Court Opinion

ID: 4199716
Source: CourtListenerOpinion
Date Created: 2017-08-29 17:00:39.427719+00
Date Added: 2024-06-11T07:47:31.556092
License: Public Domain

PRECEDENTIAL

    UNITED STATES COURT OF APPEALS
         FOR THE THIRD CIRCUIT
              _____________

                  No. 16-1195
                 _____________

 NORFOLK SOUTHERN RAILWAY COMPANY;
WHEELING & LAKE ERIE RAILWAY COMPANY

                        v.

 PITTSBURGH & WEST VIRGINIA RAILROAD;
             POWER REIT,
                     Appellants
             _____________

  On Appeal from the United States District Court
     for the Western District of Pennsylvania
           (D.C. Civ. No. 2-11-cv-01588)
  District Judge: Honorable Terrence F. McVerry
                  ______________

   Submitted Under Third Circuit L.A.R. 34.1(a)
               January 19, 2017
               ______________

  Before: AMBRO, VANASKIE, and SCIRICA,
              Circuit Judges

         (Opinion Filed: August 29, 2017)
Steven A. Hirsch
Keker Van Nest & Peters
633 Battery Street
San Francisco, CA 94111

      Counsel for Appellants

Samuel W. Braver
Kathleen J. Goldman
Bradley J. Kitlowski
Stanley J. Parker, Esq.
Buchanan Ingersoll & Rooney
301 Grant Street
One Oxford Centre, 20th Floor
Pittsburgh, PA 15219

Danielle T. Morrison
Nancy Winkelman
Schnader Harrison Segal & Lewis
1600 Market Street
Suite 3600
Philadelphia, PA 19103

      Counsel for Appellees
                     _____________

                       OPINION
                     _____________

VANASKIE, Circuit Judge.

                               2
       Appellants Pittsburgh & West Virginia Railroad
(“PWV”) and Power REIT challenge the District Court’s
interpretation of a 1962 lease of railroad property (the “Lease”)
to Norfolk Southern Railway Company (“Norfolk Southern”).1
In particular, Appellants contest the District Court’s use of
course-of-performance evidence to bolster its conclusions with
respect to the disputed Lease provisions. Appellants also
challenge the District Court’s finding that they engaged in
fraud to obtain Norfolk Southern’s consent to a transaction
otherwise prohibited by the Lease. We discern no error in the
District Court’s consideration of course-of-performance
evidence, its interpretation of the Lease, and its finding of
fraud. Accordingly, we will affirm the District Court’s rulings.

                                 I.

         Norfolk Southern and PWV entered into the Lease on
July 12, 1962, under which PWV leased to Norfolk Southern
all of its right, title, and interest in certain railroad properties
that it had owned and operated (the “Demised Property”). The
Demised Property consists of a 112-mile tract of main line
railroad (the “Rail Line”) and approximately 20 miles of
branch rail lines in Western Pennsylvania, Ohio, and West
Virginia. After securing appropriate regulatory approvals, the
Lease went into effect on October 16, 1964. The term of the
Lease is 99 years, renewable in perpetuity at the option of
Norfolk Southern absent a default. On May 17, 1990, Norfolk
Southern entered into a sublease with Appellee Wheeling &

       1
        Appellee Norfolk Southern is the successor in interest
to the Norfolk Southern and Western Railway Company, and
Appellant PWV is the successor in interest to the Pittsburgh &
West Virginia Railway Company.

                                 3
Lake Erie Railway Company (“Wheeling & Lake Erie”),
pursuant to which Wheeling & Lake Erie assumed the rights,
interests, duties, obligations, liabilities, and commitments of
Norfolk Southern as lessee, including the role as principal
operator of the Rail Line. Power REIT is a real estate
investment trust which, as of its formation in 2011, owns PWV
as a wholly owned subsidiary.

       The Lease contains several sections relevant to the
present dispute. Section 4(a) establishes the rent owed under
the Lease, which consists of a fixed cash payment of $915,000
per year. Section 4(b) provides for several forms of additional
rent, which include:

       (1) Sums equal to the deduction for depreciation
       or amortization with respect to the demised
       property allowed to [PWV] for such year under
       the provisions of the then effective United States
       Internal Revenue Code . . . .

       (5) Except as otherwise provided in Section 5
       hereof, all interest, expenses, fees and any other
       sums . . . payable by [PWV] and regardless of
       whether accrued or payable in respect of a period
       prior to the commencement of the term of this
       Lease. The foregoing sums shall be paid or
       discharged by [Norfolk Southern] as and when
       they become due and payable.

