PCS Phosphate Co., Inc. v. Norfolk Southern Corp.

PUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

PCS PHOSPHATE COMPANY, 

INCORPORATED,

Plaintiff-Appellee,

v.

 No. 08-1266

NORFOLK SOUTHERN CORPORATION;

NORFOLK SOUTHERN RAILWAY

COMPANY,

Defendants-Appellants.



PCS PHOSPHATE COMPANY, 

INCORPORATED,

Plaintiff-Appellant,

v.

 No. 08-1285

NORFOLK SOUTHERN CORPORATION;

NORFOLK SOUTHERN RAILWAY

COMPANY,

Defendants-Appellees.



Appeals from the United States District Court

for the Eastern District of North Carolina, at Greenville.

James C. Dever III, District Judge.

(4:05-cv-00055-D)

Argued: January 27, 2009

Decided: March 4, 2009

2 PCS PHOSPHATE v. NORFOLK SOUTHERN

Before WILLIAMS, Chief Judge, WILKINSON, Circuit

Judge, and Arthur L. ALARCÓN, Senior Circuit Judge of

the United States Court of Appeals for the Ninth Circuit,

sitting by designation.

Affirmed by published opinion. Judge Wilkinson wrote the

opinion, in which Chief Judge Williams and Judge Alarcón

joined.

COUNSEL

ARGUED: Craig Thomas Merritt, CHRISTIAN & BAR-

TON, L.L.P., Richmond, Virginia, for Appellants/Cross-

Appellees. Roy Bruce Thompson, II, PARKER, POE,

ADAMS & BERNSTEIN, L.L.P., Raleigh, North Carolina,

for Appellee/Cross-Appellant. ON BRIEF: R. Braxton Hill,

IV, CHRISTIAN & BARTON, L.L.P., Richmond, Virginia,

for Appellants/Cross-Appellees. Charles E. Raynal, IV, PAR-

KER, POE, ADAMS & BERNSTEIN, L.L.P., Raleigh, North

Carolina, for Appellee/Cross-Appellant.

OPINION

WILKINSON, Circuit Judge:

This case involves a dispute between a rail carrier and a

mine owner over payment for the relocation of the rail line

that serves the mine. We affirm the district court’s judgment

that the rail carrier is liable for the payment pursuant to a cov-

enant in the original deeds of easement granting the carrier’s

predecessor-in-interest a right-of-way across the mine’s prop-

erty. We hold that enforcement of the covenant is not pre-

empted by the Interstate Commerce Commission Termination

PCS PHOSPHATE v. NORFOLK SOUTHERN 3

Act, 49 U.S.C. § 10101 et seq., because it is not the sort of rail

"regulation" contemplated by the statute and, as a voluntary

agreement, does not "unreasonably interfere" with rail trans-

portation. At the same time, to honor the parties’ original bar-

gain, we reject plaintiff’s attempt to change the terms of the

agreement by seeking treble damages for breach of the agree-

ment under the North Carolina Unfair and Deceptive Trade

Practices Act, N.C. Gen. Stat. § 75-1.1.

I.

A.

The plaintiff in this case, PCS Phosphate Company, Inc.

("PCS") owns and operates the world’s largest phosphate

mine. The mine was projected to produce over 3 million tons

of phosphate annually. PCS is the successor-in-interest to the

prior owners of the mine: Texas Gulf Sulphur Company and

North Carolina Phosphate Corporation. As its predecessors

did, PCS relies on rail transportation to ship raw materials and

products to and from the mine.

The defendants are Norfolk Southern Railway Company

and its parent corporation Norfolk Southern Railway Corpora-

tion (collectively referred to as "Norfolk Southern"). Norfolk

Southern currently operates the rail line that serves PCS and

received over $65 million in payments from PCS for ship-

ments over the line between 2001 and 2006. Norfolk Southern

is the successor-in-interest to Norfolk Southern Railway

Company ("Old NS")—the rail carrier that originally built and

operated the line.

Old NS began constructing the 31.5 mile Lee Creek Rail

Line to serve the mine in 1965 after receiving approval from

the Interstate Commerce Commission. The last five miles of

the line needed to cross land jointly owned by the mining cor-

porations and others, so the land owners granted Old NS five

deeds of easement to build the line across the land.

4 PCS PHOSPHATE v. NORFOLK SOUTHERN

The first two deeds were executed on June 29, 1965 and

used identical language. Another three deeds were subse-

quently executed using slightly different language. The deeds

were all recorded in the Beaufort County Register of Deeds.

They explicitly granted the easements to Old NS and "its suc-

cessors and assigns" for as long as the easements "shall be

used for railroad purposes and shall not be abandoned."

