Norfolk Southern Railway Co. v. Pittsburgh & West Virginia Railroad (101 F. Supp. 3d 497, 2015)

United States District Court for the Western District of Pennsylvania 2015-04-22

Citations

Full opinion text

MEMORANDUM OPINION AND ORDER OF COURT

TERRENCE F. McVERRY, Senior District Judge.

Pending before the Court is a MOTION FOR PARTIAL SUMMARY JUDGMENT (ECF No. 196) filed by Defendants/Counterclaim Plaintiffs Pittsburgh & West Virginia Railroad and Power REIT; a MOTION FOR PARTIAL SUMMARY JUDGMENT (ECF No. 198) filed by Plaintiffs/Counterclaim Defendants Norfolk Southern Railway Company and Wheeling & Lake Erie Railway Company; and PLAINTIFFS’ SUPPLEMENTAL MOTION TO DEEM ADMITTED CERTAIN PARAGRAPHS OF PLAINTIFFS’ STATEMENT OF MATERIAL FACTS AND TO STRIKE OBJECTIONS (ECF No. 226). The issues have been fully briefed and well-argued by the parties in their memoranda (ECF Nos. 197, 199, 210, 213, 217, 220, 221, 229, 230), and the factual record has been thoroughly developed via their Concise Statements of Material Facts (“CSMF”), appendices, exhibits, and Responsive Statements of Facts (“RSOF”) (ECF Nos. 200, 201, 202, 203, 204, 207, 208, 209, 211, 212, 216, 218, 224). The Court heard oral argument on December 16, 2014, and the transcript has been filed of record (ECF No. 231). Accordingly, the motions are ripe for disposition.

I. Background

A. Factual Background

The following background is taken from the Court’s independent review of the motions for summary judgment, the filings and arguments in support and opposition thereto, and the record as a whole.

1. The Parties

This action concerns a lease entered into between The Pittsburgh & West Virginia Railway Company (“Pittsburgh & West Virginia”) and Norfolk and Western Railway Company (“Norfolk and Western”) in 1962 (the “Lease”). Under the Lease, Pittsburgh & West Virginia conveyed to Norfolk and Western all of its right, title, and interest in and to certain of its properties, including a 112-mile portion of main line railroad (the “Rail Line”) and approximately twenty miles of branch rail lines that run from Western Pennsylvania through West Virginia and into Ohio.

Norfolk Southern Railway Company (“Norfolk Southern”) is the successor to the interest of Norfolk and Western in the Lease. Wheeling & Lake Erie Railway Company (‘Wheeling & Lake Erie”) became the Sublessee on May 17, 1990 when it entered into an agreement with Norfolk Southern to assume the rights, interest, duties, obligations, liabilities, and commitments of Norfolk and Western as lessee, including the role of being principal operator of the Rail Line (the “Sublease”). See Pls.’ App’x Ex. 2 at 1-2, ECF No. 201-2.

Pittsburgh & West Virginia Railroad' (“PWV”) is a business trust and the successor-in-interest to The Pittsburgh & West Virginia Railway Company. Power REIT is a real estate investment trust which was formed in 2011 as part of a reverse triangular merger of PWV. After that reorganization, PWV became a wholly-owned subsidiary of Power REIT.

2. The Lease

The Lease is dated July 12, 1962 and contains a pre-printed “SEAL” notation following the parties’ signatures. See Pis.’ App’x Ex. 1 at 1,19, ECF No. 201-1. The term of the Lease is 99-years, renewable in perpetuity at the option of the Lessee absent a default. See id. at 3-4. The same terms and conditions, including the economic provisions of the Lease, remain in effect with each renewal. See id. at 4.

a. The Property (Not) Demised

Section 1 sets forth the parties’ agreement as to what comprises the “Demised Property” under the Lease:

Except for such property as shall be hereinafter specifically excluded by Section 2 hereof, Lessor does hereby lease, assign, transfer and deliver to Lessee, its successors and assigns, for the term hereinafter set forth, and Lessee does hereby accept from Lessor all of Lessor’s right, title and interest in and to all its property, real, personal and mixed, including equipment, machinery, tools, materials and supplies, cash, investments, securities, claims, intangibles, choses in action, rights (contractual or otherwise), obligations, interests, lease-

holds and franchises, and including without limitation:

(a) The railroad properties consisting of real estate owned and operated by Lessor and described in Schedule A attached hereto.

(b) The additional property of a miscellaneous nature described in Schedule B attached hereto.

(c) All property acquired in replacement Of or substitution for, and all additions, betterments and improvements to and extensions of, the property covered by this Section 1, and all after-acquired property of Lessor, acquired during the term of this Lease and appurtenant to or useful upon or in connection with the property covered by this Section 1, except for after-acquired property acquired by Lessor with the proceeds of the rent paid or payable by Lessee pursuant to subdivision (a) of Section 4 hereof

Id. at 1. Section 1 also provides that “Lessor will execute and deliver all such instruments, if any, as may be necessary to assign or confirm to Lessee any of the property demised ....” Id.

Schedule A describes Lessor’s “Real Estate Railroad Properties” to be “[a]ll right, title and interest of The Pittsburgh & West Virginia Railway Company in and to any and all land and improvements or other inherently permanent structures situate thereon which may be under, along or adjacent to [ (1) the Rail Line and (2)-(6) branch lines of railroad known as the Donora Branch, Clairton Branch, Mifflin Branch, West End Branch, and Bell Branch].” Id. at 24-26. Schedule B describes Lessor’s “Additional Properties” to be

All right, title and interest of The Pittsburgh & West Virginia Railway Company, whether legal or equitable, in and to all equipment, machinery, tools, material and supplies, cash, investments, securities, claims, intangible's, choses in action, rights (contractual or otherwise), interests, franchises and all other property owned by The Pittsburgh & West Virginia Railway Company, excepting real properties listed on Schedule A hereto and property not demised listed in Section 2 hereof.

Id. at 26. As the Sublessee, Wheeling & Lake Erie presently holds all right, title and interest in the property covered under the Lease.

Section 2 excludes the following property (the “Nondemised Property”) of Lessor from the Lease:

(a) Motive power and rolling stock owned by Lessor at the commencement of the term of this Lease as provided in Section 8 hereof....

(b) Shares of stock issued by Lessor and held in its treasury at the commencement of the term of this Lease as provided in Section 8 hereof.

(c) Books and records of Lessor which are needed by Lessor in order to carry out its obligations under this Lease.

(d) Rights, privileges and franchises of Lessor requisite for the preservation of its corporate existence and for the proper performance by it of the terms and provisions of this Lease or of any obligations imposed by law.

(e) After-acquired property acquired by Lessor with the proceeds of the rent paid or payable by Lessee pursuant to subdivision (a) of Section 4 hereof.

