Appellees Brief — Railway Labor Executives' Assn. v. Gibbons

Supreme Court brief1982

Ask Donna

What actually matters in this document.

Text

Office Supreme Court, U.S

LED

SEP ®¥ (96)

Nos. 80-415 and 80-1239

IN THE

SUPREME COURT OF THE UNITED

OctTosBer TERM, 1981

=—=———————— OO

RAILWAY LABOR EXECUTIVES’ ASSOCIATION,

Appellant,

WILLIAM M. GIBBONS, Trustee of the Chicago, Fk Island

and Pacific Railroad Company, Debtor; CONTI! NTAL

ILLINOIS NATIONAL BANK AND TRUST COMPANY

OF CHICAGO, as Indenture Trustee; THE FIRST NATION-

AL BANK OF CHICAGO, as Indenture Trustee; HENRY

CROWN, et al.; THE UNITED STATES OF AMERICA;

THE INTERSTATE COMMERCE COMMISSION; and

ANDREW L. LEWIS, JR., Secretary of Transportation,

Appellees.

Consolidated Appeals From The United States District Court

For The Northern District Of Illinois And From

The United States Court Of Appeals For The Seventh Circuit

BRIEF FOR THE ROCK ISLAND APPELLEES

NICHOLAS G. MANOS ROBERT L. STERN

WILLIAMS, MANOS, RUTSTEIN, MILTON L. FISHER

GOLDFARB & SHARP HAROLD L. KAPLAN

332 South Michigan Avenue MAYER, BROWN & PLATT

Chicago, Illinois 60604 231 South LaSalle Street

(312) 435-7494 Chicago, Illinois 60604

Attorney for William M. Gibbons, (312) 782-0600

Trustee of the Chicago, Rock Island Attorneys for Continental

& Pacific Railroad Company Illinois National Bank and

ALBERT E. JENNER, JR. Trust Company of Chicago,

DANIEL R, MURRAY as Indenture Trustee

BARBARA S. STEINER TERRY F. MORITZ

DEBORAH H. BORNSTEIN JOHN P. MESSINA

RANDALL E. MEHRBERG GOLDBERG, KOHN, PC.

JENNER & BLOCK 55 East Monroe Street

One IBM Plaza Chicago, Illinois 60603

Chicago, Illinois 60611 (312) 332-2177

(312) 222-9350 Attorneys for The First

Attorneys for National Bank of Chicago,

Henry Crown, et al. as Indenture Trustee

QUESTIONS PRESENTED'

1. Whether the reorganization court’s order of October 15,

1980, continuing in effect a preliminary injunction enjoining im-

plementation of the labor protection program of the Rock Island

Act, is properly before this Court and ripe for review.

2. Whether the provisions of the Rock Island Act, which

require the reorganization court to impose retroactively a new

employee protection obligation of up to $75 million to be paid the

former employees of a single bankrupt, cashless and non-operat-

ing railroad, constitute a taking of private property without just

compensation, a deprivation of property without due process of

law, a departure from the separation. of powers doctrine and a

violation of the constitutional mandate that bankruptcy laws be

“uniform . . . throughout the United States.”

3. Whether the mere possibility of a later Tucker Act claim

against the United States bars the Rock Island estate from ob-

taining injunctive relief against unconstitutional conduct.

‘Parent Companies, Subsidiaries and Affiliates of the Rock Island ap-

peilees are listed in Appendix A, infra.

TABLE OF CONTENTS

PAGE

QUESTIONS PRESENTED ............ceceeeeeees i

TABLE OF AUTHORITIES ...........cccceeceeces Vv

PEE Wivckccustecectccedcdeeceuascie snes 2

CONSTITUTIONAL PROVISIONS AND STATUTES

SPOTEMA WEEE Soke cHaDiedsavcescestd sek Palebe bse 3

PAPEETE DECC sheet vic ts ccccncbewsd ee bkewe eos 3

Course of Proceedings Below ..........eeeeeeeeee 3

NE OE i'n pb'b.6bus bees ubuheedsab bras 5

The Erosion Of The Rock Island Estate In Reor-

SOOITIE Fai cn'o.c0cd cvesvvenisucdbenaees 5

Labor’s Role In The Reorganization Proceedings. 6

The Rock Island’s Withdrawal From Rail Carrier

GONE. Kh uve obocccevansvemeubas oases 8

The Original Rock Island Act...........0005: 11

The Staggers Rail Act Of 1980 .............. 13

SUMMARY OF ARGUMENT .........0eeeeeeeeees 15

ARISURERINE cv ceveccccocsesvcccccccevcsvocsbotes 18

I. ONLY JUDGE McGARR’S OCTOBER 15, 1980

ORDER CONTINUING IN EFFECT THE PRE-

LIMINARY INJUNCTION ENJOINING IM-

PLEMENTATION OF THE ROCK ISLAND

ACT’S LABOR PROTECTION SCHEME IS

PROPERLY BEFORE THIS COURT FOR RE-

VEEW covecdccprvccneccccsdéssvescccvessess 18

A. This Court Has Jurisdiction To Review Judge

McGarr’s October 15, 1980 Order .......... 19

B. Judge McGarr’s October 15, 1980 Order Is Ripe

FOF ROVIOW cccccccccccccccvecccccccccces 19

iii

PAGE

Il. BY REQUIRING THE ROCK ISLAND ESTATE

TO EXPEND ITS PRIVATE FUNDS FOR A

PUBLIC PURPOSE THE EMPLOYEE PRO-

TECTION PROVISIONS OF THE ROCK IS-

LAND ACT CONSTITUTE A TAKING UNDER

THE FIFTH AMENDMENT FOR WHICH

COMPENSATION IS REQUIRED.........45. 24

A. Having Sustained Losses Of Over $200,000,000

During Reorganization, The Rock Island Estate

Is Not Required To Expend Further Funds In

The Public Interest ....cccccccccccscccces 24

B. The Rock Island Estate Had No Pre-Existing

Labor Protection Obligations .........+6006: 28

C. The Rock Island Act Effects A Taking Of The Es-

tate’s Private Property For A Public Purpose.. 34

1. The Economic Impact on Claimant......... 37

2. The Character of the Governmental Action.. 39

3. Interference with Investment-Backed Expecta-

GORE na ccccccccccccccccccccccceccecece 39

Ill. THE ROCK ISLAND ACT DEPRIVES THE ROCK

ISLAND ESTATE OF DUE PROCESS OF LAW

IN VIOLATION OF THE FIFTH AMEND-

MENT AND CONTRAVENES THE UNIFORM-

ITY REQUIREMENT IN THE BANKRUPTCY

CLAUSE .cccccccccccccccccccccccccccccens 45

A. The Legislative Direction As To How The

Judiciary Should Decide This Particular Case

Contravenes The Doctrine Of Separation Of

Powers And The Due Process Clause ........ 45

PAGE

B. The Rock Island Act Violates Both The Uniformi-

ty Requirement Of The Bankruptcy Clause And

The Equal Protection Component Of The Due

Process Clause Of The Fifth Amendment

Because It Applies Only To One Company ... 49

1. The Rock Island Act Contravenes the Uniform-

ity Requirement in the Bankruptcy Clause. 50

"2. The Rock Island Act Violates the Equal Pro-

tection Component of the Due Process

CAUSED cicccccccccccccccsccccecoccces 53

C. The Retroactive Imposition Of Additional Liabili-

ty To Employees After The Rock Island Has

Been Ordered To Liquidate Deprives The Rock

Island Estate Of Due Process Of Law ....... 55

IV. THE MERE POSSIBILITY OF A SUBSEQUENT

TUCKER ACT REMEDY DOES NOT PRE-

CLUDE THIS COURT FROM ENJOINING

THE IMPLEMENTATION OF THE ROCK IS-

LAND ACT OR FROM DECIDING THE TAK-

ING ISSUE NOW ..nccccccccccccccccccccces 60

A. The Fact That A Subsequent Action For Damages

Under The Tucker Act Is Not Precluded Does

Not Bar This Court From Enjoining The Im-

plementation Of An Unconstitutional Act.... 61

B. In The Alternative, Whether Or Not The

Availability Of A Tucker Act Remedy Cures

The Constitutional Defects Of The Rock Island

Act, This Court Should Determine The Taking

PIED PHEW cc cceececcccccceccaccecscesose 66

CONCLUSION ........ bocecccccccccccscccccccees 69

TABLE OF AUTHORITIES

CASES:

Agins v. City of Tiburon, 447 U.S. 255 (1980) ...

Allied Structural Steel Co, v. Spannaus, 438 U.S.

BS4 CIDTE) voccccccnccccccccccccccscccces

Andrus v. Allard, 444 U.S. 51 (1979) .....5 eee

Armstrong v. United States, 364 U.S. 40 (1960)..

Bath Industries, Inc. v. Blot, 427 F.2d 97 (7th Cir.

Beneficial Finance Co. v. Wirtz, 346 F.2d 340 (7th

CO, IDES) oe veces vccccdeccccccceccoccesse

Brooks-Scanlon Co. v. Railroad Commission, 251

PAGE

58, 59

36, 38

U.S. 396 (1920) ....10, 16, 17, 25, 27, 28, 29, 33, 34, 40, 61

Brotherhood of Locomotive Engineers v. United

States, 217 F.Supp. 98 (N.D, Ohio 1963) .....

Buckley v. Valeo, 424 U.S. 1 (1976) oo. ccceeees

Bullock v. Railroad Commission, 254 U.S. 513

TED Uses cL DehRR Eon ECO Sdh's 6c0eves cesses

Bulova Watch Co. v. United States, 365 U.S. 753,

FRO CEMED: Ghienetd Shee cdhas Cede RECOOCLeED

Busic v. United States, 466 U.S. 398 (1980) .....

City of New Orleans v. Dukes, 427 U.S. 297 (1976) .

Coffman v. Breeze Corporations, 323 U.S. 316

(1D4S) wcrccvcecccccccdsccccccccvccccccces

Continental Illinois National Bank & Trust Co. v.

Chicago, Rock Island & Pacific Railroad, 294

Ria GOP REOUOD esa cdesdedecdcocedsecesecer

Cotting v. Kansas City Stock Yards Co., 183 U.S.

TO CIGOL) sccccccvcccccccccccscncvccccces

Dames & Moore v. Regan, 101 S.Ct. 2972 (1981).

25, 33

PAGE

Duke Power Co. v. Carolina Environmental Study

Group, 438 U.S. 59 (1978) ...ccecceeeeeeees 65

Erb v. Morasch, 177 U.S. 584 (1900)... 6.6660 54

Gibbons v. United States, Nos. 80-1786 and 80-1858

(7th Cir, Aug. 26, 1981) .....65. Sboeocecens 26

Glidden Co. v. Zdanok, 370 U.S. 530 (1962) .... 47

Hampton & Co. v. United States, 276 U.S. 394

(1928) ...... pee beeecedsenecacceeewepeses 46

Hanover National Bank v. Moyses, 186 U.S. 181

C19GZ) wcccccccccee TY TILILTLT RTL 50

HCSC-Laundry v. United States, 101 S.Ct. 836

CIDEL) vccccccvecces eveeedecdeeesesesees 50

Hodel v, Indiana, 101 S.Ct. 2376 (1981) .....65. 65

Hodel v. Virginia Surface Mining & Reclamation

Ass'n, 101 S.Ct. 2352 (1981)... ccc ee ce eeeees 36, 37, 43,65

Hurley v. Kincaid, 285 U.S. 95 (1932). ....0006 65

Hurtado v. California, 110 U.S, 516 (1884) ..... 49

In re Auto-Train Corp., 7 Bkrptcy. Ct. Dec. 906

(DiD.C. 1961). vecccccccccvcccccvevcevvece 51

In re Central Railroad of New Jersey, 485 F.2d 208

(3d Cir. 1973), cert. denied, 414 U.S. 1131

CIDTE) ceddrecvivevecvcdcccvevessesseecces 25

In re Chicago, Milwaukee, St. Paul & Pacific Rail-

road, Nos. 80-1347, 80-1348, 80-1545 and 80-

1546 (7th Cir, Aug. 17, 1981). cc cece eee eens 52

In re Chicago, Milwaukee, St. Paul & Pacific Rail-

road, 611 F.2d 662 (7th Cir. 1979)... . 6c cee 27

In re Chicago, Rock Island & Pacific Railroad, No.

80-1353 (7th Cir. Feb. 11, 1981), petition for cert.

filed sub nom. RLEA vy. Gibbons, 49 U.S.L.W.

3883 (U.S. May 12, 1981) (No. 80-1899) ..... 9, 26

vii

In re Chicago, Rock Island & Pacific Railroad, No.

80-1788 (7th Cir. June 19 and Sept. 18, 1980)

(orders denying stay applications)..........+.

In re Chicago, Rock Island & Pacific Railroad, 545

F.2d 1067 (7th Cir. 1976) .ccccccccccccccces

In re New York, New Haven & Hartford Railroad,

304 F.Supp. 793 (D. Conn. 1969) .......0006

In re New York, Susquehanna & Western Railroad,

504 F.Supp. 851 (D. N.J. 1980) .... cece eens

In re Penn Central Transportation Co., 384 F.Supp.

BOS (Special Ct. 1974) wcccccccccccccccccers

In re Penn Central Transportation Co., 382 F.Supp.

C56 (ELD. Pa. 1974) ccccccvccccccescccccess

In re Sink, 27 F.2d 361 (W.D. Va. 1928), appeal

dismissed, 30 F.2d 1019 (4th Cir. 1929) ......

Interstate Commerce Commission v. Railway

Labor Executives Ass'n, 315 U.S, 373 (1942) ..

Kaiser Aetna v. United States, 444 U.S. 164

PP ULodinGis dirs bb one abies 00 60,00666'8

Kilbourn v. Thompson, 103 U.S. 168 (1880).....

Los Angeles Department of Water & Power v. Man-

Part, 435: UZ, FOS CISTS) cocvccscveccevcese

Louisville Joint Stock Land Bank v. Radford, 295

UB. SSS UIGIS) vecvcesesecscvccveccccoccce

Lovett v. United States, 66 F.Supp. 142 (Ct. Cl.

1945), aff'd, 328 U.S. 303 (1946) ....cceeees

McFarland v. American Sugar Refining Co., 241

OLB, TOCUIDIG) cinccctncscecdccccvcccesces

McLucas v. DeChamplain, 421 U.S. 21 (1975)...

Morey v. Doud, 354 U.S. 457 (1957)... 60 ee eeee

Nachman Corp. v. Pension Benefit Guaranty Corp.,

446 U.S. 359 (1980)..... sebarcvesvescocoes

PAGE

26, 28

31, 52, 54

52, 53

36, 38

35, 40, 55,60

56, 58, 59

viii

Nachman Corp. v. Pension Benefit Guaranty Corp.,

$92 F.2d 947 (7th Cir. 1979) .cccccccccvcces 56, 58, 59

New Haven Inclusion Cases, 399 U.S. 392 (1970) . 26

Nixon v, Administrator of General Services, 433

UB, SES CAPEE) cvccccccvecccccccccesseces 53

Penn Central Transportation Co. v. City of New

York, 438 U.S. 104 (1978) ....ccceceeeeeees 36, 38, 39

Pennsylvania Coal Co. v. Mahon, 260 U.S. 393

CISZS) occcrvccbecsccncscccccvccccccscces 35

Railroad Commission v. Eastern Texas Railroad,

BGA UBs TO CIDDE) occ cccccccccccccccccese 25

Railroad Retirement Board v. Alton Railway, 295

UB. BIO CISES) cvvccdccccccccccscsvcveses 58, 59

Regional Rail Reorganization Act Cases, 419 U.S.

1G3 CIDTAP > ccvcvcogvecccoess 23, 25, 27, 39, 51, 54, 65-68

RLEA v. Gibbons, 101 S.Ct. 2014 (1981) (order

noting probable jurisdiction) ........6++0e00% 4,5

RLEA vy. Gibbons, (Stevens, Circuit Justice, Jan. 27,

1981) (unpublished order denying stay applica-

tion); 101 S.Ct. 1344 (Feb. 23, 1981) (order of the

Court denying stay application)...........06. 4

RLEA vy. Gibbons, 448 U.S. 1301 (1980) (Stevens,

Circuit Justice) (opinion denying stay applica-

WOR) oc vovccccccccsvcccccccccescccececces 4, 13

RLEA vy. Gibbons, 448 U.S. 909 (1980) (order of the

Court denying stay application)........+..06. 4,13

RLEA v. Gibbons, Nos. 80-2487 and 80-2536 (7th

Cir. 1980) (order affirming denial of motion to

vacate preliminary injunction).........eee066 49

United States v. Klein, 80 U.S. (13 Wall.) 128

RUUD soa tbbedeeeedanhecdhensceetieneces 47

United States v. Lowden, 308 U.S. 225 (1939) ... 40

United States v. Nixon, 418 U.S. 683 (1974)..... 46

PAGE

University of Texas v. Camenisch, 101 S.Ct. 1830

CISSD) ivcccccecdcconvcssdocestcentenbese 21, 22

Usery v. Turner Elkhorn Mining Co., 428 U.S. 1

LIGTE) ve vvccetberccccsenéecsstsccoasectn 40, 57, 58

Webb's Fabulous Pharmacies, Inc. v. Beckwith, 449

U.S. 155 (1980) .cccvcccscccvccccccceveess 39

Williams v. Mayor of Baltimore, 289 U.S. 36

£1993) vo csdesccdvovnconeneveceecbesceues 54

Wright v. Union Central Life Insurance Co., 304

UB. SBC 1958) wcvccccesessccccsecsegeces 50

Youngstown Sheet & Tube Co. v. Sawyer, 343 U.S.

