7th Circuit: Railroad company’s claims within scope of indemnification clause

Listen to this article

The 7th Circuit Court of Appeals has ruled that a railroad company should be held responsible for paying for the cleanup of contamination in a park on Lake Superior.

A three-judge panel ruled in Wisconsin Central LTD v. Soo Line Railroad Co. on Wednesday. Wisconsin Central asked the court to review whether it should have to indemnify Soo Line for contamination discovered at Kreher Park in Ashland about 30 years ago.

In 1987, Wisconsin Central entered into an agreement that called for the purchase of rail lines from Soo Line. The agreement allocated responsibility for future environmental liabilities, and Soo Line agreed to retain liability and indemnify Wisconsin Central for claims for environmental matters within 10 years of closing the deal.

A few years into the agreement, local and state authorities discovered contamination near one of the lines in Kreher Park on the shore of Lake Superior. The Wisconsin Department of Natural Resources issued a potentially responsible party letter to Northern States Power Company, which then started a campaign to place some of the blame for contamination on Wisconsin Central.

In 1997, Wisconsin Central notified Soo Line that it was seeking indemnification for various environmental matters, including at Kreher Park. Soo Line did not agree to indemnify or defend Wisconsin Central.

The legal battle over cleanup responsibility continued. In 2012, Northern States sued the two railroads and the city of Ashland for the expenses it incurred to remediate the park. The railroads settled the claims for $10.5 million plus interest. Each railroad company paid half the amount.

The railroads then each sought indemnification from the other. The district court awarded summary judgment to Soo Line for damages, attorneys’ fees and costs, finding that no claim had been asserted against the railroads during the claim period.

On appeal, the two companies disputed when a claim was first asserted, and how much of the cost of defending and settling the matter was related to the rail lines and their operation.

Judges Kenneth Francis Ripple, Michael B. Brennan and Amy J. St. Eve reviewed and decided the case. They agreed with the district court’s conclusion that no claim was asserted against the railroads during the agreement’s 10-year claim period and that Wisconsin Central is responsible for the entirety of the railroads’ settlement with the Environmental Protection Agency.

Brennan wrote that the DNR took no action against the railroads during the claim period, and Northern States’ efforts to persuade the railroads to voluntarily join the cleanup wasn’t the equivalent of a regulator sending a PRP letter or taking official action that would constitute a claim.

“In contrast to environmental regulators, who can speak softly but carry a big stick, Northern States bellowed at the top of its lungs,” Brennan wrote. “But its efforts to involve the railroads in the environmental investigation failed—until the EPA became interested in the Kreher Park site and decided to name the railroads as PRPs. This occurred many years after the claim period ended.”

The judges said Northern States’ actions don’t meet the definition of a claim because the company didn’t assert any right to relief or make demands for relief against either railroad during the claim period. The efforts it made to get the railroad to join, like making comments to the press and asking a party to voluntarily contribute, are distinct from asserting a claim, the opinion said.

“Even if it had a claim or thought it had a claim, Northern States did not sue, did not threaten to sue, and did not even allude to its right to sue either railroad during the claim period,” Brennan wrote.

Wisconsin Central also argued that Soo Line didn’t meet its burden to show that the damages award reasonably approximated its losses. It gave the example of dredging an area around a commercial dock owned by Soo Line until 1982. Wisconsin Central viewed it as an operation separate from what it purchased in 1987, which it considered “modern-day” rail line operations.

However, the opinion said the text of the purchase agreement doesn’t support that interpretation.

“As part of its purchase, Wisconsin Central agreed to assume liability for ‘all’ environmental claims arising out of the operation of the rail lines it acquired,” Brennan said. “Without a time limit, ‘all’ extends to however long ago those liabilities arose and regardless of what later became of the relevant aspect of those operations.”

The judges reviewed de novo the record and summary judgment motion, and concluded the indemnification clause applies to the entire settlement because it was based on the operation of the railroad line. The ruling affirmed the district court’s decision. Follow @WLJReporter