TERRENCE F. McVERRY, Senior District Judge.
Pending before the Court is a MOTION FOR PARTIAL SUMMARY JUDGMENT (ECF No. 196) filed by Defendants/Counterclaim Plaintiffs Pittsburgh & West Virginia Railroad and Power REIT; a MOTION FOR PARTIAL SUMMARY JUDGMENT (ECF No. 198) filed by Plaintiffs/Counterclaim Defendants Norfolk Southern Railway Company and Wheeling & Lake Erie Railway Company; and PLAINTIFFS' SUPPLEMENTAL MOTION TO DEEM ADMITTED CERTAIN PARAGRAPHS OF PLAINTIFFS' STATEMENT OF MATERIAL FACTS AND TO STRIKE OBJECTIONS (ECF No. 226).
The following background is taken from the Court's independent review of the motions for summary judgment, the filings and arguments in support and opposition thereto, and the record as a whole.
This action concerns a lease entered into between The Pittsburgh & West Virginia Railway Company ("Pittsburgh & West Virginia") and Norfolk and Western Railway Company ("Norfolk and Western") in 1962 (the "Lease"). Under the Lease, Pittsburgh & West Virginia conveyed to Norfolk and Western all of its right, title, and interest in and to certain of its properties, including a 112-mile portion of main line railroad (the "Rail Line") and approximately twenty miles of branch rail lines that run from Western Pennsylvania through West Virginia and into Ohio.
Norfolk Southern Railway Company ("Norfolk Southern") is the successor to the interest of Norfolk and Western in the Lease. Wheeling & Lake Erie Railway Company ("Wheeling & Lake Erie") became
Pittsburgh & West Virginia Railroad ("PWV") is a business trust and the successor-in-interest to The Pittsburgh & West Virginia Railway Company. Power REIT is a real estate investment trust which was formed in 2011 as part of a reverse triangular merger of PWV. After that reorganization, PWV became a wholly-owned subsidiary of Power REIT.
The Lease is dated July 12, 1962 and contains a pre-printed "SEAL" notation following the parties' signatures. See Pls.' App'x Ex. 1 at 1, 19, ECF No. 201-1. The term of the Lease is 99-years, renewable in perpetuity at the option of the Lessee absent a default. See id. at 3-4. The same terms and conditions, including the economic provisions of the Lease, remain in effect with each renewal. See id. at 4.
Section 1 sets forth the parties' agreement as to what comprises the "Demised Property" under the Lease:
Id. at 1. Section 1 also provides that "Lessor will execute and deliver all such instruments, if any, as may be necessary to assign or confirm to Lessee any of the property demised...." Id.
Schedule A describes Lessor's "Real Estate Railroad Properties" to be "[a]ll right, title and interest of The Pittsburgh & West Virginia Railway Company in and to any and all land and improvements or other inherently permanent structures situate thereon which may be under, along or adjacent to [(1) the Rail Line and (2)-(6) branch lines of railroad known as the Donora Branch, Clairton Branch, Mifflin Branch, West End Branch, and Bell Branch]." Id. at 24-26. Schedule B describes Lessor's "Additional Properties" to be
Id. at 26. As the Sublessee, Wheeling & Lake Erie presently holds all right, title and interest in the property covered under the Lease.
Section 2 excludes the following property (the "Nondemised Property") of Lessor from the Lease:
Id. at 2. The final clause of Section 2 permits Lessor, without first securing the consent of Lessee, to "sell, lease, mortgage, pledge, transfer, dispose of, invest and reinvest all or any part of the nondemised property covered by this Section 2, except that covered by subdivisions (a) and (b) hereof, or the proceeds thereof or the income therefrom." Id.
Rent under the Lease consists of a cash payment fixed at $915,000 per year (Section 4(a)) as well as additional items attributable to the real properties (Section 4(b)). See id. at 4-6. Relevant here, the "Additional rent" includes the following:
Id. at 4-5. Additional rent also includes sums equal to the tax deductions allowed to Lessor for retirement or abandonment of depreciable Demised Property of Lessor solely on account of casualty, abnormal obsolescence or other cause not taken into consideration in determining the rate of depreciation or amortization (Section 4(b)(2)); for retirement or abandonment of non-depreciable Demised Property of Lessor (Section 4(b)(3)); and for amortization of discount and expense on funded debt and equipment or other obligations of Lessor (Section 4(b)(4)). Id.
Several sections of the Lease outline the rights and obligations of the parties with regard to indebtedness. The relevant provisions are as follows:
Section 6 requires Lessee, at its own expense and without deduction from the rent, to "maintain, manage and operate the demised property in the manner required by law" and to "[i]ndemnify and hold Lessor harmless from all claims, demands, suits, causes of action, loss, damage, liability or expense which Lessor may incur or for which it may become liable, except to Lessee or to Lessor's stockholders...." Id. at 7. In addition, Section 6 calls for Lessee to make extensions, additions, betterments and improvements to the Demised Property that it, in its discretion, considers necessary or desirable. Id. Any such extensions, additions, betterments and improvements constitute an indebtedness of Lessor to Lessee. Id.
Under Section 7, Lessee agrees "to pay or discharge on behalf of Lessor, as and when the same shall become due and payable, all obligations of Lessor for payment of principal and sinking funds as well as any other payments which Lessor may be obligated to make by reason of its guaranties or its agreements to make advances or its agreements to purchase real or personal property of any kind...." Id. at 7-8. All sums paid by Lessee in accordance with Section 7 are a "debt obligation" of Lessor to Lessee. See id. at 8.
Section 9 of the Lease states as follows:
Id. at 11-12.
Section 16 addresses the payment and accounting of certain sums due as additional rent under Section 4(b) or the amounts owed from Section 9 dispositions:
Id. at 17. In turn, Section 16(b) requires that "[f]rom time to time a balance of the indebtedness arising under this Lease of Lessor to Lessee and of Lessee to Lessor shall be determined...." Id. at 18.
As long as the Lease remains in effect, the parties agree to abide by several covenants, two of which are relevant to the pending motions. First, Section 8(a)(3), often referred to as the "Books and Records Provision," provides as follows:
Id. at 8-9. Second, Section 8(b)(4) of the Lease provides that the Lessor assist the Lessee with certain agreements concerning the Demised Property:
Id. at 11. This latter covenant applies only "[a]fter the commencement of the term of th[e] Lease and during any renewal thereof." Id. at 10.
The Lease will terminate upon the expiration of its initial term (in 2063) or any renewal thereof or at the option of Lessor in the event of a default by Lessee. See id. at 14-15. At the end of the Lease, whether by expiration, default or termination for any other reason, Section 11 requires that "the demised property, or such portion thereof as shall remain ... shall be returned to Lessor in the same condition as it is in at the commencement of the term of th[e] Lease, reasonable wear and tear excepted...." Id at 14.
Section 12 sets forth the circumstances under which Lessor may declare a default. A default will occur when Lessee fails to pay any part of the rent due under Section 4(a) after having been given thirty days' written notice, fails to perform in whole or in part any other covenant, agreement, or obligation after having been given sixty days' written notice, or commences any proceedings for relief under any bankruptcy or insolvency law. Id. at 15. If Lessor declares the Lease terminated, it is entitled to the "demised property and all revenues, rents, issues, income and profits therefrom ... [and] to payment of all damages suffered by reason of or arising from the breach or default of Lessee or termination of th[e] Lease, with interest thereon at 6% per annum, plus reasonable attorney's fees, costs and expenses of Lessor." Id. at 16. Lessee has no right to have the Demised Property returned or the Lease reinstated by making a tender or rent or other offer to cure its default under the Lease. See id.
Before the execution of the Lease, Pittsburgh & West Virginia had sustained years of operating deficits which impaired its working capital and general financial condition, resulting in some doubt as to its future as an independent carrier. Beginning in 1960, Pittsburgh & West Virginia took several steps in an attempt to reduce costs but was unsuccessful despite its efforts. By 1962, Pittsburgh & West Virginia was burdened by significant debt obligations which it was unable to service and had not operated at a profit for at least the past five years. Given its financial straits, Pittsburgh & West Virginia's leadership initiated efforts to affiliate it with a larger rail carrier system.
In early 1961, Chairman and President of Pittsburgh & West Virginia R.N. Shields reported to its Board of Directors the merger proposals of the various railroads and the possible effects of such mergers on the company. Shields advised that the Executive Committee of the Board of Directors had recommended to the Board that it authorize management to intervene in any merger proceedings in which Pittsburgh & West Virginia may have an interest. The Board unanimously approved the recommendation.
With that authority, Pittsburgh & West Virginia filed a petition with the ICC in September 1961 to intervene in the Norfolk and Western rail unification proceedings. The ICC permitted the request, and Pittsburgh & West Virginia represented that it supported the prospective unification of Norfolk and Western, Nickel Plate, Wabash and the Sandusky Line but that the merger would impair its interest if it were not included in the new system. In response, Norfolk and Western apparently indicated its willingness to negotiate with Pittsburgh and West Virginia.
On March 16, 1962, Shields presented to the Board a letter from John P. Fishwick, Vice President — Law, of Norfolk and Western that memorialized a February 15, 1962 meeting between the parties at which Pittsburgh & West Virginia suggested that Norfolk and Western consider leasing its properties at an annual cash rental.
On May 7, 1962, the Board held another meeting at which Pomeroy once again reported in detail on the proposed lease of Pittsburgh & West Virginia's assets to Norfolk and Western. At the meeting, Pomeroy also distributed to the Board a brief outline of the salient features of the proposed agreement. After hearing from Pomeroy and considering the proposal, the Board approved the Lease subject to the authorization of its shareholders and the ICC.
The Lease became effective on October 16, 1964.
On February 18, 1967, PWV was organized as a business trust for the purpose of acquiring the assets of Pittsburgh & West Virginia, which allowed the Lessor to receive more favorable tax treatment.
The parties and their predecessors have entered into numerous third-party agreements in the form of licenses, easements, and leases throughout the fifty-year history of the Lease as well as in the decades preceding its effective date. Aside from these transactions, the (Sub)-Lessee(s) have also sold portions of the Demised Property in accordance with Section 9 of the Lease.
