Union Pac. R.R. Co. v. Anderson Cnty.

1

UNION PACIFIC RAILROADCOMPANY, APPELLANT v. ANDERSON COUNTY, ET AL, APPELLEES

No. 12-23-00152-CV

Court of Appeals of Texas, Twelfth District, Tyler

February 22, 2024

Appeal from the 369th District Court of Cherokee County, Texas (Tr.Ct.No. 2021-060150)

Panel consisted of Worthen, C.J., Hoyle, J., and Neeley, J.

OPINION

James T. Worthen, Chief Justice

Union Pacific Railroad Company appeals the trial court's granting of summary judgment in favor of Anderson County and the City of Palestine and denying its motion for summary judgment and motion to dismiss. Union Pacific presents five issues on appeal. We reverse and render.

Background

The background of this case spans 150 years, and much of it is not in dispute. It has been discussed at length in prior federal court opinions; however, we recount it here to illuminate the intersection between the parties' purported contractual agreements and increased federal regulation of the railroad system.

The 1872 Original Agreement

In the 1870s, during the boom of westward railroad expansion following the Civil War, small towns competed for railroad depots and stops as essential parts of their continued economic power and survival. One of these towns was Palestine, Texas. Palestine was uniquely positioned to serve as the crossroads between the International Railroad approaching Palestine from Hearne, Texas to the southwest, and the Houston and Great Northern Railroad Company ("HGNR") approaching Palestine from Houston to the south. See City of Palestine v. United States, 559 F.2d 408, 410 (5th Cir. 1977). In 1872, under the leadership of John H. Reagan Palestine and Anderson County raised $150,000 in bonds from their citizens to finance the railroad. Id. In turn, HGNR agreed to "run[ ] cars regularly" to Palestine, construct a depot, and "locate and establish and forever thereafter keep and maintain" its "general offices, machine shops and roundhouses" in Palestine. Id.

In 1873, HGNR merged with the International Railroad to create the International & Great Northern Railroad (IGNR). Id. The Texas legislature approved the merger so long as IGNR assumed "all acts done in the name of either of the companies," including HGNR's obligations in the 1872 Agreement with Palestine. Id. Consideration included another $150,000 in bonds and Palestine's commitment to construct housing for the IGNR employees. Id.

1892 and 1911 Foreclosure Sales and 1914 Judgment Granting Injunctive Relief

In 1892, IGNR's assets were sold at a foreclosure sale, but because the purchasers were trustees for IGNR's stockholders, Texas courts ultimately classified this as a mortgage refinancing rather than a bona fide sale. Int'l & Great N. Ry. Co. v. Anderson Cty. (IGNR IV), 246 U.S. 424, 433, 38 S.Ct. 370, 373, 62 L.Ed. 807 (1918). Thus, the 1872 Agreement remained in effect. Int'l & Great N. Ry. Co. v. Anderson Cty. (IGNR III), 174 S.W. 305, 316 (Tex. Civ. App-Texarkana 1915), aff'd, 246 U.S. 424, 38 S.Ct. 370, 62 L.Ed. 807 (1918).

In 1911, IGNR again sold its assets at a foreclosure sale, this time to outside investors who kept the name of the company and listed Houston as the new corporate office. City of Palestine, 559 F.2d at 410-11. However, because IGNR planned to move its offices, Palestine and Anderson County successfully sued for an injunction under the 1872 Agreement to keep IGNR's "general offices, machine shops, and roundhouses in Palestine "forever." IGNR III, 174 S.W. at 327. This 1914 Judgment was twice upheld by both the Texas Court of Civil Appeals and the United States Supreme Court. See id.; see also, IGNR IV, 246 U.S. at 434, 38 S.Ct. 370.

In addressing the impact of the foreclosure, Texas courts concluded that there was no "irregularity in the foreclosure proceedings or in the organization of the new company" that would impute the personal obligations of the prior company onto the purchaser. Int'l & Great N. Ry. Co. v. Anderson Cty. (IGNR I), 150 S.W. 239, 250 (Tex. Civ. App-Galveston 1912), aff'd, Int'l & Great N. Ry. Co. v. Anderson Cty. (IGNR II), 156 S.W. 499 (Tex. 1913). Instead, the courts used the general rule that "the purchaser of a railroad sold under" foreclosure would take ownership "free from all liability" for indebtedness and similar personal obligations. IGNR I, 150 S.W. at 250. The obligation to "maintain its offices, shops and roundhouses in Palestine" was a "personal obligation that would not have bound the new company." City of Palestine, 559 F.2d at 411; see also IGNR I, 150 S.W. at 250 (noting that the purchaser in a railroad foreclosure obtains property "free from all mere personal obligations of the former company," including a contract "for the establishment and permanent maintenance of a depot").

