Union Pac. R.R. Co. v. City of Palestine

• Decision Date: 03 February 2021
• Docket Number: Case No. 6:19-cv-574-JDK
• Court: U.S. District Court — Eastern District of Texas
• Parties: UNION PACIFIC RAILROAD COMPANY, Plaintiff, v. CITY OF PALESTINE, et al., Defendants.

517 F.Supp.3d 609

UNION PACIFIC RAILROAD COMPANY, Plaintiff,

v.CITY OF PALESTINE, et al., Defendants.

Case No. 6:19-cv-574-JDK

United States District Court, E.D. Texas, Tyler Division.

Signed February 3, 2021

Afton D. Sands, Husch Blackwell LLP Austin, TX, Herbert A. Yarbrough, III, Yarbrough Wilcox, PLLC, Tyler, TX, James Scott Ballenger, James Scott Ballenger, Attorney at Law, Riley T. Keenan, Latham & Watkins LLP, Washington, DC, John William Proctor, Brown Proctor & Howell LLP, Fort Worth, TX, for Plaintiff.

D. Bryan Hughes, Attorney at Law, Tyler, TX, James Purney Allison, Allison Bass & Magee, LLP, Austin, TX, for Defendants.

ORDER AND OPINION

JEREMY D. KERNODLE, UNITED STATES DISTRICT JUDGE

This case has its origins in a nineteenth-century relic—a "shop agreement" in which a railroad promised to maintain shops and offices in a particular municipality in exchange for government subsidies to expand the rail line. Plaintiff Union Pacific Railroad Company alleges that its agreement with the City of Palestine and Anderson County, Texas, is preempted by a federal statute, the Interstate Commerce Commission Termination Act (ICCTA). Union Pacific seeks a declaration voiding the agreement and an injunction prohibiting the City and County from enforcing it.

Pending before the Court are two motions to dismiss filed by the City and County and the Parties’ cross-motions for summary judgment. For the reasons discussed below, the Court DENIES Defendants’ motions to dismiss (Docket Nos. 40 & 41), GRANTS Plaintiff's motion for summary judgment (Docket No. 39), and DENIES Defendants’ motion for summary judgment (Docket No. 42).

I. BACKGROUND

Union Pacific's contractual relationship with the City of Palestine and Anderson County originated nearly 150 years ago. In 1872, Union Pacific's predecessor in interest contracted with the City and County to run its rail line to and through Palestine. City of Palestine v. United States , 559 F.2d 408, 410 (5th Cir. 1977).¹ At that time, the railroad promised to "locate and establish and forever thereafter keep and maintain" its "general offices, machine shops and roundhouses" in Palestine. Id. And Palestine promised to raise $150,000 in bonds for the railroad from the citizens of Anderson County. Id.

In 1873, the railroad company merged with a second line. The Texas Legislature approved the merger on the condition that the merged company assume "all acts done in the name of either of the companies." Id. The new railroad therefore agreed to establish its "general offices, machine shops and roundhouses" in Palestine. Id. In 1875, the citizens paid an additional $150,000 in bonds and agreed to "construct, at their own cost and expense, housing for the officers and employees of the company." Id.

In 1911, the railroad's creditors reorganized the business into the new International & Great Northern Railroad (I&GN), subject to all the predecessor railroad's rights and liabilities. Id. at 410–11. I&GN's corporate charter located the railroad's offices in Houston, Texas. Id. at 411. The City and County sued I&GN, seeking an injunction to enforce the railroad's obligation to locate its "general offices, machine shops and roundhouses" in Palestine. Id. The City and County won, and the Cherokee County District Court issued a decree (the 1914 Decree) forever binding I&GN to maintain its general offices, machine shops, and roundhouses in Palestine.² Id. at 412.

The 1914 Decree complied with Texas's "Shop Act," which statutorily required "a railroad company chartered by the state without charter-designated office location" to:

keep and maintain its general offices at such place within this state where it shall have contracted or agreed, or shall hereafter contract or agree, to locate its general office for a valuable consideration.... And such railroads shall keep and maintain their machine shops and roundhouses, or either, at such place or places as they may have contracted to keep them for a valuable consideration received; and, if said general offices and shops and roundhouses, or either, are located on the line of a railroad in a county which has aided said railroad by an issue of bonds in consideration of such location being made, then said location shall not be changed; and this shall apply as well to a railroad that may have been consolidated with another as to those which have maintained their original organization.

Id. (quoting TEX. REV. CIV. STAT. art. 6423 (1911) ).

Missouri Pacific (MoPac) subsequently acquired I&GN as a subsidiary. Id. During the Great Depression, MoPac filed for bankruptcy and requested reorganization under Bankruptcy Act § 77. Id. In its request, MoPac proposed to consolidate with its subsidiaries, including I&GN. Id. But the 1914 Decree required I&GN to maintain its offices in Palestine, and MoPac's offices were located elsewhere. Id. The Bankruptcy Act, moreover, expressly required enforcement of the 1914 Decree. Section 77(n) stated:

No reorganization effected under this title and no order of the court or Commission in connection therewith shall relieve any carrier from the obligation of any final judgment of any Federal or State court rendered prior to January 1, 1929, against such carrier or against one of its predecessors in title, requiring the maintenance of offices, shops, and roundhouses at any place, where such judgment was rendered on account of the making of a valid contract or contracts by such carrier or one of its predecessors in title.

