GATX Corp. v. Ga. Power Co.

Full title: GATX CORPORATION, Plaintiff, v. GEORGIA POWER COMPANY, Defendant.

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

Date published: May 5, 2023

674 F. Supp. 3d 1322 (N.D. Ga. 2023)

Opinion

CIVIL ACTION NO. 1:19-cv-4790-AT

2023-05-05

GATX CORPORATION, Plaintiff, v. GEORGIA POWER COMPANY, Defendant.

Thomas Matthew Bailey, Katie Lamb Balthrop, Thomas Edward Reilly, Troutman Pepper Hamilton Sanders LLP, Atlanta, GA, for Defendant. James William Cobb, Timothy Brandon Waddell, Caplan Cobb LLC, Atlanta, GA, John C. Gekas, Michael J. Pollock, Elizabeth A. Thompson, Saul Ewing Arnstein & Lehr, LLP, Chicago, IL, for Plaintiff.

Amy Totenberg, United States District Judge

Thomas Matthew Bailey, Katie Lamb Balthrop, Thomas Edward Reilly, Troutman Pepper Hamilton Sanders LLP, Atlanta, GA, for Defendant. James William Cobb, Timothy Brandon Waddell, Caplan Cobb LLC, Atlanta, GA, John C. Gekas, Michael J. Pollock, Elizabeth A. Thompson, Saul Ewing Arnstein & Lehr, LLP, Chicago, IL, for Plaintiff. ORDER Amy Totenberg, United States District Judge

It is never a good thing for an item you own to be ripping at the seams, particularly if the item is intended to carry something. This breach of contract case involves railcars that Plaintiff contends will "unzip" at the seams and cause a commodity spill or derailment if they are not rebodied. This matter is before the Court on cross-Motions for Summary Judgment [Docs. 75, 76]. For the following reasons, Plaintiff's and Defendant's Motions for Summary Judgment are both DENIED. I. Background ¹

1 Keeping in mind that when deciding a motion for summary judgment, the Court must view the evidence and all factual inferences in the light most favorable to the party opposing the motion, the Court provides the following statement of facts. See Optimum Techs., Inc. v. Henkel Consumer Adhesives, Inc., 496 F.3d 1231, 1241 (11th Cir. 2007) (observing that, in connection with summary judgment, the court must review all facts and inferences in the light most favorable to the non-moving party). This statement does not represent actual findings of fact. Priester v. City of Riviera Beach, 208 F.3d 919, 925 n.3 (11th Cir. 2000) ("We . . . have repeatedly stressed that the 'facts,' as accepted at the summary judgment stage of the proceedings, may not be the 'actual' facts of the case."). Instead, the Court has provided the statement simply to place the Court's legal analysis in the context of this particular matter.

Before the Court fast tracks into the background of this matter, it finds it beneficial to provide a list of the parties, companies, and individuals relevant to the matter.

GATX:	GATX Corporation ("GATX") is the Plaintiff in this case.
Larry Bank	Mr. Bank is GATX's Manager of Steel Inspection. (Bank Depo., Doc. 79 at ECF 38:1-12.)
Gabe Buzas	Mr. Buzas is GATX's International Senior Equipment Engineer. (Buzas Depo., Doc. 97 at ECF 32:8-10.)
Tyler Dickman	Mr. Dickman is GATX's Director of Fleet Portfolio Management. (Dickman Depo., Doc. 93 at ECF 18:19-21.)
Jay Leadingham	Mr. Leadingham is GATX's Vice President of Coal and Steel. (Leadingham Depo., Doc. 85 at ECF 17:23-25.)
Philip Daum	Through counsel, GATX retained Mr. Daum of Engineering Systems, Inc. ("ESi") to investigate the corrosion at issue in this litigation. Mr. Daum is GATX's expert. (Daum Report, Doc. 84-3 at 5.)
David Horowitz	Mr. Horowitz is GATX's 30(b)(6) representative. He is the Vice President and Executive Director of Fleet Portfolio

	Management and an engineer by trade. (Horowitz Depo., Doc. 94 at ECF 27:5-12.)
Georgia Power Company	Georgia Power Company ("GPC") is the Defendant in this case.
Harry Mullins	Mr. Mullins was a GPC Railcar Specialist prior to his retirement. (Mullins Depo., Doc. 86 at 13:13-16.)
Michael Dunn	Mr. Dunn is one of GPC's 30(b)(6) representatives. He acts as the Railcar Maintenance Manager at Southern Company Services. (Dunn Depo., Doc. 100 at ECF 15:15-16.)
Christine Lewter	Ms. Lewter is one of GPC's 30(b)(6) representatives. She acts as the Coal Logistics Manager at Southern Company Services. (Lewter Depo., Doc. 96 at 15:2-4.)
Steve Pitts	Mr. Pitts was employed by Southern Company Services in limestone and fuel oil procurement prior to his retirement. (Pitts Depo., Doc. 87 at 13:2-13.)
Cheryl Gulledge	Ms. Gulledge was a Senior Coal Procurement Agent for Southern Company Services at the time of the issues giving rise to this litigation. (Gulledge Depo., Doc. 81 at 11:7-16.)
William M. Kane, III, Ph.D., P.E.	Through counsel, GPC retained Mr. Kane and Mark Viz of Exponent, Inc. ("Exponent") to investigate problems related to the condition of the Railcars at issue in this litigation. (DSOAF, Doc. 109-2 ¶ 17; Pl. Resp. to DSOAF, Doc. 116 ¶ 17; Viz-Kane Report, Doc. 120-10 at 3.)
Mark J. Viz, Ph.D., P.E.	Through counsel, GPC retained Mr. Viz and William Kane of Exponent to investigate problems related to the condition of the Railcars at issue in this litigation. (DSOAF, Doc. 109-2 ¶ 17; Pl. Resp. to DSOAF, Doc. 116 ¶ 17; Viz-Kane Report, Doc. 120-10 at 3.)
National Steel Car	National Steel Car is the company that was chosen by GPC to build the Railcars at issue in this litigation.

Progressive Rail	Progressive Rail is a third-party shop that stored the Railcars at issue in this litigation prior to their inspections.
Finite Element Analysis	A finite element analysis ("FEA") is a computer modeling analysis that tests the mechanical and structural integrity of railcars and indicates whether and under what condition railcars can be put back into service. (Buzas Depo., Doc. 97 at ECF 206:17-207:17, 208:15-209:10, 299:22-301:9; Viz-Kane Report, Doc. 120-10 at 25.)
Fatigue Analysis	A fatigue analysis evaluates the remaining life of a railcar generally and the remaining life of a railcar with certain reinforcements. (See Viz-Kane Report, Doc. 120-10 at 46-47.)

A. The Master Lease Agreement

On March 8, 2004, Plaintiff GATX Corporation ("GATX") and Defendant Georgia Power Company ("GPC") entered into a Railcar Master Net Lease Agreement (the "Master Lease").² (Plaintiff's Statement of Material Facts ("PSOF"), Doc. 76-2 ¶ 1; Def. Resp. to PSOF, Doc. 109-2 ¶ 1; Master Lease, Doc. 76-3.) GATX drafted the Master Lease. (Def.'s Statement of Additional Material Facts ("DSOAF"), Doc. 109-2³ ¶ 2; Pl. Resp. to DSOAF, Doc. 116⁴ ¶ 2.) However, the parties conferred regarding the lease terms. (See Doc. 77-8 at 2; Doc. 75-35 at 2.)

2 GATX Corporation is the successor by merger to GATX Financial Corporation, which originally entered into the agreement with Defendant GPC. (PSOF, Doc. 76-2 ¶ 2; Def. Resp. to PSOF, Doc. 109-2 ¶ 2.)

3 GPC included its Statement of Additional Material Facts with its Response to GATX's Statement of Material Facts in a single document (Doc. 109-2). GPC's Statement of Additional Material Facts begins on page 67.

4 GATX included its Response to GPC's Statement of Additional Material Facts in the same document as its Reply to GPC's Response to its Statement of Material Facts (Doc. 116). GATX's Response to GPC's Statement of Additional Material Facts begins on page 77.

Under the Master Lease, GATX acted as the lessor of certain railcars, and GPC acted as the lessee. (See Master Lease, Doc. 76-3.) The Master Lease includes the following relevant provisions:

2.5 Net Leases. "Lessee shall have no right to . . . be released, relieved or discharged from the obligation or liability to make all payments due thereunder for any reason whatsoever, including but not limited to the following: . . . any defect in, or damage to, or loss or destruction of, any Car from any cause."

3.1 Disclaimer. "THE CARS ACCEPTED BY LESSEE UNDER EACH LEASE ARE ACCEPTED 'AS IS, WHERE IS.' LESSOR SHALL NOT BY VIRTUE OF HAVING LEASED THE CARS BE DEEMED TO HAVE MADE ANY REPRESENTATIONS OR WARRANTIES TO LESSEE, WHETHER WRITTEN, ORAL OR IMPLIED. LESSEE ACKNOWLEDGES AND AGREES THAT: (A) LESSOR IS NOT A MANUFACTURER OF OR A DEALER IN PROPERTY OF SUCH KIND AS THE CARS; (B) LESSOR HAS NOT MADE AND DOES NOT HEREBY MAKE, ANY

REPRESENTATION, WARRANTY OR COVENANT WITH RESPECT TO THE DESIGN, OPERATION, MERCHANTABILITY, DESCRIPTION, CONDITION, QUALITY OR DURABILITY OF THE CARS, THEIR SUITABILITY FOR THE PARTICULAR PURPOSES AND USES OF LESSEE."

6.1 Maintenance. "Lessee, at its sole cost and expense, shall maintain each of the Cars in good operating condition, normal wear and tear excepted, with any broken, damaged, or missing parts replaced, substantially in the same condition as when received by Lessee."

8.2 Return Condition. "Lessee shall return the Cars to Lessor . . . in the same operating condition, complete with all parts (and with all parts working and not broken), equipment, and accessories as when initially delivered to Lessee, ordinary wear and tear excepted" and "in full compliance with Section 6 hereof."

9.1 Risk of Loss; Damages. "(i) Lessee shall bear all risk of, and shall be solely responsible for, any loss, theft, governmental seizure (if not caused by the action or inaction of Lessor), appropriation, destruction and damage of or to each Car, however caused, and all physical or other damage to persons or property caused by each Car or Lessee's (or any sublessee's or other party's) use, maintenance operation or possession thereof, and (ii) Lessee shall bear all costs, charges and expenses related to each Car, unless otherwise expressly provided in the relevant Lease."

(See id.)

On October 1, 2007, the parties executed Supplement No. 2 to the Master Lease, which provided for the lease of seventy-five brand-new open top hopper railcars (the "Supplement No. 2 Cars"). (PSOF, Doc. 76-2 ¶ 2; Def. Resp. to PSOF, Doc. 109-2 ¶ 2; Master Lease Supplement No. 2, Doc. 76-4.) That same day, the parties also executed Supplement No. 3 to the Master Lease, which provided for the lease of eighty-five brand-new open top hopper railcars (the "Supplement No. 3 Cars"). (PSOF, Doc. 76-2 ¶ 3; Def. Resp. to PSOF, Doc. 109-2 ¶ 3; Master Lease Supplement No. 3, Doc. 76-5.)

GPC leased the brand-new Supplement No. 2 Cars and Supplement No. 3 Cars (collectively, the "Railcars") for the purpose of transporting limestone and gypsum to and from its coal-powered electricity plants. (PSOF, Doc. 76-2 ¶ 8; Def. Resp. to PSOF, Doc. 109-2 ¶ 8.) GATX was aware that the Railcars would be used for this purpose. (See 2014 Contract Renewals, Doc. 75-24 at 44-51.) However, GATX did not select the type of railcar to lease to GPC for this purpose. (Id. ¶ 10.) Instead, GPC issued its own request for proposals ("RFP"), and through the RFP process, selected National Steel Car to build the Supplement No. 2 and Supplement No. 3 Cars. (Id.) GATX then purchased the Railcars - selected by GPC and built by National Steel Car - and leased them to GPC. (Id.) Still, GATX did not make any representations or warranties regarding the Railcars and whether they could be used for GPC's purposes. (Id. ¶ 58.) Indeed, in the parties' Master Lease, GATX affirmatively disclaimed any warranty regarding the Railcars' "suitability for the particular purposes and uses of [GPC]" and regarding the Railcars' "condition, quality, or durability." (Master Lease, Doc. 76-3 at 4.)

