CSX Transp., Inc. v. Chicago and North Western Transp. Co., Inc.

• Citation: 62 F.3d 185
• Decision Date: 31 July 1995
• Docket Number: No. 94-3145,94-3145
• Parties: CSX TRANSPORTATION, INC., Plaintiff-Appellant, v. CHICAGO AND NORTH WESTERN TRANSPORTATION COMPANY, INC., Defendant-Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

Page 185

62 F.3d 185

CSX TRANSPORTATION, INC., Plaintiff-Appellant, v. CHICAGO AND NORTH WESTERN TRANSPORTATION COMPANY, INC. Defendant-Appellee.

No. 94-3145.

United States Court of Appeals, Seventh Circuit.

Argued April 14, 1995.

Decided July 31, 1995.

Carol M. Douglas, Mark N. Senak (argued), Robins, Kaplan, Miller & Ciresi, Chicago, IL, Arthur S. Beeman, Robins, Kaplan, Miller & Ciresi, Minneapolis, MN, for plaintiff-appellant.

Francis D. Morrissey, Michael A. Pollard, Thomas W. Cushing, Baker & McKenzie, Michael P. Connelly (argued), Thomas F. Tobin, Connelly & Schroeder, Chicago, IL, for defendant-appellee.

Before ALDISERT, ^* BAUER and FLAUM, Circuit Judges.

BAUER, Circuit Judge.

Over eleven years ago, on June 27, 1984, Chicago and North Western Transportation Company, Inc. ("CNW") entered into a written contract with the Baltimore and Ohio Terminal Railroad ("B & OCT"), under which CNW received the right to operate its trains over certain tracks owned by B & OCT. The contract contained the following indemnity clause:

Section VIII--Liability.

8.1 North Western shall be responsible, without regard to negligence, for the consequences of any wreck, derailment or other accident involving trains, engines, cars or other rolling stock being moved by North Western or involving an employee of North Western which is caused by the condition of track or roadbed, engines, cars or other rolling stock being moved by North Western in either direction over trackage between the Proviso Yard of North Western and the Barr Yard of B & OCT under the terms of this Agreement.

CSX Transportation, Inc. ("CSX") is the successor corporation to B & OCT and succeeds to the rights and obligations of B & OCT under this contract.

On April 6, 1985, Frank Holdman, who was twelve years old, unsuccessfully attempted to board a moving train owned and operated by CNW on tracks included within the indemnity clause. Holdman fell under the wheels of one of the cars on the train and suffered an amputation of his left leg below the knee and a partial amputation of his right foot. On June 12, 1992, Holdman's father filed suit on behalf of Holdman against CNW, B & OCT, and Indiana Harbor Belt Railroad Company, Inc. ("IHB"), in the Circuit Court of Cook County, Illinois. The complaint alleged that CNW negligently failed to patrol the track and roadbed for children and that CSX and IHB negligently failed to erect and maintain a barrier which would have prevented children from accessing the railroads' right-of-way.

CSX tendered its defense to CNW during the pendency of the Holdman litigation pursuant to the indemnity clause. CNW refused to accept CSX's tender of defense. CNW settled with Holdman prior to trial for $175,000. On March 4, 1994, a jury returned a verdict in favor of Holdman for $2,971,827.25 against CSX and IHB jointly and severally. CSX is obligated to pay the entire award under a separate agreement with IHB.

CSX filed this complaint for declaratory relief in the district court on January 12, 1993, seeking a determination of the rights and obligations of CSX and CNW under the indemnity clause. CSX asserted that CNW was obligated to defend and indemnify CSX in the Holdman litigation. Jurisdiction was premised upon diversity of citizenship. The parties filed cross-motions for summary judgment after the Holdman jury rendered its verdict. The district court held that CNW had no duty to defend or indemnify CSX under the contract, granted CNW's motion for summary judgment, and denied CSX's motion.

We review the district court's grant of summary judgment de novo, applying the same standards as the district court. We view the record and all reasonable inferences drawn from the record in the light most favorable to the non-moving party, in this case CSX. Home Ins. Co. v. Chicago and Northwestern Trans. Co., 56 F.3d 763, 766 (7th Cir.1995); Sarsha v. Sears, Roebuck & Co., 3 F.3d 1035, 1038 (7th Cir.1993). Summary judgment is appropriate if the record demonstrates "that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). We will affirm the judgment of the district court if no reasonable jury would render a verdict for the opposing party "if the record at trial were identical to the record compiled in the summary judgment proceeding." Russell v. Acme-Evans Co., 51 F.3d 64, 70 (7th Cir.1995); see Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250-51, 106 S.Ct. 2505, 2511-12, 91 L.Ed.2d 202 (1986).

