EATON ASPHALT PAVING COMPANY, INC.; AND THE MORROW GRAVEL COMPANY v. CSX TRANSPORTATION, INC.Annotate this Case
RENDERED: March 26, 1999; 10:00 a.m.
TO BE PUBLISHED
C ommonwealth O f K entucky
C ourt O f A ppeals
EATON ASPHALT PAVING
COMPANY, INC.; AND THE MORROW
APPEAL FROM KENTON CIRCUIT COURT
HONORABLE DOUGLAS M. STEPHENS, JUDGE
ACTION NO. 97-CI-001738
CSX TRANSPORTATION, INC.
AFFIRMING IN PART, REVERSING IN PART AND REMANDING
** ** ** ** **
JOHNSON, KNOX AND SCHRODER, JUDGES.
JOHNSON, JUDGE: Eaton Asphalt Paving Company, Inc. (Eaton
Asphalt), and Morrow Gravel Company (Morrow) (collectively,
appellants) have appealed from the interlocutory order of the
Kenton Circuit Court entered on December 3, 1997, authorizing the
appellee, CSX Transportation, Inc. (CSX), to condemn 1.4 acres of
property owned by Morrow and leased by Eaton Asphalt for the
purpose of constructing a passing track.
We affirm in part,
reverse in part and remand with directions to dismiss the
This action was initiated by CSX on September 8, 1997,
pursuant to Kentucky Revised Statutes (KRS) 416.010 and 416.540670.
In its petition, CSX alleged that it is a Virginia
corporation authorized to do business in Kentucky, and that it
“is a railroad and is a company authorized to construct a
railroad as referred to in KRS § 277.060 and KRS § 416.010 et
CSX alleged a need for the property it sought to condemn
in order to construct a passing track and it also alleged that it
had been unsuccessful in negotiating with the appellants for the
purchase of the property.
The circuit court appointed three
commissioners for the purpose of determining the award to which
the appellants were entitled due to the reduction in the market
value of their property by reason of the taking.
commissioners determined that an award of $25,000 would be
The appellants responded to the petition and asserted
that as a Virginia corporation, CSX was not authorized to
exercise rights of eminent domain.
CSX moved for summary
judgment on the issue of its right to condemn.
moved to dismiss the petition challenging CSX’s right to condemn
because of the status as a foreign corporation and because CSX
had allegedly failed to make a good faith effort to agree with
them on a price for the property.
The motions were consolidated
and a hearing was conducted by the Kenton Circuit Court on
November 14 and 18, 1997.
This appeal has been taken from the
trial court’s order allowing CSX to proceed with the condemnation
The evidence of record bearing on the issue of CSX’s
status as an entity entitled to exercise the power of eminent
domain is, for the most part, undisputed.
While CSX is currently
organized under the laws of Virginia, the railroad track at issue
in Kenton County was, for over a century, owned and operated by
the Louisville & Nashville Railroad Company (L&N), a Kentucky
Further, it is not disputed that in 1982, the L&N
merged with the Seaboard Coast Line Railroad Company and became
the Seaboard System Railroad, Inc. (Seaboard).
In her affidavit,
Patricia J. Aftoora (Aftoora), employed by CSX in the capacity of
Vice President and Corporate Secretary, stated that on the same
day the two corporations merged, Seaboard received authorization
to conduct business in Kentucky.
Eventually, Seaboard changed
its name to CSX.
The evidence of CSX’s failure to negotiate with the
appellants in good faith concerns its refusal to make the
appellants an offer for the 55 acres the appellants own that they
alleged will become “landlocked” as a result of the construction
of a passing track.
It is undisputed that when Morrow purchased
this 95-acre tract in the 1970's, it was already separated by the
The appellants had no access to the 55 acres
east of the tracks from their 40 acres on the west side, but they
were able to access the eastern portion of their property after
obtaining an easement from neighboring property owners.
the appellants and CSX entered into a private crossing agreement
which allowed the appellants to access their property from the
west portion of that property.
Under the terms of this
agreement, the appellants constructed the crossing over the
tracks and CSX maintained the crossing at the appellants’ expense
of about $700.00 per year.
This agreement was terminable at the
will of either party.
CSX’s manager for real estate acquisitions, Jimmy
Barker (Barker), testified that he performed an investigation of
several factors to arrive at the value of the appellants’
property and additionally obtained an independent appraisal from
a local appraiser.
Based on his investigation of market values,
he offered the appellants $15,000 per acre.
appellants took the position that their access to the 55 acres
would be so interfered with by the number of trains parked on the
passing track that they would not consider any offer which did
not include either the cost to build a bridge over the tracks,
(estimated to be approximately $500,000), or a sum equal to the
value of the entire 55-acre tract.
