Mich. Southern R.R. Co. v. Branch & St. Joseph

• Decision Date: 24 April 2002
• Docket Number: No. 99-1838.,99-1838.
• Citation: 287 F.3d 568
• Parties: MICHIGAN SOUTHERN RAILROAD COMPANY, f/k/a Wabash & Western Railway Co. and Michigan Southern Railroad Co., Inc., Plaintiffs-Appellants, v. BRANCH & ST. JOSEPH COUNTIES RAIL USERS ASSOCIATION, INC. and Indiana Northeastern Railroad Company, Defendants-Appellees.
• Court: U.S. Court of Appeals — Sixth Circuit

287 F.3d 568

MICHIGAN SOUTHERN RAILROAD COMPANY, f/k/a Wabash & Western Railway Co. and Michigan Southern Railroad Co., Inc., Plaintiffs-Appellants, v. BRANCH & ST. JOSEPH COUNTIES RAIL USERS ASSOCIATION, INC. and Indiana Northeastern Railroad Company, Defendants-Appellees.

No. 99-1838.

United States Court of Appeals, Sixth Circuit.

Argued January 26, 2001.

Decided and Filed April 24, 2002.

COPYRIGHT MATERIAL OMITTED

John W. Kneas, Kneas & Brown, Portage, MI, Daniel A. LaKemper (argued and briefed), Peoria, IL, for Plaintiffs-Appellants.

Charles R. Bappert (argued and briefed), Biringer, Hutchinson, Van Doren, Lillis & Bappert, Coldwater, MI, for Defendants-Appellees.

Before: MARTIN, Chief Circuit Judge; SUHRHEINRICH, Circuit Judge; OLIVER, District Judge.^*

OPINION

OLIVER, District Judge.

Plaintiffs Appellants Michigan Southern Railroad Company and Michigan Southern Railroad Co., Inc. appeal from the district court's dismissal of their complaint for lack of subject matter jurisdiction, pursuant to Rule 12(b)(1) of the Federal Rules of Civil Procedure. Plaintiffs brought suit against the Branch & St. Joseph Counties Rail Users Association, Inc., seeking a declaration that a 1991 agreement concerning the use and maintenance of certain railroad tracks is effective, as well as for specific performance of its terms. Plaintiffs sought relief pursuant to the Declaratory Judgment Act, 28 U.S.C. § 2201 et seq., and alleged federal question jurisdiction under 28 U.S.C. § 1331 and 49 U.S.C. §§ 10501, 10901, and 10903 of the Interstate Commerce Commission Termination Act. For the reasons set forth below, we AFFIRM the district court.

I. BACKGROUND

The Appellants, Michigan Southern Railroad Co., f/k/a/ Wabash & Western Railway Co., an Iowa corporation ("MSO"), and Michigan Southern Railroad Co., Inc., a Delaware corporation ("MSRR"), are railroads authorized by federal law to provide common carrier rail service on certain rail lines in Michigan and Indiana.

On December 14, 1990, the Interstate Commerce Commission (now Surface Transportation Board) authorized MSRR to provide common carrier rail service to a railroad line extending from just east of Sturgis, Michigan, to Coldwater, Michigan, a distance of approximately 22 miles (hereinafter, the "Rail Line"). The Rail Line was then owned by the Branch & St. Joseph Counties Rail Users Association, Inc., a Michigan non-profit corporation ("RUA").

On June 6, 1991, MSRR and RUA entered into a written agreement (the "1991 Agreement") which provided, inter alia, that MSRR would service the Rail Line for a term of 10 years and 6 months and granted MSRR an option to purchase the Rail Line.

On December 17, 1996, MSRR entered into a contract with Wabash & Western Railway Co., now MSO, which provided that MSO would lease MSRR's assets and provide rail service on MSRR's behalf to its lines in Michigan and Indiana. The contract also granted MSO an option to purchase MSRR's capital stock.

On June 3, 1997, MSRR and RUA entered into an "Amended and Restated Operating Agreement" (the "1997 Agreement"). Like the 1991 Agreement, this agreement included an option to purchase the Rail Line. It also expanded the operating rights of MSRR an additional 8 miles, to include the Rail Line from Coldwater, Michigan to Quincy, Michigan. This agreement contained the following provisions:

Section 401. Responsibility

(a) The OPERATOR [MSRR] shall perform, or cause to be performed, all maintenance of way on the rail facility described in Attachment I in accordance with and subject to the laws, rules, regulations, and orders of governmental agencies. The OPERATOR shall improve the rail facility to a minimum of a "Class 1 track," as defined by 49 C.F.R. § 213.9, within one year from the effective date of this agreement.

* * * * * *

(c) Should the OPERATOR fail to comply with the provisions of the Section, the RUA will issue a notice of noncompliance stating the nature of such noncompliance. Failure by the OPERATOR to cure the noncompliance within thirty (30) days of its receipt of such notice shall be reason for termination of this Agreement by the RUA.

* * * * * * Section 1401 of the agreement, entitled "Execution," provided as follows:

This Agreement will become binding on the parties and of full force and effect upon the OPERATOR furnishing proof satisfactory to the RUA, evidencing that the OPERATOR has taken all steps to and has rights from the ICC [now Surface Transportation Board] for the operation of the QUINCY BRANCH....

