Daley Mohan Groble - DMG Updates

Court Rules Exclusive Contractual Right to Serve “Current Industry” Does not Apply to Future Plant Owners

By Bob Prendergast

In September 2011, the Seventh Circuit Court of Appeals settled a language dispute between two Midwestern Class II railroads in Dakota, Minnesota & Eastern Railroad Corporation, Plaintiff-Appellant, v. Wisconsin & Southern Railroad Corporation, Defendant-Appellee, decided September 20, 2011 by the Seventh Circuit Court of Appeals, reported in 657 F. 3d 615.

Dakota, Minnesota & Eastern Railroad Corporation (DM&E), a Midwestern Class II Railroad, sold trackage in Janesville, Wisconsin to Wisconsin & Southern Railroad Corporation (Wisconsin Southern), another Class II Railroad. The trackage included a spur line connecting a main line to only one facility, a plant owned by Freedom Plastics, Inc., DM&E’s largest customer in the area. In the sale, DM&E reserved an exclusive easement to use the spur line to exclusively serve Freedom Plastics, Inc. The contract stated that DM&E maintains "exclusive access ... to Freedom Plastics ... (‘Current Industry’)."

Freedom Plastics, Inc. later went into receivership and sold its assets, including the plant serviced exclusively by DM&E. Wisconsin Southern entered into an agreement to provide freight service to the purchaser of that plant, North American Pipe Corporation (NAPCO) with the belief that change in ownership had voided the exclusive easement with DM&E. DM&E continued to serve NAPCO’s plant as well but in a reduced capacity.

DM&E filed suit seeking an injunction against Wisconsin Southern to preclude it from serving NAPCO’s plant based on its exclusive easement and to stop Wisconsin Southern from a perceived trespass on DM&E’s exclusive easement.  

At issue was the meaning of the term “current industry” in the sale agreement. DM&E argued that “current industry” meant the facility under its “usage in the trade,” not just the original customer Freedom Plastics, Inc.

The Seventh Circuit Court of Appeals disagreed with DM&E and found that the term “current industry” in the contract referred only to the customer at the time the agreement was signed, not the facility itself. In supporting the denial of the injunction, the Seventh Circuit ruled in favor of Wisconsin Southern, holding that the DM&E’s exclusive easement did not apply to the new facility owner. The Court also found that since the DM&E no longer had exclusive use of the spur, there could be no trespass.

As an Industry or Customer may change over time, trackage rights contracts to serve that Industry should consider future developments.

For more information about preparing exclusive trackage agreements, please contact Bob Prendergast at rprendergast@daleymohan.com or 312.422.0799. 

Back to index of "DMG Updates" »

55 West Monroe • Suite 1600 • Chicago, IL 60603 • P: 312.422.9999 • F: 312.422.5370