Court Opinion

ID: 809153
Source: CourtListenerOpinion
Date Created: 2012-09-25 16:08:15+00
Date Added: 2024-06-11T18:00:33.403078
License: Public Domain

United States Court of Appeals
                        For the First Circuit

No. 12-1031

                 MILFORD-BENNINGTON RAILROAD CO.,INC.,

                         Plaintiff, Appellant,

                            PETER LEISHMAN,

                              Plaintiff,

                                  v.

         PAN AM RAILWAYS, INC.; BOSTON AND MAINE CORPORATION;
                 SPRINGFIELD TERMINAL RAILWAY COMPANY,

                        Defendants, Appellees.

             APPEAL FROM THE UNITED STATES DISTRICT COURT

                   FOR THE DISTRICT OF NEW HAMPSHIRE

            [Hon. Paul J. Barbadoro,   U.S. District Judge]

                                Before

                       Howard, Ripple* and Selya
                            Circuit Judges.

     Adam Francois Watkins, with whom Watkins, Bradley & Chen LLP,
Craig S. Donais and Donais Law Offices, PLLC were on brief, for
appellant.
     Michael J. Connolly, with whom Kelley A. Jordan-Price and
Hinckley, Allen & Snyder LLP were on brief, for appellees.

     *
         Of the Seventh Circuit, sitting by designation.
September 25, 2012
          HOWARD,    Circuit    Judge.     Milford-Bennington      Railroad

Company, Inc. ("MBR") appeals an award of summary judgment to Pan

Am Railways, Inc.; Boston and Maine Corporation; and Springfield

Terminal Railway Company (collectively, "Pan Am") in a dispute

arising from Pan Am's actions under a contract to provide MBR with

access to Pan Am's railroad tracks.        The district court held that

Pan Am did not breach its duty of good faith and fair dealing when

it exercised its contractual right to exclude an MBR employee from

its trackage for violating a safety rule.            We affirm.

                               I. Background

          Plaintiff-Appellant MBR hauled stone by rail for its only

customer, Granite State Concrete.         Because MBR does not own the

necessary trackage, it entered into a contract with Pan Am that

permits   MBR   to   operate    trains    on   Pan    Am's   trackage    (the

"Agreement"). The Agreement requires MBR to follow Pan Am's rules,

which include the Operating Rules of the Northeast Operating Rules

Advisory Committee ("NORAC").       If Pan Am determines that an MBR

employee has violated its rules, it "shall have the right to

exclude [the employee] from the Trackage."

          On October 22, 2009, MBR employees Peter Leishman and

David Raymond were operating a train on Pan Am's trackage.              At the

leading end of the train, Leishman operated a control car, which is

a caboose modified with safety features including a horn, an

emergency brake, and lights.        Behind the control car were ten

                                    -3-
hopper cars filled with crushed stone.       At the trailing end,

Raymond operated a locomotive, which pushed the train from behind.

As the train approached a highway crossing, a tractor trailer truck

crossed the tracks.    Leishman activated the emergency brake, but

the train collided with the truck, derailing the control car and

one of the hopper cars.

          In response to the accident, Pan Am sent Leishman a

letter notifying him of an investigative hearing scheduled for

November 10, 2009.    The letter was dated November 4, and Leishman

states that he received it on November 6.     Leishman requested a

postponement due to his injuries from the collision and so that his

counsel could attend the hearing, but Pan Am went forward as

scheduled without Leishman or his counsel present.      Because no

employee of MBR was stationed at the crossing at the time of the

accident, Pan Am determined that Leishman had violated NORAC

Rule 138(e), "Trains Operating from Other Than The Leading End at

a Highway Crossing," which provides:

          Trains being operated from other than the
          leading end must not enter a highway crossing
          at grade until on-ground warning is provided
          by a crew member or other qualified employee,
          except when it is visually determined that:

          . . . .