The licenses include agreements for the right to build and maintain pipelines, electrical wires, cable transmission lines and access roads crossing the Demised Property. For example, on June 27, 1951, Pittsburgh & West Virginia granted The Manufacturers Light & Heat Company ("Manufacturers") a license to lay a gas pipe under a portion of the Rail Line in Union Township, Washington County. The license agreement with Manufacturers sets forth requirements for the depth of the pipeline and provides that it must maintain the pipeline so as to not interfere with the operation of the railroad. After the Lease commenced, Norfolk and Western assumed responsibility of the license. As of 1965, Norfolk and Western was receiving $328 per year from Manufacturers for various licenses on the Rail Line, including $132 annually from the 1951 agreement. Manufacturers later merged into Columbia Gas Transmission Corp. ("Columbia Gas"). Once it became the Sublessee, Wheeling & Lake Erie negotiated with Columbia Gas in 1992 and in 2002 for increases in the rent payable under the agreement.
In addition, Pittsburgh & West Virginia entered into a license agreement on October 13, 1947 with West Penn Power Co. ("West Penn") for the construction and maintenance of a pole and power line over its property. The license requires West Penn to alter, improve, repair, renew, remove or relocate the power line or pole if reasonably necessary or required for the proper, safe and convenient operation of the railroad. In 2002, Wheeling & Lake Erie negotiated an increase in the rent payable under this agreement.
The parties have also entered into new license agreements since the commencement of the Lease: Norfolk and Western granted licenses to West Penn in 1966 and to Columbia Gas in 1984; and Wheeling & Lake Erie granted Columbia Gas a license 2008.
As with the licenses, the parties have granted easements relating to the Demised Property. In the mid-to-late 1970's, the Board of Public Education of the School District of Pittsburgh (the "Board of Education") began a construction project for the John A. Brashear High School and sought a temporary license from Norfolk and Western to build a pipeline and sewer system under the Rail Line. Norfolk and Western granted the temporary license, which the Board of Education later sought to replace with an easement. At a meeting of its Board of Directors, Norfolk and Western resolved to grant the Board of Education an easement pursuant to Section 9 of the Lease in exchange for $5,000. However, a landslide and related engineering problem during the construction project delayed the execution of the easement agreement between the parties. After the issues were resolved several years later, Norfolk and Western obtained the signatures of PWV's trustees to execute the agreement. The Board of Education, with PWV aware of the facts, paid the $5,000 consideration to Norfolk and Western.
More recently, on September 15, 1997, Wheeling & Lake Erie entered into an agreement in which it granted Equitrans, L.P. an easement to construct and maintain a natural gas pipeline under the Demised Property. This agreement addresses the disruption to rail operations that may result from its implementation or operation by including a provision for the furnishing of flagmen and watchmen.
Aside from licenses and easements, the parties have entered into land leases. The earliest agreement dates back to January 2, 1919 when Pittsburgh & West Virginia leased to Monongahela Southern Railroad
Similarly, on January 1, 1960, Pittsburgh & West Virginia leased to Mark Lumber & Supply Company ("Mark Lumber") a sidetrack and an adjacent area along the Demised Property. On January 1, 1968, Norfolk and Western and Mark Lumber agreed to enter into a new lease to facilitate the expansion and modernization of facilities on the leased premises with Mark Lumber, as lessee, paying an annual rental to Norfolk and Western, as lessor. Mark Lumber later changed its name to Tot'um Lumber & Supply Company ("Tot'um Lumber") and entered into a lease extension with Norfolk and Western in 1978.
As Sublessee, Wheeling & Lake Erie has likewise entered into third-party lease agreements. On April 10, 2007, Wheeling & Lake Erie leased to Modern Transportation Services ("Modern") sidetrack and several parcels of the Demised Property, one of which includes a warehouse building that Modern uses for loading, unloading and storing its goods. Wheeling & Lake Erie also entered into a land lease with the Lamar Companies ("Lamar") on September 16, 2010 for a portion of the Demised Property to use and occupy for a billboard sign.
There was further discussion of billboards on the Demised Property in 2010 when Matt Larson, a consultant with MRL Investments, Ltd., proposed a reorganization of PWV, which involved leases Wheeling & Lake Erie had entered into with outdoor advertising companies. On May 6, 2010, PWV's officers and Board of Trustees, including David Lesser and Virgil Wenger, scheduled a conference call to discuss Larson's proposal. Afterward, Wegner sent to those who participated in the conference call an e-mail in which he referenced the income Norfolk Southern generates from its billboard locations on the Demised Property. The Larson proposal was ultimately rejected.
Oil and gas leases are among the agreements that pertain to the subsurface rights of the Demised Property. One such agreement originated in February 5, 1942 when David and Bessie Wells leased to Jane Rankin the oil and gas rights for a parcel of land that they owned. Monongahela Valley Area Enterprises, Inc. later acquired from the Wells' their title to the land, which it sold to Pittsburgh & West Virginia in 1958. The Peoples Natural Gas Company ("Peoples") acquired the lessee's interest at some point before 1960.
After the commencement of the Lease, Peoples initially withheld royalty payments from Norfolk and Western pending receipt of a Notice of Transfer form from Pittsburgh
PWV has made similar representations regarding the Lease on other occasions as well. In 1987, PWV received an inquiry from Questa Petroleum Company ("Questa"), an independent oil and gas drilling company, expressing interest in leasing acreage in Perry Township, Fayette County, Pennsylvania. In response, PWV advised Questa that "all properties of Pittsburgh & West Virginia Railroad are leased to Norfolk and Western Railway Company" and that it would forward the inquiry to Norfolk and Western. Pls.' App'x Ex. 106 at 2, ECF No. 201-106.
As Sublessee, Wheeling & Lake Erie entered into an oil and gas lease with KIS Oil & Gas, Inc. ("KIS") on October 18, 2006. The lease includes provisions for royalty payments and a signing bonus to be paid to Wheeling & Lake Eire. As with the other third-party agreements, this lease addresses the operational issues of oil and gas exploration near the Rail Line.
Coal leases are the last of the third-party agreements related to the Demised Property. On October 11, 1973, Norfolk and Western entered into a lease with Twilight Industries Division of U.S. Natural Resources Inc. ("Twilight"), which granted it the right to mine a certain seam of coal on a tract of the Demised Property. In exchange, Twilight agreed to provide to Norfolk and Western a one-time payment of $174.30, plus a royalty of $0.50 per ton of coal mined. After receiving a request from Norfolk and Western, Stein executed the coal lease in January 1974 and arranged for two other trustees of PWV to sign the agreement.
Approximately seven years later, Norfolk & Western sent PWV a correspondence regarding a proposed coal lease with The Youghiogheny and Ohio Coal Co. ("Y & O"). In the January 13, 1981 letter, Norfolk and Western stated that "Section 9 of the 1962 Lease between [the parties] does not require execution of the contract on behalf of PWV. Any proceeds received by NW as a result of the proposed lease should be subject to the P & WV First Mortgage." Pls.' App'x Ex. 156 at 1, ECF No. 201-156. Norfolk and Western and Y & O entered into the coal lease on February 1, 1981.
The so-called "Settlement Account" is a term historically used by the parties to refer to an accounting mechanism for tracking indebtedness under Sections 4(b)(1)-(4), Section 6, Section 7, Section 9 and Section 16(a). The term appears nowhere in the Lease.
From at least 1980 through 2011, Norfolk and Western/Norfolk Southern assisted
As of December 31, 2012, the Settlement Account reportedly had a balance of $16,660,850.63 in favor of PWV. At that time, PWV's asset value was $9,150,000 according to its audited financial statements.
Norfolk and Western/Norfolk Southern have consistently represented the balance of the Settlement Account without tracking the income that the (Sub)-Lessee has received from the third-party agreements — i.e., the licenses, easements and leases. Norfolk and Western/Norfolk Southern have, however, reflected the proceeds from sales of portions of the Demised Property in the Settlement Account.
Until this litigation, PWV never disputed the treatment of the Settlement Account, submitted a demand for all or part of the indebtedness tracked by the Settlement Account, or requested payments that related to any third-party party agreements concerning the Demised Property. PWV likewise never demanded or asserted prior to this lawsuit that Norfolk Southern owed interest on indebtedness tracked in the Settlement Account.
Around the time that the Lease commenced, PWV's total debt obligations amounted to approximately $6,200,000. Until those obligations were satisfied in full, Norfolk and Western used the proceeds from sales of parcels of the Demised Property to pay down PWV's debt. For each sale, Norfolk and Western had Mellon Bank, N.A. ("Mellon Bank"), the successor to the party that issued the debt obligations, execute a form titled "Partial Release of Lien of Mortgage." Norfolk and Western, PWV and Mellon Bank handled the 1973 Twilight coal lease in a similar fashion. By August 1, 1982, PWV's debt obligations were paid in full, and Mellon Bank discharged PWV of all debt obligations.
In contrast, the indebtedness of Norfolk and Western to PWV grew significantly in PWV's favor throughout the 1970's and 1980's following changes to tax and accounting laws that the parties apparently did not anticipate in 1962. The Tax Reform Act of 1976 changed amortization rules for railroads, which increased the additional (non-cash) rent for PWV under the Lease.
On May 10, 1985, Norfolk Southern sent to PWV a letter in which it requested direction and/or agreement in accounting for a deferred credit based on the recent tax and accounting changes. Norfolk Southern also suggested that PWV discuss the credit with its auditors, Peat, Marwick, Mitchell & Co. ("Peat Marwick"). On July 29, 1985, Sigmund Levine, PWV's then-Secretary — Treasurer, informed Norfolk Southern that PWV agreed with the proposed method of handling the matter.
Over the course of the Lease, PWV has made representations to its shareholders, the ICC, and SEC regarding the payment of its debt by and receipt of income under the Lease.