S79 CIGSZ) oc cctcvcccesccoccccvcccccss 46, 62, 63, 67, 68

ADMINISTRATIVE DECISIONS:

Chicago, Rock Island & Pacific Railroad— Aban-

donment, 363 1.C.C. 150 (1980) 2... cee eee eens 9, 31

East Carolina Railway— Abandonment, 324 1.C.C.

S06 CIGGS) scccivvcccccccvecevsvccesbdocese 31, 33

Kansas City Terminal Railway—Operate—Chi-

cago, Rock Island & Pacific Railroad, 360 1.C.C.

ZOD CIDTS) ccvccccccceccccccosvcceseccees + |

Montpelier & Barre Railroad— Abandonment, Dkt.

No. AB-202F (Feb. 6, 1980) ......eeeeeeees ° 31

Northampton & Bath Railroad— Abandonment,

954 1.C.C. 744 (1978) wccccccccvcccces ETT 31, 32

Okmulgee Northern Railway—Abandonment, 320

BOs GFF CISGE) co cccccccvecces TTTTITits 31, 34

Oregon Short Line Railroad—Abandonment—Go-

Shen, 360 L.C.C, 666 (1980) ccc ccccceeeeens 30

Rutland Railway—Abandonment, 317 1.C.C. 393

CIDER wavccrvccccctccuccccesccccsccecves 31

PAGE

St. Louis Southwestern Railway—Temporary Au-

thority—Chicago, Rock Island & Pacific Rail-

FORE, S00 LCL, TAP CIGSB) occcccccccsoseose 8, 43

Tennessee Central Railway—Abandonment, 333

BG, 443 (ISEB) occ cricccccccccccsccccces 31, 32, 34

Washington & Old Dominion Railroad—Abandon-

ment, 331 1.C.C. 587 (1968) .... cece eee eens 33

Wellsville, Addison & Galeton Railroad—Aban-

donment, 354 L.C.C. 744 (1978) ... cece cee ees 10, 31, 34

CONSTITUTIONAL PROVISIONS:

United States Constitution:

Bankruptcy Clause, art. 1, §8, cl. 4......... 3, 17, 50, 61

Commerce Clause, art. 1, §8, cl. 3.......... 50

Ex Post Facto Clause, art. 1, §9, cl. 3....... 50, 56

First AMORGMON 2c ccccccccccccccccccece 50

Fourth Amendment .......cceceseseccecs 50

Fifth Amendment ......... 17, 25, 34, 35, 36, 39, 45, 49,

50, 53, 55, 56, 60, 61, 62

tee PAUROREIIONE so cc cccccccccccuseceees 50

Seventh Amendment .........seeeeeeeees 50

Eighth Amendment ..........seeeeeeeees 50

Fourteenth Amendment ..........6.00000: 53, 54, 55

STATUTES AND RULES:

Bankruptcy Act of 1898

Section 77, 11 U.S.C. §205 ......... 5, 24, 26, 29, 51, $2

Bankruptcy Reform Act of 1978, Pub. L. No. 95-

Bs BE Wis MOU NORONE TS ccccccccsccccees 51

Federal Rules of Appellate Procedure

Ue FIGS ccccvcrcevccccccccccececens 2

Federal Rules of Civil Procedure

ED EE BARA eaReaucesarecccccecccvesees 2

PAGE

Interstate Commerce Act

Section la(1), recodified as 49 U.S.C. §10903

COORD. TEE ISTO) ccvccccscccccesevenscs 29, 30

Section 1(16)(b), recodified as 49 U.S.C,

BEE RSS CL EE EBTED cccccesccsceeces 7

Section 5(2)f, recodified as 49 U.S.C. §11347

(Supp. TF 197TE) .ccccccccccccccccccvece 30

Judicial Code

BO UB BU2S! oc cccccvecccccccscceseses 2, 3, 13, 19

Pe Ws BONO! bncccctededcccadccccscce 3

Be Ube WESSEL wecdocvedeccdccecvcdéonee 68

Milwaukee Road Restructuring Act, 45 U.S.C.

GEPUIES Colccccancnccccccccesccccceves 29, 52

eee Bip SP UA BOIS cévcccccccceses 10, 29, 30

Rail Passenger Service Act of 1970

Section 405, 45 U.S.C. §565 .......eeeeees 30

Railway Labor Act

Section 10, 45 U.S.C. $160 ....ccccccccees 7

Rock Island Transition and Employee Assistance

Act, Pub, L. No. 96-254, 45 U.S.C. §§1001-

LOIS . wcccccccccccccacccccccccccccccces passim

Section 102, 45 U.S.C. §1001(2)........... 41

Section 106, 45 U.S.C. §1005 ...... 11, 12, 14, 37, 46, 67

Section 110, 45 U.S.C. §1008 ..........06. 11,14, 37,46

Staggers Rail Act of 1980, Pub. L. No. 96-448, Title

VII, Section 701, 94 Stat. 1895, 1959....... passim

Section 701 of the Staggers Act, amending Sec-

tion 124 of the Rock Island Act......... 14, 15, 60, 67

Supreme Court Rule 11.3 ..ccccccccccccccccee 2

Tucker Act, 28 U.S.C. $1491 ...cccccccccccese passim

xii

LEGISLATIVE MATERIALS:

H.R. Conr. Rep. No. 96-583, 96th Cong., Ist Sess.,

reprinted in [1979] U.S. Cope Conc. & Ap.

NBWS 1747 wccccccccccccccccccccccccccese

H.R. Conr. Rep. No. 96-1430, 96th Cong. 2d Sess.,

reprinted in [1980] U.S. Cope Conc. & Ap.

NBWS 4110 .ccccccccccccccccccccccccccece

S. Conr. Rep. No. 94-595, 94th Cong., 2d Sess., re-

printed in[1976] U.S. Cope Conc. & Ap. News

146 nccccccccccccccvcessccccoceccoccccene

126 ConG. Rec. H 8548-49 (September 9, 1980) .

126 Cona. Rec. H 8576 (September 9, 1980)....

MISCELLANEOUS AUTHORITIES:

Exec. Order No. 12,159, 44 Fed. Reg. 54687 (Sep-

Comer ZI, 1DTP) a cccccccccccccccceccccecece

9 Moore’s FEDERAL PRACTICE § 204.12[1] (2d ed.

PPEEP ccWoccscdcccccesesscccocscoscasuces

Levi, Some Aspects of Separation of Powers, 76

Cotum. L.REV. 371 (1976) .....ceeeeeeeeees

Pound, Justice According To Law: Legislative Jus-

tice, 14 COLUM. L.REV. 1 (1914). ... cece eens

PAGE

Nos. 80-415 and 80-1239

IN THE

SUPREME COURT OF THE UNITED STATES

OcToBER TERM, 1981

RAILWAY LABOR EXECUTIVES’ ASSOCIATION,

Appellant,

WILLIAM M. GIBBONS, Trustee of the Chicago, Rock Island

and Pacific Railroad Company, Debtor; CONTINENTAL

ILLINOIS NATIONAL BANK AND TRUST COMPANY

OF CHICAGO, as Indenture Trustee; THE FIRST NATION-

AL BANK OF CHICAGO, as Indenture Trustee; HENRY

CROWN, et al; THE UNITED STATES OF AMERICA;

THE INTERSTATE COMMERCE COMMISSION; and

ANDREW L. LEWIS, JR., Secretary of Transportation,

Appellees.

Consolidated Appeals From The United States District Court

For The Northern District Of Illinois And From

The United States Court Of Appeals For The Seventh Circuit

BRIEF FOR THE ROCK ISLAND APPELLEES

This brief is submitted on behalf of appellees William M.

Gibbons, Trustee of the Chicago, Rock Island and Pacific

Railroad Company, Continental Illinois National Bank and Trust

Company of Chicago and The First National Bank of Chicago, as

Indenture Trustees for the income debenture holders and first

mortgage bondholders respectively, and Henry Crown, et al., sub-

stantial holders of first mortgage bonds, income debentures and

common stock of the Rock Island.

JURISDICTION

No. 80-415. The district court’s order from which appeal No.

80-415 is taken was entered on June 9, 1980. Appellant RLEA’

filed a notice of appeal from that order under 28 U.S.C. § 1252 on

June 11, 1980. (J.A. 10a.) On June 20, 1980, RLEA joined in a

motion by the United States and the Interstate Commerce Com-

mission (the “Commission” or “I.C.C.”) requesting the district

court to vacate its June 9 order. (J.A. 10a, 169a.) By that timely

motion to vacate, RLEA’s earlier notice of appeal was nullified

and dissolved. Fed. R. App. P. 4(a)(4);’ Sup. Ct. R. 11.3; 9

Moore's FEDERAL Practice © 204.12[1], at 4-65 n.17 (2d ed.

1980). RLEA never filed a timely notice of appeal following the

district court’s denial of the June 20, 1980 motion to vacate. 28

The abbreviations used in this brief conform to the abbreviations em-

ployed in the briefs of appellant RLEA and the federal appellees except

where otherwise noted. The Government defendants (the United States,

the Secretary of Transportation and the Interstate Commerce Commis-

sion) did not file an appeal in No. 80-1239 and are thus technically ap-

pellees although they support the appellant RLEA. To avoid confusion,

both the Government defendants and the RLEA are referred to as ap-

pellants, and Mr. Gibbons (the Trustee of the Rock Island) and the

creditors and shareholders are referred to as appellees. When necessary

to distinguish the RLEA from the Government defendants, the latter

will be referred to as the “Government.”

References to the Joint Appendix are designated “J.A." References to

the Appendix to the Jurisdictional Statement in No. 80-415 are desig-

nated “80-415 J.S.App.” References to the opening briefs of RLEA and

the Government are designated “RLEA Br.” and “Govt. Br.” respec-

tively.

‘Rule 4(a)(4) provides in part:

“If a timely motion under the Federal Rules of Civil Procedure is

filed in the district court by any party ... (iii) under Rule 59 to alter

or amend the judgment . . . the time for appeal for all parties shall

run from the entry of the order denying a new trial or granting or

denying any other such motion. A notice of appeal filed before the

disposition of any of the above motions shall have no effect. A new

notice of appeal must be filed within the prescribed time measured

from the entry of the order disposing of the motion as provided

above.”

U.S.C. § 2101. Although the Government filed a timely notice of

appeal to this Court from the June 20 ruling, it did not docket its

appeal. Thus, jurisdiction of this Court does not lie in No, 80-415,

No. 80-1239. The judgment of the court of appeals in No.

80-1239, affirming Judge McGarr’s October 15, 1980 order con-

tinuing in effect the June 9 injunction, was entered on December

16, 1980. (J.A. 210a.) RLEA filed its notice of appeal to this

Court on December 19, 1980 (J.A. 16a), and the appeal was

docketed on January 2!, 1981. The jurisdiction of this Court in

No. 80-1239 is based on 28 U.S.C. § 1252.

CONSTITUTIONAL PROVISIONS AND

STATUTES INVOLVED

In addition to the constitutional provisions and statutes listed

by the appellants (RLEA Br. 4 and App. A\), the appellees also

rely upon the uniformity provision in the Bankruptcy Clause of

the United States Constitution, art. I, §8, cl. 4. That clause

provides that “[t]he Congress shall have Power . . . To establish

... uniform Laws on the subject of Bankruptcies throughout the

United States... .”

STATEMENT

Course of Proceedings Below

No. 80-415. On June 5, 1980, appellees initiated this action in

the United States District Court for the Northern District of Illi-

nois challenging the constitutionality of the labor protection

provisions of the Rock Island Transition and Employee Assis-

tance Act, Pub. L. No. 96-254, 94 Stat. 399, codified at 45 U.S.C.

§§ 1001-1018 (the “original Rock Island Act’), enacted into law

on May 30, 1980. (J.A. 21a-42a.) After a hearing on the appel-

lees’ motion for a preliminary injunction, District Judge (now

Chief Judge) Frank J. McGarr granted the injunction, finding a

probability that the original Rock Island Act’s labor protection

provisions would violate the Fifth Amendment rights of the Rock

Island estate, its creditors and its shareholders and, if implement-

ed, would cause irreparable injury to the estate. (J.A. 15Sla-

158a.) Appellants thereupon unsuccessfully moved in the district

court to vacate the preliminary injunction (J.A. 161a-184a), and

then in this Court for a stay, RLEA v. Gibbons, 448 U.S. 1301

(Stevens, Circuit Justice) (opinion denying stay application); 448

U.S. 909 (1980) (order of the Court denying stay application).

RLEA filed a notice of appeal from Judge McGarr’s order grant-

ing a preliminary injunction but not from his subsequent order of

June 20, 1980 denying appellants’ motion to vacate that injunc-

tion. (80-415 J.S.App. 23a.) See supra at 2-3. On April 27, 1981,

this Court postponed further consideration of the question of

jurisdiction over appeal No. 80-415 to the hearing of the case on

the merits. RLEA v. Gibbons, 101 S.Ct. 2014 (1981).

No, 80-1239. On September 29, 1980, Congress enacted Sec-

tion 701 of the Staggers Rail Act of 1980, Pub. L. No. 96-448,

Title VII, § 701, 94 Stat. 1959 (the “Staggers Act”), which re-

enacted and amended the labor protection provisions of the

original Rock Island Act which had earlier been found to be un-

constitutional.‘ Thereafter, appellants unsuccessfully moved in

the district court to vacate the June 9 preliminary injunction

(J.A. 185a-209a), then in the Seventh Circuit Court of Appeals to

stay that injunction (J.A. 16a-17a), and finally in this Court for a

stay, RLEA v. Gibbons (Stevens, Circuit Justice, Jan. 27, 1981)

(unpublished order denying stay application); 101 S.Ct. 1344

(Feb. 23, 1981) (order of the Court denying stay application).

In accordance with the expedited review procedures of the

Rock Island Act, an appeal from Judge McGarr’s refusal to

vacate his preliminary injunction was taken to the United States

“Unless otherwise indicated, reference to the “Rock Island Act” is to

the original Rock Island Act as amended by the Staggers Act.

Court of Appeals for the Seventh Circuit. The court of appeals

affirmed Judge McGarr’s decision by a 3 to 3 vote. (J.A. 210a-

21 1a.) RLEA appealed to this Court, which noted probable juris-

diction of appeal No. 80-1239 on April 27, 1981. RLEA v. Gib-

bons, 101 S.Ct. 2014 (1981).

Statement of Facts

The Erosion Of The Rock Island Estate In Reorganization

After a decade of losses totalling $103.4 million (J.A. 361a),

the Rock Island entered reorganization under Section 77 of the

Bankruptcy Act of 1898, 11 U.S.C. § 205, on March 17, 1975.

Judge McGarr presided over the proceedings from the outset. At

his direction, the Trustee continued rail operations for the next

four and one-half years despite staggering losses. (J.A. 1Sla-

152a, 261a-263a, 392a.)’ At year-end 1975, the end of the first

year of reorganization, the Trustee reported to the Commission

that the estate had total assets of $441,126,044. (J.A. 296a.) Dur-

ing the reorganization years from 1975 through 1980, the Rock

island estate suffered net losses totalling $210,627,230.

By the summer of 1979, Rock Island's cash reserves had dwin-

dled to the point that the Trustee could no longer pay his operat-

ing expenses. See Appendix A to Kansas City Terminal Rail-

way—Operate—Chicago, Rock Island & Pacific Railroad

(“Directed Service Order No. 1398"), 360 1.C.C. 289, 316, 322

‘The Trustee reported these accelerating losses to the Commission:

A. _4 mi.

BOTS vecccwerscvesccces $31,165,906

SOTO wecccicdeveenctens 5,186,918

DOET vecowstederecccces 20,093,107

EUFE vecccccesevceccces 17,178,002

OTe ccccccpocecooccese 93,860,096

WORD vovoscveectecceces 43,143,201

(J.A. 300a, 307a, 313a, 320a, 330a.)

(1979). Cash and short-term investments of the Rock Island de-

clined from a level consistently above $16 million in the reorgani-

zation years of 1975 through 1978 to only $3 million on June 30,

1979. (J.A. 374a.) At the same time, the Trustee reported a

rapidly growing net working capital deficit of $52.2 million on

June 30, 1979. (J.A. 371a.)

Labor's Role In The Reorganization Proceedings

During the first five years of reorganization, during which the

Rock Island estate suffered enormous erosion, its employees con-

tinued to be employed by the Rock Island at a cost to the estate of

almost $1 billion in wages and benefits. (J.A. 25a, 11 1a.) As part

of his efforts to athieve an income-based reorganization, the

Trustee sought more efficient work rules agreements with the

labor organizations representing Rock Island employees. He an-

ticipated that the cost savings from these work rules changes

would fund the substantial wage increases sought by the unions.

Thus, in April, 1977, the Trustee informed the unions that he

could not agree to large wage increases without concurrently

eliminating antiquated work rules and featherbedding. (J.A.

