369 F.Supp.2d 172 (2005) | Cited 2 times | D. Massachusetts | May 13, 2005



Plaintiff San Luis Central Railroad ("San Luis Central"), arail carrier, brought this action in state court alleging variousstate-law claims1 including breach of contract and aviolation of Mass. Gen. Laws ch. 93A, § 11 against defendant railcarriers Springfield Terminal Railway Company, Maine CentralRailroad Company, Boston and Maine Corporation, and PortlandTerminal Company (collectively "Springfield Terminal"). Thecomplaint alleges defendants owe $36,212.54 in "car hire" inaccordance with the Car Service and Car Hire Agreement for use of plaintiff's railroad cars on defendants' railroad lines. A timelynotice of removal was filed. Defendants move to dismiss on theground that state-law remedies are preempted under the InterstateCommerce Commission Termination Act ("ICCTA"), 49 U.S.C. § 701et seq. (2005). After hearing, the motion to dismiss isALLOWED without prejudice to the filing of an amendedcomplaint.


Plaintiff San Luis Central is a rail carrier that owns railfreight cars that move through North America. (Pl.'s Compl. ¶ 8.)Defendants Maine Central, Boston and Maine, and Portland Terminalare rail carriers in an integrated system operated by defendantSpringfield Terminal. (Id. ¶ 7.)

Plaintiff and defendants Maine Central, Boston and Maine, andPortland Terminal are parties to Circular No. OT-10, Car Serviceand Car Hire Agreement ("the Agreement"). (Id. ¶ 10.)Springfield Terminal "acts for itself and the other constituents[including the other defendants in this case] for purposes of"the Agreement. (Id.) The Agreement is a contract under whichthe parties agree to abide by the Code of Car Hire Rules issuedby the Association of American Railroads ("AAR"), an industrytrade group. (Id. ¶ 9.)

Under the Agreement, Springfield Terminal tracks its use ofplaintiff's freight cars ("car service") and the amounts it owes plaintiff based on that use ("car hire"). (Id. ¶ 11.) Eachmonth, Springfield Terminal is required to send an accounting ofcar service and car hire to plaintiff. (Id. ¶ 12.) Moreover,each month, Springfield Terminal is supposed to "make settlement"on car hire owed. (Id.)

Springfield Terminal failed to pay $36,212.54 in car hire forMarch to August 2004, based on defendants' own records. (Id. ¶13.) Because Springfield Terminal has financial problems, it isunable to pay "its obligations as they come due." (Id. ¶ 16.)It appears that Springfield Terminal is selectively paying itsbills, in effect requiring that plaintiff "involuntarilycontribute to the financing of the working capital requirementsof" Springfield Terminal. (Id. ¶ 17.)


On a 12(b)(6) motion to dismiss, the court must "accept as trueall well-pleaded allegations in the nonmovant's complaint" and"draw all inferences in favor of the nonmovant." Iwata v. IntelCorp., 349 F. Supp. 2d 135, 140 (D. Mass. 2004) (citingCooperman v. Individual, Inc., 171 F.3d 43, 46 (1st Cir.1999)). The complaint should be dismissed if, "so viewed, [it]presents no set of facts justifying recovery." Cooperman,171 F.3d at 46.


A. The Statutory Scheme

Defendants argue that state-law claims are preempted by 49 U.S.C. § 10501(b), which gives the United States SurfaceTransportation Board ("STB" or "the Board") "exclusive"jurisdiction over rail carrier transportation. Section 10501(b)provides: The jurisdiction of the Board over — (1) transportation by rail carriers, and the remedies provided in this part2 with respect to rates, classifications, rules (including car service, interchange, and other operating rules), practices, routes, services, and facilities of such carriers . . . is exclusive. Except as otherwise provided in this part, the remedies provided under this part with respect to regulation of rail transportation are exclusive and preempt the remedies provided under Federal or State law.The STB has the authority to regulate car service, including thecompensation paid for the use of freight cars.349 U.S.C. § 11122(a). It may also regulate

(2) the other terms of any arrangement for the use by a rail carrier of a locomotive, freight car, or other vehicle not owned by the rail carrier using the locomotive, freight car, or other vehicle, whether or not owned by another carrier, shipper, or third person; and (3) sanctions for non observance. Id. The STB may prescribe the "maximum reasonable charge" thata rail carrier subject to its jurisdiction may pay for a service.49 U.S.C. § 10745.

Section 11704 provides the rights and remedies of personsinjured by a rail carrier. Section 11704(c)(1) provides: A person may file a complaint with the Board under section 11701(b) of this title or bring a civil action under subsection (b) of this section to enforce liability against a rail carrier providing transportation subject to the jurisdiction of the Board under this part.Section 11704(b) provides that a rail carrier "is liable fordamages sustained by a person as a result of an act or omissionof that carrier in violation of this part."

