Ny Cross Harbor R.R. Terminal v. Consolidated Rail

• Decision Date: 19 October 1998
• Docket Number: No. 97-CV-3296 (ARR).,97-CV-3296 (ARR).
• Citation: 72 F.Supp.2d 70
• Parties: NEW YORK CROSS HARBOR RAILROAD TERMINAL CORPORATION, Plaintiff, v. CONSOLIDATED RAIL CORPORATION, Defendants.
• Court: U.S. District Court — Eastern District of New York

72 F.Supp.2d 70

NEW YORK CROSS HARBOR RAILROAD TERMINAL CORPORATION, Plaintiff, v. CONSOLIDATED RAIL CORPORATION, Defendants.

No. 97-CV-3296 (ARR).

United States District Court, E.D. New York.

October 19, 1998.

COPYRIGHT MATERIAL OMITTED

Jacques Catafago, Law Offices of Jacques Catafago, New York City, John Heffner, Rea, Cross & Auchincloss, Washington, DC, for plaintiff.

Carol Ann Stevens, John K. Fiorilla, Watson, Stevens, Fiorilla & Rutter, New York City, John G. Harkins, Jr., Gay Parks Rainville, Harkins Cunningham, Philadelphia, PA, Paul A. Cunningham, Harkins Cunningham, Washington, DC, for defendant.

OPINION AND ORDER

ROSS, District Judge.

Plaintiff New York Cross Harbor Railroad Terminal Corporation ("NYCH") brought this action against defendant Consolidated Rail Corporation ("Conrail") alleging that Conrail violated the Sherman Act, breached its contracts with NYCH, breached its fiduciary duty to NYCH, breached implied covenants of good faith attendant to its contracts with NYCH, and committed tortious breach of its contracts with NYCH. The plaintiff requested both damages and injunctive relief. The defendant filed a motion to compel arbitration and/or refer the case to the Surface Transportation Board ("STB"), and to stay or dismiss the case pending completion of arbitration or STB proceedings; in the alternative, the defendant requested that the court dismiss the case for failure to state a claim. For the reasons stated below, this court hereby grants the defendant's motion to compel arbitration, as to the majority of the plaintiff's claims and stays the plaintiff's remaining claims in this court pending the results of arbitration.

I. Factual Background and Procedural History

Plaintiff NYCH was established in 1983 as a Class III short line railroad after acquiring, with the approval of the Interstate Commerce Commission ("ICC"),¹ the assets and operations of the New York Dock Railway, which itself had previously acquired the assets of Brooklyn Eastern District Terminal Railway ("BEDT") in 1979. See Amend. Complaint at ¶¶ 4-6 & n. 2. NYCH performs rail freight service in Brooklyn, New York, and Jersey City, New Jersey, moving freight cars between those locations across New York Harbor by means of car floats.² See id. at ¶ 10. In doing so, NYCH links the Long Island Rail Road ("LIRR") on the east side of the Harbor with Conrail on the west side, providing a connection between eastern New York City and Long Island and the national railroad system.³ See id. Defendant Conrail began operations in 1976, pursuant to the Regional Rail Reorganization Act of 1973, see 45 U.S.C. §§ 701-797, by acquiring the operating properties of six bankrupt railroads in the Northeast and Midwest. See Pl.Memo. at 4. As a Class I railroad incorporated in Pennsylvania, Conrail currently provides freight rail service in fifteen eastern and midwestern states, the District of Columbia, and two Canadian provinces. See Amend. Complaint at ¶ 7. Both NYCH and Conrail are subject to regulation by the STB. See id.

NYCH and Conrail maintain an unusual relationship. As connecting railroads, they jointly provide freight transportation services to customers who wish to move goods between points south of New York City and eastern New York City or Long Island via the LIRR. See id. at ¶ 10. As a result, in some business situations, the two railroads act in concert — as partners, in a practical sense. However, because Conrail maintains a separate link with the LIRR, see supra note 3, NYCH and Conrail also compete for freight service which originates or terminates on the LIRR. As a result, in other business situations, the two railroads act as direct competitors.

Upon becoming the owner of the Greenville Yard in Jersey City in 1976, Conrail entered into a lease agreement with BEDT, the plaintiff's predecessor, for a portion of the Greenville Yard. See Def Exh. 2; Amend. Complaint at ¶¶ 74-76. The lease agreement provided that BEDT would pay one dollar per year for the rights to operate the dock facility, see id. at ¶ 1-2, that, in return, BEDT would serve as Conrail's contractor for car float service, see id. at ¶ 1, that Conrail would lease one diesel-switching locomotive to BEDT upon request for fifty dollars per day, see id. at ¶ 2, that BEDT would be responsible for track maintenance but maintenance costs above $1.26 per car would be paid by Conrail, see id. at ¶ 3, and that Conrail would be responsible for rehabilitation of all leased trackage and facilities, see id., as well as assorted other minor agreements. Upon NYCH's formation in 1983, Conrail and NYCH reached an agreement under which NYCH succeeded to BEDT's rights under the 1976 lease. See Def. Exh. 3.