278a-279a.) Thirteen of the unions, representing a limited

number of Rock Island employees, reached agreements with the

Trustee to take effect prospectively. (J.A. 279a-280a. )

Despice the Rock Island’s bleak financial condition, the two

unions representing the largest number of Rock Island em-

ployees, Brotherhood of Railway and Airline Clerks (“BRAC”)

and United Transportation Union (“UTU"’) (both represented in

these proceedings by RLEA), refused to agree to work rules

changes and insisted that their members be given significant wage

increases, with retroactive application, which the Trustee said the

estate could not afford. (J.A. 279a-28 1a.)

On August 28, 1979, BRAC, and the next day UTU, struck the

Rock Island. (J.A. 277a.) In order to achieve an orderly shutdown

of operations, the Trustee issued notices of discharge or suspen-

sion to his contract employees in accordance with their collective

bargaining agreements.

On September 20, 1979, the President of the United States de-

clared a state of emergency and mandated a return to work by the

striking Rock Island employees by appointing an Emergency

Board pursuant to Section 10 of the Railway Labor Act, 45

U.S.C. § 160. Exec. Order No. 12,159, 44 Fed. Reg. 54687

(1979). The unions did not, however, order their members to

comply with the Presidential order and return to work. (J.A.

215a-217a, 278a.)

The depleted cash reserves of the Rock Island were quickly ex-

hausted by the strike. On September 26, 1979, acting pursuant to

49 U.S.C. § 11125,’ the Commission directed the Kansas City

Terminal Railway Company to operate and provide rail service

over the lines of the Rock Island based upon “the specific finding

that [the Rock Island’s] cash position makes its continuing opera-

tion impossible.” Directed Service Order No. 1398, supra, 360

L.C.C, at 290. By virtue of that order, the Kansas City Terminal

‘Section 11125 in pertinent part provides as follows:

“(a) When a rail carrier providing transportation subject to the

jurisdiction of the Interstate Commerce Commission under sub-

chapter I of chapter 105 of this title cannot transport the traffic

offered to it because—

“(1) its cash position makes its continuing operation iimpos-

sible;

“the Commission may direct the handling, routing, and movement

of the traffic available to that carrier and its distribution over the

railroad lines of that carrier by another carrier to promote service

in the interest of the public and of commerce.

“(b)(5) A directed carrier may apply to the Commission for

payment of an amount equal to the amount by which (A) the total

expenses of that carrier incurred . . . exceed (B) the direct revenues

from handling, routing, and moving that traffic over the lines of the

other carrier during that period.”

Railway Company conducted rail operations over Rock Island

lines until March, 1980, for which it was subsidized by the Feder-

al government.

Despite the implementation of subsidized directed service by

the Commission, the Rock Island workers represented by BRAC

refused to return to work until the Commission agreed that their

entire membership would be employed in directed service opera-

tions, regardless of need. (J.A. 289a, 293a-294a.) This had the

effect of materially increasing the cost of directed service opera-

tions to the Government. As a result of the Commission’s directed

service orders, the employment of most Rock Island workers was

extended for an additional six months. (J.A. 3la, 11 1a.)

The Rock Island's Withdrawal From Rail Carrier Operations

The Rock Island estate remained cashless and continued to

erode during the period of directed service. See St. Louis South-

western Railway—Temporary Authority—Chicago, Rock Is-

land & Pacific Railroad, 360 1.C.C. 729, 735-36 (1980). On

December 28, 1979, the Trustee filed his Plan of Reorganization,

which called for a reorganization built around an operating core

railroad. (J.A. 5a.) On January 21, 1980, Peat, Marwick, Mitch-

ell & Co., the reorganization court’s independent expert, filed

its report, which concluded that the Rock Island was not reorga-

nizable as an operating railroad even if pared to its most profit-

able core. (J.A. 333a, 343a, 221a.) At hearings conducted by

Judge McGarr on January 23 and January 25, 1980, the creditors

and shareholders, joined by counsel for the Federal Railway Ad-

ministration, speaking also for the Commission, urged the court

to reject the Trustee’s plan and to order the liquidation of the

Rock Island in the public interest. (J.A. 226a-236a.)

On January 25, 1980, Judge McGarr concluded that “‘a contin-

uation of the Rock Island on an income producing basis, whether

in core or in whole or in part. . . is just not possible... ." (J.A.

240a.) He instructed the Trustee to abandon efforts to reorganize

the Rock Island as an ongoing railroad and to commence its

liquidation. (J.A. 239a- 240a.) The Trustee was thereupon direct-

ed to sel! all of the remaining assets of the estate and to prepare a

plan for distribution of the proceeds of the sale to the estate’s

secured creditors and, if possible, its other creditors and share-

holders.

Judge McGarr’s liquidation order was affirmed by the United

States Court of Appeals for the Seventh Circuit, which held that

“the history of this case indicates that the reorganization court

has duly considered the public interest and has determined that

continued operation of the Rock Island no longer serves the public

interest.” In re Chicago, Rock Island & Pacific Railroad, No.

80-1353 (7th Cir. Feb. 11, 1980) (J.A. 377a, 387a-388a, 392a),

petition for cert. filed sub nom. RLEA v. Gibbons, 49 U.S.L.W.

3883 (U.S. May 12, 1981) (No. 80-1899). Following the entry of

Judge McGarr’s January 25, 1980 order, the Trustee began, and

has continued, liquidating the Rock Island Railroad.

On April 14, 1980, the Trustee petitioned Judge McGarr to

confirm the Rock Island’s total abandonment of all rail lines and

operations.’ On that date, Judge McGarr referred the petition to

the Commission for its recommendation and announced that he

would rule on the petition and issues relating to that petition, in-

cluding labor protection, on June 2, 1980. (J.A. 241a-248a.) On

May 23, 1980, the Commission concluded that “abandonment of

the Rock Island and its dissolution as an operating railroad is

required by the public convenience and necessity . . . [and that]

fairness to its creditors and shareholders dictates that the carrier

be liquidated.” Chicago, Rock Island & Pacific Railroad— Aban-

donment, 363 1.C.C. 150, 152 (1980).

Addressing the question of whether labor protection should be

imposed as a condition to abandonment, the Commission express-

"In 1979 Congress transferred jurisdiction to confirm the total aban-

donment of the Rock Island from the Commission to the reorganization

court. See infra at 29.

ly deferred to the reorganization court’s jurisdiction to decide

that issue. The Commission did, however, point to its own long-

standing practice of not imposing any labor protection conditions

in cases of total line abandonments (363 I.C.C. at 161):

In past instances where entire rail systems have been

abandoned and no company would reap the benefits of the

abandonment, we have found the imposition of employee

protective conditions not to be warranted. See, Wellsville,

Addison & Galeton R. Corp.—Abandonment, 354 1.C.C.

744, 746 (1978).

Judge McGarr confirmed the total abandonment of all Rock

Island lines and service on June 2, 1980, characterizing his ruling

as a “technical recognition” of the existing state of affairs. (J.A.

264a.) Judge McGarr reaffirmed his earlier January, 1980 deter-

mination that the Rock Island was entitled to withdraw its assets

from further devotion to rail service in the public interest. He

found (J.A. 270a):

Rock Island’s unconditional discontinuance of service and its

total system abandonment is constitutionally mandated and

... that to force a railroad to continue operations indefinitely

at a loss in order that the public may be served is a violation

of the Fifth Amendment rights of those who have a security

interest in the enterprise. Brooks-Scanlon Co. v. Railroad

Commission, 251 U.S. 396 (1920).

Judge McGarr also rejected RLEA’s request that labor protec-

tion conditions be imposed in connection with the Rock Island’s

abandonment:

The Court [has] found that labor protective conditions or ar-

rangements are not required of Rock Island’s estate pursuant

to Section 17 of the [Milwaukee Road Restructuring Act] by

reason of Rock Island’s systemwide termination of opera-

tions and total line abandonment which do not warrant

further consumption of Rock Island’s assets for protection

payments to employees whose jobs with Rock Island are no

longer in existence by reason of such total abandonment and

operational discontinuance. . . . [C]Jonsistent with ICC

precedent, with the Rock Island’s constitutional right to

abandon its lines and discontinue its service, and with the

equities of the Rock Island situation, no labor protection ar-

rangements may be imposed on the Rock Island estate.

(J.A. 270a-27la, citations omitted. )*

The Original Rock Island Act

In response to the reorganization court’s liquidation order,

Congress enacted legislation which attempted to impose upon the

Rock Island estate the cost of a new “protection” scheme for its

former employees. The original Rock Island Act was signed by

President Carter on May 30, 1980—four months after the entry

of the liquidation order, 45 days after the confirmation of aban-

donment was requested, one week after the Commission reported

to Judge McGarr that it concurred in his decision to liquidate the

Rock Island, and three days before Judge McGarr’s expected

confirmation of abandonment. The labor protection scheme is

contained in Sections 106 and 110 of the Act.

The original Rock Island Act imposed up to $75 million in new

employee protection obligations on the Rock Island estate. It

required that the labor protection program be funded either di-

rectly from the assets of the estate or by a federally guaranteed

loan. The loan obligation would have “administrative expense”

status. Thus, repayment of the loan would give the Government

priority over the interests of unsecured creditors and shareholders

and possibly over the interests of secured creditors, erties the

first mortgage bondholders.’

*"RLEA subsequently appealed the district court’s June 2 order to the

United States Court of Appeals for the Seventh Circuit. The court of ap-

peals twice denied RLEA’s motion for a stay of the abandonment order.

In re Chicago, R.I. & P.R.R., No. 80-1788 (7th Cir. June 19 and Sept.

18, 1980) (orders denying stay applications). This appeal has been ar-

gued and now awaits decision by the Seventh Circuit.

*The reorganization court did not reach the question of the priority of

the claims of the secured creditors in relation to the “administrative ex-

pense” claim accorded the federal loan under Section 110 of the Act and

the labor protection claim created by the Act. Thus, this issue is not

before the Court.

The original Rock Island Act required that the $75 million

prior obligation be imposed on the estate on an extremely short

timetable. Section 106(a) provided that the Trustee and rail labor

unions were to reach a “voluntary” agreement implementing the

Act’s labor protection program within ten days from the statute's

enactment. In the event that no agreement was reached, the Com-

mission was required under Section 106(b) to “impose” a labor

protection arrangement on the estate within thirty days there-

after. Section 106(c) directed the reorganization court to order

the Trustee to implement the arrangement devised by the Com-

mission “immediately” upon issuance of the Commission’s order.

Section 106(d)(1) of the Act provided that no court could stay

any Commission or reorganization court order imposing an em-

ployee protection scheme under the Act. Section 106(d)(2) of the

Act established a truncatéd appeal procedure which expressly

precluded subsequent review by this Court.

On June 5, 1980, in order to prevent implementation of the

proposed scheme pursuant to this foreshortened statutory time-

table, the Rock Island’s Trustee, creditors and shareholders filed

a complaint for declaratory relief and moved for a preliminary

and permanent injunction against the implementation of the stat-

ute’s labor protection mechanism. (J.A. 2la-4la.) On June 9,

1980, one day before the statutory procedures of the Act would

automatically commence, the reorganization court conducted a

hearing on the motion for a preliminary injunction. The hearing

consisted of extensive arguments by counsel and the submission of

affidavits. At the conclusion of the hearing, Judge McGarr found

an “exceedingly great” probability that the Act would work an

unconstitutional taking of the property of the Rock Island and de-

prive the Rock Island estate of due process of law in violation of

the Fifth Amendment to the United States Constitution, by its

summary imposition of a new $75 million labor protection claim

on the liquidating Rock Island estate. (J.A. 152a-156a.) He

rejected arguments that the Commission should be allowed to

devise a labor protection arrangement pursuant to the Act

because in his view the taking mandated by the Act would be

unconstitutional regardless of its amount. (J.A. 155a.) Accord-

ingly, he entered a preliminary injunction enjoining implementa-

tion of the original Rock Island Act’s labor protection scheme to

prevent irreparable injury to the Rock Island estate. RLEA filed a

notice of appeal to this Court from that order on June 11, 1980,

under 28 U.S.C. § 1252. (J.A. 10a.)

On June 20, 1980, after additional briefing and argument by all

parties, Judge McGarr denied the motion of the United States

and the Interstate Commerce Commission, joined by RLEA, to

vacate his June 9 preliminary injunction. He reiterated his finding

that the statute was unconstitutional for “more than one reason”,

including the fact “that any imposition of labor protection by

Congress on the Rock Island payable out of the Estate was an un-

constitutional taking.” (J.A. 183a-184a.)

On June 28, 1980, Justice Stevens, as Circuit Justice for the

Seventh Circuit, denied RLEA’s application for a stay of the dis-

trict court’s order and, in a memorandum opinion, indicated his

preliminary agreement with the district court’s conclusion as to

the unconstitutionality of the original Rock Island Act. RLEA v.

Gibbons, supra, 448 U.S. at 1305. This Court subsequently sus-

tained Justice Stevens’ denial of the stay. 448 U.S. at 909.

Although RLEA had joined in the motion to vacate the district

court’s June 9 preliminary injunction, RLEA never filed a second

notice of appeal following the district court’s denial of that mo-

tion on June 20, 1980. The Government filed a timely notice of

appeal to this Court from the June 20 ruling, but did not docket

its appeal. See supra at 2-3.

The Staggers Rail Act Of 1980

On September 29, 1980, Congress re-enacted, without substan-

tial alteration, as part of the Staggers Rail Act of 1980, the same

scheme to impose a new $75 million labor protection obligation

on the Rock Island estate which had been contained in the origi-

nal Rock Island Act. Compare Sections 106 and 110 as amended

by Section 701 of the Staggers Act with Sections 106 and 110 of

the original: Rock Island Act. 45 U.S.C. §§ 1005, 1008. RLEA

Br. App. A.

The Staggers Act corrected some of the procedural defects of

the original Act’ and aggravated others." The basic labor protec-

tion scheme, however, remained unchanged, as did the require-

ment that the Rock Island estate fund the statute’s employee pro-

tection scheme directly, or through a-federal loan with “adminis-

trative expense” status. Staggers Act, Section 701, amending

Sections 106(a)-(c), (e), (f), and 110 of the original Rock Island

Act. The Staggers Act added Section 124(c) to the original Rock

Island Act; Section 124(c) provides that “nothing in this Act...

shall limit the right of any person to commence an action in the

United States Court of Claims under . . . the Tucker Act.”

On October 7, 1980, RLEA and the Government requested

Judge McGarr to vacate his order declaring the Act to be uncon-

stitutional. Comparing the original Rock Island Act and the

Staggers Act amendments, Judge McGarr observed (J.A. 203a):

This is not new legislation in my view. This is amended legis-

lation which attempts, but fails, to clear the underlying flaws

which caused me to find the bill unconstitutional in the first

place. It remains basically the same law with the same

defects and is subject to the same injunction.

“The Staggers Rail Act eliminated Section 106(d)(1) of the original

Act, which precluded any judicial stay of a Commission order imposing

labor protection under the Act, and the last sentence of Section

106(d)(2) of the original Act, which purported to preclude review by

this Court of an order imposing a labor protection arrangement under

the Act.

"The period during which the Trustee and labor unions are permitted

to “negotiate” an agreement was reduced from ten to five days. Failing a

“voluntary” agreement, the time within which the Commission is

required to “impose” a labor protection arrangement was reduced from

30 to 15 days.

On October 15, 1980, Judge McGarr issued a written order

continuing in effect his June 9 injunction. Judge McGarr

specifically found that even if a Tucker Act remedy later became

available, the Staggers Act would continue to expose the Rock Is-

land to irreparable injury through the disruption of the ongoing

liquidation. (J.A. 207a; see also J.A. 202a-203a.)

The Staggers Act also added extraordinary provisions regard-

ing judicia! review. Staggers Act, Section 701(a)(1), adding Sec-

tion 124 to the Rock Island Act. The Seventh Circuit, in com-

pliance with those provisions, heard the case en banc and decided

it within the required sixty days after the filing of the notice of ap-

peal. On December 18, 1980, the Seventh Circuit affirmed Judge

McGarr’s decision by a vote of 3 to 3. RLEA v. Gibbons, Nos.

80-2487 and 80-2536 (7th Cir. 1980) (J.A. 210a). RLEA sought

stays of Judge McGarr’s October 15 order, which were denied by

the court of appeals and by this Court. See supra at 4.

RLEA filed an appeal with this Court, which noted probable jur-

isdiction of the appeal in No. 80-1239 on April 27, 1981.

SUMMARY OF ARGUMENT

I. Congress’ attempted retroactive imposition of a new

$75 million burden on the moribund Rock Island estate to benefit

former employees whose services are unneeded by any potential

acquiring carriers is unconstitutional on its face for several rea-

sons: it effects a taking of the Rock Island’s property without

adequate compensation and without due process of law; it violates

the separation of powers doctrine; it violates the requirement that

bankruptcy laws be uniform; and it violates the estate’s substan-

tive due process rights. If, however, this Court finds that further

factual development is necessary to decide the ultimate constitu-

tionality of the scheme, this Court should still affirm Judge

McGarr’s preliminary injunction because he did not abuse his

discretion in enjoining the implementation of the Rock Island

Act’s labor protection scheme. To require the estate to fund the

$75 million scheme pending a final adjudication of the constitu-

tionality of the Act is likely to constitute a taking and violate

other constitutional rights, all of which would cause irreparable

injury to the Rock Island estate, its creditors and shareholders.

II. The Rock Island Act works a taking of the Rock Island’s

property for a public purpose, which requires that the estate

receive just compensation for the property taken. A railroad has a

constitutional right to withdraw its assets from public use when

the operation can take place only at a loss. Brooks-Scanlon Co. v.

