National R.R. Passenger Corp. v. Consolidated Rail Corp.

• Decision Date: 05 January 1990
• Docket Number: Nos. 88-7238,88-7245,s. 88-7238
• Parties: NATIONAL RAILROAD PASSENGER CORPORATION v. CONSOLIDATED RAIL CORPORATION, Appellant.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 1066

892 F.2d 1066

282 U.S.App.D.C. 132

NATIONAL RAILROAD PASSENGER CORPORATION v. CONSOLIDATED RAIL CORPORATION, Appellant.

Nos. 88-7238, 88-7245.

United States Court of Appeals, District of Columbia Circuit.

Argued Oct. 6, 1989.

Decided Jan. 5, 1990.

Laurence Z. Shiekman with whom Thomas E. Zemaitis, Philadelphia, Pa., Gerald P. Norton, and Bruce B. Wilson, Washington, D.C., were on the brief for appellant.

Deanne C. Siemer, Washington, D.C., for appellee. William R. Perlik, Michael L. Burack, Harold R. Henderson, and T. Michael Kerrine, Washington, D.C., were on the brief for appellee.

Before BUCKLEY, D.H. GINSBURG, and SENTELLE, Circuit Judges.

Opinion for the Court filed by Circuit Judge D.H. GINSBURG.

D.H. GINSBURG, Circuit Judge:

Consolidated Railroad Corporation, or Conrail, operates freight trains in the northeast corridor over rails owned by the National Railroad Passenger Corporation, known as Amtrak, pursuant to an Operating Agreement between the two carriers. On January 4, 1987, a Conrail locomotive collided with an Amtrak train on Amtrak's main passenger line near Chase, Maryland, killing fifteen passengers and the Amtrak engineer and injuring hundreds of other passengers and some railroad employees.

According to the Conrail engineer in control of the locomotive, who has since pled guilty to one count of manslaughter,

the Conrail crew had recently used marijuana, was speeding, was operating a train in which the cab signal had been rendered inoperative because the light bulb had been removed from it, and was operating a train in which an audible warning device had been intentionally disabled. He has also admitted that he failed to call out signals to his brakeman, as required by applicable safety regulations, that he failed to maintain a proper lookout, and that he did not adhere to the cab signals or the wayside signals.

National Railroad Passenger Corp. v. Consolidated Rail Corp., 698 F.Supp. 951, 952-53 (D.D.C.1988). According to Amtrak, this conduct also violated its safety rules, to which Conrail and its employees were subject, pursuant to Article 2, § 2 of the Operating Agreement, when operating on Amtrak's rails, and may also have violated regulations of the Federal Railroad Administration.

Inevitably, scores of personal injury and wrongful death actions were filed against the carriers, alleging that one or both of them had acted with gross negligence or recklessness, or engaged in willful and wanton misconduct. With respect to the suits filed by Amtrak passengers and employees, Conrail invoked the clause of the Operating Agreement obligating Amtrak to defend it against, and to indemnify it for, liability for the plaintiffs' injuries or deaths. Amtrak refused to do so, however, on the ground that the indemnification provision of the Agreement is contrary to public policy and therefore not enforceable to the extent that it covers conduct more culpable than ordinary negligence and the award of punitive damages. Amtrak sued Conrail for a declaratory judgment to that effect. Conrail then invoked the arbitration procedures of the Operating Agreement, and sued Amtrak to compel arbitration, pursuant to the Federal Arbitration Act, 9 U.S.C. §§ 1 et seq.

The district court first refused to compel arbitration on the ground that "it is the duty of courts, not arbitrators, to decide whether a particular arbitration clause is operative," Consolidated Rail Corp. v. National Railroad Passenger Corp., 657 F.Supp. 405, 407 (D.D.C.1987) (citing AT & T Technologies, Inc. v. Communication Workers of America, 475 U.S. 643, 649, 106 S.Ct. 1415, 1418, 89 L.Ed.2d 648 (1986)), and that "the question of public policy is ultimately one for resolution by the courts," id. at 408 (quoting W.R. Grace & Co. v. Local Union 759, Int'l Union of the United Rubber, Cork, Linoleum & Plastic Workers of America, 461 U.S. 757, 766, 103 S.Ct. 2177, 2183, 76 L.Ed.2d 298 (1983)). The court later determined that "public policy will not allow enforcement of indemnification provisions that appear to cover such extreme misconduct because serious and significant disincentives to railroad safety would ensue."

