Gillespie Cmty. Unit Sch. Dist. No. 7, Macoupin Cnty. v. Union Pac. R.R. Co.

Decision Date06 November 2015
Docket NumberNo. 4–14–0877.,4–14–0877.
PartiesGILLESPIE COMMUNITY UNIT SCHOOL DISTRICT NO. 7, MACOUPIN COUNTY, Illinois ; and The Board of Education of the Gillespie Community Unit School District No. 7, Macoupin County, Illinois, Plaintiffs–Appellees and Cross–Appellants, v. UNION PACIFIC RAILROAD COMPANY, Defendant–Appellant and Cross–Appellee (Illinois Mine Subsidence Insurance Fund, Intervenor–Appellee and Cross–Appellant).
CourtUnited States Appellate Court of Illinois

43 N.E.3d 1155

GILLESPIE COMMUNITY UNIT SCHOOL DISTRICT NO. 7, MACOUPIN COUNTY, Illinois ; and The Board of Education of the Gillespie Community Unit School District No. 7, Macoupin County, Illinois, Plaintiffs–Appellees and Cross–Appellants
UNION PACIFIC RAILROAD COMPANY, Defendant–Appellant and Cross–Appellee (Illinois Mine Subsidence Insurance Fund, Intervenor–Appellee and Cross–Appellant).

No. 4–14–0877.

Appellate Court of Illinois, Fourth District.

Opinion Filed Nov. 6, 2015.
Modified Upon Denial of Rehearing Dec. 30, 2015.

43 N.E.3d 1161

Timothy G. O'Connell, Dan H. Ball, Eric D. Martin, and John Michael Clear, all of Bryan Cave LLP, St. Louis, Missouri, and Barry Levenstam (argued) and Michael A. Scodro, both of Jenner & Block LLP, Chicago, for appellant.

Rick Verticchio and Gina Verticchio, both of Verticchio & Verticchio, Gillespie, and Thomas J. Verticchio (argued) and Matthew T. Kinst, both of Swanson, Martin & Bell, LLP, Chicago, for appellee Gillespie Community Unit School District No. 7, Macoupin County, Illinois.

James E. Betke, of James E. Betke, P.C., Oak Park, for appellee Illinois Mine Subsidence Insurance Fund.


Justice APPLETON delivered the judgment of the court, with opinion.

¶ 1 There are three plaintiffs in this case. The first two plaintiffs are Gillespie Community Unit School District No. 7 and its board of education, and we will refer to those two plaintiffs, collectively, as “the School District.” The third plaintiff is the Illinois Mine Subsidence Insurance Fund (Fund). The defendant is Union Pacific Railroad Company (Union Pacific).

¶ 2 Plaintiffs brought this action to recover damages from Union Pacific for a coal mine subsidence, which happened in Benld in March 2009 and which destroyed an elementary school and damaged a house. The school belonged to the School District. The house belonged to William and Jennifer Carter. The Carters are not parties to this case, but the Fund is a reinsurer of their house, and it also is a reinsurer of the school.

¶ 3 The Fund seeks from Union Pacific the amounts it paid as a reinsurer, and the School District seeks to be compensated for the destruction of its school and the damage to its land.

¶ 4 Union Pacific protests, however, that it did not dig the coal mine. Rather, Superior Coal Company (Superior Coal) did so long ago. Even so, plaintiffs seek to hold Union Pacific liable on the theory that in 1956 Chicago and North Western Railway Company (Chicago and North Western) assumed Superior Coal's liability for subsidences or, alternatively, on the theory that Superior Coal was, all along, Chicago and North Western's mere instrumentality or alter ego. The School District also alleges that Chicago and North Western directly participated in Superior Coal's mining activities. It appears to be undisputed that if any of those theories holds true, the liability ultimately got passed along, by merger, to Union Pacific.

¶ 5 In the trial court's view, the alleged facts failed to support any of those theories, and the court granted Union Pacific's motion to dismiss the complaints, with prejudice, for failure to state a cause of action (735 ILCS 5/2–615 (West 2010) ). Plaintiffs appealed. We upheld the dismissal of some counts and reversed the dismissal of other counts. Gillespie Community Unit School District No. 7 v. Union Pacific R.R. Co., 2012 IL App (4th) 110142–U, ¶ 147, 2012 WL 7009965. We could not say it was clear, on the face of the complaints, that no set of facts could be proved that would entitle plaintiffs to recover on the counts alleging assumption of liability, direct participation, and alter ego. Id. Looking at those counts in the light most favorable to plaintiffs, we decided to remand the case for further proceedings. Id.

¶ 6 On remand, the parties filed cross-motions for summary judgment. In the hearing on these motions, the trial court understood our discussion of plaintiffs' theory of assumption of liability as leaving the

43 N.E.3d 1162

court no choice but to enter a summary judgment in plaintiffs' favor on that theory and to award them $9.85 million in damages, although the court made a summary determination in Union Pacific's favor on the remaining theories of direct participation and alter ego (which could not logically coexist with a theory of assumption of liability).