Railroad Commission, 251 U.S. 396, 399 (1920). The reorgani-

zation court having determined that the Rock Island was unreor-

ganizable as an operating railroad in whole or in part, having

ordered total liquidation, and having formally confirmed the total

abandonment of railroad operations, the Rock Island was consti-

tutionally entitled to withdraw from rail service. It follows that

Congress could not require it to incur further obligations, such as

the Rock Island Act’s labor protection scheme, in the public inter-

est or as a condition of withdrawal from rail operations.

Appellants’ argument that the Rock Island Act confers a bene-

fit upon the Rock Island because it is a substitute for labor pro-

tection that would otherwise be imposed on the estate is without

merit. The statutes they rely upon to show that the Rock Island

had a pre-existing labor protection obligation incorporate the

prior practice of the Interstate Commerce Commission in deter-

mining employee benefits. The unbroken line of Commission

authority has been that labor protection is not to be imposed as a

condition of total line abandonment. Thus, the Act cannot be

viewed as compromising a pre-existing obligation.

If Congress determines that national transportation policy

requires that those Rock Island former employees no longer need-

ed to operate former Rock Island lines must be supported, the cost

must be borne by the public. The Rock Island cannot constitu-

tionally be required to fund this public purpose.

III. In addition to effecting a taking for which just compensa-

tion is required, the labor protection provisions of the Rock Island

Act are constitutionally deficient in a number of additional im-

portant respects.

First, despite the long pendency of the reorganization proceed-

ings and Congress’ awareness that the reorganization court was

about to rule on the propriety of imposing labor protection as a

condition to total line abandonment, the Rock Island Act directs

the reorganization court in a particular case to impose labor pro-

tection and to adopt a plan to be devised by the Commission. Con-

sequently, the Rock Island Act is a rare and flagrant instance of

legislative direction to a court as to the outcome of a single pend-

ing case, and is thus invalid under the constitutional doctrine of

separation of powers.

Second, the Rock Island Act violates the uniformity provision

of the Bankruptcy Clause of the United States Constitution,

art. I, § 8, cl. 4. It is a “law on the subject of bankruptcies”

because it affects the relations between a debtor and its creditors.

It does not, however, apply to another railroad similarly situated.

Another railroad is in liquidation, yet no comparable scheme has

been proposed. Indeed, the only somewhat comparable plan was

imposed on the Milwaukee Road, a railroad undergoing a suc-

cessful reorganization, not abandonment and liquidation, and

thus not subject to Brooks-Scanlon, supra, and its progeny. As a

law applicable only to a single bankrupt, which cannot benefit

from its provisions, the Rock Island Act cannot pass constitution-

al muster under the uniformity provision of the Bankruptcy

Clause. For similar reasons, the Act also fails to satisfy the

equal protection component of the Fifth Amendment Due Process

Clause.

Finally, the Act’s imposition of a labor protection scheme is ret-

roactive. The Rock Island Act does not relate to costs incurred

during or because of an employment relationship and not

previously discharged by the employer. Here, the Rock Island

Act’s obligation is imposed on the former employer to compen-

sate former employees although they have already been fully com-

pensated for their services. This retroactive aspect of the Rock

Island Act renders it a taking of property without due process

of law.

IV. The constitutional defects of the Rock Island Act are not

cured merely because the ¢ }tate is not precluded from suing the

Government under the Tucker Act in an attempt to recover its

money taken to fund the labor protection scheme. The Tucker

Act does not provide the Government with a license to undertake

actions which will result in violations of important constitutional

rights, nor is it a substitute for normal legislative appropriations.

Moreover, deferring resolution of these constitutional issues to a

later proceeding before the Court of Claims would, in itself, cause

irreparable injury to the bankrupt estate, its creditors and share-

holders.

ARGUMENT

ONLY JUDGE McGARR’S OCTOBER 15, 1980 ORDER

CONTINUING IN EFFECT THE PRELIMINARY IN-

JUNCTION ENJOINING IMPLEMENTATION OF THE

ROCK ISLAND ACT’S LABOR PROTECTION SCHEME

IS PROPERLY BEFORE THIS COURT FOR REVIEW.

In noting probable jurisdiction over No. 80-1239, this Court

stated that it would postpone further consideration of the ques-

tion of jurisdiction over No. 80-415 until the cases are heard on

the merits. The Court directed the parties to address whether the

issue of the constitutionality of the employee protection provi-

sions of the Rock Island Act is properly before this Court. Appel-

lees contend that No. 80-415 is not properly before this Court, for

the reasons stated supra at 2-3. In No. 80-1239, the issue of the

facial constitutionality of the employee protection provisions of

the Act is properly before this Court, as is the appropriateness of

Judge McGarr’s determination that the Act should be prelimi-

narily enjoined.

A. This Court Has Jurisdiction To Review Judge

McGarr’s October 15, 1980 Order.

This Court has jurisdiction over appeal No. 80-1239. Section

1252 of the Judicial Code expressly grants this Court jurisdiction

over appeals “from an interlocutory .. . decree or order of any

court of the United States... holding an Act of Congress uncon-

stitutional,” where an officer of the Unitec States is a party. 28

U.S.C. § 1252. In accordance with this statute, this Court has

consistently entertained appeals from grants of preliminary in-

junctions where the lower court’s action was predicated on a

finding that a Congressional act was unconstitutional and where

an officer of the United States was a party. See, e.g., McLucas v.

DeChamplain, 421 U.S. 21 (1975). The appeal in No. 80-1239

falls squarely within this jurisdictional grant. Judge McGarr

based his decision continuing the preliminary injunction in effect

on a finding that the Rock Island Act is unconstitutional, and the

Secretary of Transportation is a party to this proceeding. Thus,

Judge McGarr’s order continuing in effect the preliminary in-

junction and the Seventh Circuit's judgment of affirmance are

properly reviewable by this Court in this appeal.

B. Judge McGarr’s October 15, 1980 Order Is Ripe

For Review.

The Government and RLEA take divergent positions as to

which constitutional questions are ripe for this Court’s review.

They distinguish as separate issues (i) whether the Rock Island

Act constitutes a taking of the bankrupt estate’s property (the

“taking” issue), and (ii) whether by expressly stating that

“({njothing in [the Rock Island Act] shall limit the right of any

person to commence an action in the Court of Claims” under the

Tucker Act, the Rock Island Act affords adequate compensation

for any taking that might occur (the “Tucker Act” issue)."’

RLEA urges that the Tucker Act issue be decided now but that

the taking issue be deferred to a later Tucker Act hearing in the

Court of Claims, thus ensuring that payments are made to its

members now, regardless of the ultimate disposition of the taking

issue. Thus, RLEA’s position in effect is that the constitutionality

of the Act is irrelevant so long as its members are immediately

paid the Act’s benefits. RLEA Br. 21-29. The Government, by

contrast, advocates that this Court reach the taking issue first, so

that if the Act is found to constitute a taking, Congress will have

the opportunity to repeal the legislation before any moneys are

paid out for which the Government would later have to make

reimbursement. Govt. Br. 17-20.

RLEA bases its position that the taking issue is not ripe for

review on the ground that the extent of the taking cannot be

known until (i) the Commission is allowed to prescribe the terms

of the labor protection arrangement, and (ii) factual inquiries

(e.g., “the true costs of the program in relation to the entire es-

tate’s worth”) are completed. RLEA Br. 25-28. The Government

argues that the taking issue is ripe for review on the grounds that

(i) determination of the taking issue does not require any further

factual inquiry, and (ii) in any event, Judge McGarr’s orders re-

specting the issuance and continuance of the preliminary injunc-

tion were “in effect permanent injunctions”, which can therefore

be reviewed with finality. Govt. Br. 15. >

"Appellants do not address whether the due process, separation of

powers, and uniform laws on bankruptcy issues are ripe for review.

The correct position is discerned by examining the proce-

dural posture of this case. The function of a preliminary

injunction is “to preserve the relative positions of the parties until

a trial on the merits can be held.” University of Texas v.

Camenisch, 101 S.Ct. 1830, 1833 (1981). As this Court explained

in Camenisch,

Given this limited purpose, and given the haste that is often

necessary if those positions are to be preserved, a preliminary

injunction is customarily granted on the basis of procedures

that are less formal and evidence that is less complete than in

trial on the merits. A party thus is not required to prove his

case in full at a preliminary injunction hearing. .. .

Judge McGarr’s orders entering and then continuing a

preliminary injunction in effect cannot be treated as a permanent

injunction, as the Government suggests. Judge McGarr expressly

stated at the conclusion of the hearing on the preliminary injunc-

tion that he was issuing a “preliminary injunction” and that he

would determine later “whether, after I hear whatever additional

you have to present, it should be transmuted into a permanent in-

junction, a final injunctive order. .. .” (J.A. 157a; see also J.A.

179a-180a, 205a-209a. )

At no point in the proceedings did appellants request that the

trial on the merits be advanced and consolidated with the hearing

on the application for a preliminary injunction or the subsequent

hearings on the motions to vacate the preliminary injunction, a

procedure expressly made available by Rule 65(a)(2), Fed. R.

Civ. P. To seek at a later date to treat the preliminary injunction

hearing as the trial on the merits, as the Government now urges,

violates the rule that there should be clear and unambiguous ad-

vance notice to all the parties of the court’s intention to con-

solidate the trial on the merits and the preliminary injunction

hearing so that the parties can have a full opportunity to present

their cases on the merits. University of Texas v. Camenisch,

supra, 101 S.Ct. at 1834.

For whatever reasons, RLEA and the Government chose not to

request the consolidation of the preliminary injunction hearing

and the trial on the merits. Instead, on the eve of the enactment of

the Staggers Act, they moved to vacate the preliminary injunc-

tion, and they then chose to appeal an order continuing the

preliminary injunction in effect. They could have pressed for a

hearing on the merits, presented additional evidence and then

waited to appeal the permanent injunction, if granted. They did

not do so."" Thus, what is before the Court for review is Judge

McGarr’s order continuing in effect a preliminary, not a perma-

nent, injunction. Consequently, the proper standard for this

Court’s review, to the extent that factual determinations remain,

is whether Judge McGarr committed an abuse of his discretion in

continuing in effect a preliminary injunction enjoining implemen-

tation of the Rock Island Act. Bath Industries, Inc. v. Blot, 427

F.2d 97, 111 (7th Cir. 1970); Beneficial Finance Co. v. Wirtz, 346

F.2d 340, 344 (7th Cir. 1965).

RLEA is misguided when it suggests that the detailed inquiry

into the taking issue not made by Judge McGarr at the hearings

on the preliminary injunction can now be made only in a later

proceeding under the Tucker Act." RLEA Br. 26. Given the

limited time available to him because of the extremely com-

pressed timetable mandated by the original Rock Island Act and

the Staggers Act (see J.A. 204a), Judge McGarr did all he was

"As of the filing of this brief, neither appellant has requested that the

reorganization court hold a trial on the merits.

“RLEA couples the suggestion that Judge McGarr made an

inadequate factual inquiry with the argument that the complete factual

inquiry can be deferred to a later hearing before the Court of Claims

under the Tucker Act. The latter argument is addressed infra at 60-66.

able to do: he heard the arguments of the parties, he considered

the limited evidence offered to him by way of affidavit, and then

based upon this and upon his five years’ experience presiding over

these proceedings, he decided the issue. To suggest that Judge

McGarr is now barred from making a detailed factual inquiry as

to the existence of a taking, should a trial on the merits be

required, is to treat an expedited hearing on an application for a

preliminary injunction as a full-dress trial on the merits.

To the extent that the taking, the Tucker Act, the due process,

the separation of powers and the uniform laws on bankruptcy is-

sues present purely legal questions as to the constitutionality of

the Rock Island Act, those issues can be fully determined by this

Court at this time and they should be decided now. Regional Rail

Reorganization Act Cases (“3R Act Cases”), 419 U.S. 102, 149

n.36 (1974). To the extent that the constitutionality of the Act

cannot be resolved on its face and the resolution of these issues is

dependent upon the determination of factual questions, the issue

for review at this time is whether the court below abused its dis-

cretion in issuing a preliminary injunction pending a final trial on

the merits.

The Act is unconstitutional on its face in that it commits a tak-

ing without adequate compensation, and in that it violates ap-

pellees’ due process rights, the separation of powers doctrine and

the mandate that bankruptcy laws be uniform. In the alternative,

appellees contend that Judge McGarr did not abuse his discretion

in finding a likelihood that the Act works an unconstitutional

taking without adequate compensation as it applied to the Rock

Island estate, that it was unconstitutional for other reasons as

well, and that the preliminary injunction should remain in effect

until there has been a trial on the merits before Judge McGarr

because of the irreparable injury that would otherwise accrue to

the estate.

BY REQUIRING THE ROCK ISLAND ESTATE TO EX-

PEND ITS PRIVATE FUNDS FOR A PUBLIC PUR-

POSE THE EMPLOYEE PROTECTION PROVISIONS

OF THE ROCK ISLAND ACT CONSTITUTE A TAKING

UNDER THE FIFTH AMENDMENT FOR WHICH

COMPENSATION IS REQUIRED.

A. Having Sustained Losses Of Over $200,000,000

During Reorganization, The Rock Island Estate Is

Not Required To Expend Further Funds In The

Public Interest.

The Rock Island filed its petition for reorganization under Sec-

tion 77 of the Bankruptcy Act of 1898 on March 17, 1975. At

year-end 1975, the Trustee reported total assets of $441 ,126,044,

During the reorganization years from 1975 through 1980, the

Rock Island estate suffered net losses totalling $210,627,230. See

supra at 5. These losses accelerated as the reorganization pro-

gressed. In a single year, 1979, during which the strike occurred,

the Rock Island lost $93,860,096. See supra at 5 n. 5. Thereafter,

the Rock Island was declared cashless by the Commission, all of

its rail operations ceased, and the Commission appointed

a directed rail carrier to provide service over its lines. See supra

at 7-8.

Against this background, on January 25, 1980, Judge McGarr

concluded that the Rock Island could not be reorganized on an in-

come basis as an operating railroad and ordered its liquidation,

On June 2, 1980, he formally confirmed the abandonment of all

of its lines and the total cessation of all rail operations. See supra

at 8-11.

Judge McGarr’s rulings followed the “basic principle that an

owner of property retains the right ultimately to withdraw that

property from a losing venture. Indeed, such a right appears to be

a fundament of the taking provision.” /n re Central Railroad of

New Jersey, 485 F.2d 208, 213 (3d Cir. 1973), cert. denied, 414

U.S. 1131 (1974) (footnotes omitted). While railroads in reor-

ganization can continue to be subject to governmental regulation

to serve national transportation policy for reasonable periods

pending efforts to achieve an income-based reorganization,

governmental regulation of private property, including property

owned by railroads, is limited by the Fifth Amendment. 3R Act

Cases, supra, 419 U.S. at 122-24

At some point, railroad industry investors are entitled to with-

draw their assets, or what remains of them, totally from public

use. This limitation on permissible governmental impositions on

railroad investors was originally established in the case of Brooks-

Scanlon Co, v. Railroad Commission, supra, 251 U.S, at 399-

400, which the Government concedes retains its vitality. Govt. Br.

27. In Brooks-Scanion, this Court, speaking through Justice

Holmes, struck down a state railroad commission order requiring

a railroad to maintain rail operations when service could continue

only through additional losses, reasoning that:

If the plaintiff be taken to have granted to the public an in-

terest in the use of the railroad it may withdraw its grant by

discontinuing the use when that use can be kept up only ata

loss.

251 U.S. at 399. Accord, Railroad Commission v. Eastern Texas

Railroad, 264 U.S. 79, 85 (1924); Bullock v. Railroad Commis-

sion, 254 U.S. 513, 520-21 (1921).

All parties agree that there is a point at which the Brooks-

Scanlon principle absolves a railroad from expending its funds or

consuming its assets in the public interest. RLEA Br. 40-41,

Govt. Br. 26-27. RLEA and the Government refuse, however, to

recognize that that point was reached either on January 25, 1980,

when the Rock Island was found unreorganizable as an operating

railroad and ordered to liquidate, or on June 2, 1980, when the

reorganization court confirmed the total abandonment of the rail-

road's lines and services."

Only in instances where there remains some hope of an income-

based reorganization can a bankrupt railroad be compelled to en-

dure further losses. In Continental Illinois National Bank &

Trust Co. v. Chicago, Rock Island & Pacific Railroad, 294 U.S.

648 (1935), for example, this Court upheld an injunction which

deferred the right of secured creditors to foreclose on collateral,

where the sale would have impaired the ability of the court to

achieve a successful reorganization under Section 77 of the Bank-

ruptcy Act. This deferral was justified while there remained the

prospect of a successful reorganization in that case and because

the rights of the creditors to reclaim their investments would

be preserved and even enhanced thereby. 294 U.S. at 676-77.

