Railroad Legal Issues and Resources (2015)

Below is the uncorrected machine-read text of this chapter, intended to provide our own search engines and external engines with highly rich, chapter-representative searchable text of each book. Because it is UNCORRECTED material, please consider the following text as a useful but insufficient proxy for the authoritative book pages.

42 may “obtain broad indemnity from a contractor to protect it from future personal injury claims that were not caused by its negligence or the negligence of the indemnifying contractor.”167 XIII. CONTRACTS AND RAILROADS 331 A. Introduction 331 This part of the digest discusses implied covenants, indemnity provisions, and other agreements. Section B considers implied covenants such as in leases and mortgages affecting railroads. Section C summarizes statutory provisions, cases, and articles regarding railroad contracts other than construction contracts. Section D discusses other contracts and obligations applicable to railroads. B. Implied Covenants in Railroad Contracts 331 Statutes 331 1. Necessary Incidents Implied in a Contract 331 An Oklahoma statute mandates that anything considered necessary for the parties to carry out a contract is an implied condition of the contract, a provision that has been applied to contracts granting a right-of-way.168 Cases 332 2. Railroad’s Obligation to Maintain and Operate a Railroad While 332 Under Lease In Southern Railway Co. v. Franklin & Pittsylvania Railroad Co.,169 the Supreme Court of Appeals of Virginia held that Southern Railway was obligated to continue operating a line because its continued operation was an implied covenant in a lease. 3. Lessor of Rail Property Does Not Have a Common Law Duty to 332 Repair the Property In Felton v. Cincinnati,170 the Sixth Circuit refused to find that there was an implied covenant in a lease that obligated the lessor to construct or repair a road to make it suitable for its intended use; thus, unless otherwise required by the terms of the lease or required by statute, a 167 D. Stan Barnhill, Construction Law, 43 U. RICH. L. REV. 107, 117 (2008) (footnote omitted). 168 OKLA. STAT. tit. 15, § 172 (2014). 169 96 Va. 693, 700–11, 32 S.E. 485, 488–91 (1899). 170 95 F. 336, 340 (6th Cir. 1899).

43 lessor is not obligated to put property in an operable condition when leasing the property to a railroad. 4. Prioritization of Income to Pay Expenses Incurred During 333 Ordinary Operation over a Mortgage In In re Chicago, R.I. & R. Ry. Co.,171 the Seventh Circuit held that “[e]very railroad mortgagee, in accepting its security, impliedly agrees that all current debts, accruing in the ordinary course of the operation of its business, shall be paid from the current income before [the mortgagee] has [a] claim thereto.”172 5. Implied Obligation in Railroad Contracts of Good Faith and 334 Fair Dealing In Anderson v. Union Pac. R. Co.,173 in which an employee of Union Pacific alleged that the company had committed a breach of an implied covenant of good faith and fair dealing when terminating his employment, the Ninth Circuit held that Union Pacific’s actions satisfied the definition of good cause under California law. C. Indemnity Provisions in Railroad Contracts Other than 335 Construction Contracts Cases 335 1. Obligation to Indemnify a Railroad Is Contractual 335 In Rice v. Union Pacific R. Co.,174 the Eighth Circuit held that the “industry’s obligation to indemnify a railroad…is a contractual duty and not a duty arising under the common law.”175 171 90 F.2d 312 (7th Cir. 1937) (citation omitted), cert. denied, 302 U.S. 717, 58 S. Ct. 37, 82 L. Ed. 554 (1937). 172 Id. at 315 (citation omitted). 173 359 Fed. Appx. 800, 801–02 (9th Cir. 2009). 174 712 F.3d 1214 (8th Cir. 2013). 175 Id. at 1219 (citing Burlington N., Inc. v. Bellaire Corp., 921 F.2d 760, 763 (8th Cir. 1990)).

44 2. Indemnity Provision Not Negated by Party’s Passive or Secondary 336 Negligence In Booth-Kelly Lumber Co. v. S. Pac. Co.,176 the Ninth Circuit held that because Southern Pacific was only passively negligent while the other party to the agreement was actively negligent, Southern Pacific was entitled to full indemnity under the provision. Articles 337 3. Freight Rail Has Limited Liability for Passenger Rail Incidents 337 A law review article discussing indemnification of freight rail lines when a passenger rail line is granted a right-of-way on its lines observes in part that “the potential that future courts may weaken indemnity provisions in rail sharing contracts motivated congressional action to reinforce indemnification agreements.”177 4. Indemnity Provisions and the Role of State Legislatures 339 The Marks’ article, supra, Part XIII.C.3, explains that, although passenger rail and freight lines negotiate rights-of-way, state legislatures are often involved in setting the terms of indemnity agreements.178 5. Whether It Is Against the Public Interest to Release or Indemnify 340 a Railroad Company Acting as a Landlord A law review article notes that when a railroad company is a landlord, the company may include an exculpatory provision in a lease that releases the railroad from any liability for damage to the lessee’s property or include a provision for indemnification of the railroad company.179 The article argues that railroad–lessors should be allowed to contract for indemnification because it is economically efficient and should not be regarded as contrary to public policy.180 176 183 F.2d 902, 911 (9th Cir. 1950). 177 Justin J. Marks, No Free Ride: Limiting Freight Railroad Liability When Granting Right-of-Way to Passenger Rail Carriers, 36 TRANSP. L.J. 313, 317 (2009). 178 Id. at 321. 179 William K. Jones, Private Revision of Public Standards: Exculpatory Agreements in Leases, 63 N.Y.U. L. REV. 717 (1988). 180 Id. at 749–50.

45 D. Other Contracts and Obligations Applicable to Railroads 341 Statutes 341 1. STB’s Authority to Mandate Construction of Switch Connections 341 STB is authorized to mandate the construction of switch connections when an owner of a railroad applies to the board for the connection.181 Cases 342 2. No Right to Use a Track after the Expiration of an Easement 342 In Dakota, Minnesota and Eastern Railroad Corp. v. Wisconsin & Southern Railroad Corp.,182 the Seventh Circuit held that the Dakota, Minnesota and Eastern Railroad Corp., after it sold certain property to Wisconsin and Southern Railroad Corp., did not retain any right to use the track when the easement to serve a principal customer no longer applied and further held that the tracks were sold as a fixture with the land. 3. Unlawful Condemnation of Leased Railroad Property to Avoid 343 a Lease In Union Pac. R. Co. v. Chicago Transit Auth.,183 when the Chicago Transit Authority attempted to condemn leased railroad property and retain a permanent easement to avoid paying high rents to the railroad–lessor, the Seventh Circuit held that the condemnation amounted to regulation that interfered with railroad transportation and, thus, was preempted by the ICCTA. 4. STB’s Review of Proposed Switching and Joint Use Agreements 344 Limited by a Showing of Public Interest or Encouragement of Competition In Central States Enterprises, Inc. v. I.C.C.,184 Central States Enterprises, Inc., requested the ICC to require two railroad companies to enter into a switching agreement or a joint-use agreement. The Seventh Circuit agreed with the Commission that there had not been a showing of a compelling public need for joint terminal service and that the switching agreement was sought merely as a matter of convenience.185 181 49 U.S.C. § 11103 (2014). 182 657 F.3d 615, 622 (7th Cir. 2011). 183 647 F.3d 675, 682 (7th Cir. 2011). 184 780 F.2d 664 (7th Cir. 1985). 185 Id. at 678–80.