Id. at 2. The final clause of Section 2 permits Lessor, without first securing the consent of Lessee, to “sell, lease, mortgage, pledge, transfer, dispose of, invest and reinvest all or any part of the nondem-ised property covered by this Section 2, except that covered by subdivisions (a) and (b) hereof, or the proceeds thereof or the income therefrom.” Id.

b. Rent

Rent under the Lease consists of a cash payment fixed at $915,000 per year (Section 4(a)) as well as additional items attributable to the real properties (Section 4(b)). See id. at 4-6. Relevant here, the “Additional rent” includes the following:

(1) Sums equal to the deduction for depreciation or amortization with respect to the demised property allowed to Lessor for such year under the provisions of the then effective United States Internal Revenue Code....

(5) Except as otherwise provided in Section 5 hereof, all interest, expenses, fees and any other sums (except for principal, sinking fund payments or other sums to be paid or advanced pursuant to Section 7 hereof and except for any obligations incurred by Lessor solely for the benefit of its stockholders or reasonably allocable thereto) payable by Lessor and regardless of whether accrued or payable in respect of a period prior to the commencement of the term of this Lease. The foregoing sums shall be paid or discharged by Lessee as and when they become due and payable.

(6) Such sums, if any, as may be required to pay all obligations reasonably incurred by Lessor for the doing of all acts and things which Lessor may be lawfully required to do or perform under the provisions of this Lease or of any law or by any public authority, or for the doing of all acts and things necessary or desirable for the protection during the existence of this Lease of Lessor’s rights in the demised property or the rentals or other sums payable pursuant to this Lease, except such obligations incurred by Lessor solely for the benefit of its stockholders or reasonably allocable thereto, or in connection with nondem-ised property or reasonably allocable thereto.

(7) All taxes, assessments and governmental charges, ordinary and extraordinary, regardless of whether relating to or accrued or payable in respect of a period prior to the effective date of this Lease, which are lawfully imposed upon Lessor or the demised property or its income or earnings or upon any amount payable to any security holder of Lessor which Lessor has agreed to pay or discharge, except for any income taxes of Lessor incurred with respect to rent paid pursuant to Section 4(a) hereof, any taxes arising after commencement of the term of this Lease in respect of nondem-ised property or the income therefrom, or any taxes incurred by Lessor solely for the benefit of its stockholders or reasonably allocable thereto. The foregoing sums shall be paid or discharged by Lessee as and when they become due and payable.

Id. at 4-5. Additional rent also includes sums equal to the tax deductions allowed to Lessor for retirement or abandonment of depreciable Demised Property of Lessor solely on account of casualty, abnormal obsolescence or other cause not taken into consideration in determining the rate of depreciation or amortization (Section 4(b)(2)); for retirement or abandonment of non-depreciable Demised Property of Lessor (Section 4(b)(3)); and for amortization of discount and expense on funded debt and equipment or other obligations of Lessor (Section 4(b)(4)). Id.

c. Indebtedness

Several sections of the Lease outline the rights and obligations of the parties with regard to indebtedness. The relevant provisions are as follows:

i.Operation, Maintenance, Extensions and Improvements

Section 6 requires Lessee, at its own expense and without deduction from the rent, to “maintain, manage and operate the demised property in the manner required by law” and to “[indemnify and hold Lessor harmless from all claims, demands, suits, causes of action, loss, damage, liability or expense which Lessor may incur or for which it may become hable, except to Lessee or to Lessor’s stockholders.... ” Id. at 7. In addition, Section 6 calls for Lessee to make extensions, additions, bet-terments and improvements to the Demised Property that it, in its discretion, considers necessary or desirable. Id. Any such extensions, additions, betterments and improvements constitute an indebtedness of Lessor to Lessee. Id.

ii.Debts of Lessor

Under Section 7, Lessee agrees “to pay or discharge on behalf of Lessor, as and when the same shall become due and payable, all obligations of Lessor for payment of principal and sinking funds as well as any other payments which Lessor may be obligated to make by reason of its guaranties or its agreements to make advances or its agreements to purchase real or personal property of any kind.... ” Id. at 7-8. All sums paid by Lessee in accordance with Section 7 are a “debt obligation” of Lessor to Lessee. See id. at 8.

iii.Disposition of Property of Lessor

Section 9 of the Lease states as follows:

Such demised property as shall not in the opinion of Lessee be necessary or useful may be sold, leased or otherwise disposed of by Lessee, and Lessor shall execute and deliver such instruments as may be necessary or appropriate to effectuate such transactions; provided, however, that such sales, leases or other dispositions of property shall be made in compliance with the applicable provisions of any mortgage or other agreement of Lessor relating thereto. The proceeds of sale, condemnation, or other disposition of the demised property of Lessor shall, subject to the provisions of any mortgage or other agreement relating to such property, be paid to Lessee and shall be indebtedness of Lessee to Lessor. Lessee shall also be indebted to Lessor for the salvage value of demised property upon its retirement or abandonment or other disposition or use to the extent that salvage value thereof is not included in the proceeds referred to in the preceding sentence.

Id. at 11-12.

iv. Miscellaneous

Section 16 addresses the payment and accounting of certain sums due as additional rent under Section 4(b) or the amounts owed from Section 9 dispositions:

(a) The portion of the additional rent, or any part thereof, payable to Lessor pursuant to paragraphs (1), (2), (3), and (4) of subdivision (b) of Section 4 hereof and any amounts, or any part thereof, payable to Lessor pursuant to Section 9 hereof may, at the option of Lessee, be paid either in cash or by crediting Lessor with the same as indebtedness in an account of transactions under this Lease provided, however, that the total of such indebtedness owing from Lessee to Lessor, after taking into account the payments of cash hereunder or a balancing of indebtedness under subdivision (b) of this Section 16, or both, shall not exceed at any time an amount equal to 5% of the value at such time of the total assets of Lessor as long as any of the obligations of Lessor which have been assumed by Lessee in this Lease remain outstanding and unpaid. All cash payments made by Lessee to Lessor as provided in this subdivision (a) shall immediately be used by Lessor to pay and discharge such indebtedness of Lessor to others as may be designated by Lessee.

Id. at 17. In turn, Section 16(b) requires that “[f]rom time to time a balance of the indebtedness arising under this Lease of Lessor to Lessee and of Lessee to Lessor shall be determined...." Id. at 18.

d. Covenants of Lessor

As long as the Lease remains in effect, the parties agree to abide by several covenants, two of which are relevant to the pending motions. First, Section 8(a)(3), often referred to as the “Books and Records Provision,” provides as follows:

(a) From the date of this Lease through the initial term thereof and during any renewal thereof, as long as Lessee is not in default hereunder and subject to any necessary governmental approval: ...

