United States District Court, M.D. Pennsylvania
December 2, 2004.
NORFOLK SOUTHERN RAILWAY COMPANY, Plaintiff
READING BLUE MOUNTAIN & NORTHERN RAILROAD COMPANY, Defendants.
The opinion of the court was delivered by: JAMES MUNLEY, District Judge
Presently before the court is Defendant Reading Blue Mountain &
Northern Railroad Company's ("RBMN") motion for partial summary
judgment. Plaintiff Norfolk Southern Railway Company ("Norfolk")
opposes this motion. The parties have fully briefed this matter
and it is ripe for disposition. For the following reasons, we
will grant RBMN's motion.
RBMN and Norfolk are parties to an agreement entitled "Common
C&S Facilities Maintenance Agreement," which governs the parties'
responsibilities and rights regarding the maintenance of a
communications system which serviced an eleven mile stretch of
track in the Lehigh Valley area of Pennsylvania. (Pl. Ex. 3,
"Common C & S Facilities Maintenance Agreement") (the
"Agreement"). This stretch of track consists of two tracks
running parallel to each other near Jim Thorpe, Pennsylvania.
(Pl. Ex. 7, Brian Sykes Aff. ¶ 4). Prior to 1996, Conrail owned
both tracks. (Def. Ex. A, Wayne Michel Aff. ¶¶ 3-4). In 1996,
Conrail sold one of the tracks to RBMN ("Track 1"), but retained
ownership over the other ("Track 2"). (Id.) Pursuant to this
sale, Conrail and RBMN entered into the Agreement to govern the
maintenance of the existing communications system. (Id. at ¶
The Agreement regulated the shared maintenance of the
communications and signaling system. (Agreement). Train operators
and railroad personnel use signaling systems to ensure safe train
travel. (Pl. Ex. 7, Brian Sykes Aff. ¶¶ 7-8). The system warns
train crews of irregularities or obstructions on the track and
instructs them as to how to proceed safely. (Id.) The signaling
system in place when Conrail and RBMN entered into the Agreement
included a series of poles, similar to telephone poles,
suspending wires above Tracks 1 and 2. (Def. Ex. A, Wayne Michel
Aff. ¶ 7). These wires provided power to the entire system, and
also relayed the information for the signal boxes along the
tracks to display. (Id.) The Agreement provided that Conrail
would be responsible for the maintenance of the system, but RBMN
would be required to contribute fifty-percent of the maintenance
costs. (Agreement). In 1999, Norfolk purchased Track 2 from
Conrail and succeeded to Conrail's interests under the Agreement.
(Def. Ex. A, Wayne Michel Aff. ¶¶ 3-4) Following the sale,
Norfolk and RBMN also shared the use of their tracks. (Pl. Ex. 7,
Brian Sykes Aff. ¶ 10).
On December 25-26, 2002, a severe winter storm (the "storm")
severed the communications wires and destroyed the majority of
the poles, thus disabling the communications system. (Def. Ex. C,
Robert Bortz Depo. at 78-79). Following the damage, RBMN
expressed to Norfolk that sharing a communications and signaling
system was no longer practical because the original shared system was
destroyed. (Pl. Ex. 9, E-mail from Wayne Michel, Jan. 9, 2003).
RBMN suggested that each company install and maintain its own
communications and signaling system for its own track instead of
building a new shared system. (Id.) Norfolk intended to
continue with the sharing agreement, proposed two options for
replacing the pole line system with a new system, and also
proposed to rebuild the damaged pole line system. (Def. Ex. 11,
Letter From Mark Owens to Wayne Michel, Feb. 3, 2003). Both
parties agreed that the old pole and wire system was antiquated,
inefficient, dangerous to rebuild, and expensive (Pl. Ex. 6, Jeff
Seidel Depo., 60-62), but RBMN did not accept any of Norfolk's
proposals for installing an updated system because it did not
desire to share a new system with Norfolk. (Def. Ex. 12, Letter
from Wayne Michel to Mark Owens, Feb. 4, 2003).
