Milford–Bennington R.R. Co. v. Pan Am Railways, Inc.

• Decision Date: 25 September 2012
• Docket Number: No. 12–1031.,12–1031.
• Citation: 695 F.3d 175
• Parties: MILFORD–BENNINGTON RAILROAD CO., INC., Plaintiff, Appellant, Peter Leishman, Plaintiff, v. PAN AM RAILWAYS, INC.; Boston and Maine Corporation; Springfield Terminal Railway Company, Defendants, Appellees.
• Court: U.S. Court of Appeals — First Circuit

695 F.3d 175

MILFORD–BENNINGTON RAILROAD CO., INC., Plaintiff, Appellant,Peter Leishman, Plaintiff,

v.PAN AM RAILWAYS, INC.; Boston and Maine Corporation; Springfield Terminal Railway Company, Defendants, Appellees.

No. 12–1031.

United States Court of Appeals, First Circuit.

Heard Sept. 12, 2012.

Decided Sept. 25, 2012.

Adam Francois Watkins, with whom Watkins, Bradley & Chen LLP, Craig S. Donais and Donais Law Offices, PLLC were on brief, for appellant.

Michael J. Connolly, with whom Kelley A. Jordan–Price and Hinckley, Allen & Snyder LLP were on brief, for appellees.

Before HOWARD, RIPPLE ^* and SELYA, Circuit Judges.

HOWARD, Circuit Judge.

Milford–Bennington Railroad Company, Inc. (“MBR”) appeals an award of summary judgment to Pan Am Railways, Inc.; Boston and Maine Corporation; and Springfield Terminal Railway Company (collectively, “Pan Am”) in a dispute arising from Pan Am's actions under a contract to provide MBR with access to Pan Am's railroad tracks. The district court held that Pan Am did not breach its duty of good faith and fair dealing when it exercised its contractual right to exclude an MBR employee from its trackage for violating a safety rule. We affirm.

I. Background

Plaintiff–Appellant MBR hauled stone by rail for its only customer, Granite State Concrete. Because MBR does not own the necessary trackage, it entered into a contract with Pan Am that permits MBR to operate trains on Pan Am's trackage (the “Agreement”). The Agreement requires MBR to follow Pan Am's rules, which include the Operating Rules of the Northeast Operating Rules Advisory Committee (“NORAC”). If Pan Am determines that an MBR employee has violated its rules, it “shall have the right to exclude [the employee] from the Trackage.”

On October 22, 2009, MBR employees Peter Leishman and David Raymond were operating a train on Pan Am's trackage. At the leading end of the train, Leishman operated a control car, which is a caboose modified with safety features including a horn, an emergency brake, and lights. Behind the control car were ten hopper cars filled with crushed stone. At the trailing end, Raymond operated a locomotive, which pushed the train from behind. As the train approached a highway crossing, a tractor trailer truck crossed the tracks. Leishman activated the emergency brake, but the train collided with the truck, derailing the control car and one of the hopper cars.

In response to the accident, Pan Am sent Leishman a letter notifying him of an investigative hearing scheduled for November 10, 2009. The letter was dated November 4, and Leishman states that he received it on November 6. Leishman requested a postponement due to his injuries from the collision and so that his counsel could attend the hearing, but Pan Am went forward as scheduled without Leishman or his counsel present. Because no employee of MBR was stationed at the crossing at the time of the accident, Pan Am determined that Leishman had violated NORAC Rule 138(e), “Trains Operating from Other Than The Leading End at a Highway Crossing,” which provides:

Trains being operated from other than the leading end must not enter a highway crossing at grade until on-ground warning is provided by a crew member or other qualified employee, except when it is visually determined that:

....

2. A designated and qualified employee is stationed at the crossing and has the ability to communicate with trains....

Pan Am did not immediately disclose its determination to Leishman.

When Leishman attempted to return to work on March 17, 2010, a Pan Am dispatcher refused him access to the tracks due to “company policy.” Leishman contacted Pan Am's general counsel Robert Burns, who asked Leishman for a meeting to discuss signing a new trackage-rights agreement. Leishman and Burns met on March 19, and on April 8, Burns proposed the terms of a new agreement. The next day, Leishman rejected the proposal. That same day, Pan Am sent Leishman a letter stating that, at the time of the accident, he was “not properly stationed for the backward move through the crossing” and that “it would be the safest course to prevent you personally from operating on [Pan Am] property in the future pursuant to [the Agreement].”

On April 14, Thomas Brugman of the Surface Transportation Board emailed Pan Am to express his concerns regarding the effect of Pan Am's decision on Granite State Concrete and the potential appearance that Pan Am had not given sufficient process to Leishman and MBR. Pan Am then scheduled a supplemental investigative hearing, which Leishman attended. Pan Am again concluded that Leishman had violated its rules.