(3) Lessor shall permit at any and all reasonable times such person or persons as Lessee may designate to inspect the books and records of Lessor for any purpose whatsoever, and Lessee shall permit at any and all reasonable times such person or persons as Lessor may designate to inspect the books and records of Lessee for any purpose whatsoever.

Id. at 8-9. Second, Section 8(b)(4) of the Lease provides that the Lessor assist the Lessee with certain agreements concerning the Demised Property:

Lessor shall when requested by Lessee, to the extent permitted by law, modify, extend, terminate, abandon or surrender any existing leases, agency, trackage or other contracts or agreements made by Lessor or any of its predecessors in title, or enter into any such new agreements, whenever in the judgment of Lessee such modification, extension, termination, abandonment, surrender or making of a new agreement would be beneficial to Lessee, but not in disregard of any mortgages or other agreements covering such demised property.

Id. at 11. This latter covenant applies only “[a]fter the commencement of the term of th[e] Lease and during any renewal thereof.” Id. at 10.

e. Termination of Lease & Default by Lessee

The Lease will terminate upon the expiration of its initial term (in 2063) or any renewal thereof or at the option of Lessor in the event of a default by Lessee. See id. at 14-15. At the end of the Lease, whether by expiration, default or termination for any other reason, Section 11 requires that “the demised property, or such portion thereof as shall remain ... shall be returned to Lessor in the same condition as it is in at the commencement of the term of th[e] Lease, reasonable wear and tear excepted.... ” Id at 14.

Section 12 sets forth the circumstances under which Lessor may declare a default. A default will occur when Lessee fails to pay any part of the rent due under Section 4(a) after having been given thirty days’ written notice, fails to perform in whole or in part any other covenant, agreement, or obligation after having been given sixty days’ written notice, or commences any proceedings for relief under any bankruptcy or insolvency law. Id. at 15. If Lessor declares the Lease terminated, it is entitled to the “demised property and all revenues, rents, issues, income and profits therefrom ... [and] to payment of all damages suffered by reason of or arising from the breach or default of Lessee or termination of th[e] Lease, with interest thereon at 6% per annum, plus reasonable attorney’s fees, costs and expenses of Lessor.” Id. at 16. Lessee has no right to have the Demised Property returned or the Lease reinstated by making a tender or rent or other offer to cure its default under the Lease. See id.

3. The Formation of the Lease

Before the execution of the Lease, Pittsburgh & West Virginia had sustained years of operating deficits which impaired its working capital and general financial condition, resulting in some doubt as to its future as an independent carrier. Beginning in 1960, Pittsburgh & West Virginia took several steps in an attempt to reduce costs but was unsuccessful despite its efforts. By 1962, Pittsburgh & West Virginia was burdened by significant debt obligations which it was unable to service and had not operated at a profit for at least the past five years. Given its financial straits, Pittsburgh & West Virginia’s leadership initiated efforts to affiliate it with a larger rail carrier system.

Around this same time, Norfolk and Western was in the process of completing its own' rail unification project. From 1961 to 1962, Norfolk and Western filed applications with the Interstate Commerce Commission (the “ICC”), the predecessor regulatory agency of the Surface Transportation Board (the “STB”), as part of its efforts to acquire the Wabash Railroad Company (“Wabash”), the Sandusky, Ohio branch of the Pennsylvania Railroad and the Akron, Canton & Youngstown Railroad. In addition, Norfolk and Western and The New York, Chicago and St. Louis Railroad Company (“Nickel Plate”) filed a joint application with the ICC on March 17,1961 for authority to merge the properties of Nickel Plate into Norfolk and Western. Nickel Plate was considered to be Pittsburgh & West Virginia’s most important connection.

In early 1961, Chairman and President of Pittsburgh & West Virginia R.N. Shields reported to its Board of Directors the merger proposals of the various railroads and the possible effects of such mergers on the company. Shields advised that the Executive Committee of the Board of Directors had recommended to the Board that it authorize management to intervene in any merger proceedings in which Pittsburgh & West Virginia may have an interest. The Board unanimously approved the recommendation.

With that authority, Pittsburgh & West Virginia filed a petition with the ICC in September 1961 to intervene in the Norfolk and Western rail unification proceedings. The ICC permitted the request, and Pittsburgh & West Virginia represented that it supported the prospective unification of Norfolk and Western, Nickel Plate, Wabash and the Sandusky Line but that the merger would impair its interest if it were not included in the new system. In response, Norfolk and Western apparently indicated its willingness to negotiate with Pittsburgh and West Virginia.

On March 16, 1962, Shields presented to the Board a letter from John P. Fishwick, Vice President — Law, of Norfolk and Western that memorialized a February 15, 1962 meeting between the parties at which Pittsburgh & West Virginia suggested that Norfolk and Western. consider leasing its properties at an annual cash rental. The letter also confirmed that Norfolk and Western was willing to lease the assets of Pittsburgh & West Virginia and assume its liabilities, subject to various terms outlined in the correspondence. Pittsburgh & West Virginia’s Board resolved to defer any action on the proposal pending discussions with the President of Norfolk and Western as to alternative methods of affiliation. The Board convened again on March 26, 1962 to further discuss and consider the proposed lease. Thomas W. Pomeroy Jr., general counsel of Pittsburgh & West Virginia, attended both the March 16 and 26, 1962 meetings, to report on the ongoing negotiations with Norfolk and Western and the implications of the Lease.

On May 7, 1962, the Board held another meeting at which Pomeroy once again reported in detail on the proposed lease of Pittsburgh & West Virginia’s assets to Norfolk and Western. At the -meeting, Pomeroy also distributed to the Board a brief outline of the salient features of the proposed agreement. After hearing from Pomeroy and considering the proposal, the Board approved the Lease subject to the authorization of its shareholders and the ICC.

On September 28, 1962, the shareholders of Pittsburgh & West Virginia voted in favor of the Board’s resolutions relating to the approval, adoption and ratification of the Lease. By Order of the ICC, hearings were then held regarding the Lease on October 30 and 31, 1962. Approximately six months later, Hearing Examiner Lester R. Conley issued a Report and Order in which he found that the Lease was consistent with the public interest. The Lease was ultimately approved.

4. The Performance of the Lease

The Lease became effective on October 16, 1964. At that time, Lewis B. Harder was Chairman of the Board of Directors of Pittsburgh & West Virginia, Charles T. Jones was President, Herbert E. Jones, Jr. (“Mr. Jones, Jr.”) was Vice President, Louis B. Stein was Secretary — Treasurer, and Joseph C. Bennett was Assistant Secretary — Assistant Treasurer. After the Lease went into effect, Pittsburgh & West Virginia closed its general and operational offices and ceased active railroad operations.