B. The Return of the Railcars

1. The Supplement No. 2 Cars

In November 2017, GPC returned the Supplement No. 2 Cars to GATX after having used them to carry gypsum and limestone for a decade.⁵ (PSOF, Doc. 76-2 ¶ 11; Def. Resp. to PSOF, Doc. 109-2 ¶ 11; DSOAF, Doc. 109-2 ¶ 4; Pl. Resp. to DSOAF, Doc. 116 ¶ 4.) On December 18, 2017, Larry Bank of GATX conducted a preliminary inspection of seventy-two of the seventy-five Supplement No. 2 Cars to determine their condition at the end of the parties' Master Lease.⁶ (See 3/5/2018 Inspection Report, Doc. 76-9 at 4.) During his preliminary inspection, Mr. Bank inspected several Cars at random and found them to have "corrosion damage present to the slope sheets, hoppers, partition sheets, center sill hoods and outlet doors." (Id.) He then concluded that he would have to conduct further testing on the Cars. (Id.)

5 It is not clear whether GPC carried any other substance in the Cars. However, there is no affirmative evidence before the Court indicating that the Cars transported any other materials.

6 The remaining three Cars had not yet arrived at the inspection site. (See Joint Inspection Report, Doc. 76-9 at 2.)

On January 24, 2018, Mr. Bank of GATX and Harry Mullins of GPC jointly inspected the seventy-two Supplement No. 2 Cars. (Id.)⁷ Allen Robison of GPC and Ricardo Guzman of GATX also attended the inspection. (Id. at 4.)⁸ Following the joint inspection, Mr. Bank of GATX wrote a Maintenance Services Field Inspection Report detailing the results of his and Mr. Mullins' inspection. (Id.) In his report, Mr. Bank explained that Mr. Mullins agreed that the Cars had corroded but did not believe the corrosion was anything more than "normal wear and tear:"

7 (See Mullins Depo., Doc. 103 at ECF 67:13-18.)

8 (See PSOF, Doc. 76-2 ¶ 12; Def. Resp. to PSOF, Doc. 109-2 ¶ 12; Mullins Depo., Doc. 103 at ECF 67:13-18.)

Harry and I discussed the corroded condition of the cars' interior and Harry stated he feels the corrosion is normal wear and tear. The doors on the 70 of the 72 cars were not open at the time of our joint inspection and Harry stated he had viewed the interior of the cars at the TSI Bowen plant after their interiors were cleaned and he acknowledged they have corrosion present however he feels it is normal wear and tear.

(Id. at 4.)

Additionally, Mr. Bank noted that after examining the interiors of two of the Supplement No. 2 Cars, he and Mr. Mullins agreed that the Supplement No. 2 Cars experienced uniform corrosion in each of their pockets. (Id.) Therefore, Mr. Bank conducted ultrasonic testing on only one pocket of each of the two Supplement No. 2 Cars.⁹ (Id.) Mr. Bank found that, according to the ultrasonic testing, the corrosion had caused metal loss in the Supplement No. 2 Cars and that the metal loss was greater at the bottom of the Cars and less severe at the top of the Cars. (Id.)

9 Mr. Mullins inspected the ultrasonic testing equipment used by Mr. Bank and took photos of Mr. Bank as he conducted his ultrasonic testing. (Id. at 4.)

The day after the joint inspection with Mr. Mullins of GPC, on January 25, 2018, Mr. Bank and Mr. Guzman of GATX tested four additional Supplement No. 2 Cars for metal loss and corrosion. (Id.) Mr. Bank found that the ultrasonic readings of the four Supplement No. 2 Cars revealed metal loss and corrosion similar to the metal loss and corrosion of the two Supplement No. 2 Cars tested the previous day. (Id.) Ultimately, Mr. Bank found that the six Supplement No. 2 Cars that had been ultrasonically tested had metal loss ranging from approximately 12% to 55% in the measured areas. (Id. at 7-10.) When deposed, GPC's inspector Mr. Mullins confirmed that he did not disagree with any of Mr. Bank's measurements or with how Mr. Bank selected which Supplement No. 2 Cars to sample. (Mullins Depo, Doc. 103 at ECF 69:12-21.)

On February 21, 2018, Mr. Bank returned to inspect one of the previously inspected Cars, GLIX-7028. (3/5/2018 Inspection Report, Doc. 76-9 at 5.) Mr. Gabe Buzas joined Mr. Bank for the February 21 inspection along with two employees from Progressive Rail, a third-party shop that was storing the Cars in Decoursey, Kentucky. (See id.; GATX Engineering Trip Report, Doc. 84-1 at 2; PSOF, Doc. 76-2 ¶ 24; Def. Resp. to PSOF, Doc. 109-2 ¶ 24.) At the time, Mr. Buzas acted as International Senior Equipment Engineer for GATX.¹⁰ (Buzas Depo., Doc. 97 at ECF 32:8-10.) In an Engineering Trip Report following the inspection, Mr. Buzas explained that upon visually inspecting Supplement No. 2 Car GLIX-7028, which had been shot blast, he could see clear transitions between heavily corroded and somewhat corroded areas of the Car. (GATX Engineering Trip Report, Doc. 84-1 at 2.) Mr. Buzas concluded that "a majority of the heavy corrosions was seen in the valley areas of the car body (where two plates came together) and then tapered off towards the center of each sheet." (Id. at 3.)

10 Prior to becoming International Senior Equipment Engineer for GATX, Mr. Buzas was a Senior Mechanical Analyst who was responsible for repairing damaged railcars, conducting structural analysis of railcars, including finite element analysis, and working on issues relating to adding capacity to railcars. (See Buzas Depo., Doc. 97 at ECF 31:20-32:5.) Mr. Buzas has been conducting finite element analysis since 1989. (Id. at ECF 33:5-7.)

By February 22, 2018, the final three Supplement No. 2 Cars had arrived at the inspection site. (Id.; 3/5/2018 Inspection Report, Doc. 76-9 at 5.) Mr. Bank inspected them following their arrival. (3/5/2018 Inspection Report, Doc. 76-9 at 5.) Although he could not enter these Supplement No. 2 Cars due to a lack of access to their doors, Mr. Bank used a ladder to view the Cars' interiors from above and found them to have the same corrosion as the other Supplement No. 2 Cars he had inspected. (Id.)

Mr. Buzas, along with the two Progressive Rail employees, also attended the February 22 inspection. (GATX Engineering Trip Report, Doc. 84-1 at 2-3.) In the Engineering Trip Report following the inspection, Mr. Buzas explained that he met with the Progressive Rail employees to "review the plan to reinforce the [Supplement No. 2 C]ars." (Id. at 3.) Mr. Buzas noted that the following would be required to reinforce the valleys of the Supplement No. 2 Cars:

3/16" thick overlay plates to reinforce the heavily corroded valley areas along with 1/8" thick sheets for the sides. Each plate will overlap one another so as not to allow water infiltration. The hoods will be removed all together and replaced with new of the same thickness.

(Id.) Mr. Buzas further stated that he requested that the Supplement No. 2 Cars be weighed "to determine [the] amount of reduction of weight due to corrosion," which would "provide information in regards to how much new material can be added [to the Supplement No. 2 Cars]." (Id.) Mr. Buzas also noted that "[r]eplacing the whole lower hopper assembly is not an option, this was confirmed by viewing the car construction as well as from the response back from NSC." (Id. at 4.)

On April 11, 2018, Mr. Bank emailed Mr. Buzas, as well as GATX's Director of Fleet Portfolio Management Tyler Dickman, regarding how GATX should address, if at all, the alleged corrosion in the Supplement No. 2 Cars. (4/11/2018 Bank-Buzas Email, Doc. 84-2 at 2.) Mr. Bank stated:

Tyler in my opinion, but will defer to Gabe for an official ruling, the corrosion

the AG cars presently have will not require repair at this time for the cars to continue in service. I base this on the fact that the corroded body sheeting doesn't have any holes in them and therefore the commodity will remain inside the cars and also we didn't find any corrosion damage to the structural components of the cars so failure there isn't a concern. Finally as you know similar cars run in interchange until they have body holes that commodity can possibly fall out of. When the corrosion/holes becomes that bad the railroads will bad order¹¹ the cars to a repair shop. We see this on the P66 coke cars and also Vulcan materials cars.

(Id. at 2-3.)

11 It is the Court's understanding that when a railcar is "bad ordered," it is deemed defective and must be repaired where it is then located or removed from a train and sent to a repair facility for repairs.

Disagreeing with Mr. Bank, Mr. Buzas responded:

Larry,

I would add the following;

• NSC Ag cars are of light construction meaning that there is no additional room in the design to tolerate reduction of material thickness due to this corrosion.

• With this reduction of plate thickness due to corrosion, other areas of the car structure are prone to additional load that they were not originally designed to take.

• I agree that other cars in the past run with corrosion, holes, etc. but what we have with these cars in my opinion is not a direct comparison.

• With the reduced plate thickness due to corrosion and not a lot of extra capacity in the as-built design I believe that these cars will soon start to show signs of over stress related issues such as cracked welds if not properly reinforced.

• I think we are all in agreement that some type of reinforcement is required, however at this point in time we do not know how much and where.

We are currently working on a structural Finite Element Analysis (FEA) of the car to compare the as-built [car] to the current corroded condition. From this analysis we will gain insight to how much reinforcement is required and at what locations. The goal of this effort is to not to add extra weight that may not be required. However this type of analysis takes time. I would think that everyone agrees that first off we want the cars to be safe and secondly we want them as much as possible to retain their marketability by reducing the amount of material (weight) added.

I would expect that we could have some answers within a few weeks but would defer to Pete's assessment in regards to the timeline.

(Id. at 2.)

2. The Supplement No. 3 Cars

Approximately one month later in May 2018, GPC returned the Supplement No. 3 Cars to GATX. (PSOF, Doc. 76-2 ¶ 17; Def. Resp. to PSOF, Doc. 109-2 ¶ 17.) GATX's inspector, Mr. Bank, inspected eighty-four of the eighty-five Supplement No. 3 Cars on June 6-7, 2018 in order to determine their condition at the end of the parties' Master Lease. (See 6/8/2018 Inspection Report, Doc. 76-10 at 2.) Although Mr. Mullins of GPC was also supposed to attend the inspection, he had a scheduling conflict and asked Mr. Bank to conduct the inspection without him. (Id.)

Following the inspection, Mr. Bank wrote a Maintenance Services Field Inspection Report explaining his findings. (Id.) Mr. Bank found that the Supplement No. 3 Cars were in the same condition as their sister Cars, i.e., the Supplement No. 2 Cars. (Id. at 3.)¹² Mr. Bank explained that he inspected two Supplement No. 3 Cars and "found the interiors to have corrosion damage present on the slope sheets, hoppers, partition sheets, center sill hoods and outlet doors." (Id. at 4.) Mr. Bank then performed ultrasonic testing on one pocket of each of the two sample Supplement No. 3 Cars and found that the corrosion had caused metal loss in them. (Id. at 3-4.) Like with the Supplement No. 2 Cars, metal loss in the Supplement No. 3 Cars was greater at the bottom of the Cars and less severe at the top of the Cars. (Id. at 4.) Still, Mr. Bank found that the Supplement No. 3 Cars had experienced slightly less corrosion than the Supplement No. 2 Cars. (Id.)