Similarly, earlier in the Rock Island’s current reorganization

proceedings, the Seventh Circuit Court of Appeals upheld a prior-

ity borrowing by the Trustee to enhance the prospect of an in-

come-based reorganization of the Rock Island, even though that

borrowing would for a time displace the interests of the estate's

creditors. It permitted the borrowing on the theory that it might

foster the ultimate possibility of a successful income-based reor-

ganization, in which the creditors would receive satisfaction of

their claims. Jn re Chicago, Rock Island & Pacific Railroad, 545

F.2d 1087, 1090-91 (7th Cir. 1976). See also New Haven Inclu-

sion Cases, 399 U.S. 392, 466 (1970), quoting with approval and

aff'g in relevant part, In re New York, New Haven & Hartford

"The court of appeals has fixed January 25, 1980 (the date of the

liquidation order) as the date on which the continued operation of the

Rock Island no longer served the public interest, /n re Chicago, R.1. &

P.R.R., No. 80-1353, supra at J.A. 392a, and June 2, 1980 (the date of

formal confirmation of abandonment) as the date on which the Rock Is-

land no longer had any obligations to operate under the Interstate Com-

merce Act, Gibbons v. United States, Nos. 80-1786 and 80-1858, slip op.

at 8 (7th Cir. Aug. 26, 1981).

Railroad, 304 F.Supp. 793, 801 (D. Conn. 1969); In re Chicago,

Milwaukee, St. Paul & Pacific Railroad, 611 F.2d 662, 669 (7th

Cir. 1979); In re Penn Central Transportation Co., 384 F.Supp.

895, 918-19 (Special Ct. 1974), aff'd in relevant part sub nom.

Regional Rail Reorganization Act Cases, supra, 419 U.S. at

122-25; In re Penn Central Transportation Co., 382 F.Supp. 856,

868 (E.D. Pa. 1974). These decisions all recognize the Brooks-

Scanlon principle.

Here, after five years of efforts to achieve an income-based

reorganization and the consequent massive erosion of the estate,

the Commission, the Federal Railroad Administration, the reor-

ganization court and the United States Court of Appeals for the

Seventh Circuit have agreed that there is no possibility that the

Rock Island can be reorganized on an income basis as an ongoing

railroad. See supra at 8-9. The reorganization court has deter-

mined that in view of the impossibility of reorganization on an

income basis, the Rock Island is entitled to withdraw from the

universe of industries subject to public regulation. Brooks-Scan-

lon and its progeny establish that the limited period during which

Rock Island investors can be assumed to have agreed to commit

the estate’s resources to the public’s transportation needs is long

past. As this Court recognized in Brooks-Scanlon, in the absence

of any remaining common carrier obligations, a railroad cannot

be required to expend funds or continue to incur losses to further

national transportation policy. Investors cannot be compelled to

expend “money to maintain a railroad for the benefit of others

who do not care to pay for it.” 251 U.S. at 399.

If, as the appellants argue and Congress apparently determined

(see infra at 41), national transportation policy requires “protec-

tion” of the Rock Island’s former employees, then to require the

Rock Island to pay for that protection is to require, indirectly, the

unreorganizable and moribund Rock Island to continue to ad-

vance national transportation policy at a cost to the Rock Island

of up to $75 million. The Rock Island is not now, nor will it ever

again be, an operating railroad. In this circumstance, the national

transportation policy cannot override the constitutional rights of

the Rock Island investors. For the same reason Congress cannot

direct the Rock Island to resume rail operations, it cannot impose

other public carrier obligations, such as a new labor protection

scheme, on this defunct railroad. As in the case of the New Haven

Railroad, “[t]he public interest has had one huge bite of the ap-

ple; it is not entitled to another.” Jn re New York, New Haven &

Hartford Railroad, supra, 304 F.Supp. at 801.

Whatever the public purpose stated in the Rock Island Act, the

settled constitutional principle set forth in Brooks-Scanlon man-

dates that the Rock Island estate can no longer be required to

bear further losses in order to advance national transportation

policy. Thus, Judge McGarr properly determined that the Act is

facially unconstitutional. In the alternative, should this Court

conclude that the constitutionality of the Act cannot be resolved

on its face, Judge McGarr did not abuse his discretion in finding

an “exceedingly great” likelihood (J.A. 156a) that the Rock Is-

land Act violates the constitutional principles set forth in Brooks-

Scanlon and its progeny.

B. The Rock Island Estate Had No Pre-Existing

Labor Protection Obligations.

The Government and RLEA attempt to justify the labor pro-

tection scheme of the Rock Island Act on the ground that the es-

tate benefits from the employee protection provisions of the Act.

Govt. Br. 35, RLEA Br. 41. Appellants premise their argument

on the theory that the Act merely recodifies or limits pre-existing

labor protection obligations of the estate. The Government and

RLEA are mistaken. The reorganization court properly decided

that the Rock Island had no pre-existing labor protection obliga-

tions. As Judge McGarr stated when he formally confirmed the

abandonment of Rock Island rail operations, the determination

that the Rock Island had no pre-existing labor protection obliga-

tions was constitutionally compelled by the Brooks-Scanlon line

of cases and is consistent with an unbroken line of I.C.C. deter-

minations. (J.A. 270a-27 1a.)

This line of Commission authority has remained unchanged de-

spite numerous changes and recodification of the governing stat-

ute. Under Section la(1) of the Interstate Commerce Act, now

recodified as 49 U.S.C. § 10903 (Supp. III 1979), prior to enact-

ment of the Milwaukee Road Restructuring Act, 45 U.S.C.

§§ 901-922 (“Milwaukee Act”), railroads were required to obtain

certificates from the Interstate Commerce Commission in order

to withdraw rail lines from service based upon a public conve-

nience and necessity standard. In addition, it was for the Commis-

sion to decide what labor protection, if any, should be imposed as

a condition to abandonment.

In 1979, Congress enacted a different procedure for abandon-

ments of railroads in reorganization under Section 77 of the

Bankruptcy Act of 1898, as amended. Section 17(a) of the Mil-

waukee Act, 45 U.S.C. § 915(a), transferred the jurisdiction to

authorize abandonments of rail lines from the Commission to the

reorganization court. It also transferred to the reorganization

court jurisdiction to consider labor protection issues which arose

in connection with such abandonments. Although Congress trans-

ferred jurisdiction to decide such questions from the Commission

to the reorganization court, it specifically directed the court to

look to the law of labor protection that had evolved under the

Commission’s decisions as the precedent the reorganization court

must apply. The legislative history of Section 17(a) of the Mil-

waukee Act establishes that this transfer of jurisdiction from the

Commission to the court was intended to make “no change in

existing law as it affects employee protection.” H.R. Conr. Rep.

No. 96-583, 96th Cong., Ist Sess. 27, reprinted in [1979] U.S.

Cope Cona. & Ap. News 1747, 1759."

Prior to the enactment of Section 17(a), Commission approval

of abandonments of railroad lines was governed by 49 U.S.C.

§ 10903. Like Section 17(a), Section 10903 adopted the law of

labor protection that had evolved under Section 11347 of the

Interstate Commerce Act. 49 U.S.C. § 11347. Under Section

10903, when a railroad requested a certificate of abandonment in

connection with the abandonment of a portion of the railroad, em-

ployee protection conditions were imposed. See Oregon Short

Line Railroad—Abandonment—Goshen, 360 1.C.C. 666, 667

(1980). Congress specifically recognized, however, when it re-

enacted Section 10903, that systemwide abandonments are sub-

ject to a different set of rules. The legislative history of Section

10903 makes the point plainly, referring to

[e]mployee protection no less beneficial than that established

under Section 5(2)(f) of the Interstate Commerce Act and

Section 405 of the Rail Passenger Service Act but without in-

tention to change the policy and practice of the Commission

in connection with certificates involving total termination of

service by a railroad company... .

"Section 17(a) provides:

“{I}n authorizing any abandonment pursuant to this section, the

court shall require the carrier to provide a fair arrangement at least

as protective of the interests of employees as that required under

Section 11347 of Title 49 [of the United States Code].”

45 U.S.C. § 915(a).

Section 11347 is the recodification of Section 5(2)(f) of the Interstate

Commerce Act, 49 U.S.C. § 5(2)(f), which applies only to labor protec-

tion to be accorded in consolidation, mergers and acquisitions. Section

11347 provides that the I.C.C. shall require a

“carrier to provide a fair arrangement at least as protective of the

interests of employees who are affected by [consolidation, merger

or acquisition] as the terms imposed under this section before

February 5, 1976, and the terms established under section 565 of

title 45.”

49 U.S.C. § 11347.

S. Conr. Rep. No. 94-595, 94th Cong., 2d Sess. 218, reprinted in

[1976] U.S. Cope Conc. & Ap. News 148, 233 (emphasis sup-

plied).

The Commission's practice with respect to this discrete area of

total line abandonments has remained consistent; it has refused to

impose labor protection conditions on entire line abandonments.

As the Commission pointed out in its advisory report of May 23,

1980 to the reorganization court, “[i]n past instances where en-

tire rail systems have been abandoned and no company would

reap the benefits of the abandonment, we have found the imposi-

tion of employee protective conditions not to be warranted.”

Chicago, Rock Island & Pacific Railroad— Abandonment, supra,

363 I.C.C. at 161. Accord, Montpelier & Barre Railroad— Aban-

donment, Dkt. No. AB-202F —(I.C.C. Feb. 6, 1980); Northamp-

ton & Bath Railroad—Abandonment, 354 1.C.C. 784, 785-86

(1978); Wellsville, Addison & Galeton Railroad—Abandon-

ment, 354 LC.C. 744, 746 (1978); Tennessee Central Rail-

way— Abandonment, 333 1.C.C. 443, 453-54 (1968); East Caro-

lina Railway— Abandonment, 324 1.C.C. 506 (1964); Okmulgee

Northern Railway—Abandonment, 320 1.C.C. 637, 645-46

(1964); Rutland Railway—Abandonment, 317 L.C.C. 393, 408

(1962), aff'd sub nom. Brotherhood of Locomotive Engineers v.

United States, 217 F.Supp. 98 (N.D. Ohio 1963). See also, In re

New York, Susquehanna & Western Railroad Company, 504

F.Supp. 851, 854-56 (D. N.J. 1980)."

"The Commission has recognized only two narrowly drawn excep-

tions to this rule, both of which are based upon a financial benefit con-

ferred upon a surviving corporate parent by the abandonment. Labor

conditions have been imposed in total line abandonments where the cor-

porate parent of the abandoning rail carrier intends to assume all or

some portion of the subsidiary’s rail operations while relieving itself of

the subsidiary’s deficit operation. Labor protection conditions also have

been imposed where the corporate parent of the abandoning carrier ob-

tained financial benefit from the disposition of the abandoned properties

which was greatly in excess of the parent's net investment in the sub-

sidiary and aggregate losses. The cases listed by the Government as

examples of the imposition of labor protection in total line abandonment

situations all involved such benefits to surviving corporate parents. See

Govt. Br. 30, n.17. These exceptions do not apply here.

In Northampton & Bath Railroad— Abandonment, supra, 354

1L.C.C. at 785-86, the Commission justified its refusal to impose

labor protection conditions on a total abandonment:

After the entire line of a railroad is abandoned, no operat-

ing carrier remains to enjoy the benefits of the abandonment

or pay the costs of employee protection. The Commission has

generally refused to impose employee protective conditions

which would in effect, require continued operation for the

benefit of employees or further consumption of a failed rail-

road’s properties for payment of employees’ benefits after

operations cease.

The Rock Island situation is singularly parallel to that of the

Tennessee Central Railway. Like the Rock Island, the Tennessee

Central had suffered years of consecutive losses, had consumed its

stockholders’ equity to offset those operating losses and had no

hope of survival as a going concern. Given this history, the Com-

mission concluded that it was “neither equitable nor warranted

on any ground to require further consumption of the railroad

properties for the payment of employees after the railroad ceases

operations.” 333 1.C.C, at 454."

"The Commission stated (333 I.C.C. at 453-54):

“The applicant is a bankrupt business entity unable to meet either

its long-term or immediate financial obligations. Despite its strait-

ened financial circumstances through the years, TC has provided

regular employment for its work force and has paid its employees in

full satisfaction of the terms of their collective bargaining

agreements. On the other hand, it has for many years been unable

to provide a return of any kind to its stockholders and has fallen

substantially short of meeting its legal obligations to others upon

whom it has drawn for supplies, materials and equipment needed to

sustain its operation. .. . To the extent it has paid the payroll and

other current operating expenses while neglecting other obligations

due, the railroad and its employees have been sustained by the

creditors. Over the past 5 profitless years, the aggregate deficit has

come to nearly $5 million, the stockholder’s equity has been con-

sumed in maintaining operations, assets are being further eroded,

and the TC has reached the point where it cannot hope, as a going

(Footnote continued on following page.)

The Commission’s consistent refusal to impose labor protection

in total line abandonments—in the context of a railroad entitled

to liquidate —is consistent with the right of investors to withdraw

their property from public transportation service under the cir-

cumstances described in the Brooks-Scanlon line of cases, supra

at 25-27. As this Court held in Brooks-Scanlon, supra, 251 U.S.

at 400, no regulatory agency can “give the Court or Commission

power todo what the Constitution of the United States forbids. .. .”

See also Bullock v. Railroad Commission, supra, 254 U.S. at

520-21.

The Commission has not expressly adverted to this constitu-

tional limitation on its jurisdiction in refusing to impose labor

protection conditions in cases of total line abandonments."” How-

(Footnote continued from preceding page.)

concern, to pay off its creditors. In such a situation, we find it

neither equitable nor warranted on any ground, to require contin-

ued operation for the purpose of providing jobs for the carrier's em-

ployees or to require further consumption of the railroad properties

for the payment of employees after the railroad ceases operation. In

reaching this conclusion we are mindful of the fact that certain

unemployment compensation is otherwise available to employees.

Unlike the circumstances in Washington and Old Dominion R.

Abandonment — Virginia, 331 1.C.C. 587, or East Carolina Ry.—

Abandonment, 324 1.C.C. 506, TC is not affiliated with a large,

financially strong corporation benefiting from the abandonment

and capable of sharing some of the costs incident to an abandon-

ment. The facts of this case do not warrant the imposition of labor

protective conditions, and they will not be imposed.”

"The Government argues that the distinction the Commission has

drawn between total and partial line abandonments “has been solely as

an exercise of its administrative discretion.” Govt. Br. 29. It is conceiv-

able, of course, that a financially healthy railroad may decide to with-

draw totally from all rail operations. In that circumstance, it may be

that the Commission properly enjoys the discretion to condition ap-

proval of that abandonment upon the payment of labor protection based

upon the profits which may be derived from the abandonment. But that

is not the case here. Here, there is only a railroad which is constitutional-

ly entitled to withdraw from rail service under the Brooks-Scanion line

of cases. In that circumstance, there is no discretion in the matter for the

reasons stated supra at 24-28.

ever, its reasoning based upon the public interest and fairness to a

railroad’s owners directly parallels the reasoning of Brooks-Scan-

lon and the cases following it. For example, in Wellsville, Addis-

on & Galeton Railroad—Abandonment, supra, 354 1.C.C. at

746, the Commission stated:

Prior Commission precedent in this area is well estab-

lished. Employee protective conditions have not been im-

posed in cases involving complete abandonment of opera-

tions, because the Commission found it unwarranted to

require further consumption of a railroad’s properties for the

payment of employees after the railroad ceases operations.

Okmulgee Northern Ry. Co.—Abandonment, 320 1.C.C.

637 (1964). Tennessee Central Ry. Co.— Abandonment, 333

L.C.C. 443, 454 (1968).

Thus, the Commission has recognized that there is no justifica-

tion for imposing labor protection conditions on total line aban-

donments. Accordingly, as the reorganization court recognized in

its ruling of June 9, 1980, the new employee benefits imposed by

the Rock Island Act, long after employment and railroad opera-

tions had ceased, are not a substitute for pre-existing employee

foenefits, because none existed. Rather, as Judge McGarr found,

the Rock Island Act employee protection obligations are wholly

new obligations imposed retroactively on the bankrupt estate, to

the inevitable detriment of the estate, its creditors and share-

holders.

C. The Rock Island Act Effects A Taking Of The Es-

tate’s Private Property For A Public Purpose.

Any taking of private property for a public purpose requires the

payment of just compensation under the Fifth Amendment.

RLEA and the Government argue that the Rock Island Act's

employee protection scheme was permissible regulation which

furthered the national transportation policy and consequently

that both the scheme and the means chosen by Congress to

carry it out (funding from the assets of a bankrupt estate) are

unassailable under the Due Process and Governmental Takings

clauses of the Fifth Amendment. RLEA Br. 35-42; Govt. Br. 22-

38. Contrary to their assertions, the public purpose of the Act’s

employee protection scheme does not insulate the Act from con-

stitutional scrutiny; rather, it brings the Act within the prohibi-

tion of those clauses.

This Court stated the central purpose of the Takings Clause in

Armstrong v. United States, 364 U.S. 40, 49 (1960):

The Fifth Amendment’s guarantee that private property

shall not be taken for a public use without just compensation

was designed to bar Government from forcing some people

alone to bear public burdens which, in all fairness and jus-

tice, should be borne by the public as a whole.

This Court, speaking through Justice Brandeis, in Louisville

Joint Stock Land Bank v. Radford, 295 U.S. 555, 602 (1935),

found that not even the extreme exigencies of the Depression

would justify the use without compensation of the property rights

of a creditor for the benefit of a debtor merely because financial

assistance to the debtor was found to be in the public interest:

[T]he Fifth Amendment commands that, however great the

Nation’s need, private property shall not be thus taken even

for a wholly public use without just compensation. If the

public interest requires, and permits, the taking of property

of individual mortgagees in order to relieve the necessities of

individual mortgagors, resort must be had to proceedings by

eminent domain; so that, through taxation, the burden of the

relief afforded the public interest may be borne by the public.