PWV has consistently represented to its shareholders that the annual cash rental is fixed at the rate of $915,000. For example, in a November 1969 letter to shareholders recommending that they approve the acquisition of shopping centers, PWV cited the "fixed cash rent of $915,000" and noted its need to diversify to counteract the effect of inflation on the purchasing power of its income. Pls.' App'x Ex. 71 at D005706, ECF No. 201-71. Minutes from annual shareholder meeting, such as those in 1977 and 1984, similarly reflect PWV's position that the tax and accounting changes did not entitle it to any additional rental because the only cash income available under the Lease was the fixed amount of $915,000. In fact, PWV acknowledged at annual shareholder meetings that Norfolk and Western received the particular tax benefits under the Lease from the rent and depreciation deductions. PWV also responded to numerous inquiries from its shareholders in the mid-to-late-1980's regarding the tax and accounting changes, explaining that the $915,000 cash rental was the only income available under the Lease, with PWV shares tantamount to a bond.
In addition to its shareholders, PWV has made several representations about the terms of the Lease to the ICC and SEC. In a March 21, 1967 Return Questionnaire related to its application for authorization to reorganize into a business trust, PWV stated that, to the extent that Norfolk and Western's payment of debt exceeded PWV's tax deductions for depreciation and amortization, PWV is indebted to Norfolk and Western, but that amount "is payable only out of income after termination of the [L]ease." Pls.' App'x Ex. 79 at 11, ECF No. 201-79.
Almost twenty years after PWV reorganized into a business trust, the SEC received a complaint from a shareholder who alleged that the Trust was not distributing 90% of its ordinary taxable income to its
More recently, on November 16, 2005, Vice President and Secretary — Treasurer of PWV Robert A. Hamstead wrote to SEC Branch Chief Daniel Gordon to provide information about the perpetual nature of the Lease.
The Annual Reports of PWV shed additional light on its historical treatment of the Lease. In Pittsburgh & West Virginia's 1962 and 1963 Annual Reports, it indicated that the additional rental obligation of Norfolk and Western (for depreciation or amortization deducted for federal income tax purposes) over the term of the Lease would equal approximately the amount of the indebtedness discharged on behalf of the Lessor. Under this scheme, the balance of the Settlement Account would be relatively insignificant at the expiration of the Lease. Pittsburgh & West Virginia nevertheless changed its outlook in its 1964 Annual Report (the first after the Lease became effective), predicting that "the additional rental over the term of the Lease would exceed the amount of indebtedness to be paid by Norfolk and Western." Pls.' App'x Ex. 7 at 6, ECF No. 201-7.
Beginning in 1981, PWV's Annual Report reflects that the balance of the Settlement Account swung in its favor. That year, PWV advised its shareholders:
Pls.' App's App'x Ex. 24 at 0018206, ECF No. 201-24. As of 1983, PWV no longer
Moreover, beginning in its 1983 Annual Report and continuing thereafter, PWV has repeatedly stated that "[f]or financial reporting purposes, only the cash income is reported, as the non-cash items, although recorded under the terms of the [L]ease, have no financial value because of the unlimited settlement date." Id. at 1. PWV has also repeatedly stated in its Annual Reports (and 10-K's) — as recently as 2010 — that "[a]lthough the [L]ease provides for additional rentals to be recorded, these amounts do not increase cash flow or net income as they are charged to [Norfolk Southern's] [S]ettlement [A]ccount with no requirement for payment except at termination of the [L]ease." Pls.' App'x Ex. 53 at D025370, ECF No. 201-53.
From 1983 through 2010, PWV made no mention in its Annual Reports of a limit on the size of the Settlement Account. As the 1983 Annual Report reflects, all of PWV's third-party debt assumed by Norfolk and Western had been paid off in 1982.
Herbert Jones, III ("Mr. Jones III") served as PWV's President from 2005 until early 2011 and as a member of its Board of Trustees from 2004 through 2011. During his tenure, PWV never hired a law firm, but it continued to retain Gibbons & Kawash as its outside accountant auditing firm.
From 2004 through early 2011, Larson Parsons served as one of the five PWV trustees as well as the Chairman and Chief Executive Officer of Wheeling & Lake Erie. PWV's then-management was fully aware of Parons' position with Wheeling & Lake Erie when it invited him to become a trustee. As a PWV trustee, Parsons was a member of its audit committee, which was responsible for overseeing PWV's financial affairs. In this capacity, Parsons preferred that PWV not change its business plan despite modest increases in costs and corresponding decreases in profits. Moreover, Parsons did not use his position on the Board to alter the longstanding operations of PWV or otherwise change the way it historically functioned since the commencement of the Lease. PWV's Board chose not re-nominate Parsons as a trustee in 2011.
David Lesser became a PWV trustee sometime in 2009 and the Chairman of the Board in late 2010. Arun Mittal became vice president, treasurer and secretary of PWV in March 2011, replacing Robert R. McCoy who had resigned that spring. Along with PWV's new management, Lesser expressed an interest in "modernizing" the Lease soon after they came onboard.
Beginning in October 2007, the Pennsylvania Department of Transportation
In a December 8, 2010 letter addressed to McCoy, a lawyer representing Wheeling & Lake Erie before the STB sought a power of attorney from PWV to expedite the process. In a series of correspondences over the next several months, Lesser requested information related to the sale, declined to execute the power of attorney, and raised concerns about "tax issues" that could result from the transaction. Wheeling & Lake Erie's counsel complied with the document requests.
On March 15, 2011, Lesser sent an e-mail to Wheeling & Lake Erie's counsel in which he reiterated that PWV would not execute a power of attorney related to the transaction but that it would sign documents to effect the transfer so long as Norfolk Southern made the request.
On July 7, 2011, PWV ultimately agreed to allow Wheeling & Lake Erie's counsel to also represent it in the abandonment process before the STB. The representation was expressly limited to the "ministerial act" of extinguishing PWV's common carrier obligation on the West End Branch. Pls.' App'x Ex. 274 at D027009, ECF No. 212-25.
On June 23, 2011, Mittal sent to Randal S. Noe, a General Attorney at Norfolk Southern, a letter with which he attached a "Tax Memorandum" that outlined alleged issues related to the proposed sale of the West End Branch. The Tax Memorandum set forth PWV's position that Wheeling & Lake Erie's sale of the West End Branch for approximately $580,000 would require Norfolk Southern, under Section 4(b)(7) of the Lease, to pay to PWV between $980,000 and $2,000,000 (depending on the tax basis in the property) in additional rent in order to compensate the Trust for capital gains taxes.
Mittal also attached to the June 23, 2011 letter an invoice that totaled $4,487.50 in attorneys' fees for services rendered by Peter Anglum and Richard Baumann of Morrison Cohen, LLP ("Morrison Cohen") as of March 31, 2011, allegedly "in connection with the review of the Lease and the tax issues related to the proposed sale." Defs.' App'x Ex. 50, ECF No. 202-51. Mittal submitted that Norfolk Southern was responsible for paying these expenses under Section 4(b)(6) of the Lease, which requires the Lessee to pay PWV's expenses related to "the doing of all acts and things necessary and desirable for the protection during the existence of this Lease of Lessor's rights in the demised property or the rentals or other sums payable pursuant to the Lease."
Norfolk Southern refused to pay the invoice, taking the position that "[t]he claimed attorneys' fees related to the evaluation by Morrison & Cohen [] of P & WV's proposal to amend the Lease" and that "these legal expenses are solely related to the benefit of P & WV's stockholders." Pls.' App'x Ex. 277 at 3, ECF No. 212-28. On October 3, 2011, PWV reiterated its request and indicated that it may
Plaintiffs commenced this action on December 15, 2011 by filing a Complaint in Declaratory Judgment in which they sought the Court's intervention to resolve the disputes over the terms of the Lease in anticipation of PWV declaring a default and seeking the available remedies. Prior to this lawsuit, PWV never demanded or asserted that Norfolk Southern owed any additional rent or "recursive payments" for sales of portions of the Demised Property under Section 4(b)(7) of the Lease, as the June 23, 2011 Tax Memorandum suggests.
On March 23, 2012, Defendants demanded that Plaintiffs reimburse them for over $90,000 in legal fees that they had incurred because of this litigation. Plaintiffs once again denied Plaintiffs' request for payment. To date, Plaintiffs have not paid the legal fees incurred by Defendants because of this litigation.
Local counsel for Defendants entered an appearance in this action on January 5, 2012 and filed a motion to admit out-of-state-counsel pro hac vice the following day. On January 6, 2012, Defendants also filed a stipulation with the Court regarding an agreed-upon extension of time to respond to the Complaint.
That same day, Mittal wrote a letter to Noe demanding an inspection of the books and records of Norfolk Southern, as the Lessee, under Section 8(a)(3) of the Lease. The letter indicated that "[w]e will plan on the inspection taking place at Three Commercial Place, Norfolk, Virginia, 23510 on [Tuesday] January 11, 2012 starting at 10:00 AM and plan and staying through the end of the week." Defs.' App'x Ex. 68 at 1, ECF No. 202-69. Within two business days, Defendant(s) sought access to Norfolk Southern's books and records related to financial statements and supporting documents; tax returns; a historical accounting of the Settlement Account, including each addition and subtraction as well as supporting documentation; all details related to all sales of PWV property and all tax reimbursement payments related thereto; railway volume metrics; customer lists; track maintenance; track condition reports; machinery, equipment, supplies, motive power, rolling stock and cash needed to operate the railroad; property descriptions, plans and specifications; correspondences related to the Lease or PWV; ICC, STB, and other governmental records; any existing or pending litigation related to the railroad; and insurance. In addition, PWV stated its intention to perform a track inspection in the near future.
The January 6, 2012 Books and Records Demand set off an extensive back and forth between the parties through their counsel of record. On January 9, 2012, Plaintiffs responded to the Books and Record Demand, asserting that "[u]nder no circumstances would Mittal's requests be deemed to be `reasonable' under the Lease...." Defs.' App'x Ex. 71 at 1, ECF No. 203-1. Plaintiffs maintained that Mittals's request — apparently the first Books and Records Demand in the history of the Lease — was an attempt to circumvent the Federal Rules of Civil Procedure in light of the ongoing litigation. Plaintiffs thus concluded that "there will be no document inspection on January 11 as [PWV] has unilaterally and improperly demanded." Id. at 2.