12 Prior to Mr. Bank's inspection of Supplement No. 3 Cars, Mr. Mullins indicated that he also believed the interiors of the Supplement No. 3 Cars were in the same condition as the interiors of the Supplement No. 2 Cars. (See 6/8/2018 Inspection Report, Doc. 76-10 at 3; see also Harry Mullins 12/20/2017 Email to Steve Pitts, Doc. 84-7 at 2 ("We all need to understand that the Wansley cars look basically the same as the Bowen cars.").) Similarly, one of GPC's 30(b)(6) witnesses, Michael Dunn, testified that the Supplement No. 2 Cars and Supplement No. 3 Cars were in similar condition. (Dunn Depo., Doc. 100 at ECF 47:3-13.)

C. Analysis and Activity Following the Return of the Railcars

Following the return of all of the Railcars, GATX analyzed what to do about the corrosion in the bottom of them, specifically the "pitting," which is a form of corrosion that GPC acknowledges was present in the Railcars. (GATX Engineering Trip Report, Doc. 84-1 at 3-4; 4/11/2018 Bank-Buzas Email, Doc. 84-2 at 1; DSOAF, Doc. 109-2 ¶ 5; Pl. Resp. to DSOAF, Doc. 116 ¶ 5.) GATX defines pitting as corrosion which impairs the safety and structural integrity of a railcar. (GATX Brief in Support of MSJ, Doc. 76-1 at 2.) GPC's experts define pitting as "an extremely localized form of corrosive attack which occurs at sites that are small compared to the overall exposed surface." (Viz-Kane Report, Doc. 120-10 at 53.) GPC's experts also provide the following explanation regarding how pitting occurs and how it compares to areas with relatively less deep metal penetration:

[Pitting] is initiated when corrosion nucleates preferentially at a site when either the surface layer breaks down or a differential in the local condition occurs due to one or more of the reasons listed above. An electrolytic cell is formed between the pit location and the surrounding metal. Once initiated, a pit can continue to grow by a self-sustaining process and results in pits of various size and profile. Pitting has an unpredictable propagation rate and can often occur in concert with uniform corrosion, in which case a pitting factor can be defined as the ratio of deepest metal penetration to the average metal penetration.

(Id.)

GATX ultimately concluded that the Railcars needed to be re-bodied in order to safely realize anything close to their expected service life of fifty years. (Dickman Decl., Doc. 76-13 ¶ 4.) In reaching its conclusion, GATX focused on the alleged metal loss and decrease in the Railcars' plate thickness in certain structural "hotspots"¹³ that could allegedly fail due to the corrosion and pitting of the Railcars and cause a derailment due to commodity spilling out on the train track. (Buzas Depo., Doc. 97 at ECF 175:25-178:5.)

13 Hotspots are high stress or peak stress areas in a railcar. (Buzas Depo., Doc. 97 at ECF 177:21-23, 209:17-18.)

GPC heavily disputes whether the Railcars were intended for a fifty-year service life and whether the corrosion in the Railcars actually impacts their service life. (See Def. Resp. to PSOF, Doc. 109-2 ¶¶ 7, 28.) However, neither GATX nor GPC have attempted to determine the remaining life of the Railcars. (PSOF, Doc. 76-2 ¶ 36; Def. Resp. to PSOF, Doc. 109-2 ¶ 36 (arguing that it is immaterial that GPC did not conduct this analysis rather than denying that fact.)) Further, GPC disputes whether the Railcars are at risk of failing or derailing. (Id. ¶ 29.)

Even though GATX determined that the Railcars required rebodies in the long run, the company also concluded that the Railcars could be safely put back into short-term service with localized reinforcements that would not make the Railcars overweight¹⁴ and impact their marketability. (Buzas Depo., Doc. 97 at ECF 208:15-209:10.) GATX reached this conclusion after conducting a finite element analysis ("FEA"), which is a computer modeling analysis that tests the mechanical and structural integrity of railcars and indicates whether and under what condition a railcar can be put back into service. (See id. at ECF 206:17-207:17, 208:15-209:10, 299:22-301:9; Viz-Kane Report, Doc. 120-10 at 25.)

14 According to GATX Engineer Mr. Buzas, the Railcars have a weight limit (gross rail limit or "GRL"), which means that the heavier a Railcar is, the less commodity it can carry and the less marketable it is. (See Buzas Depo., Doc. 97 at ECF 60:6-61:13.)

Although GPC did not conduct its own quantitative analysis of the structural integrity of the Railcars, GPC argues that the reinforcements were unnecessary. (See Def. Resp. to PSOF, Doc. 109-2 ¶¶ 31, 35 (arguing that it is immaterial that GPC did not conduct its own structural integrity analysis rather than denying that fact); PSOF, Doc. 76-2 ¶ 35.) GPC points out that, while GATX purportedly determined that the Railcars could be put back into service with reinforcements, GATX leased out ninety of the 160 railcars in July 2018 without making any repairs or applying any reinforcements to address the corrosion in the Railcars. (See GATX July 2018 Lease, Doc. 77-14.) Although it is unclear to the Court when the lease agreement dealing with the ninety re-leased Railcars commenced, the lease expired on April 30, 2020 without complaint from the lessee about the operating condition of the Railcars. (Id. at ECF 2; Horwitz (GATX 30(b)(6) witness) Depo., Doc. 94 at ECF 88:5-12.) GATX maintains that the lease term was for one year. (PSOF, Doc. 76-2 ¶ 32.) In addition to the ninety Railcars, GATX also applied temporary reinforcements to a number of other Railcars in order to place them on shorter-term leases (typically five years or less) before a rebody needed to be applied. (Dickman Decl., Doc. 76-13 ¶ 5.)

On March 21 and June 22, 2018, GATX informed GPC that GPC had not returned the subject Railcars in acceptable condition as required under Section 8.2 of the Master Lease. (See GATX March 21, 2018 Notice, Doc. 75-55 at 10; Leadingham Email to Steve Pitts, Doc. 75-57 at 2.) GATX estimated that the cost to repair and rebody the Railcars would be approximately $11 million and requested that GPC repair the Railcars or that GATX be reimbursed for making repairs. (Leadingham Email to Steve Pitts, Doc. 75-57 at 2.) On July 26, 2018, GPC sent a letter to GATX accepting responsibility for certain damage to the Railcars and agreeing to pay $115,674.38 for that damage; however, GPC refused to accept any responsibility for corrosion in the Railcars. (See GPC July 26, 2018 Letter to GATX, Doc. 119-42 at 3-4.) GPC argued that any corrosion was due to normal wear and tear, and it was therefore not responsible for repairing or paying for the alleged damage to the Railcars. (Id. at 4.) GPC also stated that, "With this payment [of $115,674.38], Lessee has satisfied its end of Lease obligations for the Bowen Cars and Wansley Cars [i.e., the Railcars] and does not owe Lessor anything further under the Lease." (Id.)

D. This Litigation

On October 24, 2019, GATX filed this lawsuit seeking to hold GPC liable for breach of contract. (Doc. 1.) GATX also now seeks residual interest in the Railcars under the New York Uniform Commercial Code ("UCC"). On September 2, 2021, after a year and a half of discovery, GATX and GPC both moved for summary judgment on GATX's claims. (Docs. 75 and 76.) The Court held oral argument on the parties' Motions for Summary Judgment on November 14, 2022. (See Doc. 144.) The parties' Motions have now arrived at the station and are ready for resolution.

II. Legal Standard

The Court may grant summary judgment only if the record shows "that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). A factual issue is genuine if there is sufficient evidence for a reasonable jury to return a verdict in favor of the non-moving party. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). A factual issue is material if resolving the factual issue might change the suit's outcome under the governing law. Id. The motion should be granted only if no rational fact finder could return a verdict in favor of the non-moving party. Id. at 249, 106 S.Ct. 2505.

When ruling on the motion, the Court must view all the evidence in the record in the light most favorable to the non-moving party and resolve all factual disputes in the non-moving party's favor. See Reeves v. Sanderson Plumbing Prods., Inc., 530 U.S. 133, 150, 120 S.Ct. 2097, 147 L.Ed.2d 105 (2000). The moving party need not positively disprove the opponent's case; rather, the moving party must establish the lack of evidentiary support for the non-moving party's position. See Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). If the moving party meets this initial burden, in order to survive summary judgment, the non-moving party must then present competent evidence beyond the pleadings to show that there is a genuine issue for trial. Id. at 324-26, 106 S.Ct. 2548. The essential question is "whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law." Anderson, 477 U.S. at 251-52, 106 S.Ct. 2505.

The standard of review for cross-motions for summary judgment does not differ from the standard applied when only one party files a motion, but simply requires a determination of whether either of the parties deserves judgment as a matter of law on the facts that are not disputed. Am. Bankers Ins. Grp. v. United States, 408 F.3d 1328, 1331 (11th Cir. 2005). The Court must consider each motion on its own merits, resolving all reasonable inferences against the party whose motion is under consideration. Id. The Eleventh Circuit has explained that "[c]ross-motions for summary judgment will not, in themselves, warrant the court in granting summary judgment unless one of the parties is entitled to judgment as a matter of law on facts that are not genuinely disputed." United States v. Oakley, 744 F.2d 1553, 1555 (11th Cir. 1984). Cross-motions may, however, be probative of the absence of a factual dispute where they reflect general agreement by the parties as to the controlling legal theories and material facts. Id. at 1555-56.

III. Discussion

The Court now turns to GATX's claims and the parties' related summary judgment arguments. The Court first discusses whether either party is entitled to summary judgment on GATX's breach of contract claim. The Court then switches tracks to consider the viability of GATX's UCC claim. Finally, the Court considers GPC's contention that GATX's claims are barred by the doctrine of accord and satisfaction.

A. Breach of Contract

GATX and GPC both moved for summary judgment on GATX's claim that GPC violated the parties' Master Lease by returning the subject Railcars with pitting and thus in an unacceptable condition under the parties' contract.

Under New York law,¹⁵ a plaintiff seeking to recover damages for a breach of contract must establish (1) the existence of a contract; (2) adequate performance of the contract by the plaintiff; (3) a breach of the contract by the defendant; and (4) damages. Arista Dev., LLC v. Clearmind Holdings, LLC, 207 A.D.3d 1127, 172 N.Y.S.3d 271, 274 (N.Y. App. Div. 2022); Dee v. Rakower, 112 A.D.3d 204, 976 N.Y.S.2d 470 (N.Y. App. Div. 2013). Here, GPC does not dispute that the Master Lease constitutes an enforceable contract or that GATX adequately performed under the Master Lease. Instead, GPC argues that it did not breach the parties' Master Lease when it returned the Railcars to GATX with pitting and that the parties' course of dealing supports this conclusion. Additionally, GPC argues that, even if it breached the Master Lease, GATX has not suffered any damage as a result of the breach.

15 The parties agree that the Master Lease is governed by New York law. (See GATX Brief in Support of MSJ, Doc. 76-1 (using New York law to analyze the contract issues in this case); GPC Brief in Support of MSJ, Doc. 77-1 (using New York law to analyze the contract issues in this case); Master Lease, Doc. 76-3 § 13.6 ("This Master Agreement and each Supplement hereunder shall be governed by and construed in accordance with the laws of the State of New York.").)

1. Whether GPC Breached the Master Lease

At its first stop, the Court considers whether GATX has established as a matter of law that GPC breached the Master Lease when it returned the subject Railcars to GATX with pitting. GATX contends that GPC breached several provisions of the Master Lease by returning the Railcars in such corroded condition, specifically provisions that required GPC to return the Railcars to GATX in substantially the same operating condition as when received by GPC, "ordinary wear and tear excepted," and provisions making GPC liable for damage to the Railcars from any cause:

2.5 Net Leases. "Lessee shall have no right to . . . be released, relieved or discharged from the obligation or liability to make all payments due thereunder for any reason whatsoever, including but not limited to the following: . . . any defect in, or damage to, or loss or destruction of, any Car from any cause."

6.1 Maintenance. "Lessee, at its sole cost and expense, shall maintain each of the Cars in good operating condition, normal wear and tear excepted, with any broken, damaged, or missing parts replaced, substantially in the same condition as when received by Lessee."

8.2 Return Condition. "Lessee shall return the Cars to Lessor . . . in the same operating condition, complete with all parts (and with all parts working and not broken), equipment, and accessories as when initially delivered to Lessee, ordinary wear and tear excepted" and "in full compliance with Section 6 hereof."

