Del. & Hudson Ry. Co. v. Knoedler Mfrs., Inc.

• Decision Date: 09 January 2015
• Docket Number: No. 13–3678.,13–3678.
• Citation: 781 F.3d 656
• Parties: DELAWARE & HUDSON RAILWAY COMPANY, INC. doing business as Canadian Pacific Railway; Soo Line Railroad Company doing business as Canadian Pacific Railway; Canadian Pacific Railway Limited, Appellants, v. KNOEDLER MANUFACTURERS, INC.; Durham Industrial Sales, Inc.
• Court: U.S. Court of Appeals — Third Circuit

781 F.3d 656

DELAWARE & HUDSON RAILWAY COMPANY, INC. doing business as Canadian Pacific Railway; Soo Line Railroad Company doing business as Canadian Pacific Railway; Canadian Pacific Railway Limited, Appellants

v.KNOEDLER MANUFACTURERS, INC.; Durham Industrial Sales, Inc.

No. 13–3678.

United States Court of Appeals, Third Circuit.

Argued Sept. 9, 2014.

Filed: Jan. 9, 2015.

Scott D. Clements, Esq., J. Lawson Johnston, Esq., Dickie, McCamey & Chilcote, Pittsburgh, PA, Gregory N. Longworth, Esq., (Argued), James L. Wernstrom, Esq., Clark Hill, Grand Rapids, MI, for Appellants.

Matthew R. Planey, Esq., (Argued), Crabbe, Brown & James, Columbus, OH, Stuart H. Sostmann, Esq., Marshall, Dennehey, Warner, Coleman & Goggin, Pittsburgh, PA, for Appellee, Knoedler Manufacturers Inc.

George T. McCool, Jr., Esq., (Argued), Wright & O'Donnell, Conshohocken, PA, for Appellee, Durham Industrial Sales Inc.

Before: FISHER, JORDAN, and HARDIMAN, Circuit Judges.

OPINION OF THE COURT

JORDAN, Circuit Judge.

This case requires us to determine the scope of federal preemption under the Locomotive Inspection Act (“LIA”), 49 U.S.C. § 20701. Appellant Delaware & Hudson Railway Company, Inc., doing business as Canadian Pacific Railway, and its subsidiaries (collectively, with the parent company, “Canadian Pacific”) settled lawsuits brought by its employees who had suffered injuries as a result of defective train seats. Canadian Pacific then brought indemnification, contribution, and breach-of-contract claims against Knoedler Manufacturing, Inc. (“Knoedler”), which supplied the seats, and Durham Industrial Sales, Inc. (“Durham”), which tried unsuccessfully to repair the seats. Upon motions filed by Knoedler and Durham (collectively the “Appellees”), the United States District Court for the Western District of Pennsylvania dismissed Canadian Pacific's claims, holding that they were preempted by the LIA. We disagree and will vacate the District Court's orders of dismissal and remand for further proceedings.

I. Background

A. Statutory and Regulatory Background

The LIA provides that “a locomotive ... and its parts and appurtenances” must be “in proper condition and safe to operate without unnecessary danger of personal injury.”¹ 49 U.S.C. § 20701(1). Pursuant to the LIA, the Federal Railroad Administration, which acts under the authority of the Secretary of Transportation, 49 U.S.C. § 103(a), has promulgated regulations on the governing standards of care for locomotive equipment, including seats, 49 C.F.R. § 229.119(a) (requiring locomotive seats to “be securely mounted and braced”).

While the LIA and its regulations provide binding standards for the suppliers of locomotives and locomotive equipment, as well as for railroad companies, 49 U.S.C. § 21302(a)(1) ; 49 C.F.R. § 229.7(b), the statute does not provide a private right of action to employees injured by defective equipment. Urie v. Thompson, 337 U.S. 163, 188–89, 69 S.Ct. 1018, 93 L.Ed. 1282 (1949). Instead, an injured employee must bring an action against his employer under the Federal Employers' Liability Act (“FELA”), 45 U.S.C. § 51 et seq. The LIA supplements the FELA “by imposing on interstate railroads an absolute and continuing duty to provide safe equipment” and has the “purpose and effect of facilitating employee recover[y].” Urie, 337 U.S. at 188–89, 69 S.Ct. 1018 (citation and internal quotation marks omitted).

Once an employer has been found liable in a FELA action, “it accords with the FELA's overarching purpose to require the employer to bear the burden of identifying other responsible parties and demonstrating that some of the costs of the injury should be spread to them.” Norfolk & W. Ry. Co. v. Ayers, 538 U.S. 135, 165, 123 S.Ct. 1210, 155 L.Ed.2d 261 (2003) ; see also Ellison v. Shell Oil Co., 882 F.2d 349, 353 (9th Cir.1989) (“FELA's purpose of providing recovery for injured workers is not defeated by permitting an employer to recoup its losses in part or in full from a third party, when the circumstances and state law permit.”).

B. Factual History ²

General Electric (“GE”) built and maintained the locomotives at issue in this case, under a contract it had with Canadian Pacific. Pursuant to that agreement, Canadian Pacific directed GE to install seats purchased from Knoedler. GE complied, and Knoedler “agreed to provide seats of suitable quality to prevent seat failures, and suitable for use in Canadian Pacific's locomotives, in the future.” (App. at 50.)