The deeds also contained multiple covenants. Of relevance

here, each of the deeds contained a covenant whereby Old NS

agreed to relocate the rail line when the mine owners deemed

it necessary to mine operations. The first two deeds stated:

If, after ten (10) years from the date of this instru-

ment, either Grantor determines that all or any part

of said right of way and easement interferes with its

anticipated mining or processing operations in the

Beaufort County, North Carolina area, then said

Grantor shall notify Grantee in writing of its desire

that the right of way and track be moved . . . and

Grantors shall provide Grantee with a right of way

and easement over said new location and Grantee at

its expense shall relocate the said track on the said

new right of way . . .

(emphasis added). The last three deeds contained a similar

provision which stated, "[Old NS], at its expense, shall . . .

relocate the said track on the said new right of way." With

respect to the new location for the track, the deeds required

that engineers from the mining company and Old NS would

jointly determine the new location so that it would avoid "ex-

cessive curvature, grade and distances." The three later deeds

also required that the new location "not necessitate excessive

or unreasonable filling or bridge building" and that the "relo-

cation will not affect the ability of [Old NS] to comply with

its legal obligation to serve any existing customer then on its

line."

PCS PHOSPHATE v. NORFOLK SOUTHERN 5

Old NS completed the line and provided rail service as the

sole carrier on the line until 1977. At that point another carrier

began operating after it was granted access to the line as a

condition of Norfolk Southern’s acquisition of Old NS. In

1985, the mining corporations merged, and, in 1995, the new

corporation was acquired and changed its name to PCS.

Years later, PCS conducted studies that confirmed it would

need to mine under the rail line. It thus consulted engineers

and drafted a proposal to relocate the line. After presenting

the proposal to Norfolk Southern, PCS formally requested by

letter on November 20, 2003, that Norfolk Southern pay to

relocate the necessary portion of the line by mid-2007 so that

the line would not interfere with mining operations.

Throughout discussions about the relocation, Norfolk

Southern refused to pay to relocate the line. In a letter dated

December 16, 2004, Norfolk Southern formally refused to

relocate the line and explained that it was unsuccessful in

securing third party funding for the relocation and therefore

could not "economically justify bearing the costs of the relo-

cation project." Furthermore, due to the decreased profitabil-

ity of the line, Norfolk Southern stated that if PCS would not

fund the relocation itself, it would seek permission from the

Surface Transportation Board ("STB") to abandon the line.

Norfolk Southern was aware that if it successfully abandoned

the line, PCS would not be able to continue operating the

mine because rail access was necessary to ship raw materials

and products to and from the mine.

In an effort to mitigate its damages, PCS began construct-

ing the relocated line at its own expense. Throughout the con-

struction, PCS engineers sent details about the relocation to

Norfolk Southern which initially stated in a letter that "the

route proposed by PCS Phosphate is in general terms accept-

able," and never subsequently objected to the proposal.

6 PCS PHOSPHATE v. NORFOLK SOUTHERN

B.

On May 6, 2005, PCS filed this suit in the United States

District Court for the Eastern District of North Carolina prem-

ised on diversity jurisdiction, 28 U.S.C. § 1332. PCS claimed

that Norfolk Southern was liable for the cost of the relocation

due to breach of contract, breach of easement covenants, and

unjust enrichment. In addition, PCS claimed that Norfolk

Southern was liable for treble damages and attorneys’ fees

under the North Carolina Unfair and Deceptive Trade Prac-

tices Act ("UDTPA"), N.C. Gen. Stat. § 75-1.1, id. at § 75-

16.1.

While the suit was pending, on November 17, 2005, Nor-

folk Southern filed an application with the STB to abandon

the Lee Creek Line under 49 U.S.C. § 10903. On December

7, 2005, the STB rejected the application as "substantially

incomplete and defective" because (1) it was premised on

Norfolk Southern’s liability for the relocation cost, but the lia-

bility needed to be resolved by a court, (2) it was not joined

by the other rail carrier that serves the line, and (3) the neces-

sary environmental report was deficient. See Norfolk S. Ry.

Co.—Abandonment—In Beaufort County, NC, 2005 WL

3308783 (STB December 7, 2005). In its application, Norfolk

Southern requested that the STB declare this litigation pre-

empted under 49 U.S.C. § 10501(b). The STB did not defini-

tively rule on this issue, but it stated that "at this point it is not

clear that the court action would interfere with our exclusive

jurisdiction over rail transportation, given [Norfolk South-

ern’s] alleged consent to the parties’ purported contractual

arrangement." See Norfolk S. Ry. Co.—Abandonment—In

Beaufort County, NC, 2005 WL 3308783 at *1.