9.1 Risk of Loss; Damages. "(i) Lessee shall bear all risk of, and shall be solely responsible for, any loss, theft, governmental seizure (if not caused by the action or inaction of Lessor), appropriation, destruction and damage of or to each Car, however caused, and all physical or other damage to persons or property caused by each Car or Lessee's (or any sublessee's or other party's) use, maintenance operation or possession thereof, and (ii) Lessee shall bear all costs, charges and expenses related to each Car, unless otherwise expressly provided in the relevant Lease."

(See Master Lease, Doc. 76-3 (emphasis added).)

GPC and GATX agree that these Master Lease provisions make GPC liable for damage to the Railcars beyond ordinary wear and tear. (Tr. of Oral Argument, Doc. 151 at ECF 29:11—30:11, 34:8—35:2.) However, the parties strongly dispute the meaning of ordinary wear and tear, as the term is not defined in the Master Lease.

On one hand, GPC maintains that ordinary wear and tear means "the deterioration in the condition of the railcar measured from the railcar's condition at the inception of the lease, due to the ordinary and reasonable use of the railcar as evaluated with reference to the intended use and age of the railcar." (GPC Brief in Support of MSJ, Doc. 77-1 at 15) (quoting Weeks Marine, Inc. v. John P. Picone, Inc., No. 97 CIV. 9560 (SAS), 1998 WL 717615 (S.D.N.Y. Sept. 24, 1998), opinion amended and superseded sub nom. Weeks Marine, Inc. v. Picone, Inc., No. 97 CIV. 9560 (SAS), 1998 WL 717615 (S.D.N.Y. Oct. 14, 1998)).¹⁶ Under this definition of ordinary wear and tear, GPC argues that corrosion, even in the form of pitting, does not constitute damage exceeding ordinary wear and tear. Specifically, GPC contends that (1) it used the Railcars in an ordinary and reasonable fashion by carrying limestone and gypsum as permitted by the 2014 renewal of the Master Lease; (2) it performed ordinary and reasonable inspection and maintenance on the Railcars; and (3) metal, including the metal forming the structures of the Railcars, naturally corrodes even when it is not put into contact with commodities like limestone and gypsum. Therefore, according to GPC, any corrosion, including pitting, that resulted from the power company's transport of limestone and gypsum and ordinary maintenance of the Railcars constitutes ordinary wear and tear.

16 GPC does not acknowledge in its brief that the September 1998 Weeks Marine Opinion was superseded by an October 1998 Opinion. See Weeks Marine, Inc. v. Picone, Inc., No. 97 CIV. 9560 (SAS), 1998 WL 717615 (S.D.N.Y. Oct. 14, 1998). However, in the October 1998 Opinion, the Weeks Marine court defined "wear and tear" similar to how it defined the term in its September Opinion. See id. at *7.

On the other hand, GATX defines ordinary wear and tear as damage not impairing the structural integrity and safety of a railcar and not in excess of the scheduled depreciation of a railcar's useful life. (See Tr. of Oral Argument, Doc. 151 at ECF 14:10-16.)¹⁷ In its brief, after critiquing GPC's reliance on Weeks Marine, GATX argues that Weeks Marine actually supports its definition of wear and tear because the opposing experts in that case defined ordinary wear and tear as: "damage that 'does not materially affect the [ ] overall structural condition of the vessel.' " See Weeks Marine, Inc., 1998 WL 717615, at *5.

17 ("This is the difference between damage and ordinary wear and tear. Ordinary wear and tear is the gradual deterioration or depreciation of a railcar's mechanical operating parts on schedule with its estimated useful life. Damage is damage to the cars['] structur[e] or parts in excess of the scheduled depreciation of the car's estimated useful life.")

Under New York law, when interpreting contracts, "words should be given the meanings ordinarily ascribed to them and absurd results should be avoided." Mastrovincenzo v. City of New York, 435 F.3d 78, 104 (2d Cir. 2006) (citation omitted). "[A] contract 'must be read as a whole in order to determine its purpose and intent, and . . . single clauses cannot be construed by taking them out of their context and giving them an interpretation apart from the contract of which they are a part." Arista Dev., LLC, 172 N.Y.S.3d at 274. That is because "[w]ords considered in isolation may have many and diverse meanings." Id. Indeed, "[i]n a written document[,] the word obtains its meaning from the sentence, the sentence from the paragraph, and the latter from the whole document, all based upon the situation and circumstances existing at its creation." Id. "[A]n interpretation of a contract that has the effect of rendering at least one clause superfluous or meaningless is not preferred and will be avoided if possible." LaSalle Bank Nat'l Ass'n v. Nomura Asset Cap. Corp., 424 F.3d 195, 206 (2d Cir. 2005) (citation omitted).

Additionally, one crucial inquiry when interpreting a contract is whether the contract is ambiguous with respect to the question disputed by the parties. Nat'l Union Fire Ins. Co. of Pittsburgh, Pennsylvania v. TransCanada Energy USA, Inc., 52 Misc.3d 455, 28 N.Y.S.3d 800, 806 (N.Y. 2016), aff'd sub nom. Nat'l Union Fire Ins. Co. v. TransCanada Energy USA, Inc., 153 A.D.3d 1153, 61 N.Y.S.3d 4 (N.Y. App. Div. 2017) (citing Breed v. Ins. Co. of N. Am., 46 N.Y.2d 351, 413 N.Y.S.2d 352, 385 N.E.2d 1280, 1282 (1978)). "Whether a contractual term is ambiguous must be determined by looking within the four corners of the document and not to extrinsic sources." Id. (quoting Slattery Skanska Inc. v. Am. Home Assurance Co., 67 A.D.3d 1, 885 N.Y.S.2d 264, 274 (N.Y. App. Div. 2009)). "Ambiguity in a contract arises when the contract, read as a whole, fails to disclose its purpose and the parties' intent" or where its terms are subject to more than one reasonable interpretation. Id. (emphasis added). Importantly, "provisions in a contract are not ambiguous merely because the parties interpret them differently." Id.

GATX and GPC's dueling definitions of the term "ordinary wear and tear" each highlight one important requirement of contract interpretation — GPC's definition, the requirement that terms be afforded their ordinary meaning, and GATX's definition, the requirement that terms be read in context and in consideration of the overall purpose of a contract. The Court must consider these requirements in tandem and determine the meaning of "ordinary wear and tear" in the Master Lease with both requirements in mind.

The Court first considers the typical meaning of "ordinary wear and tear." Black's Law Dictionary defines "ordinary wear and tear" as "[d]eterioration caused by ordinary use" and as "the depreciation of property resulting from its reasonable use." See Wear and Tear and Ordinary Wear and Tear, Black's Law Dictionary (11th ed. 2019); Pool Eng'g, Inc. v. Swalling Constr. Co., Inc., No. 3:16-CV-00029-TMB, 2018 WL 8754118, at *7 (D. Alaska Aug. 6, 2018), vacated in part on other grounds, No. 3:16-CV-00029-TMB, 2019 WL 2995936 (D. Alaska June 24, 2019) ("The ordinary meaning ascribed to the phrase 'wear and tear' is '[d]eterioration caused by ordinary use [or] the depreciation of property resulting from its reasonable use.' "); Otto Candies, Inc. v. McDermott Int'l, Inc., 600 F. Supp. 1334, 1343 (E.D. La. 1985), aff'd sub nom. Otto Candies v. McDermott Int'l, 785 F.2d 1033 (5th Cir. 1986) ("The usual and ordinary meaning ascribed to the phrase 'wear and tear' is that deterioration of condition or depreciation in value attributable to normal and reasonable use of an object."). The Merriam-Webster Dictionary similarly defines "wear and tear" as "the loss, injury, or stress to which something is subjected by or in the course of use[,] especially[ ] normal depreciation."¹⁸

18 Wear and Tear, Merriam-Webster Dictionary, https://www.merriam-webster.com/dictionary/wear% 20and% 20tear (last visited Mar. 22, 2023).

The Court now considers the purpose and intent of the parties when they entered into the Master Lease at issue here. The Master Lease required that GATX lease GPC 160 brand-new railcars. It further required in the Maintenance and Return Condition provisions that GPC return the previously brand-new Railcars to GATX in good or the same operating condition, ordinary wear and tear excepted, and "suitable for immediate use for the purpose set forth in the relevant Supplement." (Master Lease, Doc. 76-3 at 12.) The purpose set forth in the relevant Supplements was transporting commodities. (Master Lease Supplement No. 2, Doc. 76-4; Master Lease Supplement No. 3, Doc. 76-5.)

It is clear from the plain language used in the Master Lease's Maintenance and Return Condition provisions that the purpose of the provisions was to require GPC to maintain the good operating condition and functionality of the brand-new Railcars such that they would be suitable for immediate transportation use and for the same purpose that GPC had used them. Therefore, any damage to the Railcars impairing their core operation, mechanical or structural integrity, or core functionality must be considered damage exceeding ordinary wear and tear, lest the Court improperly make the "good operating condition" provisions of the Master Lease meaningless. See Sequoia Presidential Yacht Grp. LLC v. FE Partners LLC, No. CV 8270-VCG, 2016 WL 6678444, at *8 (Del. Ch. Nov. 14, 2016).¹⁹

19 The Court in Sequoia thus found that "[t]he purpose of the Contractual Condition provision was to require Silversmith to maintain the condition, and thus the value, of the Sequoia as collateral for FE Partners' loan. Excepting, as wear and tear, the complete loss of structural integrity of the Sequoia's hull is irreconcilable with this purpose . . . I am persuaded, that wear and tear could include some woodwork for 'damage done docking' but 'a hull that is tremendously degraded in structure is well beyond normal wear and tear.' I find the plain meaning of this wear and tear exception requires that repairs necessitated on account of ordinary use are 'excepted,' however, structural damage or damage caused by neglect or negligence are not."

With this in mind and after reading the contract as a whole, the Court finds that the unambiguous meaning of "ordinary wear and tear" under the Master Lease is the depreciation of the Railcars, resulting from their reasonable use and expected in railcars of a similar age carrying similar product, that does not structurally or materially impair the operating function of the Railcars and that does not exceed the scheduled depreciation of the Railcars' useful life. The Court finds that this definition of "ordinary wear and tear" most appropriately gives effect to the intent of both parties as revealed by the language in the Master Lease. See In re Motors Liquidation Co., 943 F.3d 125, 131 (2d Cir. 2019) ("When interpreting a contract under New York law, our 'primary objective is to give effect to the intent of the parties as revealed by the language of their agreement.' ").

Despite the broad language used in the Master Lease, GPC argues that the parties' course of dealing indicates that corrosion, even in the form of pitting, can never rise to the level of damage exceeding ordinary wear and tear under the parties' agreement. GPC relies on the following evidence to support its argument:

1. An April 2013 email from a GATX representative to a GPC representative indicating that GATX sought to include language in the Master Lease in 2013 that would make GPC expressly liable for corrosion damage. (See Doc. 77-8 at 2.)

Subject: Railcar Master Net Lease-Maintenance Language

All,

We Just noticed a provision in GATX's current maintenance provisions that we should have included when we updated the Master the other day. We now use this provision in transactions involving railcars used to transport coal and other similar commodities.

We apologize for the oversight.

6.1 Maintenance. Lessee, at its sole cost and expense, shall maintain or cause to be maintained each of the Cars (i) in good operating condition, normal wear and tear excepted, (ii) with any broken, damaged or missing parts replaced, (iii) free of corrosion or other damage related to or connected With the commodity or other material placed in or allowed to accumulate in or on the Cars, (iv) in substantially in the same condition as when received by Lessee, (v) suitable for immediate use for the purposes set forth in the relevant Rider, and meeting (a) applicable standards as prescribed by the rules and regulations of any Governing Authority with jurisdiction, including, without limitation, the FRA, in effect during the relevant Term and (b) the maintenance requirements of the manufacturer currently applicable to the Cars. In the case of clause 6.1(iii) above, (1) Lessee shall be liable for such damage regardless of how caused and whether or not due to Lessee's negligence, (2) such damage shall not be considered ordinary wear and tear, and (3) it shall be conclusively presumed that each Car was free of corrosion or other commodity-related damage on the Acceptance Date for such Car. Lessee further agrees that it shall not discriminate against any Cars in its maintenance program and in no event shall it provide or cause to be provided a lower standard of maintenance for the Cars than the standards applied to any other similar railcars owned or leased by Lessee. Any such maintenance, repairs or alterations performed by Lessee shall be done with parts that are of like kind and at least equal quality to parts being replaced or repaired.

