Clouds that have hovered over Kansas City Southern Industries Inc. for almost a year are quickly dissipating, thanks to a court ruling dissolving an $844.2 million judgment against the company and its railroad division.
The 8th U.S. Circuit Court of Appeals in St. Paul, Minn., overturned a $200 million antitrust award that would have been tripled under federal statutes, and a $244.2 million companion suit alleging that KCSI had interfered in a contract signed between others.The suits grow out of the ongoing legal war over the purported efforts of the railroad industry to stop a plan to build a major coal-slurry pipeline
from the rich Powder River Basin coalfields in Wyoming and Nebraska to the Gulf Coast.
While the KCSI and its Kansas City Southern Lines railway had settled the claims by the pipeline's sponsor by paying it $82 million in January, the railroad was stunned last summer when a federal court jury handed down the major awards against it in the suits brought by the state of South Dakota.
South Dakota was to have supplied the water that would have carried the coal along the pipeline. It sued KCSI for alleged antitrust violations and for interfering in its contractual relations with the pipeline's sponsor, Energy Transportation Systems Inc.
The appeals court last week overturned the antitrust verdict, ruling that South Dakota had no standing to bring the action under federal law. The court also dismissed the companion suit.
The company's stock soared when the news of the ruling was revealed last week, and Standard & Poor's quickly removed two KCSI bond offerings from its CreditWatch, where they had been placed in mid-January because of concerns with the company's large debt and the huge court award.
In order to pay its $82 million settlement with ETSI, KCSI had taken a $50 million mortgage on its rolling stock.
KCSI President Landon H. Rowland Wednesday said the ruling was a "great, great relief. . . . Now we can concentrate on getting our house in order."
Mr. Rowland said the original court decision had "poisoned" the company's business and, he believed, was a major factor in KCSI's inability to gain the right to purchase the Southern Pacific Transportation Co. last year.
KCSI had spent a great deal of money and energy trying to convince the Interstate Commerce Commission that it was the best potential owner of the SP; the ICC eventually endorsed a KCSI competitor, Rio Grande Industries, as the SP's new owner.
The verdict in the South Dakota case came down as the ICC was preparing to make its decision.
Four of the five railroads that ETSI sued agreed to out-of-court settlements; several also settled suits brought by utility companies that were to have been customers of the pipeline.
The Atchison, Topeka & Santa Fe Railway chose to go to trial in the ETSI suit, and finds itself facing a $750 million judgment.
The railroad's owner, the Santa Fe Pacific Corp., has said it will appeal the award, but its case is not expected to be affected by the ruling in the KCSI case. The plaintiff in the Santa Fe case is ETSI, and not one of the states the pipeline was to have served.
Meanwhile, the KCSI ruling sparked a controversy of another sort, kicking off a run-up in the price of the company's stock before the ruling was made public.
The appeals court had decided to release the ruling after the stock markets closed on June 28, but KCSI stock jumped by more than 10 percent that day, to $35.75.
According to a report in the Kansas City Star, the stock rose after a court clerk in Minnesota informed reporters that a ruling in the case was forthcoming. The newspaper said, however, that analysts were unable to explain why the advance word of an impending decision sent the stock price up, instead of down.
The day after the public announcement was made, KCSI's stock rose another $8.75, to $44.50.