Id. (quoting 11 U.S.C. § 205(n) (1970)).

At the request of the bankruptcy court, MoPac negotiated with the City and County in 1954 to modify the 1914 Decree. Id. Pursuant to the agreement (the 1954 Agreement), "MoPac agreed to forever maintain in Palestine 4.5% of all of its employees in certain job classifications" and was no longer required to "maintain its general offices, shops and roundhouses in Palestine." Id. The percentage was subject to fractionation if the railroad subsequently merged, combined, or consolidated. Docket No. 39, Ex. 1 at 23–24. In 1955, the District Court of Cherokee County, Texas, entered a judgment to modify the 1914 Decree according to the 1954 Agreement. Id. , Ex. 3. The bankruptcy court approved the reorganization. City of Palestine , 559 F.2d at 412.

Nearly thirty years passed, and then several key events occurred. In 1982, Union Pacific acquired MoPac. Id. , Ex. 10 at 1 ¶ 4. In 1995, Congress passed the ICCTA, establishing the Surface Transportation Board to regulate rail carriers and preempting state and local laws that come within the Board's jurisdiction. Pub. L. No. 104-88, 109 Stat. 803 (1995) ; Tex. Cent. Bus. Lines Corp. v. Midlothian , 669 F.3d 525, 530 (5th Cir. 2012). In 1997, Union Pacific merged into MoPac. Docket No. 39, Ex. 10 at 1 ¶ 4. And in 2007, Texas repealed its Shop Act, concluding that it was preempted by the ICCTA. H.R. 80-3711, Reg. Sess. at 1 (Tex. 2007).

At present, Union Pacific must employ 0.52% of its "Office and Shop Employees" in Palestine, Texas. Docket No. 39, Ex. 4 at 31:7–17. The 1954 Agreement defines "Office and Shop Employees" to include the following classifications: Executives, Officials, and Staff Assistants; Professional, Clerical, and General; Maintenance of Equipment and Stores; Transportation (other than Train, Engine and Yard); Transportation (Yardmasters, Switch Tenders, and Hostlers). Docket 1, Ex. 1 at 3. In this lawsuit, Defendants do not assert that Union Pacific has breached the 1954 Agreement. See Docket No. 51 at 8 ¶ 17. Instead, Union Pacific alleges that the ICCTA preempts the 1954 Agreement and seeks a declaratory judgment and injunctive relief to void its obligations under the Agreement.

II. DEFENDANTS’ MOTIONS TO DISMISS

The City and County have filed two motions to dismiss. The first argues that Federal Rule of Civil Procedure 12(b)(7) requires dismissal because a class of Palestine and Anderson County citizens is necessary to the suit under Federal Rule of Civil Procedure 19. Docket No. 40. The second motion seeks dismissal under Federal Rule of Civil Procedure Rule 12(c) on three grounds: (1) the Court lacks subject matter jurisdiction, (2) the Anti-Injunction Act bars this suit, and (3) the limitations period has expired. The Court DENIES both motions.

A. DEFENDANTS’ MOTION TO DISMISS UNDER RULE 12( B )(7) AND RULE 19

Under Rule 12(b)(7), a party may seek dismissal for "failure to join a party under Rule 19." Rule 19(a)(1) provides that a party must be joined if:

(A) in that person's absence, the court cannot accord complete relief among existing parties; or

(B) that person claims an interest relating to the subject of the action and is so situated that disposing of the action in the person's absence may:

(i) as a practical matter impair or impede the person's ability to protect the interest; or

(ii) leave an existing party subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations because of the interest.

A Rule 19(a) analysis is subject to a burden-shifting framework. The movant bears the "the initial burden of demonstrating that a missing party is necessary." Hood ex rel. Miss. v. City of Memphis , 570 F.3d 625, 628 (5th Cir. 2009). If "an initial appraisal of the facts indicates that a possibly necessary party is absent," then the burden shifts to the opposing party to show that the missing party is not necessary. Id. (quoting Pulitzer–Polster v. Pulitzer , 784 F.2d 1305, 1309 (5th Cir. 1986) ). In making Rule 19 determinations, " ‘pragmatic concerns, especially the effect on the parties and on the litigation,’ will control." Tetra Techs., Inc. v. La. Fruit Co. , No. 06-CV-3736, 2007 WL 54814, at *2 (E.D. La. Jan. 5, 2007), aff'd , 252 F. App'x 639 (5th Cir. 2007) (quoting Smith v. State Farm Fire & Cas. Co. , 633 F.2d 401, 405 (5th Cir. 1980) ).³

Here, the City and County argue that the historic Citizens Committee is a necessary party under Rule 19(a)(1)(A) and (B). The Citizens Committee was a...