The First Circuit has held that § 11704(c)(1) permits thefiling of a suit by a rail carrier in federal district court.Pejepscot, 215 F.3d at 205. Such a suit is subject to athree-year statute of limitations. § 11705(a).4

B. The Regulatory Scheme

As early as 1902 American railroads had formed an associationto create a uniform system for freight car rentals on a per diembasis. Balt. & Ohio R.R. Co. v. N.Y., New Haven & Hartford R.R.Co., 196 F. Supp. 724, 727-28 (S.D.N.Y. 1961). In 1917, the Esch Car Service Act imposed upon carriers a "duty toestablish and enforce just and reasonable rules with respect tocar service." Id. at 728. The statute also gave the ICCauthority to establish and enforce such rules. Id. The ICCcreated the Bureau of Car Services, which worked directly withthe American Railway Association (the predecessor of the AAR).Id.

In 1977, the ICC adopted a formula for car hire rates that wasdefective because it did not adapt to changing marketcircumstances. S. Pac. Transp. Co. v. Interstate CommerceComm'n, 69 F.3d 583, 585 (D.C. Cir. 1995). In 1990, a coalitionof railroad industry participants proposed a solution, much ofwhich was eventually adopted: Under the program, existing cars remain subject to prescribed rates — fixed at 1990 levels — for 10 years; carriers may deprescribe 10% of their fleets in each of those 10 years. The rates for new cars, defined as cars built after January 1, 1993, are determined by bilateral negotiation and, if necessary, arbitration under a rule adopted as part of the Code of Car Hire Rules.Id.; see 49 C.F.R. § 1033.1 (2005).

By regulation, the STB adopted the following definition ofprescribed rates for fixed rate cars: The hourly and mileage rates in effect on December 31, 1990, as published in Association of American Railroads Circular No. OT-10 found in the information section of tariff STB RER 6411-U known as the Official Railway Equipment Register. This information can be obtained at the Association of American Railroads or the Board. Prescribed rates will be enhanced to reflect OT-37 surcharges and Rule 88 rebuilds for work undertaken and completed during 1991 and 1992, and for rebuilding work for which there was a written and binding contract prior to July 1, 1992.§ 1033.1(a)(6). In deprescribing car hire for market rate cars,the STB also incorporated the Code of Car Hire Rules: The Code of Car Hire Rules referenced in the Association of American Railroads Car Service and Car Hire Agreement provides that owners and users party to that agreement shall resolve car hire disputes thereunder. The Board may review allegations of abuse of the car hire dispute resolution process established under those rules.§ 1033.1(c)(2)(ii). If a rail carrier is not a party to theAgreement, the STB resolves car hire disputes. §1033.1(c)(2)(iii).

C. Preemption

Defendants argue that plaintiff's only remedy to recovercharges for car service provided is to file a complaint with theSTB or in federal court, and that any state-law remedy ispreempted under § 10501(b). See Pejepscot, 215 F.3d at 202("The last sentence of § 10501(b) plainly preempts state law.");Engelhard Corp. v. Springfield Terminal Ry. Co.,193 F. Supp. 2d 385, 389 (D. Mass. 2002) ("[S]ection 10501(b) is anunmistakable statement of Congress's intent to preempt state lawstouching on the substantive aspects of rail transportation."). Plaintiff responds that it has a separate breach of contractremedy under state law because the Agreement is more like avoluntary contract than a regulatory order. The statutory schemecontemplates contracts between rail carriers and purchasers ofrail services, the breach of which can be remedied via statecourtcauses of action. See 49 U.S.C. § 10709. A rail carrierproviding transportation subject to the jurisdiction of the STBmay enter into "a contract with one or more purchasers of railservices to provide specified services under specified rates andconditions." § 10709(a). A party to such a contract, under §10709(b), "shall have no duty in connection with servicesprovided under such contract other than those duties specified bythe terms of the contract." The statute also provides: The exclusive remedy for any alleged breach of a contract entered into under this section shall be an action in an appropriate State court or United States district court, unless the parties otherwise agree. This section does not confer original jurisdiction on the district courts of the United States based on section 1331 or 1337 of title 28, United States Code.§ 10709(c)(2).

In Township of Woodbridge v. Consolidated Rail Corp., the STBstated that a rail carrier that has voluntarily entered into acontract cannot use preemption to shield itself from state-lawliability. STB Docket No. 42053 (Nov. 28, 2000), 2000 WL 1771044,at *3, clarified by STB Docket No. 42053 (Mar. 22, 2001), 2001WL 283507 (involving a contract with a town to curtail noise from idling trains). Relying on the STB's reasoningin Woodbridge, the District Court of Maine held that avoluntary contract was not preempted in Pejepscot IndustrialPark, Inc. v. Maine Central Railroad Co., 297 F. Supp. 2d 326,332-33 (D. Me. 2003).

