Adams v. Burlington Northern R. Co.

• Citation: 80 F.3d 1377
• Decision Date: 10 April 1996
• Docket Number: Nos. 94-35461,94-35618,s. 94-35461
• Parties: 29 UCC Rep.Serv.2d 213, 96 Cal. Daily Op. Serv. 2438, 96 Daily Journal D.A.R. 4135 Guy ADAMS, Bonnie L. Adams, Timothy Adams, Clifton Albright, Janet Allot, et al., Marvin Klein, Mary Lou Miller, Dwight W. Williams, Jo Ann Peterson, Ignacia Fuentes, Russel Peterson, Janet Peterson, Central Life Assurance Co., Plaintiffs-Appellants, v. BURLINGTON NORTHERN RAILROAD COMPANY, a Delaware Corporation, Burlington Northern, Inc., a Delaware Corporation, Defendants-Appellees. Guy D. ADAMS, Herb Bailey, Barnts Medical Specialties, Benefit Trust Life Insurance Co., Tom Bradley, Donald L. Brookhart, Central Life Assurance Co., Russell L. Clark, DMN, Inc., Ray Eiford, Sherman A. Hill, Bryce A. James, Frank C. Jones, Alan Russell Kahn, Robert M. Keenholts, Manhattan Life Insurance Company, Standard Insurance Company, Ellis R. Stanley, Trustmark Life Insurance Company, Union Central Life Insurance Co., Irene E. Walters, Woodmen of the World Life Insurance Society, John H. Zybura, for their own behalf and on behalf of and as Class representatives of all other persons similarly situated, Plaintiffs-Appellants, v. CSX TRANSPORTATION, a Virginia corporation, Defendant-Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

Page 1377

80 F.3d 1377

29 UCC Rep.Serv.2d 213, 96 Cal. Daily Op. Serv. 2438,

96 Daily Journal D.A.R. 4135

Guy ADAMS, Bonnie L. Adams, Timothy Adams, Clifton Albright,

Janet Allot, et al., Marvin Klein, Mary Lou Miller, Dwight

W. Williams, Jo Ann Peterson, Ignacia Fuentes, Russel

Peterson, Janet Peterson, Central Life Assurance Co., Plaintiffs-Appellants, v. BURLINGTON NORTHERN RAILROAD COMPANY, a Delaware

Corporation, Burlington Northern, Inc., a Delaware

Corporation, Defendants-Appellees.

Guy D. ADAMS, Herb Bailey, Barnts Medical Specialties,

Benefit Trust Life Insurance Co., Tom Bradley, Donald L.

Brookhart, Central Life Assurance Co., Russell L. Clark,

DMN, Inc., Ray Eiford, Sherman A. Hill, Bryce A. James,

Frank C. Jones, Alan Russell Kahn, Robert M. Keenholts,

Manhattan Life Insurance Company, Standard Insurance

Company, Ellis R. Stanley, Trustmark Life Insurance Company,

Union Central Life Insurance Co., Irene E. Walters, Woodmen

of the World Life Insurance Society, John H. Zybura, for

their own behalf and on behalf of and as Class

representatives of all other persons similarly situated, Plaintiffs-Appellants, v. CSX TRANSPORTATION, a Virginia corporation, Defendant-Appellee.

Nos. 94-35461, 94-35618.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Sept. 14, 1995.

Decided April 10, 1996.

Camden M. Hall, Foster Pepper & Shefelman, Seattle, Washington, Geoffrey P. Knudsen, Ann Mary Holmes, Donald B. Myers, Stoel, Rives, Boley, Jones & Grey, Seattle, Washington, for plaintiffs-appellants.

Robert D. Joffe, Cravath, Swaine & Moore, New York City, Bruce D. Corker, Seattle, Washington; R. Harvey Chappell, Jr., Paul W. Jacobs, II, J. Tracy Walker, IV, Christian, Barton, Epps, Brent & Chappell, Richmond, Virginia, for defendants-appellees.

Appeals from the United States District Court Western District of Washington; William L. Dwyer, District Judge, Presiding, No. CV-93-01590-WLD, John C. Coughenour, District Judge, Presiding, No. CV-93-1827-JCC.

Before ALARCON and CANBY, Circuit Judges, and FITZGERALD, ^* District Judge.

CANBY, Circuit Judge:

These cases arise from the efforts of bondholders to enforce "gold clauses" in railroad bonds issued almost a century ago. A gold clause requires payment of the bond's obligations in gold dollars valued at the time the obligation was undertaken. In 1933, Congress rendered such gold clauses unenforceable, 48 Stat. 112, 113 (1933), but then permitted them again in 1977, 91 Stat. 1227, 1229 (1977). The issues presented here are whether the 1977 legislation revived these ancient gold clauses, and whether various actions of the parties have created new, post-1977 obligations payable in gold. Our answer to both questions is "no."

The bondholders brought a class action to force the Burlington Northern Railroad Company ("Burlington Northern" or "Railroad") to pay the interest and principal of its gold bonds, issued in 1896 and 1921, in gold coin. Class representative Guy Adams appeals the district court's dismissal of the action under Fed.R.Civ.P. 12(b)(6) and 56. Because of the identity of issues in this case and Adams v. CSX Transportation, Inc., No. 94-35618, an appeal from the district court's dismissal of a class action to enforce the gold clauses in CSX Transportation ("CSXT") bonds, we consolidate the cases for purposes of this opinion. This Court has jurisdiction under 28 U.S.C. § 1291. We affirm the decisions of the district court in both cases.