       (6) Such sums, if any, as may be required to pay
       all obligations reasonably incurred by [PWV] for
       the doing of all acts and things which [PWV]

                               4
may be lawfully required to do or perform under
the provisions of this Lease or of any law or by
any public authority, or for the doing of all acts
and things necessary or desirable for the
protection during the existence of this Lease of
[PWV’s] rights in the demised property or the
rentals or other sums payable pursuant to this
Lease, except such obligations incurred by
[PWV] solely for the benefit of its stockholders
or reasonably allocable thereto, or in connection
with nondemised property or reasonably
allocable thereto.

(7) All taxes, assessments and governmental
charges, ordinary and extraordinary, regardless
of whether relating to or accrued or payable in
respect of a period prior to the effective date of
this Lease, which are lawfully imposed upon
[PWV] or the demised property or its income or
earnings or upon any amount payable to any
security holder of [PWV] which [PWV] has
agreed to pay or discharge, except for any
income taxes of [PWV] incurred with respect to
rent paid pursuant to Section 4(a) hereof, any
taxes arising after commencement of the term of
this Lease in respect of nondemised property or
the income therefrom, or any taxes incurred by
[PWV] solely for the benefit of its stockholders
or reasonably allocable thereto. The foregoing
sums shall be paid or discharged by [Norfolk
Southern] as and when they become due and
payable.

                        5
(App. 834–35.) The parties dispute whether additional rent and
attorneys’ fees are owed under these sections and whether
Norfolk Southern is in default for failure to pay them.

       Section 9 allows for certain dispositions of the Demised
Property by Norfolk Southern to third-parties. Section 9 states:

       Such demised property as shall not in the opinion
       of [Norfolk Southern] be necessary or useful
       may be sold, leased or otherwise disposed of by
       [Norfolk Southern], and [PWV] shall execute
       and deliver such instruments as may be
       necessary or appropriate to effectuate such
       transactions; provided, however, that such sales,
       leases or other dispositions of property shall be
       made in compliance with the applicable
       provisions of any mortgage or other agreement
       of [PWV] relating thereto. The proceeds of sale,
       condemnation, or other disposition of the
       demised property of [PWV] shall, subject to the
       provisions of any mortgage or other agreement
       relating to such property, be paid to [Norfolk
       Southern] and shall be indebtedness of [Norfolk
       Southern] to [PWV].

The parties dispute whether the Lease requires that Norfolk
Southern pay to PWV or record as indebtedness to PWV the
proceeds from any licenses, easements, and oil and gas

                               6
extraction leases of the Demised Property entered into by
Norfolk Southern pursuant to Section 9.2

        Section 16 governs the payment and accounting of sums
due as additional rent under Section 4(b) or any amounts owed
as a result of “dispositions” covered by Section 9. These
payments may, at the option of Norfolk Southern, be paid in
cash or credited to PWV as indebtedness. Under Section 16(b),
“the total of such indebtedness . . . shall not exceed at any time
an amount equal to 5% of the value at such time of the total
assets of [PWV] as long as any of the obligations of [PWV]
which have been assumed by [Norfolk Southern] in this Lease
remain outstanding and unpaid.” Section 16(b) then requires
that “[f]rom time to time a balance of the indebtedness arising
under this Lease of [PWV] to [Norfolk Southern] and of
[Norfolk Southern] to [PWV] shall be determined.” To
comply with Section 16(b), the parties used a “Settlement
Account” as a mechanism to track the indebtedness owed
under Sections 4(b)(1)-(4) and Section 9. The parties dispute
whether this 5% cap on the balance still applies given that
Norfolk Southern had paid off all debt it assumed under the
Lease no later than 1982. The parties also dispute whether
Norfolk Southern complied with the terms of the Lease in
reporting its indebtedness in the Settlement Account.

       The Lease also subjects PWV to certain restrictions as
long as Norfolk Southern is not in default of its obligations
under the Lease. Section 8(a)(1) requires that PWV take all
action within its control to preserve its corporate existence and

       2
         PWV estimates that it is owed at least $13.8 million
“arising from non-sale property dispositions . . . .” (PWV Brief
at 50.)