MSRR never obtained operation rights from the Surface Transportation Board ("STB") for the extension of service to Quincy.

On or about January 1, 1999, MSRR became a wholly-owned subsidiary of MSO, by virtue of MSO's purchase of all the outstanding capital stock of MSRR. On January 6, 1999, MSRR wrote a letter to RUA, informing it of this fact and giving notice to RUA of its intent to exercise the purchase option, as provided for by Section 1002 of the 1991 Agreement.

On March 11, 1999, RUA notified MSRR of its belief that the 1997 Agreement was in effect and that MSRR was in breach of that Agreement, inasmuch as MSRR had not maintained the tracks in "Class 1" condition as required by Section 401. RUA further informed MSRR that it was willing to "consider selling" the Rail Line, but wanted some assurance that MSRR intended to restore the tracks as agreed. RUA again sent letters on April 21, 1999, and April 30, 1999, restating its belief that MSRR was in breach of the 1997 Agreement and requesting compliance.

On May 30, 1999, MSRR sent RUA a letter disputing that it had breached the 1991 Agreement, and further demanded that RUA honor MSRR's request to exercise its option to purchase the Rail Line under the terms of that agreement.

On May 21, 1999, MSO/MSRR filed this action in federal court seeking a declaratory judgment that the 1991 Agreement was in effect, and requesting specific performance of its option to purchase the Rail Line. MSO/MSRR asserted federal question jurisdiction under 28 U.S.C. § 1331 and the Interstate Commerce Commission Termination Act ("ICCTA"), 49 U.S.C. §§ 10501, 10901 and 10903.¹ On June 7, 1999, MSO/MSRR amended its complaint, adding Indiana Northeastern Railroad Company ("INE") as a party, asserting a claim against it for tortious interference with business, based on the belief that INE had entered into an agreement with RUA to operate over the disputed Rail Line.

Although the district court initially granted MSO/MSRR's Motion for Temporary Restraining Order barring INE from operating on the Rail Line, the district court ultimately dismissed the action for lack of subject matter jurisdiction. The court concluded that the Declaratory Judgment Act does not provide an independent basis for federal subject matter jurisdiction, and the provisions of the ICCTA cited by Plaintiffs dealt only with the authority of the Surface Transportation Board to regulate interstate rail service, and did not provide the court with jurisdiction over Plaintiffs' claims.

II. STANDARD OF REVIEW

This court reviews de novo the district court's decision to dismiss MSO/MSRR's complaint for lack of subject matter jurisdiction. See Anderson v. Liberty Lobby Inc., 477 U.S. 242, 249, 252, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Musson Theatrical, Inc. v. Federal Express Corp., 89 F.3d 1244, 1248 (6th Cir.1996).

Lack of subject matter jurisdiction is an affirmative defense that a defendant may assert in a motion to dismiss. Fed.R.Civ.P. 12(b)(1); In re DeLorean Motor Co., 991 F.2d 1236, 1240 (6th Cir.1993) (emphasizing that to survive a motion to dismiss, a complaint must contain "either direct or indirect allegations respecting all material elements to sustain a recovery under some viable legal theory"). Where subject matter jurisdiction is challenged pursuant to 12(b)(1), the plaintiff has the burden of proving jurisdiction in order to survive the motion. See Moir v. Greater Cleveland Reg'l Transit Auth., 895 F.2d 266, 269 (6th Cir.1990). Specifically, the plaintiff must show that the complaint "alleges a claim under federal law, and that the claim is `substantial.'" Musson Theatrical, Inc., 89 F.3d at 1248. The plaintiff will survive the motion to dismiss by showing "any arguable basis in law" for the claims set forth in the complaint. Id.

In conducting our review, we "construe the complaint in a light most favorable to the plaintiff, accept as true all of plaintiff's well-pleaded factual allegations, and determine whether the plaintiff can prove no set of facts supporting [the] claims that would entitle him to relief." Ludwig v. Board of Trustees of Ferris State Univ., 123 F.3d 404, 408 (6th Cir.1997). We review for clear error any factual findings the district court made in deciding the motion to dismiss. See Gafford v. General Elec. Co., 997 F.2d 150, 161 (6th Cir.1993).

III. ANALYSIS

The sole issue before this court is whether the district court erred in determining that there was no basis for federal subject matter jurisdiction in this case. 28 U.S.C. § 1331 provides that the "the district courts shall have original jurisdiction of all civil actions arising under the Constitution, laws, or treaties of the United States." In determining whether an action "arises under" federal law, we are governed by the well-pleaded complaint rule, which requires that a federal question be presented on the face of the complaint. See Caterpillar, Inc. v. Williams, 482 U.S. 386, 392, 107 S.Ct. 2425, 96 L.Ed.2d 318 (1987); Louisville & Nashville R.R. Co. v. Mottley, 211 U.S. 149, 152, 29 S.Ct. 42, 53 L.Ed. 126 (1908). Accordingly, a case arises under federal law, for purposes of § 1331, when it is apparent from the face of the plaintiff's complaint either that the plaintiff's cause of action was created by federal law, Mottley, 211 U.S. at 152, 29 S.Ct. 42; or if the plaintiff's claim is based on state law, a substantial, disputed question of federal law is a necessary...