¶ 7 Actually, our preceding decision left some room for proof on the question of assumption of liabilities: we observed that the term “liabilities” in Chicago and North Western's resolution of 1956 could mean perfected liabilities, contingent liabilities, or both. Id. ¶ 82. On remand, Union Pacific presented extrinsic evidence that by assuming Superior Coal's “liabilities,” Chicago and North Western intended to assume only perfected liabilities, liabilities that accrued before Superior Coal's dissolution—not unaccrued, unknowable, contingent liabilities, such as liabilities for subsidences occurring after dissolution. Because the record appears to contain no evidence contradicting Union Pacific's evidence in that respect, we conclude, de novo, that Union Pacific eliminated any genuine issue as to the meaning of “liabilities” in Chicago and North Western's resolution of 1956, and consequently we reverse the summary judgment in plaintiffs' favor. Chicago and North Western never assumed liability for future subsidences, that is, subsidences occurring after the dissolution of its subsidiary, Superior Coal.

¶ 8 That does not mean the case is over. Both plaintiffs and Union Pacific are only partly right in their cross-motions for summary judgment, and we only partly agree with their cross-appeals. Plaintiffs are entitled to a summary determination in their favor on Union Pacific's third, sixth, and ninth affirmative defenses, as the trial court correctly concluded. Union Pacific is entitled to a summary determination in its favor on the theory of assumption of liability, and thus there is no occasion to reform Chicago and North Western's resolution, as Union Pacific proposes to do. Union Pacific also is entitled to a summary determination on the theory of direct participation. But there still is a genuine issue of material fact as to plaintiffs' alter ego theory. With that theory still at issue, it would be premature to address the School District's remaining contention that it was entitled to prove the cost of grouting (filling the mine rooms with concrete). See Pielet v. Pielet, 2012 IL 112064, ¶ 57, 365 Ill.Dec. 497, 978 N.E.2d 1000 ; Business & Professional People for the Public Interest v. Illinois Commerce Comm'n, 136 Ill.2d 192, 228, 144 Ill.Dec. 334, 555 N.E.2d 693 (1989) ; In re Marriage of Osborn, 206 Ill.App.3d 588, 600, 151 Ill.Dec. 663, 564 N.E.2d 1325 (1990).

¶ 9 Because there still is a genuine issue as to whether Superior Coal was the alter ego or instrumentality of Chicago and North Western, we reverse the summary judgment in plaintiffs' favor, and we remand this case for further proceedings.

¶ 10 We now will explain, in greater detail, how we arrived at this decision, beginning with the evidence in the summary judgment proceedings.


¶ 12 A. The Origin of Superior Coal

¶ 13 From about 1935 to 1947, Superior Coal was in litigation with the Illinois Department of Finance (Department). The Department claimed that Superior Coal owed a retailers' occupation tax in the total amount of $97,838 for coal Superior Coal had sold to its parent corporation, Chicago and North Western, from July 1933 to May 1935. Superior Coal contested this claim for back taxes because Superior Coal regarded itself as a department of Chicago

43 N.E.3d 1163

and North Western, rather than a bona fide separate corporation, and the purported sales as intracorporate transfers for cost.

¶ 14 Much of our information about the relationship between those two companies in the early decades of the 20th century comes from documents filed in that litigation, both in the Department and in the supreme court. (None of the briefs disputes the admissibility of these or any other documents produced in discovery. In fact, there was a stipulation to admissibility.)

¶ 15 The richest source of information about the origin of Superior Coal is a document that Superior Coal filed with the Department on August 6, 1935: “Summary of History of the Superior Coal Company and Its Relationship With the Chicago and North Western Railway Company.” According to this “Summary,” Chicago and North Western came up with a plan, around 1900, to acquire coal more cheaply—coal that it needed to power its steam locomotives. Hitherto, when buying coal on the market, Chicago and North Western had to pay not only the seller's price, which, of course, was set high enough to fetch the seller a profit, but also freight charges to transport the coal via foreign rails to Chicago and North Western's own lines. This was expensive.

¶ 16 The first step Chicago and North Western took to free itself from its costly dependence on commercial coal suppliers and other railroads was to buy 25,000 acres of coal lands in Macoupin County. It then extended its lines to these coal lands.

¶ 17 The next step, in 1903, was to form a subsidiary, Superior Coal, and to convey the coal lands to it. Initially, Chicago and North Western capitalized Superior Coal in the amount of $1.5 million. Later, it increased the capitalization to $2 million, represented by 20,000 shares. Chicago and North Western owned 19,995 of these shares, and the directors of Superior Coal owned the remaining 5 shares, 1 apiece, as a condition of being qualified to serve as directors of Superior Coal. (In 1903, Illinois statutory law required that the directors be “bona fide shareholders in such association.” 1903 Ill. Laws 125.)

¶ 18 All 20,000 of these shares were voting shares. One share equaled one vote. Thus, for instance, in a special meeting of Superior Coal's stockholders on July 14, 1947, a total of 20,000 votes were cast on the question of whether Nye F....

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