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

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Iu the Supreme Court of the United States

OCTOBER TERM, 1980

Nos. 80-415 and 80-

RAILWAY LABOR EXECUTIVES’ ASSOCIATION, APPELLANT

Vv.

WILLIAM M. GIBBONS, TRUSTEE, ET AL.

ON APPEALS FROM THE UNITED STATES

COURT OF APPEALS FOR THE SEVENTH CIRCUIT

BRIEF FOR THE FEDERAL APPELLEES

LAWRENCE G. WALLACE

Acting Solicitor General

KENNETH S,. GELLER

Deputy Solicitor General

ALAN I, HoRowItTz

Assistant to the Solicitor General

Department of Justice

Washington, D.C. 20530

(202) 633-2217

RICHARD A, ALLEN

General Counsel

HENRI F. RUSH

Associate General Counsel

EVELYN G. KITAY

Attorney

Interstate Commerce Commission

Washington, D.C. 20423

QUESTION PRESENTED

Whether the employee protection provisions of the

Rock Island Railroad Transition and Employee Assis-

tance Act, Pub. L. No. 96-254, 94 Stat. 399, as amended

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

94 Stat. 1895, impose an unconstitutional taking of prop-

erty in violation of the Just Compensation Clause of the

Fifth Amendment.

(1)

TABLE OF CONTENTS

Page

Tia cca dhccccrccencgnsnepsesssansonsusnisnesoestessoes 1

i cesebamsosueonevonevsnccnen 1

Constitutional and statutory provisions involved .......... 2

ETE TT Tillie ecctasbindempsenesndssceccaseesecesseccessesetnoceres 2

2s csbensonbesesnsenensoversoons 10

REE a A 14

The labor protection provisions of the Rock Island

Act do not violate the Just Compensation Clause

BN 14

A. The question whether the Rock Island Act ef-

fects a taking of property is properly before

ee casnssadunboosceesoseees 14

B. General principies under the “Takings” Clause.. 20

C. The labor protection provisions of the Rock

Island Act do not effect a taking ...................... 22

1. The labor protection provisions are a legiti-

mate exercise of Congress’ regulatory power

that promotes the public interest in con-

RIE EE HRUIWIID ccccceccenccescecescasensusepecnsocesenoce 22

2. The character and economic impact of the

government action here does not indicate a

taking because it does not interfere with

any reasonable investment-backed expecta-

aa scsetebepabinebenmeneet 24

8. The determination that the Rock Island is

unreorganizable does not convert its labor

protection obligation into a taking .............. 34

a scevmenusbunusitincasperececes 38

TABLE OF AUTHORITIES

Cases: Page

Agins Vv. City of Tiburon, 447 U.S. 255 .................. 22

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

RSIS Set PS San noe Nee ARN 33

Andrus V, Allard, 444 U.S. 51 20.........2..c000000 19, 20, 21, 22

Armstrong Vv. United States, 364 U.S. 40 ................ 21, 24

Atchinson, Topeka & Santa Fe Ry. v. Public Utili-

ties Commission, 346 U.S. 346 ............-..cccceceeceeeee 26

Atlantic Coast Line R.R. v. North Carolina Cor-

poration Commission, 206 U.S. 1 200.........0c00c0000 26

Baltimore & Ohio R.R. v. United States, 345 U. Ss.

| RRR AAI SR Si Bra ce A eae seamen RoR ice eran 26

Batten v. United States, 306 F.2d 580, cert. de-

I a asemaniineanes 24

Berman V. Parker, 348 U.S, 26 ............-.ecsesseseseeeees 20

Board of Regents v. Roth, 408 U.S. 564 .................. 32

Brooks-Scanlon Co. v. Railroad Commission, 251

REE SS elias SNe Ok ona ee Son Sea EE 27, 36

Chicago, Burlington & Quincy R.R. v. Iowa, 94

pi TIE: aiciaiunciceanstiiiaiiacepninniataiiantdgsbneislanenibsainmanninnies 26

Chicago, Burlington & Quincy R.R. Abandonment,

Be Ne, I erat eter cen viestancentcntecaniniioticsennces 29

Chicago, Milwaukee, St. Paul & Pacific R.R., In re,

OO a ce eeeneieiasaietie 27, 36

Chicago, Rock Island & Pacific Ry., In re, 90 F.2d

$12, cert. denied, 502 U.S. 717 ................-seeee00 36

City of Newport v. Fact Concerts, Inc., No. 80-396

I I a siacdarbdimetidinat 17

Colorado v. United States, 271 U.S, 158 .................. 26

Continental Illinois National Bank & Trust Co. Vv.

Chicago, Rock Island & Pacific Ry., 294 U.S.

TTI ‘sieisiliteeka ceieicensaeebbplaghteeadditeinenenenmanstcapsiicesaiaaiaiatiiniad 26

Dames & Moore v, Regan, No. 80-2078 (July 2,

te SRNR eR RD EDR ee re 18, 19, 33

Dayton-Goose Creek Ry. v. United States, 263 U.S.

II -cchsipacebiataancateereeahannisncbeiciesecsunisstaseapinisnicatslenuaii 24, 25, 26

Delaware & Hudson Ry. v. United Transportation

Union, 450 F.2d 603, cert. denied, 403 U.S. 911.. 17

Duke Power Co, Vv. Carolina Environmental Study

Es ee 18

Cases—Continued Page

East Carolina Ry. Abandonment, 324 I.C.C,. 506.... 30

Erie R.R. v. Board of Public Utility Commission-

I 26

Griggs V, Allegheny County, 369 U.S. 84.00.0000... 24

Hadacheck v. Los Angeles, 239 U.S. 394 ..00000..000000... 21

Hodel v. Virginia Surface Mining & Reclamation

Ass’n, No, 79-1538 (June 15, 1981) ................... 17, 18

Hurley V. Kincaid, 285 U.S. 96 ............c:ccccsccsesesssseoees 18

ICC v. Railway Labor Executives Ass’n, 315 U.S.

ME talhcieitat ae cceantaiictaiaaid adacnlictrabie tebe nea cse ae. 13, 29, 34

ICC v. United States ex rel. Los Angeles, 280 U.S.

pp BROCE ea Re RA ed TA OTC 26

Kaiser Aetna Vv, United States, 444 U.S. 164 .......... 22, 33

McLucas v. DeChamplain, 421 U.S. 21 ..........0......... 17

Mann V. Tlémote, 94 U.S. 118 ..........cceccccccscccceccesesceess 26

New Haven Inclusion Cases, 399 U.S. 392 .......... 29, 34, 37

New York Dock Ry. v. United States, 609 F.2d 83.. 35

Okmulgee Northern Ry. Abandonment, 320 1.C.C.

gy EERIE ESS CERISE CBOE PORE NAPE SON ROO 30

Penn Central Transportation Co. v. New York

oo ef fee 12, 20, 21, 22, 25, 36

Pennsylvania Coal Co, v. Mahon, 260 U.S. 393........ 21, 25

PruneYard Shopping Center v. Robins, 447 U.S.

IPs + cenliehciceesanaaaiistanieasiiiimastadbedcanceumibenanetgndismmediestiadertdea 22

Reconstruction Finance Corp. v. Denver & Rio

Grande Western R.R., 328 U.S, 495 .................... 34

Regional Rail Reorganization Act Cases, 419 U.S.

RNa el SOU al Se Ean ONE DOT ERE 11, 18, 20, 27

BE Ve HN, ID Wt GUS cccessecensscceiesecansesosscinetonses 17

Sampson V. Murray, 415 U.S. 61 2000.00... cccccccceeneeee 10, 16

San Diego Gas & Electric Co. v. City of San Diego,

Be PD Cs ts SEED Soccecnescsscssccccntnnssrsccsenne 11,19

Seaboard Air Line R.R. Trackage Rights, Atlantic

COMED Titi, SEB TI. FOF ccceccccerccscevssnccasvessessetcees 30

Tennessee Central Ry. Abandonment, 333 I.C.C.