2. A July 2014 email exchange between one of GPC's 30(b)(6) representatives, Cheryl Gulledge, and GATX's commercial representative, Jay Leadingham, indicating that GPC prefers that none of its leases, including the Master Lease at issue here, include corrosion language. (Doc. 75-35 at 2.) Although this email exchange includes general information about GPC's preferences with regard to its leases with GATX, the email exchange specifically discusses railcars not at issue in this litigation that transport coal (Supplement No. 5 Coal Cars).

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Hi, Jay,

We are unable to guarantee these railcars would run exclusively in the West. It is currently Southern's view that cars will be returned to Lessor in interchange condition according to Interchange Rules and FRA Rules and regulations in effect at the line. with respect to Lessee's obligations in connection with the return of the cars, the Lease Agreement will not specifically reference corrosion.

Thank you,

Cheryl Faems Gulledge

Railcar Procurement & Utilization

Southern Company Services

Office: 205-257-6608

Cell: 206-633-3537

-----Original Message-----

From: Jay Leadingham [mailto: Jay. Leadingham@gatx.com]

Sent: Monday, July 21, 2014 2:46 PM To: Gulledge, Cheryl

Subject: RE: Southern Company-Request for Proposals

Cheryl,

You can take Bruce Shipman and Brooks Laudin off of the RFP's for existing equipment. They are on our Structured Finance side and I can bring them in if there are more complicated financial transactions. As well, is it still Southern companies position not to include Corrosion language in their leases? If so, could you guarantee that these cars would stay in the west? (PRB, Utah, etc)?

Thanks,

Jay

3. Several 2014 letters and emails regarding the Supplement No. 5 Coal Cars. (See Doc. 77-9; Doc. 75-37). Importantly, GATX claimed that GPC returned the Supplement No. 5 Cars to GATX with corrosion damage and thus violated Section 8.2 of the parties' Master Lease.²⁰ (Doc. 77-9.) However, GPC contended that the Supplement No. 5 Coal Cars were returned in accordance with the Master lease, (Doc. 75-37), and GATX later stopped pursuing its claim. (Gulledge Decl., Doc. 77-3 ¶ 7-8.)

4. Several 2016 letters and emails concerning certain railcars used by GPC to transport coal under a "Babcock and Brown Lease" (i.e., a lease different from the Master Lease at issue in this case). (See Doc. 77-12; Doc. 77-13; Doc. 75-46; Doc. 77-25.) These letters indicate that GATX and GPC reached a settlement agreement regarding these coal cars after GATX alleged that GPC returned the cars with corrosion damage. (Id.) Notably, one of these emails indicates that the Master Lease at issue here is silent on corrosion. (See Doc. 77-25.)

20 Section 8.2 of the Master Lease provides that "Lessee shall return the Cars to Lessor . . . in the same operating condition, complete with all parts (and with all parts working and not broken), equipment, and accessories as when initially delivered to Lessee, ordinary wear and tear excepted." (Master Lease, Doc. 76-3 at 12.)

GATX argues in response that the majority of the evidence on which GPC relies to support its course of dealing argument is inadmissible because it concerns settlement negotiations, which GATX argues is inadmissible under Rule 408. Fed. R. Evid. 408 ("Evidence of the following is not admissible . . . conduct or a statement made during compromise negotiations about the claim."). GATX further contends that the settlement of other corrosion disputes involving different railcars carrying different commodities is irrelevant to the interpretation of the Master Lease with regard to the Railcars at issue here. Additionally, GATX argues that the negotiation conduct on which GPC relies occurred after the signing of the supplements to the Master Lease and thus cannot constitute a course of conduct.

Under New York law, a court may not typically consider extrinsic evidence unless it first finds that a contract is ambiguous. See Lion Oil Trading & Transp., Inc. v. Statoil Mktg. & Trading (US) Inc., 728 F. Supp. 2d 531, 535 (S.D.N.Y. 2010) ("In general, a court must determine that a contract is ambiguous before resorting to extrinsic evidence that touches on the contract's meaning."); Appaloosa Inv. L.P.I. v. Fed. Home Loan Mortg. Corp., No. 20-1708, 2022 WL 2720520, at *2 (2d Cir. July 14, 2022) ("Under New York law, . . . written contracts are unambiguous when 'the contract language has a definite and precise meaning' . . . 'If an ambiguity is found, the court may accept any available extrinsic evidence to ascertain the meaning intended by the parties during the formation of the contract.' ") (internal citations omitted). However, under New York UCC law,²¹ the Court may consider the parties' course of dealing or course of performance to explain a term in the parties' agreement even if no ambiguity is found:

21 In addition to the New York common law, Article 2-A of the New York UCC also applies to the Master Lease at issue in this case because "New York has adopted Article 2A of the Uniform Commercial Code, which 'applies to any transaction . . . that creates a lease.' " Wells Fargo Bank Nw., N.A. v. Taca Int'l Airlines, S.A., 315 F. Supp. 2d 347, 350 (S.D.N.Y. 2003) (citing N.Y. U.C.C. § 2-A-102).

Terms with respect to which the confirmatory memoranda of the parties agree or which are otherwise set forth in a writing intended by the parties as a final expression of their agreement with respect to such terms as are included therein may not be contradicted by evidence of any prior agreement or of a contemporaneous oral agreement but may be explained or supplemented:

(a) by course of dealing or usage of trade or by course of performance

N.Y. U.C.C. § 2-A-202.

A course of dealing is a "sequence of conduct concerning previous transactions between the parties to a particular transaction that is fairly to be regarded as establishing a common basis of understanding for interpreting their expressions and other conduct." N.Y. U.C.C. § 1-303. Here, the Master Lease was signed in 2004; Supplement Nos. 2 and 3 were signed in 2007; and the renewals of the supplements were signed in 2014. (See Master Lease, Doc. 76-3; Master Lease Supplement No. 2, Doc. 76-4; Master Lease Supplement No. 3, Doc. 76-5; 2014 Contract Renewals, Doc. 75-24 at 44-51.) A course of performance is a "sequence of conduct between the parties to a particular transaction" that only exists if "(1) the agreement of the parties with respect to the transaction involves repeated occasions for performance by a party" and "(2) the other party, with knowledge of the nature of the performance and opportunity for objection to it, accepts the performance or acquiesces to it without objection." N.Y. U.C.C. § 1-303.

Pretermitting whether the evidence on which GPC relies is admissible or establishes that GATX and GPC had a course of dealing or a course of performance, none of the evidence on which GPC relies indicates that the parties intended for corrosion damage to be omitted as damage that could exceed ordinary wear and tear under the parties' Master Lease. GATX attempted in 2013 to add language to the Master Lease that would make GPC expressly liable for corrosion damage to the Railcars. And although GPC did not accept the express liability language proposed by GATX, GPC did not request contract language or otherwise indicate that it would never be liable for corrosion damage under the Master Lease. This evidence indicates, if anything, that the parties could not agree on how to handle corrosion damage under the Master Lease and left the issue for resolution in the course of their later dealings or if necessary, for resolution in court.

Additionally, the settlement of damages disputes concerning separate coal-carrying railcars similarly does not show that the parties agreed that GPC would not be liable for corrosion damage under the Master Lease. Instead, these disputes reveal that GATX has consistently maintained that GPC is liable for corrosion damage under the parties' contracts, that GATX and GPC previously reached several settlement agreements regarding corrosion damage, and that the Master Lease is "silent on corrosion." The Court therefore rejects GPC's argument that the parties' course of dealing and/or course of performance indicate that corrosion, even in the form of pitting, can never as a matter of law rise to the level of damage exceeding ordinary wear and tear under the Master Lease.

Having determined the meaning of "ordinary wear and tear" in the parties' Master Lease and rejected GPC's argument that it cannot be liable for corrosion damage under the Master Lease, the Court now considers whether the pitting in the Railcars does or does not constitute damage exceeding ordinary wear and tear as a matter of law. The Court finds it beneficial to provide a basic diagram of a railcar, with the railcar's parts most relevant to this case labeled, before beginning its analysis. The Court presents below this model of a railcar based on its review of photos and diagrams of the Railcars at issue in this case that were presented by the parties. (See Daum Report, Doc. 84-3 at 10; Viz-Kane Report, Doc. 120-10 at 29.)

Image materials not available for display.

GATX offers the expert report of engineer Philip Daum to support its argument that the pitting in the Railcars constitutes damage exceeding ordinary wear and tear because the pitting impairs the structural integrity of the Railcars. In preparing his report, Mr. Daum performed his own inspection of the Supplement No. 2 Cars and reviewed GATX's end-of-lease inspection reports, which were prepared by Larry Bank. (See Daum Report, Doc. 84-3 at 5.)

To refresh, Mr. Bank, along with Harry Mullins of GPC on January 24, 2018²² and Rick Guzman of GATX on January 25, 2018,²³ inspected the Supplement No. 2 Cars following their return. On January 24, 2018, Mr. Bank used an ultrasonic thickness ("UT") gauge to measure the thickness of each of the steel sheets that comprised two of the Supplement No. 2 Cars while Mr. Mullins observed. (See 3/5/2018 Inspection Report, Doc. 76-9 at 4.) On January 25, 2018, Mr. Bank and Mr. Guzman measured the thickness of each of the steel sheets that comprised four other Supplement No. 2 Cars. (Id.) Mr. Bank sought to compare the thickness of the steel sheets of the Supplement No. 2 Cars prior to GPC's use of them to the thickness of the steel sheets of the Supplement No. 2 Cars following GPC's use. Measurements were taken from the inside of the Supplement No. 2 Cars, and to facilitate the UT measurements, the interior surface was ground to the approximate depth of each pit that was measured.²⁴ (See id.; Daum Report, Doc. 84-3 at 13.) Mr. Bank ultimately found that there was metal loss in the Supplement No. 2 Cars and that the metal loss was generally greater down by the outlets of the Supplement No. 2 Cars. (3/5/2018 Inspection Report, Doc. 76-9 at 4.) Additionally, Mr. Bank found that the six Supplement No. 2 Cars that had been ultrasonically tested had metal loss ranging from approximately 12% to 55%. (Id. at 7-10.)

22 (See 3/5/2018 Inspection Report, Doc. 76-9 at 2.)

23 (Id.)

24 The grounding allegedly "prepared a flat spot large enough for the UT probe in order to have a consistent measurement." (See Daum Report, Doc. 84-3 at 13.)

Several months later, between June 6 and 7, 2018, Mr. Bank inspected two of the Supplement No. 3 Cars and "found the interiors to have corrosion damage present on the slope sheets, hoppers, partition sheets, center sill hoods and outlet doors." (See 6/8/2018 Inspection Report, Doc. 76-10 at 4.) Mr. Bank then performed ultrasonic testing on one pocket of each of the two sample Supplement No. 3 Cars and found that the corrosion had caused metal loss in the Cars. (Id. at 3-4.) Similar to the metal loss in the Supplement No. 2 Cars, metal loss in the Supplement No. 3 Cars was greater at the bottom of the Supplement No. 3 Cars and less severe at the top. (Id. at 4.)

Between November 7 and 8, 2019, Mr. Daum's team at ESi inspected the Supplement No. 2 Cars. (See Daum Report, Doc. 84-3 at 14.) During the inspection, Mr. Daum and his team flew a small, unmanned aerial system or drone over the tops of sixty-nine of the Supplement No. 2 Cars and captured images of the interiors of the Cars. (Id.; see, e.g., Railcar GLIX-7158, Doc. 84-5 at 18.)²⁵

25 Image materials not available for display.

The following images and excerpts reveal Mr. Daum's major findings following his team's inspection and review of GATX's inspection reports:²⁶

26 The BL and BR pockets referenced in the following images and excerpts refer to the right and left pockets on the B-end of the Railcars. (See Daum Report, Doc. 84-3 at 10.)

