Great Plains Trust Co. v. Union Pacific R. Co.

• Decision Date: 29 June 2007
• Docket Number: No. 06-3440.,06-3440.
• Citation: 492 F.3d 986
• Parties: GREAT PLAINS TRUST COMPANY, Appellant, v. UNION PACIFIC RAILROAD COMPANY, Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

492 F.3d 986

GREAT PLAINS TRUST COMPANY, Appellant, v. UNION PACIFIC RAILROAD COMPANY, Appellee.

No. 06-3440.

United States Court of Appeals, Eighth Circuit.

Submitted: March 15, 2007.

Filed: June 29, 2007.

Counsel who presented argument on behalf of the appellant was Michael D. Pospisil of Kansas City, MO. John M. Edgar and Daniel R. Young of Kansas City appeared on the brief.

Counsel who presented argument on behalf of the appellee was Bartholomew L. McLeay of Omaha, NE. Leslie A. Greathouse of Kansas City, MO on the brief.

Before RILEY, BOWMAN, and ARNOLD, Circuit Judges.

BOWMAN, Circuit Judge.

Great Plains Trust Company, which is chartered and based in Kansas, filed this class action against Union Pacific Railroad Company, which is doing business in Missouri, alleging breach of contract, fraud, and unjust enrichment. Diversity jurisdiction is proper in this case under 28 U.S.C. § 1332 (2000). The District Court¹ granted Union Pacific's motion to dismiss, and Great Plains appeals. We affirm the judgment of the District Court.

I.

"We recite the facts as alleged in the complaint, viewing them in the light most favorable to the plaintiff[ ]." Davenport v. Farmers Ins. Group, 378 F.3d 839, 841 (8th Cir.2004). In 1955, Union Pacific's predecessor company issued debentures accompanied by an indenture setting forth the company's payment obligations. In 1997, Union Pacific assumed these obligations. According to the indenture, interest on the debentures is payable annually on April 1 at a rate of five percent of the principal amount of the outstanding debentures. This interest is payable from Union Pacific's available net income (ANI), which is computed on a calendar-year basis according to the accounting rules of the Surface Transportation Board (STB). The interest payment due on April 1, 1999, totaled $5 million. On March 12, 1999, Union Pacific sent a letter and a computation of its ANI to the debenture trustee indicating that it lacked sufficient funds to make the payment. The computation stated that Union Pacific had $580 million in income available to pay fixed charges for 1998. Union Pacific's Annual Report to the STB, however, indicated that Union Pacific had $628 million in income available for that period. The STB calculation left Union Pacific with a net after-tax income of $27 million for 1998. Union Pacific did not make the interest payment due April 1, 1999.

On January 10, 2006, Great Plains, the holder of $500,000 of debentures, filed this class-action complaint alleging that Union Pacific is liable for breach of contract, fraud, and unjust enrichment on account of its failure to make the 1999 interest payment. The District Court dismissed all claims against Union Pacific, concluding that each claim was barred by the applicable statute of limitations and, alternatively, that Great Plains had failed to comply with certain prerequisites set forth in the indenture before filing suit.

We review a district court's grant of a motion to dismiss de novo, taking the well-pleaded material factual allegations in the complaint as true. Katun Corp. v. Clarke, 484 F.3d 972, 975 (8th Cir.2007). In so doing, we may consider documents attached to the complaint and matters of public and administrative record referenced in the complaint. Id.; Deerbrook Pavilion, LLC v. Shalala, 235 F.3d 1100, 1102 (8th Cir.2000), cert. denied, 534 U.S. 992, 122 S.Ct. 454, 151 L.Ed.2d 375 (2001).

II.

We first consider whether Great Plains was required to comply with the procedures set forth in the indenture before filing suit. The indenture contains a no-action clause providing that "[n]o holder of any debenture . . . shall have any right by virtue or by availing of any provision of this indenture to institute any suit, action or proceeding . . . for the collection of any sum due from the Company hereunder on account of principal or interest" without first requesting action by the debenture trustee. Indenture at 34. Great Plains does not contend that it complied with this clause before filing suit. The indenture also contains a clause that provides:

Nothing contained in this indenture or in the debentures shall affect or impair the obligation of the Company, which is unconditional and absolute, to pay the principal of and interest on the debentures . . . or affect or impair the right, which is also unconditional and absolute, of the holders of the debentures to receive payment thereof on or after the respective due dates thereof or to institute suit for the enforcement of any such payment on or after such respective due dates by virtue of said debentures.

Id. at 34-35. This provision implements Section 316(b) of the Trust Indenture Act of 1939 (15 U.S.C. § 77ppp(b)), which prohibits the purported restriction by an indenture of certain rights of security holders, including the right to sue for unpaid interest. See Cruden v. Bank of N.Y., 957 F.2d 961, 968 (2d Cir.1992). The District Court held that the no-action clause was controlling and therefore Great Plains's action was barred, reasoning that the Section 316 clause would apply only when the principal amount of the debentures was due.