                                7
Section 8(a)(2) prohibits PWV from issuing any stock without
Norfolk Southern’s prior written consent, which must not be
unreasonably withheld. Section 8(a)(5) restricts PWV’s ability
to “borrow any money, assume any guaranty, make advances
(except pursuant to commitments made prior to the date of this
Lease) or enter into an agreement to make advances. . . .”
(App. 839.)         Norfolk Southern contends that PWV
fraudulently induced Norfolk Southern to consent to
transactions that otherwise ran afoul of these provisions and by
which Power REIT became the owner of PWV.

       The Lease also, at Section 8(a)(3), requires both parties
;to permit “at any and all reasonable times” the other party to
inspect its books and records for any purpose. (Id.) The parties
dispute whether Norfolk Southern is in default for failing to
comply with a books and records demand.

       From the effective date of the Lease in 1964 until about
2010, PWV’s sole business was to receive rental income, pay
corporate expenses, and make dividend payments to its
shareholders. In 2007, David Lesser, an investment banker and
expert in real estate investment trusts (“REITs”),3 began
acquiring stock in PWV. He soon became a trustee of PWV
and revealed his plan to restructure PWV into a private entity
fully owned by a publicly traded REIT. Because of the

       3
         A REIT “is an investment vehicle that enables large
numbers of investors to pool their capital and share in the
benefits of real estate investment and financing.” Theodore S.
Lynn et al., Real Estate Investment Trusts § 1:1 (2016). A
qualifying REIT must distribute 90% of its taxable income to
its shareholders annually. Id. at § 1:5.

                               8
restrictions in Sections 8(a)(2) and 8(a)(5), Lesser required the
consent of Norfolk Southern to issue any stock. After
exchanging emails and phone calls with Norfolk Southern’s
counsel, Lesser sent Norfolk Southern a Proposed Form S-3
Registration Statement which discussed PWV’s plan to offer
existing shareholders the right to purchase common shares of
PWV (the “rights offering”). The Proposed S-3 did not,
however, disclose PWV’s intent to restructure into a privately
owned subsidiary or its desire to pursue investments in energy
companies, despite the fact that Lesser had previously
discussed these plans with PWV’s Board of Directors. Lesser
instead assured Norfolk Southern that the Proposed S-3
“contain[ed] all available information of PWV’s plans at this
point.” (App. 12526.)

        Norfolk Southern ultimately gave its consent on the
basis of the representations made in the Proposed S-3. Lesser
then filed, and the SEC approved, the final version of the Form
S-3. PWV proceeded with the issuance of stock and raised
slightly over $1 million.         The restructuring of PWV
immediately followed and PWV became a private, wholly
owned subsidiary of Power REIT.4 PWV remains a party to
the Lease, still owns the Rail Line and other related properties,
still receives payments under the Lease, and still makes
dividend payments to Power REIT.

       4
         This restructuring was accomplished by means of a
reverse triangular merger. Power REIT was formed as a REIT
and, three days later, Power REIT PA, LLC, was formed as a
wholly-owned subsidiary of Power REIT. Power REIT PA,
LLC and PWV then merged, with PWV surviving as a wholly-
owned subsidiary of Power REIT. Power REIT received all
outstanding shares of PWV.

                               9
        In June 2011, PWV sent a letter to Norfolk Southern’s
counsel outlining purported tax issues under the Lease (the
“Tax Memorandum”). The Tax Memorandum related to a
proposed sale of an unused segment of the Rail Line known as
the West End Branch by Wheeling & Lake Erie to the
Pennsylvania Department of Transportation. PWV argued that
the sale would require Norfolk Southern, under Section 4(b)(7)
of the Lease, to pay a substantial sum in additional rent. PWV
also sent Norfolk Southern an invoice totaling $4,487.50 for
attorneys’ fees incurred in connection with the review of the
Lease and the tax issues related to the proposed West End
Branch sale, contending that it was entitled to have Norfolk
Southern pay this bill pursuant to Section 4(b)(6) of the Lease.

       Norfolk Southern refused to pay the fees and in
December 2011 initiated a declaratory judgment action seeking
the District Court’s determination that it was not in default
under the terms of the Lease. Specifically, Norfolk Southern
asserted that, despite PWV’s claims in the Tax Memorandum,
the West End Branch sale would not result in significant
additional rent obligations pursuant to Sections 9 and 4(b)(7)
of the Lease and that Norfolk Southern was not required to pay
PWV’s legal expenses pursuant to Section 4(b)(6). Norfolk
Southern filed a supplement to its complaint in which it sought
a declaratory judgment that it was not in default for failure to
comply with PWV’s books and records demand.5 PWV

       5
        On March 5, 2013, PWV had sought to inspect Norfolk
Southern’s books and records regarding a wide range of
documents and communications relating to Norfolk Southern’s
subleases, including the Wheeling & Lake Erie sublease.
While both Norfolk Southern and Wheeling & Lake Erie
contended that they complied with the requests, PWV insisted

                              10
responded with an Answer, Affirmative Defenses, and several
Counterclaims. Those Counterclaims sought declarations that
Norfolk Southern was in default for failure to pay PWV’s legal
fees and for failure to pay the additional rent obligations. PWV
also supplemented its pleadings to seek a declaration that
Norfolk Southern was in default for failure comply with
PWV’s book and records demand.

