Opinion
Cause No. IP99-1493-C-H/G
August 22, 2000.
ENTRY ON PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT
Plaintiff Canada Southern Railway Company, Inc. agreed to lease two locomotives to defendants Cascade Railcorp, Inc. and Nobles Rock Railroad. Canada Southern claims that defendants have defaulted by failing to make payments as stipulated in the lease. Canada Southern has moved for summary judgment pursuant to Fed.R.Civ.P. 56. As explained below, Canada Southern's motion is denied because the lease is ambiguous as to whether the lessor or lessee bore responsibility for repairs which the locomotives needed before they could be operable, and which were listed in the lease.
Summary Judgment Standard
The purpose of summary judgment is to determine whether a case or issue can be resolved without a trial. Summary judgment is appropriate when "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).
In determining whether a genuine issue of material fact exists, the court must construe all evidence in the light most favorable to and draw all reasonable inferences in favor of the non-moving party. Henderson v. Sheahan, 196 F.3d 839, 848 (7th Cir. 1999); Estate of Cole v. Fromm, 94 F.3d 254, 257 (7th Cir. 1996). However, a non-moving party must do more than "show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). Summary judgment must be granted "if no reasonable jury could find for the party opposing the motion." Hedberg v. Indiana Bell Tel. Co., 47 F.3d 928, 931 (7th Cir. 1995), citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). Interpretation of written contracts is often a matter suitable for summary judgment motions. However, if the written contract is ambiguous and requires evidence outside the document for interpretation, summary judgment is less promising as a means for resolving the matter.
Discussion
The facts set forth in this entry are undisputed or reflect the evidence in the record in the light reasonably most favorable to defendants, as the non-moving parties. On January 4, 1999, Canada Southern, as lessor, and Cascade and Nobles Rock, as lessees, entered into a locomotive lease agreement (the "Lease") covering two used locomotives. When the parties signed the Lease, the locomotives were located at the JM Locomotive Shop in Cleveland, Ohio, where certain repair work was to be completed. The Lease includes in Exhibit B a list of repairs needed for each locomotive.
There is some ambiguity as to whether there are two lessees or one in this Lease. The first paragraph of the Lease refers to the lessee as "Cascade Rail Corp, Incorporated, a Nevada corporation, operating as Nobles Rock Railroad (jointly Lessee)." The signature page has two signatures for the Lessee (although both by the same person), one for "Cascade Rail Corp" and the other for Nobles Rock Railroad. The parties' complaint and answer treat Cascade and Nobles Rock as two separate corporations, so the court is treating them as two separate corporations.
According to the Lease, after the repairs were to be completed at JM, the locomotives were to be transported to defendants at defendants' expense. See Lease ¶ 2. Locomotive 5913 was delivered to defendants in late May 1999, four and a half months after the Lease was signed. Some of the specified repairs were not completed, including a "92-day test" needed before the locomotive could be operated lawfully. See Tennant Aff. ¶ 12. Locomotive 77 was never delivered. Id., ¶ 9.
The Lease requires the lessee to pay total rent for both units in the amount of $4,000 per month for 60 months. See Lease ¶ 14. The Lease also provides that defendants have an option to purchase the locomotives after 60 months for a total payment of $70,000, at least as long as the lessee was not in default. Lease ¶ 16. The defendants made the first several rental payments, but then stopped making them. The summary judgment papers do not indicate exactly how many monthly payments were made or exactly when the defendants stopped making payments.
Canada Southern contends the Lease was merely a financing device and that mechanical problems or delays in repairs at the JM shop do not excuse defendants from their obligation to pay the lease amounts. The Lease provides that, in the event of default, "all sums due under this agreement shall become immediately payable in full." Lease ¶ 12(b)(i). Relying on this provision, Canada Southern contends that the defendants owe $224,000 plus late fees in the amount of $100 per delinquent payment, accruing through the date Canada Southern receives payment in full. Felix Aff., ¶ 8.
Defendants contend they are not in default because Canada Southern violated the Lease by failing to deliver locomotive 77 at all, by delivering locomotive 5913 late, and by failing to complete the repairs set forth in Exhibit B of the Lease. Tennant Aff. ¶ 7. Defendants also contend they did not accept delivery of locomotive 5913 because they inspected it, reported defects, and gave Canada Southern an opportunity to cure, which it failed to do. See Tennant Aff. ¶¶ 11, 13. According to defendants, locomotive 5913 could not be legally operated on railways at the time it was delivered. Tennant Aff. ¶ 12. Canada Southern contends that Powell Felix "[c]ommunicated with the defendants and confirmed that the Defendants were at all times responsible for any repairs needed to the Locomotives," and that pursuant to the Lease, Canada Southern made no warranty as to the condition or suitability of the locomotives, which the Defendant accepted after having the opportunity to inspect the locomotives.
A contract is ambiguous if "reasonably intelligent people could honestly find the contract's provisions susceptible to more than one interpretation." INB Banking Co. v. Opportunity Options, Inc., 598 N.E.2d 580, 582 (Ind.App. 1992). The court finds that the Lease is ambiguous on the critical question here, which is who was responsible for seeing that the repairs set forth in Exhibit B were completed in a timely and proper manner so that the locomotives would be operable. That question cannot be answered by looking within the four corners of the document. Canada Southern contends the Lease was an "as-is" agreement in which the defendants accepted the used locomotives in inoperable condition and were expected to bear the expense of the initial repairs. To support this contention, Canada Southern relies on Paragraph 7, which provides: "Lessee agrees to keep the units in good repair and operating condition, allowing for reasonable wear and tear. Lessee agrees to pay all expenses of maintaining and repairing the Units, including labor, material, lubrication, parts and other similar expenses." In addition, Paragraph 16 provides that Canada Southern "makes no warranties expressed or implied as to the condition or suitability of the Units. Lessee acknowledges that [Canada Southern] has afforded Lessee the opportunity to examine and inspect the Units for the purpose of making any such determination."
Defendants rely on Paragraph 2 of the Lease, which states that at the time of the agreement, the units were located at JM Locomotive shop, ". . . where certain repair work is to be performed as outlined in Exhibit B which is hereby made a part of this Agreement." Exhibit B lists a "92-day test" for both locomotives, which defendants say is necessary for the locomotives to get a "blue card" that allows them to be operated lawfully on the railways. Paragraph 2 does not specify who is responsible for seeing that the repairs are completed. However, if Canada Southern's view of Paragraphs 7 and 16 is correct, then it is difficult to see what purpose Paragraph 2 and Exhibit B serve. That is, if the parties intended Paragraph 7 and 16 to apply so broadly as to require defendants to pay for and be responsible for the initial repairs needed to put both locomotives in workable condition, then there would have been no need for the separate treatment of those initial repairs in Paragraph 2 and Exhibit B. Canada Southern's view of Paragraphs 7 and 16 would reduce a portion of Paragraph 2 and all of Exhibit B to irrelevant surplusage. Such an interpretation is to be avoided under Indiana law. See, e.g., Tippmann Refrigeration Const. v. Erie-Haven, Inc., 459 N.E.2d 407, 409 (Ind.App. 1984) (reversing summary judgment based on contract interpretation that rendered key provision mere surplusage).
Because the Lease is ambiguous as to the critical question of who was responsible for the initial repairs set forth in Exhibit B, and because the facts the court must accept at this stage show that at least some key repairs listed in Exhibit B were never completed, the court cannot determine as a matter of law that defendants are in default on the Lease. Canada Southern's motion for summary judgment is therefore denied. The court trial remains scheduled for October 16, 2000, with a final pretrial conference on October 6, 2000, at 1:30 p.m.
So ordered.