IE sc-tessciceesietlidiiaieiiciasisscntedanideapercninaiioaneniakanntiabebsinscioas 29

The Minnesota Rate Cases, 230 U.S. 352 .......00....... 23

Thompson V. Siratt, 95 F.2d 214 o000..0..ccccccccccceceeseees 36

United States v. Causby, 328 U.S. 256 ....0...000000000... 21, 24

Cases—Continued Page

United States v. Lowden, 308 U.S, 225.......... 12, 13, 14, 24,

27-29, 31, 34, 35, 37

University of Texas v. Camenisch, No. 80-317

CINE TEA, SIME DR: <casnsstnemetsabeoticrpiccereepumimaieiaiaatien 15

Usery V. Turner Elkhorn Mining Co., 428 U.S. 1.... 21, 25

Valuation Proceedings Under §§ 303 ( c) & 306 of

the Regional Rail Reorganization Act, In re, 439

BF I, TIE kcnccitainhibitcniniintesdantaiatdanibinaantaphmavaniibets 23, 27

Washington & Old Dominion R.R. Abandonment of

Entire Line in Virginia, 331 1.C.C. 587 .............. 30

Webb’s Fabulous Pharmacies, Inc. Vv. Beckwith,

Se of: el ee 24

Wellsville, Addison & Galeton R.R. Abandonment,

PE Be I ‘wiscainsavcvadteniininetadasniiadediaaaan 30, 31

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

SOUP - Sisscsieriin trsanpinigstiiassaladsshietapsdunrhatiaeceteniesaamabtadoamiaas 10,17

Constitution and statutes:

United States Constitution:

Fifth Amendment ...................... 2, 4, 18, 20, 26, 27, 28

Just Compensation Clause ...................... 4,10, 14

ID citkicisinscdssinenteseatinnisininniiaeitinn 20, 22

CI SII ccccticticacsrnaneusecctndebetsionnetes 23

Bankruptcy Act, Section 77, 11 U.S.C, 2065 ............ 2

Section 77(n), 11 U.S.C, 205(n) ..........0...00...... 36

Black Lung Benefits Act of 1972, 30 U.S.C. 901

2 Pe CR a earn NR Re eu Ti ee 25

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

(Supp. III) 901 et seq.:

Section 5, 45 U.S.C. (Supp. III) 904(a)........ 27,31

Section 17, 45 U.S.C. (Supp. III) 916 .......... 35

Section 17(a), 45 U.S.C. (Supp. III) 915(a).. 32

Section 17(c), 45 U.S.C. (Supp. III) 915(c).. 27,31

Railroad Revitalization and Regulatory Reform

Act of 1976 (“4R Act’):

49 U.S.C. (Supp. III) 10903(b) (2) .......... 27, 31-32

49 U.S.C. (Supp. III) 11847 .......0......2...... 27, 31, 35

GD WAG. Ci TEED SREB cecerecceccstenttiecsinnns 36

Vil

Constitution and statutes—Continued Page

Rock Island Railroad Transition and Employee As-

sistance Act (“the Rock Island Act”), Pub. L.

es es he I drteciccrecincsereresocscsnnstccesosere 3

Section 102, 94 Stat. 399 (to be codified at

a ccisieeaaiaal 12, 23, 35

Section 106, 94 Stat. 401 ............................ 2,3, 4,6

Section 106(b), 94 Stat. 401 000.0. 3,5

Section 106(c), 94 Stat. 401 ....000000 3,5

Section 106(d), 94 Stat. 401 00000000000... 3, 5, 6,19

Section 106(e) (2), 94 Stat. 402 200000000000... 3

BI i he Cs ID wrceccncccececcosncnstscennenene 2,3,4

Section 110(e), 94 Stat. 403 ............. pomnos 7

Section 122, 94 Stat. 409 2...........-cccsccesseeseee 4

Rock Island Railroad Transition and Employee As-

sistance Act, Pub. L. No, 96-254, 94 Stat. 399,

as amended by the Staggers Rail Act of 1980,

Pub. L. No. 96-448, Section 701, 94 Stat. 1895,

1959 Lestat dionesetiecneceechab contehabbiiebmsetetnnetecheig 6

a alceeesbbovenas 2,6

ga A ON 7,19

hee le eC 2

a ll i RE 7

a ea

III <I "cian csgicccubipsensitigaoanaamaniaiietee 9

ES RC RCT 7

Transportation Act of 1920, ch. 91, 41 Stat. 477-

(sh REED, Ee ao en a 27

Se I ie Ss I cccocnsccnncestcscnnscencesnecsenenes 6,17

ee I, TID EID cccrcescnnasceocccsconsessecnzontnses 82

Se srsmmnensnsnnenenenli 6

ER, EI MD REID cestincschcccccescersnsesestsnsssntens 27

Og ERR Pe ne 27

Miscellaneous:

H.R. Conf, Rep. No, 96-1041, 96th Cong., 2d Sess.

aie 22

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

oc seemensamieniaba 19, 35, 37

Vill

Miscellaneous—Continued Page

H.R. Rep. No. 96-839, 96th Cong., 2d Sess. (1980).. 11, 19,

32, 35

7 Moore’s Federal Practice (2d ed, 1980) .............. 15

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

tA PROSSER Re RES ee Sa eh Se ae 32

Sax, Takings and the Police Power, 74 Yale L. J.

ir ED cosesdesaiietssisied-snaestuishanbeshdshehiabinancccisadanadetanianeas 24

C. Wright & A. Miller, Federal Practice and Proce-

I II kacserlectnidcha hla tes icles scantbadbeanianenneiuanicapete 17

In the Supreme Court of the United States

OCTOBER TERM, 1980

Nos. 80-415 and 80-1239

RAILWAY LABOR EXECUTIVES’ ASSOCIATION, APPELLANT

Vv.

WILLIAM M. GIBBONS, TRUSTEE, ©T AL.

ON APPEALS FROM THE UNITED STATES

COURT OF APPEALS FOR THE SEVENTH CIRCUIT

BRIEF FOR THE FEDERAL APPELLEES

OPINIONS BELOW

The order of the court of appeals (J.S. App. la-2a)'

is not reported. The district court’s oral opinion (J.S.

App. 15a-22a) and order (J.S. App. 138a-l4a) of June

9, 1980, and its oral opinion (J.S. App. 28a-30a) of

June 20, 1980, denying a motion for reconsideration, are

not reported. The district court’s orders of October 15,

1980 (J.S. App. 3a-6a), and October 16, 1980 (J.S. App.

7a), are not reported.

JURISDICTION

The district court’s order appealed in No. 80-415 was

entered on June 9, 1980. The notice of appeal was filed

on June 11, 1980 (80-415 J.S. App. 23a), and the appeal

was docketed on September 15, 1980. The judgment of

the court of appeals appealed in No. 80-1239 (J.S. App.

3la-32a) was entered on December 16, 1980. The notice

of appeal (J.S. App. 33a) was filed on December 19,

1“J.S. App.” refers to the Appendix to the Jurisdictional State-

ment in No, 80-1239.

(1)

1980, and the appeal was docketed on January 21, 1981.

The jurisdiction of this Court is invoked in both cases

under 28 U.S.C. 1252. Parker v. Levy, 417 U.S. 733,

742-743 n.10 (1974).

CONSTITUTIONAL AND STATUTORY

PROVISIONS INVOLVED

1. The Fifth Amendment to the United States Con-

stitution provides in pertinent part:

* * * nor shall private property be taken for public

use, without just compensation.

2. Sections 106 and 110 of the Rock Island Railroad

Transition and Employee Assistance Act, Pub. L. No.

96-254, 94 Stat. 401 and 403, as amended by the Stag-

gers Rail Act of 1980, Pub. L. No. 96-448, 94 Stat. 1895,

1959, are set out at pages 35a-4la of the Appendix to

the Jurisdictional Statement in No. 80-1239.

