An appellate court has given the City of Alameda new life in a lawsuit over the city’s attempt to acquire railroad property for far less than market value.
The First District Court of Appeal overturned a trial court ruling that a nearly 80-year-old contract between the city and the railroad owner was too vague to enforce. A unanimous three-judge panel ruled that the trial court should consider evidence developed after completion of the 1924 contract, and the appellate panel returned the lawsuit to the lower court for further proceedings.
At issue in the litigation is property in Alameda that could be worth tens of millions of dollars. In 1924, the city sold a municipal belt line railroad for $30,000 to the Alameda Belt Line (ABL), which was a corporate venture of Western Pacific Railroad Company and The Atchison, Topeka and Santa Fe Railway Company. Paragraph 14 of the agreement gave the city the right to repurchase the belt line and "all extensions thereof" at a sum equal to ABL’s cost to acquire and improve the property.
In 1999, the city learned that ABL was selling parcels of land and was in the process of selling a 22-acre rail storage yard for $18 million. So in November 1999, the city gave ABL notice that the city intended to exercise its right to repurchase the railroad and all extensions pursuant to the 1924 contract.
Alameda Belt Line sued, contending that paragraph 14 was unenforceable because the term "all extensions thereof" did not sufficiently define the property that the city could repurchase. Alameda County Superior Court Judge Judith Ford accepted ABL’s argument and issued a summary judgment for ABL. The city appealed, and the First District overturned Judge Ford.
The issue before the appellate court was whether evidence not included in the 1924 written contract could be considered in determining the property that the city may reacquire. The city argued that such evidence should be considered when interpreting the contract, and the First District agreed.
The court noted that the 1924 contract required ABL to "keep an accurate account of the cost of additional investments and extensions and file a verified report thereof annually with the City Clerk." These reports identify the property constituting "extensions thereof" and should be considered as evidence, the court held.
"‘The defense of uncertainty has validity only when the uncertainty or incompleteness of the contract prevents the court from knowing what to enforce,’" Justice Lawrence Stevens wrote, citing Hennefer v. Butcher, (1986) 182 Cal.App.3d 492, 500. That situation apparently was not the case here.
"[T]he repurchase option in this case is somewhat unusual, since it sought to include not only the original railroad, but also property that was to be acquired in the future for ‘extensions thereof.’ However, this unusual feature does not necessarily make the 1924 agreement fatally uncertain," Justice Stevens wrote. "Only the original property, or new lands or other property acquired to provide ‘extensions’ of the operations of the original railroad, would seemingly be covered by the repurchase option. If ABL acquired other property for non-railroad purposes, such property would not fall within the option to repurchase."
The First District ordered the appellate court to consider the additional evidence before determining whether or not the city could acquire the 22-acre rail storage yard under terms of the 1924 contract.
Alameda Belt Line v. City of Alameda, No. A099429, 03 C.D.O.S. 9637, 2003 DJDAR 12109. Filed November 4, 2003.
For Alameda Belt Line: Benjamin Salvaty, Hill, Farrar & Burrill, (213) 620-0460.
For the city: Douglas Dang, Dang & Trachuk, (510) 832-8700.