GRAND RAPIDS — A dispute over 3.3 miles of railroad track running through the city could soon be coming to an end.
On June 1, Kent County Circuit Court Judge Christopher Yates denied a request by Virginia-based Norfolk Southern Corp. and Kalamazoo-based Grand Elk Railroad to issue an injunction over a disputed track usage agreement with CSX Transportation Inc.
Although it left an opening for Norfolk Southern and Grand Elk to revise their complaint, the court opinion could effectively spell the end of the dispute, which began a year ago. It also could mean that West Michigan companies that rely on the Grand Elk line would have to pay an additional “switching fee” to CSX to gain access to the 3.3-mile section of track.
Already, numerous local businesses have adjusted their operations to work around the disputed section of track.
While Lowell-based King Milling Co. has not had any trouble getting cars into its facility along the contested track, Senior Vice President Jim Doyle worries costs will go up once the company’s current contract with Norfolk Southern expires next month.
“That’s disappointing to us because we’d like to see them work this out and have things back to how they have been for many, many years,” Doyle said.
Without any such agreement, King Milling is taking a wait-and-see approach to the situation, he said.
“Cars are still moving to us. We’ll see what happens,” Doyle said.
Hamilton-based Brink Farms Inc. also changed its operations to navigate the dispute.
The transporter of bulk commodities in 2015 built a rail yard off Turner Avenue in Grand Rapids to bypass the S-curve on U.S. 131, gain operational efficiencies and pass along competitive pricing for its customers shipping cargo south of the city.
However, the company was forced to close the facility shortly after CSX denied service to Grand Elk. CSX offered to service the rail yard at a charge of approximately $1,000 per rail car, which skewed the economics for Brink Farms, according to President Brian Brink.
“We’re caught in the middle of corporate politics,” Brinks told MiBiz for a previous report, noting the facility could serve upwards of 50 cars in a given week. “It’s a bad deal.”
For Nyal Deems, a partner at Grand Rapids-based Varnum LLP who has worked on other railroad-related disputes, this case represents an example of the downstream fallout that can occur when service providers feud.
“Sometimes there are people in the country who don’t want regulation and (want to) let everything work itself out in the marketplace,” Deems said. “Well, here’s a good example where for utilities, railroads and other things, the government needs to assert itself to ensure that someone’s rush for money doesn’t undercut four or five other companies who are simply trying to do business. One of the ways you move things is railroads. To have two of the railroads fighting between themselves totally undercuts companies and leaves them out to dry. That’s mind boggling.”
Deems did note that Norfolk Southern and Grand Elk could still have a chance to resolve the issue for their customers since the court offered the parties another opportunity to submit their complaint, instead of settling the matter.
The plaintiffs had until June 22 — the day this report went to press — to submit the reviews.
PLEADING THEIR CASE
In June 2016, Florida-based CSX Transportation Inc. issued a cease-and-desist letter to Grand Elk Railroad Inc., prohibiting the Kalamazoo-based short-line hauler from operating on a stretch of railroad between Ann Street NW and Pleasant Street SW in Grand Rapids.
CSX owns the disputed section of track but shared usage with Virginia-based Norfolk Southern Corp. under an agreement struck in the early 1980s. Norfolk Southern has leased those track rights to Grand Elk since 2009.
CSX alleged the original 30-year agreement expired in 2014 and that Norfolk Southern and Grand Elk did not take the necessary steps to renew the contract. Despite the contract’s expiration, CSX allowed Grand Elk to continue operating as normal until June 2016.
For their part, Grand Elk and Norfolk Southern argued that a history of cooperation on the section of track, even after the original agreement had expired and was not renewed, served as evidence that the usage agreement should be continued.
Following the cease-and-desist letter, Grand Elk and Norfolk Southern brought the dispute to the Surface Transportation Board (STB), a bipartisan agency charged with resolving railroad disputes and issuing economic regulations. In October 2016, the STB determined that it was unable to provide a ruling on the dispute and that the decision would be dependent on state law.
At the same time that Grand Elk and Norfolk Southern petitioned the STB to hear their case, the companies also filed a lawsuit in Kent County Circuit Court.
Now, eight months later, Judge Yates issued an opinion denying Norfolk Southern and Grand Elk’s motion for an injunction, citing a lack of “any theory that can support a ruling in the plaintiffs’ favor.”
“The most obvious flaw in the plaintiffs’ request for injunctive relief is their failure to plead a viable claim,” Yates wrote in his opinion earlier this month.
NOT A MATTER OF PUBLIC HARM
Primarily, Yates took issue with the plaintiffs’ claims that a renewed agreement should be ratified since CSX had worked with the parties even after the contract had expired. However, Yates noted that even though CSX had allowed Grand Elk to use the track, it didn’t change the fact that the contract had expired and the plaintiffs had failed to follow the steps to renew it.
“Moreover, although CSX apparently permitted Grand Elk to operate on the contested stretch of track until June of 2016, CSX’s actions cannot support the 30-year extension of the two agreements that Grand Elk seeks,” Yates wrote in the court documents. “Forbearance by CSX cannot serve as a substitute for the method of renewal prescribed by the 1980 and 1984 agreements.”
Yates also determined that awarding or denying an injunction on the dispute would not harm any of the involved parties, nor the public interest. The STB mandates that carriers allow other railroads to access their tracks regardless of any agreements, albeit for a regulated switching fee.
“The STB effectively regulates prices for track access, thereby ensuring fair and stable rates for the transportation of goods by rail,” Yates wrote in his opinion. “In such a regulated industry, the Court cannot find that some sort of injunctive order is necessary to prevent harm to the public.”
‘AN ATTORNEY’S NIGHTMARE’
The dispute stems from a series of track usage agreements struck in 1980 and 1984 between the Chesapeake & Ohio Railway Co. (C&O) and Consolidated Rail Corp. (Conrail). City officials brokered the deal between the two railroad companies to decrease the number of tracks in Grand Rapids and allow for the construction of an extension to Seward Avenue. Under the terms, Conrail agreed to abandon its track in exchange for usage rights on C&O’s line.
Eventually, CSX acquired the section of track from C&O, at the same time that Norfolk Southern purchased the shared usage agreement along with the remaining assets of Conrail.
Despite the history of cooperation between CSX and Norfolk Southern, Deems of Varnum sees this case as an example of how easily long-term agreements between parties can become muddled years down the road.
“Some of these (agreements) get drafted to intentionally have long-term factors,” Deems said, noting that subsequent business combinations can pose challenges if the companies fail to follow up on prior agreements.
“It’s an attorney’s nightmare,” he said. “If you don’t catch something that comes up, something like this … could be a killer for one or more companies. No one wants to take the blame and everybody is blaming everybody else and it’s finger-pointing time.
“There will be mistakes on these kinds of issues and they do happen.”
CSX declined to comment citing concerns over the ongoing litigation. Executives at Norfolk Southern and Grand Elk Railroad did not respond to requests for comment.