STATEMENT

1. In March 1975, after experiencing several years of

financial deterioration, the Chicago, Rock Island and

Pacific Railroad Company (‘Rock Island’) petitioned

the United States District Court for the Northern Dis-

trict of Illinois for reorganization under Section 77 of

the Bankruptcy Act, 11 U.S.C. 205. The Rock Island

continued to operate for more than four and a half years

under the protection of Section 77. After a strike fur-

ther damaged its financial posture, however, the Rock

Island ceased all operations in September 1979. See J.A.

378a-379a.

In January 1980, the reorganization court directed the

Trustee of the Rock Island to prepare a plan for its

liquidation, and the Trustee began selling the assets of

the railroad (J.A. 239a). On June 2, 1980, the re-

organization court authorized the Trustee to abandon

the entire Rock Island system and ordered that no em-

ployee protection conditions be imposed (J.A. 269a-271a).

On May 30, 1980, a few days before the reorganiza-

tion court’s abandonment order, the President signed

into law the Rock Island Railroad Transition and Em-

ployee Assistance Act, Pub. L. No. 96-254, 94 Stat. 399

(“the Rock Island Act”). Sections 106 and 110 of the

Rock Island Act, 94 Stat. 401 and 403 (J.S. App. 35a-

4la), required the Trustee, through the use of high

priority federal loans, to provide labor protection benefits

of up to $75 million to employees of the Rock Island who

might be adversely affectéd by its cessation of operations.

Specifically, Section 106(b) of the Rock Island Act, 94

Stat. 401, ordered the Interstate Commerce Commission

to impose a fair and equitable labor protection arrange-

ment within 30 days unless, prior to that time, the rail-

road and labor organizations representing its employees

were able to agree upon a satisfactory arrangement.

Section 106(c), 94 Stat. 401, provided that the bank-

ruptey court should immediately direct the Trustee

and the labor organizations to implement the arrange-

ment. Section 106(d), 94 Stat. 401, provided that orders

of the Commission or of the bankruptcy court under

Sections 106(b) and (c) could not be stayed and that

these orders could be reviewed only in the United States

Court of Appeals for the Seventh Circuit. The Seventh

Circuit was required to rule on any such appeal within

60 days, and its decision would not be subject to further

review. Section 106(e) (2), 94 Stat. 402, provided that

labor protection claims would be treated as administra-

tive expenses of the Rock Island estate.

Section 110 of the Rock Island Act, 94 Stat. 403,

required the Secretary of Transportation to guarantee

obligations of the Rock Island for the purpose of

providing employee protection under an agreement

entered into under Section 106. It further provided

that the guaranteed obligations would be treated as an

administrative expense of the Rock Island estate and

that the United States would incur no liability except

in connection with those obligations. The amount guar-

anteed by the Secretary, and the liability of the Rock

Island under a labor protection agreement, were each

limited to $75 million.

2. After the enactment of the Rock Island Act, the

Nationa! Mediation Board offered its assistance in nego-

tiating an employee protection agreement. The Rock

Island Trustee, however, declined to participate in nego-

tiations. See J.A. 147a-148a. On June 5, 1980, the

Trustee, the indenture trustees under the mortgages

of the Rock Island and representatives of certain

creditor interests filed a complaint in the bankruptcy

court seeking a judgment declaring the Rock Island

Act unconstitutional and enjoining its enforcement.

After a hearing on June 9, 1980, the district court

entered a preliminary injunction enjoining the Com-

mission, the Trustee, and the Secretary of Transporta-

tion from fulfilling their obligations under Sections 106

and 110 of the Rock Island Act (J.S. App. 18a-14a).

The district court explained its reasons for issuing the

injunction in an oral statement from the bench (J.S.

App. 15a-22a). Although the court suggested that the

statute might have other constitutional problems, it based

its ruling on the fact that the labor protection provisions

constituted an unconstitutional taking of the property

rights of the creditors, in violation of the Just Compen-

sation Clause of the Fifth Amendment (id. at 17a-19a) .*

2In addition to challenging the labor protection provisions, the

complaint also included challenges to a number of other provisions

of the Rock Island Act. The decisions below, however, con-

cern only the labor protection provisions of the Act. Until recently

the Trustee and other plaintiffs have not pursued any aspects of

the complaint other than the counts relating to labor protection.

On July 10, 1981, the plaintiffs filed an amended complaint, the

amended portions of which pertain to various Commission orders

under Section 122 of the Act, 94 Stat. 409, which empowers the

Commission to authorize other carriers to operate temporarily over

the tracks and facilities of the Rock Island. By order of July 13,

1981, the court permitted the amended complaint to be filed.

The court noted that the Seventh Circuit would shortly

be called upon to decide the constitutional question (id.

at 18a), but nonetheless concluded that if the Rock Is-

land Act were permitted to go forward, the creditors of

the estate would suffer irreparable harm (id. at 19a-

20a). The court explicitly rejected the Commission’s

contention that no injunction should be entered until the

Commission was given an opportunity to formulate a

specific labor protection plan, stating (id. at 18a-19a) :

The issues [sic] is not whether the I.C.C. can arrive

at a labor protection plan which the creditors and

the Trustee could live with, even if that plan were

to cost the Estate only $1 million. The issue is

whether ab initio, the concept of a compclled labor

protection plan, paid for out of the Estate, whatever

the plan, has any constitutional sanction. We don’t

have to wait for an LC.C. determination of the

details of the plan to determine that issue.

Accordingly, the court enjoined (i) the Trustee and rep-

resentatives of affected employees from entering into

negotiations respecting a labor protection agreement;

(ii) the Commission from considering the imposition of

any such agreement; and (iii) the Secretary of Trans-

portation from guaranteeing any loans or obligations of

the Rock Island under the Rock Island Act (J.S. App.

13a-14a).*

Because the district court had interrupted the proce-

dures established by the Act before a labor protection

plan could be devised, an expedited appeal to the Sev-

enth Circuit, as contemplated by Congress, could not be

taken. Therefore, RLEA, the United States, and the

*On June 20, 1980, the court denied a motion for reconsideration

filed by the Railway Labor Executives’ Association (“RLEA”),

the United States and the Commission, again explaining that the

labor protection provisions of the Rock Island Act constituted an

unconstitutional taking (J.S. App. 26a-27a).

*The judicial review provisions of Section 106(d) covered

appeals of orders entered under Sections 106(b) and (c), which did

not come into play until a labor protection plan was devised.

Commission filed notices of appeal to this Court pursu-

ant to 28 U.S.C. 1252. RLEA, supported by the United

States and the Commission, sought a stay of the prelimi-

nary injunction from Justice Stevens in order to allow

the procedures mandated by the Rock Island Act to go

forward pending a determination of its constitutionality.

On June 28, 1980, Justice Stevens denied the application

(J.S. App. 43a-47a; 448 U.S. 1301). Acknowledging

that “[nJecessarily, my views are tentative,” Justice

Stevens stated that the district court was “probably cor-

rect” in finding that the labor protection provisions of

the Rock Island Act would constitute a taking of the

estate’s property (J.S. App. 47a). Justice Stevens re-

jected the argument that the estate would suffer no ir-

reparable harm if labor protection payments were made

and the Rock Island Act were later determined to con-

stitute a taking, because he doubted that the creditors

would have a remedy against the government by a suit

in the Court of Claims under the Tucker Act, 28 U.S.C.

1491: “[Whhile the Solicitor General suggests that a

Tucker Act remedy may exist in the event of an uncon-

stitutional taking, * * * it is obvious that his suggestion

is equivocal” (J.S. App. 47a). The application for a stay

was then resubmitted to the full Court, which denied the

request on July 2, 1980, by a 5-3 vote. 448 U.S. 909.

Thereafter, RLEA docketed its appeal as No. 80-415.

3. In response to the district court’s injunction, Con-

gress passed Section 701 of the Staggers Rail Act of

1980, Pub. L. No. 96-448, 94 Stat. 1959, which

amended the Rock Island Act in a number of significant

respects. Section 701 re-enacted the provisions of Sec-

tion 106 requiring the Trustee to negotiate a labor pro-

tection agreement. However, the time for the parties

to negotiate the agreement was shortened from 10 to

five days, and the time for the Commission to impose a

5 The relevant provisions of the Rock Isiand Act, both before

and after amendment by the Staggers Rail Act, are set forth at

J.S. App. 35a-42a.

fair and equitable arrangement, in the absence of an

agreement, was shortened from 30 to 15 days.

