Exhibit 99.1
STATE OF NORTH CAROLINA
IN THE GENERAL COURT OF JUSTICE
COUNTY OF WAKE SUPERIOR COURT DIVISION
NO. 96-CVS-09519
NORTH CAROLINA RAILROAD
COMPANY,
Plaintiff,
v.
NORFOLK SOUTHERN CORPORATION
[VA], NORFOLK SOUTHERN RAILWAY
COMPANY [VA], ATLANTIC AND
EAST CAROLINA RAILWAY COMPANY
[NC], NS FIBER OPTICS, INC.
[VA], AIRFORCE PIPELINE, INC.
[NC], CHARLOTTE-SOUTHERN
CORPORATION [NC], NS-CHARLOTTE
TOWER CORP. [NC], CHARLOTTE-
SOUTHERN HOTEL CORPORATION
[NC], CITICO REALTY COMPANY,
INC. [VA], THE ATLANTA AND
CHARLOTTE AIR LINE RAILWAY COMPLAINT FOR DECLARATORY AND
COMPANY [NC], SOUTHERN REGION OTHER RELIEF
INDUSTRIAL REALTY, INC. [GA],
SOUTHERN RAIL TERMINALS OF
NORTH CAROLINA, INC. [NC],
NORFOLK SOUTHERN PROPERTIES,
INC. [VA], CAMP LEJEUNE
RAILROAD COMPANY [NC], STATE
UNIVERSITY RAILROAD COMPANY
[NC], HIGH POINT, RANDLEMAN,
ASHEBORO, AND SOUTHERN
RAILROAD COMPANY [NC], THE
NORTH CAROLINA MIDLAND
RAILROAD COMPANY [NC], YADKIN
RAILROAD COMPANY [NC],
SOUTHERN RAILWAY-CAROLINA
DIVISION [SC], NORFOLK AND
WESTERN RAILWAY COMPANY [VA],
Defendants
Plaintiff North Carolina Railroad Company ("North Carolina
Railroad"), seeking declaratory and other relief, alleges:
PARTIES
1. Plaintiff is a corporation organized and existing under
the laws of the State of North Carolina by charter dated January
27, 1849, with its principal office and place of business in
Raleigh, Wake County, North Carolina.
2. Upon information and belief, defendant Norfolk Southern
Corporation, is a corporation organized and existing under the laws
of the State of Virginia and is authorized to do business in North
Carolina. Norfolk Southern is the successor in interest by merger
to the Southern Railway Company.
3. Upon information and belief, defendants Atlantic and East
Carolina Railway Company, Airforce Pipeline, Inc., Charlotte-
Southern Hotel Corporation, Charlotte-Southern Corporation, NS-
Charlotte Tower Corp., The Atlanta and Charlotte Air Line Railway
Company, Southern Rail Terminals of North Carolina, Inc., Camp
Lejeune Railroad Company, State University Railroad Company, High
Point, Randleman, Asheboro, and Southern Railroad Company, The
North Carolina Midland Railroad Company, and Yadkin Railroad
Company are corporations owned or controlled by Norfolk Southern,
and are organized and existing under the laws of the State of North
Carolina.
4. Upon information and belief, defendants Norfolk Southern
Railway Company, NS Fiber Optics, Inc., Citico Realty Company,
Inc., Norfolk Southern Properties, Inc., and Norfolk and Western
Railway Company are corporations owned or controlled by Norfolk
Southern, are organized and existing under the laws of the State of
Virginia, and are authorized to do business in North Carolina.
5. Upon information and belief, defendant Southern Region
Industrial Realty, Inc., formerly known as Georgia Industrial
Realty, Inc., is a corporation owned or controlled by Norfolk
Southern, is organized and existing under the laws of the State of
Georgia, and is authorized to do business in North Carolina.
6. Upon information and belief, defendant Southern Railway-
Carolina Division is a corporation owned or controlled by Norfolk
Southern, is organized and existing under the laws of the State of
South Carolina, and is authorized to do business in North Carolina.
7. All defendants may claim an interest in property, assets,
rights or privileges at issue in this action. Reference to
"Norfolk Southern" throughout this complaint includes reference to
Norfolk Southern Corporation as well as to each and every other
defendant as its interest may appear or be proven to exist.
FACTUAL ALLEGATIONS
8. In 1871, North Carolina Railroad leased its railroad to
the Richmond & Danville Railroad Company, a Virginia corporation,
for a term of thirty years ("the 1871 lease"). The Richmond &
Danville Railroad went into receivership in 1892.
9. In or about February, 1894, the Southern Railway Company
("Southern") was incorporated by an act of the Virginia legislature
for the express purpose of purchasing the assets of the Richmond &
Danville Railroad. On or about June 18, 1894, the Richmond &
Danville Railroad Company and all of its property, including the
1871 lease, was sold in foreclosure to Southern. Accordingly, as
of 1894, Southern assumed the 1871 lease.
10. On or about August 16, 1895, North Carolina Railroad
entered into a "deed" with Southern, whereby North Carolina
Railroad demised to Southern
the entire railroad of [North Carolina Railroad] with all
its franchises, rights of transportation, works and
property, including, among other things, its super
structure, roadbed and right-of-way incident thereto,
situate in the State of North Carolina, and leading from
the City of Goldsboro, in the County of Wayne, to the
City of Charlotte, in the County of Mecklenburg, in said
state, and, also, the depot houses, shops, buildings,
fixtures, engines, cars, and all franchises, rights and
privileges, and other things, if any, of whatsoever kind
or nature, to the said North Carolina Railroad Company
belonging, and necessary, incident and appurtenant to the
free, easy and convenient operation of the railroad
leased hereby. . . .
