Polk Law Blog

The text of the newly proposed bill to enable the state to move forward on the purchase of rail from CSX for Sunrail has finally been posted! (EDIT: Here is the house page for its version, with analysis.)

During the last go around, I had a nagging desire to dig up the CSX agreement and look at the language myself to try to figure out who to believe, but I never did. Now, dear readers, I’ve bitten the bullet. What follows is my analysis of the CSX liability issue in as unbiased and layman-friendly way as I can possibly present it. If you want to see the documents yourself, they are available on the Sunrail site. Look for “Contract Agreements.”

The Really, Really Short Version

Liability is just a red herring. This debate should really be about the money.

Full Disclosure

But before we begin in earnest, I want to make my potential biases clear. First of all, I live in Winter Haven. I am cautiously optimistic about the economic growth that the proposed CSX intermodal facility could have for Winter Haven, though I am curious how our economic situation will affect business growth supported by the facility. I am a member of several civic groups that have voiced support for the intermodal facility.

But I work in downtown Lakeland. I do not want to see downtown Lakeland harmed by excessive freight train traffic. I also want the State of Florida to make good fiscal decisions and I am generally in favor of passenger rail development, local, regional, and state-wide.

What is a civic-minded cross-county commuter to do?

What I am and am not trying to do with this post

This post is designed to explain the accident liability and indemnification language contained in the agreement between FDOT and CSX. This issue gets a lot of press as compared to other aspects of this thing. When you are done reading this post, my hope is that you will understand this issue better and be able to call out people who try to hype it, spin it, or sell it in inappropriate or misinformed ways.

I am not going to get into some of the other sticky parts of this mess, such as:

• the concerns of residents near the proposed intermodal facility in Winter Haven
• how many trains may or may not run through downtown Lakeland
• the complexities and chances of federal funding for Sunrail or regional high speed rail in central Florida
• the proposed route of Sunrail
• additional proposed divided highways in Polk County
• the implications of this battle on Trirail funding
• projected economic impacts and job creation
• political intrigue
• labor unions
• etc…

I don’t fully understand all of these issues right now and would merely be parroting others without adding anything of value. The reader is encouraged to become better informed about the other issues on his or her own.

Background: the underlying deal

Skip this section if it looks familiar. Here’s the brief, Dick and Jane Version of how this whole controversy arose.

CSX is a company that operates freight trains. They have two north/south lines running through central Florida, the A-Line and the S-line. Here’s a map I found online¹:

As you can see, the A-line runs through Orlando, while the S-Line is farther west. Orlando wants a local commuter rail system called Sunrail, but the plan for Sunrail uses the A-Line track. The A-Line track doesn’t belong to them. It belongs to CSX. As we all learned in kindergarten, you shouldn’t play with toys that don’t belong to you.

So… FDOT cut a deal with CSX. For $150,000,000, FDOT agreed to purchase 61.5 miles of the A-line (the blue strip on the map) so that it could be used for Sunrail. (Depending on who you ask, several hundred million more dollars may be at stake in other state commitments related to this project.) If the deal happens, CSX will shift some of its freight traffic from the A-line to the S-line, and share the A-Line with Sunrail for that portion of its freight traffic that is not re-routed.

There is also a plan to construct an intermodal logistics facility, basically a terminal where goods are switched from train to truck and vice-versa, in Winter Haven. Winter Haven is conveniently located near where the S-Line and the A-line join up with a CSX line running south.

The project could mean some economic growth for Winter Haven, so Winter Haven politicians and leaders are generally behind the Sunrail deal. It also has the potential to route more freight trains through downtown Lakeland, so Lakeland politicians and leaders are generally opposed to the Sunrail deal. There is some controversy over whether and when the logistics facility will be built if the Sunrail deal does not go through.

Part of the agreement between CSX and FDOT describes what will happen in the event that there is some sort of accident on the A-Line. Figuring out that language is the meat of this post, which I’ll get to in a minute. For now, all you need to know is that in order for that language to work as intended, a state statute must be passed to authorize it. Without the statute passing, CSX says they won’t do the Sunrail deal.