BACKGROUND

In 1896 and 1921, respectively, the Northern Pacific Railway and the Great Northern Railway Company issued millions of dollars in "Gold Bonds" to finance their expansion in Nearly $92 million of the Northern Pacific bonds and approximately $62 million of the Great Northern bonds remain outstanding. The bonds mature between January 1, 1997 and January 1, 2047. The Burlington Northern became obligor on these bonds in 1970, when Great Northern and Northern Pacific merged into it. Both issues trade on the major exchanges, at prices reflecting the market's belief that the Burlington Northern will continue to pay its obligations in current legal tender, rather than in gold coin of the relevant period. If the method of payment were to return to gold coin, the value of the bonds would increase by up to 2000 per cent.

                the Midwestern and Northwestern states.   The bonds each contain a "gold clause," requiring the obligor to pay upon maturity "the [face value number of] Dollars, gold coin of the United States of America of the present [1896 or 1921] standard weight and fineness."   The clause also calls for annual interest payments at a rate of between three and four per cent, depending on the issue, to be made "in like gold coin."
                

Since the time the Burlington Northern became the obligor on the bonds, it has undergone a corporate reorganization, in which its name was changed, and several mergers. When it reorganized to effectuate a name change and to create a holding company, the Burlington Northern undertook a Supplemental Indenture under its new name "to authorize the unbroken continuity" of the Railroad's obligations to the bondholders.

After a 1981 merger with the Colorado & Southern Railway, the Railroad undertook another Supplemental Indenture. The Supplemental Indenture subjected the former assets of Colorado & Southern to a lien that the Railroad's mortgage trustee had been required to maintain on certain blocks of stock in order to secure payment on the bonds. The Railroad wanted to free the stock from the lien so that it could cancel the stock. The Railroad issued several other Supplemental Indentures, for the same purpose, after other subsequent mergers. None of the Supplemental Indentures created new debt.

In 1985, the Railroad sought the mortgage trustee's release of its lienhold on 1.9 million acres of undeveloped property that had previously served as partial security for the bond debt. A class of gold bondholders filed an action, with Alan Reivman as class representative, to prevent the lienhold release. In 1987, the Railroad negotiated a settlement with the bondholders (the "Reivman Settlement"), paying the class $35.5 million in exchange for their agreement to drop the action and cease opposition to the release. The settlement did not purport to create new bond obligations.

The CSXT bonds at issue in Adams v. CSX Transportation, Inc. have a history similar to the Railroad bonds. In 1899, the Columbus, Hocking Valley & Toledo Railway Company issued $20 million in bonds containing gold clauses that governed payment of the interest and the principal. In 1930, Hocking Valley merged into the Chesapeake & Ohio Railway ("C & O"). In 1987, C & O and CSXT, both of which were wholly owned by the CSX Corporation, merged, leaving CSXT as the surviving entity. CSXT executed a Supplemental Indenture in satisfaction of the original Hocking Valley Mortgage Agreement's requirements, in which it agreed to "assume the due and punctual payment of the principal and interest of all the Bonds issued under [Hocking Valley's first mortgage] according to their tenor...." Approximately $15.8 million of the original Hocking Valley Bonds remain outstanding.

In 1933, Congress passed a Joint Resolution ("the 1933 Statute") providing that any obligation containing a gold clause "shall be discharged upon payment, dollar for dollar, in any coin or currency which at the time of payment is legal tender for public and private debts." Ch. 48, 48 Stat. 112, 113 (1933) (formerly codified at 21 U.S.C. § 463). The statute gave the obligor the option of paying its debts in any form of legal tender, including gold, and prevented any obligee from enforcing gold clauses in existing or future obligations. The Gold Reserve Act of 1934, however, foreclosed the obligor's option of paying in gold by banning the use of gold as legal tender. See Gold Reserve Act of 1934, ch. 6, 48 Stat. 340 (1934) (repealed). From 1933 forward, the railroads made the interest payments on their bonds in currency.

In 1977, Congress amended the 1933 Statute by providing that it did "not apply to obligations issued on or after the date of enactment of this section." 91 Stat. 1227, 1229 (1977). The 1933 statute and its amendment were then recodified in 1982 as follows:

An obligation issued containing a gold clause or governed by a gold clause is discharged on payment (dollar for dollar) in United States coin or currency that is legal tender at the time of payment. This paragraph does not apply to an obligation issued after October 27, 1977.

31 U.S.C. § 5118(d)(2). In 1985, Congress reauthorized the use of gold coin as legal tender when it provided for the minting of $50 "Gold Eagle" coins. See Gold Bullion Coin Act of 1985, Pub.L. No. 99-185, 99 Stat. 1177 (codified as amended at 31 U.S.C. § 5112 (1994)).

Adams filed these two class actions in the district court in 1993. In Adams v. Burlington Northern Railroad, No. 94-35461, Adams sought a declaration that the original terms of the bonds, requiring payment of annual interest and principal at maturity in gold coin of the time (1896 and 1921), are enforceable. Adams also sought damages accruing from the Railroad's failure to pay interest in gold coin from the time any new obligations issued, as determined by the court, to the present. The district court dismissed the action for failure to state a claim upon which relief could be granted, Fed.R.Civ.P. 12(b)(6), and found that the Railroad also had met its burden for a grant of summary judgment under Fed.R.Civ.P. 56.

Adams brought his second class action, Adams v. CSX Transportation, Inc., No. 94-35618, on behalf of all Hocking Valley gold bondholders. He sought a declaration that CSXT must make all future interest and principal payments in gold coin of the time (the year 1899) and damages for CSXT's failure to pay interest in gold from the time of the 1987 merger with C & O until the time of the judgment. The district court dismissed Adams'...