The judicial review provisions of Section 106(d) were

also changed. The amended section no longer includes

the prohibition against staying orders of the Commis-

sion or the bankruptcy court issued under the Rock

Island Act or the bar to further review of the Seventh

Circuit’s decision. Moreover, the Staggers Rail Act added

a new Section 124 of the Rock Island Act (94 Stat.

1959). This section closed the jurisdictional loophole

that had prevented the district court’s decision from

being appealed expeditiously to the Seventh Circuit by

providing that “[nJotwithstanding any other provision

of law, any appeal from * * * any decision of the bank-

ruptcy court with respect to the constitutionality of any

provision of [the amended Rock Island] Act * * *” must

be taken to the Seventh Circuit, sitting en banc, and

must be decided within 60 days.

The Staggers Rail Act also added language clarifying

Congress’ intention that monies paid out by the estate

could be recovered from the United States in the event

that the employee protection provisions of the Rock

Island Act subsequently were held to be a taking. Section

110(e) of the Rock Island Act was amended to make

explicit that it was a limitation of the liability of the

United States only with respect to the employees of the

railroad, not to the estate. And Section 124(c) was

added to the Rock Island Act, providing:

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 (commonly referred to as

the Tucker Act).

4. On October 6, 1980, in light of the new statute,

RLEA and the United States, supported by the Commis-

sion, moved the district court to vacate its injunction of

June 9, 1980.° The movants argued that passage of the

Staggers Rail Act effectively mooted the June 9 in-

junction because the injunction applied to a statute no

longer in existence and had no application to the re-

enacted but nevertheless new and distinct obligations

concerning labor protection that the Staggers Rail Act

amendments imposed on the Commission and the other

parties. Moreover, the movants argued that the Staggers

Rail Act amendments eliminated the features of the

original Rock Island Act that the district court had con-

cluded would lead to irreparable injury unless enjoined

pending appeal—particularly by expressly providing that

a Tucker Act remedy is available if the labor protection

provisions are ultimately found to effect a taking of

property—and therefore that the procedures established

in the Rock Island Act, as amended by the Staggers Rail

Act, should be permitted to go forward.

On October 15, 1980, the district court denied the

motion to vacate and issued a new injunction preventing

the Commission, the Trustee and the Secretary of Trans-

portation from taking any action respecting the labor

protection provisions of the “Rock Island Act as amended

and re-enacted by the Staggers Rail Act” (J.S. App.

3a-6a). The Court held that the “Staggers Rail Act

does not cure the defects found in the Rock Island Act”

(id. at 5a) and that “[t]he Rock Island Act as amended

and re-enacted by the Staggers Rail Act effects an un-

constitutional taking of private property” (id. at 6a).

The Staggers Rail Act did not eliminate the likelihood

of irreparable injury to the estate, in the court’s view,

because (id. at 5a) :

The imposition of a $75,000,000 uncertainty on the

estate will totally halt the liquidation for the long

period consumed by the appellate process, with ir-

reparable injury to the already long-suffering cred-

6 Although the Staggers Rail Act did not become law until

October 14, 1980, the district court held a hearing on the motion

on October 7, 1980 (see J.S. App. 9a-lla), in the expectation that

the President would sign the bill.

itors. Further, the whole liquidation plan will be

distorted by the brooding omnipresence of a poten-

tial liability representing a significant percentage of

the total assets.

The court’s order did not discuss the effect of the ex-

press provision of a Tucker Act remedy on the irrepar-

able harm question. On October 16, 1980, the court sua

sponte entered an order (J.S. App. 7a) amending its

order of the previous day by changing the phrase “the

court orders the issuance of a preliminary injunction,”

which appears twice, to “the court orders the continuance

of the preliminary injunction.”

RLEA, the United States and the Interstate Commerce

Commission appealed the order granting the preliminary

injunction to the Seventh Circuit sitting en banc, pur-

suant to Section 124(a) of the amended Rock Island

Act (J.S. App. 41a-42a).’ Relying on the Staggers Rail

Act amendments, the court of appeals unanimously de-

nied a motion filed by the private appellees to dismiss

the appeal for lack of jurisdiction in light of the pend-

ing appeal to this Court in No. 80-415 (J.S. App. 2a).

On the merits, the court affirmed without opinion by

an equally divided vote (ibid.).* RLEA then took an

appeal to this Court, docketed as No. 80-1239.

On April 27, 1981, this Court noted probable juris-

diction in No, 80-1239 and consolidated it with No. 80-

415, while postponing consideration of the question of

jurisdiction in the latter appeal until the hearing on the

merits.°

7™While this appeal was pending in the Seventh Circuit, the

private appellees filed a petition for a writ of certiorari before

judgment. Gibbons v. Railway Labor Executives’ Ass'n, No. 80-704

(filed Oct. 30, 1980).

® Chief Judge Fairchild and Judges Sprecher and Cudahy voted

to reverse. Judges Swygert, Bauer and Wood voted to affirm.

Judges Cummings and Pell did not participate.

*In our response to the jurisdictional statement in No. 80-415,

the government urged that the June 9, 1980, injunction be vacated

as moot in light of the passage of the Staggers Rail Act and the

SUMMARY OF ARGUMENT

1, Although the district court titled its orders pre-

liminary injunctions, the question whether the Rock

Island Act effects a taking of property within the

meaning of the Just Compensation Clause is properly

before this Court. The injunctions below rested solely

on a question of law; no trial on the merits was neces-

sary to clarify the issues and none was contemplated.

The court explicitly made a final determination that the

labor protection provisions of the Rock Island Act are

unconstitutional (see J.S. App. 6a, 10a-lla, 17a, 29a).

Accordingly, its orders were effectively permanent in-

junctions and should be treated as such. Cf. Sampson

v. Murray, 415 U.S. 61, 85-87 (1974).

A decision by this Court that considered only the

issue whether the district court abused its discretion

in issuing the preliminary injunctions and then remanded

for a trial on the merits would not promote the efficient

administration of justice. On remand, the district court

would certainly enter a permanent injunction, beginning

the appellate process anew and causing further delay—

delay that would harm both the Rock Island employees

and the orderly liquidation of the estate. Moreover, a

remand would frustrate the express intent of both Con-

gress and the district court to facilitate a rapid appel-

late resolution of the constitutionality of the Act (see

J.S. App. 18a, 20a, 27a-28a). In these circumstances, it

is well established that this Court is free to decide the

underlying merits even if the case is technically at the

preliminary injunction stage. Youngstown Sheet & Tube

Co. v. Sawyer, 343 U.S. 579, 584-585 (1952).

subsequent judicial proceedings. In our view, any issues presented

in No. 80-415 that are not identical to issues presented in No.

80-1239 are moot. Accordingly, this brief will address only those

issues presented in No. 80-1239.

2. Although the Tucker Act would provide the private

appellees with an adequate remedy at law if the Rock

Island Act were held to constitute a taking, this Court

nevertheless should resolve the taking question in this

case. In contrast to those cases where the Court has

declined to decide the taking issue because it can be re-

solved in the Court of Claims, the taking issue here will

never be more ripe for review. It presents a purely legal

question that will not be illuminated by further develop-

ments, and it has been fully briefed by the parties.

Moreover, when a governmental regulation adjusting

the burdens of economic life between private parties is

held to be a taking, Congress should ordinarily be given

the opportunity, to the extent possible, to choose between

rescinding the regulation or paying just compensation.

See San Diego Gas & Electric Co. v. City of San Diego,

No. 79-678 (Mar. 24, 1981), slip op. 22-23 (Brennan,

J., dissenting). This consideration should be accorded

particular weight here in light of the legislative back-

ground. In order to facilitate immediate implementation

of the labor protection program, Congress clearly mani-

fested its willingness to assume responsibility for pay-

ments made pending judicial review if they were ulti-

mately held to be a taking. But Congress aiso provided

for expedited appellate review so that questions of the

constitutionality of the Act, specifically the taking ques-

tion, would be resolved as quickly as possible. See H.R.