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Figure 5. GLIX 7028, image taken from BL pocket, looking towards right side of car. Pitting of side sheet is prominently evident adjacent to the slope sheets. Only surface rust is evident above the witness mark indicating the typical top of the loaded aggregate heap.³⁵

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Figure 7. GLIX 7031 BR pocket as photographed from the BL pocket. While there is substantial corrosion, flaking, and pitting towards the bottom of this car, above the heap witness mark is only surface rust.³⁷

Image materials not available for display.

Figure 6. GLIX 7031 BL outlet looking up towards the top of the BR corner. Three to four layers of corrosion products are evident In the lower portions of this car.³⁶

(Id. at 15-16.)

Image materials not available for display.

Figure 9. GLIX 7032 BR pocket illustrating corrosion scale and pitting on the identified component sheets. BL pocket can be seen in the background.³⁹

(Id. at 18.)

Ultimately, Mr. Daum concluded that "the extent and pattern of corrosion is generally uniform" for all 160 Railcars at issue in this litigation and that there was a "typical pattern of corrosion" with pitting on the Railcars' side sheets immediately adjacent to the slope sheets. (Id. at 7, 15.) He also found that the concentration and depth of corrosion pits increased in the lower portions of the Railcars' interiors, which is consistent with the lading, i.e., limestone and gypsum, coming into contact with moisture content from weather. (Id. at 19.) Additionally, Mr. Daum concluded that the corrosion, flaking, pitting, and loss of metal thickness evident on the interior surfaces of the Supplement No. 2 and Supplement No. 3 Cars is significantly in excess of normal wear and tear.²⁷

27 During the ESi inspection, Mr. Daum and his team also used an ultrasonic thickness (UT) meter on the exterior of several Railcars to measure the thickness of the side sheets in an attempt to replicate the work of GPC's experts. (Id. at 19-20.) They were unable to obtain consistent and accurate measurements of the internal pits using an electronic UT probe from the outside of the Railcars. (Id. at 20.)

In addition to Mr. Daum, GATX offers its own engineering department's analysis of the corrosion in the Railcars to support its argument that the pitting therein constitutes damage exceeding ordinary wear and tear because the pitting impairs the structural integrity of the Railcars. Following GPC's return of the Railcars, GATX engineers ran a computer modeling analysis known as a finite element analysis ("FEA" or "FE analysis"). (See Buzas Depo., Doc. 97 at ECF 172:1-7.) This analysis allowed them to compare an as-built model of the Railcars (which were built by National Steel Car) to (1) the return condition of the Railcars (which allegedly had reduced metal thickness) and to (2) a model of a railcar with "average corrosion." (See id. at ECF 177:15-178:5; 180:22-181:7.) Ultimately, GATX's engineers determined that there were hotspots or high stress areas in the Railcars following their return, primarily located in the joints or seams between the slope and side sheets of the Railcars, that impacted the Railcars' structural integrity. (See id. at ECF 177:15-25.) These hotspots indicated where GATX believed temporary reinforcements would be needed in the Railcars to put them back into short-term service while also preventing a railcar failure or derailment should the seams of the Railcars unzip. (See id. at ECF 225:15-226:24; 247:15-21; 208:15-209:10.) The FEA also led the GATX engineering team to conclude that a rebody of the Railcars would eventually be needed in order for the Railcars to reach their alleged expected life of fifty years. (See id. at ECF 300:22-303:3.) According to Mr. Daum, a rebody is a "major operation" that involves the following process: "you basically have to take all the welds that attach the side sheet to the car, reassemble a brand new side sheet assembly, which has the side sill as well as a top cord as well as the vertical post and reattach it to the car." (Daum Depo., Doc. 99 at ECF 151: 14—23.) Put more simply, "the side sheet is removed and a new one is basically bolted back on." (Tr. of Oral Argument, Doc. 151 at ECF 19:1-2.)

GPC offers the expert report of engineers Mark J. Viz and William M. Kane, III to support its argument that the pitting in the Railcars constitutes ordinary wear and tear as a matter of law and to rebut GATX's argument that there was structural damage to the Railcars. (See Viz-Kane Report, Doc. 120-10.)

First, Mr. Viz and Mr. Kane contend that "[c]orrosion is an element of expected deterioration that would occur in the Subject Railcars even if they were never loaded or loaded with a different commodity than gypsum or limestone." (Id. at 15.) They explain that "[c]orrosion results from the Subject Railcars being exposed to atmospheric elements, regardless of the commodities referenced in the Master Lease Agreement, during the entire duration of their lease." (Id. at 15.)

Second, Mr. Viz and Mr. Kane opine that any damage to the Railcars does not exceed ordinary wear and tear because any such damage would have resulted from GPC's reasonable use of the Railcars. More specifically, they argue that: "The wear and tear on the Subject Railcars was expected because (1) the commodity being shipped was ordinary and normal; (2) the Subject Railcars usage was ordinary and normal; (3) and the Subject Railcars inspection and maintenance was ordinary and normal." (See id. at 16-18.) Regarding "ordinary and normal" use of the Railcars, they explain that the total days of shipment for the Supplement No. 2 Cars ranged from 470 days to 746 days over approximately 6.5 years and that the total days of shipment for the Supplement No. 3 Cars ranged from 234 days to 591 days over the course of approximately eight years. (Id. at 17.) Regarding the "ordinary and normal" maintenance and inspection of the Railcars, Mr. Viz and Mr. Kane argue the following: (1) there is no evidence that any of the Railcars were bad-ordered for structure-related car body issues or otherwise held for a violation of the Interchange Rules while in GPC's custody, (id. at 18, 20); (2) there is no evidence in the Railcars' maintenance history that any major load bearing structure was ever found broken or lacking sufficient mechanical integrity, (id. at 19); (3) there is no evidence that "primary load bearing structures" were ever repaired or replaced, (id.); and (4) there is no evidence that corrosion in the Railcars ever caused enough "thickness loss to (a) reduce baseline mechanical integrity or (b) cause loss of section by complete wastage," (id. at 19).

Third, Mr. Viz and Mr. Kane criticize GATX's use of an FE analysis to determine the life expectancy of the Railcars without a rebody or reinforcements. They also critique the specific results of GATX's FE analysis concerning the structural integrity of the Railcars and the general reliability of GATX's analysis. Mr. Viz and Mr. Kane argue that an "FE analysis of a railcar computes the stress in the structural components of the railcar, which provides a measure of how the applied loads are distributed throughout the overall structure." (Id. at 26.) Therefore, according to Mr. Viz and Mr. Kane, an FE analysis does not specifically determine the remaining life of the Railcars. (Id. at 28.) Instead, Mr. Viz and Mr. Kane argue that GATX's engineering team should have performed a fatigue analysis to determine how long the Railcars could continue to be used in interchange service with or without reinforcements. (Id. at 28.) "Fatigue is a failure mechanism for which structural components subjected to time varying loads can fail at stresses far below the static material strength." (Id. at 26.) A fatigue analysis evaluates the remaining life of a railcar generally and the remaining life of a railcar with certain reinforcements. (See id. at 46-47.) Therefore, according to Mr. Viz and Mr. Kane, GATX's FE analysis could not establish that "the installation of [ ] reinforcements brackets was required at the end of the lease with GPC and that such reinforcement brackets provide an extended lifetime to the Subject Railcars." (Id. at 47.) Although Mr. Viz and Mr. Kane critique GATX's failure to conduct a fatigue analysis on the Railcars, they also failed to perform this analysis that they argue is especially critical to this case.

Mr. Viz and Mr. Kane also question the reliability of GATX's FE analysis. For example, they argue that the models used in GATX's FE analysis incorrectly define material properties. They contend that GATX's "as-built" model of the Railcars and "as-returned" model of the Railcars use different kinds of steel inputs and that the as-built conditions of the model railcar do not meet the requirements of the Association of American Railroads ("AAR") specifications. (Id. at 30-35.) Further, Mr. Viz and Mr. Kane argue that GATX's FEA as-returned model is based on worst-case conditions that are not representative of the actual condition of the Railcars at the end of the lease. (Id. at 37.) They explain that "GATX modeled the effect of corrosion by uniformly reducing the wall thickness of selected components of the car body," although the Railcars exhibit a combination of general and localized corrosion. (Id.) Additionally, Mr. Viz and Mr. Kane contend that GATX's as-returned model used the worst-case wall thickness value, i.e., values representing the highest points of metal loss in the Railcars, which is not representative of the overall condition of the Railcars. Mr. Viz and Mr. Kane also maintain that the FEA as-returned model used a wall thickness measurement, which was calculated using only the values measured from eight of the Railcars. (Id. at 37-38.)

Mr. Viz and Mr. Kane additionally contend that the pitting in the Railcars did not significantly compromise the Railcars' mechanical integrity but instead constitutes normal wear and tear. (Id. at 73-75.) They acknowledge that "[p]itting corrosion is considered deleterious primarily due to the possibility of leaking at a pressure or fluid boundary." (Id. at 73.) However, they assert that "[t]he localized nature of pitting affects the techniques with which it can be evaluated" and that "weight-loss methods are inadequate for pitting evaluations because even a very small weight loss can be concentrated in a few pits, with those of maximum depth penetrating the wall thickness to produce failure by leakage." (Id. at 74.) Thus, according to Mr. Viz and Mr. Kane, any consideration of pitting and whether it impacted the mechanical integrity of a railcar must be focused on the presence of leaks, perforation, and cracking mechanisms, which they argue are not present in the Railcars. (Id.)

In further support of their contention that pitting in the Railcars did not impact the mechanical integrity of the Railcars, Mr. Viz and Mr. Kane contend that the March 5, 2018 and June 8, 2018 inspection reports written by GATX do not mention corrosion in any major "structural members" of the Railcars. (Id. at 19.) Further, they point out that (1) ninety of the Railcars were accepted, re-leased, and remained in service on a Class 1 Railroad reassigned to Union Pacific without reinforcement repairs;²⁸ (2) railroads deemed the cars suitable for use through their acceptance and continued operation in interchange; and (3) the parties to which certain Cars were re-leased "determined that the Subject Railcars were suitable for use and exhibited sufficient mechanical integrity insofar as they were accepted for continued operation in interchange service." (Id. at 21.) Additionally, between 135 and 140 of the Railcars eventually received reinforcements and were re-leased. (Id. at 23.)²⁹ None of the lessees were notified that the Cars had corrosion damage, and none of the lessees returned the Cars due to corrosion damage. (Id. at 23.)

28 However, Mr. Dickman of GATX has explained that "[t]he cars reassigned to Union Pacific were reassigned without any reinforcements being applied to them because the term of the lease was expected to be 12 months or less." (Dickman Depo., Doc. 93 at ECF 41:13-16.) Mr. Dickman further explained that "[t]he cars did not have any corrosion repairs performed on them given the short-term nature of the reassignment leased to Union Pacific." (Id. at 41:21-23.)

29 Mr. Dickman of GATX explained that "I believe approximately a hundred and 35 to a hundred and 40 of the cars have received the reinforcements while the remaining cars were deemed too heavily corroded to have the reinforcements applied and are being held at this time." (Dickman Depo., Doc. 93 at ECF 42:9-13.)

Additionally, Mr. Viz and Mr. Kane maintain that the evaluation of pitting and its impact on the mechanical integrity of a railcar "is typically focused on the shape, size and distribution of pits on a surface." (Id. at 74.) They explain that, "[i]n some particular circumstances[,] the pitting mode may be described as deep[,] closely spaced pits bordering on an irregular type of uniform corrosion in some areas" and that "in these instances where pitting is the predominant form of corrosion and the density of pitting is relatively high, the change in a mechanical property can be used . . . for evaluation of the degree of pitting." (Id. (cleaned up.)) To simplify, this means that mechanical testing can be used under these circumstances to evaluate damage to a railcar. However, where pits are shallow and isolated on a railcar, which Mr. Viz and Mr. Kane say is the case here, "there is no indication that changes in bulk mechanical properties of the railcar sidewalls would have any correlation with the pitting condition." (Id. at 74-75.) Thus, in their view, there is no evaluation mechanism under such circumstances to reliably assess whether the pitting structurally impacts the operation of the railcar.