(emphasis added). The term of the agreement was for 99 years
expiring on January 1, 1995. This agreement will be referred to as
"the 1895 lease" or "the 99-year lease." The 1895 lease, by its
terms, terminated the 1871 lease. A copy of the 1895 lease is
attached hereto as Exhibit A
11. The rent for this entire railroad was fixed for the
entire period of the 1895 lease from January 1, 1902 forward at
$286,000.00 a year. Even at the time, this rental rate was
characterized by many to be so inadequate that the 1895 lease was
labeled "the crime of the century" and was the subject of several
unsuccessful efforts to have it set aside.
12. The defense and justification for the low fixed rental in
the 1895 lease was stated at the time by both Southern Railway
Company and North Carolina Railroad to be that the consideration
for the lease included not only the rent payments but, more
importantly, that all "improvements," including "replacement
property," made to the railroad over its term of 99 years would
become the property of North Carolina Railroad at the expiration of
the term of the 1895 lease.
13. Accordingly, by decree dated April 13, 1898 in litigation
regarding the 1895 lease, captioned Southern Railway Company v.
North Carolina Railroad Company et al., the Circuit Court of the
United States for the Western District of North Carolina made a
finding of fact "that the betterments and improvements placed, and
to be placed upon said properties by the lessee should, at the
expiration of the term, belong to and increase the property of the
lessor," and the court, inter alia, entered a permanent restraining
order against North Carolina Railroad and its officers, directors,
and stockholders that "perpetually enjoined and restrained [North
Carolina Railroad] from breaking or from threatening to break any
of the covenants contained" in the 1895 lease.
14. The lengthy 99-year term of the 1895 lease was bargained
for and insisted upon by Southern as an additional consideration
for Southern's agreement that improvements made on the railroad
would become the property of North Carolina Railroad at the
termination of the 1895 lease. By contrast, the 1871 lease
contained a provision expressly permitting the lessee's removal of
property and improvements at the end of the term of the lease.
15. With respect to Southern's covenant to repair and
maintain the railroad, the 1895 lease states
And for the consideration aforesaid, [Southern Railway
Company] doth covenant with and oblige itself unto [North
Carolina Railroad] to keep the said railroad, roadbed,
superstructure, depots, buildings, houses, shops,
engines, cars, fixtures, and other property of every kind
and every part thereof, so hired, let, 'farmed out' and
delivered in equally as good condition and repair as the
property is at the date of this lease, or to keep, in the
place of the same, like things of equally good condition
and repair. . . .
(emphasis added).
16. The 1895 lease further states in the operative language
containing Southern's covenant to return the property, including
all improvements and replacements, to North Carolina Railroad at
the termination of the 1895 lease as follows:
And for the consideration aforesaid, [Southern Railway
Company] doth covenant with and oblige itself unto [North
Carolina Railroad Company] . . . to return, at the end of
the said term of ninety-nine (99) years, or at the
termination of said lease, to [North Carolina Railroad
Company] the said railroad, roadbed, superstructure,
depots, houses, buildings, shops, engines, cars,
fixtures, and other property, and all and every part
thereof, in like good condition and repair; or other
property, when any part of said property shall be worn
out, destroyed or abandoned, as good in quality and
substance and in like good order and repair.
(emphasis added). This portion of the 1895 lease unambiguously
sets forth the obligation of Southern to return to North Carolina
Railroad at the end of the lease not only the property received by
Southern but any other property substituted for the property leased
when the property leased is worn out, destroyed or abandoned.
17. In addition to the obligation to return the property
leased together with any replacement property in "as good condition
and repair" as the property was received at the beginning of the
lease, the 1895 lease further states unambiguously that Southern is
to surrender to North Carolina Railroad at the termination of the
lease any improvements to the property leased. In particular, the
1895 lease states:
But there shall be no claim or liability during the
continuance of this lease, or at its termination, by
[Southern Railway], its successors or assigns, upon
[North Carolina Railroad], its successors or assigns, for
any improvement of said property conveyed by this lease,
over the condition of the said property at the date of
this lease, but all such improvements shall be and remain
the property of [North Carolina Railroad], its successors
or assigns. . . .
(emphasis added).
18. On or about August 30, 1939, the Atlantic and North
Carolina Railroad Company ("ANC") entered into a "lease and
indenture" whereby the entire railroad of ANC was leased to
Atlantic and East Carolina Railway Company ("A&ECRW"), which lease
and indenture was amended or modified by agreements dated July 1,
1943, January 1, 1951, and August 19, 1954. Said lease as amended
(hereinafter "1939 lease") had a term expiring on December 31,
1994, and is attached as Exhibit B. During the term of the 1939
lease North Carolina Railroad succeeded by merger to the interests
of ANC and Norfolk Southern acquired the A&ECRW.