On February 18, 1967, PWV was organized as a business trust for the purpose of acquiring the assets of Pittsburgh & West Virginia, which allowed the Lessor to receive more favorable tax treatment. Unlike its predecessor, PWV would not be taxable as a corporation for federal income tax purposes, allowing it to pass on intact the cash rental received under the Lease in the form of direct payments or distributions to its shareholders. PWV acquired all of the assets and assumed all of the obligations of Pittsburgh & West Virginia on December 29,1967.

a. Third-Party Agreements

The parties and their predecessors have entered into numerous third-party agreements in the form of licenses, easements, and leases throughout the fifty-year history of the Lease as well as in the decades preceding its effective date. Aside from these transactions, the (Sub)-Lessee(s) have also sold portions of the Demised Property in accordance with Section 9 of the Lease.

i.Licenses

The licenses include agreements for the right to build and maintain pipelines, electrical wires, cable transmission lines and access roads crossing the Demised Property. For example, on June 27, 1951, Pittsburgh & West Virginia granted The Manufacturers Light & Heat Company (“Manufacturers”) a license to lay a gas pipe under a portion of the Rail Line in Union Township, Washington County. The license agreement with Manufacturers sets forth requirements for the depth of the pipeline and provides that it must maintain the pipeline so as to not interfere with the operation of the railroad. After the Lease commenced, Norfolk and Western assumed responsibility of the license. As of 1965, Norfolk and Western was receiving $328 per year from Manufacturers for various licenses on the Rail Line, including $132 annually from the 1951 agreement. Manufacturers later merged into Columbia Gas Transmission Corp. (“Columbia Gas”). Once it became the Sublessee, Wheeling & Lake Erie negotiated with Columbia Gas in 1992 and in 2002 for increases in the rent payable under the agreement.

In addition, Pittsburgh & West Virginia entered into a license agreement on October 13, 1947 with West Penn Power Co. (‘West Penn”) for the construction and maintenance of a pole and power line over its property. The license requires West Penn to alter, improve, repair, renew, remove or relocate the power line or pole if reasonably necessary or required for the proper, safe and convenient operation of the railroad. In 2002, Wheeling & Lake Erie negotiated an increase in the rent payable under this agreement.

The parties have also entered into new license agreements since the commencement of the Lease: Norfolk and Western granted licenses to West Penn in 1966 and to Columbia Gas in 1984; and Wheeling & Lake Erie granted Columbia Gas a license 2008.

ii.Easements

As with the licenses, the parties have granted easements relating to the Demised Property. In the mid-to-late 1970’s, the Board of Public Education of the School District of Pittsburgh (the “Board of Education”) began a construction project for the John A. Brashear High School and sought a temporary license from Norfolk and Western to build a pipeline and sewer system under the Rail Line. Norfolk and Western granted the temporary license, which the Board of Education later sought to replace with an easement. At a meeting of its Board of Directors, Norfolk and Western resolved to grant the Board of Education an easement pursuant to Section 9 of the Lease in exchange for $5,000. However, a landslide and related engineering problem during the construction project delayed the execution of the easement agreement between the parties. After the issues were resolved several years later, Norfolk and Western obtained the signatures of PWV’s trustees to execute the agreement. The Board of Education, with PWV aware of the facts, paid the $5,000 consideration to Norfolk and Western.

More recently, on September 15, 1997, Wheeling & Lake Erie entered into an agreement in which it granted Equitrans, L.P. an easement to construct and maintain a natural gas pipeline under the Demised Property. This agreement addresses the disruption to rail operations that may result from its implementation or operation by including a provision for the furnishing of flagmen and watchmen,

iii.Land Leases

Aside from licenses and easements, the parties have entered into land leases. The earliest agreement dates back to January 2, 1919 when Pittsburgh & West Virginia leased to Monongahela Southern Railroad Co. (“Monongahela Southern”) a piece of land in Mifflin Township, Allegheny County in exchange for an annual rental. Monongahela Southern later became Union Railroad Co. (“Union Railroad”), which constructed a track that connected to the Rail Line. After the Lease commenced, Norfolk & Western negotiated a rent increase with Union Railroad. Wheeling & Lake Erie and Union Railroad later replaced the original agreement with a new land lease.

Similarly, on January 1, 1960, Pittsburgh & West Virginia leased to Mark Lumber & Supply Company (“Mark Lumber”) a sidetrack and an adjacent area along the Demised Property. On January 1, 1968, Norfolk and Western and Mark Lumber agreed to enter into a new lease to facilitate the expansion and modernization of facilities on the leased premises with Mark Lumber, as lessee, paying an annual rental to Norfolk and Western, as lessor. Mark Lumber later changed its name to Tot’um Lumber & Supply Company (“Tot’um Lumber”) and entered into a lease extension with Norfolk and Western in 1978.

As Sublessee, Wheeling & Lake Erie has likewise entered into third-party lease agreements. On April 10, 2007, Wheeling & Lake Erie leased to Modern Transportation Services (“Modern”) sidetrack and several parcels of the Demised Property, one of which includes a warehouse building that Modern uses for loading, unloading and storing its goods. Wheeling & Lake Erie also entered into a land lease with the Lamar Companies (“Lamar”) on September 16, 2010 for a portion of the Demised Property to use and occupy for a billboard sign.

There was further discussion of billboards on the Demised Property in 2010 when Matt Larson, a consultant with MRL Investments, Ltd., proposed a reorganization of PWV, which involved leases Wheeling & Lake Erie had entered into with outdoor advertising companies. On May 6, 2010, PWV’s officers and Board of Trustees, including David Lesser and Virgil Wenger, scheduled a conference call to discuss Larson’s proposal. Afterward, Wegner sent to those who participated in the conference call an e-mail in which he referenced the income Norfolk Southern generates from its billboard locations on the Demised Property. The Larson proposal was ultimately rejected.

iv. Oil and Gas Leases

Oil and gas leases are among the agreements that pertain to the subsurface rights of the Demised Property. One such agreement originated in February 5, 1942 when David and Bessie Wells leased to Jane Rankin the oil and gas rights for a parcel of land that they owned. Monongahela Valley Area Enterprises, Inc. later acquired from the Wells’ their title to the land, which it sold to Pittsburgh & West Virginia in 1958. The Peoples Natural Gas Company (“Peoples”) acquired the lessee’s interest at some point before 1960.

