Chicago Southshore & South Bend R.R. v. Itel Rail Corp., 45A05-9311-CV-412

• Citation: 658 N.E.2d 624
• Case Date: December 07, 1995
• Court: Court of Appeals of Indiana

Page 624

658 N.E.2d 624 CHICAGO SOUTHSHORE & SOUTH BEND RAILROAD, A General
Partnership, Appellant-Plaintiff-Counter-Defendant,
v.
ITEL RAIL CORPORATION, A Corporation,
Appellee-Defendant-Counterclaimant. No. 45A05-9311-CV-412. Court of Appeals of Indiana. Dec. 7, 1995.

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Stanley C. Fickle, Alan K. Mills, Barnes & Thornburg, Indianapolis, for appellant.

Kenneth D. Reed, Abrahamson Reed & Adley, Hammond, Daniel L. Freeland, Komyatte & Freeland, Highland, David S. Curry, Mayer Brown & Platt, Chicago, Illinois, for appellee.

OPINION

SHARPNACK, Chief Judge.

Chicago SouthShore & South Bend Railroad ("CSSB") appeals from the trial court's grant of summary judgment in favor of the defendant-appellee, Itel Rail Corporation ("Itel") on both CSSB's complaint and Itel's counterclaim. Appellant raises three issues for review which we restate as follows:

1. whether the trial court erred in granting summary judgment in favor of Itel's counterclaim;

2. whether the trial court erred in granting summary judgment in favor of Itel on CSSB's complaint; and

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3. whether the trial court properly awarded attorney's fees and expenses to Itel.

We affirm.

Facts

On December 27, 1988, Itel executed a lease agreement with Chicago South Shore and South Bend Railroad ("Bankrupt Railroad"). ¹ The Bankrupt Railroad operated a common carrier freight which used a type of railroad car known as a "gondola" car. Pursuant to the lease agreement, Itel contracted to lease gondola cars to the Bankrupt Railroad. The lease agreement included a master lease and attached schedules to the master lease.

The master lease provided the general terms of the agreement, including the maintenance costs on the leased gondola cars. The schedules to the master lease contained specific information concerning the gondola cars. This dispute only concerns Schedule No. 1.

Schedule No. 1 provided that Itel would lease fifty gondola cars to the Bankrupt Railroad for $350 a month. While the Bankrupt Railroad was responsible for maintaining the cars, Itel was required to reimburse the Bankrupt Railroad for maintenance costs. The schedule prescribed the reimbursement procedure as follows:

"Lessee [Bankrupt Railroad] shall submit to Lessor [Itel] a monthly report in complete AAR [Association of American Railroads] format for all sums due to Lessee from Lessor for such calendar month with respect to the maintenance of the Cars, including sums due for maintenance performed by third parties and for maintenance performed by Lessee. Lessor shall pay to Lessee all sums due pursuant to this Subsection within thirty (30) days after receipt of such monthly maintenance report and bill."

Record, pp. 302-3.

On April 7, 1989, three months after executing the lease agreement, the Bankrupt Railroad filed a petition for relief in the United States Bankruptcy Court for the Northern District of Illinois. The court appointed a trustee for the Bankrupt Railroad. After auditing its finances, the Bankrupt Railroad discovered it owed a substantial debt to Itel for the leased gondola cars. On May 26, 1989, the Bankrupt Railroad prepared schedules which showed an unsecured debt owed to Itel in the amount of $119,175.87.

On July 21, 1989, the trustee notified the Bankrupt Railroad's creditors, including Itel, that they must file proofs of claim before September 29, 1989. ² In response, Itel filed a proof of claim before the deadline. However, Itel asserted that the Bankrupt Railroad was only indebted to Itel for $334.77. Itel's proof of claim stated that the consideration for the debt was "unpaid rentals earned pursuant to a Lease Agreement dated December 27, 1988." Record, p. 486 Itel also attached a copy of the lease agreement to the proof of claim as evidence of the debt. However, Itel did not intend its proof of claim to cover the $119,175.87 debt listed in the Bankrupt Railroad's schedules. Itel intended its proof of claim to cover another debt for rental due to Itel. The Bankrupt Railroad had subleased several of the leased gondola cars to third party carriers incurring a $344.77 debt.

On September 22, 1989, the controller of the Bankrupt Railroad informed Itel that Arthur Andersen & Co. was auditing the Bankrupt Railroad's financial statements. The controller requested that Itel advise Arthur Andersen "whether or not there is a

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balance due you by this company as of August 31, 1989." Record, p. 534. On October 10, 1989, Itel responded that the Bankrupt Railroad owed Itel the amount of $144,538.87, representing rentals due on the gondola cars. However, Itel failed to inform the bankruptcy court that the Bankrupt Railroad owed Itel $144,538.87, rather than the $344.77 amount that Itel claimed.

