Reading Blue Mountain & N. Rd. v. Seda-Cog Joint Rail Auth.

• Decision Date: 06 July 2020
• Docket Number: No. 1627 C.D. 2018,No. 1628 C.D. 2018,1627 C.D. 2018,1628 C.D. 2018
• Parties: READING BLUE MOUNTAIN AND NORTHERN RAILROAD, Appellant v. SEDA-COG JOINT RAIL AUTHORITY and Board of Seda-Cog Joint Rail Authority, Susquehanna Union Railroad Company, and Carload Express, Inc.
• Court: Pennsylvania Commonwealth Court

235 A.3d 438

READING BLUE MOUNTAIN AND NORTHERN RAILROAD, Appellant

v.SEDA-COG JOINT RAIL AUTHORITY and Board of Seda-Cog Joint Rail Authority, Susquehanna Union Railroad Company, and Carload Express, Inc.

No. 1627 C.D. 2018

No. 1628 C.D. 2018

Commonwealth Court of Pennsylvania.

Argued June 8, 2020

Decided July 6, 2020

Lawrence J. Moran, Jr., Pittston, for Appellant.

Michael G. Crotty, Chester Springs, for Appellees Seda-Cog Joint Rail Authority and Board of Seda-Cog Joint Rail Authority.

Samuel H. Simon, Pittsburgh, for Appellee Carload Express, Inc.

BEFORE: HONORABLE MARY HANNAH LEAVITT, President Judge, HONORABLE RENÉE COHN JUBELIRER, Judge, HONORABLE ANNE E. COVEY, Judge

OPINION BY JUDGE COVEY

Reading Blue Mountain and Northern Railroad (Reading) appeals from the Northumberland County Common Pleas Court's (trial court) October 17, 2018 orders granting Carload Express, Inc.’s (Carload) Motion for Summary Judgment (Carload Motion) and Seda-Cog Joint Rail Authority's and the Board of Seda-Cog Joint Rail Authority's (Board) (collectively, Authority) Motion for Summary Judgment (Authority Motion). The five issues before this Court are whether the trial court erred: (1) by granting the Authority's demurrer to Reading's claim that the Authority improperly competes with private enterprise in violation of Section 5607(b)(2) of the Municipality Authorities Act (MAA);¹ (2) by ruling that the competitive bidding requirement in Section 5614(a)(1) of the MAA² is inapplicable, and granting an effective demurrer to that portion of Reading's claims; (3) by granting Carload's Motion and the Authority's Motion (collectively, Motions) on the basis of extraneous factors that are irrelevant as a matter of law; (4) by granting the Motions on the basis of Reading's Phase 1 financial submission; and (5) by finding that Reading did not adduce sufficient evidence that the Request for Proposals – Operation of Five Short Line Railroads in Central Pennsylvania (RFP) process was improper, unjust or failed to comply with basic fairness standards. After review, we affirm the trial court's orders.

Background

Reading is a privately held railroad company, established in 1990. A substantial portion of Reading's business is providing freight rail service to approximately 50 industries located in 9 east central Pennsylvania counties, including Northumberland County. The Authority was formed in 1983 by 5 counties, including Northumberland County, for the purpose of acquiring, owning and maintaining various railroad properties throughout central Pennsylvania, with a primary mission of providing rail freight service and fostering economic development and job creation by improving and expanding rail infrastructure in the region. The Authority owns approximately 200 miles of rail lines in 10 counties, including Northumberland County, on which it provides freight rail service through a contracted, private common carrier rail operator. The Authority is governed by a 16-member Board, with 2 members appointed from each of its member counties (Centre, Clinton, Columbia, Lycoming, Mifflin, Montour, Northumberland and Union).

Since January 2007, Susquehanna Union Railroad Company (Susquehanna) has been the Authority's rail freight operator, pursuant to an operating agreement which expired on June 30, 2017. In September 2013, after learning that the Authority intended to seek bids to operate its rail lines upon the expiration of its operating agreement with Susquehanna, Reading notified the Authority's Chairman Jerry Walls (Walls) that Reading was interested in bidding. Thereafter, the Authority convened an Operating Agreement Committee (OAC) to develop a bid process and a new operating agreement (Proposed Operating Agreement).³

On May 16, 2014, the Authority issued the RFP, wherein it "invite[d] proposals from experienced railroad operators capable of providing the specialized, professional services required for the operation of the [Authority's] rail lines." Reproduced Record (R.R.) at 27a. The RFP consisted of a two-phase review. In RFP Phase 1, potential proposers were asked to respond to a Request for Qualifications (RFQ) by August 1, 2014, regarding their approach to operations, qualifications and experience, financial capability, and potential conflicts. See R.R. at 37a-38a. The RFP reflected that, based upon their responses, each RFP Phase 1 proposer would receive a raw score of up to 60 points, and the 3 highest scorers (or more, in the case of a tie) would be invited to proceed to RFP Phase 2. See R.R. at 37a-39a.

