Baltimore & Ohio Chicago Terminal R. Co. v. Wisconsin Cent. Ltd.

• Decision Date: 21 October 1998
• Docket Number: No. 97-3484,97-3484
• Citation: 154 F.3d 404
• Parties: BALTIMORE AND OHIO CHICAGO TERMINAL RAILROAD COMPANY, Plaintiff-Appellee, v. WISCONSIN CENTRAL LIMITED, Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 404

154 F.3d 404

BALTIMORE AND OHIO CHICAGO TERMINAL RAILROAD COMPANY Plaintiff-Appellee, v. WISCONSIN CENTRAL LIMITED, Defendant-Appellant.

No. 97-3484.

United States Court of Appeals Seventh Circuit.

Argued May 14, 1998.

Decided Aug. 25, 1998.

Rehearing and Suggestion for Rehearing En Banc Denied Oct. 21, 1998.

Paul V. Esposito (argued), Douglas A. Lindsay, Lewis, Overbeck & Furman, Chicago, IL, Thomas M. Weithers, Central States Law Department, Des Plaines, IL, for Plaintiff-Appellee.

James A. Fletcher (argued), Oppenheimer, Wolff & Donnelly, Chicago, IL, Janet H. Gilbert, Wisconsin Central Limited, Rosemont, IL, for Defendant-Appellant.

Before POSNER, Chief Judge, and CUMMINGS and BAUER, Circuit Judges.

POSNER, Chief Judge.

This procedurally complicated lawsuit between two railroads began five years ago when BOCT filed a complaint in federal district court under the Interstate Commerce Act demanding that WCL, to which BOCT had rendered terminal services, pay it switching charges and railroad-car rental fees pursuant to a tariff for such services that BOCT had filed with the Interstate Commerce Commission. In its answer, WCL claimed both that BOCT's claim was barred by an agreement between the parties covering the services BOCT had rendered (an interchange agreement) and that the rate in the tariff that BOCT was suing on was unreasonable and discriminatory. When shortly afterward the parties appeared before the district judge to report on the status of the case, they agreed to mediation; it failed, and BOCT, which in response to WCL's answer had denied that there was an enforceable interchange agreement, now moved to amend its complaint to add a claim of breach of contract based on the agreement and for a stay of proceedings pending arbitration of its contractual rights. The Interstate Commerce Act permits railroads to deal with their customers (which can include another railroad) either by tariffs, which are publicly announced take-it-or-leave-it form contracts, or by individually negotiated agreements. 49 U.S.C. §§ 10713, 10761 (1994 ed.); Burlington Northern Ry. v. STB, 75 F.3d 685, 687 (D.C.Cir.1996); National Grain & Feed Ass'n v. United States, 5 F.3d 306, 309 (8th Cir.1993). Because the interchange agreement incorporated the rates in the tariff that BOCT was also suing on, there were only two pertinent differences between BOCT's tariff claim--its original claim--and the contract claim based on the interchange agreement that it wanted to add by amending its complaint. First, the statute of limitations was ten years for the contract claim and only three years for the tariff claim (a feature of the agreement that favored BOCT). Second, there was a discrepancy between the description of the covered services in the tariff and in the agreement that WCL believed would preclude BOCT from seeking payment if the agreement trumps the tariff.

The ground on which BOCT asked for a stay pending arbitration of the contract claim was a clause in the interchange agreement requiring the parties to arbitrate any "irreconcilable disputes" arising under it. WCL opposed both the request for the stay, and the motion to amend the complaint, on the ground of undue delay. The judge disagreed with WCL's position, granted the motion to amend the complaint, but rather than staying the suit pending arbitration dismissed it in its entirety, though without prejudice to either party's reinstating any nonarbitrable claim or defense within thirty days after the arbitrators made their award. Yet while dismissing the suit, the judge purported to retain jurisdiction to confirm the award.

The parties proceeded to arbitration, which eventuated in an award to BOCT of some $20 million in damages (including interest) for breach of the interchange agreement. BOCT moved the district court to confirm the award and WCL moved to reinstate its defenses. The judge confirmed the award. He refused to reinstate two of the defenses on the ground that WCL had waived them by failing to present them to the arbitrators. He reinstated others but referred those to the Surface Transportation Board (successor to the Interstate Commerce Commission, which was abolished in 1996) in accordance with the doctrine of primary jurisdiction. The referred defenses are that BOCT's tariff violates the Interstate Commerce Act because it is unreasonable and discriminatory as applied to the services that BOCT rendered to WCL. The principal defense that the judge refused to reinstate (the other needn't be discussed) was that BOCT could not recover damages under the interchange agreement because of the filed-tariff doctrine, of which more anon. "Reinstatement" is a misnomer as applied to this defense, for WCL had never pleaded it before. Remember that WCL had originally sought to use the interchange agreement as a shield against BOCT's tariff claim, and it could hardly do so by arguing that the tariff preempted the agreement. It was a new defense, and the judge thought it should have been presented to the arbitrators. "Defense" is a misnomer too, because a claim that a tariff is invalid, when the claim is interposed in a suit by a carrier to collect the tariff charge, is technically a counterclaim. Reiter v. Cooper, 507 U.S. 258, 263, 113 S.Ct. 1213, 122 L.Ed.2d 604 (1993). The distinction is a fine one, but it has bite, as we shall see.

