Norfolk Southern Railway Co. v. Pittsburgh & West Virginia Railroad
2017 U.S. App. LEXIS 16496
3rd Cir.2017Background
- PWV leased 112 miles of rail line and related property to Norfolk Southern in a 1962 99‑year lease; Norfolk Southern subleased operations to Wheeling & Lake Erie in 1990. Power REIT acquired PWV in 2011.
- Lease set base rent plus "additional rent" categories (Sections 4(a), 4(b)) and authorized Norfolk Southern to sell, lease or otherwise dispose of demised property (Section 9); Section 16 governed accounting and an indebtedness cap equal to 5% of PWV’s assets.
- Disputes arose over (1) whether proceeds from non‑sale third‑party agreements (licenses, easements, subsurface extraction leases) owed PWV or had to be recorded as indebtedness, (2) whether the 5% indebtedness cap still applied, (3) whether Norfolk Southern must pay PWV’s attorneys’ fees, and (4) whether PWV (and Power REIT) obtained Norfolk Southern’s consent to a stock issuance by fraud.
- PWV issued a Tax Memorandum and invoiced Norfolk Southern for attorneys’ fees regarding a sale of a branch line; Norfolk Southern sued for declaratory relief and alleged PWV breached the Lease and committed fraud in obtaining consent to a rights offering.
- The District Court granted summary judgment to Norfolk Southern on the accounting/indebtedness, third‑party agreements, attorneys’ fees, and books‑and‑records issues; after a bench trial it found PWV committed fraud in procuring consent but awarded only $1 nominal damages. PWV appealed.
Issues
| Issue | PWV's Argument | Norfolk Southern's Argument | Held |
|---|---|---|---|
| Whether course‑of‑performance could inform Lease interpretation | Court erred by using performance to rewrite terms | Course‑of‑performance is admissible to determine parties’ intent | Court properly considered course‑of‑performance alongside the Lease language and relied on it |
| Whether non‑sale third‑party agreements (easements, licenses, subsurface extraction) must be paid/recorded to PWV as indebtedness under Section 9/16 | Such proceeds are dispositions owing PWV and must be recorded/paid | Section 9’s indebtedness language applies only to fee‑simple dispositions (sales, condemnations, abandonments); non‑sale agreements need not be tracked | Court held non‑sale agreements are not dispositions requiring indebtedness reporting; summary judgment for Norfolk Southern |
| Whether the 5% indebtedness cap still limits Norfolk Southern’s tracked indebtedness | Cap still applies; Norfolk Southern exceeded it | Cap ceased after Norfolk Southern paid off assumed PWV debt in 1982; cap no longer applies | Court held cap no longer applied; Norfolk Southern’s accounting practice was permissible |
| Whether PWV was entitled to attorneys’ fees under Sections 4(b)(5)/(6) for review of West End Branch sale | Lease requires Norfolk Southern to pay legal fees/expenses as additional rent | Sections 4(b)(5)/(6) do not clearly provide for attorneys’ fees; other Lease sections explicitly provide for fees where intended | Court held no clear contractual basis for attorneys’ fees; summary judgment for Norfolk Southern |
| Whether PWV/its principal committed fraud in obtaining consent for stock issuance | No fraud; disclosures were sufficient | PWV misrepresented by omission and induced consent | After trial, court found Lesser (PWV) acted fraudulently by concealing restructuring and investment plans; fraud finding affirmed; damages nominal ($1) |
Key Cases Cited
- Baldwin v. Univ. of Pittsburgh Med. Ctr., 636 F.3d 69 (3d Cir.) (principle that contract interpretation seeks parties’ intent)
- Bohler‑Uddeholm Am., Inc. v. Ellwood Grp., Inc., 247 F.3d 79 (3d Cir.) (writing generally embodies parties’ intent)
- Atl. Richfield Co. v. Razumic, 390 A.2d 736 (Pa. 1978) (course‑of‑performance is relevant in interpreting a written contract)
- Tristani ex rel. Karnes v. Richman, 652 F.3d 360 (3d Cir.) (standard for reviewing cross‑motions for summary judgment)
- Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (Sup. Ct.) (summary judgment materiality and genuine dispute standard)
- Bruno v. Erie Ins. Co., 106 A.3d 48 (Pa.) ("gist of the action" doctrine distinguishing contract and tort claims)
- Gibbs v. Ernst, 647 A.2d 882 (Pa.) (elements of common law fraud)
- Knecht, Inc. v. United Pac. Ins. Co., 860 F.2d 74 (3d Cir.) (attorneys’ fees recoverable only by statute or clear contractual agreement)
- Nicholas v. Pa. State Univ., 227 F.3d 133 (3d Cir.) (nominal damages standard)