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NATIONAL RAILROAD PASSENGER CORPORATION v. EXPRESSTRAK

December 5, 2002

NATIONAL RAILROAD PASSENGER CORPORATION, PLAINTIFF,
V.
EXPRESSTRAK, L.L.C., DEFENDANT. EXPRESSTRAK, L.L.C., PETITIONER, V. NATIONAL RAILROAD PASSENGER CORPORATION, RESPONDENT.



The opinion of the court was delivered by: Reggie B. Walton, United States District Judge

MEMORANDUM OPINION

This matter comes before the Court upon numerous filings by both parties, all revolving around the central issue of whether certain disputes arising from the parties' contractual relationship must be submitted to arbitration. Specifically, ExpressTrak, L.L.C. ("ExpressTrak") asserts that the disputes raised in National Railroad Passenger Corporation's ("Amtrak") complaint must be submitted to arbitration pursuant to an arbitration clause contained in a document that is entitled "Agreement Between Amtrak and ExpressTrak For Temperature Controlled Perishables Express Transportation" ("Operating Agreement"), which is the original agreement that defined the parties' contractual relationship. Amtrak, on the other hand, submits that the disputes between the parties arise from leases that were subsequently executed, which contain provisions rescinding the Operating Agreement's arbitration clause. A corollary issue presented to the Court is ExpressTrak's position that if the Court orders that this case to be sent to arbitration, it should also issue an injunction requiring Amtrak to continue conducting business with ExpressTrak pursuant to a clause contained in the Operating Agreement. Upon consideration of the parties' submissions and for the reasons set forth below, the Court will order that this case be referred to arbitration and will require that Amtrak maintain its business operations with ExpressTrak pending a decision by the designated arbitrator.

I. Factual Background

ExpressTrak was purportedly established "for the exclusive purpose of entering into a joint venture with Amtrak to provide express (non-passenger) services in conjunction with Amtrak's passenger service." Petition to Compel Arbitration and for an Injunction Pending Arbitration ("Pet. for Arb.") at 2. On October 27, 1999, after approximately three years of negotiations, the parties executed the Operating Agreement that provides "for the transportation of perishable goods (fruits, vegetables, meat, cheese, and other food products) in temperature-controlled rail cars ("Express Cars"), which were to be attached to Amtrak's inter-city passenger trains." Id. at 2-3. Under this Operating Agreement, which envisioned the use of up to 350 Express Cars, ExpressTrak committed to acquiring railcar "hulks" that would be refurbished to Amtrak's standards in order to convert them into Express Cars. Id. at 3-4. Amtrak states that the Operating Agreement "contemplated that ExpressTrak would cause the refurbished railcars to be conveyed to a third-party lessor[, who] . . . would in turn lease the [Express] Cars to Amtrak, and Amtrak would [then] sublease the [Express] Cars to ExpressTrak." Complaint for Declaratory Relief and for Damages, and Request for Speedy Hearing ("Compl.") at 3. Pursuant to this arrangement, "Amtrak would make the lease payments to the third-party lessor and ExpressTrak would simultaneously pay an equal amount to Amtrak." Id.

After the Operating Agreement was executed, Amtrak secured financing from ORIX Financial Services, Inc. ("Orix") for 110 railcars. Id. On May 15, 2001, Orix and Amtrak executed a document entitled "Lease of Railroad Equipment (Amtrak Lease No. 01-A)" ("Headlease"), which required Orix to provide funding to Amtrak for the purchase of the 110 railcars. Id. On this same date, Amtrak and ExpressTrak executed a document entitled "Sublease of Railroad Equipment (Amtrak Sublease No. 01-AS)" ("Sublease"), which provided that Amtrak would lease the 110 railcars to ExpressTrak. Id. A total of 55 railcars were subsequently delivered to ExpressTrak. Id. However, on November 16, 2001, Orix apparently refused to finance the remaining 55 railcars. Id. at 5. In response to this occurrence, Amtrak and ExpessTrak signed an additional agreement ("Direct Lease") on November 30, 2001, which provided for Amtrak to purchase the railcars directly from the refurbishing vendor and then lease them to ExpressTrak. Id. The Direct Lease provides that "Amtrak and ExpressTrak shall have substantially the same rights and obligations with respect to the railcars subject to the Sublease." Pet. for Arb., Exhibit ("Ex.") 5 at 1.*fn1

