when construing Rules of Professional Conduct governing lawyers. Miller Weisbrod, LLP v. Klein Frank PC , 2014 WL 3512994, at *9 (N.D. Tex. Jul. 16, 2014) ("To determine the meaning of the Texas Disciplinary Rules of Professional Conduct, a court must apply general statutory construction rules."); Babineaux v. Foster , 2005 WL 711604, at *3 (E.D. La. Mar. 21, 2005) (applying "traditional maxim of statutory construction" to interpretation of Louisiana Rules of Professional Conduct). The Trustee's analogy makes sense and suggests that the Court should construe AAR Car Service Rule 2 under standard principles of statutory interpretation.
Another analogy suggests that statutory construction is the most appropriate method for interpretation of the AAR Rules. Just as the AAR did for the railway industry, the National Association of Securities Dealers (the "NASD") developed a set of rules (governing stock market operations and market activities) for member securities brokerage firms. An appellate court characterized the NASD (which no longer exists) as follows:
The National Association of Securities Dealers ("NASD") is a non-profit, self-regulatory organization registered pursuant to the Maloney Act amendments to the Securities Exchange Act of 1934 ("Exchange Act"). 15 U.S.C. § 78a et seq. ; see also National Assoc. of Sec. Dealers, Inc., 5 SEC 627 (1939). NASD is the only securities association registered with the Securities and Exchange Commission ("SEC") under 15 U.S.C. § 78o–3, and is the primary regulatory body for the broker-dealer industry. It supervises the conduct of its members under the general aegis of the SEC.
Sparta Surgical Corp. v. Nat'l Ass'n of Secs. Dealers, Inc. , 159 F.3d 1209, 1210 (9th Cir. 1998), abrogated on other grounds by Merrill Lynch, Pierce, Fenner & Smith Inc. v. Manning , 578 U.S. 374, 136 S. Ct. 1562, 194 L.Ed.2d 671 (2016). The role of the NASD in the securities industry (another heavily regulated industry) bears many similarities to the role of the AAR in the heavily regulated railway industry. In any event, when construing NASD rules, courts typically turn to statutory construction methods rather than contract interpretation. See French v. First Union Secs., Inc. , 209 F. Supp. 2d 818, 832 (M.D. Tenn. 2002) (interpretation of NASD rules "boils down to a matter of statutory construction"); Garrison v. Sagepoint Fin., Inc. , 185 Wash.App. 461, 345 P.3d 792, 805 (2015) (applying "statutory construction" to interpret NASD Rule 3050).
Although the Court appreciates that the methodology question is close, the Court determines that AAR Car Service Rule 2 (which at one time was promulgated as a federal regulation) should be interpreted like a quasi-regulation under typical rules of statutory construction rather than as a private contract governed by Colorado state law.
C. Applying Rules of Statutory Construction, AAR Car Service Rule 2 Does Not Prohibit the Imposition of a Tariff or Other Charge for Transportation of Empty Cars.
Having decided to apply canons of statutory construction to AAR Car Service Rule 2, the job — deciding whether AAR Car Service Rule 2 prohibits the imposition of tariffs or other charges for the transportation of empty cars — becomes fairly easy. There are three subsections to Car Service Rule 2.
• Subsection A titled "Handling of Cars"
• Subsection B titled "Notification of Intention to Store Cars"
• Subsection Part C titled "Definition of Junction"
Subsection B pertains solely to the intention to store railcars. The provision has nothing to do with tariffs or other charges. Neither the SL&RG nor the SLC has indicated an intention to store railcars. So, Subsection B is not implicated in the current dispute. Subsection C presents only a definition of the term "junction." "Junction" means "stations where roads interchange cars at a common point or within switching limits over their own lines, or an intermediate line or lines ...." Thus, Walsenberg and Monte Vista qualify as "junctions." However, the definition of "junctions" has nothing to do with tariffs and is inapposite to the current controversy.