While RBMN and Norfolk negotiated, they continued running
trains without signals, a situation they refer to as running
"dark" or "form D." (Pl. Ex. 7, Brian Sykes, Aff. ¶ 15). Federal
regulations mandate that trains may run without signals for only
six months, unless the company receives approval from the Federal
Railroad Association ("FRA"). (Id.) The FRA restricts the
frequency and speed of trains traveling without signals. (Id.
at 18). Due to a desire to use its track at full capacity while
complying with federal regulations, Norfolk installed a new
communications system on its track. (Id. at 24). This system
uses circuitry within the track to transmit information to the
signal boxes, radios for communication, and powers the system
with solar paneling. (Id. at 24, Pl. Ex. 5, Brian Sykes Depo.
at 253-54). This system does not provide signaling to RBMN's
track. (Pl. Ex. 7, Brian Sykes Aff. ¶ 32). Norfolk filed suit initiating the case sub judice on May 1,
2003. Norfolk seeks recovery from RBMN under the Agreement for
its portion of the new circuitry and solar paneling system. RBMN
filed a motion for partial summary judgment on April 23, 2004,
bringing this case to its present posture.
This Court has jurisdiction pursuant to the diversity
jurisdiction statute, 28 U.S.C. § 1332. The plaintiff is a
Virginia corporation with its principal place of business in
Virginia, and the defendant is a Pennsylvania corporation with
its principal place of business in Pennsylvania. Because we are
sitting in diversity, the substantive law of Pennsylvania shall
apply to the instant case. Chamberlain v. Giampapa,
210 F.3d 154, 158 (3d Cir. 2000) (citing Erie R.R. v. Tompkins,
304 U.S. 64, 78 (1938)).
Granting summary judgment is proper if the pleadings,
depositions, answers to interrogatories, and admissions on file,
together with the affidavits, if any, show that there is no
genuine issue as to any material fact and that the moving party
is entitled to judgment as a matter of law. See Knabe v.
Boury, 114 F.3d 407, 410 n. 4 (3d Cir. 1997) (citing FED. R.
CIV. P. 56(c)). "[T]his standard provides that the mere existence
of some alleged factual dispute between the parties will not
defeat an otherwise properly supported motion for summary
judgment; the requirement is that there be no genuine issue of
material fact." Anderson v. Liberty Lobby, Inc.,
477 U.S. 242, 247-48 (1986) (emphasis in original).
In considering a motion for summary judgment, the court must
examine the facts in the light most favorable to the party opposing the motion.
International Raw Materials, Ltd. v. Stauffer Chemical Co.,
898 F.2d 946, 949 (3d Cir. 1990). The burden is on the moving party
to demonstrate that the evidence is such that a reasonable jury
could not return a verdict for the non-moving party. Anderson,
477 U.S. at 248 (1986). A fact is material when it might affect
the outcome of the suit under the governing law. Id. Where the
non-moving party will bear the burden of proof at trial, the
party moving for summary judgment may meet its burden by showing
that the evidentiary materials of record, if reduced to
admissible evidence, would be insufficient to carry the
non-movant's burden of proof at trial. Celotex v. Catrett,
477 U.S. 317, 322 (1986). Once the moving party satisfies its burden,
the burden shifts to the nonmoving party, who must go beyond its
pleadings, and designate specific facts by the use of affidavits,
depositions, admissions, or answers to interrogatories showing
that there is a genuine issue for trial. Id. at 324.
RBMN raises two separate issues in its summary judgment motion.
First, it seeks to dismiss Norfolk's claim under the Agreement
for contribution for the installation of the new system for Track
1. RBMN argues that the installations are not covered by the
Agreement because Norfolk did not similarly improve Track 2.
Second, RBMN seeks declaratory judgment that, under the doctrine
of discharge by supervening frustration, it had no contractual
obligations to contribute to the replacement of the
communications system following the storm. We will address these
issues separately. For the reasons that follow, we will first
address the frustration of purpose issue, and we will grant the
motion for summary judgment on both issues.