Meanwhile, in the district court, after discovery was com-

pleted, PCS filed a motion for partial summary judgment on

the breach of contract and breach of easement covenants

claims, and Norfolk Southern filed a motion for summary

judgment on all claims on the grounds that they were pre-

PCS PHOSPHATE v. NORFOLK SOUTHERN 7

empted by the Interstate Commerce Commission Termination

Act ("ICCTA"), 49 U.S.C. § 10501(b), and lacked merit in

any event. On September 28, 2007, the court held that PCS’s

breach of contract, breach of covenants, and unjust enrich-

ment claims were not preempted by the ICCTA, but the

UDTPA claim was preempted. See PCS Phosphate Co., Inc.

v. Norfolk S. Corp., 520 F. Supp. 2d 705, 716-17 (E.D.N.C.

2007). On the merits of the remaining claims, the court held

that PCS had established that Norfolk Southern was liable for

breach of contract and breach of covenants, but PCS’s unjust

enrichment claim failed because it was simply a re-

characterization of its other claims. Id. at 718-20. As an alter-

native to its holding that the UDTPA claim was preempted,

the court also held that PCS’s UDTPA claim failed on the

merits because it too was simply a re-characterization of

PCS’s breach of agreement claims. Id. at 717-18.

Because the court could not determine the amount of Nor-

folk Southern’s liability for breach of contract and breach of

easement covenants on the summary judgment record, the

court held a bench trial to determine damages on January 25,

2007. The court awarded a total of $18,790,893.90 in dam-

ages, which included $3,753,366.77 in prejudgment interest

under N.C. Gen. Stat. § 24-5(a).

Both parties appeal. Norfolk Southern appeals the district

court’s liability finding, damages calculation, and holding that

the breach of contract and breach of covenants claims were

not preempted by the ICCTA. PCS appeals the district court’s

dismissal of its UDTPA claim on the merits and on preemp-

tion grounds.1 We review the district court’s rulings on sum-

mary judgment de novo. See Nourison Rug Corp. v.

Parvizian, 535 F.3d 295, 299 (4th Cir. 2008). We review the

court’s conclusions of law at the bench trial de novo and its

1

Because PCS does not appeal the district court’s dismissal of its unjust

enrichment claim, that claim is not before us.

8 PCS PHOSPHATE v. NORFOLK SOUTHERN

factual findings there for clear error. See Roanoke Cement Co.

v. Falk Corp., 413 F.3d 431, 433 (4th Cir. 2005).

II.

A.

Norfolk Southern contends that PCS’s claims for breach of

contract and breach of easement covenants are preempted by

the ICCTA. The Supreme Court has recognized that federal

law can preempt state law expressly or by implication and that

"the purpose of Congress is the ultimate touchstone in every

pre-emption case." Altria Group, Inc. v. Good, 129 S.Ct. 538,

543 (2008) (internal quotation marks omitted).

We first ask whether the ICCTA expressly preempts PCS’s

breach of agreement claims. The "plain wording" of the stat-

ute "necessarily contains the best evidence of Congress’ pre-

emptive intent," see CSX Tansp., Inc. v. Easterwood, 507 U.S.

658, 664 (1993), but because an express preemption clause

may not always "immediately end the inquiry," we also look

to the statute’s structure and purpose, see Altria Group, 129

S.Ct. at 543.

The ICCTA was passed in 1995 to terminate the Interstate

Commerce Commission and replace it with the Surface Trans-

portation Board. The "general jurisdiction" provision of the

ICCTA states:

The jurisdiction of the Board over—

(1) transportation by rail carriers, and the remedies

provided in this part with respect to rates, classifica-

tions, rules (including car service, interchange, and

other operating rules), practices, routes, services, and

facilities of such carriers; and

(2) the construction, acquisition, operation, abandon-

ment, or discontinuance of spur, industrial, team,

PCS PHOSPHATE v. NORFOLK SOUTHERN 9

switching, or side tracks, or facilities, even if the

tracks are located, or intended to be located, entirely

in one State,

is exclusive. Except as otherwise provided in this

part, the remedies provided under this part with

respect to regulation of rail transportation are

exclusive and preempt the remedies provided under

Federal or State law.

49 U.S.C. § 10501(b) (emphasis added).

The express preemption clause focuses specifically on "reg-

ulation." Id. The STB’s interpretation of this provision, on

which courts rely, see Green Mountain R.R. Corp. v. Ver-

mont, 404 F.3d 638, 642 (2d Cir. 2005), likewise focuses on

the regulatory nature of the remedies preempted. See CSX

Transp., Inc.—Petition for Declaratory Order, 2005 WL

1024490, at *2 (STB May 3, 2005) (one of two "broad cate-

gories" of actions preempted by § 10501(b) is "state or local

regulation of matters directly regulated by the Board"). See

also Adrian & Blissfield Ry. Co. v. Vill. of Blissfield, 550 F.3d

533, 540 (6th Cir. 2008) (quoting CSX Transp., Inc.); New

Orleans & Gulf Coast Ry. Co. v. Barrois, 533 F.3d 321, 332

(5th Cir. 2008) (same); Emerson v. Kansas City S. Ry. Co.,

503 F.3d 1126, 1130 (10th Cir. 2007) (same). As the Eleventh

Circuit put it, "Congress narrowly tailored the ICCTA pre-

emption provision to displace only ‘regulation,’ i.e., those

state laws that may reasonably be said to have the effect of

‘managing’ or ‘governing’ rail transportation, while permit-

ting the continued application of laws having a more remote

or incidental effect on rail transportation." Fla. E. Coast Ry.

