Soo Line Railroad v. CMC Real Estate Corp.

165 B.R. 625, 24 U.C.C. Rep. Serv. 2d (West) 1242, 1994 U.S. Dist. LEXIS 1408, 1994 WL 69608
CourtDistrict Court, N.D. Illinois
DecidedFebruary 14, 1994
DocketNo. 90 C 2493
StatusPublished

This text of 165 B.R. 625 (Soo Line Railroad v. CMC Real Estate Corp.) is published on Counsel Stack Legal Research, covering District Court, N.D. Illinois primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Soo Line Railroad v. CMC Real Estate Corp., 165 B.R. 625, 24 U.C.C. Rep. Serv. 2d (West) 1242, 1994 U.S. Dist. LEXIS 1408, 1994 WL 69608 (N.D. Ill. 1994).

Opinion

MEMORANDUM OPINION AND ORDER

LINDBERG, District Judge.

CMC Real Estate Corporation and Chicago Milwaukee Corporation (collectively “CMC”) have filed a motion for partial summary judgment against Soo Line Railroad Company (“Soo”) pursuant to Rule 56 of the Federal Rules of Civil Procedure. CMC has moved for summary judgment on count III of Soo’s amended complaint, wherein Soo seeks damages for the alleged failure of the Trustee of the Chicago, Milwaukee, St. Paul & Pacific Railroad Company (“Milwaukee Road”) to turn over certain subordinated debentures issued by the Trailer Train Company. CMC has also moved for summary judgment on count VIII of its counterclaim for Soo’s alleged breach of duty to defend CMC in two Wisconsin state court personal injury lawsuits. CMC also seeks summary judgment as to liability only on counts III and IV of its counterclaim for Soo’s alleged trespass upon two rail properties owned by CMC, the Eighth Street Coach Yard and the Minneapolis Lite Yard. CMC has further moved for summary judgment on count VII of its counterclaim to enforce a prior court order which directs Soo to purchase or lease the Beer, Rockford and C & E railroad lines. Soo has moved to dismiss count VII of CMC’s counterclaim without prejudice.

I. Subordinated Debentures

On December 19, 1977, the Milwaukee Road filed a petition for reorganization under section 77 of the Bankruptcy Act of 1898, [628]*628formerly 11 U.S.C. § 205. In re Chicago, Milwaukee, St. Paul & Pacific Railroad Co., 827 F.2d 112, 113 (7th Cir.1987). The Milwaukee Road was required to continue rail operations during the reorganization proceedings to meet the public interest goal of section 77 in preserving existing rail operations. In re Chicago, Milwaukee, St. Paul & Pacific Railroad Co., 830 F.2d 758, 760 (7th Cir.1987). The Milwaukee Road’s continued operations produced massive deficits. In 1978, the first year after the reorganization petition was filed, the Milwaukee Road lost $82 million. In 1979, the railroad lost an additional $118 million. Having sustained losses in excess of $200 million, the Milwaukee Road sought permission to liquidate in 1980. Id. at 760.

In light of these massive losses, the reorganization court concluded the Milwaukee Road could not be successfully operated and its rail assets should be sold. The Grand Trunk Corporation, Soo and the Chicago & North Western Transportation Company (“CNW”) submitted bids for the Milwaukee Road’s assets. See In re Chicago, Milwaukee, St. Paul & Pacific Railroad Co., 799 F.2d 317, 319 (7th Cir.1986). Soo made a final bid of $150 million including the assumption of the Milwaukee Road’s liabilities. CNW offered $360 million for the rail assets and agreed to assume the railroad’s liabilities. Although CNWs bid exceeded Soo’s by $210 million, Judge McMillen approved Soo’s bid since he believed it would better serve the public interest by preserving more jobs. Id. at 320.

On February 19, 1985, Judge McMillen divided the Milwaukee Road into a non-core properties division (CMC Real Estate) and a core rail assets division to be sold to Soo. That same day, Soo purchased the core rail assets from the Trustee pursuant to an asset purchase agreement. The asset purchase agreement was amended by letter agreement, also dated February 19, 1985, to include 500 shares of common stock issued by the Trailer Train Company. Paragraph four of the letter agreement states that Soo agreed to purchase “all of the equity interest of the Trustee in the Trailer Train Company ... consisting of 500 shares of Trailer Train common stock.” The letter agreement specifically provided: “This letter will confirm our prior discussions and, on acceptance by you, will serve as an amendment and clarification of the APA [asset purchase agreement].”

Soo and the Trustee also executed a stock power on February 19, 1985 which stated:

For value received, Richard B. Ogilvie, not personally but solely as Trustee of the Property of the Chicago, Milwaukee, St. Paul and Pacific Railroad Company (“Trustee”), does hereby sell, assign and transfer unto SLRCO, Inc._shares of the Capital Stock of Trailer Train Company (the “Company”) standing in the name of_ on the books of the Company represented by Certificate No._, along with all interest of the Trustee in investments in, advances to and receivables from the Company. Trustee does hereby irrevocably constitute and appoint_at-torney to transfer the stock on the books of the Company with full power of substitution in the premises.

On July 12, 1985, the reorganization court entered Order No. 832 which confirmed the reorganization plan and set September 10, 1985 as the “bar date” for filing post-petition or administrative claims against the Milwaukee Road, the bankruptcy estate and its Trustee in accordance with section 77 of the Bankruptcy Act of 1898 and Bankruptcy Rule 8-401(b)(l) (1979). On September 9, 1985, one day before the deadline, Soo filed a proof of claim alleging the Milwaukee Road was hable to Soo on grounds of “contribution, indemnification, and breach of contract arising out of the asset purchase agreement ... dated April 6, 1984, as amended (“APA”), approved by the court by Order No. 809, dated February 19, 1985.”

On November 12, 1985, the reorganization court entered a consummation order (Order No. 866) which released the debtor Milwaukee Road from bankruptcy and discharged and released all claims that were not the subject of timely proofs of claim. The debtor was renamed “CMC Real Estate Corp.” on the consummation date, November 25, 1985.

Since the asset purchase agreement did not contain a price term for the sale of the [629]*629core rail assets, the parties continued to negotiate the term after the sale was closed. The negotiations continued even after the consummation order was entered and the reorganization proceedings were concluded. The parties eventually reached an agreement on July 31, 1986, which the court approved on September 12, 1986. (Order No. 917). See In re Chicago, Milwaukee, St. Paul & Pacific Railroad Co., 891 F.2d 169, 161 (7th Cir.1989). Paragraph 5 of the settlement agreement provides that “[u]pon closing, all of Soo Line’s proofs of claim filed against the Trustee, the Milwaukee or CMC Real Estate ... are dismissed with prejudice and without costs.” Paragraph 13 of the settlement agreement further provided:

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Bluebook (online)
165 B.R. 625, 24 U.C.C. Rep. Serv. 2d (West) 1242, 1994 U.S. Dist. LEXIS 1408, 1994 WL 69608, Counsel Stack Legal Research, https://law.counselstack.com/opinion/soo-line-railroad-v-cmc-real-estate-corp-ilnd-1994.