Even though personal contractual obligations typically do not transfer to the purchaser in a foreclosure sale, Texas state courts nonetheless concluded that the Texas Office Shops Act changed this calculus, and the purchaser was thus "liable to perform the public duties imposed by law upon the old corporation." IGNR II, 156 S.W. at 503 (internal quotations omitted). The Office Shops Act required a railroad such as IGNR to "keep and maintain its general offices at such place within this state where it shall have contracted or agreed" and "said location shall not be changed" even during consolidation if the railroad was "aided . . . by an issue of bonds in consideration of such location." City of Palestine, 559 F.2d at 411 (quoting Tex. Rev. Civ. Stat. art. 6423 (1911)).

In short, the Texas courts held that the 1889 Office Shops Act mandated the transfer of IGNR's personal obligation to remain in Palestine to the new purchaser. IGNR I, 150 S.W. at 251 (noting that the requirement was not "a mere personal obligation of that company, but was an obligation or duty imposed by law" that could not be disavowed in a foreclosure sale, even to a bona fide purchaser). The Texas Court of Civil Appeals stated that the 1914 Judgment was "entirely dependent upon the statute, and not the enforcement of a private contract as such, for its vitality." IGNR III, 174 S.W. at 316.

IGNR appealed to the United States Supreme Court, arguing that the Office Shops Act impermissibly burdened interstate commerce and contractual obligations. IGNR IV, 246 U.S. at 428, 38 S.Ct. 370. The Supreme Court disagreed and noted that the new IGNR "took out a charter under general laws that expressly subjected it to the limitations imposed by law." Id. at 432, 38 S.Ct. 370.

1954 Agreement and 1955 Judgment Modifying 1914 Judgment

Later, in the 1920s, Missouri Pacific (MoPac) purchased IGNR. City of Palestine, 559 F.2d at 412.

In the 1930s, MoPac filed for bankruptcy and requested reorganization under the Bankruptcy Act. Id. As part of its proposed reorganization, MoPac stated it would consolidate with its subsidiaries, including IGNR. Id. But because the 1914 Judgment required IGNR to maintain its general offices in Palestine, and MoPac's offices were located elsewhere, this posed a serious problem. Id.

The Bankruptcy Act also included the following requirement, which, in essence, required continued enforcement of the 1914 Judgment:

No reorganization effected under this title and no order of the court or Commission in connection therewith shall relieve any carrier from the obligation of any final judgment of any Federal or State court rendered prior to January 1, 1929, against such carrier or against one of its predecessors in title, requiring the maintenance of offices, shops, and roundhouses at any place, where such judgment was rendered on account of the making of a valid contract or contracts by such carrier or one of its predecessors in title.

Id. (citing 11 U.S.C. § 205(n) (1970) (emphasis added)).

Given these difficulties, the bankruptcy court requested that MoPac negotiate with Palestine and Anderson County to modify the 1914 Judgment before it would approve the reorganization. Id. As a result of these negotiations, MoPac "agreed to forever maintain in Palestine 4.5% of all of its employees in certain job classifications," but it did not have to "maintain its general offices, shops and roundhouses in Palestine." Id. (the 1954 Agreement). MoPac agreed that as long as it or "any successor in interest or assign thereof shall remain in the railroad business," it would maintain "Office and Shop Employees" in Palestine. A group of ten local citizens (the Palestine Citizens Committee) signed the 1954 Agreement along with MoPac, Palestine, and Anderson County.

In 1955, the District Court of Cherokee County, Texas, entered a judgment (the 1955 Judgment) that modified the 1914 Judgment to align with the 1954 Agreement's terms, and the bankruptcy court approved the proposed reorganization. Id.

Union Pacific Acquires MoPac, Assumes Operations in Palestine; Texas Repeals Office Shops Act

Approximately three decades passed, and in 1982, Union Pacific first acquired MoPac, and they subsequently merged. In 1995, Congress passed the Interstate Commerce Commission Termination Act (ICCTA) which established the Surface Transportation Board (STB) to regulate rail carriers and preempted various state and local laws that were within the STB's jurisdiction. 49 U.S.C. § 10501(b). In 2007, Texas repealed its Office Shops Act after determining the ICCTA preempted it. See H.R. Rep. 80-3711, Reg. Sess. at 1 (Tex. 2007).

With automatic adjustments from subsequent mergers, Union Pacific must maintain 0.52% of its "Office and Shop" employees in Palestine. Under the 1954 Agreement, these employees can be "Executives, Officials and Staff Assistants; Professional, Clerical, and General; Maintenance of Equipment and Stores; Transportation (other than Train Engine and Yard); Transportation ...