Barker testified that it was
apparent that the parties would not be able to reach an agreement
CSX filed the petition to condemn.
In arguing to the trial court that, as a Virginia
corporation, CSX was not authorized to exercise rights of eminent
domain within the Commonwealth of Kentucky, the appellants relied
on § 211 of the Kentucky Constitution which reads:
No railroad corporation organized under
the laws of any other state, or of the United
States, and doing business, or proposing to
do business, in this State, shall be entitled
to the benefit of the right of eminent domain
or have power to acquire the right of way or
real estate for depot or other uses, until it
shall have become a body corporate pursuant
to and in accordance with the laws of this
They also relied on this section’s statutory counterpart, KRS
277.020, which provides:
(1) Except as provided in KRS 277.040, no
corporation organized under the laws of any
other state shall possess, control, maintain
or operate any railroad or part thereof in
this state, or condemn, purchase or hold
land, or acquire a right of way, for depots,
tracks or other railroad purposes, until it
has filed with the Secretary of State a
resolution adopted by its board of directors
accepting the provisions of the Kentucky
Constitution, as contemplated by Section 190
of the Constitution, and until, by
incorporation under the laws of this state,
it has become a corporation of this state.
In the order from which the appeal has been taken, the
trial court agreed with the argument advanced by CSX, that it
has, by virtue of the merger, succeeded to the powers of its
predecessor, the L&N, and that the constitutional and statutory
provisions concerning foreign corporations are not applicable to
Specifically, the trial court determined that since CSX is
“the product of a merger or consolidation of a Kentucky
corporation and a corporation organized under the laws of another
state”, it has thereby retained the “status” necessary to
maintain this action as contemplated by § 200 of the Kentucky
This section of our Constitution reads as follows:
If any railroad, telegraph, express, or
other corporation, organized under the laws
of this Commonwealth, shall consolidate by
sale or otherwise, with any railroad,
telegraph, express or other corporation
organized under the laws of any other State,
the same shall not thereby become a foreign
corporation, but the courts of this
Commonwealth shall retain jurisdiction over
that part of the corporate property within
the limits of this State in all matters which
may arise, as if said consolidation had not
The trial court also determined that CSX had “bargained in good
faith” with the appellants, that the railroad needed the property
for a passing track, and that it was therefore entitled to
condemn the property.
There is no question that our Legislature has granted
domestic railroad corporations the power of eminent domain.
277.060(1)(c) & (e), and KRS 416.010.
Such authority is also
given to foreign corporations which have become “domesticated” as
outlined in KRS 277.020(2) as follows:
(2) Any such corporation may, for the
purposes set forth in this section, become a
corporation of this state by filing in the
office of the Secretary of State and in the
office of the Railroad Commission a copy of
its charter or articles of incorporation,
authenticated by its seal and by the
attestation of its president and secretary.
The Secretary of State shall then issue to
the corporation a certificate of
However, CSX is now a Virginia corporation and it concedes that
it has not complied with all of the conditions contained in KRS
Accordingly, the issue before this Court is whether
a domestic railroad corporation which merges with a foreign
corporation to form a foreign corporation retains its power of
The appellants argue that the trial court’s
interpretation and application of § 200 of the Constitution is
contrary to the intent of its drafters who, reacting to the
state’s “rampant economic despair,” designed the Constitution to
protect its citizens “from unscrupulous behavior by corporations,
especially out-of-state enterprises” (emphasis in original).
They insist that § 200 “cannot be viewed as being written with an
eye towards granting privileges to foreign corporations,” but
merely as a “vehicle for protecting the individuals of Kentucky
from corporations” (emphasis in original).
CSX, on the other
hand, insists that the plain language of this constitutional
provision does not support the limited interpretation urged by
the appellants, but should be interpreted as conferring on it all
the rights and privileges enjoyed by its domestic predecessor in
addition to its obligations.
There is little case law concerning § 200 of our
However, we find support for the appellants’
argument in Prewitt v. Illinois Life Insurance Company, 123 Ky.
36, 93 S.W. 633 (1906).
In that case a foreign insurance company
contracted with a domestic life insurance company whereby the
former agreed to assume all the risk of the policies issued by
the domestic company in exchange for the monies deposited with
the State Treasurer by the domestic corporation as required by
statute to protect policyholders.
In the action by the foreign
corporation to compel the treasurer to deliver the funds on
deposit, the Insurance Commissioner, citing § 200 of the
Constitution, argued that the insurer was not a foreign
corporation as it had merged with a domestic corporation.1
holding that the foreign corporation was entitled to the funds,
the Court held that § 200 had no application because there was
“no consolidation of the two companies by sale or otherwise.”
The opinion explains that while domestic insurers were
required to keep funds deposited with the State Treasurer,
foreign corporations were not.