A) Discharge by Supervening Frustration
RBMN argues that the purpose of the Agreement was to maintain
the communications system as it existed at the time of the
Agreement, and once the existing system was destroyed, the
purpose was frustrated. The doctrine of discharge by supervening
Where, after a contract is made, a party's principal
purpose is substantially frustrated without his fault
by the occurrence of an event the non-occurrence of
which was a basic assumption on which the contract
was made, his remaining duties to render performance
are discharged, unless the language or the
circumstances indicate to the contrary.
RESTATEMENT (SECOND) OF CONTRACTS § 265.
The restatement further defines an `occurrence' in this
context. "If the existence of a specific thing is necessary for
the performance of a duty, its failure to come into existence,
destruction, or such deterioration as makes performance
impracticable is an event the non-occurrence of which was a basic
assumption on which the contract was made." RESTATEMENT (SECOND)
OF CONTRACTS § 263. The occurrence need not be completely
unforeseeable to the contracting parties, but must be unexpected,
and not a realistic possibility. Opera Co. of Boston v. Wolf
Trap Foundation, 817 F.2d 1094, 1100-01 (4th Cir. 1987). "The
frustration must be so severe that it is not fairly to be
regarded as within the risks that he assumed under the contract."
General Electric Capital Corp. v. Charleston, No.CIV.A.88-6132,
1989 WL 63213, at *3 (E.D. Pa. June 12, 1989) (quoting
RESTATEMENT (SECOND) OF CONTRACTS § 265 cmt).
Pennsylvania law recognizes both the doctrine of supervening
frustration and that the destruction of property necessary for the performance of a
contract is an event the nonoccurrence of which was a basic
assumption of the agreement. See Kroblin Refrigerated Xpress,
Inc. v. Pitterich, 805 F.2d 96, 102 (3d Cir. 1986) (citing
Restatement (Second) of Contracts § 265 and acknowledging that
Pennsylvania law recognizes the doctrine of supervening
frustration); Specialty Tires of America v. CIT Group/Equipment
Financing, 82 F. Supp. 2d 434 (E.D. Pa. 2000) (quoting
Restatement (Second) of Contracts § 263 and noting that the
Pennsylvania Supreme Court has adopted the principles contained
Thus, where property necessary for the performance of a
contract is destroyed by no fault of the parties, the parties'
duty to perform under the contract is discharged unless the
language of the contract or the circumstances indicate otherwise.
Olbum v. Old Home Manor, Inc., 459 A.2d 757, 761-62 (Pa.Super.
Ct. 1983) (applying the doctrine of discharge by supervening
frustration and finding that the basic premise of a mining
contract was the continued viability of two specific veins of
coal because the contract specifically named the two veins and
provided a geological map). The Pennsylvania Supreme Court
stated, "where a contract relates to a specific property, the
existence or maintenance of which is necessary to the carrying
out of the purpose of the agreement, the condition is implied by
law . . . that the . . . frustration of purpose arising from the
destruction of the property . . . ends all contractual
obligations relating to the property." West v. Peoples' First
Nat. Bank & Trust Co., 106 A.2d 427, 431-32 (Pa. 1954).
i) The Purpose of the Agreement
RBMN argues that the purpose of the Agreement was to maintain
the signaling and communications system as it existed at the time of the
Agreement's formation, and therefore a basic assumption of the
Agreement was the continued viability of the pole line system.
Norfolk counters that this was not basic assumption because the
Agreement anticipates damage to the system. The Agreement allows
Norfolk to "inspect, maintain, repair, renew, change, or remove
those components of the Common C&S facilities." (Agreement §
1(a)). Norfolk argues that this language demonstrates that the
contracting parties anticipated that damage would occur to the
pole line and that it was Norfolk's duty under the contract to
replace the damaged system. For the reasons that follow, we find
that Norfolk's proposed interpretation of the Agreement is
unreasonable and that the contracting parties premised the
agreement on the existence of the pole line system.
A court may grant summary judgment on the interpretation of a
contract when the contract is susceptible to only one reasonable
interpretation. Arhold M. Diamond, Inc., v. Gulf Coast Trailing
Co., 180 F.3d 518, 521 (3d Cir. 1999). "A court's purpose in
examining a contract is to interpret the intent of the
contracting parties, as they objectively manifest it." Sanford
Investment Company, Inc., v. Ahlstrom Machinery Holdings, Inc.,
198 F.3d 415, 421 (3d Cir. 1998) (citations omitted). When the
terms of the contract are unambiguous, the express language of
the agreement controls its meaning. Id. (citing Pacitti v.