Co. v. City of W. Palm Beach, 266 F.3d 1324, 1331 (11th Cir.

2001) (quoting Black’s Law Dictionary 1286 (6th ed. 1990)).

Voluntary agreements between private parties, however,

are not presumptively regulatory acts, and we are doubtful

that most private contracts constitute the sort of "regulation"

10 PCS PHOSPHATE v. NORFOLK SOUTHERN

expressly preempted by the statute.2 If contracts were by defi-

nition "regulation," then enforcement of every contract with

"rail transportation" as its subject would be preempted as a

state law remedy "with respect to regulation of rail transporta-

tion." 49 U.S.C. § 10501(b). Given the statutory definition of

"transportation," this would include all voluntary agreements

about "equipment of any kind related to the movement of pas-

sengers or property, or both, by rail." See 49 U.S.C.

§ 10102(9) (defining "transportation"). If enforcement of

these agreements were preempted, the contracting parties’

only recourse would be the "exclusive" ICCTA remedies. But

the ICCTA does not include a general contract remedy.3 Such

a broad reading of the preemption clause would make it virtu-

ally impossible to conduct business, and Congress surely

would have spoken more clearly, and not used the word "reg-

ulation," if it intended that result.

The history and purpose of the ICCTA support the view

that Congress did not intend to preempt all voluntary agree-

ments concerning rail transportation. The ICCTA was enacted

in 1995 to deregulate the rail industry by eliminating direct

economic regulation of railroads by the states. See Fla. E.

Coast Ry. Co., 266 F.3d at 1337-39. The legislative history

reflects this purpose. Congressional reports note that

2

The preemption text at issue here differs from the phrase "all other

law" interpreted in Norfolk and W. Ry. Co. v. American Train Dispatchers

Ass’n, 499 U.S. 117 (1991), to include contractual obligations. The Court

held that the exemption for mergers approved by the Interstate Commerce

Commission from "the antitrust laws and all other law," under 49 U.S.C.

§ 11341(a) of the predecessor statute to the ICCTA included exemption

from contractual obligations. Id. at 133. That section is now codified at 49

U.S.C. § 11321(a) and it is not at issue in this case. See also Fla. E. Coast

Ry. Co., 266 F.3d at 1331 (noting that § 10501(b) is narrower than the

§ 11341(a) "all other law" provision).

3

49 U.S.C. § 11704 provides a cause of action for a person injured by

a rail carrier that "does not obey an order of the Board," id. at § 11704(a),

and for a person that is injured by "an act or omission of [a rail] carrier

in violation of this part," id. at § 11704(b). Neither of these remedies

would apply to breach of a private contract.

PCS PHOSPHATE v. NORFOLK SOUTHERN 11

§ 10501(b) was meant to "clarify[ ] that the exclusivity is lim-

ited to remedies with respect to rail regulation—not State and

Federal law generally," H.R. Conf. Rep. 104-422, at *167

(1995), reprinted in 1995 U.S.C.C.A.N. 850, 852, and "to

reflect the direct and complete pre-emption of State economic

regulation of railroads," H.R. Rep. 104-311, at *96 (1995),

reprinted in 1995 U.S.C.C.A.N. 793, 807 (emphasis added).

The Senate Committee Report notes that rail carriers "rely on

a nationally uniform system of economic regulation" and that

"[s]ubjecting rail carriers to regulatory requirements that vary

among the States" would undermine the national rail service.

S. Rep. 104-176, at *6 (1995) (emphases added). These dis-

cussions of § 10501(b), which did not mention voluntary

agreements, suggest that such agreements do not fall into the

core of economic regulation that the ICCTA was intended to

preempt.

In examining a statute with a similar deregulatory purpose,

the Supreme Court held that the Airline Deregulation Act did

not preempt breach of contract claims. See American Airlines,

Inc. v. Wolens, 513 U.S. 219, 222 (1995). The language of the

statute differs from the ICCTA, but the Court’s reasoning

only fortifies our skepticism about whether the ICCTA was

intended to preempt all voluntary agreements about rail trans-

portation. In explaining that a state does not "enact or enforce

any law, rule, regulation, standard, or other provision having

the force and effect of law" when it enforces "privately

ordered obligations," the Court noted that the phrase "‘law,

rule, regulation, standard, or other provision’ . . . connotes

official government-imposed policies, not the terms of a pri-

vate contract." Id. at 229 n.5 (internal quotations omitted).