          2. A designated and qualified employee is
          stationed at the crossing and has the ability
          to communicate with trains . . . .

Pan Am did not immediately disclose its determination to Leishman.

                                 -4-
           When    Leishman   attempted     to     return   to   work   on

March 17, 2010, a Pan Am dispatcher refused him access to the

tracks due to "company policy."           Leishman contacted Pan Am’s

general counsel Robert Burns, who asked Leishman for a meeting to

discuss signing a new trackage-rights agreement.            Leishman and

Burns met on March 19, and on April 8, Burns proposed the terms of

a new agreement.    The next day, Leishman rejected the proposal.

That same day, Pan Am sent Leishman a letter stating that, at the

time of the accident, he was "not properly stationed for the

backward move through the crossing" and that "it would be the

safest course to prevent you personally from operating on [Pan Am]

property in the future pursuant to [the Agreement]."

           On April 14, Thomas Brugman of the Surface Transportation

Board emailed Pan Am to express his concerns regarding the effect

of Pan Am's decision on Granite State Concrete and the potential

appearance that Pan Am had not given sufficient process to Leishman

and MBR.    Pan Am then scheduled a supplemental investigative

hearing, which Leishman attended.         Pan Am again concluded that

Leishman had violated its rules.

           MBR and Leishman filed a petition in June 2010 against

Pan Am in New Hampshire Superior Court.          The petition did not lay

out specific causes of action, but it sought to enjoin Pan Am from

excluding Leishman from its trackage, as well as compensatory

damages "in excess of $50,000."    In July 2010, Pan Am removed the

                                  -5-
case to the United States District Court for the District of New

Hampshire on the ground that the ICC Termination Act of 1995

("ICCTA"), in particular 49 U.S.C. § 10501(b), completely preempted

MBR and Leishman’s claims. The district court stayed the case when

the parties agreed to hold a third investigative hearing.             At that

hearing, Leishman asserted that he had complied with Rule 138(e)

and that Pan Am's interpretation of the rule was incorrect.             Once

more, Pan Am upheld its original decision.

            After the third hearing but before the district court

made any substantive rulings, Leishman and MBR filed an amended

complaint that listed four causes of action, all described as

breaches of the Agreement.     Count One alleged that Pan Am breached

its covenant of good faith and fair dealing in excluding Leishman

because Pan Am had not objected to MBR's practices in the past, and

MBR arguably had not violated Rule 138(e).           Count Two alleged that

Pan Am's hearing process was improper.             Count Three claimed that

Pan Am unreasonably excluded Leishman because the accident was

unavoidable and because Pan Am had filed a report with the Federal

Railroad Administration stating that the truck driver was at fault.

Count Four claimed that Pan Am misinterpreted Rule 138(e).             Pan Am

moved to dismiss the amended complaint on the grounds that the

ICCTA preempted MBR and Leishman's claims, Leishman was not a party

to   the   Agreement,   and   Count    Four   of    the   amended   complaint

duplicated Count One.     The district court held that the ICCTA did

                                      -6-
not preempt MBR and Leishman's claims, but it dismissed Leishman

from the action and dismissed Count Four.              The district court then

held a hearing at which it determined that Leishman had violated

Rule 138(e) and that Leishman's interpretation of the rule was "not

a plausible one at all."

             After the hearing, the only remaining issue before the

district court was whether Pan Am's decision to exclude Leishman

violated the duty of good faith and fair dealing implicit in the

Agreement. Pan Am moved for summary judgment, arguing that because

the Agreement gives it the express right to exclude an employee of

MBR for violating its rules, the duty of good faith and fair

dealing could       not    prohibit   it    from    excluding   Leishman.      The

district court granted Pan Am's motion, and MBR timely appealed.