19. The 1895 lease and the 1939 lease (hereinafter sometimes
referred to as "the leases") expired on January 1, 1995 and December
31, 1994, respectively. Prior to their expiration, beginning on or
about June 26, 1992, North Carolina Railroad and Norfolk Southern
commenced negotiations to extend or renew both leases. After
lengthy and hard-fought negotiations, North Carolina Railroad
announced on November 22, 1994 tentative agreement with Norfolk
Southern regarding annual lease payments and certain other terms of
a proposed lease extension. Based on this tentative agreement,
North Carolina Railroad and Norfolk Southern entered into a
temporary nonholdover agreement on December 30, 1994 to cover
continued railroad operations over North Carolina Railroad's
property following December 31, 1994.
20. On August 10, 1995, after further negotiations over the
remaining terms of a lease extension agreement, the Board of
Directors of North Carolina Railroad approved a lease extension
agreement which was submitted to its shareholders on December 15,
1995. A copy of this proposed lease extension agreement is
attached hereto as Exhibit C.
21. At the December 15, 1995 shareholders meeting, it was
announced that approval of the lease extension agreement had been
obtained. Based upon this apparent approval, Norfolk Southern
began payment of monthly rental at the rate of $8,000,000.00 a
year, and made a payment of rental at that rate retroactively to
January 1, 1995. Norfolk Southern also paid an additional
$5,000,000.00 pursuant to paragraph THIRD of the proposed lease
extension agreement.
22. On December 19, 1995, a shareholder of North Carolina
Railroad filed a shareholders' derivative action in the United
States District Court for the Eastern District of North Carolina,
Civil Action Number 5:95-CV-1054-BO2, challenging, among other
things, whether a quorum existed at the December 15, 1995
shareholders' meeting, and thereby challenging the effectiveness of
the apparent shareholder approval of the proposed lease extension
agreement.
23. On July 29, 1995, an order was entered in said action
enjoining implementation of the lease extension agreement on the
grounds that a quorum had not been present at the December 15, 1995
shareholders' meeting. Following this decision, Norfolk Southern
announced that it would make no further payments of rent to North
Carolina Railroad, even though it has continued to make use of
North Carolina Railroad's property for the operation of a railroad.
Prior to the filing of this action, North Carolina Railroad sent
notice to Norfolk Southern terminating the December 30, 1994
temporary nonholdover agreement.
24. As a result of these occurrences, there is no further
agreement in force between North Carolina Railroad and Norfolk
Southern. At present, no further negotiations are being conducted
by the parties to the leases. Therefore, according to the terms of
the leases, North Carolina Railroad is entitled to take all right,
title and interest to the following properties, among others:
(1) The original right-of-way titled in North Carolina
Railroad with the roadbed and super structure together
with all improvements and fixtures thereon.
(2) Other originally demised real property titled in North
Carolina Railroad together with all improvements and
fixtures thereon.
(3) Replacement rolling stock and railroad equipment
determined with reference to an initial inventory taken
in accordance with the terms of the lease. A copy of the
initial inventory is attached hereto as Exhibit D.
(4) After acquired right-of-way to the extent such right-of-
way was a replacement for existing right-of-way or was
part of a betterment or improvement, for instance, to
accommodate the improvement of additional tracks.
(5) Other after acquired property or additions which were
replacements or improvements or betterments of the
originally demised properties, including certain depots,
shops, maintenance and repair facilities, yards and
related facilities.
(6) Such other after acquired property as is deemed to be a
replacement, improvement or betterment or addition of the
originally demised property.
25. Despite the clear language of the leases, Norfolk
Southern has taken the position that it is not obligated to return
to North Carolina Railroad anything other than the land that North
Carolina Railroad owned on January 1, 1896 and any improvements or
fixtures on that land that were used for railroad purposes on
January 1, 1896. Norfolk Southern's position appears to be that
the following, among others, are not part of the property which
must now be returned to North Carolina Railroad: (1) any land
Norfolk Southern acquired or improved in its own name or the name
of any affiliated company (even if it is a replacement for land
included in the leases); (2) any improvements even if they are on
the original North Carolina Railroad right-of-way, but which are
not deemed necessary, in Norfolk Southern's opinion, for the
operation of North Carolina Railroad as defined by Norfolk
Southern; or (3) the rolling stock which has replaced the 1895
vintage engines and cars.
26. During 1982, Norfolk Southern Corporation caused or
completed a merger or acquisition creating a combination of Norfolk
and Western Railway Company and Southern Railway Company at which
time the President of Southern Railway Company represented to the
State of North Carolina and the public that such combination would
"provide increased transportation competition in North Carolina."
North Carolina Railroad received no notice from Norfolk Southern of
such merger or any possible negative effects or abandonments of
such merger involving North Carolina Railroad, which at that time
was under the exclusive control of Norfolk Southern pursuant to the
leases.
27. Norfolk Southern has threatened North Carolina Railroad
that it will use routes created by the merger to limit or devalue
North Carolina Railroad.
28. Although the leases have now expired, Norfolk Southern is
still in possession of the operation and management of the railroad
of North Carolina Railroad and its property, assets, rights,
franchises and privileges by virtue of the Interstate Commerce Act,
as revised by the ICC Termination Act of 1995, and common carrier
duties of Norfolk Southern as the sole lessee and operator of North
Carolina Railroad.
FIRST CLAIM FOR RELIEF
(Declaratory Judgment)
29. The allegations contained in the preceding paragraphs of
this complaint are incorporated herein by reference.
30. Because North Carolina Railroad and defendants dispute
what property is to be returned by defendants to North Carolina
Railroad at the termination of the leases, an actual controversy
exists as to the rights and interests the parties have in such
property.