Here, although the word "regulation" is not used in precisely

the same way, it also "connotes official government-imposed

policies." The Wolens Court also noted that the phrase "‘relat-

ing to rates, routes, or services’ is most sensibly read, in light

of the ADA’s overarching deregulatory purpose, to mean

States may not seek to impose their own public policies or

theories of competition or regulation on the operations of an

12 PCS PHOSPHATE v. NORFOLK SOUTHERN

air carrier." Id. (internal quotation marks omitted). Here, the

express preemption provision only applies when the relation-

ship between the remedy and rail transportation is one of

"regulation." This relationship must be read, as it was in

Wolens, in light of the Act’s deregulatory purpose.

The STB itself has emphasized that courts, not the STB, are

the proper forum for contract disputes, even when those con-

tracts cover subjects that seem to fit within the definition of

"rail transportation." See, e.g., The N. Y., Susquehanna & W.

Ry. Corp.—Discontinuance of Service Exemption, 2008 WL

4415853 (STB September 30, 2008) (rejecting stay based on

claim that NYS&W did not fulfill contract obligation to "op-

erate and maintain the [rail system] improvements" because

"a court of competent jurisdiction is the proper forum to

resolve contractual disputes, not the Board"); Saginaw Bay S.

Ry. Co.—Acquisition and Operation Exemption, 2006 WL

1201791, at *2 (STB May 5, 2006) ("[W]hether SBS should

be responsible for maintaining or indemnifying that portion of

the line is a private contractual dispute subject to the terms of

the agreement under which CSXT has made the assignment.

. . contractual disputes such as this one are properly for the

courts to decide."); Morristown & Erie Ry., Inc.—Modified

Rail Certificate, 2004 WL 1387314, at *3 (STB June 22,

2004) (alleged breach of promise not to approve rail usage of

a right-of-way without municipal permission did not consti-

tute changed circumstance because "contractual disputes

belong in court"). See also 49 U.S.C. § 10709(c)(2) (provid-

ing that contracts between rail carriers and shippers, which are

not subject to rate requirements of the ICCTA, must be

enforced in state or federal court).

In fact, when the STB reviewed Norfolk Southern’s appli-

cation to abandon the Lee Creek Line it implied that a court

should determine whether Norfolk Southern is contractually

liable for the relocation costs. The STB stated that the appli-

cation was "premature and incomplete" because Norfolk

Southern could "not claim relocation costs as a burden on

PCS PHOSPHATE v. NORFOLK SOUTHERN 13

continued operation unless the court determines that it is obli-

gated to pay to relocate the line." See Norfolk S. Ry.

Co.—Abandonment—In Beaufort County, NC, 2005 WL

3308783, at *1. The STB then noted that "there is ample time

for the court to resolve the contractual dispute." Id.

We thus decline to view private contracts as presumptively

regulatory. Whether "regulation" must always be by way of

public rule is a question beyond the scope of this suit. In cer-

tain circumstances, courts have held that common law regula-

tion through negligence and nuisance actions was preempted

by the ICCTA. See, e.g., Friberg v. Kansas City S. Ry. Co.,

267 F.3d 439, 444 (5th Cir. 2001) (common law negligence

claim was preempted "where that liability arises from a rail-

road’s economic decisions such as those pertaining to train

length, speed or scheduling"). But to interpret § 10501(b)’s

preemption of "remedies with respect to regulation of rail

transportation" as expressly preempting all voluntary agree-

ments about "rail transportation," would go a step farther.

That is a step Congress did not intend and we are not prepared

to take.

B.

Having concluded that enforcement of the relocation agree-

ments is not expressly preempted, we move on to whether it

is impliedly preempted. An express preemption clause does

not bar a finding of implied preemption. See Sprietsma v.

Mercury Marine, 537 U.S. 51, 65 (2002). We apply the gener-

ally accepted test for ICCTA implied or conflict preemption:

does the enforcement action "unreasonably interfer[e]" with

rail transportation? See CSX Transp., Inc., 2005 WL 1024490,

at *3; see also Vill. of Blissfield, 550 F.3d at 540 (6th Cir.

2008) (quoting CSX Transp., Inc.); Barrois, 533 F.3d at 332

(5th Cir. 2008) (same); Emerson, 503 F.3d at 1133 (10th Cir.

2007) (same); N.Y. Susquehanna and W. Ry. Corp. v. Jackson,

500 F.3d 238, 254 (3rd Cir. 2007) ("unreasonably burden rail

carriage"); Green Mountain R.R. Corp., 404 F.3d at 643 (2d

14 PCS PHOSPHATE v. NORFOLK SOUTHERN

Cir. 2005) ("unduly interferes with interstate commerce"

(quoting Joint Petition for Declaratory Order–Boston and

Me. Corp. and Town of Ayer, 2001 WL 458685, at *5 (STB

May 1, 2001)). As courts have recognized, the determination

of whether the action constitutes an "unreasonable interfer-

ence" requires a factual assessment of the effect of providing

the claimed remedy. See, e.g., Emerson, 503 F.3d at 1133.

