Burlington Northern Railway v. Kansas City Railway

• Decision Date: 02 March 1999
• Docket Number: No. 98-2307-JWL.,98-2307-JWL.
• Parties: The BURLINGTON NORTHERN AND SANTA FE RAILWAY COMPANY, Plaintiff, v. KANSAS CITY SOUTHERN RAILWAY COMPANY, Defendant.
• Court: U.S. District Court — District of Kansas

45 F.Supp.2d 847

The BURLINGTON NORTHERN AND SANTA FE RAILWAY COMPANY, Plaintiff, v. KANSAS CITY SOUTHERN RAILWAY COMPANY, Defendant.

No. 98-2307-JWL.

United States District Court, D. Kansas.

March 2, 1999.

COPYRIGHT MATERIAL OMITTED

William P. Coates, Jr., Holman, Hansen & Colville, P.C., Prairie Village, KS, for Burlington Northern and Santa Fe Railway Company, plaintiff.

James F. Duncan, Robert B. Best, Jr, Brian Edward Engel, Armstrong Teasdale LLP, Kansas City, MO, for Kansas City Southern Railway Company, defendant.

MEMORANDUM AND ORDER

LUNGSTRUM, District Judge.

In this diversity action, plaintiff Burlington Northern and Santa Fe Railway Company ("BNSF") seeks damages arising from defendant Kansas City Southern Railway Company's ("KCS") alleged breach of contract. The matter is presently before the court on the cross-summary judgment motions of plaintiff (doc. 46) and defendant (doc. 44). For the reasons set forth below, defendant's motion for summary judgment is denied, and plaintiff's motion for summary judgment is granted in part and denied in part. Plaintiff is entitled to judgment in the amount of $751,845.46.

I. Background

In January 1991, BNSF's predecessor in interest, Burlington Northern Railroad Company, and KCS entered into a "run-through" or locomotive interchange contract, whereby both parties strove to "obtain maximum utilization of locomotive units." The purpose of this contract was to facilitate the parties' sharing of units of power, known as "horsepower hours" in the railroad industry, and, according to the contract, "to provide for the uniform settlement of such matters as are customarily related to the operation and run-through of locomotive units."

Section III of the parties' agreement governs "Locomotive Unit Equalization and Caboose Rental." Section 3.4 provides, in pertinent part:

The parties agree that not less than every three (3) months and upon request of either of the parties to whom locomotive horsepower hours are owing, the party owing said locomotive horsepower hours shall promptly place in service hereunder an additional locomotive unit or units as may be agreed are necessary to overcome any such deficit within the subsequent three-month period. The party not having a horsepower hour deficit shall withdraw an appropriate number of locomotive units to permit the assignment of the agreed upon number of additional locomotive units by the party in deficit. In the event of the inability or failure of the owing party to so place in service sufficient additional locomotive units to overcome the horsepower hour deficit, the party to whom the horsepower hours are owed shall have the option of (1) receiving the horsepower hours in kind over an additional period of time as may be agreed upon by the Chief Operating/ Transportation officers of the parties hereto, or (2) receiving payment for any remaining unequalized horsepower hours at a rate to be calculated by applying the formula contained in the statements marked Exhibit "A," attached hereto and made a part hereof, to the appropriate accounts of [Burlington Northern] or KCS, as the case may be, for the latest calendar year for which annual figures are available.

The uncontroverted facts reveal that on October 31, 1997, KCS owed BNSF 43,459,275 horsepower hours. On November 5, 1997, BNSF issued written notice to KCS regarding KCS' then-existing deficit. On January 31, 1998, at the end of the ninety-day period within which KCS was to settle its horsepower hours balance pursuant to the November 5, 1997 notice, the number of horsepower hours owed by KCS to BNSF totaled 135,854,985.

On June 12, 1998, BNSF filed its breach of contract action in the District Court of Wyandotte County, Kansas. Pursuant to 28 U.S.C. § 1441, defendant KCS subsequently removed the action to this court.

Plaintiff moves for summary judgment, claiming that defendant breached the express terms of the parties' contract, and that defendant's performance thereunder was not excused by KCS' commercial frustration, impracticability, and/or "time is not of the essence" defenses. Defendant moves for summary judgment, claiming that because it eliminated its horsepower hours deficit within a reasonable time, BNSF's acceptance of that performance effectively constitutes a waiver of defendant's breach.