                                  II. Analysis

             A. Jurisdiction

             In every case, we are required to satisfy ourselves of

jurisdiction.           García-Velázquez v. Frito Lay Snacks Caribbean,

358 F.3d 6, 8 (1st Cir. 2004).                 Here, the record suggests a

possible defect in the district court's jurisdiction. Although MBR

and Leishman's state-court petition raised no issues of federal

law,   Pan    Am    removed    this   action       based   on   federal-question

jurisdiction       --    specifically,     complete   preemption    of   MBR   and

Leishman's claims by the ICCTA.                See Beneficial Nat'l Bank v.

Anderson, 539 U.S. 1, 8 (2003) ("[A] state claim may be removed to

                                         -7-
federal court . . . when a federal statute wholly displaces the

state-law cause of action through complete pre-emption.").     When

the district court held that the ICCTA did not completely preempt

MBR and Leishman's claims, the basis for federal jurisdiction

became subject to question. See Fayard v. Ne. Vehicle Servs., LLC,

533 F.3d 42, 45, 49 (1st Cir. 2008) (in the absence of complete

preemption, district court required to remand state-law claims);

See also Martin H. Redish, 16 Moore's Federal Practice - Civil §

106.66[1] (3d ed. Supp. 2012) (listing cases from seven courts of

appeals holding that a district court may not exercise supplemental

jurisdiction over state-law claims without original jurisdiction

over the action).

          On appeal, the parties claim that the district court also

had diversity jurisdiction under 28 U.S.C. § 1332, which grants the

district courts original jurisdiction over civil actions between

citizens of different states in which the amount in controversy

exceeds $75,000.    Here, the plaintiffs and defendants are citizens

of different states,1 but the original petition filed in state

                    court alleged damages "in excess of $50,000."

Thus, it is not facially apparent whether the plaintiffs satisfied

     1
       Leishman is a citizen of New Hampshire.      MBR is a New
Hampshire corporation with a principal place of business in New
Hampshire. Pan Am Railways, Inc. and Boston and Maine Corporation
are Delaware corporations with principal places of business in
Massachusetts. Springfield Terminal Railway Company is a Vermont
corporation with a principal place of business in Massachusetts.

                                 -8-
the amount-in-controversy requirement.   Because the party invoking

federal jurisdiction bears the burden of demonstrating that the

court has subject-matter jurisdiction over the case, Amoche v.

Guarantee Trust Life Ins. Co., 556 F.3d 41, 48 (1st Cir. 2009), Pan

Am must show that the amount in controversy exceeds $75,000.

Although we have not decided how heavy a burden the removing party

must bear in this precise situation, we have decided that a party

removing a case under the Class Action Fairness Act of 2005, 28

U.S.C. §§ 1332(d), 1453, must show a "reasonable probability" that

the jurisdictional threshold is satisfied. Amoche, 556 F.3d at 48-

49.

          Whatever the appropriate burden, Pan Am has satisfied it.

On appeal, counsel for MBR told this court that after the district

court ruled that MBR's claims were not preempted, the court held a

conference call during which the parties agreed that MBR's claims

satisfied the amount-in-controversy requirement. Moreover, shortly

after removal, MBR filed a motion for a preliminary injunction

stating that "[t]he current economic impact to [MBR] and the State

of New Hampshire are, at present, approximately $300,000."   Seeing

nothing in the record that belies the parties' agreement regarding

the amount in controversy, we conclude that the district court had

jurisdiction over this action.

                                 -9-
            B. Good Faith

            The only issue before us is whether Pan Am's decision to

exclude Leishman from its trackage violated the duty of good faith

and fair dealing implicit in the Agreement.2           The district court

granted summary judgment to Pan Am, holding that the Agreement

"plainly gives it the right to act as it did, regardless of its

motive for doing so.    Under the circumstances, MBR cannot rely on

the duty of good faith and fair dealing to restore a right that it

bargained away by agreeing to the [Agreement]." Milford-Bennington

R.R. Co. v. Pan Am Rys., Inc., No. 10-cv-00264-PB, 2011 WL 6300923,

at *6 (D.N.H. Dec. 16, 2011).    We review the district court's grant

of summary judgment de novo.           Hunt v. Golden Rule Ins. Co.,

638 F.3d 83, 86 (1st Cir. 2011).

            New Hampshire law, which governs the Agreement, requires

that parties to an agreement "act in good faith and fairly with one

another."   Livingston v. 18 Mile Point Drive, Ltd., 972 A.2d 1001,

1005 (N.H. 2009).    The good-faith obligation limits the parties'