On November 16, 1989, the trustee submitted his First Amended Plan of Reorganization ("reorganization plan") to the bankruptcy court for confirmation. Under the reorganization plan, the trustee sold the Bankrupt Railroad's assets to various other railroads. Southshore Acquisition Company ("SAC"), the predecessor in interest to CSSB, purchased the Bankrupt Railroad's freight business and assets. According to the reorganization plan, SAC agreed to assume certain liabilities of the Bankrupt Railroad, including the Bankrupt Railroad's debt to Itel.

On December 11, 1989, the bankruptcy court entered an order confirming the reorganization plan whereby SAC acquired the Bankrupt Railroad's freight line. On December 31, 1989, SAC's interests in the freight line were transferred to a newly formed company, CSSB. When CSSB assumed the Bankrupt Railroad's freight line from SAC, CSSB also assumed the Bankrupt Railroad's debt to Itel. Although the actual debt was in the amount of $119,175.87, Itel's proof of claim listed the debt as only $334.77. On January 17, 1990, CSSB paid Itel $344.77 in satisfaction of Itel's proof of claim. However, at this time, Itel did not inform CSSB that CSSB had failed to satisfy the entire debt.

After the Bankrupt Railroad's assets were transferred in the bankruptcy proceeding, CSSB replaced the Bankrupt Railroad as lessee under the lease agreement, and Itel remained the lessor. Pursuant to the lease agreement, CSSB paid the rent on leased gondola cars, but failed to bill Itel for maintenance costs. On June 1, 1991, CSSB notified Itel that CSSB planned to cancel the lease agreement which was due to expire within two months. CSSB then audited its account and discovered that it had never billed Itel for maintenance costs. According to Schedule No. 1 of the master lease, Itel was responsible for reimbursing the lessee for maintenance costs on the gondola cars. Although the lease agreement stated that the lessee must bill Itel on a monthly basis, CSSB sent Itel an invoice for $138,516.48 for maintenance costs on the gondola cars which covered the entire term of the lease agreement.

On October 17, 1991, Itel responded to CSSB's demand by sending CSSB a check for $32,612.75, stating that:

"Under the provision of AAR Rules of Interchange and as outlined in the Field and Office Manuals, any charges for repairs performed beyond the one year time frame from the date received by Itel have been denied. Those changes falling within the time limitations have been audited according to the AAR Rules."

Record, p. 932. CSSB protested and claimed the AAR time restriction did not apply to this situation. CSSB also withheld rental payments, totaling $13,536.92, due on the gondola cars for the months of July, August, and September of 1991.

After further exchanges, CSSB filed a complaint on May 11, 1992. CSSB claimed Itel was obligated to reimburse CSSB for all maintenance costs on the gondola cars. Itel's answer denied that it owed CSSB for the unpaid balance of maintenance costs because CSSB had failed to timely submit invoices for those amounts as required by the AAR and the lease agreement. Itel also claimed the CSSB's complaint was set off by the amount of $13,536.92 which CSSB owed Itel for three months rent on the fifty gondola cars. Itel further claimed the complaint was set off by the amount of $123,497.00 for rents due under the lease agreement prior to CSSB's acquisition of the gondola cars.

Itel also filed a counterclaim which sought to recover the same rents alleged as setoffs in its answer. CSSB admitted in its reply that it owed Itel $13,536.92 representing three months rent on the gondola cars. However, CSSB denied that it was obligated for prior rents due under the lease agreement. CSSB argued that its obligation to

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Itel was barred because Itel failed to raise the claim during the bankruptcy proceeding.

After discovery, the parties filed cross-motions for summary judgment on both the complaint and the counterclaim. On May 26, 1993, the trial court held a hearing on the motions for summary judgment. On July 26, 1993, the trial court granted summary judgment in the favor of Itel on both CSSB's complaint and Itel's counterclaim. The trial court awarded Itel $13,536.92 plus interest for three months rent on the gondola cars and $123,403.85 plus interest for rent owed prior to CSSB's acquisition of the gondola cars. On October 22, 1993, the trial court awarded Itel $17,044.67 in attorney's fees and $842.70 in expenses. CSSB now appeals the trial court's judgment.

Discussion

When we review a trial court's entry of summary judgment, we are bound by the same standard as the trial court. Ayres v. Indian Heights Volunteer Fire Dept., Inc. (1986), Ind., 493 N.E.2d 1229, 1234. We may consider only those portions of the pleadings, depositions, answers of interrogatories, admissions, matters of judicial notice, and any other matters designated to the trial court by the moving party for purposes of the motion for summary judgment. Rosi v. Business Furniture Corp. (1993), Ind., 615 N.E.2d 431, 434; Ind.Trial Rule 56(C), (H). We may not reverse a granting of summary judgment on the grounds that there is a genuine issue of material fact unless...