Appellate Court Rules a Handling Carrier Agreement with no Termination Clause is Terminable at Will Upon Reasonable Notice Under IL Law

Michael J. Barron

On January 3, 2020, the US Court of Appeals for the 5^th Cir issued an important opinion on contract rights under Illinois law, and set precedent for other states faced with interpreting if and how parties may terminate a contract of perpetual duration.  In this case, a Class I railroad sold a line to a Class III railroad. The purchase agreement included terms whereby the Class III would serve as a handling carrier for the Class I.  The agreement had no termination date and no interline pricing authority for the Class III carrier for traffic that originated or terminated on its line.  After two decades, this arrangement was creating significant economic harm for the Class III.  The Class III, relying on a principle of Illinois law that says contracts with no termination date can be terminated at will by either party after reasonable time has passed, served notice that it was canceling the handling line agreement and moving to control all pricing and rates on its line.  The Class I sued the Class III.  The trial court agreed with the Class I and found the Class III had breached the agreement. But on appeal the 5^th Circuit reversed and entered judgment for the Class III carrier finding the handling line agreement had no further force or effect and that its lack of a termination provision brought it squarely within the principle of Illinois law that contracts with no termination date can be terminated after a reasonable time by either party.  This will likely have significant impact on similar Illinois contracts used by rail carriers and may also be of interest to those facing this issue in other states.  The decision can be found at https://www.ca5.uscourts.gov/opinions/pub/18/18-11416-CV0.pdf.