After the commencement of the Lease, Peoples initially withheld royalty payments from Norfolk and Western pending receipt of a Notice of Transfer form from Pittsburgh & West Virginia. On June 1, 1966, Bennett, the then-Vice President and Assistant Secretary — Assistant Treasurer of Pittsburgh & West Virginia and a member of its Board, executed a form entitled “Notice of Transfer Oil and Gas Lease Rental and/or Royalty,” which was attested to by Stein, the then-Secretary-Treasurer of Pittsburgh & West Virginia and a member of its Board. The Notice states that Pittsburgh & West Virginia has leased certain parcels of land to Norfolk and Western “reserving nothing, including all [its] right, title and interest in and to the oil and gas underlying the premises conveyed and the rentals, royalties or other income and benefits arising from same, ...” subject to the 1942 oil and gas lease. Pls.’ App’x Ex. 97, ECF No. 201-97 at 3. The Notice further authorized Peoples to pay to Norfolk and Western, its successors or assigns the gas rentals or royalties under the 1942 lease. A fully executed Notice of Transfer was provided to Peoples on March 2, 1967. Norfolk and Western/Norfolk Southern or Wheeling & Lake Erie have since received rentals, royalties or other income arising from the 1942 lease.

PWV has made similar representations regarding the Lease on other occasions as well. In 1987, PWV received an inquiry from Questa Petroleum Company (“Questa”), an independent oil and gas drilling company, expressing interest in leasing acreage in Perry Township, Fayette County, Pennsylvania. In response, PWV advised Questa that “all properties of Pittsburgh & West Virginia Railroad are leased to Norfolk and Western Railway Company” and that it would forward the inquiry to Norfolk and Western. Pls.’ App’x Ex. 106 at 2, ECF No. 201-106.

As Sublessee, Wheeling & Lake Erie entered into an oil and gas lease with KIS Oil & Gas, Inc. (“KIS”) on October 18, 2006. The lease includes provisions for royalty payments and a signing bonus to be paid to Wheeling & Lake Eire. As with the other third-party agreements, this lease addresses the operational issues of oil and gas exploration near the Rail Line,

v. Coal Leases

Coal leases are the last of the third-party agreements related to the Demised Property. On October 11, 1973, Norfolk and Western entered into a lease with Twilight Industries Division of U.S. Natural Resources Inc. (“Twilight”), which granted it the right to mine a certain seam of coal on a tract of the Demised Property. In exchange, Twilight agreed to provide to Norfolk and Western a one-time payment of $174.30, plus a royalty of $0.50 per ton of coal mined. After receiving a request from Norfolk and Western, Stein executed the coal lease in January 1974 and arranged for two other trustees of PWV to sign the agreement.

Approximately seven years later, Norfolk & Western sent PWV a correspondence regarding a proposed coal lease with The Youghiogheny and Ohio Coal Co. (“Y & O”). In the January 13, 1981 letter, Norfolk and Western stated that “Section 9 of the 1962 Lease between [the parties] does not require execution of the contract on behalf of PWV. Any proceeds received by NW as a result of the proposed lease should be subject to the P & WV First Mortgage.” Pls.’ App’x Ex. 156 at 1, ECF No. 201-156. Norfolk and Western and Y & O entered into the coal lease on February 1,1981.

b. The Settlement Account

The so-called “Settlement Account” is a term historically used by the parties to refer to an accounting mechanism for tracking indebtedness under Sections 4(b)(1)-(4), Section 6, Section 7, Section 9 and Section 16(a). The term appears nowhere in the Lease.

From at least 1980 through 2011, Norfolk and Western/Norfolk Southern assisted with the preparation of PWV’s tax returns and financial statements, and in doing so, calculated the balance of the Settlement Account on an annual basis. Beginning in the mid-2000’s, PWV sent requests to Norfolk Southern asking for it confirm the balance of the Settlement Account' to PWV’s certified public accountants, Gibbons & Kawash, as part of an audit of its financial statements, which were later reported to the Securities and Exchange Commission (“SEC”) and public shareholders. Shortly after Norfolk Southern commenced this action, it advised PWV that it would no longer provide its services.

As of December 31, 2012, the Settlement Account reportedly had a balance of $16,660,850.63 in favor of PWV. At that time, PWV’s asset value was $9,150,000 according to its audited financial statements.

Norfolk and Western/Norfolk Southern have consistently represented the balance of the Settlement Account without tracking the income that the (Sub)-Lessee has received from the third-party agreements— ie., the licenses, easements and leases. Norfolk and Western/Norfolk Southern have, however, reflected the proceeds from sales of portions of the Demised Property in the Settlement Account.

Until this litigation, PWV never disputed the treatment of the Settlement Account, submitted a demand for all or part of the indebtedness tracked by the Settlement Account, or requested payments that related to any third-party party agreements concerning the Demised Property. PWV likewise never demanded or asserted prior to this lawsuit that Norfolk Southern owed interest on indebtedness tracked in the Settlement Account.

c. Debt Obligations

Around the time that the Lease commenced, PWV’s total debt obligations amounted to approximately $6,200,000. Until those obligations were satisfied in full, Norfolk and Western used the proceeds from sales of parcels of the Demised Property to pay down PWV’s debt. For each sale, Norfolk and Western had Mellon Bank, N.A. (“Mellon Bank”), the successor to the party that issued the debt obligations, execute a form titled “Partial Release of Lien of Mortgage.” Norfolk and Western, PWV and Mellon Bank handled the 1973 Twilight coal lease in a similar fashion. By August 1, 1982, PWV’s debt obligations were paid in full, and Mellon Bank discharged PWV of all debt obligations.

d. Tax & Accounting Changes

In contrast, the indebtedness of Norfolk and Western to PWV grew significantly in PWVs favor throughout the 1970’s and 1980’s following changes to tax and accounting laws that the parties apparently did not anticipate in 1962. The Tax Reform Act of 1976 changed amortization rules for railroads, which increased the additional (non-cash) rent for PWV under the Lease. The Economic Recovery Tax Act of 1981 likewise allowed new depreciation deductions of track structure cost, resulting in another increase of the additional (non-cash) rent. Additionally, the ICC issued an order in 1983 that required railroads to change their accounting method for track structures, which also affected the Settlement Account.

