Chicago & North Western Ry. Co. v. Chicago, Milwaukee, St. Paul & Pac. R. Co.

• Citation: 502 F.2d 193
• Decision Date: 06 September 1974
• Docket Number: No. 73-1349,73-1349
• Parties: CHICAGO & NORTH WESTERN RAILWAY COMPANY, a corporation, Plaintiff-Appellee, v. CHICAGO, MILWAUKEE, ST. PAUL AND PACIFIC RAILROAD COMPANY, a corporation, Defendant-Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

Page 193

502 F.2d 193

CHICAGO & NORTH WESTERN RAILWAY COMPANY, a corporation Plaintiff-Appellee, v. CHICAGO, MILWAUKEE, ST. PAUL AND PACIFIC RAILROAD COMPANY, a corporation, Defendant-Appellant.

No. 73-1349.

United States Court of Appeals, Seventh Circuit.

Argued Feb. 12, 1974.

Decided Sept. 6, 1974.

James P. Reedy, Anthony W. Summers, Chicago, Ill., for defendant-appellant.

Edward Warden, James P. Daley, Chicago, Ill., fof plaintiff-appellee.

Before CASTLE, Senior Circuit Judge, and PELL and SPRECHER, Circuit judges.

PELL, Circuit Judge.

In 1932, the Chicago, Milwaukee, St. Paul and Pacific Railway (the Milwaukee) and the Chicago & North Western Railway (North Western) ¹ entered into an agreement granting the Milwaukee the right to use jointly with North Western a certain section of main line track owned by North Western. In 1971, North Western attempted to terminate the agreement. When the Milwaukee rejected the notice of termination, North Western instituted the present action seeking, inter alia, that the Milwaukee be enjoined from using the line and that plaintiff have judgment for $1,250 per day for each day of defendant's use of the line subsequent to the termination date announced in North Western's notice.

Denying the Milwaukee's motion for summary judgment and granting that of North Western, the district court found that the 1932 agreement specified no termination date and the court concluded that 'in this jurisdiction . . . (such a) contract . . . is terminable at the will of either party.' Accordingly, because North Western had duly notified the Milwaukee of its intention to terminate the agreement, the court ordered the defendant railroad to deliver possession and enjoined it from any further use of the line. However, the court stayed 'all further proceedings to restrain defendant' pending this appeal by the Milwaukee or the application by either party to the Interstate Commerce Commission.

I

North Western operates three main lines of railroad from Chicago. One extends in a westerly direction from Chicago through Proviso, Illinois, to Omaha, Nebraska; another extends in a northwesterly direction from Chicago through Des Plaines, Illinois, to St. Paul, Minnesota; and the third extends in a northerly direction from Chicago through Blodgett, Illinois, to Ishpeming Michigan. The 10 1/2 mile section of line covered by the parties' 1932 agreement (the 'Techny line') ² is part of a railroad line running from Proviso through Des Plaines to Blodgett. Its use permits the railroads to expedite the handling of traffic. The Milwaukee claims that if it is foreclosed from using the Techny line it would have to route its rail traffic to Milwaukee through downtown Chicago.

During the First World War, when the federal government assumed control of the nation's railroads, freight trains of the Milwaukee used North Western's Techny line. In 1920, with the approval of the Illinois Public Utilities Commission, the Milwaukee contracted with plaintiff for the continued use of the line. That agreement by its terms expired in 1928. North Western was reluctant to renew the right of the Milwaukee to use the tracks, particularly in a long-term contract. While the two railroads negotiated to determine whether they could reach a new agreement, they from time to time informally reaffirmed the arrangements that had been made in 1920.

The negotiations resulted in a new agreement, dated September 8, 1932. It provided, inter alia, for monthly payments based on 30cents for each car and 60cents for each locomotive moved by the Milwaukee over the Techny line. The instrument specified no termination date, and it contained no provision either for the escalation or the reduction of the compensation to be paid North Western. Plaintiff was not obligated to continue ownership, maintenance, improvement, or operation of the Techny line and related facilities. However, if North Western was to decide to abandon all or part of the line, the Milwaukee had the right to purchase it within 90 days. The parties also agreed that if they subsequently participated in the construction of tracks or additions in order to service nearby industries, each railroad would own an undivided one-half interest in such future side tracks. The final paragraph of the agreement specified that the instrument 'shall not become effective until approved and authorized by such public authorities as may be required by law.'

