Norfolk S. Ry. Co. v. W. Va. R.R.

• Decision Date: 22 April 2015
• Docket Number: No. 2:11–cv–1588–TFM.,2:11–cv–1588–TFM.
• Parties: NORFOLK SOUTHERN RAILWAY COMPANY and Wheeling & Lake Erie Railway Company, Plaintiffs, v. PITTSBURGH & WEST VIRGINIA RAILROAD and Power Reit, Defendants.
• Court: U.S. District Court — Western District of Pennsylvania

101 F.Supp.3d 497

NORFOLK SOUTHERN RAILWAY COMPANY and Wheeling & Lake Erie Railway Company, Plaintiffs,
v.
PITTSBURGH & WEST VIRGINIA RAILROAD and Power Reit, Defendants.

No. 2:11–cv–1588–TFM.

United States District Court, W.D. Pennsylvania.

Filed April 22, 2015.

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Stanley Parker, Bradley J. Kitlowski, Kathleen J. Goldman, Samuel W. Braver, Buchanan Ingersoll & Rooney, Pittsburgh, PA, for Plaintiffs.

Edward P. Gilbert, Brett D. Dockwell, Morrison Cohen, LLP, New York, NY, Patricia L. Dodge, Nicholas J. Bell, Meyer, Unkovic & Scott LLP, Pittsburgh, PA, for Defendants.

MEMORANDUM OPINION AND ORDER OF COURT

TERRENCE F. McVERRY, Senior District Judge.

Pending before the Court is a MOTION FOR PARTIAL SUMMARY JUDGMENT (ECF No. 196) filed by Defendants/Counterclaim Plaintiffs Pittsburgh & West Virginia Railroad and Power REIT; a MOTION FOR PARTIAL SUMMARY JUDGMENT (ECF No. 198) filed by Plaintiffs/Counterclaim Defendants Norfolk Southern Railway Company and Wheeling & Lake Erie Railway Company; and PLAINTIFFS' SUPPLEMENTAL MOTION TO DEEM ADMITTED CERTAIN PARAGRAPHS OF PLAINTIFFS' STATEMENT OF MATERIAL FACTS AND TO STRIKE OBJECTIONS (ECF No. 226).¹The issues have been fully

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briefed and well-argued by the parties in their memoranda (ECF Nos. 197, 199, 210, 213, 217, 220, 221, 229, 230), and the factual record has been thoroughly developed via their Concise Statements of Material Facts (“CSMF”), appendices, exhibits, and Responsive Statements of Facts (“RSOF”) (ECF Nos. 200, 201, 202, 203, 204, 207, 208, 209, 211, 212, 216, 218, 224). The Court heard oral argument on December 16, 2014, and the transcript has been filed of record (ECF No. 231). Accordingly, the motions are ripe for disposition.

I. Background

A. Factual Background ²

The following background is taken from the Court's independent review of the motions for summary judgment, the filings and arguments in support and opposition thereto, and the record as a whole.

1. The Parties

This action concerns a lease entered into between The Pittsburgh & West Virginia Railway Company (“Pittsburgh & West Virginia”) and Norfolk and Western Railway Company (“Norfolk and Western”) in 1962 (the “Lease”). Under the Lease, Pittsburgh & West Virginia conveyed to Norfolk and Western all of its right, title, and interest in and to certain of its properties, including a 112–mile portion of main line railroad (the “Rail Line”) and approximately twenty miles of branch rail lines that run from Western Pennsylvania through West Virginia and into Ohio.

Norfolk Southern Railway Company (“Norfolk Southern”) is the successor to the interest of Norfolk and Western in the Lease. Wheeling & Lake Erie Railway Company (“Wheeling & Lake Erie”) became

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the Sublessee on May 17, 1990 when it entered into an agreement with Norfolk Southern to assume the rights, interest, duties, obligations, liabilities, and commitments of Norfolk and Western as lessee, including the role of being principal operator of the Rail Line (the “Sublease”). SeePls.' App'x Ex. 2 at 1–2, ECF No. 201–2.

Pittsburgh & West Virginia Railroad (“PWV”) is a business trust and the successor-in-interest to The Pittsburgh & West Virginia Railway Company. Power REIT is a real estate investment trust which was formed in 2011 as part of a reverse triangular merger of PWV. After that reorganization, PWV became a wholly-owned subsidiary of Power REIT.