        Norfolk Southern then filed a second supplement to its
Complaint, asserting two additional counts. First, it claimed
that PWV breached the Lease when it filed its Form S-3 as part
of its plan to issue new stock. Second, it argued that PWV
committed fraud in connection with the consent it obtained
from Norfolk Southern. PWV once again filed Answers and
Affirmative Defenses to these claims.

       After a yearlong discovery process, PWV filed a second
supplement to its responsive pleading, adding eight
Counterclaims. In three of the claims, PWV sought the same
determinations discussed above—that Norfolk Southern was in
default for (1) failure to comply with the books and records
demand; (2) failure to pay PWV’s legal fees on the West End
Branch matter; and (3) failure to pay additional rent as required
by Section 4(b)(1). PWV also filed the following five claims
sounding in common law: (1) breach of contract for the
intentional underreporting of the Settlement Account in
violation of Sections 9 and 16; (2) breach of contract for
disposing of property without paying the proceeds to PWV in
cash in violation of Section 16; (3) fraud based on yearly false

that they continued to withhold information and were thus in
default.

                               11
representations in the Settlement Account of the amount of
indebtedness and in the concealment of transactions relating to
PWV’s property; (4) conversion against Wheeling & Lake Erie
for depriving PWV of its right in and use or possession of its
property by allowing third parties to drill for oil and gas and
extract coal; and (5) breach of contract against Norfolk
Southern for failure to pay additional rent in violation of
Section 4(b)(1).

       Norfolk Southern then filed a First Amended Complaint
which asked the District Court to determine (1) the rights and
obligations of the parties with regard to subsurface extraction;
and (2) whether Norfolk Southern was in default under the
Lease for failing to (a) comply with the books and records
demand; (b) pay PWV’s attorneys’ fees; and (c) make a cash
payment of additional rent. The District Court also permitted
Norfolk Southern to add a request for nominal damages to the
prayer for relief. The parties then filed cross motions for partial
summary judgment.

       Because of the significant overlap among the many
claims and counterclaims, the District Court succinctly and
effectively organized its summary judgment analysis into four
categories: (1) third party agreements affecting the Demised
Property, (2) the indebtedness provision, (3) the additional rent
and legal fees dispute, and (4) the books and records demand.6

       6
          Judge Terrence F. McVerry of the United States
District Court for the Western District of Pennsylvania should
be commended for his adept management of this difficult case.
Despite the long and complex procedural history, Judge
McVerry, over the course of several opinions, thoroughly

                                12
       With regard to the first issue, the District Court
determined that the Lease affords Norfolk Southern (and thus
Wheeling & Lake Erie) the right to enter into, control, and
receive the benefits from non-sale third-party agreements,
including those agreements that relate to subsurface extraction.
In arriving at this conclusion, the District Court found it
significant that at the time the Lease was executed, PWV
transferred to Norfolk Southern non-sale third-party
agreements that predated the 1962 Lease without requiring
Norfolk Southern to account for income it received under such
third-party agreements. The District Court also relied upon
uncontroverted evidence that PWV had “assisted Norfolk
Southern with the execution of new, non-sale third-party
agreements, and knew that Norfolk Southern received the
proceeds from the third-party agreements.” (App. 54.) The
Court therefore granted summary judgment to Norfolk
Southern on this issue, finding that Norfolk Southern was not
in default for entering into these agreements. The Court also
denied PWV’s Counterclaim which sought to hold Wheeling
& Lake Erie liable for conversion regarding the property that
was the subject of these agreements.

       The District Court then turned to the dispute regarding
the indebtedness provision of the lease. It first found that the
language and structure of Section 9 of the Lease supported the
interpretation that “the only ‘dispositions’ that must be tracked
as indebtedness [from Norfolk Southern to PWV] are fee
simple conveyances of title to a portion of the Demised
Property—e.g.        outright    sales,    condemnations       or
abandonments—rather than the licenses, easements, and leases

addressed all of the parties’ arguments and provided clear and
thoughtful analysis.