In this case, the factual assessment is simple because the

remedy sought is enforcement of a voluntary agreement. The

relocation agreements were freely negotiated between sophis-

ticated business parties. The agreements envisioned this exact

circumstance — that many years after the agreements were

made, the railroad would have to pay to relocate this portion

of the line. We can assume, therefore, that the agreements

reflect a market calculation that the benefits of operating the

rail line for many years would be worth the cost of paying to

relocate the line in the future. In the context of the Commerce

Clause, whether a particular regulation imposes an "unreason-

able burden" on interstate commerce depends on whether the

burden on interstate commerce imposed by the regulation out-

weighs the local benefits it provides. See Pike v. Bruce

Church, Inc., 397 U.S. 137, 142 (1970). In the context of vol-

untary agreements, we let the market do much of the work of

the benefit-burden calculation.

As the STB has recognized, "voluntary agreements must be

seen as reflecting the carrier’s own determination and admis-

sion that the agreements would not unreasonably interfere

with interstate commerce." Township of Woodbridge v. Con-

solidated Rail Corp., 2000 WL 1771044, at *3 (STB Decem-

ber 1, 2000); see also Pejepscot Indus. Park, Inc. v. Me. Cent.

R.R. Co., 297 F. Supp. 2d 326, 332-33 (D. Me. 2003) (citing

Township of Woodbridge). The STB has endorsed this view

in other cases, see, e.g., Joint Petition for Declaratory

Order–Boston and Me. Corp. and Town of Ayer, 2001 WL

458685, at *5, and even in its analysis of the relocation cove-

nants at issue here. When the STB reviewed Norfolk South-

PCS PHOSPHATE v. NORFOLK SOUTHERN 15

ern’s application to abandon the Lee Creek Line, it cited

Township of Woodbridge and stated that "at this point it is not

clear that [this litigation] would interfere with our exclusive

jurisdiction over rail transportation, given [Norfolk South-

ern’s] alleged consent to the parties’ purported contractual

arrangement." See Norfolk S. Ry. Co.—Abandonment—In

Beaufort County, NC, 2005 WL 3308783, at *1.

This approach to voluntary agreements is not an arbitrary

or categorical distinction. Instead, it reflects the fact that mar-

ket actors have incentives to enter into efficient arrangements.

See Wolens, 513 U.S. at 230 (recognizing that enforcement of

private agreements increases market efficiency). This is not to

say that a voluntary agreement could never constitute an "un-

reasonable interference" with rail transportation, but the facts

of this case indicate that any interference is not unreasonable

—the parties contemplated delayed enforcement of the agree-

ments, Norfolk Southern received the benefit of the agree-

ments for over 40 years, and the agreements explicitly stated

that the "relocation will not affect the ability of [Old NS] to

comply with its legal obligation to serve any existing cus-

tomer then on its line." In this instance, therefore, Norfolk

Southern cannot use the ICCTA to "shield[ ] it from its own

commitments." See Township of Woodbridge, 2000 WL

1771044, at *3.

III.

We thus reject Norfolk Southern’s preemption claims and

turn to the merits. Norfolk Southern contends that it is not lia-

ble for breach of contract or breach of easement covenants

because the covenants are not enforceable against it. It argues

that the relocation covenants are personal covenants that only

apply to the original covenanting parties, and the district court

therefore erred when it held that the covenants bind Norfolk

Southern as real covenants that run with the land. See Runyon

v. Paley, 416 S.E.2d 177, 182-83 (N.C. 1992) (explaining dif-

ference between personal covenants and real covenants).

16 PCS PHOSPHATE v. NORFOLK SOUTHERN

Under North Carolina law, a covenant is a real covenant that

runs with the land if "(1) the subject of the covenant touches

and concerns the land, (2) there is privity of estate between

the party enforcing the covenant and the party against whom

the covenant is being enforced, and (3) the original covenant-

ing parties intended the benefits and the burdens of the cove-

nant to run with the land." Id. at 183. Norfolk Southern only

disputes the district court’s application of the third prong of

the Runyon test. It argues that the original covenanting parties

did not intend the benefits and burdens of the covenants to run

with the land.

We reject this argument because it ignores both the lan-

guage and purpose of the agreement. The deeds of easement

must be considered as a whole, see Weyerhauser Co. v. Caro-

lina Power & Light Co., 127 S.E.2d 539, 542 (N.C. 1962),

and by their own terms, the deeds grant the easements to Old

NS’s "successors and assigns." The purpose of the deeds

shows that the obligation to relocate the line was intended to

last just as long as the easement itself. That purpose was two-

fold: the deeds were intended to provide a right-of-way so that

the rail line could be completed, but were also intended to

preserve the value of the land by ensuring through covenants

that the easements would not interfere with the mining of

phosphate beneath the surface.