Rep. No. 96-839, 96th Cong., 2d Sess. 22-23 (1980).

Under these special circumstances, it is appropriate for

the Court to decide the taking issue at this stage, thus

giving Congress the option to rescind the regulation if it

wishes to do so. See Regional Rail Reorganization Act

Cases, 419 U.S. 102, 149-150 n.36 (1974).

This Court has identified certain general principles

that serve as guidelines in considering whether a valid

exercise of the government’s regulatory power rises to

the level of a taking that requires just compensation. A

finding that a regulation constitutes a taking, which will

be made only in unusual circumstances, depends on “the

character of the governmental action” and “[t]he eco-

nomic impact of the regulation.” Penn Central Trans-

portation Co. v. New York City, 488 U.S. 104, 124

(1978).

The Rock Island Act is a valid exercise of the govern-

ment’s regulatory power. The labor protection provi-

sions were passed in response to specific congressional

findings that the provisions were necessary to preserve

uninterrupted rail service on the Rock Island lines and

to provide for an orderly transition of those lines. Sec-

tion 102, 94 Stat. 399 (to be codified at 45 U.S.C. 1001).

This Court has recognized that these are important pub-

lic interest concerns, which the government is entitled to

pursue by means of the imposition of labor protection.

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

The nature of the government action does not indicate

that the regulation should be held to be a taking. There

is no physical invasion by the government nor any direct

benefit to the government in its entreprenurial capacity.

Rather, the Act simply adjusts “the benefits and burdens

of economic life.” Penn Central Transportation Co. Vv.

New York City, supra, 438 U.S. at 124.

Nor does the economic impact of the regulation here

indicate a taking. A critical factor in this facet of the

taking inquiry is the extent to which the Rock Island

Act interferes with distinct investment-backed expecta-

tions. The labor protection provisions of the Act do not

interfere with any such expectations; they simply make

more certain and quantify an obligation that the in-

vestors in the Rock Island reasonably should have fore-

seen when they entered the railroad business.

It has long been established that a railroad may be

required to expend funds to further the public interest,

even if the expenditures are not in the railroad’s in-

dividual interest. A railroad may be required to operate

an unprofitable line or even operate its entire system at

a loss for a reasonable time while alternatives to abandon-

ment are sought. In this regard, the Commission has had

a longstanding policy of conditioning rail line abandon-

ments on the imposition of specific labor protection con-

ditions. This Court has upheld this policy against a

constitutional challenge as an exercise of the Commis-

sion’s responsibility to protect the public interest in an

adequate and efficient transportation system. JCC v.

Railway Labor Executives Ass’n, 315 U.S. 373 (1942);

United States v. Lowden, supra. And in 1976 and 1979

Congress enacted legislation adopting this administrative

policy.

In the exercise of its discretion, the Commission has

generally declined to attach labor protection conditions

to whole line abandonments, but this does not mean that

the private appellees had a reasonable investment-backed

expectation that no labor protection obligation would be

imposed on the abandonment of the Rock Island. First,

on occasion the Commission has imposed employee pro-

tection conditions in cases of complete abandonments.

Second, even prior to the passage of the Rock Island Act,

the plain language of the Milwaukee Railroad Restruc-

turing Act, 45 U.S.C. (Supp. III) 915(a), appeared to

require the imposition of labor protection here, although

the reorganization court ultimately read the statute as

leaving it discretion to decline to impose labor pro-

tection in whole line abandonments. Third, the Com-

mission’s prior policy with respect to small abandon-

ments gave no assurance that it would not exercise its

discretion to impose labor protection when a major car-

rier like the Rock Island was abandoning all its lines.

Finally, the private appellees obviously had no expecta-

tion that the Rock Island would need to be liquidated

when they invested in it; thus, even if they recently had

reason to hope that no labor protection would be imposed

in the event of a liquidation, they made no investments

in reliance on that hope.

The fact that the Rock Island has been declared un-

reorganizable does not convert its labor protection obliga-

tion into a taking. In the context of a railroad reorgan-

ization, the railroad’s labor protection obligation must

be balanced against the benefit of a partial abandonment

of losing lines. By the same token, the Rock Island Act

conferred certain benefits on the Rock Island, such as

facilitating its liquidation and limiting its possible labor

protection liability, that counterbalance to some extent

the burden the statute imposed. Even apart from these

benefits, however, the requirement that the estate pay a

pre-existing obligation does not constitute a taking merely

because the enterprise becomes insolvent.

Investors in the Rock Island have always been aware

of their potential obligation to make labor protection

payments in the event of an abandonment, if the public

interest so demands. The public interest considerations

that this Court has identified as justifying the imposi-

tion of labor protection—the need to compensate dis-

placed employees and to maintain uninterrupted service

over lines being purchased for continued rail use (see

United States v. Lowden, supra, 308 U.S. at 240)—are

equally present in connection with this liquidation as

with a reorganization. Moreover, a rule that allowed

labor protection for reorganizations, but not liquidations,

would discourage employees from remaining in employ-

ment with a railroad that might be subject to liquidation,

and it would tend to promote liquidations. Thus, condi-

tioning a rail line abandonment on the provision of labor

protection is no more a taking in connection with a liqui-

dation than with a reorganization. In both cases, the

obligation is assumed by investors when they enter the

railroad business.

ARGUMENT

THE LABOR PROTECTION PROVISIONS OF

THE ROCK ISLAND ACT DO NOT VIOLATE THE

JUST COMPENSATION CLAUSE OF THE FIFTH

AMENDMENT

A. The Question Whether The Rock Island Act

Effects A Taking Of Property Is Properly Before

This Court

1. Because the district court styled its orders in this

case as preliminary injunctions, there is a threshold

question whether the issue of the constitutionality of the

Rock Island Act is properly before this Court. As a

general rule, a reviewing court’s inquiry on appeal of a

preliminary injunction is limited to whether the district

court abused its discretion in issuing the injunction. See

University of Texas v. Camenisch, No. 80-317 (Apr. 29,

1981), slip op. 4; Brown v. Chote, 411 U.S. 452, 457

(1973). In the special circumstances of this case, how-

ever, it is appropriate for this Court to reach the merits

of the controversy and rule on the constitutionality of

the Rock Island Act.

Although the district court described its orders as pre-

liminary injunctions, it is clear that the orders are in

effect permanent injunctions, and they have been so

treated by tie parties to this litigation. “The purpose

of a preliminary injunction is merely to preserve the

relative positions of the parties until a trial on the mer-

its can be held.” University of Texas v. Camenisch,

supra, slip op. 4. See generally 7 Moore’s Federal Prac-

tice | 65.04[1], at 65-66 (2d ed. 1980). This was not the

purpose of the injunctions entered by the district court.

Because the issue in this case involved purely a question

of law, no trial on the merits was necessary to resolve

it and, accordingly, no steps have ever been taken to

hold a trial on the merits even though more than a year

has elapsed since the entry of the first injunction.’

Rather, the purpose of the injunctions entered below

was to preserve the relative positions of the parties pend-

ing a final, appellate resolution of the constitutionality

of the Act. Thus, the district court did make an inquiry

into the question of irreparable harm analogous to the

inquiry that is ordinarily undertaken in the preliminary

injunction context, but this inquiry was directed at the

irreparable harm that would be suffered pending appeal.

On this point, the court concluded that a failure to en-

1©To the extent that there was any uncertainty when the first

injunction was issued whether a trial on the merits would be

held, it was clear when the district court entered its second in-

junction on October 15, 1980, that no further proceedings in the

district court with respect to the labor protection provisions of the

complaint were contemplated.

join the operation of the Act would “halt the liquidation

for the long period consumed by the appellate process,

with irreparable injury to the already long-suffering

creditors” (J.S. App. 5a; see also id. at 19a, 27a)."