                               13
at issue in this case.” (App. 53.) Second, the Court determined
that the 5% cap on total indebtedness no longer applied as
Norfolk Southern had paid off all debt that it had assumed
under the Lease by 1982. Because this cap no longer applied,
the District Court permitted Norfolk Southern to continue
tracking additional rent as indebtedness in the Settlement
Account pursuant to Section 16(a) of the Lease. Payment of
the Settlement Account would only become due at the
termination of the Lease.

        The Court also discussed the reporting of the Settlement
Account, which the parties used to track indebtedness.
Because the third party leases were not “dispositions” under
Section 9 and because the 5% cap no longer applied, Norfolk
Southern had not underreported the Settlement Account and
thus had not breached the Lease. The Court also found the
fraud claims barred by the gist-of-the-action doctrine. It
concluded that the fraud claims arose from an alleged violation
of the Lease, and were therefore nothing more than a
restatement of the breach of contract claim. It ultimately
granted Norfolk Southern’s motion for summary judgment and
denied PWV’s motion for summary judgment with respect to
all claims related to the indebtedness provisions of the Lease.

       The District Court then discussed the additional rent and
attorneys’ fees issue that PWV raised in the Tax Memorandum.
Norfolk Southern had sought a declaration that the only
payment it owed PWV as a result of the West End Branch
matter was the amount of the income tax liability that PWV
may incur as a result of the contemplated sale. The Court also
determined that the Lease did not require Norfolk Southern to
pay the requested attorneys’ fees. It noted that neither of the
sections relied upon by PWV in bringing this claim mentioned

                              14
attorneys’ fees despite such language appearing in other
sections in different contexts. It thus granted Norfolk
Southern’s motion for summary judgment and denied PWV’s
motion for summary judgment with respect to the claims
related to the Tax Memorandum.

       The District Court next found that Norfolk Southern
was not in default for its failure to comply with PWV’s March
5, 2013 books and records demands. It refused to issue an
advisory opinion regarding books and records demands
because Section 8(a)(3) of the Lease clearly provided for them.
The Court concluded, however, that the disputed March 5,
2013 demand had been an unreasonable attempt to
manufacture a default. It granted summary judgment to
Norfolk Southern on this issue, and PWV does not dispute this
ruling on appeal.

        Following a bench trial in which it resolved Norfolk
Southern’s two remaining claims—breach of contract and
fraud, the District Court ruled that, based on admissions made
by Lesser at trial, PWV breached the covenants of the Lease
by making advances to Power REIT.7 The Court further
determined that PWV committed fraud in seeking Norfolk
Southern’s consent to the rights offering. PWV’s Form S-3
represented that it contained all available information
regarding the requested consent but made no mention of either
PWV’s plans to restructure or its intention to invest in energy
companies. Despite these findings, however, the Court only

       7
         Although this claim was not included in Norfolk
Southern’s pleadings, the District Court found that the parties
impliedly consented to litigate it. See Fed. R. Civ. P. 15(b)(2).
PWV does not dispute this conclusion on appeal.

                               15
awarded Norfolk Southern nominal damages of $1, as it had
not suffered any compensable harm as a result of the breach of
contract or the fraud. PWV filed this timely appeal.

                               II.

       The District Court had jurisdiction under 28 U.S.C. §
1332(a)(1) and our jurisdiction arises under 28 U.S.C. § 1291.
We exercise plenary review of a district court’s resolution of
cross-motions for summary judgment and apply the same
standard as did the district court. Tristani ex rel. Karnes v.
Richman, 652 F.3d 360, 366 (3d Cir. 2011). We will affirm a
grant of summary judgment where “there is no genuine dispute
as to any material fact and the movant is entitled to judgment
as a matter of law.” Fed. R. Civ. P. 56(a). A fact is material if
it “might affect the outcome of the suit under the governing
law.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248
(1986). On appeal from a bench trial, we review a district
court’s findings of facts for clear error and exercise plenary
review over conclusions of law. VICI Racing, LLC v. T-Mobile
USA, Inc., 763 F.3d 273, 282–83 (3d Cir. 2014).

                              III.