Because of this hurdle, politicians who do not support the Sunrail proposal had an opportunity to try to defeat it by getting enough votes to kill the proposed statute. Sen. Dockery (R – Lakeland) led an effort to prevent passage of the required statute this year. Sen. Alexander (R – Lake Wales), whose district includes a lot of Winter Haven, has helped push for the special session, which starts today, to try to get a statute passed again.

One of the hooks for the effort by Dockery, the one that seems to have gotten the most traction in the press and with the public, is the issue of liability. Her successful effort to defeat the Sunrail liability legislation was based in large part on a claim that the liability provisions of the deal are grossly unfair to the State.

How is the deal structured?

There are a lot of documents related to this deal. The one to start with is the Contract for Sale and Purchase that is dated November 30, 2007. This contract sets forth the basic terms and conditions of the deal, including the price, closing date, and references other documents, many of which are exhibits/attachments to the Contract for Sale and Purchase. For brevity, I will refer to the Contract for Sale and Purchase as the “Sale Contract.”

Before we get into the liability/indemnity issue, take note of something about the Sale Contract. First of all, a lot of the exhibits are not included. The biggest sins of omission are the legal description of the property and the various tangible and intangible assets to be transferred with it (this includes everything from switching equipment to service agreements with third party contractors). It is not necessarily out of the question for these types of things to be unfinished when a contract is signed, but you usually address the process by which they will be completed in the contract. The Sale Contract doesn’t do that. It’s like a contract to buy a car that doesn’t specify the options packages. It may not be enforceable because it leaves out some material terms. Also, the originally contemplated closing date has also passed with no closing, giving either party the right to back out. Apparently an extension was negotiated but I have not been able to find documentation of it.

The long and short of this is that, despite the very real signatures on the bottom lines of this agreement, there probably is no binding agreement.  The state of Florida is not obligated to buy anything. CSX is not obligated to sell anything. I’m speculating and making assumptions, but I think all terms of this deal are potentially open for negotiation, including liability issues and price, so the final deal, if any, might look radically different from what we have in front of us today. Or it might be pretty close. Even if the new bill passes, a new deal still has to be inked with CSX.

The Sale Contract has an unsigned deed form attached to it as Exhibit 4. Under the Sale Contract, this is the deed that CSX must use to convey the property to the state at closing. The deed specifically reserves an easement for CSX. It basically says “I’m giving this property to you, but I’m keeping a right to use it in some way.” The easement would enable CSX to use the track being sold for freight trains, but does not address any of the details of this relationship. For those details, we need to look at a third document, the Central Florida Operating and Management Agreement. I will call this one the “CFOMA.” (I pronounce it “see-foe-muh.”) The Sale Contract has the terms and conditions of the actual sale. The CFOMA governs the relationship of FDOT and CSX after the sale is completed and sets forth who is responsible for what.

Splitting this stuff into two agreements makes good sense. After the sale is over and done with, the Sale Agreement can be put away in a drawer somewhere. It has a bunch of mumbo jumbo in it that has nothing to do with the ongoing relationship. That leaves a more narrowly tailored document to govern the ongoing use of the track without the baggage of all the language pertinent only to the sale.

The Good Stuff Starts Here

What does the CFOMA say about liability?

The summaries you may have encountered in the press make true statements. Under the terms of the CFOMA, the state is responsible for all injuries or death suffered when basically anybody except a CSX employee is injured.

What normally gets left out is the rest of the story.

What is the rest of the story?

The insurance provisions.

I can’t fault CSX for wanting some type of indemnification. Agreeing to share track with a passenger rail service is an enormously risky thing for CSX to do. If I’m CSX, I’m perfectly happy to continue to do things as I always have  - keep both the A and S lines and keep other users off my track. If the state wants me to give that up, they need to pay me a lot of money and make sure I am protected from the additional risk I will incur.

Consider also that CSX will use the track mainly during off-hours. To my knowledge (I could be wrong) CSX and Sunrail will not share the track. The chances that a CSX train would run into a Sunrail train or hit a school bus at 3am are extraordinarily small. CSX also has to rely on the State doing a good job of maintaining the track. Thus, if there is a wreck involving a CSX train, CSX will get sued for sure, even if the real problem is with the track or a signal. A quick glance at statistics kept by the US Dept. of Transportation confirm that track and signal problems are the cause of a lot of train accidents. CSX could also be sued on the basis that they maintained the tracks before the State takes over, whether there is any merit to such an accusation or not.