31. North Carolina Railroad seeks relief in resolving this
controversy pursuant to the Declaratory Judgment Act, N.C. Gen.
Stat. Section 1-253.
32. North Carolina Railroad seeks a declaration as to the
rights and property that are owned by it or in which it has an
interest effective January 1, 1995.
33. North Carolina Railroad is entitled to, and seeks, an
order declaring that it is the owner of such rights and property
and that defendants have no enforceable rights or interests in said
property.
SECOND CLAIM FOR RELIEF
(Declaratory Judgment)
34. The allegations contained in the preceding paragraphs of
this complaint are incorporated herein by reference.
35. North Carolina Railroad is informed and believes that
Norfolk Southern Corporation (and its predecessors, successors,
subsidiaries or affiliates, including the remaining defendants)
have taken title to property that is to be returned to North
Carolina Railroad at the termination of the leases.
36. Because North Carolina Railroad and Norfolk Southern
dispute what property is to be returned by Norfolk Southern to
North Carolina Railroad at the termination of the leases, an actual
controversy exists as to whether such property is properly titled
in the name of Norfolk Southern.
37. North Carolina Railroad seeks relief in resolving this
controversy pursuant to the Declaratory Judgment Act, N.C. Gen.
Stat. Section 1-253.
38. North Carolina Railroad seeks a declaration that property
that properly belongs to North Carolina Railroad pursuant to the
leases but that has been titled in the name of Norfolk Southern
Corporation (or any of Norfolk Southern's predecessors, successors,
subsidiaries or affiliates, including the remaining defendants)
should be titled in the name of North Carolina Railroad.
39. North Carolina Railroad is entitled to, and seeks, an
order declaring that it is the owner of such property, that Norfolk
Southern has no enforceable rights or interests in said property,
and that Norfolk Southern must transfer title to said property to
North Carolina Railroad.
THIRD CLAIM FOR RELIEF
(Breach of Contract)
40. The allegations contained in the preceding paragraphs of
this complaint are incorporated herein by reference.
41. Norfolk Southern has breached the 1895 lease by failing
to inventory and return: (1) the property received by Southern at
the inception of the lease; (2) other property substituted for the
property leased; (3) improvement property (as described in the
lease); and (4) replacement property (as described in the lease) to
North Carolina Railroad at the end of the 99-year lease term.
42. North Carolina Railroad is entitled to specific
performance of the 1895 lease and to recover all property to which
North Carolina Railroad is entitled pursuant to the terms of the
lease, or, in the alternative, to recover damages incurred as a
result of breach of the leases, which damages are in excess of
$10,000.
FOURTH CLAIM FOR RELIEF
(Breach of Fiduciary Duty)
43. The allegations contained in the preceding paragraphs of
this complaint are incorporated herein by reference.
44. Virtually all of North Carolina Railroad's assets are
composed of the railroad and its rights, privileges, and franchises
that were leased to Norfolk Southern pursuant to the leases.
45. The leases placed these assets of North Carolina Railroad
into the sole possession, custody and control of Southern and
Norfolk Southern for a period of 99 years.
46. By virtue of the leases, Norfolk Southern was responsible
for the management, maintenance, and upkeep of the railroad and
agreed to improve the assets of North Carolina Railroad for a
period of 99 years.
47. The relationship between North Carolina Railroad and
Norfolk Southern pursuant to the leases evidenced a special
confidence and trust placed by North Carolina Railroad in Norfolk
Southern, specifically the future of North Carolina Railroad for an
entire century, for the benefit and protection of North Carolina
Railroad and its shareholders, which include the State of North
Carolina.
48. The unique relationship created by the leases constituted
a fiduciary relationship such that Norfolk Southern, as holder and
maintainer of the assets of North Carolina Railroad, owed a
fiduciary duty to North Carolina Railroad.
49. This fiduciary duty imposed a duty of good faith and fair
dealing upon Norfolk Southern to act in the best interests of North
Carolina Railroad in maintaining and improving the railroad that
was leased to Norfolk Southern.
50. To the extent that Norfolk Southern may have "improved"
the railroad in a manner such that any improvements or replacement
property would not become the property of North Carolina Railroad
at the expiration of the leases or refused to convey and return
such property, rights, and interests pertaining thereto, Norfolk
Southern has acted in its own interests and to the detriment of
North Carolina Railroad. Any such actions constitute a breach of
the fiduciary duty owed from Norfolk Southern to North Carolina
Railroad.
51. Norfolk Southern, in its exclusive management, control
and operation of North Carolina Railroad, has a duty not to usurp
or unfairly discourage corporate business opportunities of North
Carolina Railroad.
52. By refusing or threatening to refuse to return sufficient
assets to operate the railroad and diverting or threatening to
divert traffic away from the railroad, Norfolk Southern has caused
or attempted to cause a reduction in the amount of traffic on the
railroad and sought to disadvantage North Carolina Railroad as
compared to Norfolk Southern.
53. North Carolina Railroad has been damaged by Norfolk
Southern's breach of fiduciary duty in an amount in excess of
$10,000, and is entitled to recover such damages in this action.
FIFTH CLAIM FOR RELIEF
(Constructive Fraud)
54. The allegations contained in the preceding paragraphs of
this complaint are incorporated herein by reference.
55. As described more fully in the preceding paragraphs of
this complaint, a fiduciary relationship existed between Norfolk
Southern and North Carolina Railroad.