GATX's expert, Mr. Daum, offered a rebuttal report refuting many of Mr. Viz and Mr. Kane's arguments. (See Daum Rebuttal Report, Doc. 127.) First, Mr. Daum argues that, contrary to Mr. Viz and Mr. Kane's representation, "[t]he most pertinent damage [to the Railcars], that is also evident to the naked eye, are the areas where pitting damage is clustered." (Id. at 7.) Mr. Daum explains that the "most obvious of these areas are adjacent to the welded connections between the side sheets and hopper slope sheets." (Id.) Mr. Daum thus criticizes the locations of Mr. Viz and Mr. Kane's UT measurements for being "near scattered pits, [but] distant from the clustered pitting damage adjacent to the side-sheet-to-slope-sheet connections." (Id. at 21.) Mr. Daum explains that Mr. Viz and Mr. Kane's data characterizes only the "general corrosion component of the damage[,]" and "fails to properly characterize the metal loss at pits and completely misses characterization of the clusters of pits adjacent to welds connecting the slope sheets to the side sheets." (Id. at 27.) Mr. Daum concludes that "all of the Exponent opinions, that are based on the Exponent data and analysis, are [therefore] unfounded." (Id. at 7.)

Second, Mr. Daum does not dispute Mr. Viz and Mr. Kane's argument that the as-built conditions of the model railcar used in GATX's FE analysis do not meet the requirements of the Association of American Railroads ("AAR") specifications. (Id. at 18.) Rather, Mr. Daum states that the areas that do not meet requirements are of no concern and are not relevant to the analysis. (Id. at 18-19.)

Mr. Daum also does not dispute the contention that GATX's as-returned model used the worst-case wall thickness value that is not representative of the overall condition of the Railcars. Instead, he justifies GATX's "conservative approach" by stating that "[t]he process to develop a comprehensive model of the corrosion would have been extremely time consuming, given that there was no practical, standard way to model the uneven, clustered pitting corrosion." (Id. at 16.) Ultimately, "GATX thinned the whole sheet up to the top of the ridge slope sheets by 40% based on their measurements of the corrosion pitting damage observed in clusters adjacent to the welds connecting slope sheets to side sheets." (Id.)

Further, regarding the taking of the worst-case pit measurements, GATX's counsel explained during oral argument that "[t]he worst case pitting damage is the first instance of catastrophic failure." (Tr. of Oral Argument, Doc. 151 at ECF 20:5-8.) Counsel then clarified that what GATX is really concerned about is "unzipping, which is a fairly descriptive and frightening term, where basically [a] car is loaded and the load is such that it basically rips [a railcar] apart at the seams, which obviously is bad. Can create derailment, loss of life, loss of property, et cetera, et cetera." (Id. at ECF 21:6-11.) Thus, when using the worst-case pits, GATX claims that its engineers and expert were "trying to determine that if the car fails where is it going to fail first." (Id. at ECF 21:12-15.)

Third, Mr. Daum maintains that a fatigue analysis was unnecessary. (See Daum Rebuttal Report, Doc. 127 at 16.) He asserts that the damage indicating that a rebody of the Railcars was necessary was clear to the naked eye and undoubtedly indicated that a rebody would be necessary:

As an experienced railcar lessor, GATX knew that merely overlaying the corroded sheets was not an option due to the substantial increase in weight that would occur. GATX also knew the extent of damage precluded cutting out the affected areas to repair. GATX thus concluded that ultimately, a full rebody was the only way to realize the full expected life from the subject cars.

Based on their fleet experience, GATX knew that the pitting damage would eventually require a rebody (replacement of the side sheets, slope sheets, etc.). This is consistent with my fleet management experience. While not immediately necessary, a rebody of the car will eventually be required. Whether that rebody occurs at age 15, 20, 30, or

even 40 years, the reason the subject cars require a rebody is because of the pitting damage that occurred while the cars were in the custody and control of GPC.

Accordingly, GATX did not intend nor need to perform a fatigue analysis showing the reduction in total life of the cars. The damage from pitting corrosion can be seen with the naked eye. GATX only needed to ensure that the cars were safe in order to bridge the time gap to the eventual rebody.

(Id.)

After having painstakingly considered the parties' and their experts' arguments regarding whether the pitting in the Railcars constitutes (or does not constitute) ordinary wear and tear as a matter of law, it is clear that summary judgment adjudication is not appropriate here. The following factual and evidentiary questions remain regarding whether the pitting in the Railcars constitutes damage exceeding ordinary wear and tear:

1. Does the pitting in the Railcars materially impair their operating function?

2. If the pitting does not materially impair the operating function of the Railcars, have the Railcars still depreciated in a way that was not expected for railcars of a similar age carrying similar product?

3. Did any depreciation of the Railcars result from GPC's reasonable or unreasonable use of the Railcars?

4. Did the pitting impact the anticipated 50-year longevity and utility of the Railcars?

Therefore, fact questions remain regarding whether GPC breached the parties' Master Lease.

2. Whether GPC's Actions Caused the Damage to the Railcars

Having determined that fact questions remain regarding whether GPC breached the Master Lease, the Court now arrives at its second breach of contract stop to consider the issue of causation. Under New York law, causation is "an essential element of damages in a breach of contract action." Nat'l Mkt. Share, Inc. v. Sterling Nat. Bank, 392 F.3d 520, 525 (2d Cir. 2004). "[A] plaintiff must [typically] prove that a defendant's breach directly and proximately caused his or her damages." Id.; Fed. Hous. Fin. Agency for Fed. Home Loan Mortg. Corp. v. Morgan Stanley ABS Cap. I Inc., 59 Misc.3d 754, 73 N.Y.S.3d 374, 397 (N.Y. Sup. Ct. 2018) ("In order to prove a breach of contract cause of action, the plaintiff must prove that a defendant's breach was the proximate cause of its damages.").

GPC argues that even if the pitting in the Railcars constitutes damage exceeding ordinary wear and tear, GATX has offered no evidence that GPC caused the pitting in the Railcars. Therefore, according to GPC, it is entitled to summary judgment. In response, GATX asserts that GPC undoubtedly caused the pitting in the Railcars because (1) "they had the [Railcars] since they were built;" (2) "they were the only user of the [Railcars];" and (3) "there was significant corrosion damage to the point where the [Railcars] have to be rebodied." (Horowitz Depo., Doc. 94 at ECF 282:1-7; Horowitz Depo., Doc. 94 at ECF 282:12-16 ("Georgia Power had the [Railcars] since they were built, the only user of the [Railcars]. Cars don't corrode on their own, so Georgia Power damaged the cars with heavy corrosion.").)

Before considering the question of whether GPC did or did not cause the pitting in the Railcars as a matter of law, the Court must first determine whether the answer to that question matters. Under the Master Lease, GPC agreed to the following provisions:³⁰

30 The Court notes that it has defined wear and tear under the Master Lease as "the depreciation of the Railcars, resulting from their reasonable use and expected in railcars of a similar age carrying similar product, that does not structurally or materially impact the operating function of the Railcars and that does not exceed the scheduled depreciation of the Railcars' useful life." (See supra Section III.A.)

2.5 Net Leases. "Lessee shall have no right to . . . be released, relieved or discharged from the obligation or liability to make all payments due thereunder for any reason whatsoever, including but not limited to the following: . . . any defect in, or damage to, or loss or destruction of, any Car from any cause ."

6.1 Maintenance. "Lessee, at its sole cost and expense, shall maintain each of the Cars in good operating condition, normal wear and tear excepted, with any broken, damaged, or missing parts replaced, substantially in the same condition as when received by Lessee."

8.2 Return Condition. "Lessee shall return the Cars to Lessor . . . in the same operating condition, complete with all parts (and with all parts working and not broken), equipment, and accessories as when initially delivered to Lessee, ordinary wear and tear excepted" and "in full compliance with Section 6 hereof."

9.1 Risk of Loss; Damages. "(i) Lessee shall bear all risk of, and shall be solely responsible for, any loss, theft, governmental seizure (if not caused by the action or inaction of Lessor), appropriation, destruction and damage of or to each Car, however caused , and all physical or other damage to persons or property caused by each Car or Lessee's (or any sublessee's or other party's) use, maintenance operation or possession thereof, and (ii) Lessee shall bear all costs, charges and expenses related to each Car, unless otherwise expressly provided in the relevant Lease."

(See Master Lease, Doc. 76-3 (emphasis added).) Under these provisions, GPC agreed to be financially responsible for damage to the Railcars that exceeded ordinary wear and tear, no matter how the damage was caused. To interpret these provisions differently would be to not give full effect to each of the provisions in the Master Lease. See Mitsui Rail Cap., LLC v. Am. Coal Co., 2013 IL App (1st) 120605-U, ¶¶ 34-57 (interpreting New York law and finding that the lessor of certain railcars assumed liability for damage to the railcars exceeding ordinary wear and tear regardless of the cause of the damage).

Therefore, under the Master Lease, GPC may be held liable for any damage to the Railcars exceeding ordinary wear and tear, no matter the cause, and it makes no difference whether GPC caused the damage to the Railcars.

3. Whether GATX Has Been Damaged

Although GATX does not have to establish that GPC caused any relevant damage to the Railcars to succeed on its breach of contract claim, it does have to establish that it was damaged by GPC's return of the Railcars with pitting, if a jury should find that the pitting constitutes damage exceeding ordinary wear and tear. That is because "[i]t is fundamental to the law of damages that one complaining of injury has the burden of proving the extent of the harm suffered." Berley Indus., Inc. v. City of New York, 45 N.Y.2d 683, 412 N.Y.S.2d 589, 385 N.E.2d 281, 282 (1978).

"[O]nce the existence of damages is determined, a fact-finder may make a reasonable approximation of their amount." State v. United Parcel Serv., Inc., 253 F. Supp. 3d 583, 696 (S.D.N.Y. 2017), aff'd, 942 F.3d 554 (2d Cir. 2019) (citing Tractebel Energy Mktg. v. AEP Power Mktg., Inc., 487 F.3d 89, 110 (2d Cir. 2007)). That is because where "it is certain that damages have been caused by a breach of contract, and the only uncertainty is as to their amount, there can rarely be good reason for refusing, on account of such uncertainty, any damages whatever for the breach." Cole v. Macklowe, 105 A.D.3d 604, 605, 964 N.Y.S.2d 104, 105 (N.Y. App. Div. 2013). Indeed, "[a] person violating his contract should not be permitted entirely to escape liability because the amount of damages which he has caused is uncertain." Id. However, "a fact-finder [also] 'may not base its award on speculation or guesswork.' " United Parcel Serv., Inc., 253 F. Supp. 3d at 697.

The Court now moves forward to its third and final breach of contract analysis stop to consider whether GATX has been damaged as a matter of law. GPC argues that GATX cannot establish as a matter of law that it was damaged because (1) it has not yet incurred any costs for rebodying the Railcars; (2) it has not determined specifically when a rebody will be required; and (3) it has re-leased several Railcars to other customers, which resulted in revenue to GATX in excess of $2.2 million. Further, GPC argues that GATX has not established that the Railcars were ever expected to have a service life of fifty years.

