Rievman v. Burlington N.R. Co.

In 1896 the Northern Pacific Railway Company (Northern Pacific) issued two series of bonds with a total face value of over $180 million. The bonds were secured by two types of collateral: railroad property owned by Northern Pacific, and millions of acres of land (the resource properties) granted to Northern Pacific by Congress that were subject to mortgage liens. In 1970 Northern Pacific merged into the Burlington Northern Railroad Company (Burlington) (defendant), and Burlington assumed Northern Pacific’s obligations. Because of the mortgage liens, Burlington was unable to develop or sell the resource properties. Even if Burlington could sell the resource properties, proceeds from the sale would be sent to the bond trustee as collateral for the bonds. The resource properties were worth much more than the face value of the bonds they secured, and the bonds traded on the stock exchange above their value as debt securities because of the value of the underlying resource properties. In 1985 Burlington entered into an agreement with the trustees to release the resource properties from the mortgage liens. Under the agreement, Burlington would deposit enough money to secure the bonds and, to protect the bondholders from a drop in the value of their bonds, included a tender offer to buy back the bonds at market value instead of face value. A group of bondholders (the plaintiff bondholders) (plaintiffs) filed a lawsuit in federal district court to prevent the exchange proposed by Burlington and the trustees, arguing that the mortgage liens did not allow Burlington to release the resource properties or otherwise exchange the collateral securing the bonds. The plaintiff bondholders filed a motion for a preliminary injunction, arguing that they would suffer irreparable harm from the plan through the delisting of their bonds on the stock exchange and because it would be difficult to calculate damages.