       PWV argues that the District Court improperly made
selective use of “course of performance” evidence to rewrite
the terms of the Lease. PWV also contends that Norfolk
Southern defaulted on the Lease by (a) failing to pay the
attorneys’ fees requested; (b) failing to record as indebtedness
the proceeds of licenses, easements, and leases of the Demised
Property; (c) allowing third parties to conduct resource
extraction; and (d) allowing the amount of indebtedness to

                               16
exceed the 5% cap. Finally, PWV asserts that it did not commit
fraud in providing Norfolk Southern its Proposed S-3. Each of
these contentions will be addressed seriatim.

               A. Course-of-Performance Evidence

       “The paramount goal of contract interpretation is to
determine the intent of the parties.” Baldwin v. Univ. of
Pittsburgh Med. Ctr., 636 F.3d 69, 75 (3d Cir. 2011) (quoting
Am. Eagle Outfitters v. Lyle & Scott Ltd., 584 F.3d 575, 587
(3d Cir. 2009)). Pennsylvania contract law begins with the
“firmly settled” principle that the “the intent of the parties to a
written contract is contained in the writing itself.” Bohler-
Uddeholm Am., Inc. v. Ellwood Grp., Inc., 247 F.3d 79, 92 (3d
Cir. 2001) (quoting Krizovensky v. Krizovensky, 624 A.2d 638,
642 (Pa. Super. Ct. 1993)). At the same time, the Supreme
Court of Pennsylvania has recognized that the “course of
performance is always relevant in interpreting a writing.” Atl.
Richfield Co. v. Razumic, 390 A.2d 736, 741 n.6 (Pa. 1978);
see also In re Old Summit Mfg., LLC, 523 F.3d 134, 137–38
(3d Cir. 2008) (“A court always may consider the course of
performance as evidence of the intent of the parties.”). In its
discussion of each disputed issue, the District Court first
examined the language of the Lease and then discussed the
parties’ course of performance. It ultimately concluded that,
in each instance, both weighed heavily in favor of Norfolk
Southern. Its use of course-of-performance evidence was both
appropriate and necessary and did not contradict the language
of the Lease.

                                17
                             B. Default

        PWV also argues that the District Court should have
found Norfolk Southern in default for entering into third-party
agreements for subsurface extraction, for failing to record the
proceeds from these and other agreements as indebtedness, for
failing to pay indebtedness that exceeded the 5% cap, and for
failing to pay PWV’s attorneys’ fees. After analyzing both the
language of the contract and the parties’ course of
performance, the District Court granted summary judgment to
Norfolk Southern on each of these issues.

        PWV first challenges the District Court’s determination
that the Lease allowed for third party agreements for
subsurface extraction. Section 1 of the Lease clearly provides
that PWV leased, assigned, transferred, and delivered to
Norfolk Southern, its successors, and assigns “all of [its] right,
title and interest in and to all its property, real, personal and
mixed, including equipment, machinery, tools, materials and
supplies, cash, investments, securities, claims, intangibles,
choses in action, rights (contractual or otherwise), obligations,
interests, leaseholds and franchises, and including without
limitation” the railroad and additional properties described in
Schedules A and B. (App. 831.) PWV did not reserve any
rights or interests in the subsurface coal, oil, gas, or minerals
or the proceeds of any anticipated agreements, despite
reserving rights to other property elsewhere in the lease.
Moreover, after execution of the Lease, PWV transferred to
Norfolk Southern various existing third-party agreements,
including an oil and gas lease which expressly reserved no
subsurface rights. PWV also acknowledged and did not
dispute transfers of subsurface rights during the lengthy course
of the parties’ performance. Given this evidence, the District

                               18
Court properly concluded that the Lease affords Norfolk
Southern (and its sublessees) the right to enter into, control,
and receive the benefits from third-party agreements, including
subsurface extraction agreements.

        PWV also argues that the District Court erred in finding
that the Lease did not require Norfolk Southern to pay to PWV
or record as indebtedness the proceeds from easements,
licenses, or subleases of the Demised Property. The first
sentence of Section 9 states that the “demised property . . . may
be sold, leased or otherwise disposed of by” Norfolk Southern.
(App. 841.) The second sentence of that Section deals with
Norfolk Southern’s liability to PWV For “[t]he proceeds of
sale, condemnation, or other disposition of the demised
property . . . .” (App. 842.) Notably absent from this sentence
is any reference to the proceeds of leases or other non-sale
agreements authorized by the first subsection of Section 9. The
District Court agreed with Norfolk Southern that non-sale
transactions did not need to be tracked as indebtedness
because, while the Lease clearly includes leases in its grant of
authority, it does not include them as transactions that need to
be tracked as indebtedness.