The prayer to plaintiffs' complaint requested, inter alia, that the court (1) declare the agreement void pursuant to section 1(18) of the Interstate Commerce Act because the Interstate Commerce Commission had never approved it, (2) find the agreement terminable at will since it failed to provide a termination date, (3) declare the instrument unenforceable for lack of mutuality, and (4) enjoin the Milwaukee from using the line and from asserting any claims to it. The district court 'chos(e) to focus upon the (issue of) the duration of the 1932 contract.' ³

II

The district court did not reach or explore the ICC issue, the alleged basis of federal jurisdiction. Instead, it implicitly accepted pendent jurisdiction ⁴ over the nonfederal claims and, as we mentioned above, resolved the controversy on one of the state contract law grounds urged by North Western. Our examination of the law pertinent to the federal issues raised by this case convinces us that the ICC ultimately will have to become involved in the Techny line trackage rights matter. That is, regardless of which party wins on state contract law grounds, ⁵ the ICC's expertise and approval are necessary for full resolution of the controversy. The district judge implicitly acknowledged the inevitable participation of the Commission when he stayed the injunction against the Milwaukee. Since, in our opinion, the jurisdiction of the ICC is the first issue that should have been resolved, we turn to it.

A

A finding that North Western had the right under Illinois contract law to terminate its agreement with the Milwaukee raises the question whether the cessation of the Milwaukee's operations over the Techny line may be accomplished without the approval of the Interstate Commerce Commission. Whether such authorization is required depends upon the construction and application of 49 U.S.C. 1(18) which provides in pertinent part:

'No carrier by railroad subject to this chapter shall abandon all or any portion of a line of railroad, or the operation thereof, unless and until there shall first have been obtained from the Commission a certificate that the present or future public convenience and necessity permit of such abandonment.'

The primary decision involving this portion of section 1(18) is Thompson v. Texas Mexican Ry. Co., 328 U.S. 134, 66 S.Ct. 937, 90 L.Ed. 1132 (1946) (Tex-Mex). By written contract entered into in 1904, the Tex-Mex granted the St. Louis, Brownsville & Mexico Railway (Brownsville) the right, in return for payment of specified rentals, to operate its trains over Tex-Mex tracks and to make use of Tex-Mex terminal facilities. Both railroads were interstate carriers subject to the provisions of the Interstate Commerce Act. The contract provided for a term of 50 years unless the parties terminated it sooner. Either party was permitted, upon giving twelve months' notice, to terminate the lease. In 1940, seven years after the grantee railroad had petitioned for reorganization under 77 of the Bankruptcy Act, Tex-Mex gave notice that it was exercising its right to terminate the contract. The trustee in the Brownsville bankruptcy proceeding, however, continued to operate trains over Tex-Mex lines and refused to pay more than the rental established by the contract. Tex-Mex thereupon brought suit in state court to enjoin the grantee and its trustee from using the tracks and to recover damages for such use. The state court denied an injunction, adjudged that the contract had been terminated, and awarded damages.

Although the United States Supreme Court granted certiorari mainly to clarify the relationship of the Bankruptcy Act with the Interstate Commerce Act, the Court's opinion does provide guidelines for the present case, which resembles Tex-Mex in crucial factual respects. We shall, therefore, quote the Court at length:

'It (is) important that the status quo of this trackage agreement be maintained pending decision by the (Interstate Commerce) Commission as to the proper treatment of it in the reorganization plan . . .. (Moreover,) the Commission has further functions to perform (apart from those under 77.) (The Court then quoted the abandonment clause of 1(18) of the Interstate Commerce Act.) . . . Whatever may be the powers of the Commission under the Interstate Commerce Act . . . over the terms of the trackage agreement . . ., it is clear that the Commission has jurisdiction over the operations. Sec. 1(18) embraces operations under trackage contracts, as well as other types of operations . . .. Though the contract were terminated pursuant to its terms, a certificate would still be required under 1(18). Brownsville or its trustee could, of course, make the application for abandonment of operations . . .. Tex-Mex might (also) invoke the Commission's jurisdiction under 1(18) and make application for abandonment of operations by Brownsville or its trustee . . .. The jurisdiction of the Commission is not restricted, however, to determining whether or no operations of Brownsville over the tracks of Tex-Mex should be abandoned . . .. Until abandonment is authorized (by the ICC), operations must continue . . .. The question of what would be the amount of a fair rental to be paid by Brownsville would be highly relevant to a decision by the Commission on the issue of abandonment. We conclude that at least in that situation the Commission has the power under 5(2) to fix a reasonable rental . . .. Once the Commission has acted, the court may then proceed to enter judgment in...