Macy's, 193 F.3d 766, 773 (3d. Cir. 1999)). "A term is ambiguous
if it is susceptible to reasonable alternative interpretations."
Id. In determining whether a contract is ambiguous, the court
is not limited to a review of the language of the document, but
may also consider the context in which the contract was made.
Id. (citing Hullett v. Towers, Perrin, Forster & Crosby,
Inc., 38 F.3d 107, 111 (3d Cir. 1994)).
We find that the unambiguous purpose of the Agreement was to
maintain the signaling and communication system as it existed at
the time of the Agreement. The Agreement states, "[t]he intent of
the parties is to maintain the existing C&S facilities
`in-kind', except as otherwise agreed upon by the parties.'"
(Agreement § 1) (emphasis added). The Agreement specifically
identifies the pole line system as part of the communications
system and refers to the rest of the system in more general
terms. "Whereas, the aforesaid Conrail and RBMN rail lines will
utilize, in common with each other, a communications and signal
system, including, pole lines, communications facilities and
signal facilities and appurtenances between, and including, M&H
Junction and Lehighton Junction (hereinafter referred to as
"Common C&S Facilities")." (Id.) Thus, the plain language of
the Agreement provides an unambiguous expression of the parties'
intent that the purpose of the Agreement was to maintain the
The context of the formation of the Agreement reinforces that
the only reasonable interpretation of the Agreement is that it
was based on the premise that the pole line system could be
repaired. When the original signaling system was built, Conrail
owed both tracks and therefore built only one power and
communications transmittal system. When Conrail subsequently sold
one track while retaining ownership of the other, Conrail and
RBMN shared the existing system, thus avoiding the waste of
tearing it down to build two separate systems. The Agreement
governed the maintenance of a specific system already in place,
demonstrating that a basic assumption of the contract was the
continued viability of that system.
Norfolk argues that the continued existence of the pole line
was not a basic assumption of the Agreement because the Agreement
specifically allowed Norfolk to "inspect, maintain, repair,
renew, change, or remove those components of the Common C&S
facilities." (Agreement § 1). Furthermore, it notes that the
Agreement provides, "[i]n the event that changes or improvements
to the Common C&S Facilities is [sic] required by any law, rule,
regulation, or ordinance . . . the expense shall be apportioned
equally between the parties hereto." (Agreement § 1). We find
that the only reasonable interpretation of this language is that
it clarifies how Norfolk was to maintain the existing system.
Norfolk's interpretation that this language provides an
obligation for RBMN to pay for a reconstructed system after the
pole line was destroyed ignores the parties' clear expression
that their intent was to maintain the existing system. Norfolk's
interpretation similarly ignores the language in the Agreement
that describes the communications system as including a pole line
system and ignores the circumstances behind the contract
formation. Additionally, under the doctrine of ejusdem generis,
specific terms in a contract should be read in reference to other
specific terms with which they are grouped. Royal Insurance Co.
v. Ideal Mutual Insurance Company, 649 F. Supp. 130, 135 (E.D.
Pa. 1986) (citing Affiliated Food Distributors, Inc. v. Local
Union No. 229, 483 F.2d 418 (3d Cir. 1973)). The parties' intent
to maintain the existing system is easily reconciled with the
provisions for change and renewal when these terms are read in
conjunction with the terms inspect, maintain, and repair. We find
that the only reasonable interpretation of the Agreement is that
the provisions for change and renewal elaborated the ways in which Norfolk was to maintain the existing
system, but do not obligate RBMN to pay for a replacement once
the pole line became irreparable.*fn1 Therefore a basic
assumption of the contracting parties was that the existing
communications system, including the pole line, would not
deteriorate to the point where it could not be repaired.*fn2
ii) The Destruction of the System
Additionally, we find that there is no genuine issue of
material fact that the storm prevented the parties from
maintaining the pole line system. The parties dispute neither the
extent of the damage nor that the pole line was damaged beyond
repair. Immediately following the storm, RBMN determined that the
pole line could no longer serve its existing function. (Pl.