2. The Lease

The Lease is dated July 12, 1962 and contains a pre-printed “SEAL” notation following the parties' signatures. SeePls.' App'x Ex. 1 at 1, 19, ECF No. 201–1. The term of the Lease is 99–years, renewable in perpetuity at the option of the Lessee absent a default. See id.at 3–4. The same terms and conditions, including the economic provisions of the Lease, remain in effect with each renewal. See id.at 4.

a. The Property (Not) Demised

Section 1 sets forth the parties' agreement as to what comprises the “Demised Property” under the Lease:

Except for such property as shall be hereinafter specifically excluded by Section 2 hereof, Lessor does hereby lease, assign, transfer and deliver to Lessee, its successors and assigns, for the term hereinafter set forth, and Lessee does hereby accept from Lessor all of Lessor's right, title and interest in and to all its property, real, personal and mixed, including equipment, machinery, tools, materials and supplies, cash, investments, securities, claims, intangibles, choses in action, rights (contractual or otherwise), obligations, interests, leaseholds and franchises, and including without limitation:

(a) The railroad properties consisting of real estate owned and operated by Lessor and described in Schedule A attached hereto.

(b) The additional property of a miscellaneous nature described in Schedule B attached hereto.

(c) All property acquired in replacement of or substitution for, and all additions, betterments and improvements to and extensions of, the property covered by this Section 1, and all after-acquired property of Lessor, acquired during the term of this Lease and appurtenant to or useful upon or in connection with the property covered by this Section 1, except for after-acquired property acquired by Lessor with the proceeds of the rent paid or payable by Lessee pursuant to subdivision (a) of Section 4 hereof ....

Id.at 1. Section 1 also provides that “Lessor will execute and deliver all such instruments, if any, as may be necessary to assign or confirm to Lessee any of the property demised ....” Id.

Schedule A describes Lessor's “Real Estate Railroad Properties” to be “[a]ll right, title and interest of The Pittsburgh & West Virginia Railway Company in and to any and all land and improvements or other inherently permanent structures situate thereon which may be under, along or adjacent to [ (1) the Rail Line and (2)-(6) branch lines of railroad known as the Donora Branch, Clairton Branch, Mifflin Branch, West End Branch, and Bell Branch].” Id.at 24–26. Schedule B describes Lessor's “Additional Properties” to be

All right, title and interest of The Pittsburgh & West Virginia Railway Company, whether legal or equitable, in

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and to all equipment, machinery, tools, material and supplies, cash, investments, securities, claims, intangibles, choses in action, rights (contractual or otherwise), interests, franchises and all other property owned by The Pittsburgh & West Virginia Railway Company, excepting real properties listed on Schedule A hereto and property not demised listed in Section 2 hereof.

Id.at 26. As the Sublessee, Wheeling & Lake Erie presently holds all right, title and interest in the property covered under the Lease.

Section 2 excludes the following property (the “Nondemised Property”) of Lessor from the Lease:

(a) Motive power and rolling stock owned by Lessor at the commencement of the term of this Lease as provided in Section 3 hereof....

(b) Shares of stock issued by Lessor and held in its treasury at the commencement of the term of this Lease as provided in Section 8 hereof.

(c) Books and records of Lessor which are needed by Lessor in order to carry out its obligations under this Lease.

(d) Rights, privileges and franchises of Lessor requisite for the preservation of its corporate existence and for the proper performance by it of the terms and provisions of this Lease or of any obligations imposed by law.

(e) After-acquired property acquired by Lessor with the proceeds of the rent paid or payable by Lessee pursuant to subdivision (a) of Section 4 hereof.

Id.at 2. The final clause of Section 2 permits Lessor, without first securing the consent of Lessee, to “sell, lease, mortgage, pledge, transfer, dispose of, invest and reinvest all or any part of the nondemised property covered by this Section 2, except that covered by subdivisions (a) and (b) hereof, or the proceeds thereof or the income therefrom.” Id.

b. Rent

Rent under the Lease consists of a cash payment fixed at $915,000 per year (Section 4(a)) as well as additional items attributable to the real properties (Section 4(b)). See id.at 4–6. Relevant here, the “Additional rent” includes the following:

(1) Sums equal to the deduction for depreciation or amortization with respect to the demised property allowed to Lessor for such year under the provisions of the then effective United States Internal Revenue Code....

(5) Except as otherwise provided in Section 5 hereof, all interest, expenses, fees and any other sums (except for principal, sinking fund payments

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