The problem is exacerbated by the fact that the State potentially has sovereign immunity. Sovereign immunity basically means that you can’t sue the state unless they give you permission to sue them. (Which doesn’t happen very often, as you can imagine.) From CSX’s perspective, without some sort of assumption of liability by the State, an injured party will sue CSX regardless of whose fault it is, because CSX’s exposure is a lot higher than the State’s.

And that’s why CSX won’t do this deal without indemnification. They know that their liability exposure will increase a lot, and that in the event of an accident they are a deeper pocket than the state. The Plaintiffs’ attorneys will eat them alive, even in a situation where CSX is only liable under a tenuous theory.

From the 50,000 foot level, and I am not talking about specific numbers or language here, this is a very reasonable position for CSX to take.

From the State’s perspective, one can understand why CSX would want this, but we certainly don’t want CSX to get out of paying its fair share if it truly is at fault in any way.

Is there a compromise position?

Absolutely. The parties are concerned about risk and associated costs of that risks. Why not get some insurance, have both sides pay a portion of the premiums commensurate with the likelihood that each will be at fault, and let the insurance fund cover everything.

That’s EXACTLY what this agreement does. Section 21 of the CFOMA establishes an insurance fund with a deductible of $10 million and limits of $200 million. The State pays for it, but CSX pays the state a monthly fee each month pursuant to other provisions of the CFOMA. This fee helps offset the cost of insurance, track maintenance, and other costs to the State associated with the joint use of the track.

The insurance fund includes a “self insurance” fund in the name of the state. Self insurance is exactly the right way to go in situations like this where the insured parties are large entities with tremendous assets, and where the risk is of the type where market-based third party insurance is difficult or impossible to obtain.

It’s kind of buried in the documents, and I have never seen the press prominently acknowledge this, but the State’s liability when CSX is at fault is limited to the limits of the insurance. Thus, in the event that the injuries are CSX’s fault, and the damages exceed the $200 million insurance that CSX helps pay for, CSX would still be on the hook.

A lot of otherwise intelligent and strongly-voiced people are saying things in public that I think are somewhat misleading about this. For example, in an editorial in today’s Ledger, the paper refers to the insurance fund as “hocus-pocus” and suggests that the courts are the appropriate place to figure out who is liable for an accident.

Those sorts of sentiments ignore the realities of this deal: a huge increase in risk to a company that would reasonably prefer not to share track with passenger trains, the lack of availability of insurance on the open market, and a co-defendant with sovereign immunity. If I were CSX’s attorney, I would not recommend doing this deal without indemnification and an insurance fund, period. If I were the State’s attorney, I think I could make it work under those terms, if CSX pays its fair share into the insurance fund.

What does the new bill do?

The language is convoluted, and I have not had a chance to spend much time with it yet. I intend to if I can and will post the results of my analysis here. But at first glance it doesn’t really change much. It makes CSX liable for the deductible in the event they are held to have engaged in “willful and wanton” acts (that’s a legal term of art), a new detail. Other than that, I’m not sure yet.

My not-so-humble-opinion…

Liability is just a red herring. The big-picture structure of the liability issue makes perfect since. The language needs some serious work, if for no other reason than that it is enormously confusing to read. The details need some tweaking, and I think the various agreements and bills are pretty favorable to CSX and it needs to swing the other way somewhat. But there is plenty of room for a compromise that works for everyone. Two smart lawyers for each side, a couple of good business people on each side, and some hard-core actuaries could knock out these issues in a couple of days of negotiating. It’s just not that big of a deal. Liability is a political hot button that sounds ugly to the masses that is being used as a political tool.  While it worked for Dockery before, whether they solve it in special session or solve it later, the State and CSX are going to solve the liability issue.

What should be REALLY important to people in Polk County, other than the direct effects on Lakeland and Winter Haven, is whether the price the state is paying for the track is too high and whether the amount that CSX is paying back to the state to share the track and pay into the insurance fund is adequate.

And another thing…

The epic fail of the day award goes to whomever made a decision not to release the proposed bill language until the eve of the special session. Will there even be time for a solid staff analysis before a potential vote? That is not way this process should work.

1. My apologies to whomever created it. E-mail me if it is yours and I will give you credit or take it down, at your pleasure. [↩]