That leaves Subsection A, which is directed at "Handling of Cars." The SLC asserts that Subsection A is the part of AAR Car Service Rule 2 that prohibits the imposition of tariffs or other charges for the transportation of empty cars. Reexamining the text, Subsection A states, in relevant part:
[F]oreign cars not needed for loading must have doors closed and may be: (1) Delivered to the home road at any junction .... (2) Forwarded to the road ... from which originally received under load, at the junction where received .... (3) Returned to the delivering road ... when handled only in switching service .... (4) Stored ....
The SLC repeatedly asserted that Subsection A provides that "SLC empties ‘must be delivered to the owner’ at the junction where the loaded cars were received, which is Monte Vista." Opp'n at 9. That proposition is demonstrably false. AAR Car Service Rule 2 does not require the return of empty cars at all. Instead, AAR Car Service Rule 2 mandates that empty car doors "must" be closed and "may be delivered ... forwarded ... [or] returned" to the owner of the empty car. So, the return "at the junction where received" is purely optional. At oral argument, counsel for the SLC conceded that AAR Car Service Rule 2 does not mandate return of empty cars.
But, that is not even the main point. The critical issue is that AAR Car Service Rule 2 also says absolutely nothing about tariffs or other charges being imposed for transportation of empty cars. The topic is not addressed at all. And, for good reason, because tariffs and other charges imposed by a railway are governed by a series of statutes independent of the AAR Rules. 49 U.S.C. § 10701 covers "standards for rates, classifications, through routes, rules, and practices" and provides, in relevant part:
(b) A rail carrier providing transportation subject to the jurisdiction of the Board ... may not discriminate in its rates ....
(c) Except as provided in subsection (d) of this section and unless the rate is prohibited by a provision of this part, a rail carrier providing transportation subject
to the jurisdiction of the Board ... may establish any rate for transportation or other services provided by the rail carrier.
(d)(1)If the Board determines, under section 10707 of this title, that a rail carrier has market dominance over the transportation to which a particular rate applies, the rate established by such carrier for such transportation must be reasonable.
(2) In determining whether a rate established by a rail carrier is reasonable for purposes of this section, the Board shall give due consideration to —
(A) the amount of traffic which is transported at revenues which do not contribute to going concern value and the efforts made to minimize such traffic;
(B) the amount of traffic which contributes only marginally to fixed costs and the extent to which, if any, rates on such traffic can be changed to maximize the revenues from such traffic; and
(C) the carrier's mix of rail traffic to determine whether one commodity is paying an unreasonable share of the carrier's overall revenues, recognizing the policy of this part that rail carriers shall earn adequate revenues ....
A companion statute, 49 U.S.C. § 10702, states:
A rail carrier providing transportation or service subject to the jurisdiction of the Board under this part shall establish reasonable —
(1) rates, to the extent required by section 10707, divisions of joint rates, and classifications for transportation and service it may provide under this part; and
(2) rules and practices on matters related to that transportation or service.
And 49 U.S.C. § 10704 authorizes the STB to impose various remedies in transportation rate disputes:
(a)(1) When the Board, after a full hearing, decides that a rate charged or collected by a rail carrier for transportation subject to the jurisdiction of the Board under this part, or that a classification, rule, or practice of that carrier, does or will violate this part, the Board may prescribe the maximum rate, classification, rule, or practice to be followed. The Board may order the carrier to stop the violation. When a rate, classification, rule, or practice is prescribed under this subsection, the affected carrier may not publish, charge, or collect a different rate and shall adopt the classification and observe the rule or practice prescribed by the Board.
(2) The Board shall maintain and revise as necessary standards and procedures for establishing revenue levels for rail carriers providing transportation subject to its jurisdiction under this part that are adequate, under honest, economical, and efficient management, for the infrastructure and investment needed to meet the present and future demand for rail services and to cover total operating expenses, including depreciation and obsolescence, plus a reasonable and economic profit or return (or both) on capital employed in the business. The Board shall make an adequate and continuing effort to assist those carriers in attaining revenue levels prescribed under this paragraph. Revenue levels established under this paragraph should —
(A) provide a flow of net income plus depreciation adequate to support
prudent capital outlays, assure the repayment of a reasonable level of debt, permit the raising of needed equity capital, and cover the effects of inflation; and
(B) attract and retain capital in amounts adequate to provide a sound transportation system in the United States.