As a federal court sitting in diversity, we apply the choice of law rules of the forum state to determine what substantive law governs this case. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941); S.A. Healy Co. v. Milwaukee Metro. Sewerage Dist., 50 F.3d 476, 478 (7th Cir.1995). We have recently reaffirmed our longstanding position that Illinois applies the "most significant contacts" test set forth in the Restatement (Second) of Conflicts Sec. 188 (1971), to contract disputes. Wildey v. Springs, 47 F.3d 1475, 1481-83 (7th Cir.1995); see Palmer v. Beverly Enters., 823 F.2d 1105, 1107-09 (7th Cir.1987); id. at 1113-14 (Easterbrook, J., concurring). Under this test, "the contacts relevant to a choice-of-law decision include 'the place of contracting, negotiation, performance, location of the subject matter of the contract, and the domicil[e], residen[ce], place of incorporation, and business of the parties.' " Wildey, 47 F.3d at 1483 (quoting Palmer, 823 F.2d at 1109-10). The contract between CSX and CNW was negotiated, signed, and performed in Illinois. See Restatement (Second) of Conflicts Sec. 188(3) (1971) (if the place of contract negotiation and performance are the same, that state's law usually will apply). The tracks on which Holdman was injured were located in Illinois. Holdman filed suit in an Illinois court. Both CSX and CNW do business in Illinois. Illinois law therefore governs this case.

Indemnification agreements are to be construed like any other contract under Illinois law. Scott Stainless Steel, Inc. v. NBD Chicago Bank, 253 Ill.App.3d 256, 192 Ill.Dec. 333, 337, 625 N.E.2d 293, 297 (1993). "Under Illinois law, the primary objective in construing a contract is to give effect to the parties' intent." Home Ins. Co., 56 F.3d at 767. Under the so-called "four corners rule," if the contract is unambiguous, the parties' intent must be determined from the language of the contract as a matter of law. See, e.g., Farm Credit Bank of St. Louis v. Whitlock, 144 Ill.2d 440, 163 Ill.Dec. 510, 513, 581 N.E.2d 664, 667 (1991); A.W. Wendell and Sons, Inc. v. Qazi, 254 Ill.App.3d 97, 193 Ill.Dec. 247, 259, 626 N.E.2d 280, 292 (1993).

We have discussed the applicability of the "four corners rule" under Illinois law at length in two recent decisions, Home Ins. Co. v. Chicago and Northwestern Trans. Co., 56 F.3d at 767-69, and AM Int'l, Inc. v. Graphic Management Assocs., Inc., 44 F.3d 572, 574-76 (7th Cir.1995). We will not repeat our discussion in those cases but will summarize our conclusion: "objective" evidence of ambiguity, which is evidence " 'that can be supplied by disinterested third parties,' " is admissible to establish that a contract is extrinsically ambiguous. Home Ins. Co., 56 F.3d at 768-69 (quoting AM Int'l, Inc., 44 F.3d at 575). A contract is extrinsically ambiguous if it is clear on its face but means something else to a person who knows the context of the contract. Id.; AM Int'l, Inc., 44 F.3d at 574-75. In contrast, a contract is intrinsically ambiguous if its language is " 'reasonably and fairly susceptible to more than one meaning.' " Home Ins. Co., 56 F.3d at 768-69 (citation omitted); see Sigma Cos., Inc. v. Regas, 255 Ill.App.3d 857, 194 Ill.Dec. 140, 144, 627 N.E.2d 256, 260 (1993). "Subjective" evidence of ambiguity, which is "the testimony of the parties themselves as to what they believe the contract means," is, with exceptions not relevant here, inadmissible to establish that a contract is extrinsically ambiguous. AM Int'l, Inc., 44 F.3d at 575; see Home Ins. Co., 56 F.3d at 768-69.

The indemnity clause, section 8.1 of the contract, is clear on its face and does not apply to the Holdman litigation. To be sure, the accident in Holdman involved a train, engine, and cars "being moved by" CNW on tracks covered by section 8.1. Section 8.1, however, only extends CNW's liability to an accident "which is caused by the condition of track or roadbed, engines, cars or other rolling stock being moved by North Western." The jury instructions in Holdman stated that Holdman was seeking damages against CSX for negligently failing to (1) erect and maintain a fence or other barrier which would have prevented children from accessing its right-of-way when it knew that children had access to its right-of-way; (2) adequately police or patrol its right-of-way; (3) channel children along its right-of-way to a safe crossing; and (4) warn children of the danger of slow-moving freight trains. Holdman did not contend that the accident was caused "by the condition of track or roadbed." The terms "right-of-way" and "roadbed" are separate and distinct in the railroad industry, of which both parties to the contract were members:

The road-bed is the foundation on which the superstructure of a railroad rests. The roadway is the right of way, which has been held to be the property liable to taxation. The rails in place constitute the superstructure resting upon the road- bed.... These two words, as applied to common roads, ordinarily mean the same thing, but as applied to railroads their meaning is not the same.

Santa Clara County v. Southern Pac. R.R. Co., 118 U.S. 394, 413, 6 S.Ct. 1132, 1142, 30 L.Ed. 118 (1886) (citations and internal quotation marks omitted).

Not surprisingly, CSX disagrees with this interpretation of section 8.1. CSX first asserts that the clause "which is caused by the condition of...