PWV replied to Plaintiffs' correspondence on January 11, 2012. In the letter, PWV reiterated its right under Section 8(a)(3) of the Lease, emphasizing that it
Two days later, on January 13, 2012, Plaintiffs sent another letter to PWV regarding Mittal's January 6, 2012 Books and Records Demand. Plaintiffs maintained that they would not produce any of the documents requested outside of this litigation. In support, Plaintiffs cited Entertainment Technology Corp. v. Walt Disney Imagineering, No. CIV.A. 03-3546, 2003 WL 22519440 (E.D.Pa. Oct. 2, 2003), a decision in which the district court denied a motion for leave to conduct expedited discovery.
On January 17, 2012, PWV responded to Plaintiffs' latest position. PWV noted that Entertainment Technology Corp. did not involve a contractual provision authorizing a Books and Records inspection, distinguishing it from the parties' dispute. Further, PWV advised that "[Plaintiffs'] refusal to provide access to the books and records constitutes a failure to perform an obligation under the Lease that was properly noticed by P & WV on January 6, 2012." Defs.' App's Ex. 74, ECF No. 203-3.
The next correspondence (in the record) did not occur until February 22, 2012 when Plaintiffs offered to produce to Defendants "a refined list of documents, both in terms of categories and in terms of time period relating to the operation of the Lease." Defs.' App's Ex. 75, ECF No. 203-4. Plaintiffs similarly requested that Defendants produce to them "all documents in their possession relating to such categories enumerated in the refined list, as well as such other categories related to the Lease that [they] may designate." Id.
Notwithstanding this offer, PWV rejected the proposed accommodation in a February 27, 2012 letter. Once again, PWV emphasized that Section 8(a)(3) of the Lease states that a Books and Records inspection may be "for any purpose whatsoever." PWV thus demanded that Plaintiff(s) make available the Books and Records that Norfolk Southern maintained on behalf of the Lessor and those documents that related to the condition, maintenance and operation of the Rail Line. In response to Plaintiffs' Books and Records request, PWV noted that they may review the documents at any time and upon reasonable notice irrespective of whether they are on PWV's list.
According to PWV, Plaintiffs have not yet produced documents responsive to the January 2012 Books and Records Demand regarding (1) "railway volume in terms of car loadings, tons transported, revenues and other metrics tracked by Lessee on a per customer and per category basis" or (2) "customer lists including billings/usage." Defs.' CSMF at 21-22, ECF No. 202. In response, Plaintiffs assert that there is no obligation for either party to
On August 14, 2012, Defendants served both Norfolk Southern and Wheeling & Lake Erie with document requests under Federal Rule of Civil Procedure 34. The requests sought production of all documents and/or communications concerning their financial statements, PWV's tax returns and financial statements, other leases of railroad property and related litigation material, the Settlement Account or other indebtedness between the parties, and sales of the Demised Property. Plaintiffs lodged numerous objections in their September 2012 response(s), and it remains unclear whether they produced any documents pursuant to this discovery request.
On January 10, 2013, PWV's current management was contacted by Larry Skrzysowski, a representative of Chesapeake Appalachia, LLC ("Chesapeake Appalachia"), seeking ratification of an oil and gas lease it entered into with Wheeling & Lake Erie. Apparently, this instance was the first time anyone from PWV's current management team had learned of third-party leases related to the Demised Property.
The current management of PWV became aware of other third-party leases during Parson's January 29, 2013 deposition. During his deposition, Parsons confirmed that numerous entities aside from Chesapeake Appalachia have drilled for oil and gas on the Demised Property pursuant to lease agreements with Wheeling & Lake Erie. Through counsel, PWV thereafter requested that Plaintiff(s) produce any leases relating to drilling on the Demised Property, characterizing the extraction of material as tantamount to a sale.
Over the next several days, counsel corresponded with each other regarding why the third-party agreements were not produced during fact discovery which originally closed on January 25, 2013. Plaintiffs took the position that the third-party agreements were not tantamount to a sale and that they were never requested in discovery. PWV disputed that account, contending that the third-party agreements were responsive to its requests for documents relating to financial statements, revenues and sales. After the parties exchanged several additional letters in which they continued to share their opposing views, PWV made another demand under Section 8(a)(3) of the Lease.
By letter dated March 5, 2013 from Lesser to Noe, PWV sought to inspect the Books and Records of Norfolk Southern regarding: any documents and communications
On March 11, 2013, Norfolk Southern represented that it had produced to PWV all documents related to the Lease and Sublease in its possession, meeting its obligations under Section 8(a)(3) of the Lease. Norfolk Southern further advised that PWV's "letter appears to request documentation which, if such documents exist, may be in the possession of W & LE, please be advised that Mr. Lesser's letter has been forwarded to W & LE pursuant to W & LE's assumption of certain rights and obligations under the Sublease." Pls.' App'x Ex. 200, ECF No. 201-200.
Wheeling & Lake Erie ultimately located in storage numerous boxes that contained over 23,000 documents and proposed dates for the demanded in-person inspection to PWV, to which they suggested other dates due to a scheduling conflict and indicated its preference to have the documents copied and mailed.
On April 1 and 3, 2013, Wheeling & Lake Erie sent to PWV photocopies of financial and accounting records relating to licenses, leases, easements, and subsurface rights. Wheeling & Lake Erie also produced documents that it uncovered in the process of assembling materials for the Books and Records Demand and that it identified as responsive to discovery requests made during this litigation.
On April 22, 2013, PWV sent to Norfolk Southern a letter in which it requested a "proper accounting" and access to an alleged database/computer system maintained by Wheeling & Lake Erie to track sales and/or leasing of the Demised Property. PWV pressed for this inspection to occur within one week to ten days of its demand at Wheeling & Lake Erie's office.
On April 25, 2015, Wheeling & Lake Erie noted its objection to the timing of the inspection and its position that Section 8 does not require the Lessee (or the Sublessee in this case) to permit unfettered access to its data systems that contain information entirely unrelated to the Lease. Wheeling & Lake Erie thus asked PWV to provide some specificity regarding its claim that the April production was incomplete and requested PWV to advise what Lesser sought to accomplish during a visit to its office.
Later that day, PWV responded to the request for "some level of detail" by asserting that its recent letters were "clear." In sum, PWV claimed that it "ha[d] not received Plaintiffs' accounting records concerning payments made to [them] as a result of these leases, sales and/or other dispositions of PWV's property." Defs.' App'x Ex. 97, ECF No. 203-28. Because the requests for those documents was made under the Lease, PWV asserted that this issue was between the entities themselves and suggested that a Wheeling and Lake Erie representative contact Lesser directly so that they can work out the logistics of the inspection without the involvement of counsel. See id. ("I do not believe it is appropriate or efficient for the lawyers to be in the middle of this back and forth.").
Following further communications, counsel continued to discuss this issue with each other. On May 1, 2013, PWV sent a letter to follow-up on a recent telephone conversation during which Wheeling & Lake Erie apparently maintained that the pending document request was "unclear" and that all relevant information had been produced. PWV considered these positions "disingenuous at best" and notified Wheeling & Lake Erie of Lesser's efforts to coordinate the inspection with Michael Mokodean, its Chief Financial Officer. Defs.' App'x Ex. 98, ECF No. 203-29. Based on PWV's understanding that Wheeling & Lake Erie did not intend to comply with the inspection, it declared that Plaintiff(s) once again failed to comply with a Books and Record Demand in breach of Section 8 of the Lease.
The letters between counsel continued: on May 2, 2013, Wheeling & Lake Erie assured PWV that it does not maintain its accounting records in such a manner that would allow it to readily discern transactions regarding only the Demised Property, reiterating its position that the Lease does not confer PWV with unfettered access to unrelated information. Wheeling & Lake Erie nevertheless stated that it was evaluating means to isolate information concerning receivables relative to the Demised Property and that it would provide this information in an agreeable format fairly soon. Additionally, Wheeling and Lake Erie reemphasized that counsel should handle all communications related to the Books and Records Demand — a request first made in an April 29, 2013 letter which Lesser disregarded in his outreach to Mokodean — in light of PWV pleading a counterclaim over same.
As the exchange of letters and e-mails between counsel persisted, PWV viewed Wheeling & Lake Erie's efforts as a tacit concession that the Sublessee had the ability to segregate accounting information relating to the Demised Property and pressed for its immediate production in no uncertain terms. See Defs.' App'x Ex. 101 at 1, ECF No. 203-32 ("PWV does not intend to cut some sort of deal — as your letter implies it must — in order to obtain information it is entitled to under the terms of the Lease. The accounting information should be provided expeditiously."). In the meantime, PWV maintained that there remained a violation of the Lease.
At present, PWV insists that Plaintiffs continue to withhold information related to the March 2013 Books and Records Demand and that it never received a complete accounting from Wheeling & Lake Erie in violation of Section 8(a)(3). Moreover, PWV also claims that Plaintiffs' failure to produce documents or to notify it of certain transactions until December 2013 or January 2014 (i.e. more than sixty days since March 2013) constitutes an incurable default under the Lease.
On August 29, 2013, this Court granted Defendants' motion for leave to file a Second Supplement to Counterclaim, which relate to the third-party agreements that their current management allegedly did not become aware of until January 2013. Because of this ruling, the Court ultimately reopened fact discovery and imposed a May 2014 deadline for its completion.
The parties thereafter exchanged several thousand pages of documents. In September 2013, PWV served both Plaintiffs with a Second Request for Production pursuant to Federal Rule of Civil Procedure 26 and 34, asking for many of the same documents previously sought by the March 2013 Books and Records Demand. In response, Plaintiff(s) produced over 57,000 pages of documents on no fewer than nine occasions.
As part of this discovery, Wheeling & Lake Erie also produced four documents that it created in March 2013 concerning revenues or other consideration it received relating to the Demised Property, entitled (1) Statement of Earnings for Ohio; (2) Oil & Gas Royalties on the Pittsburgh & West Virginia Railway Company Property; (3) Wheeling & Lake Erie Railway Statement of Earnings for Pennsylvania and West Virginia; and (4) One Time Payments PWV. The information contained within these documents was based, in part, on information that Wheeling & Lake Erie possessed in January 2012 and/or March 2013. According to PWV, Wheeling & Lake Erie actively concealed this information from disclosure in violation of the Books and Records Provision of the Lease.
