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Infinity Transportation III LLC v. XPO Intermodal, Inc.

United States District Court, N.D. Georgia, Atlanta Division

January 18, 2018




         This matter is before the Court on Defendant XPO Intermodal, Inc.'s (“XPO”) Partial Motion to Dismiss Plaintiff's First Amended Complaint [13] (the “Motion to Dismiss”).

         I. BACKGROUND

         A. Introduction[1]

         This dispute arises from alleged misrepresentations and confidentiality breaches in connection with the purchase and sale of 340 railcars (the “Railcars”) for approximately $22 million. Plaintiff Infinity Transportation III LLC (“Infinity”) purchased the Railcars pursuant to a purchase and sale agreement effective May 29, 2015 (the “Purchase Agreement”). (Compl. Ex. 2). At the time of sale, the Railcars were included in a pool of other railcars available for lease to national railroad companies (the “Pool”). Infinity alleges there were preexisting commercial relationships between XPO and major railroads that XPO represented did not exist. These preexisting relationships impacted the inclusion of the Railcars in the Pool, thus impacting the value of the Railcars to Infinity.

         B. Facts

         Railcars are used by railroads to carry shipping containers throughout the United States. (Compl. ¶ 14). These railcars, owned by different owners, operate in a pool. The owner of the cars in the pool are paid by railway companies based on a “car hire” rate. This rate is calculated based on the amount of time the railcar is used and the distance traveled. (Id. ¶ 16). When a loaded railcar in the Pool reaches its destination, it is unloaded, and reloaded if a railroad customer wants to transport shipping containers to another location. If the railcar is not reloaded, it is redirected elsewhere until it is needed.[2] Even though empty, the railcar continues to earn “car hire” from the railroads on whose lines the car travels. (Id. ¶ 18).

         XPO is one of the nation's largest logistics and intermodal companies. (Id. ¶ 2). It owns or otherwise has an interest in a fleet of railcars that it operates in the Pool. The Railcars XPO sold to Infinity were in the Pool. (Id. ¶ 22).

         On or about April 13, 2015, Infinity and XPO entered into a non-disclosure agreement (the “Nondisclosure Agreement”) in connection with their discussions regarding the possibility of XPO selling railcars to Infinity. (Id. ¶ 28; Ex. 1). In the Nondisclosure Agreement the parties agreed not to disclose the fact of their discussions. (Id. Ex. 1.).

         During their negotiations, Infinity asked XPO to expressly represent that the Railcars in the Pool were not subject to any special arrangement XPO had with any railroad. Infinity wanted to confirm that XPO had not entered into any side agreements or understandings that would adversely affect the Railcars' use in the Pool after XPO sold the Railcars to Infinity. (Id. ¶ 32).

         On April 7, 2015, an Infinity executive, Paul Goss, sent an e-mail to Phil Harrison, XPO's agent for the sale, asking XPO to “[c]larify any formal or implied ‘quid pro quo' agreements, if any, between [XPO] and any railroads or shippers that bind use of this equipment to business activity originated by [XPO].” (Id. ¶ 34). Harrison expressly represented that he was unaware of any agreements and that there were no arrangements between XPO and any railroad that would impact the continued use of the Railcars in the Pool. (Id. ¶ 35).

         After the diligence period, the parties entered into the Purchase Agreement in which Infinity purchased the Railcars for approximately $22 million. In the Purchase Agreement, XPO represented in paragraph 5.1(b):

To XPO's knowledge, XPO's ownership of any of the Railcars is not a condition precedent (either formal or informal, contractual or noncontractual, oral or written) to any railroad's willingness to load, unload, move, or accept any of the Railcars for movement; provided, however, XPO makes no representations or warranties about the practices or preferences of any railroad, it being understood that in any event the Railcars operate subject to the AAR Code of Car Service Rules/Code of Car Hire Rules.

(Id. Ex. 2 ¶ 5.1(b)).

         The Purchase Agreement also contains a confidentiality provision (“Confidentiality Provision”) that requires the parties

to keep confidential and not to disclose to any person or entity, other than its employees, attorneys, advisors and financiers, this Agreement and the contents hereof, including without limitation, the purchase price and other terms and conditions of this Agreement and the Transactions, except as may be required by applicable law, necessary for UMLER modifications, or permitted under the parties' Confidentiality Agreement dated April 13, 2015. The parties agree not to make any press release or public announcement with respect to this Agreement or the Transactions without the parties' mutual consent or except as may be required by applicable law. XPO and Buyer shall jointly prepare such notifications to third parties as may be necessary or appropriate with respect to the Transactions contemplated thereby.

(Id. Ex. 2, ¶ 23).

         On June 1, 2015, Dan Heird, XPO's VP of Railcar Assets, sent an email to Jean Chavez at Union Pacific railroad informing Union Pacific that the Railcars had been sold to Infinity. (Id. ¶ 43; id. Ex. 3). Between June 1, 2015, and June 5, 2015, XPO also informed CSX railroad that XPO sold the Railcars to Infinity. (Id. ¶ 44). Shortly thereafter, Union Pacific rejected several Railcars. (Id. ¶ 46). CSX also informed Infinity it would not accept the Railcars for reloading on its lines. (Id.). Sometime later, Norfolk Southern railroad told Infinity that it would not accept the Railcars on its line. (Id. ¶ 47). Infinity has not been able to reliably circulate Railcars within the Pool, significantly diminishing their value to Infinity, including by loss of income.

         After railroads elected not to use the Railcars, Infinity claimed to have learned, through discussions with XPO, that XPO had misrepresented the nature of its prior arrangements with the railroads. (Id. ¶ 52). XPO admitted it had an arrangement with Union Pacific that governed use of the Railcars when they were owned by XPO. (Id. ΒΆ 53). Infinity claims Union Pacific agreed to act as a Home Road for XPO's Railcars. This ...

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