On May 10, 1985, Norfolk Southern sent to PWV a letter in which it requested direction and/or agreement in accounting for a deferred credit based on the recent tax and accounting changes. Norfolk Southern also suggested that PWV discuss the credit with its auditors, Peat, Marwick, Mitchell & Co. (“Peat Marwick”). On July 29, 1985, Sigmund -Levine, PWVs then-Secretary — Treasurer, informed Norfolk Southern that PWV agreed with the proposed method of handling the matter,

e. PWV’s Historical Representations

Over the course of the Lease, PWV has made representations to its shareholders, the ICC, and SEC regarding the payment of its debt by and receipt of income under the Lease.

i. Shareholders

PAW has consistently represented to its shareholders that the annual cash rental is fixed at the rate of $915,000. For example, in a November 1969 letter to shareholders recommending that they approve the acquisition of shopping centers, PAW cited the “fixed cash rent of $915,000” and noted its need to diversify to counteract the effect of inflation on the purchasing power of its income. Pls.’ App’x Ex. 71 at D005706, ECF No. 201-71. Minutes from annual shareholder meeting, such as those in 1977 and 1984, similarly reflect PAW’s position that the tax and accounting changes did not entitle it to any additional rental because the only cash income available under the Lease was the fixed amount of $915,000. In fact, PAW acknowledged at annual shareholder meetings that Norfolk and Western received the particular tax benefits under the Lease from the rent and depreciation deductions. PAW also responded to numerous inquiries from its shareholders in the mid-to-late-1980’s regarding the tax and accounting changes, explaining that the $915,000 cash rental was the only income available under the Lease, with PAW shares tantamount to a bond.

ii. Regulatory Bodies

In addition to its shareholders, PAW has made several representations about the terms of the Lease to the ICC and SEC. In a March 21, 1967 Return Questionnaire related to its application for authorization to reorganize into a business trust, PAW stated that, to the extent that Norfolk and Western’s payment of debt exceeded PAW’s tax deductions for depreciation and amortization, PAW is indebted to Norfolk and Western, but that amount '“is payable only out of income after termination of the [L]ease.” Pls.’ App’x Ex. 79 at 11, ECF No. 201-79.

Almost twenty years after PAW reorganized into a business trust, the SEC received a complaint from a shareholder who alleged that the Trust was not distributing 90% of its ordinary taxable income to its shareholders, as it must do to maintain qualified status. After receiving the complaint sometime in July 1985, the SEC directed PWV to respond with its version of the facts. Two weeks later, Harder wrote to the SEC on behalf of PWV: “In summary, we have always paid out all our taxable income which is the cash rental from Norfolk and Western less expenses.” Pls.’ App’x 169 at D007126, ECF No. 201-169.

More recently, on November 16, 2005, Vice President and Secretary — Treasurer of PWV Robert A. Hamstead wrote to SEC Branch Chief Daniel Gordon to provide information about the perpetual nature of the Lease. Hamstead’s letter to the SEC noted that PWV’s Audit Committee, which was comprised of Hamstead as well as trustees Larry Parsons and Virgil Wenger, spent significant time discussing the terms of the Lease during an October 25, 2005 meeting. At the time, the Audit Committee discussed the timing of payment of the Settlement Account and whether interest accrued on the balance. The Audit Committee ultimately determined that the historical treatment of the Settlement Account was proper and that PWV should convince the SEC to maintain the “status quo.” Pls.’ App’x Ex. 178 at 1, ECF No. 201178. As Hamstead stated in his letter to the SEC, “[t]he Trustees and Audit Committee believe there is sufficient penalty upon the Lessee that the [L]ease will be renewed into perpetuity.” Pls.’ App’x Ex. 179 at 3, ECF No. 201-179.

iii. Annual Reports

The Annual Reports of PWV shed additional light on its historical treatment of the Lease. In Pittsburgh & West Virginia’s 1962 and 1963 Annual Reports, it indicated that the additional rental obligation of Norfolk and Western (for depreciation or amortization deducted for federal income tax purposes) over the term of the Lease would equal approximately the amount of the indebtedness discharged on behalf of the Lessor. Under this scheme, the balance of the Settlement Account would be relatively insignificant at the expiration of the Lease. Pittsburgh & West Virginia nevertheless changed its outlook in its 1964 Annual Report (the first after the Lease became effective), predicting that “the additional rental over the term of the Lease would exceed the amount of indebtedness to be paid by Norfolk and Western.” Pls.’ App’x Ex. 7 at 6, ECF No. 201-7.

Beginning in 1981, PWV’s Annual Report reflects that the balance of the Settlement Account swung in its favor. That year, PWV advised its shareholders:

[t]he sole business of the Trust is the collection of rent on the railroad properties subject to the [Ljease. The rent is fixed at $915,000 per year and is not subject to change for the life of the [Ljease. The [Ljease also provides that certain additional amounts be recorded as rent income, although there is no requirement for payment by Norfolk & Western of such noncash items.

Pls.’ App’s App’x Ex. 24 at 0018206, ECF No. 201-24. As of 1983, PWV no longer included the value of the Settlement Account in its reports because it would have distorted its financial picture had it done so. See Pls.’ App’x Ex. 26 at F-7, ECF No. 201-26 (“At December 1, 1983, the non-cash [Settlement [A]ccount had a balance of $3,900,000 receivable from Norfolk and Western; however, because the account will not be settled until the expiration of the [L]ease, no value has been reported in 1983 for the balance of the account or the transactions affecting the balance.”).

Moreover, beginning in its 1983 Annual Report and continuing thereafter, PWV has repeatedly stated that “[f]or financial reporting purposes, only the cash income is reported, as the non-cash items, although recorded under the terms of the [L]ease, have no financial value because of the unlimited settlement date.” Id. at 1. PWV has also repeatedly stated in its Annual Reports (and 10-K’s) — as recently as 2010 — that “[although the [L]ease provides for additional rentals to be recorded, these amounts do not increase cash flow or net income as they are charged to [Norfolk Southern’s] [Settlement [Ajccount with no requirement for payment except at termination of the [L]ease.” Pls.’ App’x Ex. 53 at D025370, ECF No. 201-53.

From 1983 through 2010, PWV made no mention in its Annual Reports of a limit on the size of the Settlement Account. As the 1983 Annual Report reflects, all of PWV’s third-party debt assumed by Norfolk and Western had been paid off in 1982.

5. PWV’s (New) Management

Herbert Jones, III (“Mr. Jones III”) served as PWV’s President from 2005 until early 2011 and as a member of its Board of Trustees from 2004 through 2011. During his tenure, PWV never hired a law firm, but it continued to retain Gibbons & Kawash as its outside accountant auditing firm.

From 2004 through early 2011, Larson Parsons served as one of the five PWV trustees as well as the Chairman and Chief Executive Officer of Wheeling & Lake Erie. PWV’s then-management was fully aware of Parons’ position with Wheeling & Lake Erie when it invited him to become a trustee. As a PWV trustee, Parsons was a member of its audit committee, which was responsible for overseeing PWV’s financial affairs. In this capacity, Parsons preferred that PWV not change its business plan despite modest increases in costs and corresponding decreases in profits. Moreover, Parsons did not use his position on the Board to alter the longstanding operations of PWV or otherwise change the way it historically functioned since the commencement of the Lease. PWV’s Board chose not re-nominate Parsons as a trustee in 2011.