56. To the extent that Norfolk Southern has availed itself of
opportunities to improve the railroad that was leased pursuant to
the leases, but has made the improvements or attempted to classify
improvements in such a manner as to prevent the assets from being
restored to North Carolina Railroad at the expiration of the leases
and has withheld information about such properties, rights, and
related interests, Norfolk Southern has violated the confidence and
trust that North Carolina Railroad placed in it by virtue of
entering into a 99-year lease for Norfolk Southern to maintain
complete control of virtually all of North Carolina Railroad's
assets. Norfolk Southern has publicly and unfairly threatened to
divert traffic away from North Carolina Railroad to other Norfolk
Southern routes including the route(s) created by the merger of
Southern Railway Company or Southern Railway System and Norfolk &
Western Railway Co., and provided incomplete and inaccurate
information about the property of North Carolina Railroad and the
income derived from its use therefrom. Furthermore, North Carolina
Railroad has been deceived by any such actions and incurred
attorneys' fees, consultants' fees, and other expenses in an
attempt to gain information or verify information provided by
Norfolk Southern.
57. Furthermore, to the extent that 75% of North Carolina
Railroad is owned by the taxpayers of the State of North Carolina,
any such actions by Norfolk Southern have been injurious to the
public interest of the State of North Carolina.
58. The actions of Norfolk Southern described herein
constitute constructive fraud.
59. North Carolina Railroad has been damaged by the
constructive fraud of Norfolk Southern to the extent that a
complete railroad, including all improvements and replacement
property thereupon, and the revenue potential thereto were not
returned to North Carolina Railroad at the expiration of the 1895
lease and 1939 lease. The damage to North Carolina Railroad was
proximately caused by Norfolk Southern's constructive fraud.
60. North Carolina Railroad has been damaged by the
constructive fraud of Norfolk Southern in an amount in excess of
$10,000, and North Carolina Railroad is entitled to recover such
damages of Norfolk Southern in this action.
SIXTH CLAIM FOR RELIEF
(Constructive Trust)
61. The allegations contained in the preceding paragraphs of
this complaint are incorporated herein by reference.
62. As stated previously in this complaint, Norfolk Southern
owed a duty as lessee/operator and a fiduciary duty to North
Carolina Railroad with respect to all matters involving the leases.
63. Norfolk Southern has improperly benefited from its breach
of the fiduciary duty that it owed to North Carolina Railroad
pursuant to the relationship between the parties.
64. Upon information and belief, Norfolk Southern obtained
legal title to improvements to the railroad that was leased to
Norfolk Southern in violation of a duty owed to North Carolina
Railroad. Upon information and belief, this property is still
being held by Norfolk Southern.
65. Upon information and belief, Norfolk Southern obtained
legal title to replacement property to which North Carolina
Railroad was entitled. Upon information and belief, this
replacement property is still being held by Norfolk Southern.
66. A constructive trust for the benefit of North Carolina
Railroad should be imposed upon all improvements and replacement
property that Norfolk Southern improperly titled in itself, and
Norfolk Southern should be enjoined from disposing of these assets.
SEVENTH CLAIM FOR RELIEF
(Receivership)
67. The allegations contained in the preceding paragraphs of
this complaint are incorporated herein by reference.
68. North Carolina Railroad has an ownership right in
property that is the subject of this action. Specifically, North
Carolina Railroad has an ownership interest in the original leased
property and all improvements and replacement property and the
income derived therefrom relating to the railroad that was leased
to Norfolk Southern.
69. The property described in the preceding paragraph and the
income derived therefrom is effectively in the possession of
Norfolk Southern, the adverse party in this action, and Norfolk
Southern currently has complete control over the property and the
income from said property.
70. North Carolina Railroad is in danger of losing
substantial profits to which it is entitled during the pendency of
this litigation because Norfolk Southern continues to possess,
maintain and have complete control over the property and revenues
that are the subject of this action. North Carolina Railroad is
informed, and believes, that substantial waste of the assets of the
railroad may occur during the pendency of this litigation and that
the income thereto retained will be retained by Norfolk Southern
and will not be paid to its rightful owner, North Carolina Railroad
and its shareholders.
71. If Norfolk Southern's control over assets of North
Carolina Railroad is allowed to continue, any judgment that North
Carolina Railroad receives in this action may be rendered
ineffectual because North Carolina Railroad's assets will have been
wasted and the value thereof greatly diminished. The 1895 and 1939
leases have expired, and therefore Norfolk Southern's corporate
authority under the leases to exercise the rights, franchises, and
privileges of the plaintiff has expired, subject only to the
continuing duties imposed by the Interstate Commerce Act as revised
and common law.
72. Pursuant to N.C. Gen. Stat. Sections 1-502 and 1-507.1, and
this court's inherent equity power, North Carolina Railroad is
entitled to have a receiver appointed by the court to maintain the
assets and to protect and collect the income from the assets leased
to Norfolk Southern that are in dispute in this action during the
pendency of this litigation in order to prevent the loss of
substantial assets and income of North Carolina Railroad.
EIGHTH CLAIM FOR RELIEF
(Accounting)
73. The allegations contained in the preceding paragraphs of
this complaint are incorporated herein by reference.
74. As described more fully in preceding paragraphs of this
complaint, a fiduciary relationship existed between Norfolk
Southern and North Carolina Railroad.
75. Moreover, the actions of Norfolk Southern described
herein constitute constructive fraud.