The Court has detailed this litigation's extensive procedural history in its June 19, 2014 Memorandum Opinion (ECF No. 186 at 15-22) and incorporates that discussion by reference.
Summary judgment must be granted when "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." Fed.R.Civ.P. 56(a). The movant must identify those portions of the record which demonstrate the absence of a genuine issue of material fact. See Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). A material fact is one "that might affect the outcome of the suit under the governing law." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). "Factual disputes that are irrelevant or unnecessary will not be counted." Id.
The parties must support their position by "citing to particular parts of materials in the record, including depositions, documents, electronically stored information, affidavits or declarations, stipulations (including those made for purposes of the motion only), admissions, interrogatory answers, or other materials," Fed.R.Civ.P. 56(c)(1)(A), or by "showing that the materials cited do not establish the absence or presence of a genuine dispute, or that an adverse party cannot produce admissible evidence to support the fact," Fed.R.Civ.P. 56(c)(1)(B). In reviewing all of the record evidence submitted, the court must draw all reasonable inferences therefrom in the light most favorable to the nonmoving party. Matsushita, 475 U.S. at 587, 106 S.Ct. 1348.
The court is not permitted to weigh evidence or to make credibility determinations at this stage. Anderson, 477 U.S. at 255, 106 S.Ct. 2505. Those functions are for the jury, not the court. Id. The court is thus limited to deciding whether there are any disputed issues and, if so, whether they are both genuine and material. Id.
Plaintiffs move for summary judgment on Declaratory Judgment Counts One, Two, Five, Six, Seven and Eight and Counterclaims One-Twelve; Defendants move for summary judgment on their First, Third, Fourth, Fifth, Eighth, Ninth, Tenth, Eleventh, and Twelfth Counterclaims as well as Counts One, Two, Five, Six, Seven and Eight. The resolution of these counts and counterclaims turns on the interpretation and construction of the terms of the Lease. The parties agree that Pennsylvania law controls.
Under Pennsylvania law, "a lease is a contract and `is to be interpreted according to contract principles.'" Huang v. BP Amoco Corp, 271 F.3d 560, 564 (3d Cir.2001) (quoting Hutchison v. Sunbeam Coal Corp., 513 Pa. 192, 519 A.2d 385, 389 (1986)). The "interpretation of a written agreement is a task to be performed by the court rather than a jury ... so long as the words of the contract are clear and unambiguous, or the extrinsic evidence is conclusive." Am. Eagle Outfitters v. Lyle & Scott Ltd., 584 F.3d 575, 587 (3d Cir. 2009) (citations omitted). On the other hand, "[i]f the contract as a whole is susceptible to more than one reading, the factfinder resolves the matter." Pacitti v. Macy's, 193 F.3d 766, 773 (3d Cir.1999) (citing Hullett v. Towers, Perrin, Forster & Crosby, Inc., 38 F.3d 107, 111 (3d Cir. 1994)). "Pennsylvania law on contract interpretation and ambiguity is somewhat complicated; while the broad principles are clear, it is not a seamless web." Bohler-Uddeholm Am., Inc. v. Ellwood Grp., Inc., 247 F.3d 79, 92 (3d Cir.2001).
Be that as it may, "`[t]he paramount goal of contract interpretation is to determine the intent of the parties.'" Baldwin v. Univ. of Pittsburgh Med. Ctr., 636 F.3d 69, 75 (3d Cir.2011) (quoting Am. Eagle Outfitters v. Lyle & Scott Ltd., 584 F.3d 575, 587 (3d Cir.2009)). Pennsylvania
A court may, however, look outside the "four corners" of the contract and to extrinsic evidence in determining whether an ambiguity exists.
At the same time, the Supreme Court of Pennsylvania has recognized that the "course of performance is always relevant in interpreting a writing." Atl. Richfield Co. v. Razumic, 480 Pa. 366, 390 A.2d 736, 741 n. 6 (1978); see also Pennsylvania Eng'g Corp. v. McGraw-Edison Co., 500 Pa. 605, 459 A.2d 329, 332 (1983) ("[Plaintiff's] contention is premised on an erroneous belief that a writing must be ambiguous in order to justify consideration of the parties' post-agreement conduct."). As the Supreme Court explained, "`[t]he parties to an agreement know best what they meant, and their action under it is often the strongest evidence of their meaning.'" Atl. Richfield Co., 390 A.2d at 741 n. 6 (quoting Restatement (Second) of Contracts § 228 cmt. g (Tent. Draft No. 5, 1970)).
At Count Five of Plaintiffs' First Amended Complaint, they seek to have this Court declare that Norfolk Southern is not in default of the Lease due to a variety of transaction it engaged in with third parties, including the granting of leases for oil and gas or mineral extraction, the execution of license agreements relating to the Demised Property, the granting of easements over the Demised Property, and the entry into leases of portions of the Demised Property; and to declare that Defendants have no rights to the proceeds resulting therefrom. Defendants' Eighth Counterclaim seeks to hold Wheeling & Lake Erie liable for conversion only with regard to the third-party agreements that pertain to the subsurface rights. For the reasons that follow, the Court concludes that the Lease affords the Lessee (and thus its Sublessee) the right to enter into, control, and receive the benefits from third-party agreements, including those agreements that relate to the subsurface.
The unambiguous language of Section 1 of the Lease sets forth the breadth of Pittsburgh & West Virginia's transfer: except for such property specifically excluded by Section 2, Pittsburgh & West Virginia leased, assigned, transferred and delivered to Norfolk and Western "
In Section 2, Pittsburgh & West Virginia did not reserve any rights or interests related to the real property, the coal, oil, gas or mineral estate, or the proceeds of any existing or anticipated agreements. Pittsburgh & West Virginia instead limited the Nondemised Property to "[m]otive power and rolling stock" owned by Lessor and "[s]hares of stock issued by Lessor and held in its treasury" at the commencement of the Lease, "[b]ooks and records of Lessor which are needed by Lessor in order to carry out its obligations under the Lease," "[r]ights, privileges and franchises of Lessor requisite for the preservation of its corporate existence and for the proper performance by it of the terms and provisions of this Lease or of any obligations imposed by law," and "[a]fter-acquired property acquired by Lessor with the proceeds of the rent paid or payable by Lessee pursuant to Section 4(a)."
When read as a whole, the Lease also indicates that the original parties intended the broad transfer to include the ability to control all aspects of the Demised Property. For example, Section 6 requires the Lessee to "maintain, manage and operate" the Demised Property and to indemnify Lessor for claims in connection with "the leasing of the [D]emised [P]roperty, the title to the [D]emised [P]roperty, the condition of the [D]emised [P]roperty, or the use of or operations over the [D]emised [P]roperty." Id. at 7. In addition, Section 8(b)(4) requires the Lessor, when requested by Lessee, to "modify, extend, terminate, abandon or surrender any existing leases, agency, trackage or other contracts or agreements made by Lessor or any of its predecessors in title, or enter into any such new agreements, whenever in the judgment of Lessee such modification, extension, termination, abandonment, surrender or making of a new agreement would be beneficial to Lessee...." Id. at 13.
At the same time, however, Section 11 requires that, at the end of the Lease, whether upon termination by expiration or by default, "the [D]emised [P]roperty, or such portion thereof as shall remain ... shall be returned to Lessor in the same condition as it is in at the commencement of the term of this Lease, reasonable wear and tear excepted...." Id. at 14. Even so, the parties' undisputed course of performance over fifty years illustrates the parties' intent to transfer surface and subsurface rights without restriction and resolves any ambiguity in their agreement.
Beginning eight days before the commencement of the Lease, Pomeroy (acting as general counsel of Pittsburgh & West Virginia) acknowledged that the Lessor would have to transfer various agreements to Norfolk and Western and modify or
Moreover, in the 1966 Notice of Transfer of the Wells' oil and gas lease executed by Pittsburgh & West Virginia, it expressly represented that it leased certain parcels of land to Norfolk and Western "reserving nothing, including all [its] right, title and interest in and to the oil and gas underlying the premises conveyed and the rentals, royalties or other income and benefits arising from same...." Pls.' App'x Ex. 97, ECF No. 201-97 at 3. PWV also acknowledged the transfer of its subsurface estate, without claiming any right to receive rental, royalties or other income therefrom, in its execution of the coal lease between Norfolk and Western and Twilight in 1974 and in its response to Questa's inquiry regarding leasing acreage for oil and gas exploration in 1987.
Aside from those transactions that Pittsburgh & West Virginia/PWV facilitated, the Lessor became aware of other third-party agreements relating to the subsurface of the Demised Property, such as Norfolk & Western's coal lease with Y & O in 1981. At that time, the Lessee advised PWV that "[a]ny proceeds received by NW as a result of the proposed lease should be subject to the P & WV First Mortgage." Pls.' App'x Ex. 156 at 1, ECF No. 201-156. Once again, PWV claimed no interest in the subsurface rights or the income generated from the lease.
In fact, there is no record evidence that, during the fifty-year history of the Lease, Pittsburgh & West Virginia/PWV ever disputed that the Lease provides Plaintiffs with the right to enter into these third-party agreements. Nor has Pittsburgh & West Virginia/PWV ever (until now) sought payment for, claimed any interest in, or contested the (Sub)-Lessee(s) exclusive entitlement to the benefits generated by a third-party agreement. The parties' undisputed course of performance instead demonstrates that Pittsburgh & West Virginia acknowledged that it had transferred to Norfolk and Western all right, title, and interest in the Demised Property, including the subsurface rights and the coal, oil, gas, and mineral estate.
Notwithstanding the broad language of the Lease and the parties' extensive course of performance, Defendants espouse the position that, because the parties' agreement does not explicitly convey the subsurface interests, the (Sub)-Lessee(s) had no right to enter into the third-party agreements relating to the oil and gas, coal or minerals underlying the Demised Property.