Also in 1983, Conrail and NYCH entered into a Junction Settlement and Accounting Agreement ("Junction Agreement"), a comprehensive agreement created to govern all aspects of the parties' relationship as joint providers of freight transportation services. See Def. Exh. 4. In particular, the Junction Agreement provides detailed procedures for distributing the costs and revenues arising from joint provision of services and for settling disputes that arise therefrom. See id. Most importantly to this action, the Agreement contains the following section that provides for arbitration of disputes:

"Either party may, upon written notice to the other party, refer any dispute or an event(s) of default and the subsequent process leading to the exercise of an option(s) to arbitration in Philadelphia, Pennsylvania, at the offices of the American Arbitration Association under the rules of the American Arbitration Association pertaining thereto, except that any arbitration proceedings shall be concluded within ninety (90) days after written notice of referral. The award of an arbitrator shall be final and binding upon the parties...."

Id. at ¶ 8. Both parties appear to agree that the Junction Agreement "is the controlling contract for any questions concerning obligations between NYCH and Conrail...." Pl.Memo. in Opp. at 16; see Def. Memo. at 10 ("[The Junction Agreement] comprehensively covers the NYCH-Conrail commercial relationship ...").

On January 20, 1993, Conrail and NYCH entered into a new thirty-year lease of the Greenville Yard property. See Def. Exh. B; Amend. Complaint at ¶ 97. During the same transaction, Conrail also sold to NYCH its interest in all assets installed on the leased property, including "structures, buildings, ... and bridges." Id. at § 3.1. All of the assets were expressly sold "as is." Id. at § 3.3. In addition, NYCH expressly assumed the obligation to "maintain, repair, and renew the Property and Assets at its own expense and with its own supervision and labor." Id. at § 4.4. The parties do not agree as to the scope of the 1993 lease and sale and whether its terms supersede the 1976 lease. Compare Pl. Memo in Opp. at 40 with Def.Memo. at 34. Moreover, plaintiff alleges that it agreed to the lease only after threats that its rejection would result in Conrail's abandonment of the Greenville Yard. See Amend. Complaint at ¶¶ 91-96.

The plaintiff's cause of action rests on the following allegations. According to NYCH, Conrail has recently engaged in various monopolistic, anti-competitive, and predatory actions which have undermined the ability of NYCH to compete and thus threatened to drive NYCH out of business. First, NYCH alleges that Conrail has intentionally and fraudulently misrouted railroad cars containing third party customers' cargo to avoid using the plaintiff's system. See id. at ¶ 60. In particular, NYCH alleges that Conrail has repeatedly disregarded its customers' express requests to route their cargo through NYCH, instead transporting the cargo on its own lines to its link with the LIRR at Fresh Pond Junction or via third party carriers.⁴ See id. at ¶¶ 54, 57. As a result, according to plaintiff, Conrail has unlawfully retained revenues due to NYCH. See id. at ¶ 56. Second, NYCH alleges that Conrail has offered its customers discriminatory, preferential rates to induce customers to use Conrail's Albany route to the LIRR rather than NYCH's more direct route. See id. at ¶ 61. According to plaintiff, the rates offered by Conrail to haul freight through Albany are below cost. See id. at ¶ 62. Third, NYCH alleges that Conrail has disseminated false information that NYCH is going out of business to shared customers and to NYCH shareholders and prospective investors. See id. at ¶¶ 63-66. Fourth, plaintiff alleges that Conrail illegally withheld monies owed to plaintiff for services rendered to joint third-party customers. See id. at ¶¶ 67-72. Fifth, plaintiff alleges that Conrail coerced NYCH into accepting the 1993 lease through threats to deny NYCH access to the Greenville Yard, an essential facility to NYCH's business. See id. at ¶¶ 91-96. Finally, plaintiff alleges that Conrail's violations of the 1976 lease of the GreenvilleYard — including overcharge for the use of Conrail's locomotives and refusal to perform required repairs — and its unlawful rescission of the 1993 lease have resulted in multiple denials of access to essential facilities and multiple acts of refusal to deal. See id. at ¶¶ 73-85.

In its first cause of action, plaintiff NYCH alleges that Conrail's actions detailed above constitute a violation of Section 2 of the Sherman Act and demands $100 million, trebled by operation of law, and injunctive relief. See id. at ¶¶ 106-13. In its second cause of action, NYCH alleges that Conrail's conduct constitutes a breach of the 1976 and 1993 leases of the Greenville Yard and demands $1 million in damages.⁵ See id. at ¶¶ 114-16. In its third cause of action, plaintiff alleges that Conrail's conduct constitutes a breach of fiduciary duty and demands $100 million in compensatory and $500 million in punitive damages. See id. at ¶¶ 117-19. Finally, in its fourth cause of action, NYCH alleges that Conrail's actions constitute a tortious...