       The parties’ course of performance supports this
reading. Norfolk Southern never listed the non-sale income
received from third parties in its annual accounting, and PWV
never disputed the failure to do so. Further, PWV knew of the
existence of third-party agreements because several had been
transferred to Norfolk Southern at the time of the Lease’s
execution, and it had assisted in the consummation of non-sale
transactions after the Lease was executed. The District Court
did not err in granting summary judgment to Norfolk Southern
on this issue.

                               19
        PWV then asserts that the Court erred in ruling that
Norfolk Southern had not defaulted on the Lease by allowing
its total indebtedness under the Lease to exceed 5% of PWV’s
assets. As discussed above, Section 16(a) provides that “the
total of such indebtedness owing from [Norfolk Southern] to
[PWV] . . . shall not exceed at any time an amount equal to 5%
of the value at such time of the total assets of [PWV] as long
as any of the obligations of [PWV] which have been assumed
by [Norfolk Southern] in this Lease remain outstanding and
unpaid.” (App. 847.) Norfolk Southern argued, and the
District Court agreed, that this cap no longer applies because,
in 1982, Norfolk Southern paid off the last of the debt it
assumed from PWV. Both the temporal language in the Lease
and the existence of specific assumed obligations support this
interpretation, and the parties’ course of performance only
further confirms it. Beginning in 1983, Norfolk Southern no
longer reported the balance of its indebtedness, and PWV no
longer reported the value of that balance as an asset, given the
indefinite nature of the Lease. Summary judgment in favor of
Norfolk Southern was therefore appropriate.

       Finally, PWV contends that Norfolk Southern defaulted
on the Lease by failing to pay PWV attorneys’ fees and other
expenses related to its review of the West End Branch
transaction. Neither Sections 4(b)(5) nor 4(b)(6), however,
provide for the payment of attorneys’ fees, despite such
language appearing elsewhere in the Lease.              Under
Pennsylvania law, “counsel fees are recoverable only if
permitted by statute, clear agreement of the parties, or some
other established exception.” Knecht, Inc. v. United Pac. Ins.
Co., 860 F.2d 74, 80 (3d Cir. 1988) (citing Montgomery Ward
& Co. v. Pac. Indem. Co., 557 F.2d 51, 56 (3d Cir. 1977);

                              20
Corace v. Balint, 210 A.2d 882, 887 (Pa. 1965)). While we
have permitted an award of attorneys’ fees even in the absence
of explicit contractual language, we have done so only when
the context suggested that the parties intended litigation costs
to be included. See, e.g., Sloan & Co. v. Liberty Mut. Ins. Co.,
653 F.3d 175, 186–87 (3d Cir. 2011) (holding that the term
“expenses and costs” included attorneys’ fees in addition to
other litigation related expenses and costs when used “in a
paragraph discussing procedural mechanisms for lawsuits and
other dispute resolution proceedings”) (citations omitted).

        As the District Court noted, Sections 4(b)(5) and (6)
address additional rent but make no mention of litigation costs
in that context. This is not true in other parts of the Lease. For
example, in Section 10(b), Norfolk Southern agreed to
“indemnify [PWV] against liability, including costs and
attorneys’ fees, which may be incurred by [PWV] under its
collective bargaining agreements . . . .” (App. 844.) The
parties clearly contemplated indemnification for attorneys’
fees, but did not explicitly provide for them in the section
discussing additional rent. The language in Sections 4(b)(5)
and 4(b)(6) does not establish a “clear agreement” that Norfolk
Southern indemnify PWV for attorneys’ fees in the review of
a proposed sale under the terms of the Lease. Knecht, 860 F.2d
at 80 (citation omitted). We therefore agree with the District
Court that summary judgment was appropriate because
Norfolk Southern did not default by failing to pay PWV’s
attorneys’ fees incurred in its review of the West End Branch
sale.

                               21
                              C. Fraud

After granting summary judgment to Norfolk Southern on
these issues, the District Court held a bench trial, after which it
determined that PWV committed fraud in seeking Norfolk
Southern’s consent to the rights offering. PWV argues that the
District Court erred in holding that the fraud claim was not
barred by the “gist of the action” doctrine. PWV also asserts
that the fraud claim fails as a matter of law because Norfolk
Southern did not suffer any injury proximately caused by the
statements.