David Lesser became a PWV trustee sometime in 2009 and the Chairman of the Board in late 2010. Arun Mittal became vice president, treasurer and secretary of PWV in March 2011, replacing Robert R. McCoy who had resigned that spring. Along with PWV’s new management, Lesser expressed an interest in “modernizing” the Lease soon after they came onboard.

6. The West End Branch Dispute

Beginning in October 2007, the Pennsylvania Department of Transportation (“PennDOT”) undertook the construction of a $52.6 million dollar project at the West-End Circle in Pittsburgh Pennsylvania, an area where PA Route 51, Carson Street, South Main Street, and Steuben Street all converge. As part of the construction project, PennDOT sought to purchase a segment of the Rail Line known as the West End Branch, which was no longer essential to Wheeling & Lake Erie’s operation. As Sublessee, Wheeling & Lake Erie agreed to sell the West End Branch pursuant to its rights under Section 9 of the Lease. To complete this sale, Wheeling & Lake Erie was required to obtain the STB’s authority to discontinue service and abandon the common carrier obligation(s) associated with the West End Branch, which required the participation of PWV as the owner of the property.

In a December 8, 2010 letter addressed to McCoy, a lawyer representing Wheeling & Lake Erie before the STB sought a power of attorney from PWV to expedite the process. In a series of correspondences over the next several months, Lesser requested information related to the sale, declined to execute the power of attorney, and raised concerns about “tax issues” that could result from the transaction. Wheeling & Lake Erie’s counsel complied with the document requests.

On March 15, 2011, Lesser sent an email to Wheeling & Lake Erie’s counsel in which he reiterated that PWV would not execute a power of attorney related to the transaction but that it would sign documents to effect the transfer so long as Norfolk Southern made the request. Lesser also expressed his ongoing concerns with related to the tax treatment of the sale and advised that PWV had retained counsel to work with its accounting firm on this matter pursuant to Section 4(b)(6) of the Lease.

On July 7, 2011, PWV ultimately agreed to allow Wheeling & Lake Erie’s counsel to also represent it in the abandonment process before the STB. The representation was expressly limited to the “ministerial act” of extinguishing PWV’s common carrier obligation on the West End Branch. Pls.’ App’x Ex. 274 at D027009, EOF No. 212-25.

7. The Tax Memorandum & Demands for Payment of Attorneys’ Fees

On June 23, 2011, Mittal sent to Randal S. Noe, a General Attorney at Norfolk Southern, a letter with which he attached a “Tax Memorandum” that outlined alleged issues related to the proposed sale of the West End Branch. The Tax Memorandum set forth PWV’s position that Wheeling & Lake Erie’s sale of the West End Branch for approximately $580,000 would require Norfolk Southern, under Section 4(b)(7) of the Lease, to pay to PWV between $980,000 and $2,000,000 (depending on the tax basis in the property) in additional rent in order to compensate the Trust for capital gains taxes. Moreover, the Tax Memorandum outlined PWV’s view that “the Trust believes that its tax returns were improperly prepared [by Norfolk Southern] and did not reflect the ordinary taxable income created by NSC’s 4(b)(7) additional rent payments in prior years.” Defs.’ App’x Ex. 50, ECF No. 202-51. PWV thus proposed an amendment to the Lease to “eliminate [Norfolk Southern’s] considerable additional rent obligation” and to “reduce the Trust’s tax burden (and its concerns related to continued REIT qualification as a result of the [transaction or future transactions).” Id. In closing, PWV once again reiterated its position that “[it] believes that the Lease needs to be updated....” Id.

Mittal also attached to the June 23, 2011 letter an invoice that totaled $4,487.50 in attorneys’ fees for services rendered by Peter Anglum and Richard Baumann of Morrison Cohen, LLP (“Morrison Cohen”) as of March 31, 2011, allegedly “in connection with the review of the Lease and the tax issues related to the proposed sale.” Defs.’ App’x Ex. 50, ECF No. 202-51. Mittal submitted that Norfolk Southern was responsible for paying these expenses under Section 4(b)(6) of the Lease, which requires the Lessee to pay PWV’s expenses related to “the doing of all acts and things necessary and desirable for the protection during the existence of this Lease of Lessor’s rights in the demised property or the rentals or other sums payable pursuant to the Lease.”

Norfolk Southern refused to pay the invoice, taking the position that “[t]he claimed attorneys’ fees related to the evaluation by Morrison & Cohen [] of P & WV’s proposal to amend the Lease” and that “these legal expenses are solely related to the benefit of P & WV’s stockholders.” Pls.’ App’x Ex. 277 at 3, ECF No. 212-28. On October 3, 2011, PWV reiterated its request and indicated that it may declare a default unless Norfolk Southern promptly remitted payment, although it “remainfed] interested in an amicable resolution of the issues.... ” Defs.’ App’x Ex. 58 at D024684, ECF No. 202-54. This suit followed.

Plaintiffs commenced this action on December 15, 2011 by filing a Complaint in Declaratory Judgment in which they sought the Court’s intervention to resolve the disputes over the terms of the Lease in anticipation of PWV declaring a default and seeking the available remedies. Prior to this lawsuit, PWV never demanded or asserted that Norfolk Southern owed any additional rent or “recursive payments” for sales of portions of the Demised Property under Section 4(b)(7) of the Lease, as the June 23, 2011 Tax Memorandum suggests.

On March 23, 2012, Defendants demanded that Plaintiffs reimburse them for over $90,000 in legal fees that they had incurred because of this litigation. Plaintiffs once again denied Plaintiffs’ request for payment. To date, Plaintiffs have not paid the legal fees incurred by Defendants because of this litigation.

8. The Books and Records Demands

Local counsel for Defendants entered an appearance in this action on January 5, 2012 and filed a motion to admit out-of-state-counsel pro hac vice the following day. On January 6, 2012, Defendants also filed a stipulation with the Court regarding an agreed-upon extension of time to respond to the Complaint.

a. The January 2012 Books and Records Demand

That same day, Mittal wrote a letter to Noe demanding an inspection of the books and records of Norfolk Southern, as the Lessee, under Section 8(a)(3) of the Lease. The letter indicated that “[w]e will plan on the inspection taking place at Three Commercial Place, Norfolk, Virginia, 23510 on [Tuesday] January 11, 2012 starting at 10:00 AM and plan and staying through the end of the week.” Defs.’ App’x Ex. 68 at 1, ECF No. 202-69. Within two business days, Defendant(s) sought access to Norfolk Southern’s books and records related to financial statements and supporting documents; tax returns; a historical accounting of the Settlement Account, including each addition and subtraction as well as supporting documentation; all details related to all sales of PWV property and all tax reimbursement payments related thereto; railway volume metrics; customer lists; track maintenance; track condition reports; machinery, equipment, supplies, motive power, rolling stock and cash needed to operate the railroad; property descriptions, plans and specifications; correspondences related to the Lease or PWV; ICC, STB, and other governmental records; any existing or pending litigation related to the railroad; and insurance. In addition, PWV stated its intention to perform a track inspection in the near future.

