Litigation Team Upholds Multiple Victories in the Third Circuit in Multimillion Dollar Lease Dispute for Norfolk Southern and Wheeling & Lake Erie Railway

A litigation team including shareholders Samuel W. Braver, Kathleen Jones Goldman and Stanley J. Parker, counsel, Bradley J. Kitlowski and associate, Eric M. Spada followed up their trial court victory for clients Norfolk Southern Railway Company (NSR), a subsidiary of Norfolk Southern Corporation (NYSE: NSC) and Wheeling & Lake Erie Railway Company (W&LE) with a precedential decision from the United States Court of Appeals for the Third Circuit. The decision affirmed every aspect of the District Court’s rulings for our clients.

The litigation, spanning six years, arose from multiple disputes concerning the interpretation of provisions to a 99-year lease (renewable in perpetuity) entered into in 1962 by predecessors to the parties. The lease covers railroad property running through western Pennsylvania, West Virginia and Ohio. Among other issues, the parties disputed whether additional rent and attorneys’ fees were owed under the lease, whether Norfolk Southern was in default for failure to pay them, and whether the lease required that Norfolk Southern pay, or record as indebtedness to Pennsylvania & West Virginia Railroad (PWV), proceeds from licenses, easements, and coal, oil and gas leases.  

For years, PWV made key admissions in SEC filings, public disclosures and in other statements that established the parties’ true understanding of their relationship and their obligations under the lease beyond issues surrounding contract interpretation. The case raised corporate organization issues after PWV formed Power REIT, its parent, through a reverse triangular merger in an effort to avoid covenants in the lease restricting PWV’s business and allowing it to pursue alternative energy ventures. In addition, the case presented tax issues concerning what the parties referred to as a “settlement account” to record indebtedness as required by the terms of the lease. During the litigation, shareholders Bruce Booken, in the firm’s Tax section, Tom Thompson, Corporate, and Carl Staiger, Energy, provided subject matter expertise to the litigation team and the clients relative to many novel and complex issues.

The litigation began in 2011 when our team initiated a declaratory judgment action in the United States District Court for the Western District of Pennsylvania in order to thwart the current management’s efforts to manufacture defaults of the lease and seize control of the property. The pleadings were supplemented and amended numerous times, amounting to 20 separate claims and counterclaims of fraud and breach of contract between the parties. Portions of this case were heard by three trial judges in two states. Ultimately, after two rounds of summary judgment and a trial, the Buchanan team was victorious on every count and claim asserted.

Our litigation team’s trial court victory was affirmed by the United States Court of Appeals for the Third Circuit, which issued a precedential opinion upholding the District Court’s summary judgment and trial verdict in favor of our clients Norfolk Southern and the Wheeling & Lake Erie Railway.

This litigation was heavily covered in the media. Beyond having multiple millions of dollars in damages at stake, the clients risked losing control of a significant rail line corridor. In reaction to the ruling, the clients touted the attorneys’ tenacity, legal expertise, client service, and strategic judgment as the reasons for this very successful outcome.