76. North Carolina Railroad is entitled to a preliminary and
final accounting from Norfolk Southern regarding all aspects of its
operation of a railroad over property belonging to North Carolina
Railroad, including its income derived therefrom and reasonable
expenses relating thereto.
NINTH CLAIM FOR RELIEF
(Declaratory Judgment -- Taxes)
77. The allegations contained in the preceding paragraphs of
this complaint are incorporated herein by reference.
78. The 1895 lease provides that Norfolk Southern
agrees to pay for and on account of the party
of the first part [North Carolina Railroad]
all taxes and assessments lawfully imposed
upon the said leased property, or upon the
franchise of [North Carolina Railroad], or its
income, whether by the State of North
Carolina, or any county, city, town or
township thereof, or by the United States.
All of such taxes and assessments shall be
paid by [Southern], so as to entirely relieve
[North Carolina Railroad] from payment of
taxes of any nature whatever, during the
continuance of this lease, upon the property
leased or the franchise of the party of the
first part for its income from the lease
property.
79. North Carolina Railroad may incur substantial federal,
state and/or local tax liability as a result of the return of North
Carolina Railroad's property pursuant to the terms of the 1895
lease.
80. Pursuant to the terms of the 1895 lease, North Carolina
Railroad is entitled to reimbursement for federal, state or local
taxes that it incurs as a result of any property that is recovered
by North Carolina Railroad.
81. Because North Carolina Railroad and Norfolk Southern, as
stated above, dispute what property is to be returned by Norfolk
Southern to North Carolina Railroad given the termination of the
1895 lease, and because North Carolina Railroad and Norfolk
Southern also dispute the apportionment of tax liability upon any
returned property, an actual controversy exists as to the rights
and interests of the parties regarding tax liability pursuant to
the 1895 lease.
82. North Carolina Railroad seeks relief in resolving this
controversy pursuant to the Declaratory Judgment Act, N.C. Gen.
Stat. Section 1-253.
83. North Carolina Railroad seeks a declaration as to Norfolk
Southern's liability for federal, state and local taxes that North
Carolina Railroad may incur as the result of any property recovered
by it at the end of the 1895 lease.
84. North Carolina Railroad is entitled to, and seeks, an
order declaring that Norfolk Southern is responsible for all
federal, state and local taxes incurred by North Carolina Railroad
upon property recovered by North Carolina Railroad at the
termination of the 1895 lease.
TENTH CLAIM FOR RELIEF
(Statutory Strict Liability)
85. The allegations contained in the preceding paragraphs of
this complaint are incorporated herein by reference.
86. The North Carolina Oil Pollution and Hazardous Substances
Control Act provides that:
Any person having control over oil or other hazardous
substances which enter the waters of the State in
violation of this Park shall be strictly liable, without
regard to fault, for damages to persons or property,
public or private, caused by such entry, subject to the
exception enumerated in G. S. 143-215.83(b).
The exceptions referred to do not excuse Norfolk Southern from
liability.
87. Upon information and belief, Norfolk Southern had and
continues to have control over oil and other hazardous substances
which entered or may have entered the waters of the state in
violation of N. C. Gen. Stat. Section 143-215.83, et. seq.
88. As a result of the release of the oil and other hazardous
substances described above, North Carolina Railroad has incurred
damages in excess of $10,000.
89. Norfolk Southern is strictly liable for the damages
incurred by North Carolina Railroad, and is responsible for the
investigation and remediation of the Property.
ELEVENTH CLAIM FOR RELIEF
(CERCLA)
90. The allegations contained in the preceding paragraphs of
this complaint are incorporated herein by reference.
91. Each Defendant is a "person" within the meaning of the
Comprehensive Environmental Response, Compensation and Liability
Act ("CERCLA") Section 101(21), 42 U.S.C. Section 9601(21).
92. CERCLA Section 107, 42 U.S.C. Section 9607, as amended, provides in
part:
(a) Notwithstanding any other provision or rule of
law, and subject only to the defenses set
forth in subsection (b) of this section --
(1) the owner and operator . . . of
a facility,
(2) any person who at the time of
disposal of any hazardous
substances owned or operated
any facility at which such
hazardous substances were
disposed of,
(3) any person who by contract,
agreement or otherwise arranged
for disposal or treat-
ment, . . . of hazardous
substances . . ., at any
facility . . ., and
(4) any person who accepts or
accepted hazardous substances
for transport . . ., shall be
liable for --
(A) all costs of removal or
remedial action incurred
by the United States
Government or a State or
an Indian Tribe not
inconsistent with the
national contingency
plan;
93. CERCLA Section 113(f), 42 U.S.C. Section 9613(f), as amended,
provides in part:
(a) Any person may seek contribution from any
other person who is liable or potentially
liable under Section 9607(a) of this
title, during or following any civil
action under Section 9606 of this title
or under Section 9607 of this title.
94. Upon information and belief, release of hazardous
substances has occurred on North Carolina Railroad's property
during the period that it has been used by or leased to Norfolk
Southern, and the property is a "facility" as defined at CERCLA
Section 101(9), 42 U.S.C. Section 9601(9).
95. Upon information and belief, Norfolk Southern is or has
been an "operator" of and a "transporter" on North Carolina
Railroad's property as defined at CERCLA Section 101(20)(A), 42 U.S.C.
Section 9601(20)(A) when each alleged release of oil or other hazardous
substance occurred.