We conclude, however, that the district court should have compelled arbitration as provided in the Operating Agreement between the parties. Consequently, we reverse, without addressing either the public policy issue or the substantive issues of contract interpretation that the parties raise. The carriers are remitted to arbitration by the terms of their contract, and may raise before the arbitrator their dispute over the scope of the indemnification clause. If the arbitrator determines that the contract obliges Amtrak to indemnify Conrail for the consequences of the aggravated misconduct alleged in the various lawsuits against it, then Amtrak may properly put the public policy issue before a court.

I. BACKGROUND

The indemnification clauses under which Conrail claims a substantive contract right against Amtrak, Article 5, §§ 3 & 6 of the Operating Agreement, provide for Amtrak, without express qualification, to indemnify Conrail and its employees for harms to the persons and property of Amtrak employees and passengers. These two sections (along with Article 5, § 2, which provides for Conrail to indemnify Amtrak for harms to the persons and property of Conrail employees) are identical in all respects save the designation of which category of person is involved; we set out Article 5, § 3, as an example:

Amtrak agrees to indemnify and save harmless Conrail and Conrail Employees, irrespective of any negligence or fault of Conrail or Conrail Employees, or howsoever the same shall occur or be caused, from any and all liability for injury to or death of any Amtrak Passenger, or for loss of, damage to, or destruction of the property of such Amtrak Passenger.

Relatedly, Article 5, § 16 requires the indemnifying party to defend, at its own expense, the party sued.

The arbitration clause under which Conrail claims a procedural contract right against Amtrak, Article 4, § 3 of the Operating Agreement, is a broad one. It provides:

Except as otherwise provided in this Agreement, any claim or controversy between Amtrak and Conrail concerning the interpretation, application or implementation of this Agreement shall be submitted to binding arbitration in accordance with the provisions of the Arbitration Agreement dated April 16, 1971, among Amtrak and certain other railroads.

The Arbitration Agreement to which the Operating Agreement refers, in turn provides (in § 4.7):

Any claim or controversy covering the interpretation, application or implementation of this Agreement shall be submitted to the National Arbitration Panel [NAP] for arbitration in accordance with the provisions hereof as interpreted and applied by the National Arbitration Panel.

The district court found that the arbitration clause bespoke the parties' "manifest intent to arbitrate ... this dispute" over indemnification. 657 F.Supp. at 407. Turning next, however, to ascertain "whether legal constraints external to the parties' agreement foreclosed the arbitration of those claims," Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 628, 105 S.Ct. 3346, 3355, 87 L.Ed.2d 444 (1985), the court held that the arbitration clause was unenforceable. 657 F.Supp. at 408-09. The court noted that the issue of enforceability is neither strictly factual nor strictly legal, but rather involves a question of public policy. Since it must ultimately decide issues of public policy, the court concluded that it would expedite resolution of this dispute for it to decide the public policy issue at once rather than first to compel arbitration. Especially in view of the parties' representation "that they will not settle cases with passenger victims of the Chase, Maryland disaster until liability apportionment is clear," the court was "reluctant to submit to arbitration a case which cannot be finally decided by arbitrators." Id. at 409.

After further proceedings, the district court issued a judgment declaring that "if section 5.6 of the [Operating Agreement] is interpreted as requiring Amtrak to indemnify Conrail for damages ... caused by Conrail's or Conrail's employees gross negligence or willful or wanton misconduct that justifies the imposition of punitive damages, it is unenforceable because of public policy." Declaratory Judgment of Oct. 3, 1988. In an accompanying memorandum, the court found "that the parties did not clearly manifest a mutual intent at the time they executed the [Operating Agreement] for the indemnification provisions therein to apply to accidents caused by [aggravated misconduct]." It went on to opine that "public policy will not allow enforcement of indemnification provisions that appear to cover such extreme misconduct because serious and significant disincentives to railroad safety would ensue."

Against this background, Conrail argues first that the district court should have referred its indemnification dispute with Amtrak, pursuant to the agreements between them, to the NAP. In the alternative, it asserts that there is no clearly articulated public policy precluding enforcement of the indemnification clauses in this case, and that the court misinterpreted the Operating Agreement insofar as it found any ambiguity in the scope of the indemnification clauses and resolved that ambiguity by reference to parol evidence of the parties' intent.

II. ANALYSIS

The parties to this dispute each emphasize a different theme repeated frequently in Supreme Court opinions. Thus, Conrail emphasizes that the Federal Arbitration Act "strongly favors the enforcement of agreements to arbitrate as a means of securing 'prompt, economical and adequate solution of controversies,' " Rodriguez de Quijas v. Shearson/American Express, Inc., --- U.S. ----, 109 S.Ct. 1917, 1919, 104 L.Ed.2d 526 (1989) (quoting and overruling Wilko v. Swan, 346 U.S. 427, 438...