Ex.10, Wayne Michel E-mail, Jan. 23, 2003). Following a survey of
the damage, Norfolk also concluded that it could not repair the
pole line system, and subsequently replaced it with a system that
uses radio communications, electronic circuitry within the track
to transmit signal communications, and solar paneling as the
power source. (Pl. Ex. 7, Brian Sykes Aff. ¶ 24, Pl. Ex. 5, Brian Sykes Depo.
Had the system merely been damaged, it could have been repaired
as provided for in the Agreement. But because it deteriorated
beyond repair, it had to be replaced. Brian Sykes, Norfolk's
Chief Engineer of Communications and Signals Engineering, wrote
"the pole line for the signal and communications system between
CP-Lehighton and C-P M&H Jct. on the Lehigh line, Harrisburg
Division, was damaged beyond economical repair as a result of a
snow storm that occurred on December 25-26, 2002." (Def. Ex. E,
Sykes E-mail). Sykes further stated in a deposition that "it was
going to be more expensive to try to repair the pole line than it
would be to restore with other alternatives available to us."
(Def. Ex. B, Brian Sykes Depo. at 210, ln. 4-8). Norfolk's Chief
Engineer of Communications and Signals, Dick Smith, testified
during questioning by Norfolk's counsel that,
"Q. And was changing the power supply to solar array
done because it was the best, most effective and
efficient, cost appropriate way to replace the power
system which was destroyed.
(Pl. Ex. 16, Dick Smith Depo. at 93-94) (emphasis added).
Robert Bortz, a Signals Supervisor for Norfolk, surveyed the
damage the day after the storm and submitted the following in a
"Q. Do you know where on the pole line or along the
pole line the actual damage occurred?
A. Everywhere. Q. So there was no area
A. That wasn't affected.
Q. Not affected but the lines were actually down.
A. There were sections across the pole line where the
lines were down.
Q. Do you recall the extent of the damage along . . .
the pole line?
(Def. Ex. C, Robert Bortz Depo. at 79-80).
Norfolk's employees describe the damage to the pole line as so
severe that changing, restoring, or maintaining the pole line
system made no sense; it had to be replaced. Therefore, we find
that there is no genuine issue of material fact that for the
purposes of the Agreement, the pole line system was destroyed in
the storm from December 25-26, 2002.
Norfolk contends that the damage to the pole line was within
the extent anticipated by the Agreement and did not make the
performance of the Agreement impracticable. It notes that a
portion of the pole line was undisturbed. Norfolk directs us to
the deposition of its employee, Edward W. Johnson, Jr., who
describes the degree to which the pole line was undisturbed.
Johnson testified as follows,
"Q. Are any of the signals in the newly installed
system, do any of them receive electric power from a
line that is hangs on a pole line?
A. The new installation at mile post 124 did not
require solar power. It was fed from the power
service at I don't know the mile post. It wasn't very
far. It was just a short short little span there.
Mile post 124 is not solar-powered, it's powered by
open power line."
(Pl. Ex. 2, Edward Johnson Depo. at 39, ln. 7-12).
"Q. Is this the same pole line that was is this
part of the pole line that was destroyed as part of
A. Yes. It's only a few hundred feet from the
service, the Acme parking lot in Jim Thorpe. I know
that don't mean nothing, but it's only a few hundred
feet from the power an existing power service. So
it was economical for us to power this location using
the existing power rather than solar power it."
(Pl. Ex. 2, Edward Johnson Depo. at 39-40).
We find that these excerpts do not show that the communications
system, which existed at the time of the Agreement, was repaired.
Johnson testifies that the pole line system is used for only "a
few hundred feet" and powers a solitary signal. The
communications system must service a portion of track eleven
miles long. We find that the pole line system was destroyed
because Norfolk's employees consistently describe the pole system
as damaged beyond repair and Johnson's testimony does not
describe repairs or changes to the old pole line, but instead
explains how a small remnant of the old pole line has been
integrated into a completely new system.