Id., 93 S.W. at 635.
Nevertheless, the Court explained the
purpose of this section as follows:
The purpose of [Section 200] was to prevent
the domestic corporation from becoming a
foreign corporation, and thus wrest from the
courts of this state jurisdiction over the
corporate property within the limits of the
state in all matters which might arise.
Prewitt does not remotely suggest that the purpose of § 200
was to accommodate a foreign corporation such as CSX, but
instead, as the appellants contend, states that it was designed
as an enforcement provision.
The only other case which mentions § 200 of the
Kentucky Constitution is City of Louisville v. Cumberland
Telephone & Telegraph Company, 224 U.S. 649, 662, 32 S. Ct. 572,
576, 56 L. Ed. 934 (1912).
The issue in that case concerned the
retention of franchise rights by a consolidated telephone
The Supreme Court stated that §§ 199 and 200 “evidently
contemplated . . . that . . . there should be a transfer of that
franchise, right of way or property, which alone gave value to
the plant, thereby preserving the investment which had been made
for purposes of private gain and public use.”
The case does not
support CSX’s contention that a transfer of property to a foreign
corporation is accomplished without reference to other
constitutional provisions pertaining to foreign corporations.
The appellants rely on Plummer v. Chesapeake & Ohio
Railway Company of Kentucky, 143 Ky. 102, 136 S.W. 162 (1911),
for their contention that CSX is a “foreign” railroad as
contemplated by § 211 of the Constitution.
In that case, the
Court, in allowing the injured plaintiff to proceed against the
domestic corporation, held that “a conveyance made by a domestic
railway corporation to a foreign corporation that has not
complied with the laws of this state is void and of no effect in
a controversy between the domestic corporation and a party to
whom as such domestic corporation it owed duties.”
Id., 136 S.W.
In construing § 211, the Court stated:
We think it clear [§ 211] should not be
limited in its application to a foreign
railway corporation that desires to come into
this state for the purpose of constructing a
line of railway. This narrow view of the
meaning of this section would exclude from
its operation a foreign railway corporation
that purchased outright an existing domestic
railway corporation. It would impose upon
corporations desiring to build a line of
railway and seeking to acquire under the
right of eminent domain real estate or right
of way for such purpose the duty of becoming
incorporated under the laws of this state,
and exempt from this duty a foreign
corporation that acquired by purchase from
another corporation all the real estate and
rights of way that it needed in the conduct
of its business. There seems no reason why a
distinction like this should be permitted.
We are unable to perceive why one corporation
under the conditions stated should be allowed
greater privileges than another. If one
corporation cannot, except by observing
certain requirements, acquire rights of way
for the purpose of building a road and
operating it, neither should another be
permitted to purchase a road already built
for the purpose of operating it without
complying with such requirements. A
construction that made a distinction like
this would defeat in part the purpose of the
Constitution, and create inequality and
discrimination that should not exist. We are
therefore of the opinion that section 211 of
the Constitution applies to every foreign
railway corporation that owns and operates a
railway in this state, whether the railway so
owned and operated was constructed by the
foreign corporation or purchased by it from a
domestic or other foreign corporation.
Id., 136 S.W. at 165.
Because Plummer involved a sale as opposed
to a merger, CSX insists § 200 of the Constitution was not
implicated in that case and, therefore, not mentioned.
unconvinced by CSX’s attempt to distinguish Plummer on this
Section 200 clearly contemplates that consolidation may
occur by “sale or otherwise.”
Thus, it is conceivable to this
Court that § 200 was not mentioned in the Plummer decision for
the reason that it was not designed to confer any privileges in
the first instance, but was viewed as a purely jurisdictional
In determining the proper construction to give to the
Constitution the Courts must
look to the history of the times and the
state of existing things to ascertain the
intention of the framers of the Constitution
and the people adopting it, and a practical
interpretation will be given to the end that
the plainly manifested purpose of those who
created the Constitution, or its amendments,
may be carried out.
Shamburger v. Duncan, Ky., 253 S.W.2d 388, 390-391 (1952), citing
Keck v. Manning, 313 Ky. 433, 231 S.W.2d 604, 607 (1950).
Further, “’[t]he rule for the interpretation of Constitutions, as
universally applied, is that the language therein is to receive
its plain and ordinarily understood meaning by the generality of
Dalton v. State Property and Buildings Commission,
Ky., 304 S.W.2d 342, 359 (1957), quoting Crick v. Rash, 190 Ky.
820, 229 S.W. 68 (1921).