In Trustees of Proprietors of Kingston, the Supreme Court reviewed, in an equity proceeding, the findings of the trial judge who held that a sixty-year-old lease (the "Bennett lease") with the operative words "demise, set and to farm let" was for "agricultural purposes only, and conferred no authority on the lessee to mine and remove coal from the premises, or to use the passageways resulting from the removal of the coal." 84 A. at 820-21. The Court ultimately affirmed the decree, observing that the issue was not preserved for appeal. See id. at 820-21. But the Court continued to "suggest[] in passing" that the tenant was "impeachable for waste." Id. at 821. In doing so, the Court discussed Griffin v. Fellows, 81 1/2 Pa. 114, 114 (1873), which "held that the defendant was not impeachable for waste in opening and working coal and stone mines, on the distinct ground that the estate of the lessee was enlarged by the words above quoted, used in the habendum, which, in a deed, determines what estate is granted." 84 A. at 821. The Supreme Court also observed that, in Griffin, it "further held that its interpretation of the lease was sustained by the fact that the lessee had for more than half a century operated the mines with the knowledge of the lessors, who had regularly received the stipulated rent." Id. Applying that decision "to the case at bar," the Supreme Court indicated that both the language of the agreement and the parties' course of performance must be considered in interpreting the lease. See id. at 821-22 ("[T]he operative words in the lease are simply `demise, set and to farm let,' without any words in any part of the lease referring to the minerals, which were never opened on the premises. For 60 years immediately subsequent to the letting, the parties had treated the lease as one for agricultural purposes only.").
Distilled to its essence, the rule thus remains the same whether the instrument is a lease or a deed: the parties' intent remains the focus when interpreting their agreement. And here, the unambiguous language of the Lease along with the fifty-year course of performance make clear that Pittsburgh & West Virginia transferred to Norfolk and Western all right, title, and interest in the Demised Property (including the subsurface rights), ceased all business operations, and sought to only collect the cash rental under the Lease. The Court will not now rewrite the terms of the Lease to make it seem more reasonable to the Defendant(s) or ignore the parties' undisputed course of performance to avoid an unwelcome result.
Accordingly, the Court will
At Count Five, Plaintiffs seek to have this Court declare that Norfolk Southern has met its obligations to provide an accounting of the balance of the indebtedness arising under the Lease and that the 5% cap in Section 16(a) only applies to PWV's preexisting debt obligations. At Count Eight, Plaintiffs seek to have this Court declare that that Norfolk Southern
Defendants' Third Counterclaim seeks a declaration that the amount of indebtedness reflected in the Settlement Account cannot exceed 5% of the value of PWV's assets, that the Settlement Account balance is not indefinite in duration, that the gross proceeds from Asset Sales in 2006, 2007 and 2011 are properly treated as short-term debt due on demand; and that these transactions accrue interest consistent with the alternate federal rate ("AFR"); their Fifth Counterclaim seeks to hold Norfolk Southern liable for breach of contract based on its alleged failure to provide notice of, account for, and/or track as indebtedness the proceeds from licenses, easements, and leases, which they consider to be "dispositions" under Section 9;
For the reasons that follow, the Court concludes that the licenses, easements, and leases are not "dispositions" under Section 9 of the Lease; that the 5% cap on the balance of indebtedness is no longer applicable; that Norfolk Southern neither breached the Lease nor defrauded PWV in connection with its treatment of the Settlement Account or its obligations to provide statements related to the balance of indebtedness; that Norfolk Southern is not in default for failing to pay $341,768 in additional rent for 2012; that the balance of the Settlement Account is not due until the termination of the Lease; and that interest is not due on the amounts accounted for in the Settlement Account.
Section 9 of the Lease includes a relevant distinction: the first sentence provides that "[s]uch demised property as shall not in the opinion of Lessee be necessary or useful may be
The Court finds that the contractual text supports the interpretation offered by Plaintiffs: under Section 9, the only "dispositions" that must be tracked as indebtedness are fee simple conveyances of title to a portion of the Demised Property — e.g., outright sales, condemnations, or abandonments — rather than the licenses, easements, and leases at issue in this case.
The parties' course of performance supports this interpretation. For at least thirty years, Norfolk and Western/Norfolk Southern assisted with the preparation of PWV's tax returns and financial statements, and in doing so, represented the balance of the Settlement Account on an annual basis. None of the representations reflected the income received from the third-party agreements. Until now, PWV never disputed the representations of the Settlement Account's balance, even though it transferred to Norfolk and Western the third-party agreements that predated the Lease, assisted Norfolk and Western/Norfolk Southern with the execution of new third-party agreements, and knew that the Lessee received the proceeds from the third-party agreements. As Plaintiffs highlight, those proceeds included the $5,000 paid to Norfolk and Western by the
Defendants also rely on the parties' course of performance to support their position that the Lessee relied on Section 9 for certain "dispositions." First, Defendants cite the Secretary's Certificates or resolutions for sales of or easements over the Demised Property prepared by Norfolk and Western. See Defs.' Br. at 72-73, ECF No. 197 (citing Defs.' CSMF at 49-50, ECF No. 202 (citing Defs.' App'x Exs. 119-125, ECF Nos. 204-21-27)). However, those documents do not prove that a lease is a disposition for which Norfolk Southern must account. They only reference the first sentence of Section 9 to reflect the discretionary power of the Lessee to sell, lease, or otherwise dispose of the Demised Property, reciting that a said parcel is neither necessary nor useful to Norfolk and Western or that the conveyance would not impair or in any manner interfere with its operation. Second, Defendants rely on a 1979 letter from a Norfolk and Western representative regarding a proposed coal lease. See id. (citing Defs.' CSMF at 49-50, ECF No. 202 (citing Defs.' App'x Ex. 137, ECF Nos. 204-40)). But that letter also does not support Defendants' position; it reiterates that "[t]he proceeds of sale must be paid to P & WVA or reflected as indebtedness of NW to P & WVA, subject to any applicable mortgage provisions" and recommends that the parties' execute a mining lease rather than a conditional sale. Id. Finally, Defendants highlight a line item from PWV's 1974 Annual Report which reflects that it received roughly $13,000 in coal royalties that year, as well as a portion of Noe's deposition in which he apparently admits that coal royalties serve to increase the Settlement Account. See Pls.' App'x Ex. 17 at 006645, ECF No. 201-17; Defs.' App'x Ex. 57 at 166-68, ECF No. 202-58. A review of that deposition transcript reveals, however, that Noe only testified that it appeared a coal royalty was credited as income in the Settlement Account that year and that he did not know enough about the royalty to state whether it was consistent with the terms of the Lease. Thus, the parties' course of performance is not "in conflict" as Defendants suggest.
In sum, the language of the Lease, along with the parties' course of performance, demonstrates that the third-party agreements are not Section 9 "dispositions" that must be tracked as indebtedness. Accordingly, the Court will
Section 16(a) provides, in relevant part, that "the total of such indebtedness owing from Lessee to Lessor ... shall not exceed at any time an amount equal to 5% of the value at such time of the total assets of Lessor
Plaintiffs take the position that the 5% cap was only to apply to the Lessee's agreement to pay or discharge on behalf of Lessor the debt obligations existing prior
The "obligations of Lessor which have been assumed by Lessee" is undefined in the Lease, but the language that follows indicates that it refers to the debt obligations of PWV assumed by Norfolk and Western. The term "as long as" suggests a temporal limitation; if the 5% cap encompassed, for example, Norfolk Southern's assumption of the operation of the Rail Line, the language would be rendered superfluous. The plain meaning of "out-standing" and "unpaid" also supports Norfolk Southern's interpretation. See BLACK'S LAW DICTIONARY 1213 (9th ed.2009) (defining "outstanding" as 1. Unpaid; uncollected <outstanding debts>. 2. Publicly issued and sold <outstanding shares>.). And the sentence that immediately follows the 5% cap in Section 16(a) impliedly references the Lessee's obligations under Section 7: "All cash payments made by Lessee to Lessor as provided in this subdivision (a) shall immediately be used by Lessor to pay and discharge indebtedness of Lessor to others as may be designated by Lessee." Pls.' App'x Ex. 1 at 17, ECF No. 201-1. In sum, the parties' intent as expressed in the Lease favors Norfolk Southern.
Aside from the language of Section 16, the parties' course of performance is once again relevant in interpreting the Lease. As outlined above, the Annual Reports of PWV reflect that it no longer reported the balance of the Settlement Account beginning in 1983, the year after its debt obligations became satisfied in full, because it would have distorted its financial picture had it done so. Moreover, PWV has since repeatedly stated that it would not report the value of the Settlement Account in light of the indefinite settlement date at the expiration of the Lease. See, e.g., Pls.' App'x Ex. 26 at F-7, ECF No. 201-26 ("At December 1, 1983, the non-cash [S]ettlement [A]ccount had a balance of $3,900,000 receivable from Norfolk and Western; however, because the account will not be settled until the expiration of the [L]ease, no value has been reported in 1983 for the balance of the account or the transactions affecting the balance."). Thus, Norfolk Southern has not been in default of Section 16(a) for the past thirty-one years because once Norfolk and Western paid off PWV's third-party debt in 1982, the 5% cap was no longer effective.