96. North Carolina Railroad is entitled to past and future
response costs to be incurred by it for inspection and remediation
of the Property, including but not limited to attorneys fees and
interest as allowed by law, pursuant to CERCLA Sections 107 and 113(f),
42 U.S.C. Sections 9607 and 9613(f). Such costs are in excess of
$10,000.
TWELFTH CLAIM FOR RELIEF
(Trespass)
97. The allegations contained in the preceding paragraphs of
this complaint are incorporated herein by reference.
98. Upon information and belief, Norfolk Southern has been
shipping, using, storing, and disposing of petroleum products and
other hazardous and nonhazardous substances on North Carolina
Railroad's property since the commencement of the 1895 lease.
99. Such shipping, use, storage, and disposal of petroleum
products and other hazardous and nonhazardous substances has or may
have contaminated both property which remains in the possession of
Norfolk Southern, as well as any property which has been or may be
returned to North Carolina Railroad by Norfolk Southern.
100. Upon information and belief, Norfolk Southern has allowed
the use, storage, and disposal of petroleum products and other
hazardous and nonhazardous substances on North Carolina Railroad's
property since the commencement of the 1895 lease by tenants and
other parties encroaching on North Carolina railroad's property.
Such activities have contaminated both property which remains in
the possession of Norfolk Southern, as well as property which has
been or may be returned to North Carolina Railroad by Norfolk
Southern.
101. Although Norfolk Southern's leases have expired,
petroleum products and other hazardous and nonhazardous substances
continue to be present on North Carolina Railroad's property,
without North Carolina Railroad's consent, which is a continuing
trespass against North Carolina Railroad's possessory interest in
North Carolina Railroad's property.
102. In addition, upon information and belief, property
returned to North Carolina Railroad by Norfolk Southern was or may
have been contaminated by Norfolk Southern and remains or may
remain contaminated without North Carolina Railroad's consent,
which is a continuing trespass against North Carolina Railroad's
possessory interest in North Carolina Railroad's property.
103. As a result of the trespasses upon the property, North
Carolina Railroad is entitled to recover the damages in excess of
$10,000.
THIRTEENTH CLAIM FOR RELIEF
(Common Law Strict Liability)
104. The allegations contained in the preceding paragraphs of
this complaint are incorporated herein by reference.
105. The shipping, use, storage, and disposal of hazardous
materials are ultrahazardous activities.
106. Norfolk Southern has shipped, used, stored, and
disposed of hazardous materials on North Carolina Railroad's property.
107. Upon information and belief, there have been or may have
been numerous spills and discharges of hazardous materials on North
Carolina Railroad's property during the period that Norfolk
Southern operated North Carolina Railroad's property.
108. As a direct result of Norfolk Southern's shipping, use,
storage, and disposal of petroleum products and other hazardous
substances, North Carolina Railroad's Property has been or may have
been contaminated and Norfolk Southern is strictly liable for such
contamination and the resulting damage.
109. As a result of such contamination by Norfolk Southern,
North Carolina Railroad is entitled to the damages in excess of
$10,000.
FOURTEENTH CLAIM FOR RELIEF
(Breach of Contract)
110. The allegations contained in the preceding paragraphs of
this complaint are incorporated herein by reference.
111. The leases between Norfolk Southern and North Carolina
Railroad call for Norfolk Southern to maintain North Carolina
Railroad's property "in equally as good condition and repair" as
the property was on the date of execution of the 1895 lease, and to
return the property at the termination of the 1895 lease "in like
good condition and repair."
112. Norfolk Southern has failed to maintain North Carolina
Railroad's property, in violation of the terms of the leases.
113. Due to Norfolk Southern's contamination of North Carolina
Railroad's property, North Carolina Railroad's property is not "in
like good condition and repair" as it was at the commencement of
the 1895 lease, in violation of the terms of the leases.
114. North Carolina Railroad has made numerous oral and
written requests for Norfolk Southern to investigate and remediate
the environmental contamination on North Carolina Railroad's
property, but Norfolk Southern has refused to assume responsibility
for or pay for such investigation and remediation activities.
115. Norfolk Southern has breached its obligations under the
terms of the leases and thereby damaged North Carolina Railroad in
an amount in excess of $10,000.
FIFTEENTH CLAIM FOR RELIEF
(Negligence)
116. The allegations contained in the preceding paragraphs of
this complaint are incorporated herein by reference.
117. Norfolk Southern had and continues to have a duty to
conduct its activities in a manner that did not contaminate the
soil and ground water.
118. Upon information and belief, Norfolk Southern failed to
exercise reasonable care in the shipping, use, storage, and
disposal of petroleum products and other hazardous substances.
119. Norfolk Southern had and continues to have a duty to take
reasonable measures to ensure that third parties using North
Carolina Railroad property (including tenants of Norfolk Southern
and parties allowed by Norfolk Southern to encroach on North
Carolina Railroad property) conducted their activities in a manner
that did not contaminate the soil and ground water.
120. Upon information and belief, Norfolk Southern failed to
exercise reasonable care in managing North Carolina Railroad
property to prevent the release, discharge or disposal of petroleum
products and other hazardous substances by third parties.
121. Norfolk Southern's negligence is the proximate cause of
the contamination of North Carolina Railroad's property and Norfolk
Southern's negligence is the proximate cause of damages to North
Carolina Railroad in excess of $10,000.