MBR and Leishman filed a petition in June 2010 against Pan Am in New Hampshire Superior Court. The petition did not lay out specific causes of action, but it sought to enjoin Pan Am from excluding Leishman from its trackage, as well as compensatory damages “in excess of $50,000.” In July 2010, Pan Am removed the case to the United States District Court for the District of New Hampshire on the ground that the ICC Termination Act of 1995 (“ICCTA”), in particular 49 U.S.C. § 10501(b), completely preempted MBR and Leishman's claims. The district court stayed the case when the parties agreed to hold a third investigative hearing. At that hearing, Leishman asserted that he had complied with Rule 138(e) and that Pan Am's interpretation of the rule was incorrect. Once more, Pan Am upheld its original decision.

After the third hearing but before the district court made any substantive rulings, Leishman and MBR filed an amended complaint that listed four causes of action, all described as breaches of the Agreement. Count One alleged that Pan Am breached its covenant of good faith and fair dealing in excluding Leishman because Pan Am had not objected to MBR's practices in the past, and MBR arguably had not violated Rule 138(e). Count Two alleged that Pan Am's hearing process was improper. Count Three claimed that Pan Am unreasonably excluded Leishman because the accident was unavoidable and because Pan Am had filed a report with the Federal Railroad Administration stating that the truck driver was at fault. Count Four claimed that Pan Am misinterpreted Rule 138(e). Pan Am moved to dismiss the amended complaint on the grounds that the ICCTA preempted MBR and Leishman's claims, Leishman was not a party to the Agreement, and Count Four of the amended complaint duplicated Count One. The district court held that the ICCTA did not preempt MBR and Leishman's claims, but it dismissed Leishman from the action and dismissed Count Four. The district court then held a hearing at which it determined that Leishman had violated Rule 138(e) and that Leishman's interpretation of the rule was “not a plausible one at all.”

After the hearing, the only remaining issue before the district court was whether Pan Am's decision to exclude Leishman violated the duty of good faith and fair dealing implicit in the Agreement. Pan Am moved for summary judgment, arguing that because the Agreement gives it the express right to exclude an employee of MBR for violating its rules, the duty of good faith and fair dealing could not prohibit it from excluding Leishman. The district court granted Pan Am's motion, and MBR timely appealed.

II. Analysis

A. Jurisdiction

In every case, we are required to satisfy ourselves of jurisdiction. García–Velázquez v. Frito Lay Snacks Caribbean, 358 F.3d 6, 8 (1st Cir.2004). Here, the record suggests a possible defect in the district court's jurisdiction. Although MBR and Leishman's state-court petition raised no issues of federal law, Pan Am removed this action based on federal-question jurisdiction—specifically, complete preemption of MBR and Leishman's claims by the ICCTA. See Beneficial Nat'l Bank v. Anderson, 539 U.S. 1, 8, 123 S.Ct. 2058, 156 L.Ed.2d 1 (2003) (“[A] state claim may be removed to federal court ... when a federal statute wholly displaces the state-law cause of action through complete pre-emption.”). When the district court held that the ICCTA did not completely preempt MBR and Leishman's claims, the basis for federal jurisdiction became subject to question. See Fayard v. Ne. Vehicle Servs., LLC, 533 F.3d 42, 45, 49 (1st Cir.2008) (in the absence of complete preemption, district court required to remand state-law claims); See also Martin H. Redish, 16 Moore's Federal Practice—Civil § 106.66[1] (3d ed. Supp.2012) (listing cases from seven courts of appeals holding that a district court may not exercise supplemental jurisdiction over state-law claims without original jurisdiction over the action).

On appeal, the parties claim that the district court also had diversity jurisdiction under 28 U.S.C. § 1332, which grants the district courts original jurisdiction over civil actions between citizens of different states in which the amount in controversy exceeds $75,000. Here, the plaintiffs and defendants are citizens of different states,¹ but the original petition filed in state court alleged damages “in excess of $50,000.” Thus, it is not facially apparent whether the plaintiffs satisfied the amount-in-controversy requirement. Because the party invoking federal jurisdiction bears the burden of demonstrating that the court has subject-matter jurisdiction over the case, Amoche v. Guarantee Trust Life Ins. Co., 556 F.3d 41, 48 (1st Cir.2009), Pan Am must show that the amount in controversy exceeds $75,000. Although we have not decided how heavy a burden the removing party must bear in this precise situation, we have decided that a party removing a case under the Class Action Fairness Act of 2005, 28 U.S.C. §§ 1332(d), 1453, must show a “reasonable probability” that the jurisdictional threshold is satisfied. Amoche, 556 F.3d at 48–49.

Whatever the appropriate burden, Pan Am has satisfied it. On appeal, counsel for MBR told this court that after the district court ruled that MBR's claims were not preempted, the court held a conference call during which the...