GATX retorts that it has presented ample evidence that the Railcars were expected to last approximately fifty years in interchange service, including the expert opinion of Mr. Daum who relies on the AAR Field Manual (Doc. 119-49) and NSC's Specification for the Railcars (120-20) to assert that the Railcars had a fifty-year service life. (Daum Report, Doc. 84-3 at 6.)³¹ The AAR Field Manual indicates that railcars built after July 1, 1974 "are limited to 50 years of service." (Doc. 119-49 at 3.) Even GPC's experts acknowledge that the AAR Interchange Rules and Federal Railroad Administrations regulations limit the service life of railcars to fifty years and that "Rules 88 and 90 establish a useful car life of 50 years given that the railcars are properly inspected and maintained." (Viz-Kane Report, Doc. 120-10 at 45.) Yet, GPC argues that the Railcars would not have achieved and were never intended to achieve fifty years of service life as a matter of law. After having considered the expert testimony and industry-related evidence before it, this Court cannot agree with GPC that GATX has failed as a matter of law to establish a fifty-year service life for the Railcars. Similarly, the Court cannot find as a matter of law that the Railcars would have necessarily operated in service for fifty years without regard to GATX's expected maintenance and inspection of the Railcars. It is instead a jury question whether the Railcars at issue here would have lasted fifty years in interchange service.

31 GATX also presents testimony from its witnesses that indicates that the expected life of the Railcars was fifty years. (See Buzas Depo., Doc. 97 at ECF 301:3-6; Dickman Decl., Doc. 76-13 ¶ 3.)

Additionally, GATX contends that it has presented evidence that a rebody will be required in the future in order for the Railcars to safely realize their full service life, as Mr. Daum opined that a rebody will be necessary for the Railcars to safely realize their expected life of fifty years due to the corrosion damage caused by GPC's handling of the cars. GATX further argues that it presented evidence that a rebody would cost approximately $62,525,19 per Railcar. GPC argues in response that GATX has indicated that the cost of a rebody is a moving target depending on fluctuations with regard to the cost of steel and labor. (See) However, whether there is a fluctuating cost to repair damage and whether GATX has actually been damaged are two different issues. GATX has presented competent evidence that the Railcars require a rebody and that GATX has received several estimates regarding the costs of the rebody for each Railcar ranging from approximately $62,525 to $65,751. Although GPC disagrees with GATX's conclusions regarding whether a rebody is required and questions the accuracy of GATX's preceding analysis, it is ultimately up to a jury to decide whether a rebody of the Railcars is necessary and the associated cost of such a rebody.

For this and all of the other reasons stated above, whether GPC is liable for breach of contract is an issue that must be determined by a jury. The parties' cross-Motions for Summary Judgment are therefore DENIED with respect to GATX's breach of contract claim.

B. New York UCC

The Court now changes tracks to GATX's UCC claim. As noted above, in addition to the New York common law, Article 2-A of the New York UCC applies to the subject Master Lease because "New York has adopted Article 2A of the Uniform Commercial Code, which 'applies to any transaction . . . that creates a lease.' " Wells Fargo Bank Nw., N.A. v. Taca Int'l Airlines, S.A., 315 F. Supp. 2d 347, 350 (citing N.Y. U.C.C. § 2-A-102). Section 2-A-532 of the New York UCC provides that:

In addition to any other recovery permitted by this Article or other law, the lessor may recover from the lessee an amount that will fully compensate the lessor for any loss of or damage to the lessor's residual interest in the goods caused by the default of the lessee.

N.Y. U.C.C. § 2-A-532. The official comment to Section 2-A-532 of the New York UCC further explains that:

This section recognizes the right of the lessor to recover under this Article (as well as under other law) from the lessee for failure to comply with the lease obligations as to the condition of leased goods when returned to the lessor, for failure to return the goods at the end of the lease, or for any other default which causes loss or injury to the lessor's residual interest in the goods.

Id.

GPC argues that GATX cannot recover under Section 2-A-532 of the New York UCC because GATX's claim thereunder is duplicative of its breach of contract claim. Further, GPC argues that GATX has not established that GPC failed to comply with the Master Lease or damaged the Railcars. However, for the reasons noted above, it is a jury question whether GPC breached the Master Lease and/or damaged the Railcars.

Regarding whether GATX's claim under the New York UCC is duplicative of its breach of contract claim, it appears that the UCC provision at issue here expressly contemplates that a lessor may recover damages under "other law" "in addition to" the UCC provision. Whether GATX may in fact recover damages under New York common law and UCC law is a matter best addressed closer to trial after additional briefing by the parties.

At this juncture, both parties' summary judgment motions are DENIED with respect to GATX's UCC claim.

C. Accord and Satisfaction

Having considered the prima facie evidence supporting GATX's claims, the Court now changes tracks one last time to address GPC's argument that GATX's claims are barred by the doctrine of accord and satisfaction. GPC throws a Hail Mary pass by briefly arguing at the end of its Motion for Summary Judgment that GATX's claims are barred by this doctrine. More specifically, GPC argues that the parties entered into an accord and satisfaction agreement when GPC sent a July 26, 2018 letter to GATX representatives, stating that "[w]ith this payment [of $115,674.38], Lessee has satisfied its end of Lease obligations for the Bowen Cars and Wansley Cars [i.e., the Railcars] and does not owe Lessor anything further under the Lease." (See GPC July 26, 2018 Letter to GATX, Doc. 119-42 at 3-4.)

"As a general rule, the acceptance of a check in full settlement of a disputed, unliquidated claim, without any reservation of rights, operates as an accord and satisfaction discharging the claim." Nationwide Registry & Sec., Ltd. v. B & R Consultants, Inc., 4 A.D.3d 298, 773 N.Y.S.2d 341, 343 (N.Y. App. Div. 2004). "The theory underlying this common-law rule is that the parties have entered into a new contract discharging all or part of their obligations under the original contract;" however, "there must be a clear manifestation of intent by the parties that the payment was made, and accepted, in full satisfaction of the claim." Id. (internal citations omitted); Caldwell v. Unger, 177 A.D.2d 982, 578 N.Y.S.2d 3, 4 (N.Y. App. Div. 1991) (explaining that "[a]n essential element of an accord and satisfaction is a clear manifestation of intent by one tendering less than full payment of an unliquidated claim that the payment has been sent in full satisfaction of the disputed claim" and noting that "[t]he person receiving the payment must have "been clearly informed that acceptance of the amount offered will settle or discharge a legitimately disputed unliquidated claim.").

"Generally, adequate consideration is an essential element of a valid accord and satisfaction. However, by statute, where an agreement is in writing and signed by the party against whom it is asserted, or by that party's agent, it will not be invalidated by the absence of consideration." 19A N.Y. Jur. 2d Compromise, Accord, and Release § 16 (2023); see Tufano v. Morris, 286 A.D.2d 531, 728 N.Y.S.2d 835 (N.Y. App. Div. 2001) (rejecting plaintiff's argument that an agreement failed to constitute an accord and satisfaction because even though there was no evidence of a written agreement, there was evidence of consideration); Jonassen v. Bankers Tr. Co., No. 90 CIV. 2242 (LBS), 1990 WL 180150, at *4 (S.D.N.Y. Nov. 13, 1990) ("Under New York law, an accord and satisfaction must be supported by consideration . . . The consideration requirement is satisfied so long as each side to the accord confers some new benefit or incurs some new detriment, however slight.") (internal citations omitted); Vill. of Upper Nyack v. Christian & Missionary All., 143 Misc.2d 414, 540 N.Y.S.2d 125, 128 (N.Y. Sup. Ct. 1988), aff'd, 155 A.D.2d 530, 547 N.Y.S.2d 388 (N.Y. App. Div. 1989) ("A compromise or settlement, like other contracts, must be supported by consideration") (citing 19 N.Y. Jur. 2d Compromise, Accord and Release § 38).³²

32 Matsushita Elec. Corp. of Am. v. Gottlieb, No. 90 CIV. 3010 (CES), 1991 WL 152615, at *8 (S.D.N.Y. Aug. 1, 1991) ("To establish an accord and satisfaction, the parties must show an intention to discharge the old obligation when the new one has been performed. Id. An accord and satisfaction is an agreement which has all the essential elements of a valid contract, i.e., mutual assent and sufficient consideration." (citing IBM World Trade Corp. v. Granite State Ins. Co., 116 Misc.2d 681, 455 N.Y.S.2d 914 (N.Y. Sup. Ct. 1982))).

New York's General Obligations Law § 5-1103 specifically provides that:

An agreement, promise or undertaking to change or modify, or to discharge in whole or in part, any contract, obligation, or lease, or any mortgage or other security interest in personal or real property, shall not be invalid because of the absence of consideration, provided that the agreement, promise or undertaking changing, modifying, or discharging such contract, obligation, lease, mortgage or security interest, shall be in writing and signed by the party against whom it is sought to enforce the change, modification or discharge, or by his agent.

N.Y. Gen. Oblig. Law § 5-1103. Here, there is no evidence that GATX and GPC entered into a new written agreement signed by GATX wherein GATX agreed to discharge GPC's obligations under the contract. Therefore, there is no evidence of an "agreement . . . to change or modify, or to discharge in whole or in part . . . [GPC's obligations under the Master L]ease . . . in writing and signed by [GATX,] the party against whom [GPC seeks] to enforce the change, modification or discharge." See N.Y. Gen. Oblig. Law § 5-1103. Further, there is no evidence of new consideration for any alleged non-written agreement. Therefore, the doctrine of accord and satisfaction does not apply to this case as a matter of law.

Even if the Court were not to apply the New York statute, the Court has serious concerns regarding GPC's attempted use of a single sentence at the bottom of a letter written in response to GATX's notice and demand for payment following GPC's purported failure to comply with the Master Lease. (See GPC July 26, 2018 Letter to GATX, Doc. 119-42 at 3-4; GATX March 21, 2018 Notice, Doc. 75-55 at 10; Leadingham Email to Steve Pitts, Doc. 75-57 at 2.) Indeed, the drafter of the GPC letter, Steve Pitts, understood that GATX would continue to maintain its corrosion claim after he sent the letter on GPC's behalf:

Q: As of the date of this letter, Georgia Power was denying that it was liable for any corrosion, correct?

A: I think that just by method of what we sent and identifying that this was [an] end of lease payment most people would draw the conclusion that that was a denial. And we also had denied it in the past anyway but yes.

Q: Practically speaking, there was no confusion about the fact that Georgia Power was denying that it was liable for corrosion, right?

A: That's correct.

Q: But practically speaking, was there any confusion at Georgia Power that GATX was maintaining that Georgia Power was liable for the corrosion?

A: I can only answer for the smaller group [at] Georgia Power that we've been talking about plus any related attorneys, et cetera but, yeah, we were aware of both positions.

Q: Did you ever come to a point where you believed that GATX was releasing its claim for corrosion against Georgia Power? I mean after all that's why we're still here, right?

A: There was only one time that I felt like they were releasing it and that was when they put the first set of cars back in service with a new lessor.

Q: And that was at some point after July of 2018?

A: I don't know exactly when but yeah.

(Pitts Depo., Doc. 87 at 71:2-72:10.) GATX sued GPC just three months after this letter was sent. See Complaint, GATX Corp. v. Ga. Power Co., 1:18-cv-09758-AJN, 2019 WL 4511629 (S.D.N.Y., Sept. 18, 2019), ECF No. 1.

This Court cannot catch GPC's Hail Mary pass. It finds that GPC's unilateral attempt at an accord and satisfaction does not in fact create an accord and satisfaction under the circumstances presented here. Therefore, GATX's breach of contract and UCC claims are not barred as a matter of law.

IV. Conclusion

For the reasons stated above, the parties' cross-Motions for Summary Judgment [Docs. 75, 76] are DENIED. The parties have informed the Court that they intend to engage in mediation before a JAMS neutral arbitrator within thirty days after the Court's ruling on these Motions in a good faith effort to resolve the case without the need for trial.³³ While the parties attend mediation, this case is STAYED and ADMINISTRATIVELY CLOSED pending the mediation's outcome. The parties are DIRECTED to notify the court within fourteen days of the conclusion of mediation of the mediation's outcome.

33 If the parties wish to extend the date for mediation to 60 days from this date, to accommodate the discovery ruling also issued on this date, they may do so. Or alternatively, they may go to mediation first and if that fails, proceeds with the limited additional damages discovery authorized. The parties are DIRECTED to advise the Court how they choose to proceed and to move to re-open the case if the mediation fails and the case needs to be tried.

IT IS SO ORDERED this 5th day of May, 2023.