Indeed, the district court explicitly recognized “the abso-

lute necessity in the present posture of this case for an

appellate determination” of the constitutionality of the

Act (id. at 28a), and it intended its order to facilitate

that determination (see id. at 18a, 20a, 27a-28a).

Accordingly, the district court made a final determi-

nation that the labor protection provisions of the Rock

Island Act were unconstitutional (see, e.g., J.S. App. 6a,

10a-lla, 17a, 29a) and, indeed, it found that the spe-

cifics of the labor protection plan to be imposed by the

Commission could not alter this conclusion (id. at 18a-

19a). Moreover, the private appellees have always

treated the district court’s orders as decisions on the

merits and have sought in this Court affirmance of those

orders on the “basic issue * * * whether the labor pro-

tection scheme imposed by the Rock Island Act and re-

enacted by the Staggers Act is constitutional” (80-1239

Motion to Consolidate and Affirm 2; see also id. at 7, 11,

16). Thus, we submit that the orders that are the sub-

ject of these appeals should be treated as permanent

injunctions, notwithstanding that the district court styled

them as preliminary injunctions. Cf. Sampson v. Mur-

ray, 415 U.S. 61, 85-88 (1974).

Even assuming that the district court’s orders are

treated as preliminary injunctions, it is appropriate for

the Court to reach the merits here. To remand this case

for consideration of the question of a permanent injunc-

11An inquiry into irreparable harm pending appeal, while

technically not relevant to the question of issuing an injunction,

was relevant to the question whether the injunction should be

stayed pending appeal, which was also before the district court.

The court denied appellant’s request for such a stay (J.S. App.

21a), as did this Court twice. No. 80-1239, Feb. 23, 1981; 448 U.S.

909 (1980).

tion would serve no purpose other than further to post-

pone the conclusion of litigation that has already long

delayed a program that Congress sought to implement

expeditiously. The district court has already made clear

its view that the Rock Island Act is unconstitutional, and

there can be no doubt that it would enter a permanent

injunction against its enforcement, which would begin

the appellate process anew. In these circumstances, it

would frustrate the interest of efficient judicial adminis-

tration, as well as the express intent of the district court,

for the Court to decline to reach the merits. Cf. City of

Newport v., Fact Concerts, Inc., No. 80-396 (June 26,

1981), slip op. 8.

It is well established that a reviewing court may reach

the merits of a legal question when the district court’s

view of the law is the basis for a preliminary injunction.

See, e.g., Delaware & Hudson Ry. v. United Transporta-

tion Union, 450 F.2d 603, 619-620 (D.C. Cir.), cert. de-

nied, 403 U.S. 911 (1971); Ring v. Spina, 148 F.2d 647,

650 (2d Cir. 1945) ; see generally C. Wright & A. Miller,

Federal Practice and Procedure § 2962, at 636-637

(1973). And this Court in the past has found it appro-

priate to reach the merits, even of a constitutional ques-

tion, despite the fact that the district court decided the

question at the preliminary injunction stage. Youngstown

Sheet & Tube Co. v. Sawyer, 348 U.S. 579, 584-585

(1952) ; see also McLucas v. DeChamplain, 421 U.S. 21

(1975).

2. As appellant contends (J.S. 29), the Rock Island

Act is constitutional even if it does effect a taking be-

cause the Tucker Act, 28 U.S.C. 1491, provides an ade-

quate remedy at law. See, ¢.g., Hodel v. Virginia Surface

Mining & Reclamation Ass’n, No. 79-1538 (June 15,

1981), slip op. 31 n.40. Accordingly, the district court

erred in enjoining the Act as unconstitutional. It does

not follow, however, that this Court should decline to

decide whether the Rock Island Act effects a taking on

the ground that that question can be adjudicated later in

the Court of Claims.

In some cases, this Court has declinéd to decide a

taking issue because of the existence of a remedy in the

Court of Claims. Those cases, however, involved prob-

lems concerning the ripeness of the taking claim that are

absent here. In Dames & Moore v. Regan, No. 80-2078

(July 2, 1981), slip op. 30, all parties agreed that the

question whether the suspension of claims constituted a

taking was not ripe for review. In Duke Power Co. Vv.

Carolina Environmental Study Group, Inc., 438 U.S. 59,

94 n.389 (1978), there was substantial doubt whether the

circumstances alleged to constitute a taking would ever

occur. In Hurley v. Kincaid, 285 U.S. 95, 103-104

(1932), the Court noted that construction had not yet

begun of the project that allegedly would result in a

taking by flooding of the plaintiff’s land. In the Regional

Rail Reorganization Act Cases, 419 U.S. 102 (1974), the

Court distinguished among the Fifth Amendment issues

raised, ruling on the question whether stock could con-

stitute just compensation (419 U.S. at 149-150 & n.36),

but declining to reach the valuation questions because

they depended on various contingencies and a more devel-

oped record (419 U.S. at 145-147). In all these cases,

either it was uncertain whether the conduct alleged to be

a taking would ever occur or the taking inquiry would

have been aided by further developments, and the Court

therefore had reasons not present here to postpone the

taking inquiry. Cf. Hodel v. Virginia Surface Mining &

Reclamation Ass’n, supra, slip op. 26-31.

This case stands in sharp contrast to the above line

of cases. The taking issue presented here is purely a

legal one—whether the imposition of any labor protec-

tion obligation on the Rock Island is a taking—and will

not benefit from any further factual development. It has

been fully briefed in the court of appeals and in this

Court. A ruling by this Court that there is no taking

would be dispositive of this appeal and would avoid fu-

ture litigation. Thus, despite the existence of an ade-

quate remedy at law, it is appropriate for the Court to

address the taking issue here as it has done in prior

cases. See Dames & Moore v. Regan, supra, slip op. 15-

16 n.6; Andrus v. Allard, 444 U.S. 51, 64-68 (1979).

Moreover, the particular circumstances of this case

strongly suggest that the Court should address the taking

question. When a governmental regulation adjusting the

burdens and benefits of economic life between private

parties is held to be a taking, the government ordinarily

should be given an opportunity to make a choice whether

to rescind the regulation or pay just compensation. See

San Diego Gas & Electric Co. v. City of San Diego, No.

79-678 (Mar. 24, 1981), slip op. 22-23 (Brennan, J.,

dissenting). The legislative background of this case indi-

cates that this consideration should be given particular

weight here. Congress recognized the possibility that the

Rock Island Act would be challenged as an “unconstitu-

tional taking,” although it stated that it considered the

challenge insubstantial. See H.R. Rep. No. 96-839, 96th

Cong., 2d Sess. 22-23 (1980). Accordingly, it provided in

Section 106(d) of the Rock Island Act for expedited ap-

pellate resolution of the taking question by requiring re-

view of the Commission’s labor protection plan by the

Seventh Circuit within 60 days. Ibid. After enforcement

of the Rock Island Act was enjoined and a stay pending

appeal denied, Congress amended the statute for the spe-

cific purpose of alleviating “Justice Stevens[’] expressed

concern about the availability of [a Tucker Act] remedy

where [sic] the injunction to be lifted and were the Act

subsequently to be held unconstitutional.” H.R. Conf. Rep.

No. 96-1430, 96th Cong., 2d Sess. 137 (1980). Congress

made explicit its retention of the Tucker Act remedy so

that “the benefits and allowances will immediately be-

come available to the qualifying Rock Island employees.”

Id. at 138. In so doing, Congress clearly assumed respon-

sibility to make the appellees whole for interim losses

sustained if the Act were later held to be a taking after

the injunction was lifted. But Congress also preserved

the expedited review procedures of Section 106(d) and

added a new Section 124 to ensure that the Seventh Cir-

cuit would rule on the constitutionality of the labor pro-

tection plan within 60 days.