The issue for this Court is whether the Agreement is a contractthat falls within § 10709 and thus the "exclusive remedy" is astate-law cause of action. Typically, contracts pursuant to §10709 have involved the purchase of rail carrier services by ashipper. See generally Am. Rock Salt Co. v. Norfolk S. Corp.,180 F. Supp. 2d 420 (W.D.N.Y 2001) (contract for shipment ofsalt); Transit Homes of Am., Div. of Morgan Drive Away, Inc. v.Homes of Legend, Inc., 173 F. Supp. 2d 1192 (N.D. Ala. 2001)(contract for shipment of mobile homes); Entergy Servs., Inc. v.Union Pac. R.R. Co., 99 F. Supp. 2d 1080 (D. Neb. 2000)(contract for shipment of coal); Dow Chem. Co. v. Union Pac.Corp., 8 F. Supp. 2d 940 (S.D. Tex. 1998) (contract for shipmentof goods). A review of the caselaw revealed no contractsinvolving car hire enforced under state law.

Springfield Terminal argues that the Agreement should not betreated as a voluntary contract within the scope of the statutoryexception because it has regulatory force and receives continuedregulatory oversight. While the interplay between § 10709 and §11705 is not crystal clear, Springfield Terminal has the betterargument when the statute is viewed as a whole. See Engelhard Corp., 193 F. Supp. 2d at 389-90. Section 11704(c)(1) providesan express cause of action in federal court for a rail carrier torecover for payment for services. The statute also provides arail carrier with a remedy before the STB for breaches of itsorders. §§ 11701(b); 11704(c)(1). Accordingly, I conclude thatthe state-law cause of action for breach of the Agreement ispreempted.5

D. Other State Law Claims

The next question is whether § 10501(b) preempts the statelawtort and statutory claims. Where a tort claim against a railcarrier concerns rail transportation, an award of damages,particularly punitive damages, may improperly serve to regulaterail transportation. Pejepscot, 297 F. Supp. 2d at 333 (holdingthat a state tort claim was preempted); cf. Guckenberg v. Wis.Cent. Ltd., 178 F. Supp. 2d 954, 958 (E.D. Wis. 2001) (holdingthat a state common-law cause of action may quality as"regulation" for purposes of section 10501(b)). Accordingly, thetort claim of conversion and the claim under Mass. Gen. Lawsch. 93A, § 11 for unfair trade practices are preempted.

Regardless of preemption, San Luis Central's claim thatSpringfield Terminal violated ch. 93A would be dismissed. A breach of contract alone does not constitute a violation ofch. 93A. Whitinsville Plaza, Inc. v. Kotseas, 390 N.E.2d 243, 251(Mass. 1979). The gravamen of San Luis Central's claim is thatSpringfield Terminal willfully withheld payments on a routinebasis because of financial inability to pay in order to retainthe use of the funds owed. Fed up with the month-to-month delaysin payments, plaintiff wants not just interest but sanctions aswell. There is no caselaw that precludes interest in an actionunder § 11704, cf. GS Roofing Prods. Co. v. Surface Transp.Bd., 262 F.3d 767, 773 (8th Cir. 2001) (court reviewed STB awardof damages, including interest, pursuant to § 11704), andplaintiff has the right to file a complaint for sanctions withthe STB, §§ 11701(b), 11704(c).


The Motion to Dismiss (Docket No. 4) is ALLOWED. Plaintiffmay file an amended complaint within thirty (30) days.

1. The state-law claims are: breach of contract (Count 1),breach of covenant of good faith and fair dealing (Count 2),violation of Mass. Gen. Laws ch. 93A, § 11 (Count 3), unjustenrichment (Count 4), conversion (Count 5), request forinjunction (Count 6), and trustee process and attachment (Count7).

2. "This part" is "Part A-Rail" in subtitle IV of title 49.Part B involves motor carriers, water carriers, brokers, andfreight forwarders, and Part C concerns pipeline carriers.

3. In 1995, Congress enacted the ICCTA, which abolished theInterstate Commerce Commission ("ICC"), substantially deregulatedrail and motor carrier industries, and established the STB withinthe Department of Transportation. Pub.L. No. 104-88, 109 Stat803 (codified generally at title 49); see Pejepscot Indus.Park, Inc. v. Me. Cent. R.R. Co., 215 F.3d 195, 197 (1st Cir.2000).

4. "A rail carrier providing transportation or service subjectto the jurisdiction of the Board under this part must begin acivil action to recover charges for transportation or serviceprovided by the carrier within 3 years after the claim accrues."

5. This precise question was unresolved by the caselaw. I didnot refer it to the STB, which has primary jurisdiction overthese matters, because the amount of money still in dispute is solittle (interest on the car hire that had not been paid). Ifeither party wants the issue to be referred, it may make anappropriate motion.

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