The implications of the Fifth Amendment rule in the context of

governmental regulation were set forth in the classic case of Penn-

sylvania Coal Co. v. Mahon, 260 U.S. 393 (1922), where the

Court, through Justice Holmes, stated:

The protection of private property in the Fifth Amendment

presupposes that it is wanted for public use, but provides that

it shall not be taken for such use without compensation. . . .

When this seemingly absolute protection is found to be

qualified by the police power, the natural tendency of human

nature is to extend the qualification more and more until at

last private property disappears. But that cannot be accom-

plished in this way under the Constitution of the United

States.

[W]hile property may be regulated to a certain extent, if

regulation goes too far it will be recognized as a taking. It

may be doubted how far exceptional cases, like the blowing

up of a house to stop a conflagration, go—and if they go

beyond the general rule, whether they do not stand as much

upon tradition as upon principle. . . . In general it is not plain

that a man’s misfortunes or necessities will justify his shift-

ing the damages to his neighbor’s shoulders. . . . We are in

danger of forgetting that a strong public desire to improve

the public condition is not enough to warrant achieving the

desire by a shorter cut than the constitutional way of paying

for the change.

260 U.S. at 415-16 (citations omitted).

While disavowing any “set formula” to determine when regula-

tion becomes a taking for which compensation is required under

the Fifth Amendmeat, Hodel v. Virginia Surface Mining & Rec-

lamation Ass'n, 101 S.Ct. 2352, 2370 (1981); Andrus v. Allard,

444 U.S. 51, 65 (1979); Kaiser Aetna v. United States, 444 U.S.

164, 174-75 (1979), this Court has laid down guidelines to deter-

mine when regulation becomes a taking. Those criteria include

“the economic impact of the regulation on the claimant”, “the

character of the governmental action”, and “the extent to which

the regulation has interfered with distinct investment-backed ex-

pectations.” Penn Central Transportation Co. v. City of New

York, 438 U.S. 104, 124 (1978); see Kaiser Aetna v. United

States, supra, 444 U.S. at 175. See Govt. Br. 20-22. Moreover, as

this Court recently directed: “these ‘ad hoc, factual inquiries’

must be conducted with respect to specific property, and the par-

ticular estimates of economic impact and ultimate valuation

relevant in the unique circumstances.” Hodel v. Virginia Surface

Mining & Reclamation Co., supra, 101 S.Ct. at 2370. If, how-

ever, there is a facial challenge to a statute, the test is “fairly

straightforward”: the statute “effects a taking if it “denies an

owner economically viable use of his [property].’"’ 101 S.Ct. at

2370, citing Agins v. City of Tiburon, 447 U.S. 255, 260 (1980).

Measured against these criteria, Judge McGarr correctly con-

cluded that the Rock Island Act's employee protection scheme

will effect a taking:

1. The Economic Impact on Claimant. The economic impact

of the regulation on the claimant is severe. If the statute’s em-

ployee protection scheme is funded directly from the Rock Is-

land’s assets under Section 106, the estate’s money will be paid

directly to the former employees. If payments to former em-

ployees are funded through an enforced federal loan under Sec-

tion 110, that loan must be accorded “administrative expense”

status. Under either method of funding, the labor protection ob-

ligations will have priority over the interests of the estate's share-

holders and unsecured creditors, and may have priority over the

sums owed to secured creditors and trade creditors with cost of

administration status.” As Judge McGarr expressly found, for an

estate with limited assets of uncertain value and massive liabili-

ties (J.A. 328a-329a), the priority cost of up to $75 million man-

dated by the Act represents a “significant percentage of the [es-

tate’s]} total assets.” (J.A. 207a.) Without question, the Act's em-

“RLEA, while not challenging the standing of the estate in these

proceedings, questions the standing of the creditors and shareholders to

raise issues of facial unconstitutionality. RLEA Br. 27 n.13. Surely the

imposition of a $75 million obligation on the Rock Island estate that will

displace the interests of the unsecured creditors and shareholders and

may displace the interests of the secured creditors is sufficient to confer

standing not only upon the estate but also upon the creditors and share-

holders.

ployee protection scheme would dilute the value of the estate and

reduce the amount available to discharge its existing debts by an

amount of up to $75 million.

This is not, as the Government argues, Govt. Br, 21, an instance

of the destruction of one “strand” of a “ ‘bundle’ of property

rights”. In those cases cited by appellants for that proposition, the

Court did not examine what other property a person may have

had in order to determine whether the invasion of one particular

piece of property constituted a taking. Rather, this Court has

looked to the degree of the invasion of the particular property in

dispute to determine whether substantial value remained in that

particular property despite the intrusion of the regulation or the

limitation of the purposes for which that property may be used. In

those cases cited by appellants, where this Court has looked to the

degree of the invasion to find that no taking has occurred, some

property value has remained intact despite the intrusion of the

regulation or the limitation of the purposes for which property

may be used. See, e.g., Andrus v. Allard, supra, 444 U.S. at

65-66; Penn Central v. City of New York, supra, 438 U.S. at 104,

130-31. Here, it is not relevant what other property the estate

may have. The money spent to fund the Rock Island Act's labor

protection scheme will be completely lost to the estate once it is

paid out. This is the only property which the Court may consider

in weighing the degree of the invasion, and obviously once the

money is gone, it is of no value to the estate. See Kaiser Aetna, su-

pra, 444 U.S. at 179-80. In any event, as set forth infra at 39, 63,

the statute will withdraw from the estate a significant portion of

its total assets.

RLEA argues that the estate is “not in reality, seeking to

prevent any monies from being taken initially from the estate, but

rather, is objecting to the estate's being required to borrow funds

to comply with the statute”, and that the labor protection provi-

sions will “not deplete the cash reserves of the estate.” RLEA Br.

27, 29. This mischaracterizes the obvious impact of the statute.

Although the Act gives the estate the option of borrowing moncy

from the Government to pay the Act's labor protection benefits

immediately, the money is not a gift. Indeed, because it enjoys

“administrative expense” status, it must be repaid ahead of the

claims of the unsecured creditors and shareholders. The Trustee's

Statement of Assets and Liabilities for year-end 1980 shows that

the estate’s liabilities exceed the net book value of its assets by

$25 million. (J.A. 328a-329a.) Thus, while the imposition of a

$75 million loan may not deplete the present cash position of the

estate, the bankrupt estate will still ultimately be required to

repay the loan.

2. The Character of the Governmental Action. The Rock Island

Act is also deficient when measured against the second criterion

of Penn Central Transportation Co. v. City of New York, supra,

438 U.S. at 124, the character of the governmental action. A tak-

ing is more readily found when there is a direct governmental in-

terference with property rights. /d. Where the property taken is

money, it is unnecessary to look for a “physical invasion” of

property as a prerequisite for finding a taking within the meaning

of the Fifth Amendment, as the Government suggests. Govt. Br.

21. Although there is no land for the Government to invade, the

forced taking of $75 million from the monetary assets of this

bankrupt estate is a sufficient “invasion” to invoke the protections

of the Fifth Amendment. See Webb's Fabulous Pharmacies, Inc.

v. Beckwith, 449 U.S. 155 (1980).

That the Act requires the estate to pay the money to the former

employees rather than to the Government does not make the

scheme any less a taking. See, e.g., 3R Act Cases, supra, 419 U.S.

at 152, 155 (statutorily mandated conveyance of Penn Central

properties to Conrail, a private corporation, held a taking).

3. Interference with Investment-Backed Expectations. Ap-

plication of the third criterion of the Penn Central case, the extent

to which the regulation has interfered with distinct investment-

backed expectations, 438 U.S. at 124, fortifies the conclusion that

the Rock Island Act’s labor protection provisions constitute a tak-

ing for which just compensation is required. Both the Govern-

ment and RLEA argue that the Act is consistent with the appel-

lees’ investment-backed expectations because the Act merely

modifies a pre-existing obligation. Govt. Br. 34-37, RLEA Br. 36-

40. As explained supra at 24-34, under the Brooks-Scanlon

precedent and an unbroken line of I.C.C. cases, appellees had

every reason to expect that no labor protection would be imposed

if circumstances required the Rock Island to withdraw totally

from rail services because it was unreorganizable as an income-

producing railroad. The appellees certainly did not expect that

once the system-wide abandonment of the railroad was ordered, a

tremendous new burden would be imposed as a condition of the

withdrawal from rail services. The two principal cases upon which

appellants rely (RLEA Br. 36-38, Govt. Br. 34-35), United States

v. Lowden, 308 U.S. 225 (1939); LC.C. v. RLEA, 315 U.S. 373

(1942), in no way suggest the contrary, because neither case

requires payments to former employees by a railroad having a

constitutional right to abandon all rail operations. Neither case

purported to overrule or limit Brooks-Scanlon or its progeny.

Rather, both cases address labor protection obligations of rail-

roads with ongoing railroad operations. Moreover, no investor or

creditor could have anticipated that if a new labor protection ob-

ligation could be imposed, it would enjoy “administrative ex-

pense” status, to the possible detriment of secured creditors and

to the certain detriment of shareholders and unsecured creditors.

Louisville Joint Stock Land Bank v. Radford, 295 U.S. 555

(1935).

The justification for imposing regulatory burdens upon a going

concern, viz., that the economic cost of regulation is the price a

company must pay for the privilege of engaging in a business that

operates in interstate commerce, Usery v. Turner Elkhorn Mining

Co., 428 U.S. 1, 16-20 (1976), is inapplicable here. Once a com-

pany engaged in a regulated activity has permanently lost its

ability to produce income, it has lost the ability to realize any ben-

efit from the regulated activity that would balance the economic

burden of the regulation. At that point, newly imposed regulation

ceases to be a mere adjustment of benefits and burdens because

all possible benefits have disappeared, and the burden of the

regulation becomes a pure taking.

The Government argues that the employee protection provi-

sions of the Act are justifiable regulation because they ultimately

benefit the Rock Island by limiting a potential obligation of the

estate and providing a means for funding it. Govt. Br. 35. As was

demonstrated supra at 28-34, there is no potential labor protec-

tion obligation of the estate. Moreover, Congress, in the recitals in

the preamble to the Act, did not profess to be benefiting the Rock

Island in any manner.” On the contrary, the preamble recognizes

that the Rock Island was in liquidation and had withdrawn from

rail operations. Thus, the preamble emphasizes the importance to

the public interest of maintaining rail service in the Midwest and

the role of employee protection in maintaining that rail ser-

vice—a public interest goal which the Rock Island estate can no

longer constitutionally be compelled to serve.

‘The preamble reads as follows:

“Sec. 102. (a) Congress hereby finds that—

“(1) uninterrupted continuation of services over Rock Is-

land lines is dependent on adequate employee protection provi-

sions covering Rock Island Railroad employees who are not

hired by other railroads;

**(2) for those Rock Island Railroad employees not hired by

other rail carriers, there is no other practicable means of ob-

taining funds to meet the necessary costs of such employee

protection that are assumed by the Rock Island Railroad;

(3) a cessation of nec-ssary operations of the Rock Island

Railroad would have serious repercussions on the economies of

the States in which such railroad principally operates; and

“(4) premature cessation of services over lines which are the

subject of pending purchase application would result in harm

to the shipping public and could imperil continuation of com-

muter service.”

The Government, citing the Conference Report on the Staggers

Act, H.R. CONF. REP. NO. 46-1430, 96th Cong., 2d Sess. 138,

reprinted in[1980] U.S. CODE CONG. & AD. NEWS 4110, 4170,

identifies several other respects in which the Rock Island alleged-

ly benefited from the Act. Govt. Br. 35 and n.22. First, the Gov-

ernment argues that the Act assisted an orderly liquidation

process by making funds available for the payment of labor pro-

tection obligations. But, as has been shown supra at 28-34, the

Rock Island had no pre-existing labor obligations and therefore

did not require any funding for this purpose. Moreover, the fund-

ing to which the Government refers is a loan with “administrative

expense” status. The imposition of a new loan which must be

repaid in advance of other unsecured creditors and shareholders

hardly advances the liquidation process or benefits the Rock

Island.

The Government also refers to the fact that the Act expedited

“agency consideration.” Govt. Br. 35. Neither the Government

nor the Conference Report on which it relies explains precisely in

what respect the Rock Island was benefited by expedited “agency

consideration” of its matters, especially since, by the time the

Staggers Act was enacted, the Rock Island’s total abandonment

of rail operations had been formally confirmed.

The Conference Report to the Staggers Act cited by the

Government (Govt. Br. 35 n.22) also states that the Rock Island

estate “has benefitted from the Rock Island Transition Act. . .

through the Congressionally-supported March 4, 1980, agree-

ment... .”” H.R. CONF. REP. NO. 96-1430, 96th Cong., 2d Sess.

138 (1980). Under an agreement between labor unions and oper-

ating carriers entered into on March 4, 1980, the employees who

were needed to operate those parts of the Rock Island lines ‘hat

would continue in rail service to be conducted by other ca: riers

were already being given preference for hiring and other provec-

tions. Labor Protective Agreement Between Railroads Parties

Hereto Involved in Midwest Rail Restructuring and Employees

of Such Railroads Represented by the Rail Labor Organizations

Operating Through the Railway Labor Executives’ Association

(“March 4 agreement”), reprinted in St. Louis Southwestern

Railway—Temporary Authority—Chicago, Rock Island &

Pacific Railroad, supra, 360 1.C.C. at 744-51. The record before

the reorganization court on the preliminary injunction hearing,

and therefore the record before this Court in these appeals, is

completely devoid of any evidence of a relationship between the

Staggers Act and the March 4 agreement signed months before

or of any benefit to the Rock Island estate therefrom. No hearings

were conducted by any Congressional committee in connection

with that portion of the Staggers Act dealing with the Rock Is-

land.” Thus there is no basis whatsoever for the Government’s as-

sertion of a relationship between the March 4 agreement and the

Staggers Act or any private benefit to the Rock Island estate.

Moreover, the program enacted by Congress did not even ad-

vance the public interest objectives of maintaining Midwest rail

service expressly cited by Congress in the preamble to the Act.

Former Rock Island employees who are employed by carriers ac-

quiring parts of the Rock Island lines will not require, and cannot

benefit from, the labor protection program prescribed in the Rock

Island Act. The only employees to be “protected” by the Rock Is-

land Act are those former employees whose services will not be

required by acquiring carriers. To compel the estate to pay them

* Moreover, when the portion of the Staggers Act which amended the

original Rock Island Act was first introduced on the floor of the House

of Representatives, shortly before the bill was passed, complaints were

voiced that members had not even had time to read the “massive

document” before it was to be considered by the House. 126 Cona.

Rec. H 8576 (daily ed. September 9, 1980) (remarks of Rep. Sebelius).

The meager legislative history behind the passage of the Staggers Act

amendments to the original Rock Island Act is thus sharply distinguish-

able from the Surface Mining Act, sustained in Hodel v. Virginia Sur-

face Mining & Reclamation Ass'n, supra, 101 S.Ct. at 2361 and n.19,

which “became law only after 6 years of the most thorough legislative

consideration.”

would in no way, despite the Act’s preamble, maintain the “unin-

terrupted continuation of service over Rock Island lines” or

prevent the “cessation” of service over those lines. As Judge

McGarr stated (J.A. 152a-153a):

There is in . . .the preamble, a basic illogic, a basic con-

tradiction which I’m at a loss to understand. What the stat-

ute addresses itself to is labor protection for those employees

who will not be absorbed by whatever segments of the Rock

Island are continuing to operate, and therefore the purpose

of uninterrupted continuation of services over Rock Island

Lines, as part of the preamble to this statute, remains . . . to

me, something of a mystery. The important thing to

remember is that whatever public purpose and public inter-

est there remains in this case is the problem of the other car-

riers and the Interstate Commerce Commission and the on-

going supervision by the I.C.C. of the operations of the other

carriers over Rock Island Lines that they may have acquired.

But, the Rock Island is a bankrupt corporation with no more

operations, nothing left but assets and creditors and liquida-

tion. Whatever obligations it may have to labor, and any ap-

propriate claims of labor under existing bankruptcy law is

under the Railroad Retirement Act or any other statute

which operates to fix the rights of labor. . . . [T]hese are all

based upon existing law, existing rights, existing contracts,

and that Congress believes that it can legislate a $75 million

labor protection burden on the assets of the Rock Island

comes to me as a startling concept. That the Government will

lend or the FRA will lend the $75 million is irrelevant in the

face of the fact that obviously that becomes a claim against

the Estate in derogation of the rights of the creditors in what-

ever assets the Estate now has.

In short, where property is being sought to benefit only the pub-

lic interest, the conclusion is inescapable that there has been a

taking of private property for the public good for which adequate

compensation is required.

THE ROCK ISLAND ACT DEPRIVES THE ROCK

ISLAND ESTATE OF DUE PROCESS OF LAW IN

VIOLATION OF THE FIFTH AMENDMENT AND

CONTRAVENES THE UNIFORMITY REQUIREMENT

IN THE BANKRUPTCY CLAUSE.

The Rock Island Act is an extreme but fortunately rare exam-

ple of legislative disregard for basic constitutional principles. It is

constitutionally deficient in several respects.

A. The Legislative Direction As To How The

Judiciary Should Decide This Particular Case Con-

travenes The Doctrine Of Separation Of Powers

And The Due Process Clause.

