Illinois Cent. Gulf R. Co. v. R.R. Land, Inc.

• Decision Date: 12 April 1993
• Docket Number: No. 92-3119,92-3119
• Citation: 988 F.2d 1397
• Parties: ILLINOIS CENTRAL GULF RAILROAD COMPANY, Plaintiff-Appellee, v. R.R. LAND, INC. and Richard S. Blossman Family Revocable Trust, Defendants-Appellants. R.R. LAND, INC. and Ruhl, Inc., Plaintiffs-Appellants, v. ILLINOIS CENTRAL RAILROAD COMPANY, Defendant-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1397

988 F.2d 1397

ILLINOIS CENTRAL GULF RAILROAD COMPANY, Plaintiff-Appellee, v. R.R. LAND, INC. and Richard S. Blossman Family Revocable

Trust, Defendants-Appellants.

R.R. LAND, INC. and Ruhl, Inc., Plaintiffs-Appellants, v. ILLINOIS CENTRAL RAILROAD COMPANY, Defendant-Appellee.

No. 92-3119.

United States Court of Appeals,

Fifth Circuit.

April 12, 1993.

Robert E. Arceneaux, Mark E. Barham, Anita M. Warner, Barham & Markle, New Orleans, LA, for defendants-appellants.

Patrice W. Oppenheim, Frank A. Diccolo, Lawrence Emerson Abbott, Abbott, Best & Meeks, New Orleans, LA, for plaintiff-appellee.

Appeals from the United States District Court for the Eastern District of Louisiana.

Before WILLIAMS, HIGGINBOTHAM, and BARKSDALE, Circuit Judges.

BARKSDALE, Circuit Judge:

The pivotal issue before us concerns the district court's grant of reformation in favor of Illinois Central Gulf Railroad Company (IC). Because we conclude that the contractual negligence defense does not bar reformation where mutual mistake has been pleaded and proved, and that the district court did not clearly err in finding both clear proof of an antecedent agreement and clear and convincing evidence of mutual mistake in reducing that agreement to writing, we AFFIRM the grant of reformation. We also AFFIRM the district court's rejection of claims for damages by R.R. Land, Inc. (Land), and Ruhl, Inc.

I.

In 1983, T. Eugene Timm, real estate sales representative for IC, and Richard S. Blossman, president of Ruhl and agent for Land ¹, entered negotiations for the sale of IC's Shore Line Branch property, a 200-foot wide tract to the north of Lake Pontchartrain, running approximately 31 miles from Slidell to Covington, Louisiana. The railroad operated on the 50-foot center strip of the property.

During negotiations, IC discussed its obligations, under federal and state grants, to continue operation of the railroad line. ² IC stated that it intended to abandon the line, but could not attempt to do so until its commitment expired in 1986. It further explained that abandonment of the line required Interstate Commerce Commission approval, pursuant to 49 U.S.C. § 10905, and that IC could not guarantee that the ICC would grant it. ³

In part because of the above limitations, IC and Blossman arranged for the acquisition of the tract through four separate sales. The following procedures governed. For each sale, IC prepared a Real Estate Sale Contract (Contract) ⁴, which was then executed by the purchaser (either Ruhl or Land). The purchaser retained a yellow copy of the Contract and made an offer to IC by returning the original and remaining copies to IC. Before accepting the offer, IC submitted the Contract to multiple departments within IC for approval. If accepted, the Vice President of the Real Estate Department, then R.A. Irvine, executed the Contract. IC retained a copy coded in green and an original for its files. The buyer also retained an original. An Act of Cash Sale (ACS) followed. ⁵

The first three sales (first two to Ruhl, third to Land) took place between July 1984 and January 1985, and conveyed the land on each side of the 50-foot center strip of trackage. These sales followed the above described procedure and are not in dispute. ⁶ As discussed in note 6, supra, with slight exception, the terms and conditions in each Contract coincide with its corresponding ACS. The fourth sale, transferring the remaining portion (middle 50 feet) of the 31 mile long tract to Land, is the subject of IC's reformation action. At trial, in connection with that fourth sale, the parties introduced four Contracts.

Blossman executed the first two Contracts on April 23, 1985 ⁷; IC rejected both. On August 2, 1985, Blossom executed a third Contract, reflecting--as did the first two--a purchase price of $160,000 and a deposit of $32,000. Preprinted paragraph three specifically excludes the seller's tracks, appurtenances, buildings or other improvements from the sale. ⁸ The third Contract (for the final/fourth sale) incorporates all of the provisions contained in Rider A, which--similar to Rider A for the Contract for the third sale, see note 6, supra--reserves the trackage and an easement ⁹ in IC's favor until the tracks are abandoned or removed, and prohibits the buyer from interfering with IC's easement. ¹⁰ Rider A also provides notice that, should IC seek an abandonment order from the appropriate regulatory body, a third party or rail carrier may have the right to acquire the track and continue railroad operations. ¹¹ In addition, Rider A contains an atypical provision requiring IC to pay five percent of the purchase price as a real estate commission. The final provision of the third Contract is an omnibus description of the property, included to assure that the four sales conveyed all of the Shore Line Branch property without gaps.