II. Legal Standard

Summary judgment is appropriate if the moving party demonstrates that there is "no genuine issue as to any material fact" and that it is "entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). In applying this standard, the court views the evidence and all reasonable inferences therefrom in the light most favorable to the nonmoving party. Adler v. Wal-Mart Stores, Inc., 144 F.3d 664, 670 (10th Cir. 1998) (citing Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986)). A fact is "material" if, under the applicable substantive law, it is "essential to the proper disposition of the claim." Id. (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986)). An issue of fact is "genuine" if "there is sufficient evidence on each side so that a rational trier of fact could resolve the issue either way." Id. (citing Anderson, 477 U.S. at 248, 106 S.Ct. 2505).

The moving party bears the initial burden of demonstrating an absence of a genuine issue of material fact and entitlement to judgment as a matter of law. Id. at 670-71. In attempting to meet that standard, a movant that does not bear the ultimate burden of persuasion at trial need not negate the other party's claim; rather, the movant need simply point out to the court a lack of evidence for the other party on an essential element of that party's claim. Id. at 671 (citing Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986)).

Once the movant has met this initial burden, the burden shifts to the nonmoving party to "set forth specific facts showing that there is a genuine issue for trial." Anderson, 477 U.S. at 256, 106 S.Ct. 2505; see Adler, 144 F.3d at 671 n. 1 (concerning shifting burdens on summary judgment). The nonmoving party may not simply rest upon its pleadings to satisfy its burden. Anderson, 477 U.S. at 256, 106 S.Ct. 2505. Rather, the nonmoving party must "set forth specific facts that would be admissible in evidence in the event of trial from which a rational trier of fact could find for the nonmovant." Adler, 144 F.3d at 671. "To accomplish this, the facts must be identified by reference to affidavits, deposition transcripts, or specific exhibits incorporated therein." Id.

Finally, the court notes that summary judgment is not a "disfavored procedural shortcut;" rather, it is an important procedure "designed to secure the just, speedy and inexpensive determination of every action." Celotex, 477 U.S. at 327, 106 S.Ct. 2548 (quoting Fed.R.Civ.P. 1).

III. Discussion

A. Choice of Law

As an initial matter, the court must determine what law governs the parties' respective claims. A federal court sitting in diversity must apply the substantive law of the state in which it sits, including that state's choice of law rules. Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941). Thus, the court must look to Kansas law to determine which state's laws should be applied to the parties' respective claims.

The court notes that the parties' agreement contains what appears to be an express choice-of-law provision. Specifically, section 13.1 of the contract states that "all of the terms hereof shall be governed by the laws of the State of Missouri." The court applies the forum state's rule regarding the enforceability of a choice of law provision. Equifax Servs., Inc. v. Hitz, 905 F.2d 1355, 1360 (10th Cir.1990). Kansas courts have given effect to such provisions, and the court concludes that they would do the same here. See id. (applying Kansas law as provided by contract); National Equip. Rental v. Taylor, 225 Kan. 58, 61, 587 P.2d 870, 873 (1978) (applying a contractual choice of law provision where the transaction at issue at least had "a reasonable relation" to the denominated state). Accordingly, to the extent that the contract expressly provides that the contract's terms are governed by the laws of Missouri, issues of contractual construction will be addressed in light of Missouri law.

With respect to the law applicable to defendant's affirmative defenses, however, plaintiff maintains that because the choice-of-law clause does not specifically state that Missouri law governs "all disputes arising out of the Agreement," Missouri law applies only to the "terms" of the agreement, but not to defendant's affirmative defenses to performance due thereunder. Nevertheless, plaintiff concedes that few differences exist between Missouri and Kansas caselaw with respect to the issues of commercial frustration, impracticability of performance, and "time is of the essence." In light of plaintiff's concession that Kansas and Missouri law is virtually identical vis-à-vis defendant's affirmative defenses, the court will apply Missouri law.

B. Commercial Frustration and/or Impracticability Defense

Plaintiff moves for summary judgment with respect to defendant's affirmative defenses of commercial frustration and impracticability of performance. Defendant resists summary judgment as to these defenses, claiming that its obligation to equalize its horsepower deficit within ninety days following BNSF's notice was temporarily excused due to an industry-wide "transportation emergency," an event unforeseen by either party.

As recently summarized by the Court of Appeals for the Western District of Missouri, under Missouri law,

[t]he commercial frustration doctrine excuses performance of contractual obligations when a happening, not foreseen by the contractors, destroys, or nearly destroys, the contracted performance's value or the...