discretion in contractual performance, id. at 1006, by "excluding

behavior inconsistent with common standards of decency, fairness,

and   reasonableness,   and   with    the   parties'   agreed-upon   common

      2
       MBR argues on appeal that Pan Am waived its right to enforce
Rule 138(e) because it had been aware for years that MBR routinely
pushed its trains through highway crossings without an employee
stationed at the crossing.      Because MBR failed to make this
argument to the district court in its opposition to Pan Am's motion
for summary judgment, the argument is waived. See Sony BMG Music
Entm't v. Tenenbaum, 660 F.3d 487, 496 (1st Cir. 2011).

                                     -10-
purposes and justified expectations."   Centronics Corp. v. Genicom

Corp., 562 A.2d 187, 191 (N.H. 1989) (Souter, J.).   Surveying its

own cases, the New Hampshire Supreme Court has explained that

          under an agreement that appears by word or
          silence to invest one party with a degree of
          discretion   in   performance   sufficient to
          deprive another party of a substantial
          proportion of the agreement's value, the
          parties' intent to be bound by an enforceable
          contract raises an implied obligation of good
          faith   to   observe   reasonable   limits in
          exercising that discretion, consistent with
          the   parties'    purpose   or    purposes in
          contracting.

Id. at 193.    Put differently, "the concept of good faith in

performance addresses the particular problem raised by a promise

subject to such a degree of discretion that its practical benefit

could seemingly be withheld."   Id.

          In Centronics, the New Hampshire Supreme Court listed

four questions that must be answered in the affirmative to state a

claim for breach of the duty of good faith and fair dealing.    Id.

MBR and Pan Am dispute the answers to two of these four questions:

          1. Does the agreement ostensibly allow to or
          confer upon the defendant a degree of
          discretion in performance tantamount to a
          power   to  deprive   the  plaintiff   of  a
          substantial proportion of the agreement's
          value?

          . . . .

          3. Assuming an intent to be bound, has the
          defendant's exercise of discretion exceeded
          the limits of reasonableness?

                                -11-
Id.3

           As   to   the   first   question,   MBR    points    out   that the

Agreement gives Pan Am the "right to exclude from the Trackage any

employee   of   MBR"   who   violates   Pan    Am's    rules,    without   any

limitation on the length of the exclusion and without regard to the

severity of the violation.         MBR has only two employees, both of

whom are necessary to operate MBR's trains.              As a result, MBR

argues, Pan Am can effectively deprive MBR of the Agreement's value

by excluding an MBR employee for life, even for trivial violations

of Pan Am's rules.

           Pan Am responds that the Agreement does not give MBR the

right to have a particular employee operate a train after violating

Pan Am's rules, so Pan Am does not deprive MBR of the Agreement's

value by excluding an MBR employee from Pan Am's trackage.             When it

executed the Agreement, MBR was aware of Pan Am's right to exclude

its employees, and it could have prepared for the scenario in which

Pan Am exercised that right.

           We need not decide whether Pan Am's right to exclude

MBR's employees confers "a degree of discretion in performance

tantamount to a power to deprive the plaintiff of a substantial

proportion of the agreement's value," id., 562 A.2d at 193, because

       3
       The other two questions are whether the parties intended to
create an enforceable contract and whether the defendant's actions
caused the plaintiff's damages. Centronics, 562 A.2d at 193-94.
The parties agree that the answer to both questions is yes.

