CSX Transp. Inc. v. Mass. Bay Transp. Auth.

• Decision Date: 27 July 2011
• Docket Number: Civil Action No. 06-40211-FDS
• Parties: CSX TRANSPORTATION, INC., Plaintiff, v. MASSACHUSETTS BAY TRANSPORTATION AUTHORITY, Defendant.
• Court: U.S. District Court — District of Massachusetts

CSX TRANSPORTATION, INC., Plaintiff,
v.
MASSACHUSETTS BAY TRANSPORTATION AUTHORITY, Defendant.

Civil Action No. 06-40211-FDS

UNITED STATES DISTRICT COURT DISTRICT OF MASSACHUSETTS

Dated: July 27, 2011

MEMORANDUM AND ORDER ON PLAINTIFF'S SECOND MOTION FOR SUMMARY JUDGMENT

SAYLOR, J.

This is a declaratory judgment action arising out of an indemnification agreement between plaintiff CSX Transportation, Inc., and defendant Massachusetts Bay Transportation Authority ("MBTA"). Jurisdiction is based on diversity of citizenship.

The underlying claim arises out of a tragic accident at the Wellesley Farms, Massachusetts, commuter rail station in December 2003. During a heavy snowstorm, Robert McTague was removing snow from the railroad tracks when he was struck and killed by a CSX freight train. At the time, McTague was employed by Massachusetts Bay Commuter Railroad Company, LLC ("MBCR"), which operated MBTA's commuter rail services under an operating contract.

CSX was, until recently, a defendant in a wrongful-death action brought by McTague's estate in Massachusetts state court. On cross-motions for summary judgment in March 2010, this Court determined that, under the express terms of the indemnification agreement, MBTA owed CSX a duty to indemnify and defend it in the wrongful-death action. Because, however,

Page 2

Massachusetts courts would likely not enforce (as against public policy) an agreement to indemnify a party against its own gross negligence, MBTA's indemnification obligation covered only the estate's ordinary negligence claim.

Despite the ruling, MBTA did not assume defense of the state-court action. CSX ultimately settled with McTague's estate for $625,000. Before settlement, the estate stipulated to dismissal of all claims against CSX for gross negligence and for punitive damages. As a result, the entire settlement was allocated to the negligence claim, and thus allegedly subject to the indemnification obligation of MBTA.

CSX has filed a second motion for summary judgment, contending that MBTA must indemnify it for the full cost of the settlement and is estopped from challenging the allocation of settlement damages among the underlying claims. It also seeks attorney's fees and costs incurred in the defense of the state-court action and prejudgment interest. MBTA disputes the allocation of all settlement damages to the ordinary negligence claim, and has filed a brief in support of conducting a trial on the question of allocation of settlement damages.

For the following reasons, the motion for summary judgment will be granted in part and denied in part.

I. Background

A. The Agreement

MBTA is a political subdivision of the Commonwealth of Massachusetts. It is responsible for providing public transportation services in the Boston area. In 1985, Consolidated Rail Corporation ("Conrail") owned the railroad line from Boston to Worcester, which runs through Wellesley and Framingham and is used for both freight and passenger service. Conrail and MBTA

Page 3

entered into a Trackage Rights Agreement ("TRA") governing operation of various shared railroad tracks, including the line through Wellesley. The TRA granted each party rights to provide services on property that the parties separately owned or controlled and defined their respective obligations.

Article 7 of the agreement set forth the parties' indemnity obligations with respect to accidents that occur during the provision of services required by the agreement. Section 7.03 of the TRA states in relevant part:

MBTA shall defend, indemnify, and save harmless CONRAIL and CONRAIL Employees, irrespective of any negligence or fault of, or control by, same, or howsoever the same shall occur or be caused, from any and all liability, damage, or expense of any kind whatsoever, including reasonable attorneys fees, arising out of injury to or death of any MBTA Employee or other contractor of MBTA, or arising out of loss of, damage to, or destruction of any property of any such MBTA Employee or contractor. MBTA Employees who are involved in MBTA's provision of services to CONRAIL under this Agreement shall be regarded as MBTA Employees and not as employees of CONRAIL.

(Compl., Ex. A). Under Section 7.01, "MBTA Employees" are defined as "the employees and agents of MBTA, and MBTA's operating contractors and said contractors' employees." (Id.).