So, railroad transportation rates (whether they are characterized as a tariff or some other charge) are governed comprehensively by statutes quite independent of the AAR Rules, and particularly AAR Car Service Rule 2. Thus, it should come as no surprise that AAR Car Service Rule 2 does not cover the topic and does not purport to prohibit the imposition or tariffs or other charges for the transportation of empty cars.
In any event, since AAR Car Service Rule 2 does not encompass the issue, the Court applies the "omitted-case canon" of interpretation advanced by the Trustee in its Latin form during oral argument — casus omissus pro omisso habendus est , or in rough English translation: a matter not covered is to be treated as not covered. Antonin Scalia and Bryan A. Garner READING LAW : THE INTERPRETATION OF LEGAL TEXTS 93 (Thompson/West 2012). According to Justice Scalia: "The principle that a matter not covered is not covered is so obvious that it seems absurd to recite it." Id . To put it another way, an "absent provision cannot be supplied by the courts." Id . at 94. That is because "a casus omissus does not justify judicial legislation." Ebert v. Poston , 266 U.S. 548, 554, 45 S.Ct. 188, 69 L.Ed. 435 (1925).
Although the appellate court did not use the Latin phraseology, the Eighth Circuit Court of Appeals applied the foregoing principle in another case construing the AAR Rules which is quite analogous: Chicago, Rock Island & Pac. R.R. Co. v. Chicago and N.W. Ry. Co. , 280 F.2d 110 (8th Cir. 1960). In that case, a railway employee sued his railway company (Chicago and North Western Railway Co. ("North Western")) for a personal injury incurred while attempting to release a hand brake on a rail car owned by another railway (Chicago, Rock Island & Pacific Railroad Co. ("Rock Island")). North Western tendered the defense to the Rock Island, which refused to participate in the negotiation or settlement of the claim. Rock Island cited the AAR "Codes of Car Service and Interchange Rules" (to which both railroads were subscribers) for the proposition that the AAR Rules "operated as a waiver of, or bar to, any claim for indemnity or contribution." Id . at 112. Apparently, many railroads "had observed the protocol of not making claims against other railroads [for such personal injury indemnification or contribution]." Id. at 113. But that custom was not enough to convince the appellate panel, which instead focused on the AAR Rules and the absence of any express provision waiving claims for indemnification or contribution. The Eighth Circuit put it this way:
The fatal weakness of Rock Island's contention becomes apparent on examination of the [AAR] Car Service & Interchange Rules upon which it so strenuously relies. We are unable to detect any language therein which, even by inference, could be construed as constituting a waiver of, or bar to, the legal right of one railroad member to seek indemnity or contribution from another member. There is no reference of any kind in the rules to indemnity or contribution. In our view, the rules are solely designed to govern the care and maintenance of cars belonging to one carrier while in possession of another ....
If the railroad companies which are parties to the Code of Rules desire to waive
this legal right effectively, they should have no difficulty in clearly expressing such intent, and until they do, efforts to have such a provision read into the rules by judicial interpretation will, in all likelihood, be unavailing.
Id . at 113-14 (emphasis added, footnote omitted). Just so. Like the absence of an anti-identification or anti-contribution provision in Chicago, Rock Island & Pac. R.R. , the AAR Rules also contain no provisions pertaining to tariffs or other charges for the transportation of empty cars.
Turning back to the "omitted-case canon," if AAR Car Service Rule 2 is interpreted under the canon, the result is apparent. AAR Car Service Rule 2 says nothing at all about tariffs or other changes which may or may not be imposed for the transportation of empty cars. Accordingly, the Trustee has met his burden to obtain partial summary judgment on the narrow issue presented. The Court determines that AAR Car Service Rule 2 does not prohibit the Trustee from imposing the Tariff, or any other tariff, or any other charge for the transportation of empty cars.