A covenant such as this, that protects the physical value of

the land, is typical of a covenant that runs with the land. See

Runyon, 416 S.E.2d at 187 ("[R]estrictions limiting the use of

property to residential purposes have a significant impact on

the value of neighboring land, and thus the very nature of

such a restriction suggests that the parties intended that the

restriction benefit land rather than the covenantee person-

ally."). In order to protect this value for themselves, and for

future mine owners because phosphate mining is by its nature

a long-term enterprise, the original mine owners recorded the

covenants in the deeds and filed them in the Register of Deeds

for Beaufort County. In so doing, they put successors-in-

PCS PHOSPHATE v. NORFOLK SOUTHERN 17

interest to the rail easements, such as Norfolk Southern, on

notice that the covenants run with the land.

Norfolk Southern also argues variously that the covenants

are not valid against Norfolk Southern because of the reason-

able time restriction on contracts, the doctrine of laches, and

the doctrine of changed circumstances. These doctrines do not

apply. First, the reasonable time restriction on contracts does

not bar enforcement of the covenants against Norfolk South-

ern because, as discussed, they were intended to be enforce-

able against subsequent landowners as real covenants in order

to protect the long-term interest in mining. See Rodin v. Mer-

ritt, 268 S.E.2d 539, 544 (N.C. App. 1980) (determination of

a reasonable time must take into account the purpose the par-

ties intended to accomplish). Second, the doctrine of laches

does not apply because PCS did not unreasonably delay in fil-

ing suit—once PCS confirmed the rail would need to be relo-

cated it drafted a proposal and consulted with Norfolk

Southern, and then when Norfolk Southern refused to pay for

the relocation, PCS filed suit within six months. Finally, the

doctrine of changed circumstances does not bar enforcement

of the agreements because Norfolk Southern voluntarily

agreed to the alleged changed circumstances. Norfolk South-

ern claims that the increased competition on the line has "de-

stroyed the original bargain," but Norfolk Southern agreed

that another carrier would be allowed on the line when it

acquired Old NS in 1973.

We therefore conclude that the district court properly held

that the relocation covenants were enforceable against Nor-

folk Southern as the successor-in-interest to the rail ease-

ments. See Runyon, 416 S.E.2d at 182-83 (real covenant is

enforceable against owner of the land subject to the cove-

nant). Norfolk Southern breached the covenants when it

refused to pay to relocate the line in its letter of December 16,

2004. The district court properly held it liable.4

4

PCS styled its claims for breach of the relocation agreements as both

a breach of contract claim and a breach of easement covenants claim.

18 PCS PHOSPHATE v. NORFOLK SOUTHERN

IV.

We next turn to Norfolk Southern’s appeal of the district

court’s calculation of damages at the bench trial. First, Nor-

folk Southern argues that the district court incorrectly calcu-

lated compensatory damages because it included costs of

portions of the line that were not necessary to replicate the old

line and therefore gave PCS more than the benefit of its bar-

gain. See Wise, 584 S.E.2d at 738 (for breach of a real cove-

nant, "the measure of damages is the amount which will

compensate the injured party for the loss which fulfillment of

the contract could have prevented or the breach of it has

entailed.") (quoting Norwood v. Carter, 87 S.E.2d 2, 4 (N.C.

1955)). This argument fails because the relocation covenants

do not state that the new line must be identical to the old line

—they state only that the new location for the line must avoid

"excessive curvature, grade and distances." Perhaps Norfolk

Southern would have designed the line differently had it relo-

cated the track itself, or had it exercised its right to review the

proposed design, but, as the district court found, it did neither.

Nor did it object to the location or design of the relocated line

at any time prior to this suit. It therefore cannot now complain

that parts of the design were unnecessary.

Second, Norfolk Southern argues that the district court

incorrectly applied North Carolina’s prejudgment interest stat-

ute as of the date that Norfolk Southern breached the agree-

ment rather than in stages based on the dates that PCS

actually spent money constructing the relocated line. Norfolk

Without differentiating between the two, the district court held that Nor-

folk Southern was liable on both grounds. 520 F. Supp. 2d at 718-20. Nor-

folk Southern appeals, but also does not differentiate between the claims.

Because we find that the district court properly held Norfolk Southern lia-

ble for breach of easement covenants, and the measure of damages is the

same for both claims, see Wise v. Harrington Grove Community Ass’n,

Inc., 584 S.E.2d 731, 738 (N.C. 2003), we do not separately address the

breach of contract claim.

PCS PHOSPHATE v. NORFOLK SOUTHERN 19

Southern ignores the language of the statute which provides:

"In an action for breach of contract . . . the amount awarded

on the contract bears interest from the date of breach." N.C.