Thus, although Congress exposed the United States to

an undetermined potential liability for an interim taking,

it also established special procedures that might enable

it to limit the government’s liability by rescinding the

Act if the Act were found to effect a taking. In these

unusual circumstances, it is clearly appropriate for this

Court to decide the taking question and thereby afford

Congress the opportunity to rescind the statute, if it

chooses to do so. See Regional Rail Reorganization Act

Cases, supra, 419 U.S. at 149-150 n.36,

B. General Principles Under The “Takings” Clause

This Court has repeatedly recognized the impossibility

of establishing a broad rule for determining whether a

taking has occurred in a particular case; “|t]here is no

abstract or fixed point at which judicial intervention

under the Takings Clause becomes appropriate.” Andrus

v. Allard, 444 U.S. 51, 65 (1979). There are, however,

some general principles that serve as a guide in making

case-by-case determinations. The typical taking, of

course, occurs when a government entity formally con-

demns a landowner’s property and obtains the fee simple

pursuant to its power of eminent domain. See, e.y.,

Berman v. Parker, 348 U.S. 26 (1954). But in certain

limited circumstances, a valid exercise of the govern-

ment’s regulatory power may rise to the level of a tak-

ing of private property for which just compensation is

required under the Fifth Amendment. In determining

whether such government actions constitute takings, this

Cvurt has identified two general factors of particular

significance: “the character of the governmental action”

and “[t]he economic impact of the regulation.” Penn

Central Transportation Co. v. New York City, 488 U.S.

104, 124 (1978).

The first factor, the character of the government ac-

tion, is assessed by looking at the nature of the inter-

ference with the property allegedly taken. Where an

interference “can be characterized as a physical invasion

by government” (see United States v, Causby, 328 U.S.

256 (1946)) or as an acquisition of assets by the gov-

ernment acting in its entreprenurial capacity (see Arms-

trong Vv. United States, 364 U.S. 40, 49-50 (1960)), it is

more vulnerable to constitutional attack. Penn Central

Transportation Co. v. New York City, supra, 488 U.S.

at 124, 128, 135. On the other hand, a taking ordinarily

should not be found where the obligation “arises from

some public program adjusting the benefits and burdens

of economic life to promote the common good.” /d,

at 124. Cf. Usery v. Turner Elkhorn Mining Co., 428

U.S. 1, 15 (1976). This is because government regula-

tion, by definition, involves the adjustment of rights for

the public good, which necessarily results in some diminu-

tion in values incident to property. Government could

not function if it were required to compensate property

owners for each such regulatory burden; it would then

be required to regulate by purchase. See Andrus Vv.

Allard, swpra, 444 U.S. at 65; Pennsylvania Coal Co. v.

Mahon, 260 U.S. 398, 418 (1922).

The second factor, the economic impact of the restric-

tion on the property, necessarily requires consideration

of the bundle of rights and expectations that is property.

“At least where an owner possesses a full ‘bundle’ of

property rights, the destruction of one ‘strand’ of the

bundle is not a taking.” Andrus v. Allard, supra, 444

U.S. at 65-66; Penn Central Transportation Co. v. New

York City, supra, 488 U.S. at 130-131, 135-188. Thus,

it is well established that even a substantial diminution

in value or deprivation of the most beneficial use of

property does not effect a taking. Jd. at 131; see, e.g.,

Hadacheck v. Los Angeles, 289 U.S. 394, 408 (1915).

And perhaps the most critical factor in assessing the

economic impact of a regulation is the degree to which

it interferes with distinct investment-backed expectations.

Penn Central Transportation Co. v. New York City,

supra, 488 U.S. at 124. See also PruneYard Shopping

Center v. Robins, 447 U.S. 74, 88 (1980); Kaiser Aetna

v. United States, 444 U.S. 164, 175 (1979).

These criteria cannot establish a “set formula” for

adjudicating challenges under the Takings Clause; rather,

they provide guidelines for identifying those unusual

cases where “justice and fairness” require the govern-

ment to pay compensation for private economic injuries

suffered as a result of regulation in the public interest.

Penn Central Tran-vortation Co. v. New York City,

supra, 488 U.S. at 124. Ultimately, the resolution of

each case requires an individual “weighing of private

and public interests” (Agins v. City of Tiburon, 447

U.S. 255, 261 (1980)) to determine whether “the public

at large, rather than a single owner, must bear the

burden of an exercise of [government] power in the

public interest” (id. at 260)—a determination that calls

“as much for the exercise of judgment as for the ap-

plication of logic.” Andrus v. Allard, supra, 444 U.S. at

65.

C. The Labor Protection Provisions Of The Rock

Island Act Do Not Effect A Taking

1. The Labor Protection Provisions are a Legiti-

mate Exercise of Congress’ Regulatory Power

that Promotes the Public Interest in Continued

Rail Service

There can be little doubt that enactment of the labor

protection provisions of the Rock Island Act is a legiti-

mate exercise of congressional power. The collapse of the

Rock Island created a serious crisis in rail service in

the Midwest, and Congress enacted the Rock Island Act

to deal with the resulting problems. In particular, Con-

gress declared that legislation to establish and provide

funding for a labor protection plan was “essential to

provide for an orderly transition” of the Rock Island.

H.R. Conf. Rep. No. 96-1041, 96th Cong., 2d Sess. 26

(1980). Congress concluded that, without such a plan,

service over the Rock Island lines would be disrupted,

which would have serious adverse affects on the economy

of the Midwest and on the ongoing efforts to sell the

lines."* Efforts to avoid the detrimental impact of these

consequences on interstate commerce unquestionably are

within Congress’ power under the Commerce Clause.

Moreover, this Court has noted that communities be-

come dependent on railroad service to the extent that it

becomes “an integral part of the communal life.” The

Minnesota Rate Cases, 230 U.S. 352, 452 (1913). The

existence of railroad service attracts people and invest-

ment to a community on the expectation that it will

continue. Clearly, Congress has broad authority to

protect this public interest by taking steps to pre-

serve uninterrupted rail service. See In re Valuation

Proceedings Under §§ 303(c) & 306 of the Regional Rail

Reorganization Act, 439 F. Supp. 1851, 1871 (Spec. Ct.

1977).

Thus, the labor protection provisions of the Rock Island

are a proper exercise of Congress’ legislative power to

12 Section 102 of the Rock Island Act, 94 Stat. 399 (to be codi-

fied at 45 U.S.C. 1001), provides in full:

Congress hereby finds that—

(1) uninterrupted continuation of services over Rock Island

lines is dependent on adequate employee protection provisions

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

obtaining funds to meet the necessary costs of such employee

protection that are assumed by the Rock Island Railroad;

(3) a cessation of necessary 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 [sic] would result

in harm to the shipping public and could imperil continuation

of vital commuter service.

protect interstate commerce and the public welfare (see,

e.g., Dayton-Goose Creek Ry. v. United States, 263 US.

456, 478-479 (1924)), and the only question here is

whether the impact of the regulation is such that the

Constitution requires the government to pay compensa-

tion. See generally United States v. Lowden, 308 US.

225 (1939).

2. The Character and Economic Impact of the

Government Action Here Does Not Indicate

a Taking Because it Does Not Interfere with

Any Reasonable Investment-Backed Expecta-

tions

Those aspects of a particular government regulation

that have often been cited as indicative of a taking are

absent here. This Court has stated that a taking is more

likely to be found when a regulation directly benefits

the government in its entreprenurial capacity. See

Webb’s Fabulous Pharmacies, Inc. v. Beckwith, No. 79-

1033 (Dec. 9, 1980), slip op. 9; Armstrong v. United

States, supra, 364 U.S. at 48-49; United States v. Causby,

supra, 328 U.S. at 262-263 n.7. See also Sax, Takings

and the Police Power, 74 Yale L. J. 36, 62-63 (1964).

Here, the United States itself derives no direct benefit

from the regulation; the payments provided for in the

statute are to be made to railroad employees displaced

by the collapse of the Rock Island, in order to ensure

continued rail service.

A taking is also indicated when there is an actual

physical invasion of property by the government. Com-

pare Griggs v. Allegheny County, 369 U.S. 84 (1962),

and United States v. Causby, supra, with Batten v.

United States, 306 F.2d 580 (10th Cir. 1962), cert.

denied, 371 U.S. 955 (1963) (compensability of diminu-

tion in property value depends on whether aircraft caus-

ing harm fly over or only alongside affected property).