The Tariff might be invalid or unreasonable for other reasons. However, that is an issue for another day.
D. Applying Colorado Rules of Contract Interpretation, AAR Car Service Rule 2 Does Not Prohibit the Imposition of a Tariff or Other Charge for Transportation of Empty Cars.
Although the Court rests its decision on the text of AAR Car Service Rule 2 and principles of statutory interpretation, for good measure, and alternatively, the Court also considers the issue under the Colorado law contract framework advocated by the SLC. The SLC contends that AAR Car Service Rule 2 is "ambiguous as a matter of law." Opp'n at 8. Under Colorado contract law:
As set forth above, the Court has not been able to ascertain why or how Colorado law governs the AAR Rules. However, that seems to be the SLC's position.
To ascertain whether certain provisions of a contract are ambiguous, ‘the language used therein must be examined and construed in harmony with the plain and generally accepted meaning of the words employed and by reference to all the parts and provisions of the agreement and the nature of the transaction with forms its subject matter.’ " A document is ambiguous "when it is reasonably susceptible to more than one meaning."
Cheyenne Mountain , 861 P.2d at 715 (quoting Christmas v. Cooley , 158 Colo. 297, 406 P.2d 333, 335 (1965) and N. Ins. Co. of N.Y. v. Ekstrom , 784 P.2d 320, 323 (Colo. 1989) ).
But why is AAR Car Service Rule 2 supposedly ambiguous? First, the SLC argues that Car Service 2 is "susceptible to more than one interpretation." Opp'n at 9. But the Court simply does not see any possible construction of the text of AAR Car Service Rule 2 that prohibits the imposition of a tariff or other charge for the transportation of empty cars. As explained previously, the "plain and generally accepted meaning of the words" in AAR Car Service Rule 2 merely identifies the location at which empty cars should be returned to the car owner if the railway in possession of the empty cars optionally wishes to effectuate a return. So, there is no apparent facial ambiguity suggesting that AAR Car Service Rule 2 is susceptible to "more than one meaning."
Next, the SLC acknowledges that AAR Car Service Rule 2 is "silent on whether the Trustee ... may impose a tariff ...." Opp'n at 10. Then, the SLC quotes Moncrief , 174 F.3d at 1173, for the proposition that: "[a] contract's silence on a particular issue does not create an ambiguity in every instance, but silence on a matter naturally within the scope of the contract gives rise to ambiguity." Opp'n at 10. The Cheyenne Mountain decision, 861 P.2d at 715, states the same proposition. So, then, the SLC suggests that tariffs or other charges for the transportation of empty cars "are naturally within the scope of" AAR Car Service Rule 2. Opp'n at 10. But this proposition does not follow at all. Tariffs or other charges are not "naturally within the scope of" of AAR Car Service Rule 2 or any of the AAR Rules. Again, tariffs and other charges are never mentioned in relation to either loaded cars or empty cars — and for good reason. That is because, as demonstrated previously, tariffs and other charges are subject to a separate federal statutory scheme. 49 U.S.C. §§ 10701, 10702 and 10704. So, that topic is not "naturally within the scope" of AAR Car Service Rule 2 or any of the AAR Rules.
Finally, the SLC also contends that the supposed ambiguity of AAR Car Service Rule 2 may be established by virtue of "extrinsic evidence" which should be "conditionally admitted in the context of a motion for summary judgment." Opp'n at 9-10. The SLC is correct that, as a matter of Colorado contract law, extrinsic evidence sometimes may be conditionally admitted to assess ambiguity. Pepcol Mfg. Co. v. Denver Union Corp. , 687 P.2d 1310, 1314 n.3 (Colo. 1984) ("In determining whether a contract is ambiguous, the court may conditionally admit extrinsic evidence on this issue."); Cheyenne Mountain , 861 P.2d at 715 (same); Stroh Ranch , 935 F.Supp.2d at 1060. The type of extrinsic evidence which might be enlightening includes "evidence of local usage and the circumstances surrounding the making of the contract." Cheyenne Mountain , 861 P.2d at 715. "The parties' prior course of dealings may also be considered in determining whether a contract is ambiguous." Centennial-Aspen II Ltd. P'ship v. City of Aspen , 852 F. Supp. 1486, 1492 (D. Colo. 1994).