Gen. Stat. 24-5(a). The district court followed the statute pre-

cisely. The court calculated prejudgment interest as of

December 16, 2004, which is when Norfolk Southern

informed PCS by letter that it would not relocate the line. We

therefore affirm the court’s calculation of damages.

V.

On cross-appeal, PCS argues that the district court erred by

rejecting its UDTPA claim on the merits and by holding that

its UDTPA claim was preempted by the ICCTA. In its com-

plaint, PCS alleged that Norfolk Southern committed unfair

and deceptive trade practices under N.C. Gen. Stat. 75-1.1

when it "willfully breached" its obligations under the reloca-

tion agreements and threatened to abandon the Lee Creek

Line.

This claim is simply an attempt to multiply the damages for

an ordinary breach of an agreement by re-characterizing the

breach as a violation of the UDTPA. North Carolina law for-

bids this. See Broussard v. Meineke Discount Muffler Shops,

Inc., 155 F.3d 331, 347 (4th Cir. 1998) (collecting cases). It

does not permit a party to transmute a breach of contract

claim into a tort or UDTPA claim for extraordinary damages

because awarding punitive or treble damages would destroy

the parties’ bargain and force the defendant to bear a risk it

never took on. See id. at 346 (citing Strum v. Exxon Co., 15

F.3d 327, 330 (4th Cir. 1994)). Recognizing this principle,

"North Carolina courts have repeatedly held that ‘a mere

breach of contract, even if intentional, is not sufficiently

unfair or deceptive to sustain an action under [the UDTPA.]’"

Broussard, 155 F.3d at 347 (quoting Branch Banking & Trust

Co. v. Thompson, 418 S.E.2d 694, 700 (N.C. App. 1992)).

Instead, under North Carolina law "a plaintiff must show sub-

stantial aggravating circumstances attending the breach" to

20 PCS PHOSPHATE v. NORFOLK SOUTHERN

establish a UDTPA claim. Branch Banking & Trust Co., 418

S.E.2d at 700 (quoting Bartolomeo v. S.B. Thomas, Inc., 889

F.2d 530, 535 (4th Cir. 1989)).

PCS attempts to show "substantial aggravating circum-

stances" by pointing to the fact that Norfolk Southern threat-

ened to abandon the Lee Creek Line if PCS forced it to pay

for the relocation. PCS argues that these statements were

coercive because if Norfolk Southern had successfully aban-

doned the line, it would have cut off essential rail access to

the mine. But these alleged threats are nothing more than Nor-

folk Southern stating that it believed it had a separate legal

right to abandon its own tracks. The basis for PCS’s claim

therefore is nothing more than two companies fighting over

the enforceability of an agreement. Although we hold that the

agreement is enforceable, we will not re-write the parties’

agreement by awarding treble damages for the breach thereof.5

Moreover, the relocation covenants are far from the reach

of the UDTPA because they are wholly divorced from the

context of consumer transactions. The UDTPA "was intended

to benefit consumers," see Dalton v. Camp, 548 S.E.2d 704,

710 (N.C. 2001), but this dispute is between two sophisticated

business entities: a rail carrier and a mine owner. By trying to

5

Recognizing that an award of extraordinary damages re-writes a con-

tract and destroys the voluntary nature of the agreement, courts have held

that an award of extraordinary damages for a breach of contract can

amount to preempted "regulation" within the meaning of § 10501(b). See

Pejepscot Indus. Park, Inc., 297 F. Supp. 2d at 333 (citing S.D. ex rel. S.D.

R.R. Auth. v. Burlington N. & Santa Fe Ry. Co., 280 F. Supp. 2d 919, 934

(D.S.D. 2003)). In such instances, the reasons that counsel against finding

that the ICCTA preempts voluntary agreements would no longer apply

because awarding treble damages goes far beyond simply enforcing a vol-

untary agreement. Therefore, while the UDTPA is the sort of generally

applicable law that the ICCTA was not intended to preempt, we recognize

that in some instances its application might amount to precluded "regula-

tion of rail transportation" or an "unreasonable interference" with rail

transportation. Because the UDTPA claim here so clearly fails on the mer-

its, we need not delve more deeply into the issue in this case.

PCS PHOSPHATE v. NORFOLK SOUTHERN 21

characterize its breach of agreement claim as a UDTPA claim,

PCS is trying to force what will not fit.

VI.

At bottom, this case involves straightforward breach of

covenant or contract claims. The carefully negotiated bargains

that are at the center of these agreements drive our

conclusions—Norfolk Southern cannot escape its obligation

by disputing the parties’ intent or hiding behind the ICCTA,

but, just the same, PCS cannot enlarge the scope of Norfolk

Southern’s obligation by transforming a breach of covenant

claim into a UDTPA action for treble damages and attorneys’

fees. Instead, the parties must fulfill their contractual

commitments—the law knows few more basic principles. For

these reasons, we affirm the judgment.

AFFIRMED