In the late 1990s and early 2000s, GE and Canadian Pacific became aware of problems with seat safety and identified defects that were causing the seats to break. GE discussed the nature of the defects and the repair process with Knoedler but grew concerned that Knoedler would be unable to make the necessary repairs. To allay that concern, Knoedler introduced GE to Durham and “promised that Durham had the expertise and capacity to repair the seats on Knoedler's behalf.” (Appellant's Opening Br. at 6–7.)

GE and Durham subsequently entered into a contract under which “Durham agreed to refurbish the Knoedler Seats in such a way as to prevent future seat failures.” (App. at 51.) Despite those repair efforts, the seats continued to break and, as a consequence, four Canadian Pacific employees were injured. The railroad eventually settled with its employees for a total of approximately $2.7 million. Thereafter, it sought to recoup its losses from Knoedler and Durham.

C. Procedural History

Canadian Pacific filed this action against Knoedler and Durham on December 16, 2011, asserting claims for indemnification, contribution, breach of contract (with Canadian Pacific claiming the rights of a third-party beneficiary), product liability, and negligence under Pennsylvania law. On March 9, 2012, Knoedler filed a motion to dismiss the complaint. In response, the railroad filed its First Amended Complaint on March 30, 2012, reasserting the same claims but clarifying that the claims were based on the Appellees' violations of the LIA and their breach of contractual promises to provide LIA-compliant seats.³ Shortly thereafter, Durham and Knoedler filed their motions to dismiss the First Amended Complaint.

On February 12, 2013, the District Court issued an Order and Memorandum Opinion dismissing Canadian Pacific's indemnification and contribution claims with prejudice,⁴ concluding that they were preempted by the LIA. The Court also dismissed the breach-of-contract claims, saying that the company had not adequately pled its status as a third-party beneficiary. The Court did, however, allow Canadian Pacific to amend its contract claims, and it did so, providing additional details about its standing as a third-party beneficiary of the contracts. On August 1, 2013, the Court issued a second Order and Memorandum Opinion dismissing the breach-of-contract claims, concluding that they were also preempted under the LIA. Canadian Pacific timely appealed both of the District Court's Orders.

II. Discussion ⁵

Canadian Pacific raises two arguments on appeal: first, that its indemnification and contribution claims are not preempted by the LIA because they are premised on a violation of federal standards set by the LIA and accompanying regulations, and, second, that its breach-of-contract claims are not preempted by the LIA because they are premised on a violation of express contractual duties. We address those arguments in turn.

A. Preemption of Canadian Pacific's Indemnification and Contribution Claim

Congressional power to preempt state law derives from the Supremacy Clause of the Constitution, which provides that federal law “shall be the supreme Law of the Land ... any Thing in the Constitution or Laws of any State to the Contrary notwithstanding.” U.S. Const. art. VI, cl. 2. “Consideration of issues arising under the Supremacy Clause start[s] with the assumption that the historic police powers of the States [are] not to be superseded by ... [federal law] unless that [is] the clear and manifest purpose of Congress.” Cipollone v. Liggett Grp., Inc., 505 U.S. 504, 516, 112 S.Ct. 2608, 120 L.Ed.2d 407 (1992) (first, second, and fourth alterations in original) (citation and internal quotation marks omitted). “Often Congress does not clearly state in its legislation whether it intends to pre-empt state laws....” Malone v. White Motor Corp., 435 U.S. 497, 504, 98 S.Ct. 1185, 55 L.Ed.2d 443 (1978). When that is the case, “courts normally sustain local regulation of the same subject matter unless it conflicts with federal law or would frustrate the federal scheme, or unless the courts discern from the totality of the circumstances that Congress sought to occupy the field to the exclusion of the States.” Id. At issue here is that latter type of exclusion, known as “field preemption.”

The paramount cases concerning preemption under the LIA are Napier v. Atlantic Coast Line Railroad, 272 U.S. 605, 47 S.Ct. 207, 71 L.Ed. 432 (1926), and Kurns v. Railroad Friction Products Corp., ––– U.S. ––––, 132 S.Ct. 1261, ––– L.Ed.2d –––– (2012). Napier involved challenges to two state statutes: a Georgia statute that required fire boxes on locomotives to be equipped with an automatic door, and a Wisconsin statute that required locomotives to have cab curtains.⁶ Napier, 272 U.S. at 607, 47 S.Ct. 207. The Supreme Court held that the LIA preempted both state statutes because it was “intended to occupy the field” pertaining to “the design, the construction, and the material of every part of the locomotive and tender and of all appurtenances.” Id. at 611, 613, 47 S.Ct. 207. Napier thus concluded that only the Interstate Commerce Commission—the agency then responsible for implementing the LIA—had the authority to “set[ ] the standard” by which a locomotive's “fitness for service shall be determined.” Id. at 612, 47 S.Ct. 207.

The Supreme Court recently revisited the preemptive effect of the LIA in Kurns, in which it affirmed our decision upholding the dismissal of an action for injuries from...