It may seem odd that the district judge should have referred the challenge to the validity of the tariff to the STB while confirming the arbitrators' award. One might think that the award would moot BOCT's tariff claim by giving BOCT more than it could get under the tariff for the identical services covered by the board. Why, then, having confirmed the award, didn't the judge dismiss the rest of the suit? Because the arbitrators' award, and the district judge's order confirming it, was premised on the yet-to-be-determined validity of the tariff incorporated in the interchange agreement. If the STB determines the tariff to be invalid, WCL will have a claim against BOCT, enforceable in this lawsuit, for the return of part or all of the arbitration award.

The judge certified his order confirming the arbitrators' award for an immediate appeal to us under Fed.R.Civ.P. 54(b) as a partial final judgment. This was a proper application of the rule, which authorizes the entry of a final, appealable judgment on a separate claim if there is no good reason to delay the appeal until the end of the entire litigation. The part of the case that remains in the district court, though stayed there pending consideration by the Surface Transportation Board, is WCL's claim that the tariff is invalid. The part of the case that the judge resolved is BOCT's contract claim. These are, believe it or not, separate claims. WCL's appeal does not challenge the arbitrators' interpretation of the agreement, but only the propriety of the judge's having referred the case to arbitration in light of BOCT's failure to request arbitration at the outset, and of his having deemed WCL's defense, based on the filed-tariff doctrine, to BOCT's contract claim waived because it could have been presented to the arbitrators. These entirely procedural issues do not overlap any of the issues in the STB proceedings, and so the resolved and retained claims are rightly regarded as separate claims within the meaning of Rule 54(b). See Lawyers Title Ins. Corp. v. Dearborn Title Corp., 118 F.3d 1157, 1162 (7th Cir.1997), and cases cited there.

It is true that the arbitration award and so the order confirming it may as a practical matter be undone by the STB. But WCL's "defense" that the BOCT tariff is invalid is a counterclaim, and as such it can be treated as a separate claim for Rule 54(b) purposes, Reiter v. Cooper, 507 U.S. 258, 265, 113 S.Ct. 1213, 122 L.Ed.2d 604 (1993); see also Curtiss-Wright Corp. v. General Electric Co., 446 U.S. 1, 9, 100 S.Ct. 1460, 64 L.Ed.2d 1 (1980), provided that it is distinct in the sense of having only a minimum factual overlap with the plaintiff's claim. More than a technicality underlies this conclusion. The arbitration award is "conditional" in the loose sense that WCL may eventually get its money back, but it is as an unconditional order to pay. The Interstate Commerce Act displays its solicitude for carriers by creating a mechanism by which their customers may be required to pay first and recoup later. This structure sets the stage for the use of Rule 54(b) illustrated by this case, as by Reiter. See also In re Lifschultz Fast Freight Corp., 63 F.3d 621, 624 (7th Cir.1995); Hargrave v. Freight Distribution Service, Inc., 53 F.3d 1019, 1021 (9th Cir.1995).

That is one jurisdictional issue out of the way but there is another: whether the district judge had jurisdiction over the case when it came back to him after the arbitration. There is no doubt that he had jurisdiction over it when it was originally filed and that he was empowered by the Federal Arbitration Act to stay it pending arbitration. 9 U.S.C. § 3. The issuance of a stay, as distinct from an order of dismissal, implies that the proceeding in the court that issued the stay remains on the court's docket, albeit in a state of suspended animation. As long as the case remains before the court, the judge has the power to issue any order that is within his power to issue in a case of that sort. And that includes an order confirming an arbitration award when, as in this case, the agreement pursuant to which the parties' dispute (or some part of it) is being arbitrated is within the compass of the Federal Arbitration Act. See Marine Transit Corp. v. Dreyfus, 284 U.S. 263, 275-76, 52 S.Ct. 166, 76 L.Ed. 282 (1932); Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Lauer, 49 F.3d 323, 329-30 (7th Cir.1995); University Life Ins. Co. v. Unimarc Ltd., 699 F.2d 846, 850 (7th Cir.1983); Prudential-Bache Securities, Inc. v. Fitch, 966 F.2d 981, 989 (5th Cir.1992); Smiga v. Dean Witter Reynolds,...