In addition, on August 19, 1985, IC requested by letter that the Contract be amended to extend IC's time for removal of the tracks from one year to 18 months. Blossman signed the letter; and, on September 3, 1985, Irvine executed the third Contract for IC.

IC contends that this third Contract and amending letter evidence the mutual intent of the parties. Blossom counters that the parties modified their agreement, both orally and in writing. According to Blossman, IC agreed to seek approval to abandon its operations immediately after its commitment to the federal government expired in 1986, agreed to lease the property from Land for operating the railroad until abandonment, and agreed to transfer the trackage to Land. Blossman testified that the fourth Contract for this final/fourth sale, which deleted any reference to Rider A, was executed by his son, as President of Land, on September 1, 1985, and purportedly executed by Irvine ten days later on September 11. ¹²

Joyce Lucas, a notary public employed by IC, prepared the ACS for the fourth sale; and Irvine executed it for IC on September 18, 1985. The ACS conveys to Land "[a]ll that portion of the remaining right-of-way and property of Illinois Central Gulf Railroad Company's Shore Line Branch...." It does not include any of the reservations contained in Rider A, nor does it obligate IC to all of the affirmative commitments Blossman contends IC agreed to following execution of the third Contract.

According to Lucas, approximately three months later, she reread the ACS and discovered that she failed to include the two page Rider A reserving the tracks, ties, and an easement. Blossman refused, however, to change the ACS. Therefore, in January 1986, IC filed suit in federal court to reform the ACS; but in mid-1987, the case was removed from the active docket while the parties attempted to settle. ¹³ Five years later, Land and Ruhl sued IC in state court, claiming breach of contract and detrimental reliance, arising from IC's alleged failure to apply for abandonment; unjust enrichment and trespass, arising from IC's use of the property; slander of title, caused by an alleged illegal notice of lis pendens filed in bad faith by IC; and reimbursement for maintenance costs, including expenses incurred in maintaining sight zones. IC removed the action to federal court; the two cases were consolidated; and a two day bench trial was held in December 1991.

In most detailed, comprehensive, and insightful findings of fact and conclusions of law, the district court carefully reviewed the evidence and held that the ACS did not reflect the mutual intent of the parties. It found Blossman's version of the agreement, as reflected in the fourth Contract, implausible, and therefore ordered the ACS reformed to comply with the third Contract. And, it dismissed all claims against IC.

II.

Land and Ruhl contest the district court's grant of reformation, its denial of damages for IC's alleged failure to diligently apply for abandonment, and its denial of reimbursement for maintenance of sight zones. ¹⁴ Going for broke, in the hope that they can keep the clearly erroneous standard of review out of play, they boldly and confidently state in their Reply Brief that they are "not asking this Court to review or overturn a single factual finding made by the district court." But, as discussed infra, that standard of review is central to this case.

A.

Land contends that the district court erred in reforming the ACS to reflect the third Contract. We apply Louisiana law in this diversity action, and cannot give deference to the district court's interpretation of it. Salve Regina College v. Russell, --- U.S. ----, ----, 111 S.Ct. 1217, 1221, 113 L.Ed.2d 190 (1991). Under Louisiana law, a party may reform a written instrument that does not reflect the true intent of the contracting parties. Valhi Inc. v. Zapata Corp., 365 So.2d 867, 870 (La.App. 4th Cir.1978). Reformation is an equitable remedy designed to correct an error in the contract. Id. The error "must be mutual", see, e.g., Pat S. Todd Oil Co. v. Wall, 581 So.2d 333, 336 (La.App. 3d Cir.), writ denied, 585 So.2d 569 (La.1991); and it must be "in the drafting of the instrument ... and not in making the contract which it evidences". Phillips Oil Co. v. O.K.C. Corp., 812 F.2d 265, 275 (5th Cir.) (internal quotation omitted), cert. denied, 484 U.S. 851, 108 S.Ct. 152, 98 L.Ed.2d 107 (1987).

Before an instrument will be reformed, "there must be clear proof of the antecedent agreement as well as an error in committing it to writing". Pat S. Todd Oil Co., 581 So.2d at 336. The party seeking reformation must prove mutual error by "clear and convincing evidence", and parol evidence is admissible to show "that the writing does not express the true intent or agreement of the parties". First State Bank & Trust Co. v. Seven Gables Inc., 501 So.2d 280, 285 (La.App. 1st Cir.1986), writ denied, 502 So.2d 103 (La.1987). We freely review conclusions of law; but, because the reformation issue turns on a determination of the parties' intent, we review for clear...