        In Pennsylvania, a party must establish the following
elements to sustain a common law fraud claim: “(1) a
representation; (2) which is material to the transaction at hand;
(3) made falsely, with knowledge of its falsity or recklessness
as to whether it is true or false; (4) with the intent of misleading
another into relying on it; (5) justifiable reliance on the
misrepresentation; and (6) the resulting injury was proximately
caused by the reliance.” Gibbs v. Ernst, 647 A.2d 882, 889
(Pa. 1994). According to the Pennsylvania Supreme Court, a
fraud “occurs when one is induced to assent when he would not
otherwise have done so.” Tunis Bros. Co., Inc. v. Ford Motor
Co., 952 F.2d 715, 731 (3d Cir. 1991) (citing Delahanty v. First
Pa. Bank, N.A., 464 A.2d 1243, 1251–52 (Pa. Super. Ct.
1983)). “Fraudulent misrepresentation may be accomplished
‘by concealment of that which should have been disclosed,
which deceives or is intended to deceive another to act upon it
to his detriment.’” Id. (quoting Delahanty, 464 A.2d at 1252).

      During discussions to obtain Norfolk Southern’s
consent, Lesser had assured Norfolk Southern that the

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Proposed S-3 “contain[ed] all available information of PWV’s
plans at [that] point.” (App. 12526.) The Proposed S-3,
however, contained no information about PWV’s plans to
restructure based on the Lease restrictions or to invest in
alternative energy ventures, both of which Lesser had
discussed in detail with PWV’s Board of Directors. The
District Court also found that Lesser “acted with intent to
mislead Norfolk Southern into relying on his material
representations,” and that Norfolk Southern “would not have
granted PWV consent to issue shares had it known that PWV
would act inconsistent with the assurances” it had made.
Norfolk S. Ry. Co. v. Pittsburgh & W. Va. R.R., 153 F. Supp.
3d 778, 814 (W.D. Pa. 2015). Finally, the Court determined
that Norfolk Southern had suffered harm proximately caused
by the fraud because, even though it could not reduce that harm
to a monetary figure, the Lease no longer afforded it the same
protection “bargained for by the original parties.” Id.

       The Court addressed and rejected the “gist of the action”
argument PWV presents on appeal. We agree with the District
Court’s conclusion. This doctrine prevents a party from
bringing “a tort claim for what is, in actuality, a claim for
breach of contract.” Bruno v. Erie Ins. Co., 106 A.3d 48, 60
(Pa. 2014). As the Pennsylvania Supreme Court has explained:

       If the facts of a particular claim establish that the
       duty breached is one created by the parties by the
       terms of their contract—i.e., a specific promise
       to do something that a party would not ordinarily
       have been obligated to do but for the existence of
       the contract—then the claim is to be viewed as
       one for breach of contract. If, however, the facts
       establish that the claim involves the defendant’s

                                23
       violation of a broader social duty owed to all
       individuals, which is imposed by the law of torts
       and, hence, exists regardless of the contract, then
       it must be regarded as a tort.

Id. at 68 (internal citations omitted). Courts must therefore
determine “whether the nature of the duty upon which the
breach of contract claims rests is the same as that which forms
the basis of the tort claim[ ].” Id. at 69 n.17. As the District
Court noted, Norfolk Southern’s claim does not arise from the
contractual relationship between the parties, but rather from
Lesser’s fraudulent misrepresentations and omissions in
seeking Norfolk Southern’s consent. Because this claim
involves a “broader social duty owed to all individuals,” the
“gist of the action” doctrine does not bar it, and a finding of
fraud is appropriate. Id. at 68.

        PWV also contends that the fraud claim fails as a matter
of law because Norfolk Southern could not demonstrate any
compensable damages resulting from the misrepresentations
and omissions in its Proposed S-3. We agree with the District
Court, however, that PWV’s fraud did proximately cause harm
to Norfolk Southern’s interests in that the Lease no longer
afforded it the same protections. Therefore, despite an inability
to establish compensatory damages, Norfolk Southern was still
entitled to nominal damages of $1.00. See Nicholas v. Pa.
State Univ., 227 F.3d 133, 146 (3d Cir. 2000) (“the
Pennsylvania Supreme Court held that because the basic unit
of American money is the dollar . . . in the future, when
nominal damages are awarded in our courts, one dollar ($1)
shall be the measure thereof”) (internal quotation omitted).

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                            IV.

      For the foregoing reasons, we will affirm the District
Court’s April 22, 2015 order granting summary judgment to
Norfolk Southern and its December 29, 2015 order finding that
PWV committed fraud in seeking Norfolk Southern’s consent.

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