Great Plains argues that the District Court erred in this regard. The question is whether the no-action clause or the Section 316 clause is controlling with respect to the annual interest owed on the debentures. We hold that Section 316 grants Great Plains the absolute right to sue for unpaid interest without having to first comply with the no-action clause. We find persuasive the conclusion reached by other courts that a no-action clause may not override a debenture holder's absolute right guaranteed by Section 316 to seek payment of overdue interest. See Cruden, 957 F.2d at 968; UPIC & Co. v. Kinder-Care Learning Ctrs., Inc., 793 F.Supp. 448, 454-55 & n. 8 (S.D.N.Y.1992); In re Envirodyne Indus., Inc., 174 B.R. 986, 992-93 (Bankr.N.D.Ill.1994). Courts have reached this conclusion because Section 316 "is mandatory in order to assure the negotiability of the debentures by making certain that the promise to pay contained therein was unconditional." Envirodyne, 174 B.R. at 993; see also Watts v. Missouri-Kansas-Texas R.R. Co., 383 F.2d 571, 578 (5th Cir.1967) ("[N]egotiability . . . is reduced when no-action clauses are construed to limit suits upon interest obligations.").

Union Pacific contends that Quirke v. St. Louis-San Francisco Railway Co., 277 F.2d 705 (8th Cir.), cert. denied, 363 U.S. 845, 80 S.Ct. 1615, 4 L.Ed.2d 1728 (1960), requires a different result. In Quirke, this Court held that a bondholder was required to comply with a no-action clause before bringing suit to challenge the company's purchase of stock. Id. at 709. Quirke did not, however, involve a claim for unpaid interest on debentures and did not implicate Section 316. Quirke therefore has no bearing on the interplay between Section 316 and a no-action clause in a suit for unpaid interest on debentures.

Accordingly, Great Plains was not required to exhaust the procedure of the no-action clause before filing this suit, and the District Court was incorrect in holding to the contrary.

III.

We next consider whether Great Plains's claims are barred by the applicable statutes of limitation. The parties dispute whether the Kansas or Missouri statutes of limitation apply to this case. Great Plains argues for application of Missouri law, as it contends that each relevant Missouri statute of limitation is longer than its Kansas counterpart. Compare Mo.Rev. Stat. §§ 516.110(1) (2000) (written contracts to pay money: ten years), 516.120(1) (unjust enrichment: five years), 516.120(5) (fraud: five years) with Kan. Stat. Ann. §§ 60-511(1) (2005) (contracts: five years), 60-512(1) (unjust enrichment: three years), 60-513(a)(3) (fraud: two years). The District Court held that the Kansas statutes of limitation applied to Great Plains's claims and that the claims were barred under these statutes.

A federal court sitting in diversity applies the statute-of-limitations rules of the forum. Nettles v. Am. Tel. & Tel. Co., 55 F.3d 1358, 1362 (8th Cir.1995) (citing Guaranty Trust Co. v. York, 326 U.S. 99, 108-09, 65 S.Ct. 1464, 89 L.Ed. 2079 (1945)). Missouri has a borrowing statute that provides, "Whenever a cause of action has been fully barred by the laws of the state . . . in which it originated, said bar shall be a complete defense to any action thereon. . . ." Mo.Rev.Stat. § 516.190. The "critical issue" in applying this statute is "determining where a cause of action originated." Nettles, 55 F.3d at 1362. Under the statute, "originated" means "accrued." Thompson v. Crawford, 833 S.W.2d 868, 871 (Mo.1992) (en banc).

A.

With regard to Great Plains's breach-of-contract claim, the Missouri borrowing statute directs courts to Missouri Revised Statutes Section 516.100 to determine both when and where such a claim accrues. See Ferrellgas, Inc. v. Edward A. Smith, P.C., 190 S.W.3d 615, 623 (Mo. Ct.App.2006) (per curiam). Section 516.100 provides that a cause of action accrues not "when the wrong is done or the technical breach of contract or duty occurs, but when the damage resulting therefrom is sustained and is capable of ascertainment." Accordingly, a cause of action accrues where damages are capable of ascertainment. "[D]amages are `sustained and capable of ascertainment' when the fact of damage can be discovered or made known." Jordan v. Willens, 937 S.W.2d 291, 294 (Mo.Ct.App.1996) (emphasis omitted). Specifically in a breach-of-contract suit, the cause of action "accrues upon a defendant's failure to do the thing at the time and in the manner contracted." Davis v. Laclede Gas Co., 603 S.W.2d 554, 555 (Mo.1980) (en banc) (citation and quotations omitted). And although no Missouri state court has directly addressed the issue, it appears that for failure-to-pay cases, the cause of action accrues where payment was to be made. See Great Rivers Coop. of Se. Iowa v. Farmland Indus.,...