By enacting the Rock Island Act, Congress improperly inter-

jected itself into a single piece of litigation in an attempt to direct

the outcome of that litigation. The Act was passed five years after

the reorganization proceedings were initiated, four months after

the reorganization court had determined that liquidation was in

the best interests of the estate and was consistent with the public

interest, and one week after the Commission expressed its

agreement with that conclusion. Congress was aware, at the time

of the passage of the Act, of the unbroken line of I.C.C. precedent

that held that no labor protection should be imposed in system-

wide abandonments. Moreover, Congress had been aware since

April 14, 1980, that the district court intended to rule on abandon-

ment and the related issue of labor protection on Monday, June 2,

1980. Despite all of this, on Friday, May 30, 1980, the Rock

Island Act was enacted into law, ordering the estate to pay im-

mediately up to $75 million to its former employees, to the det-

riment of the existing unsecured creditors and shareholders, and

possibly the secured creditors as well. In October, 1980, Congress

re-enacted the same labor protection scheme after Judge McGarr

had found it to be unconstitutional and after the matter had been

submitted to this Court for review.

The Rock Island Act forbids the reorganization court to follow

precedent or to give effect to the evidence before it that the im-

position of labor protection is unfair, inappropriate and unconsti-

tutional. The statute applies only to the action of the reorganiza-

tion court in this particular case, and the Act requires that the re-

organization court enforce whatever order the I.C.C. enters. See

Sections 106(c), (e)(2) arid 110(b).

Congress has the power to enact uniform bankruptcy laws and

laws regulating commerce. It does not have the power to tell a

particular court what orders to enter in a particular case. That is

the exercise of judicial power, which the doctrine of separation of

powers and the constitutional structure based upon that doctrine

commits to the judiciary, not the legislature.

This Court has described “the doctrine of separation of

powers” as “at the heart of our constitution”, recognizing that the

“practical statesmen” who met in Philadelphia “viewed the prin-

ciple of separation of powers as a vital check against tyranny.”

Buckley v. Valeo, 424 U.S. 1, 119, 121 (1976). “This Court has

not hesitated to enforce the principle of separation of powers em-

bodied in the Constitution when its application has proved neces-

sary for the decisions of cases or controversies properly before it.”

424 US. at 123. See also United States v. Nixon, 418 U.S. 683,

703-04 (1974); Youngstown Sheet & Tube Co. v. Sawyer, 343

U.S. 579, 587-88 (1952).

It is true that “the separate powers were not intended to oper-

ate with absolute independence”. United States v. Nixon, supra,

418 U.S. at 707. But,

it is a breach of the National fundamental law if Congress. . .

attempts to invest itself or its members with either executive

power or judicial power.

Buckley v. Valeo, supra, 424 U.S. at 121-22, quoting Hampton &

Co. v. United States, 276 U.S. 394, 406 (1928).

In United States v. Klein, 80 U.S. (13 Wall.) 128 (1871), this

Court invoked the principle that Congress cannot instruct a court

how to decide a case or what weight to give to particular evidence.

Seven years after authorizing the Court of Claims to return

confiscated property to persons who had not supported the late

rebellion, Congress in 1870 provided that the Court of Claims

could only treat an accepted presidential pardon as conclusively

establishing that the recipient had given aid and comfort to the

rebellion. In invalidating the 1870 statute, the Court declared in

Klein:

The court is required to ascertain the existence of certain

facts and thereupon to declare that its jurisdiction on appeal

has ceased, by dismissing the bill. What is this but to pre-

scribe a rule for the decision of a cause in a particular way?

* * *

But the court is forbidden to give the effect to evidence

which, in its own judgment, such evidence should have, and

is directed to give it an effect precisely contrary.

We must think that Congress has inadvertently passed the

limit which separates the legislative from the judicial power.

It is of vital importance that these powers be kept distinct.

80 U.S. (13 Wall.) at 146-47. Ninety years later, Mr. Justice

Harlan’s plurality opinion in Glidden Co. v. Zdanok, 370 U.S.

530, 568 and n.33 (1962), approved Klein, concluding that it is

unconstitutional for the legislature “to invade the judicial

province by prescribing a rule of decision in a pending case.”’ See

Kilbourn v. Thompson, 103 U.S. 168, 194 (1880). See also

Edward H. Levi, Some Aspects of Separation of Powers, 76

CoLuM.L.REV. 371, 383 (1976).

Separation of powers means that the judiciary, not the legisla-

ture, is to exercise judicial power. Though Congress may pass

laws which prescribe rules to govern the public, it may not decide

particular cases. Because Congress seldom endeavors to do so,

this Court rarely has had occasion in recent years to review “iegis-

lative justice”. With respect to the occasional examples of legisla-

tive justice which continued into the early part of the last century,

Roscoe Pound wrote in 1914,

{L]egislative justice in its relatively short history in this

country and in the relatively small number of cases in which

it was exercised showed the influence of personal solicitation,

lobbying and even corruption far beyond anything which

even the most bitter opponent of our judicial system has

charged against the courts in the course of a long history and

after disposition of a huge volume of litigation.

Legislative justice has always proved highly susceptible to

the influence of passion and prejudice. .. .

Closely related to the foregoing characteristic of legisla-

‘tive justice is . . . the preponderance of purely partisan or

political motives as grounds of decision.

* * *

Hence from the Twelve Tables to modern constitutions men

have agreed in prohibiting [legislative justice]. The provi-

sions of modern constitutions in this respect represent more

than the influence of eighteenth-century theory. They repre-

sent a universal experience of the ills involved in legislative

justice.

Pound, Justice According To Law: Legislative Justice, 14

Co.um.L.REV. 1, 8-10, 12 (1914) (footnotes omitted). There can

be no assurance that Congress was free from the types of pressure

referred to by Dean Pound when, at the urging of the railway

labor unions, 126 ConG. Rec. H 8548-49 (daily ed. Sept. 9,

1980) (remarks of Rep. Staggers), it enacted the Rock Island

legislation during an election year.

For a legislature to provide that a court in a pending suit must

order a named party to pay other parties a large sum of money

would deprive the named party of due process in the most basic,

procedural sense of that term. Such legislative interference with

the judicial process would deprive the adversely affected party of

his right to a decision by a tribunal that has given him a fair hear-

ing, and would seriously disrupt the proper exercise of judicial

power by the judiciary.

In Hurtado v. California, 110 U.S. 516, 535-36 (1884), this

Court held that legislative transfers of one person’s property to

another violate due process. The Court stated:

But it is not to be supposed that these legislative powers

are absolute and despotic and that the amendment prescrib-

ing due process of law is too vague and indefinite to operate

as a practical restraint. It is not every act, legislative in form,

that is law. Law is something more than mere will exerted as

an act of power. /t must be not a special rule for a particular

person or a particular case... . [It would exclude, ] as not due

process of law, acts of attainder, bills of pains and penalties,

acts of confiscation, acts reversing judgments, and acts di-

rectly transferring one man's estate to another, legislative

judgments and decrees, and other similar special, partial ana

arbitrary exertions of power under the forms of legislation.

(Emphasis supplied.) Accord, Lovett v. United States, 66 F.Supp.

142, 151-52 (Ct. Cl. 1945), aff'd, 328 U.S. 303 (1946).

For Congress to direct the reorganization court to decide this

case contrary to what the court had already determined was

required by the Constitution is a flagrant departure from estab-

lished constitutional principles and a transparent attempt to im-

pose legislative justice. Whatever sympathy the condition of

former railroad employees represented by strong unions can in-

voke, this cannot justify legislative intervention in a judicial

proceeding in order to deprive the estate, its creditors and share-

holders of their legal rights.

B. The Rock Island Act Violates Both The Uniformity

Requirement Of The Bankruptcy Clause And The

Equal Protection Component Of The Due Process

Clause Of The Fifth Amendment Because It Applies

Only To One Company.

The Rock Island Act, insofar as here relevant, applies only to

the estate of the bankrupt Rock Island Railroad. This is evident

from its title and preamble. The Act violates both the uniformity

requirement of the Bankruptcy Clause and the equal protection

requirement of the Due Process Clause because it imposes a

special costly obligation on that estate and no one else.

1. The Rock Island Act Contravenes the

Uniformity Requirement in the Bankruptcy

Clause.

The uniformity provision in the Bankruptcy Clause, art. I, § 8,

cl. 4, provides that Congress shall have the power “to establish

uniform laws on the subject of bankruptcies throughout the Unit-

ed States.” This Court has said that “[t]he laws passed on the

subject must, however, be uniform throughout the United States

. .. [the] wniformity [required] is geographical. . . .” Hanover

National Bank v. Moyses, 186 U.S. 181, 188 (1902).

The Rock Island Act seeks to determine the rights of creditors

and shareholders to a bankrupt’s estate. It is, therefore, a law “on

the subject of bankruptcies.” Wright v. Union Central Life Insur-

ance Co., 304 U.S. 502, 513 (1938); Continental Illinois National

Bank & Trust Co. v. Chicago, Rock Island and Pacific Railway,

294 U.S. 648, 673 (1935). A law on bankruptcy “includes the

power . . . to distribute [the insolvent debtors] property.” Han-

over National Bank v. Moyses, supra, 186 U.S. at 188.”

*Even if this legislation were regarded as an exercise of Congressional

power under both the Commerce Clause and the Bankruptcy Clause, it

is settled that the broad commerce power is limited by a number of more

specific constitutional provisions. The limitations in the First, Fourth,

Fifth, Sixth, Seventh and Eighth Amendments, for example, apply to

the enforcement of laws regulating interstate commerce. So do the

provisions in art. 1, § 9, prohibiting bills of attainder and ex post facto

laws, and laws imposing export duties or preferring the ports of one state

over those of another. The qualification of a broad constitutional provi-

sion by a more specific one is analogous to the “basic principle of statu-

tory construction that a specific statute controls over a general provi-

sion. . . .” HCSC-Laundry v. United States, 101 S.Ct. 836, 838-39

(1981); Busic v. United States, 446 U.S. 398, 406 (1980); Bulova Watch

Co. v. United States, 365 U.S. 753, 758 (1961).

In the 3R Act Cases, supra, 419 U.S. at 159, this Court recog-

nized that distinctive treatment of railroad bankruptcies, which

presented special problems of their own, was not “beyond the

limit of congressional power”, citing Continental Illinois Nation-

al Bank & Trust Co. v. Chicago, Rock Island and Pacific Rail-

road, 294 U.S. 648, 671-72 (1935). In the 3R Act Cases, this

Court permitted distinctive treatment of railroad bankruptcies in

the Northeast region while preserving the uniformity requirement.

The Court there was faced with legislation designed to remedy

the emergency created when rail service throughout the Northeast

was threatened with financial collapse. The Court upheld the

legislation designed to resolve these “geographically isolated

problems.” 3R Act Cases, supra, 419 U.S. at 159. The Act was

found not to contravene the uniformity requirement, despite its

limited territorial application, because “the legislation applies to

all railroads under reorganization pursuant to § 77 during the

time the Act applies.” 419 U.S. at 161.

None of the circumstances that justified the holding in the 3R

Act Cases is present here. At the time the Rock Island Act was

enacted, another railroad besides the Rock Island was in the

process of liquidation under Section 77 of the Bankruptcy Act of

1898," the New York, Susquehanna and Western Railroad.” The

Rock Island Act, however, does not affect that bankrupt estate.

Accordingly, the Act cannot even achieve the technical uniformi-

ty that was characteristic of the 3R Act.

Additionally, the Rock Island Act, unlike the 3R Act, does not

purport to solve an emergency created by unique geographical

problems. It deals solely with the financial situation of employees

of a single carrier who are no longer needed in the rail industry.

“Section 77 has now been replaced by Sections 1161-74 of the Bank-

ruptcy Code of 1978, 11 U.S.C. §§ 1161-74. Sections 1161-74 apply to

all proceedings filed after September 30, 1979. One additional company

performing rail service is liquidating under this new statute. /n Re Auto-

Train Corp., 7 Bkrptcy. Ct. Dec. 906 (D.D.C. 1981).

*In re New York, S. & W. R.R., No. B-76-182 (D.N.J.).

This situation, however, is not unique to the Midwest; it occurs

whenever a railroad in any region of the country abandons its

operations.

Finally, the Rock Island Act “is as far from being uniform as is

possible” because it applies to only a single bankrupt. /n re Sink,

27 F.2d 361 (W.D. Va. 1928), appeal dismissed, 30 F.2d 1019

(4th Cir. 1929). Although Congress under the Bankruptcy

Clause can create classes of debtors, it cannot read the uniformity

provision out of the Constitution. If there is to be uniform bank-

ruptcy legislation, the legislation cannot be limited in application

to a single bankrupt. Assuming for the sake of argument that rail-

roads in liquidation constitute a rational classification, the Rock

Island Act fails to achieve uniformity even as to this limited class.

Only one of the two railroads which have been in liquidation in

recent Section 77 proceedings, the New York, Susquehanna &

Western Railroad” and the Rock Island, has been directed by

Congress to make labor protection payments.”

“In refusing to impose labor protective conditions on the Susquehan-

na, the reorganization court in that case observed that “[t}he facts of

Rock Island are strikingly similar to the circumstances which obtain

here.” In re New York, Susquehanna & Western R.R., 504 F.Supp. 851,

863 (D. N.J. 1980).

*’The Milwaukee Railroad continues to pursue an income-based reor-

ganization; it is not in liquidation. The labor protection program for dis-

placed former employees of the Milwaukee Road contained in the Mil-

waukee Act was enacted by Congress upon the urging of the Milwaukee

Road Trustee and the railroad unions. The Milwaukee Road,’ while

abandoning all of its Western extension lines, continued in rail service

operating a Midwest core. This large-scale abandonment was neverthe-

less only a partial abandonment and thus was subject to the condition

that the employees displaced receive the form of labor protection tradi-

tionally imposed by the Commission in partial abandonment situations.

See supra at 30. The total cost to the Milwaukee Road Trustee of that

traditional form of labor protection was estimated to be somewhere

between $300 million and $1.2 billion-—with $350 million as the best es-

timate. See In re Chicago, M., St.P. & P.R.R., Nos. 80-1347, 80-1348,

80-1545 and 80-1546, slip op. at 11 and n.7 (7th Cir. Aug. 17, 1981).

(Footnote continued on following page.)

From whatever perspective it is viewed, the Rock Island Act

fails to achieve any semblance of uniformity. It does not apply to

all railroad reorganization proceedings pending at the time of its

passage. It does not apply to all members of the same class of

bankrupts. It does not apply to all railroads in liquidation. It is “as

far from being uniform as is possible.” Jn re Sink, supra, 27 F.2d

at 361. If the uniformity provision of the Bankruptcy Clause is to

retain any meaning, this Court must find the Rock Island Act

constitutionally defective because it represents an attempt by

Congress to enact a special bankruptcy law for a single debtor.

2. The Rock Island Act Violates the Equal

Protection Component of the Due Process

Clause.

The equal protection component of the Due Process Clause is

designed to insure that laws imposing burdens will apply equally

to persons similarly situated, and will not apply only to particular

persons selected by the legislature. A law which on its face

regulates only a particular person is as at least suspect, as pre-

sumptively depriving that person of equal protection. The burden,

however it be phrased, should be on the party attempting to jus-

tify the legislative selections.

Appellees recognize that in highly unusual circumstances there

can be “a legitimate class of one”. Nixon v. Administrator of

(Footnote continued from preceding page.)

Congress, by enacting the Milwaukee Act's labor protection program

providing for an elective new labor protection program of up to $75 mil-

lion, relieved the Milwaukee Road Trustee of the immense burden of the

traditional labor protection conditions that would have been imposed in

this partial abandonment situation. As a result, the Milwaukee Road

Trustee advocated passage of the labor protection scheme of the Mil-

waukee Act. By contrast, the Rock Island Trustee, its creditors and

shareholders opposed passage of the labor protection scheme of the

Rock Island Act because the Rock Island was being totally abandoned

and under settled Commission precedent and constitutional principles,

see supra at 24-34, was not subject to any labor protectidn obligation.

General Services, 433 U.S. 425, 472 (1977). The Rock Island,

however, was not in a unique situation. Other railroads have

become bankrupt and cashless and then discontinued operations.

The Susquehanna Railroad was in that condition at the time

the Rock Island Act was passed, /n re New York, Susquehanna

and Western Railroad, supra, 504 F.Supp. 851. Yet Congress

did not impose a heavy financial burden on the Susquehanna

estate. Nor does it matter that the Susquehanna is smaller than

the Rock Island. Bankrupt railroads, like any other category of

bankrupts, are never identical in all respects. But that distinc-

tion does not justify special legislation applicable to a single com-

pany when the subject is one which can be dealt with by general

legislation applicable to all railroads, all bankrupt railroads,

or at least to a defined class. 3R Act Cases, supra, 419 U.S.

at 159-60.

This Court has upheld as not violative of the Equal Protection

Clause’statutes which contain exemptions from burdensome regu-

lations for a named company or an identifiable small class of per-

sons. City of New Orleans v. Dukes, 427 U.S. 297 (1976) (grand-

father clause exemption for two pushcart vendors), overruling

Morey v. Doud, 354 U.S. 457 (1957) (invalidating exemption for

American Express Company); Williams v. Mayor of Baltimore,

289 U.S. 36 (1933) (tax exemption for insolvent interurban rail-

way); Erb v. Morasch, 177 U.S. 584 (1900) (speed of trains run-

ning through cities). But these exemptions were for the benefit of

the exempted party and left standing general laws applicable to a

class of persons. They differ, therefore, from laws imposing bur-

densome regulations only upon one company. E.g., McFarland v.