Accordingly, the Court will
Section 16(b) requires that "[f]rom time to time a balance of the indebtedness arising under this Lease of Lessor to Lessee and of Lessee to Lessor shall be determined." Pls.' App'x Ex. 1 at 17, ECF No. 201-1. The parties have historically used the Settlement Account as an accounting mechanism for tracking indebtedness pursuant to Sections 4(b)(1)-(4), Section 6,
Count Five of the First Amended Complaint and Defendants' Fifth Counterclaim both include allegations regarding the (in)-accuracy of Plaintiffs' reporting of the balance of the Settlement Account. Because the third-party agreements are not Section 9 dispositions and the 5% cap no longer applies, as explained above, Norfolk Southern has not underreported the Settlement Account, and therefore, it has not breached the Lease as alleged in Defendants' Fifth Counterclaim. Norfolk Southern has thus met these obligations under the Lease. Accordingly, the Court will
Defendants' Seventh Counterclaim asserts a similar fraud claim, arising from the alleged failure to report the Settlement Account balance. In Pennsylvania, a party must establish the following elements to sustain a common law fraud claim: "(1) a representation; (2) which is material to the transaction at hand; (3) made falsely, with knowledge of its falsity or recklessness as to whether it is true or false; (4) with the intent of misleading another into relying on it; (5) justifiable reliance on the misrepresentation; and (6) the resulting injury was proximately caused by the reliance." Gibbs v. Ernst, 538 Pa. 193, 647 A.2d 882, 889 (1994). The parties disagree on whether Defendants have articulated any misrepresentation or the intent to mislead by Norfolk Southern. In the alternative, Norfolk Southern argues that the gist of the action doctrine bars the fraud claim. As the Court has already explained, Norfolk Southern has not misrepresented the balance of the Settlement Account. Even so, the Court will address the alternative arguments of the parties.
Until recently, the Supreme Court of Pennsylvania "had scant occasion to opine as to how the gist of the action doctrine should be employed to ensure that a party does not bring a tort claim for what is, in actuality, a claim for a breach of contract." Bruno v. Erie Ins. Co., ___ Pa. ___, 106 A.3d 48, 60 (2014). However, in Bruno v. Erie Insurance Company, the Court discussed the doctrine at length and observed that "[it] has consistently regarded the nature of the duty alleged to have been breached, as established by the underlying averments supporting the claim in a plaintiff's complaint, to be the critical determinative factor in determining whether the claim is truly one in tort, or for breach of contract." Id. at 68. As the Court explained:
Upon review of the fraud counterclaim, the Court finds that it arose in the course of the parties' contractual relationship and concerns Norfolk Southern's alleged violation of the Lessee's commitment(s) under the Lease to report the balance of the Settlement Account. As the pleading states, "[u]pon information and belief, in breach of the Lease, Norfolk Southern has intentionally omitted numerous dispositions of P & WV's property required under the Disposition of Property Provision of the Lease when representing the amount of the Settlement Account and/or indebtedness to P & WV on a yearly basis." Second Suppl. to Countercls. at 41, ECF No. 106. Defendants' theory that the fraud counterclaim "is not based on a separate breach of the Lease," but on "Norfolk Southern's false, extra-contractual annual representations concerning the Settlement Account balance" is thus misplaced. Defs.' Br. in Opp. at 55, ECF No. 213. In fact, Defendants' fraud counterclaim is nothing more than a restatement of its breach of contract counterclaim(s), and therefore, the Court concludes that Defendants' fraud counterclaim against Norfolk Southern is barred by the gist of the action doctrine. Accordingly, the Court will
Under Section 4(b)(1) of the Lease, additional rent owed by Norfolk Southern to PWV includes "[s]ums equal to the deduction for depreciation or amortization with respect to the demised property allowed to Lessor for such year under the provisions of the then effective United States Internal Revenue Code." See Pls.' App'x Ex. 1 at 4, ECF No. 201-1. On February 15, 2013, Norfolk Southern represented to PWV that the amount of depreciation and amortization on PWV's tax returns for the year 2012 was $341,768. Through a series of correspondences that followed, PWV demanded and Norfolk Southern refused payment of that amount in cash.
Section 16(a) provides the Lessee with a choice regarding the "[t]he portion of the additional rent, or any part thereof, payable to Lessor" pursuant to Sections 4(b)(1)-(4) and Section 9: to either (1) pay PWV in cash — in which case it must use that cash to pay down its debt obligations; or (2) credit PWV with the same as indebtedness in the Settlement Account. Id. at 17. The indebtedness option is, of course, subject to the 5% cap as long as the assumed obligations remain outstanding and unpaid. As the Court has explained, that limitation no longer applies because the assumed obligations had previously been paid by Norfolk and Western. Therefore, Norfolk Southern is not required to make cash payments under Section 16(a) and may elect (as it has) to track the $341,768
Accordingly, the Court will
The Lease is silent on when the Lessee must pay the balance of the indebtedness credited to the Lessor and tracked under their agreement. Nevertheless, the parties' course of performance demonstrates that they intended for the balance of indebtedness to not be due until the termination of the Lease.
Until recently, PWV had accepted and acknowledged this aspect of the Lease time and time again. The record is replete with examples. See supra Part I.A.4.e. For example, PWV has represented to the ICC that, to the extent Norfolk and Western's payment of debt exceeded PWV's tax deductions for depreciation and amortization, PWV is indebted to Norfolk and Western, but that amount "is payable only out of income after termination of the [L]ease." Pls.' App'x Ex. 79 at 11, ECF No. 201-79. It has also advised its shareholders in Annual Reports (as recently as 2010) that the Settlement Account would not be paid until the expiration of the Lease. See, e.g., Pls.' App'x Ex. 53 at D025370, ECF No. 201-53 ("Although the [L]ease provides for additional rentals to be recorded, these amount do not increase cash flow or net income as they are charged to NSC's settlement account with no requirement for payment except at termination of the [L]ease. Because of the indeterminate settlement date for these items, such transactions and balances have not been reported in the financial statements since 1982."). And PWV's own Audit Committee (as well as its accounting firm) has recognized the historical treatment of the Settlement Account and the indeterminate date of payment. See Pls.' App'x Ex. 178 at 1, ECF No. 201-178; see also Pls.' App'x Ex. 180 at F-8, ECF No. 201-180. Indeed, both the Audit Committee and Gibbons & Kawash have noted the incentive for Norfolk Southern to renew the Lease after the initial 99-year term because it must pay the balance of indebtedness of (what was then) over $13 million only at termination. See id.; see also Pls.' App'x Ex. 179 at 3, ECF No. 201-179 (explaining, in a 2005 letter from PWV to the SEC, that "[t]he Trustees and Audit Committee believe there is sufficient penalty upon the Lessee that the [L]ease will be renewed into perpetuity.").
PWV cannot now ignore history by simply calling its own past actions irrelevant. Nor can it challenge that precept of the Settlement Account by invoking the codification of the economic substance doctrine, which cannot apply to the Lease based on its effective date. The Settlement Account also is not, as PWV suggests, a short-term debt due on demand — a concept that is unsupported by the text of the Lease and disconnected from its historical representations regarding indebtedness. The balance of the Settlement Account may have changed following tax and accounting changes in the late-1970's and early-1980's in manners that the parties did not anticipate in 1962, but the parties' treatment of the Settlement Account has remained the same until now.
Moreover, PWV's reliance on tax law and accounting principles do not change the outcome. As a threshold matter, the Court cannot determine liability for taxes under the Declaratory Judgment Act, see 28 U.S.C. § 2201, which Defendants' theories would necessarily have the undersigned
The task before this Court is to examine the Lease and ascertain the intent of the contracting parties as objectively manifested by them. In doing so, the Court has concluded that Plaintiffs' proposed interpretation is consistent with the terms of the parties' agreement and their course of performance; a review of the Lease and the historical representations of PWV simply do not support their newfound position. Accordingly, the Court will
The Lease mentions the accrual of interest twice, and neither occasion relates to indebtedness owed from Lessee to Lessor. First, Section 11 provides that "[a]ny indebtedness of Lessor to Lessee under this Lease shall, after termination of this Lease, be payable by Lessor to Lessee only if and to the extent that Lessor shall have net income available for such purpose before payment of any dividends upon its capital stock, plus interest on any unpaid amounts at the rate of 6% per annum." See Pls.' App'x Ex. 1 at 15, ECF No. 201-1. Second, Section 12 states that "Lessor shall be entitled to payment of all damages suffered by Lessor by reason of or arising out of the breach or default of Lessee or termination of this Lease, with interest thereon at 6% per annum...." Id. at 16. To be sure, the Lease does not provide for the accrual of interest on the additional rent or the balance of indebtedness payable to Lessor by Lessee.
Defendants' request that the Court declare that certain asset sales and the Settlement Account accrue interest consistent with the AFR thus finds no support in the Lease, and the parties' course of performance sheds no additional light on this issue. Accordingly, the Court will
At Count One, Plaintiffs seek to have this Court declare that the amount owed to Defendants as a result of the disposition of the West End Branch is the amount of the income tax payments, that Plaintiffs will be fully compliant with Section 4(b)(7) of the Lease upon payment of that amount, that Plaintiffs are not required to pay Defendants' attorneys' fees under Section 4(b)(6) of the Lease, and that Defendants are prohibited from declaring Plaintiffs in default of the Lease or otherwise interfering with their use of the Demised Property. At Count Seven, Plaintiffs seek a declaration
Defendants' Second Counterclaim seeks a declaration that Norfolk Southern is in default under the Lease for failing to pay PWV's Section 4(b)(7) tax payments as additional rent; and their First and Tenth Counterclaims seek a declaration that Norfolk Southern is in default of Section 4 of the Lease for, respectively, (1) failing to pay PWV $4,487.50 in attorney's fees it incurred in connection with its review of the contractual and tax issues related to the West End Branch sale; and (2) refusing to reimburse PWV for legal fees incurred, as demanded on March 23, 2012.
For the reasons that follow, the Court concludes that Norfolk Southern is not in default of Section 4(b)(7) of the Lease; and that Norfolk Southern is not required to pay Defendants' attorney's fees related to the sale of the West End Branch or otherwise.
Section 4(b)(7) provides that additional rent includes "[a]ll taxes, assessments and governmental charges, ordinary and extraordinary, ... which are lawfully imposed upon Lessor or the demised property or its income or earnings ..." and that "[t]he foregoing sums shall be paid or discharged by Lessee as and when they become due and payable." Pls.' App'x Ex. 1 at 5-6, ECF No. 201-1. Under the Lease, Section 4(b)(7) additional rent may not be treated as indebtedness pursuant to Section 16, which only references Sections 4(b)(1)-(4) additional rent.