Norfolk also notes that the appurtenances to the pole line
remained undisturbed following the storm. Norfolk notes that the
pole line system powered relays, switches, control units,
electronically charged batteries, and a crossing. (Pl. Ex. 4,
Robert Bortz Depo. at 59, ln. 14-23). Norfolk describes the
appurtenances as including the "devices, equipment shelters, pole line, [and] structures." (Pl. Ex. 5, Brian Sykes
Depo. at 65, ln. 23-24). The Agreement, however, specifically
describes the communications system as including a pole line and
clearly provides that the contracting parties intended to
maintain the existing facilities, of which the pole line system
was the central component. Without power or the signals, the
appurtenances cease to function as part of a communications
system. Thus, the continued viability of the pole line was a
basic assumption of the Agreement, and once the pole line could
not be repaired, the purpose of the Agreement was frustrated.
"The doctrine [of frustration] ultimately represents the
ever-shifting line, drawn by courts hopefully responsive to
commercial practices and mores, at which the community's interest
in having contracts enforced according to their terms is
outweighed by the commercial senselessness of requiring
performance." Opera Co. of Boston v. Wolf Trap Found.,
817 F.2d 1094, 1100 (4th Cir. 1987) (quoting Transatlantic Financing
Corporation v. United States, 363 F.2d 312, 315 (D.C. Cir.
1966)). In the present case, the commercial senselessness of
requiring performance far outweighs any community interest in the
continual enforcement of the Agreement. Both RBMN and Norfolk
agree that maintaining the existing system as required by the
Agreement would have been overly dangerous, expensive, and
inefficient. While still asserting the continued utility of the
Agreement, Norfolk replaced the old system with a new system that
does not accommodate both tracks, but only Norfolk's. Norfolk now
seeks to hold RBMN liable, under a maintenance agreement for a
preexisting shared system, for the installation of a new system
that benefits solely the plaintiff's track. As we have found that
the damage to the pole line in the storm caused the system to deteriorate beyond the point where
maintenance was practical, and we have also concluded that the
purpose of the contract was to maintain the communications system
as it existed at the time of the Agreement, we conclude that the
purpose of the contract was frustrated by the storm damage.
Therefore, we find that under the doctrine of discharge by
frustration of purpose, following the storm of December 2002,
RBMN's and Norfolk's obligations under the Agreement, are
B) Norfolk's Claim under the Agreement.
RBMN seeks summary judgment on Norfolk's claim that RBMN is
liable under the Agreement for its portion of the costs of the
new installations on Track 2. RBMN argues that it is not liable
because the Agreement provides for apportioning costs for a
shared or common system and the new system services only Track
We find that this argument is moot because we have found that
destruction of the existing communications system frustrated the
purpose of the Agreement. Once the purpose is frustrated the
contractual obligations end. West v. Peoples First Nat. Bank &
Trust Co., 106 A.2d 427, 431-31 (Pa. 1954); Olbum v. Old Home
Manor, Inc., 459 A.2d 757, 761-62 (Pa.Super.Ct. 1983).
Furthermore, as we have stated above, the Agreement does not
cover new installations, and the parties' intent was to govern the
maintenance of the existing system, not to apportion costs for
the installation of a new system. Thus, Norfolk cannot hold RBMN
liable under the Agreement for the new installations following
Therefore, we will declare that following the storm the purpose
of the Agreement was frustrated. Furthermore, we hold that since
the contractual obligations were discharged following the storm,
RBMN is not liable to Norfolk for any new installations. An
appropriate order follows.
AND NOW, to wit, this second day of December 2004,
Defendant's partial motion for summary judgment is hereby
GRANTED. It is hereby ORDERED that:
1) Plaintiff Norfolk Southern Railway Company's
claims arising from permanent upgrades to the shared
communications system are hereby DISMISSED, and
2) it is DECLARED that the purpose of the C&S
Common Facilities Maintenance Agreement was
frustrated following damage to the communications
system on December 25-26, 2002, and that the parties'
duties to render performance under the Agreement are