122. In addition, North Carolina Railroad is entitled to
punitive damages from Norfolk Southern because of their willful and
wanton refusal to initiate any type of investigation or clean-up
activity, despite repeated requests by North Carolina Railroad.
SIXTEENTH CLAIM FOR RELIEF
(Negligence per se)
123. The allegations contained in the preceding paragraphs of
this complaint are incorporated herein by reference.
124. Federal, state, and local environmental laws were enacted
to protect the public health and welfare, and North Carolina
Railroad is a member of the class of persons which those laws are
designed to protect.
125. Norfolk Southern has a duty not to violate the various
federal, state, and local environmental laws.
126. Upon information and belief, Norfolk Southern violated,
and permitted others to violate, numerous federal, state, and local
environmental laws.
127. Norfolk Southern's violations, and its allowance of
violations by others, of federal, state, and local environmental
laws constitutes negligence per se.
128. Norfolk Southern's negligence per se is the proximate
cause of the contamination of North Carolina Railroad's property
and Norfolk Southern's negligence per se is the proximate cause of
damages to North Carolina Railroad in excess of $10,000.
129. In addition, North Carolina Railroad is entitled to
punitive damage from Norfolk Southern because of its willful and
wanton refusal to initiate any type of investigation or clean-up
activity.
SEVENTEENTH CLAIM FOR RELIEF
(Waste)
130. The allegations contained in the preceding paragraphs of
this complaint are incorporated herein by reference.
131. Norfolk Southern had and continues to have an obligation
to use reasonable diligence to treat the premises in such a manner
that no injury was done to North Carolina Railroad's property.
132. Upon information and belief, Norfolk Southern failed to
use reasonable diligence in the shipping, use, storage, and
disposal of petroleum products and other hazardous substances on
North Carolina Railroad's property.
133. Upon information and belief, Norfolk Southern failed to
use reasonable diligence in managing North Carolina Railroad
property to prevent the release, discharge or disposal of petroleum
products and other hazardous substances by third parties (including
tenants of Norfolk Southern and parties allowed by Norfolk Southern
to encroach on North Carolina Railroad property).
134. Norfolk Southern's failure to exercise reasonable
diligence in its activities on and management of North Carolina
Railroad's property resulted in soil and ground water
contamination.
135. Norfolk Southern's waste is the proximate cause of the
contamination of North Carolina Railroad's property and Norfolk
Southern's waste has been the proximate cause of damages to North
Carolina Railroad in excess of $10,000.
EIGHTEENTH CLAIM FOR RELIEF
(Declaratory Judgment)
136. The allegations contained in the preceding paragraphs of
this complaint are incorporated herein by reference.
137. Because North Carolina Railroad and Norfolk Southern
dispute whether the property is environmentally contaminated, and
whether Norfolk Southern is responsible for investigating and
remediating any contamination present on the property, an actual
controversy exists.
138. North Carolina Railroad seeks relief in resolving this
controversy pursuant to the Declaratory Judgment Act, N.C. Gen.
Stat. Section 1-253.
139. North Carolina Railroad is entitled to, and seeks, an
order pursuant to Section 1-253, et. seq., of the North Carolina
General Statutes declaring Norfolk Southern responsible for
investigating and remediating North Carolina Railroad's property
and any adjoining properties which have been affected by the
contamination on the property.
WHEREFORE, plaintiff North Carolina Railroad respectfully
requests:
1. That the Court declare the rights of North Carolina
Railroad and the defendants under the 1895 and 1939 leases as of
January 1, 1995, including North Carolina Railroad's ownership
rights and that Norfolk Southern is responsible for all taxes
incurred by North Carolina Railroad as a result of any property
recovered at the end of the 1895 lease;
2. That the Court order that property improperly titled in
the name of defendants be titled in the name of North Carolina
Railroad;
3. That plaintiff North Carolina Railroad receive specific
performance of the 1895 and 1939 leases;
4. That the Court impose a constructive trust upon the
railroad for the benefit of North Carolina Railroad;
5. That a receiver be appointed to maintain the assets and
to protect and collect the income from the assets leased to Norfolk
Southern that are in dispute in this action during the pendency of
this litigation;
6. That the Court order a preliminary and final accounting
from Norfolk Southern regarding all aspects of its operation of a
railroad over property belonging to North Carolina Railroad,
including its income derived therefrom and expenses relating
thereto;
7. That the Court enter a declaratory judgment pursuant to
Section 1-253, et. seq., of the North Carolina General Statutes
declaring Norfolk Southern responsible for investigating and
remediating North Carolina Railroad's property and any adjoining
properties which have been affected by the contamination on North
Carolina Railroad's property;
8. That the Court order Norfolk Southern to investigate and
remediate any contamination on North Carolina Railroad's property;
9. That the Court declare that North Carolina Railroad is
entitled to recover its past and future response cost pursuant to
CERCLA.
10. That North Carolina Railroad recover its actual damages
in an amount to be proven at trial;
11. That North Carolina Railroad recover punitive damages;
12. That the costs of this action be taxed against
defendants;
13. For a trial by jury on all issues so triable; and
14. For such other relief as the Court may deem just and
proper.
This the 20th day of September 1996.
PETREE STOCKTON, L.L.P.
By: /s/ John L. Sarratt
John L. Sarratt
Karen F. Gray
4101 Lake Boone Trail, Suite 400
Raleigh, NC 27607-6519
Telephone: (919) 420-1700