The January 6, 2012 Books and Records Demand set off an extensive back and forth between the parties through their counsel of record. On January 9, 2012, Plaintiffs responded to the Books and Record Demand, asserting that “[u]nder no circumstances would Mittal’s requests be deemed to be ‘reasonable’ under the Lease....” Defs.’ App’x Ex. 71 at 1, ECF No. 203-1. Plaintiffs maintained that Mittals’s request — apparently the first Books and Records Demand in the history of the Lease — was an attempt to circumvent the Federal Rules of Civil Procedure in light of the ongoing litigation. Plaintiffs thus concluded that “there will be no document inspection on January 11 as [PWV] has unilaterally and improperly demanded.” Id. at 2.

PWV replied to Plaintiffs’ correspondence on January 11, 2012. In the letter, PWV reiterated its , right under Section 8(a)(3) of the Lease, emphasizing that it could inspect the books and records of Lessee “for any purpose whatsoever.” PWV also invited Plaintiffs to provide legal authority to support their position and offered them additional time to gather the books and records it requested.

Two days later, on January 13, 2012, Plaintiffs sent another letter to PWV regarding Mittal’s January 6, 2012 Books and Records Demand. Plaintiffs maintained that they would not produce any of the documents requested outside of this litigation. In support, Plaintiffs cited Entertainment Technology Corp. v. Walt Disney Imagineering, No. CIV.A. 03-3546, 2003 WL 22519440 (E.D.Pa. Oct. 2, 2003), a decision in which the district court denied a motion for leave to conduct expedited discovery. From Plaintiffs’ perspective, the material sought in Mittal’s letter was “far more extensive than the singular request denied by the [cjourt in Entertainment Technology” and “amounts to an attempt by [PWV] to obtain discovery before responding to the Complaint and to avoid the mandates of Rule 26.” Defs.’ App’x Ex. 73, ECF No. 203-2.

On January 17, 2012, PWV responded to Plaintiffs’ latest position. PWV noted that Entertainment Technology Corp. did not involve a contractual provision authorizing a Books and Records inspection, distinguishing it from the parties’ dispute. Further, PWV advised that “[Plaintiffs’] refusal to provide access to the books and records constitutes a failure to perform an obligation under the Lease that was properly noticed by P & WV on January 6, 2012.” Defs.’ App’s Ex. 74, ECF No. 203-3.

The next correspondence (in the record) did not occur until February 22, 2012 when Plaintiffs offered to produce to Defendants “a refined list of documents, both in terms of categories and in terms of time period relating to the operation of the Lease.” Defs.’ App’s Ex. 75, ECF No. 203-4. Plaintiffs similarly requested that Defendants produce to them “all documents in their possession relating to such categories enumerated in the refined list, as well as such other categories related to the Lease that [they] may designate.” Id

Notwithstanding this offer, PWV rejected the proposed accommodation in a February 27, 2012 letter. Once again, PWV emphasized that Section 8(a)(3) of the Lease states that a Books and Records inspection may be “for any purpose whatsoever.” PWV thus demanded that Plaintiff(s) make available the Books and Records that Norfolk Southern maintained on behalf of the Lessor and those documents that related to the condition, maintenance and operation of the Rail Line. In response to Plaintiffs’ Books and Records request, PWV noted that they may review the documents at any time and upon reasonable notice irrespective of whether they are on PWV’s list.

According to PWV, Plaintiffs have not yet produced documents responsive to the January 2012 Books and Records Demand regarding (1) “railway volume in terms of car loadings, tons transported, revenues and other metrics tracked by Lessee on a per customer and per category basis” or (2) “customer lists including billings/usage.” Defs.’ CSMF at 21-22, ECF No. 202. In response, Plaintiffs assert that there is no obligation for either party to produce any documents under Section 8(a)(3) of the Lease, contend that they nevertheless complied with the request through discovery in this litigation, and allege that Defendants’ new management used the Books and Records Demand to manufacture a default of the Lease and achieve a windfall by terminating the Lease and collecting the balance of the Settlement Account. See generally Pls.’ Br. in Opp. at 14, ECF No. 210 (“Needless to say, Plaintiffs’ counsel felt sandbagged by the inspection demand, particularly because Rule 34 allows 30 days to respond to a request for the production of documents and Defendants sought documents on only two business days’ notice.”).

b. The March 2013 Books and Records Demand

On August 14, 2012, Defendants served both Norfolk Southern and "Wheeling & Lake Erie with document requests under Federal Rule of Civil Procedure 34. The requests sought production of all documents and/or communications concerning their financial statements, PWV’s tax returns and financial statements, other leases of railroad property and related litigation material, the Settlement Account or other indebtedness between the parties, and sales of the Demised Property. Plaintiffs lodged numerous objections in their September 2012 response(s), and it remains unclear whether they produced any documents pursuant to this discovery request.

On January 10, 2013, PWV’s current management was contacted by Larry Skrzysowski, a representative of Chesapeake Appalachia, LLC (“Chesapeake Appalachia”), seeking ratification of an oil and gas lease it entered into with Wheeling & Lake Erie. Apparently, this instance was the first time anyone from PWV’s current management team had learned of third-party leases related to the Demised Property.

The current management of PWV became aware of other third-party leases during Parson’s January 29, 2013 deposition. During his deposition, Parsons confirmed that numerous entities aside from Chesapeake Appalachia have drilled for oil and gas on the Demised Property pursuant to lease agreements with Wheeling & Lake Erie. Through counsel, PWV -thereafter requested that Plaintiff(s) produce any leases relating to drilling on the Demised Property, characterizing the extraction of material as tantamount to a sale.

Over the next several days, counsel corresponded with each other regarding why the third-party agreements were not produced during fact discovery which originally closed on January 25, 2013. Plaintiffs took the position that the third-party agreements were not tantamount to a sale and that they were never requested in discovery. PWV disputed that account, contending that the third-party agreements were responsive to its requests for documents relating to financial statements, revenues and sales. After the parties exchanged several additional letters in which they continued to share their opposing views, PWV made another demand under Section 8(a)(3) of the Lease.

By letter dated March 5, 2013 from Lesser to Noe, PWV sought to inspect the Books and Records of Norfolk Southern regarding: any documents and communications that related to any grant, conveyance or assignment by Norfolk Southern and/or Wheeling & Lake Erie to any third party of any r