The SLC invites the Court to consider SLC Additional Fact Nos. 2-8 as extrinsic evidence establishing ambiguity of AAR Car Service Rule 2. The Court has done so. However, none of SLC Additional Fact Nos. 2-8 bear on "the circumstances surrounding the making of the contract [i.e., the AAR Rules]." Instead, SLC Additional Fact Nos. 2-8 really bear only on generic usage and course of dealing. In summary, SLC Additional Fact Nos. 2-8 show only that: one expert (Frederic W. Yocum) is not aware of any rail carriers charging the owner of a rail car being returned empty except for in "very specific conditions"; "[t]he long-standing and universal practice within the rail industry is to return empty cars to their owner without attempting to impose any freight charge"; and the Trustee has not charged other rail carriers to move empty cars. Notably, none of SLC Additional Fact Nos. 2-8 provides evidence of the historical course of dealing between the SL&RG and the SLC. Instead, the propositions are generic (except that the Trustee has not attempted to impose a tariff or other charge on other rail carriers). None of that comes close to establishing that AAR Car Service Rule 2 is ambiguous.
One of the principal problems with SLC's extrinsic evidence ambiguity argument is that there is no specific tie-in with AAR Car Service Rule 2. See Chicago, Rock Island & Pac. R.R. , 280 F.2d 110 (even though there was an industry "protocol" that railroads would not sue each other, that practice was not mandated in the AAR Rules). So, for example, assuming that "[t]he long-standing and universal practice within the rail industry is to return empty cars to their owner without attempting to impose any freight charge" (which is the SLC's main extrinsic evidence contention), that does not mean that AAR Car Service Rule 2 itself prohibits the imposition of tariffs or other charges. For example, such tariffs or other charges for the transportation of empty cars may be invalid or unreasonable by reason of rate setting statutes such as 49 U.S.C. §§ 10701, 10702 and 10704. Possibly, as the SLC also suggested in the Opposition and at oral argument, a tariff or other charge cannot be imposed for the movement of empty cars unless the owner has "request[ed]" return of the empty cars under 49 U.S.C. §§ 11101(a) and (b). Or, maybe there is some other reason for the alleged industry course of dealing (like an informal "protocol"). The Court simply does not know. But, just because "a long-standing and universal practice within the rail industry" not to charge for the movement of empty cars exists, that does not mean AAR Car Service Rule 2 is ambiguous.
49 U.S.C. §§ 11101 states: "(a) A rail carrier providing transportation or service subject to the jurisdiction of the Board ... shall provide the transportation or service on reasonable request .... (b) A rail carrier shall also provide to any person, on request, the carrier's rates and other service terms." In one of its many alternative arguments, the SLC suggests that the Trustee cannot impose the Tariff because it is not really a "tariff" at all and since charges can only be assessed "on request." Opp'n at 10-11.
Accordingly, as a matter of Colorado contract law, the Court rejects the SLC's invitation for the Court to determine that AAR Car Service Rule 2 is ambiguous.
VII. Conclusion.
In an effort to narrow the issues for trial, the Trustee has requested partial summary judgment on a very narrow question: Does AAR Car Service Rule 2 preclude the Trustee from imposing a tariff or charge for the return of empty SLC-owned freight cars? The Trustee has met his summary judgment burden. For the reasons set forth above, the Court concurs with the Trustee that AAR Car Service Rule 2 does not preclude the Trustee from imposing a tariff or charge for the return of empty SLC-owned freight cars. Thus, the Court grants the Summary Judgment Motion and enters partial summary judgment on that discrete issue regarding AAR Car Service Rule 2.