American Sugar Refining Co., 241 U.S. 79, 86-87 (1916) (ad-

verse presumptions applicable only to a single company); see Cot-

ting v. Kansas City Stock Yards Co., 183 U.S. 79, 112, 114-15

(1901) (Harlan, J., concurring) (equal protection denied by stat-

ute which “applies only to Kansas City Stock Yards Company

and not to other companies or corporations engaged in like busi-

ness”).

Because the Rock Island Act subjects only the Rock Island es-

tate to the burden of supporting its former employees after the

company had become entitled to cease operations and liquidate, it

constitutes an unjustifiable classification in violation of equal pro-

tection and therefore of due process.

C. The Retroactive Imposition Of Additional Liability

To Employees After The Rock Island Has Been Or-

dered To Liquidate Deprives The Rock Island

Estate Of Due Process Of Law.

Assuming, arguendo, that Congress has the power to require

prospectively that railroads must provide their former employees

with labor protection even in the circumstance of liquidation and

total abandonment, investors and sellers of supplies in that situa-

tion would know in advance that they were exposing themselves to

the risk of losing their entire investments in order to subsidize un-

needed railway laborers—and could protect themselves by refus-

ing to advance credit. Perhaps Congress has not passed such a law

for fear of this obvious result. See Louisville Joint Stock Land

Bank v. Radford, supra, 295 U.S. at 595 n.27.

The question in this case is not whether such prospective legis-

lation is constitutionally permitted, but whether Congress may

impose a new liability retroactively—after the security holders

and suppliers have advanced credit or the stockholders made their

investments; after the railroad has been found not only to be

bankrupt but also unable to reorganize as an operating carrier on

an income-producing basis; and after it has been ordered to

liquidate and to abandon its lines.” The answer is that in the con-

text of these proceedings this retroactive legislative action violates

the due process rights of the estate and its creditors and share-

holders to have the remaining assets of the estate distributed for

their benefit in the prescribed order of priority.

The unfairness of imposing after-the-fact liability is recognized

in law and in life. Rules are not to be changed after the beginning

of the game. The principle that laws will be construed to apply

prospectively, not “retroactively unless the legislature has plainly

commanded that result”, Nachman Corp. v. Pension Benefit

Guaranty Corp., 446 U.S. 359, 368-69 (1980), aff’g, 592 F.2d 947

(7th Cir. 1979), quoting Los Angeles Department of Water &

Power v. Manhart, 435 U.S. 702, 721-22 n.40 (1978), and the

constitutional prohibition against ex post facto criminal laws are

illustrative. The same principle is embodied, though more flexi-

bly, in the Due Process Clause, because, in the absence of some

special justification, the imposition of burdensome civil liability

after the fact is also arbitrary and unreasonable.

*“RLEA and the Government reiterate that Judge McGarr’s June 2,

1980 order of abandonment was issued three days after the President

signed the Rock Island Act. RLEA Br. 13, 41, Govt. Br. 35. They imply

that because the Rock Island Act was signed into law before the formal

abandonment order issued, the Act's obligations were not retroactively

imposed on the Rock Island estate. Appellees do not believe that the

merits of this case should turn on who won this “race to the courthouse”.

In any event, Judge McGarr’s order to liquidate the railroad was en-

tered January 25, 1980. Judge McGarr's order of April 14, 1980, stated

that he would rule on the petition for abandonment and the attendant

labor protection issue on June 2, 1980. Thus, Congress was fully aware

at the time it passed the Rock Island statute that the Rock Island was

being liquidated. As Judge McGarr expressly stated, the June 2, 1980

order was merely a “technical recognition” of the Rock Island's already

ripe constitutional right to withdraw from rail service. (J.A. 264a.)

Additionally, if the Staggers Act is necessary to cure deficiencies in

the original Rock Island Act, as Congress seemed to suggest by the pass-

age of the Staggers Act after the original Act was declared unconstitu-

tional and was before this Court on review, then the effective law, i.e.,

the original Act as amended by the Staggers Act, was not passed until

long after the formal certificate of abandonment was issued.

For example, in Usery v. Turner Elkhorn Mining Co., supra,

428 U.S. at 16-17, the Court recognized that a retroactively im-

posed obligation is especially vulnerable:

It does not follow, however, that what Congress can legis-

late prospectively it can legislate retrospectively. The retro-

spective aspects of legislation, as well as the prospective

aspects, must meet the test of due process, and the justifica-

tions for the latter may not suffice for the former.

Despite this vulnerability, the Court found that imposing liabili-

ty on the coal operators who had profited at the expense of the

health of their former employees was a rational means to allocate

the horrendous medical costs incurred by those former employees

whv contracted black lung disease during their employment. 428

U.S. at 17-19. The coal operators had known for at least 20 years

that black lung disease was proximately caused by work in coal

mines, 428 U.S. at 17. Moreover, as going concerns, the coal

operators had future income available to pay for the medical costs

associated with the labor that had produced past profits. Thus,

these costs for past disabilities could be spread beyond the coal

operators to coal consumers as well. 428 U.S. at 18.

No comparable justifications support the imposition of labor

costs upon the estate of the Rock Island. Unlike the coal operators

in Usery, the Rock Island was not a going concern when the stat-

ute was passed, but was in the process of liquidation. It will not

have future income available to pay for the newly-imposed labor

protection, and it cannot adjust future rates to spread these new

costs among consumers of rail services. Unlike the coal operators,

neither the Rock Island nor its creditors have profited from the

prior activities of the Rock Island’s former employees in a way

that bred debilitating consequences such as black lung disease.

The labor protection payments required of the Rock Island are in

no way attributable to its prior conduct. Indeed, the unproductive

work rules and the strike of the former employees were at least

partly responsible for the disastrous condition of the railroad, and

these former employees benefited by their employment for almost

five years while the estate was in reorganization, to the substantial

detriment of the estate. See supra at 6.

This case is like Railroad Retirement Board v. Alton Railroad,

295 U.S. 330 (1935), in which, as this Court noted in Usery, 428

U.S. at 19, Chief Justice Hughes and Justices Brandeis, Stone

and Cardozo joined with the majority in invalidating a retroactive

statutory provision requiring employer-financed pensions for per-

sons who had been employed by the railroads during the year

before the statute was enacted. 295 U.S. at 348-50. In Usery, this

Court assumed that this portion of A/ton retained its vitality but

found Alton distinguishable on grounds which make Alton ap-

plicable here (428 U.S. at 19):

The point of the black lung benefit provisions is not simply

[as in Alton] to increase or supplement a former employee's

salary to meet his generalized need for funds. Rather, the

purpose of the Act is to satisfy a specific need created by the

dangerous conditions under which the former employee

labored—to allocate to the mine operator an actual, measur-

able cost of his business.

Here, in contrast, the only effect of paying additional sums to

former Rock Island employees is to meet their generalized need

for funds.

The weight of the Alton case is not impaired by Nachman, su-

pra, 446 U.S. 359, decided by this Court in 1980. The Nachman

case was concerned with the federal program to insure unfunded

but vested pension benefits for employees where the employer had

terminated the plan, pursuant to its terms, before the effective

date of the federal statute, thereby limiting the employer's liabili-

ty under the plan to the amount in the fund. The court of appeals

upheld the validity of the statute on the basis of its analysis of the

Usery case and this Court’s subsequent decision in Allied Struc-

tural Steel Co. v. Spannaus, 438 U.S. 234 (1978). Although this

Court limited its grant of certiorari in Nachman to the question of

statutory construction (446 U.S. at 368), it quoted with approval

from the opinion below on the constitutional issue. 446 U.S. at

367-68 n.12, quoting from 592 F.2d 947, 962-63 (7th Cir. 1979).

In balancing the equities, the court of appeals in Nachman, su-

pra, 592 F.2d at 962, noted:

In [Spannaus], and Alton Railroad the Court emphasized

that the employer was being forced to pay added compensa-

tion for fully compensated services. The employers received

no benefit in the bargain. [The employers in Alton Railroad]

had never agreed to pay any retirement benefits.

The same is true here. In Nachman, the court of appeals noted

that the reliance interest of the employees in vested pension ben-

efits “outweighed the employer’s reliance on prior funding”, that

is, on the right to pay no more than the amount in the fund. 592

F.2d at 961-62. Moreover, unlike the situation in Nachman, 592

F.2d at 962 n.32, the Rock Island estate had vested rights which

were being curtailed; its former employees had no vested rights.

Additionally, in sharp contrast to the Rock Island Act, in the

statute under review in Nachman, “Congress provided net worth

limitations on the amount of potential liability” in order to pro-

tect employers “on the verge of bankruptcy,” and “devised other

provisions to temper the burdens imposed.”’ 592 F.2d at 963. In

sum, the rational bases supporting the “not wholly prospective”

Nachman statute do not support the wholly new after-the-fact

liability imposed upon the Rock Island. Indeed, no rational basis

exists for imposing new liability to former employees upon the

creditors and shareholders of a bankrupt, non-operating and un-

reorganizable railroad.

The retroa.tive imposition of a $75 million labor protection

claim would be particularly offensive to the rights of secured

creditors. Congress cannot retroactively impair a secured credi-

tor’s right to obtain full satisfaction of the debts owed to it by a

bankrupt estate. Louisville Joint Stock Land Bank v. Radford,

supra, 295 U.S. 555. In Radford, this Court held that an attempt

by Congress to take from secured creditors without compensation

“rights in specific property which are of substantial value”

violates the Taking Clause. 295 U.S. at 601. The Radford princi-

ple requires that no labor protection costs can be imposed on the

estate unless it is first determined that these retroactive costs will

not impinge upon the secured creditors’ right to obtain full satis-

faction of their claims.

The Rock Island Act violates the Due Process Clause in the

separate respects argued above. The cumulative effect of these

various impingements even more clearly establishes that the Act

violates the concept of fundamental fairness embodied in due

process.

IV.

THE MERE POSSIBILITY OF A SUBSEQUENT

TUCKER ACT REMEDY DOES NOT PRECLUDE

THIS COURT FROM ENJOINING THE IMPLE-

MENTATION OF THE ROCK ISLAND ACT OR

FROM DECIDING THE TAKING ISSUE NOW.

RLEA argues that the Rock Island estate must immediately

make the labor protection payments required by the Rock Island

Act but that this Court should defer a determination of whether

the Act compels a taking for which compensation is required until

a subsequent proceeding by the estate against the Government

under the Tucker Act. The argument for deferral of the taking is-

sue is based on the language of Section 124(c), which was added

to the original Rock Island Act by the Staggers Act:

Nothing in this Act . . . shall limit the right of any person

to commence an action in the United States Court of Claims

under section 1491 of title 28, United States Code (common-

ly referred to as the “Tucker Act’’).

The Tucker Act, although it permits suit in the Court of Claims

“upon any claim against the United States founded . . . upon the

Constitution”, 28 U.S.C. § 1491, does not provide the Govern-

ment with blanket authority to violate constitutional rights sim-

ply because the injured party may have an action for damages

under the Act. Moreover, even if it did, and the existence of a sub-

sequent Tucker Act remedy were held to permit the labor protec-

tion program of the Act to be immediately implemented, this

Court should still determine the taking issue now.

A. The Fact That A Subsequent Action For Damages

Under The Tucker Act Is Not Precluded Does Not

Bar This Court From Enjoining The Implementa-

tion Of An Unconstitutional Act.

The thrust of RLEA’s Tucker Act argument is that no taking is

unconstitutional so long as there remains the possibility of an ac-

tion for damages under the Tucker Act. This argument focuses

solely on the taking issue and ignores the other respects in which

the Rock Island Act violates constitutional provisions which pro-

tect the Rock Island estate, its creditors and shareholders —viz.,

the principle of separation of powers, the uniformity provision of

the Bankruptcy Clause, and the Due Process Clause. The Rock

Island Act is unconstitutional not only because it violates the due

process rights of the creditors and shareholders of the Rock Island

to withdraw their investments from the service of the public inter-

est under Brooks-Scanlon, supra, but also because the Act singles

out one bankrupt estate and legislatively dictates a decision in a

pending judicial proceeding, displacing rights of both creditors

and shareholders that had already vested under prior law when

the Act was adopted. Thus, the possibility of a subsequent action

for damages under the Tucker Act does not cure the constitution-

al defects that otherwise exist in the Rock Island Act wholly apart

from the taking issue, nor does it bar an injunction against the im-

plementation of the Act.

Even focusing solely on the taking issue, RLEA’s view that the

Tucker Act cures all evils is unduly simplistic:

Even in a situation where there is no justification for the

government’s refusal to accept a complainant’s assertion

that the assailed action is a taking, such a haughty attitude

on the government's part does not make the assailéd taking

unconstitutional because the provision for compensation in

the Tucker Act satisfies the guarantees of the Taking Clause.

RLEA Br. 34. The primary difficulty with this argument is that it

has no limits: it would allow the Government to blatantly violate

constitutional rights so long as it does not immunize itself from a

later suit for damages. Under this view, no taking could ever be

enjoined because a Tucker Act damage remedy would always be

available.

The argument is refuted by Youngstown Sheet & Tube Co. v.

Sawyer, supra, 343 U.S. at 584-85, in which this Court held un-

constitutional, as violative of the separation of powers doctrine,

President Truman’s executive order seizing vital steel mills that

had been shut down by a labor dispute during time of war. In that

case, it was argued that a preliminary injunction should have been

denied because the companies could recover full compensation for

the taking in the Court of Claims under the Tucker Act. The

Court rejected that argument. Despite the compelling needs of

the nation in time of war, the Presidential taking involved in

Youngstown was enjoined. Here, seizure of the Rock Island’s

money is sought in much less compelling circumstances— where

the causal relation between the taking and the advancement of

national transportation policy is attenuated at best. The Youngs-

town decision establishes that the existence of a Tucker Act

remedy does not preclude enjoining a taking, especially when the

taking violates the Constitution wholly apart from the question of

whether just compensation will be provided.

The Youngstown decision provides the appropriate limitation

upon the Government's right to rely on the availability of a

Tucker Act damage remedy to excuse unconstitutional conduct:

when the Tucker Act remedy would as a practical matter not

provide adequate relief, an injunction may appropriately be

granted. The Court in Youngstown found “no reason for delaying

decision of the constitutional validity of the [seizure] orders’, in

light of the fact that

seizure and governmental operation of these going businesses

were bound to result in many present and future damages of

such nature as to be difficult, if not incapable, of measure-

ment.

343 US. at 585.

In this case, forcing the already bankrupt and defunct Rock

Island to make what is tantamount to a $75 million loan to the

Government would result in irreparable injury to the estate

through the material disruption of the ongoing liquidation. The

reorganization court found that the payment of $75 million would

represent “a significant percentage of the [estate's] total assets”

(J.A. 207a) and would disrupt the process of liquidation. As the

court recognized, no plan of reorganization providing for dis-

tribution can be meaningfully formulated or carried out when up

to $75 million of the estate’s assets have been replaced by an un-

certain claim, which is dependent on the outcome of litigation in

the Court of Claims and Congress’ later appropriation of funds.”

This disruption and delay of the liquidation would have a sig-

nificant impact on the creditors of the estate, including both large

“Indeed, Judge McGarr recently explained to a representative of a

state which was complaining that there was no formal plan of liquida-

tion:

“I have deferred the filing of a formal plan from time to time for a

lot of reasons. The principal one lately being an Act of Congress

which I have held unconstitutional would raid the Rock Island

Trustee's treasury to the extent of seventy-five or more millions of

dollars, and if that is constitutional we have a far different asset

picture than otherwise.”

Transcript of Proceedings, August 25, 1981, at 15.

and small investors and suppliers, who have been awaiting

payment from the railroad for years. They, and persons to whom

they owe money, may themselves be in difficult financial straits

because of the failure of the Rock Island to pay its debts. The

delay in liquidating the estate will cause injury to a great many

creditors and investors for many more years. As Judge McGarr

stated at the hearing on June 20, 1980 (J.A. 179a):

We are tempted to think of the creditors in this case, because

they have been active in the case as banks and bondholders

and so forth, but my desk is piled high with letters that I have

been receiving for many, many months from small businesses

and small [taxing] authorities and school districts end from

all through the Middle West and the area that the Rock

Island serves, telling tales of extreme hardship that have

been occasioned by the failure and inability of the Rock Is-

land to pay its bills. These are not giants, they're not banks.

They're people upon whom the hardships of the abandon-

ment of the service of the Rock Island and its bankruptcy

falls every bit as harshly as the same problems fall on the em-

ployees.

RLEA does not address the reorganization court's finding of

irreparable injury. It argues instead that the estate may be com-

pelled to turn over its money, without regard to whether the estat

is obligated to pay that money, because the Rock Island may

eventually be able to sue the Government for damages. No case

has ever held that the Government can compel a person to turn

over his money, either to the Government itself or to a beneficiary

specified by the Government, without regard to whether the per-

son is obligated to pay that money, merely because he can even-

tually sue the Government for damages in an effort to get it back.

If such forced loans were constitutionally permissible, Congress

could order citizens with available funds to pay any public ex-

pense, as long as they could then sue under the Tucker Act to seek

reimbursement. Often Congress is unwilling to face up to the

need for spending money as rapidly as the public interest requires.

Or it may be pressed to provide money to politically desirable

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.