                                    -12-
we are satisfied that even if Pan Am had such discretion when

deciding whether to exclude MBR's employees, its exercise of that

discretion was reasonable, see id. ("[H]as the defendant's exercise

of discretion exceeded the limits of reasonableness?").

            Following three hearings by Pan Am and one of its own,

the district court ruled that Leishman violated NORAC Rule 138(e)

by failing to station an employee at the crossing while MBR's train

crossed the highway.    Moreover, Leishman's violation was followed

by the very type of accident the rule presumably was intended to

prevent: a collision between a train and a vehicle at an unguarded

crossing.     MBR has chosen not to appeal this ruling, and we will

not revisit it here.    In light of Leishman's violation of a safety

rule and the accident that followed, we conclude that Pan Am's

decision to exclude Leishman from its trackage did not "exceed[]

the limits of reasonableness."    Id. at 193.

            Although Pan Am had an objective basis for its decision,

MBR urges us to look to Pan Am's subjective intent, which it claims

was to force MBR into an unfavorable contract or shut down MBR's

operations.    MBR cites a number of cases in which the court warned

parties against violating the duty of good faith by acting on

subterfuge or illicit motives.4         Most of these cases follow a

     4
       These cases include Olbres v. Hampton Coop. Bank, 698 A.2d
1239, 1243 (N.H. 1997); Bayview Condominium Ass'n v. Ohanian,
No. 08-C-0129, 2008 WL 7467082 (N.H. Super. Ct. Oct. 24, 2008);
McAdams v. Massachusetts Mutual Life Insurance Co., 391 F.3d 287,
302 (1st Cir. 2004) (applying Massachusetts law); Original Great

                                 -13-
common pattern: a contract gives a party the right to take action

if a certain condition is met, the party allegedly determines in

bad faith that the condition is met, and the party takes action

accordingly.     E.g., Olbres v. Hampton Coop. Bank, 698 A.2d 1239,

1243 (N.H. 1997) (bank's right to set off customer's deposits

against its liabilities).        This case does not conform to that

pattern, however, because Pan Am's decision that Leishman violated

Rule 138(e) is beyond dispute.          Pan Am had an unassailably valid

reason to exclude Leishman, so its alleged ulterior motives are

irrelevant. See Tuf Racing Prods., Inc. v. Am. Suzuki Motor Corp.,

223 F.3d 585, 589 (7th Cir. 2000) (Posner, C.J.) ("If a party has

a legal right to terminate the contract . . . its motive for

exercising that right is irrelevant.").

            Leishman and MBR's actions after the accident reinforce

our conclusion.    At Pan Am's third hearing and before the district

court, Leishman and MBR argued that Leishman had not violated

Rule 138(e), despite the rule's clear requirement that MBR station

an employee at the crossing.         Although MBR chose not to appeal the

district court's ruling that Leishman violated Rule 138(e), it

continues   to    refer   in   its    appeal   brief   to   the   "purported

violation," which it describes as trivial.             We would be hard-

American Chocolate Chip Cookie Co. v. River Valley Cookies, Ltd.,
970 F.2d 273, 280 (7th Cir. 1992) (Posner, J.); and Carlson Machine
Tools, Inc. v. American Tool, Inc., 678 F.2d 1253, 1262 (5th Cir.
1982).

                                      -14-
pressed to say that Pan Am's decision to exclude Leishman is

"inconsistent with common standards of decency, fairness, and

reasonableness," Centronics, 562 A.2d at 191, when MBR has not

challenged the finding of a violation but, nevertheless, neither it

nor Leishman accepts responsibility for the violation despite a

spate of adverse rulings over the course of more than two years of

litigation.    Therefore, even if Pan Am was bound by a duty of good

faith and     fair   dealing   when   exercising its right   to   exclude

Leishman, Pan Am has not breached that duty.

                               III. Conclusion

            We affirm the district court's judgment.

                                      -15-