In June 1999, CSX purchased certain Conrail assets and became Conrail's successor-in-interest with respect to the MBTA agreement.

Since July 2003, the MBCR has provided MBTA's commuter rail services pursuant to an operating contract. MBTA has admitted that MBCR is an "operating contractor" as that term is used in Section 7.03.

B. The McTague Accident and Ensuing Lawsuit

On December 6, 2003, Robert McTague, an employee of MBCR, was helping to clear snow from the railroad tracks at the Wellesley Farms commuter rail station during a storm. A

Page 4

CSX freight train passed through the station, striking and killing Mr. McTague.

The tracks on which Mr. McTague were working belonged to CSX, but MBCR had not informed CSX that its crew would be clearing snow at the station. As a result, the CSX dispatcher gave a "clear signal" to the CSX train all the way from Framingham to Boston. Among other things, this meant that the train's engineer believed the tracks between Framingham and Boston would be free from any work crews.

In October 2004, the administrator of the McTague estate filed a lawsuit in Massachusetts Superior Court against CSX and MBCR for, among other things, damages for wrongful death.¹ MBTA was not named as a party in the lawsuit. CSX denied that it was negligent. Instead, it contended that Mr. McTague's death was caused by his trespassing on CSX's railroad tracks in violation of standard railroad workers' practices and the rules and regulations governing working on or around active railroad tracks. CSX also filed cross-claims against MBCR for contribution, implied indemnification, and common-law indemnification.

In November 2008, MBCR settled with the McTague estate for $750,000 and was dismissed from the case. (See Mot. Ex. K). One-third of the settlement was allocated to attorney's fees and costs, leaving the estate with $455,795.62. Of that amount, $355,795.62 was allocated as compensation for pecuniary loss and the remaining $100,000 was allocated as damages for pain and suffering. (Id.). CSX thereafter voluntarily dismissed its cross-claims against MBCR.

Page 5

C. Federal Court Action and Ruling on Cross-Motions for Summary Judgment

CSX first sent written notice of the wrongful-death suit to MBTA in February 2005. (Mot. Ex. C). Its notice letter demanded that MBTA indemnify and defend it in the McTague matter. In June 2006, before commencing the federal court action, CSX again sent a written demand for indemnification and a defense. (Mot. Ex. D).

In October 2006, CSX filed a four-count complaint in this Court seeking a declaratory judgment as to its rights to indemnification and a defense from the MBTA. The complaint alleged theories of express indemnity, implied indemnity, and common-law indemnity.

The Court ruled in March 2010 on the parties' cross-motions for summary judgment. It determined that Article 7 of the TRA unambiguously imposed on MBTA a duty to indemnify and defend CSX in the state-court proceedings. The Court nevertheless agreed with MBTA that to the extent that the TRA obligated it to indemnify CSX against grossly negligent, reckless, wanton, or willful conduct, the agreement was void as against Massachusetts public policy. Because the TRA exhaustively defined MBTA's indemnification obligations, the Court declined to find an implied duty to indemnify and determined that the TRA displaced any indemnification obligation that existed under common law.

MBTA did not contend that an agreement to defend would violate Massachusetts public policy to the extent that it released a party from defending against its own gross negligence. The Court accordingly deemed any such argument waived and determined that MBTA must defend CSX in all respects in the state-court proceeding. The Court also observed that regardless of MBTA's waiver, Massachusetts courts would likely enforce an agreement to defend against grossly negligent, reckless, wanton, or willful conduct because supplying a defense neither

Page 6

releases a party from the consequences of its gross negligence nor frustrates the objectives of punitive damages or of the Massachusetts Wrongful Death Act.

D. Events Preceding Settlement

MBTA did not assume the defense of the wrongful-death claim after the Court issued its decision. Counsel for MBTA informed CSX that MBTA was prepared to assist in preparation for trial—which was scheduled for September 13, 2010—but indicated that it would be impractical for MBTA to take over the defense at that stage in the proceedings. (Mot. Ex. F, at 2).

In early August, counsel for the McTague estate sent CSX a demand for $5.25 million. The demand letter estimated that $3.5 million of that amount reflected compensatory damages. (Mot. Ex. G). Later the same month, CSX renewed its demand that MBTA fulfill its...