With their principles in mind and
considering the reasoning in Prewitt and Plummer, supra, it is
this Court’s opinion that the framers of our Constitution did not
intend to confer any benefit or privileges on a foreign
corporation that had consolidated “by sale or otherwise” with a
We hold that a foreign corporation which is the result
of a merger with a domestic corporation is a “foreign
corporation” for all purposes other than the limited purpose of
conferring jurisdiction in the courts of this state to litigate
issues concerning corporate property located in this state.
Thus, we conclude that the trial court erred in its determination
that § 200 entitled CSX to continue to exercise the power of
eminent domain and to bring this condemnation action without
having complied with § 211 and KRS 277.020.
matter is remanded to the Kenton Circuit Court with directions to
grant the appellants’ motion to dismiss.
The appellants also argue that CSX lacked the right to
condemn because it failed to negotiate with them in good faith
prior to initiating the condemnation action.2
to negotiate may serve as the basis for the dismissal of a
Howard Realty Co. v. Paducah and I. R. Co.,
182 Ky. 494, 206 S.W. 774 (1918).
As stated in Usher and
Gardner, Inc. v. Mayfield Independent Bd. of Education, Ky., 461
S.W.2d 560, 562-563 (1971):
The real inquiry in the cases just
discussed and in this case is whether the
condemnor [sic] made a reasonable effort in
good faith to acquire the land by private
sale at a reasonable price. The statute
This issue has become moot by our resolution of the
constitutional issue. However, as we anticipate CSX will
eventually undertake those measures necessary to satisfy KRS
277.020, we deem it appropriate to address the merits of the good
implicitly requires an effort to effect a
contract of purchase satisfactory to the
condemnor [sic]. A single take-it-or-leaveit offer of a manifestly inadequate amount
could well evidence a failure to make a
reasonable effort to acquire the land by
contract of private sale.
The appellants do not question the reasonableness of CSX’s offer
for the 1.4 acres it wants to condemn.
However, the appellants
do contend that CSX’s refusal to offer to compensate them for the
loss of access to the 55 acres on the east side of the tracks
does constitute a failure to negotiate in good faith.
In this regard, the appellants insist that they have an
easement of necessity over the railroad right-of-way, the loss
for which they must be compensated.
They have cited this Court
to numerous foreign cases which hold that a way of necessity is
created when a railroad intersects one’s property.
appellants had no access over the tracks to get from one part of
their property to the other when they purchased it, and because
the agreement entered in 1992 is terminable-at-will, CSX insists
that the appellants are not entitled to be compensated for any
loss in access occasioned by the construction of the passing
The appellants counter that “ways of necessity are
created by an implied grant and are therefore appurtenant to
land. . . .”
It is obvious that the parties desire that this Court
resolve the issue of whether or not CSX must compensate the
appellants for the loss of access.
However, that specific issue
was not adjudicated by the trial court and it is not yet ripe for
The trial court assured the appellants that they
would be entitled to make any and all legal arguments they wanted
on the issue of access in the damages portion of the proceeding
and that they might “ultimately” succeed in convincing it that
CSX’s “obligation is greater than it appears.”3
trial court determined that there was nothing unreasonable,
unfair or oppressive in CSX’s “approach” to the issue so as to
implicate CSX’s right to file this action.
Clearly, CSX was not
required to accept the appellants’ legal arguments of the extent
of its liability in order to be allowed to proceed to condemn.
See e.g. Coke v. Commonwealth, Dept. Of Finance, Ky., 502 S.W.2d
Furthermore, the commissioners’ award of $25,000 was
only slightly more than the sum of $21,000 ($15,000 times 1.4
acres) originally offered by CSX.
Finally, as the trial court
noted, it was the appellants that “took the position ’we need the
$500,000 bridge,’” and thereby cut off negotiations.
Accordingly, we hold that the trial court’s findings that CSX
bargained in good faith are supported by the evidence and are not
Kentucky Rules of Civil Procedure 52.01.
For the reasons stated herein, the judgment of the
Kenton Circuit Court is affirmed in part, reversed in part and
remanded for dismissal of the action.
At the hearing, the trial court stated to the appellants’
counsel that her clients “had the next best thing to no rights at
all to access to that 55 acres.” It also stated that she might
be able to “convince” it “as a matter of law” that the appellants
“had some sort of fixed easement . . . [however], the reality is
we’re not here today to determine your rights or the commitment
the law imposes on the railroad to access and we’re certainly not
here to determine the fair market value of that access.”
BRIEFS FOR APPELLANTS:
BRIEF FOR APPELLEE:
Hon. Richard G. Meyer
Hon. Elizabeth Graham Weber
Hon. John S. “Brook” Brooking
Hon. Gerald F. Dusing
ORAL ARGUMENTS FOR APPELLANTS:
ORAL ARGUMENTS FOR APPELLEE:
Hon. Elizabeth Graham Weber
Hon. Gerald F. Dusing