During the course of the contractual arrangement set forth above, the parties each contend that the other breached a contractual obligation. Amtrak asserts that ExpressTrak defaulted under the terms of the leases when it failed to make timely lease payments on two separate occasions. Compl. at 5-6. ExpressTrak, on the other hand, asserts that Amtrak has been in default since the Operating Agreement was originally executed by failing, among other things, to secure the financing for the acquisition of the additional 240 Express Cars envisioned by the Operating Agreement and the necessary facilities and "slots" for its railcars. Pet. for Arb. at 6.

(A) The Operating Agreement

The Operating Agreement sets forth the parties' relationship regarding their "wish to commence temperature controlled perishable service using equipment that ExpressTrak will acquire and refurbish in accordance with Amtrak plans and specifications, operating in train slots committed to ExpressTrak by Amtrak on its intercity passenger trains." Pet. for Arb., Ex. 1 (Operating Agreement) at 1. Particularly important to the issues before this Court is Section 6.6 ("Disputes") of the Operating Agreement, which specifies the manner by which the parties are required to resolve any disputes. Section 6.6(a) provides:

Controversies Subject to Arbitration. Any claim or controversy between ExpressTrak and Amtrak which cannot be resolved by the parties concerning the interpretation, application, or implementation of this agreement shall be resolved by submitting it to arbitration pursuant to the provisions of this section.

Id., Ex. 1 at 26. Section 6.6 also includes provisions regarding the arbitration procedure, the costs of arbitration, and the enforcement of an arbitrator's award. Finally, and once again particularly pertinent to the issues before this Court, is Section 6.6(e) which provides:

Pending Resolution. Except as provided specifically in other sections of this Agreement, while such arbitration proceeding is pending, the business, the operations to be conducted, physical plant to be used, and compensation for services under this Agreement, to the extent that they are the subject of such controversy, shall continue to be transacted, used, and paid in the manner and form existing prior to the arising of such controversy, unless the arbitrators shall make a preliminary ruling to the contrary.

Id., Ex. 1 at 28. While the Operating Agreement memorialized the parties' contractual relationship regarding the Express Cars, the Operating Agreement clearly envisioned the execution of subsequent agreements between Amtrak, ExpressTrak, and third-party lessors, related to the specifics concerning the leasing of the Express Cars. Section 1.8 ("Ownership and Payment for Express Cars") of the Operating Agreement provides that:

If the prototype Express Car(s) meets the test standards . . . and [if the cost of the Express Cars meets certain criteria] . . . ExpressTrak shall procure the Express Cars for the expanded fleet program. Subject to the execution of a lease between Amtrak and third party lessor, the terms of which shall be approved by ExpressTrak, ExpressTrak will cause the Express Cars to be conveyed to the third party lessor, who will lease the Express Cars to Amtrak, and Amtrak will sublease them to ExpressTrak. The prototype cars shall be purchased by the third party lessor at ExpressTrak's costs in acquiring and refurbishing them . . . and included in the lease and sublease. ExpressTrak shall make monthly payments to Amtrak equal to the amount of Amtrak's monthly lease payments to the third party . . .

Id., Ex. 1 at 6-7 (emphasis added). And, as discussed above, Section 1.8 of the Operating Agreement was implemented when Orix and Amtrak executed the Headlease, and then, in turn, Amtrak and ExpressTrak executed the Sublease.

(B) The Sublease

As envisioned by the Operating Agreement, the Sublease sets forth, in detail, the specifics of the lease agreement for the acquisition of the Express Cars. Throughout the Sublease there are numerous references to the Operating Agreement, as the Sublease incorporates Operative Documents, which it defines "collectively [as] the Headlease, this Lease, any Lease Supplement, the Purchase Agreement Assignment and the Operating Agreement." Id., Ex. 4 at 5. Specifically, Section 21.2 of the Sublease states:

Effect and Modification of this Lease. Except for the other Operative Documents, this Lease exclusively and completely states the rights of the Lessor and Lessee with respect to the leasing of the Units and supercedes all ...

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