Defendants have repeatedly relied upon Section 4(b)(7) in seeking a cash payment from Norfolk Southern as additional rent. Initially, PWV cited Section 4(b)(7) in the Tax Memorandum in their pursuit of $1.2 million in shareholder distributions related to the West End Branch sale. By all accounts, Defendants have since abandoned this theory. See supra n. 14. Defendants now contend that Norfolk Southern deducted $69,663.00 from the Settlement Account, rather than pay this amount to PWV as additional rent. Norfolk Southern concedes that it made this accounting error but that it has since corrected its mistake. See supra n. 15. In turn, Defendants argue that "Norfolk Southern's treatment of the Section 4(b)(7) tax payment in this way is inconsistent with how `additional rent' is to be treated under the Lease and is the equivalent of paying PWV with its own money."
The relevant provisions of the Lease with regard to the dispute regarding the payment of attorney's fees are Sections 4(b)(5) and 4(b)(6). Section 4(b)(5) provides that additional rent includes:
Pls.' App'x Ex. 1 at 5, ECF No. 201-1. Under Section 4(b)(6), additional rent also includes:
Id. Notably, neither Section 4(b)(5) nor Section 4(b)(6) mention "attorney's fees." However, the drafters did know how to provide for attorney's fees because they otherwise did so. See id. at 14 ("Lessee shall indemnify Lessor against liability, including costs and attorneys' fees, which may be incurred by Lessor under its collective bargaining agreements...."); id. at 16 ("Lessor shall be entitled to payment of all damages suffered by Lessor by reason of or arising out of the breach or default of Lessee or termination of this Lease, with interest thereon at 6% per annum, plus a reasonable attorney's fee and costs and expenses of Lessor.").
Defendants' nevertheless seek a declaration that Norfolk Southern is in default for failing to pay, as additional rent, its legal fees incurred "in connection with a `necessary or desirable' legal review of issues relating to [the West End Branch sale]" and relating to this action. Defs.' Br. at 41, ECF No. 197. From Defendants' perspective, "[t]his action was brought by Norfolk Southern and WLE and is fundamentally about rights under the Lease — it is necessary that PWV is represented by counsel and desirable to understand the rights of the parties under the Lease." Id. The Court cannot agree.
At the same time, the interpretation of broad contractual language is a context-specific task when deciding whether attorney's fees and litigation costs are within the purview of an agreement. For example, in Sloan & Co. v. Liberty Mutual Insurance Co., our court of appeals held that the term "expenses and costs" includes attorneys' fees in addition to other litigation-related expenses and costs when used in "in a paragraph discussing procedural mechanisms for lawsuits and other dispute resolution proceedings." 653 F.3d 175, 186-87 (3d Cir.2011) (citations omitted)
Section 4(5) and Section 4(b)(6) have no similar context; they relate to the payment of additional rent. Nor is there any statutory authority or other recognized exception to the rule present here. Without more, the Court cannot conclude that those sections represent a clear agreement of the parties to shift attorney's fees and costs. In fact, had the parties intended to include a fee-shifting provision for circumstances now envisioned by Defendants, they could have explicitly done so just as they did elsewhere in the Lease. But they did not. Accordingly, the Court will
At Count Two, Plaintiffs seek to have this Court declare that Norfolk Southern is not in default of the Lease by failing to agree to provide Defendants with access to all of the books and records which they requested in their January 6, 2012 and subsequent letters and that Defendants may not conduct a track inspection; and to declare the proper and reasonable scope of the books and records which Defendants may inspect under Section 8(a)(3). At Count Six, Plaintiffs seek to have this Court declare that Norfolk Southern is not in default of the Lease with respect to the March 5, 2013 Books and Records demand.
Defendants' Fourth Counterclaim seeks a declaration that Norfolk Southern is in default of Section 8(a)(3) of the Lease based on its failure and/or refusal to provide PWV with access to the books and records included in the January 6, 2012
For the reasons that follow, the Court concludes that Plaintiffs are not in default of Section 8(a)(3) of the Lease and that Norfolk Southern is not in breach of the Lease with regard to the track inspection demand. The Court does, however, decline to issue an "advisory opinion" regarding the proper and reasonable scope of the Books and Records Provision.
Section 8(a)(3) of the Lease provides that the Lessor or the Lessee "shall permit at any and all reasonable times such person or persons as the [other] may designate to inspect the books and records of [the other] for any purpose whatsoever." Pls.' App'x Ex. 1 at 9, ECF No. 201-1. The only limitation on Section 8(a)(3) is reasonableness.
In PWV's January 6, 2012 letter, it demanded that within two business days (five days altogether) Norfolk Southern make available its books and records related to the following:
Defs.' App'x Ex. 68, ECF No. 202-69. A demand that broad in volume and scope, with only two business days' notice and in the midst of this litigation, is a far cry from reasonable. In fact, it is entirely unreasonable to expect Norfolk Southern — whose size has been repeatedly highlighted in this litigation by Defendant(s) — to comply with a demand for a litany of historical records dating back fifty years which seeks information as open-ended as "Financial Statements including detail and support related to all revenues, expenses,
As for the March 2013 Books and Records Demand, the various correspondences exchanged between the parties' and their attorneys reflect that Plaintiffs complied with Defendants' request. Upon receiving notice, Plaintiff(s) located in a storage facility and produced over 23,000 pages of records at their expense. Plaintiffs have since supplemented that production with financial and accounting records. The flaw in Defendants' theory is that they couch alleged discovery abuses as violations of the Lease — whether it is their argument that the March 2013 documents were responsive to the January 2012 demand or their current position that Plaintiffs have not yet produced all of the books and records sought. See Defs.' Br. at 58, ECF No. 197 ("Plaintiffs' dilatory and incomplete production raises the issue of what other documents it may possess which it has not yet turned over. In any event, Plaintiffs' untimely production is clear proof of a default under Section 8(a)(3) of the Lease, which default is not curable.... Incomplete production is wholly inconsistent with the clear terms of Section 8(a)(3)."). Of course, Section 8(a)(3) says nothing of production.
Finally, neither Section 8(a)(3) nor any other section of the Lease mentions or alludes to the right to a track inspection. A "track" is neither a "book" nor a "record." The Court is thus at a loss as to how it could declare that "Norfolk Southern is in breach of the Lease based on its refusal to permit P & WV to conduct a track inspection," as Defendants request. Defs.' Suppl. Counterclaims at 9, ECF No. 40.
Accordingly, the Court will
For the reasons hereinabove stated, the Court concludes (1) that the Lease affords the Lessee (and thus its Sublessee) the right to enter into, control, and receive the benefits from third-party agreements, including those agreements that relate to the subsurface; (2) that the licenses, easements, and leases are not "dispositions" under Section 9 of the Lease; (3) that the 5% cap on the balance of indebtedness is no longer applicable; (4) that Norfolk Southern neither breached the Lease nor defrauded PWV in connection with its treatment of the Settlement Account or its obligations to provide statements related to the balance of indebtedness; (5) that Norfolk Southern is not in default for failing to pay $341,768 in additional rent for 2012; (6) that the balance of the Settlement Account is not due until the termination of the Lease; (7) that interest is not due on the amounts accounted for in the Settlement Account; (8) that Norfolk Southern is not in default of Section 4(b)(7) of the Lease; (9) that Norfolk Southern is not required to pay Defendants' attorney's fees related to the sale of the West End Branch or otherwise; (10) that Plaintiffs are not in default of Section 8(a)(3) of the Lease; and (11) that Norfolk Southern is
Accordingly, the Court will
AND NOW, this 22nd day of April, 2015, in accordance with the foregoing Memorandum Opinion, it is hereby
See, e.g., id. at ¶¶ 35, 36, 37, 38, 39, 40, 42, 43, 50, 54, 72, 73, 74, 75, 77, 78, 109, 137, 139, 142, 151, 158, 167, 174, 177, 184, 185, 186, 187, 188, 189, 190, 194, 195, 196, 197, 198, 200, 201, 203, 204, 205, 206, 207, 208, 209, 210, 211, 212, 213, 214, 215, 216, 220, 227, 228, 229, 230, 231, 237, 238, 239, 242, 243, 253, 258, 259, 265, 268, 269, 270, 271, 273, 281, 283, 301, 305, 306, 308, 322, 323, 334, 341, 353, 354, 359, 367, 371, 372, 374, 378, 379, 380, 398, 399, 400, 403, 404, 405, 413. For others, Defendants respond in a similar fashion:
See, e.g., id. at ¶¶ 96, 103, 168, 254, 255, 294, 370, 401. Nowhere do Defendants include an appropriate reference to the record to support the basis of these denials. The Court is instead left guessing. At the same time, the Court is reluctant to resolve the cross-motions for summary judgment based on a procedural technicality rather than merits of the claims, and therefore, it will deny Plaintiffs' motion. Accordingly, the Court has conducted an independent review of the record and has included those facts that are material, supported by the evidence and are otherwise admissible at trial.
Defs.' App'x Ex. 53, ECF No. 202-54. In their CSMF, Plaintiffs submit that "[a]t some point after the initiation of this litigation, Defendants abandoned the position that PWV is entitled to the $1.3 million recursive payments set forth in the Tax Memorandum that it demanded from Norfolk Southern." Pls.' CSMF at 66, ¶ 273, ECF No. 200 (citing Dep. of Lesser, Pls.' App'x Ex. 226 at 51; Dep. of Mittal, Pls.' App'x Ex. 230 at 148-49). Defendants deny this fact "as the evidence cited by Plaintiffs does not support this statement" and "based upon Plaintiffs' mischaracterizations of the cited evidence." See Defs.' RSOF at 96, ECF No. 209. A review of the deposition transcripts supports Plaintiffs' position. See, e.g., Dep. of Lesser, Pls.' App'x Ex. 226, ECF No. 201-226 at 51 ("Q. Does P & WV contend, as you sit here today, that there is a $1.3 million additional rent obligation that's owed to P & WV based upon the disposition of the West End Branch? A. I don't believe that's the case. Q. You're not contending that. A. No.").
Defs.' Am. Answer and Countercls. at 25-26, ECF No. 71. This position runs counter to the parties' longstanding understanding (and practice) that the only cash payment due under the Lease is the $915,000 rental. See supra Part I.A.4.e..