Reading, Carload and Susquehanna were among the 5 proposers that submitted responses as part of RFP Phase 1.⁴ Carload had the highest RFP Phase 1 score. Because Reading had the lowest score, the Authority did not invite Reading to move to RFP Phase 2. On September 10, 2014, with 6 Board members abstaining,⁵ the Authority's Board voted 7 to 3 to award the new operating agreement to Carload. Because Section 5610(e) of the MAA mandates that, unless the bylaws otherwise specify, the Authority may take action only upon the vote of a majority of the members present at a meeting, 53 Pa.C.S. § 5610(e), the Authority took the position that the vote was insufficient to contract with Carload. To date, no operating agreement has been awarded.⁶

On October 28, 2015, Reading filed a complaint in the trial court against the Authority seeking declaratory and injunctive relief (Complaint). See R.R. at 1a-44a, 592a. Therein, Reading named Carload, Susquehanna and Northern Plains Railroad, Inc. (Northern) as indispensable parties.⁷ See R.R. at 4a. In Count I of the Complaint, Reading requested a declaration from the trial court that the Authority violated Section 5607(b)(2) of the MAA by prohibiting direct competition with private enterprise. See R.R. at 12a-14a. In Count II, Reading asked for a declaration that the Authority violated competitive bidding requirements of Section 5614 of the MAA and Section 3911(a) of the Commonwealth Procurement Code (Procurement Code).⁸ See R.R. at 14a-16a. In Count III, Reading sought an injunction prohibiting the Authority from continuing with the RFP process until the merits of the case were decided. See R.R. at 16a-18a.

On December 7, 2015, the Authority and Susquehanna filed preliminary objections to the Complaint, claiming: Reading lacked standing to file the Complaint; the competition claims were preempted by Section 10501 of the Interstate Commerce Commission Termination Act (ICCTA);⁹ Reading misinterpreted Section 5607 of the MAA; Section 5614 of the MAA does not require competition to award operating agreements; and the Procurement Code's public works contract provisions do not apply to this RFP. See R.R. at 45a-99a, 366a-428a. On December 28, 2015, Carload filed preliminary objections to the Complaint, asserting that Reading lacked standing to file the Complaint. See R.R. at 100a-111a, 252a-365a. On December 22, 2015, Reading discontinued the action as to Northern after Northern withdrew from the RFP process. See Authority Br. at 9 n.3; see also R.R. at 249a. Reading filed answers to the preliminary objections. See R.R. at 112a-248a.

On August 12, 2016, the trial court overruled the Authority's, Carload's and Susquehanna's objections to Reading's standing, overruled the Authority's demurrer to Count II of the Complaint, held that the Authority's federal preemption objection was moot, and sustained the Authority's objections to Count I on the basis that the trial court had no legal basis to prohibit the Authority from leasing its rail lines, receiving state grants or enhancing its rail assets. Accordingly, the trial court dismissed Count I. See R.R. at 521a-527a. Despite that the trial court overruled the demurrer to Count II, it declared that "the reliance by [Reading] on [Section 5614(a)(1) of the MAA] is misplaced[,] as this is not a situation where the Authority is seeking to procure something at a cost to it from the ‘lowest responsible bidder’; thus, it is inapplicable and not subject to further analysis." R.R. at 524a n.1. Consequently, the trial court permitted Reading to proceed with its Count II claim that the Authority's RFP Phase 1 process was unfair and designed to eliminate Reading. The trial court ordered the parties to file answers to Counts II and III of the Complaint. On September 1, 2016, the Authority, Carload and Susquehanna filed their answers with new matter.¹⁰ See R.R. at 528a-582a. On September 23, 2016, Reading filed replies to the new matter. See R.R. at 569a-582a. The parties undertook discovery.

On March 14, 2018, Reading filed a petition requesting a preliminary injunction, similar to one sought in a companion case the Authority filed in the Clinton County Common Pleas Court (Clinton County Case), prohibiting the Authority from changing the status quo, i.e., requiring the Authority to keep Susquehanna as the Authority's current rail operator until the merits of the case were decided.¹¹ See R.R. at 588a-677a. The trial court granted the preliminary injunction on March 19, 2018. See R.R. at 678a. However, the Authority and Carload opposed the preliminary injunction on March 29, 2018 and April 16, 2018, respectively. See R.R. at 679a-849a. On April 17, 2018, the trial court vacated its March 19, 2018 order and scheduled a hearing. See R.R. at 850a-851a. On May 1, 2018, Reading withdrew its preliminary injunction petition. See R.R. at 852a. Accordingly, only Reading's claim regarding the unfairness of Phase 1 of the Authority's RFP remained pending before the trial court.

On August 1, 2018, at the close of discovery, the Authority and Carload filed the Motions. See R.R. at 855a-1439a, 1778a-1823a. The Authority argued in its Motion that Reading disqualified itself from being invited to participate in RFP Phase 2 because: Reading failed to provide the required financial information; Reading produced no evidence that the RFP process was unfair or designed to eliminate Reading from consideration; and...