Clearly, there has been no such physical invasion here

since this is not a case that involves real property.

Rather, the government action simply requires the pay-

ment by the estate of certain employee benefits. Of

course, as the private appellees have argued, payment

of these benefits diminishes the value of the estate and

hence may reduce the sums eventually recovered by the

creditors. But such a diminution in value characterizes

almost every regulation; it is no indication that the

regulation should be characterized as a taking. See

Pennsylvania Coal Co. v. Mahon, supra, 260 U.S. at

413. Thus, in Dayton-Goose Creek Ry. v. United States,

supra, 263 U.S. at 484, this Court rejected the claim

that the requirement that certain profitable railroads

transfer a portion of their profits to the Commission and

to less profitable railroads constituted a taking. And in

Usery v. Turner Elkhorn Mining Co., supra, where the

Court upheld the constitutionality of the Black Lung

Benefits Act of 1972, 30 U.S.C. 901 et seg., which di-

rected coal mine operators to make payments to former

employees who suffer from black lung disease, it was

not even contended that the employee payments con-

stituted a taking.

In assessing the economic impact of a regulation for

the purpose of determining whether it constitutes a

taking, the extent to which it interferes with investment-

backed expectations is of particular significance. Penn

Central Transportation Co. v. New York City, supra,

438 U.S. at 124. Examination of this factor here com-

pels the conclusion that the Rock Island Act does not

effect a taking. The employee protection payments re-

quired by the Act do not violate any distinct expectation

of investors; on the contrary, the Act simply makes more

certain and establishes a limitation on, and a procedure

for satisfying, a recognized obligation of railroads—

employee protection. This is the sort of obligation that

investors in the Rock Island should reasonably have

anticipated when they invested in the railroad.

The railroad industry is a classic example of a heavily

regulated business in which investors accept as a condi-

tion of their participation the fact that their private

profit-making interests may sometimes be subordinated

to the public interest. See, e.g., Munn Vv. Illinois, 94 US.

118, 180 (1876) ; Chicago, Burlington & Quincy R.R. v.

Iowa, 94 U.S. 155, 161 (1876). Specifically, it has long

been recognized that a railroad may be required to make

various expenditures of funds in the public interest, even

if they clearly are not in the railroad’s individual inter-

est. In Atlantic Coast Line R.R. v. North Carolina Cor-

poration Commission, 206 U.S. 1 (1907), for example,

this Court ruled that a railroad could be required to run

an additional train at a loss in order to aid the public

in making connections with another carrier. See also

Atchison, Topeka & Santa Fe Ry. v. Public Utilities

Commission, 346 U.S. 346 (1953) (railroad may be

forced to pay for improvements from which it derives

little or no benefit) ; Baltimore & Ohio R.R. v. United

States, 345 U.S. 146 (1953) (ICC may impose rates that

do not cover expenses on certain items). And in Dayton-

Goose Creek Ry. v. United States, supra, this Court held

that a railroad may be required to remit to the Commis-

sion profits that the Commission deems to be in excess

of a reasonable rate of return—even if the profits derive

from fair and equitable rates."

When a railroad enters reorganization proceedings be-

cause its operation as a whole has become unprofitable,

its obligation to the public does not end. As the private

appellees have acknowledged (see 80-415 Motion to Af-

firm 11), “[rJailroads may be required to continue

operations at a loss for a reasonable period and to suffer

diminution in their property values to serve legitimate

governmental interests in maintaining the national trans-

portation system.” See Continental Illinois National Bank

& Trust Co. v. Chicago, Rock Island & Pacific Ry., 294

U.S. 648, 671 (1935). The Fifth Amendment, of course,

13 See also ICC v. United States ex rel. Los Angeles, 280 U.S.

52, 64-65 (1929); Colorado v. United States, 271 U.S. 153, 161-162

(1926); Erie R.R. v. Board of Public Utility Commissioners, 254

U.S. 394, 409 (1921).

does not permit a railroad to be forced to continue oper-

ations at a loss indefinitely when there is no hope of a

restoration of the railroad as a profit-making concern.

Brooks-Scanlon Co. v. Railroad Commission, 251 U.S.

396 (1920). But consistent with the Fifth Amendment,

a railroad may be ordered to continue operations at a

loss while the Commission considers alternatives in the

public interest to abandonment, even though this con-

tinued operation will erode the creditors’ security. Re-

gional Rail Reorganization Act Cases, supra, 419 U.S.

at 122-123; New Haven Inclusion Cases, 399 U.S. 392,

490-492 (1970); In re Chicago, Milwaukee, St. Paul &

Pacific R.R., 611 F.2d 662, 667 (7th Cir. 1979); In re

Valuation Proceedings Under §§ 303(c) & 306 of the

Regional Rail Reorganization Act, supra, 439 F. Supp.

at 1371.

Providing certain protections to employees displaced

by a railroad’s abandonment of service is another exam-

ple of an expenditure railroads are required to make

even though it does not redound to their private benefit.

The Commission has had a longstanding policy of im-

posing labor protection as a condition of its approval of

abandonment applications."* And Congress itself in 1976

and 1979 enacted legislation requiring the imposition of

specific labor protection conditions in rail line abandon-

ments. Railroad Revitalization and Regulatory Reform

Act of 1976 (“4R Act”), 49 U.S.C. (Supp. III) 10903

(b) (2) and 11847; Milwaukee Railroad Restructuring

Act, 45 U.S.C. (Supp. III) 904(a) and 915(c).

In United States v. Lowden, supra, this Court rejected

a challenge to the Commission’s policy of imposing labor

protection conditions. In the context of a railroad con-

solidation and lease, the Court held that mitigation of

harm to displaced employees is in the public interest

14 Congress originally granted the Commission the authority to

impose conditions on abandonments in the Transportation Act

of 1920, ch. 91, 41 Stat. 477-478. See 49 U.S.C. (1970 ed.) 1(18),

1(20).

because it protects the orderly and efficient operation of

the national railroad system by maintaining good labor

relations and employee morale.’ Rejecting the contention

that the imposition of labor protection violated the Fifth

Amendment, the Court concluded (308 U.S. at 240):

Nor do we perceive any basis for saying that there

is a denial of due process by a regulation otherwise

permissible, which extends to the carrier a privilege

relieving it of the costs of performance of its car-

rier duties, on condition that the savings be applied

in part to compensate the loss to employees occa-

sioned by the exercise of the privilege. * * * More-

over we cannot say that this limited and special

application of the principle, fully recognized in our

cases sustaining workmen’s compensation acts, that

15 The Court explained (308 U.S. at 233-236; footnote omitted) :

It is thus apparent that the steps involved in carrying out the

Congressional policy of railroad consolidation in such manner

as to secure the desired economy and efficiency will unavoid-

ably subject railroad labor relations to serious stress and its

harsh consequences may so seriously affect employee morale as

to require their mitigation both in the interest of the success-

ful prosecution of the Congressional policy of consolidation and

of the efficient operation of the industry itself, both of which

are of public concern within the meaning of the statute.

One must disregard the entire history of railroad labor

relations in the United States to be able to say that the just

and reasonable treatment of railroad employees in mitigation

of the hardship imposed on them in carrying out the national

policy of railway consolidation, has no bearing on the success-

ful prosecution of that policy and no relationship to the

maintenance of an adequate and efficient transportation

system.

* * * _ *

The now extensive history of legislation regulating the

relations of railroad employees and employers plainly evidences

the awareness of Congress that just and reasonable treatment

of railroad employees is not only an essential] aid to the main-

tenance of a service uninterrupted by labor disputes, but that

it promotes efficiency, which suffers through loss of employee

morale when the demands of justice are ignored.

a business may be required to carry the burden of

employee wastage incident to its operation infringes

due process.

Subsequently, this Court confirmed that “[e]xactly the

same considerations of national importance are appli-

cable” in connection with a railroad abandonment as

with a consolidation and that the Commission is also

authorized to impose labor protection conditions in aban-

donments. JCC v. Railway Labor Executives Ass’n, 315

U.S. 378, 378 (1942).

Despite this recognition by all three branches of gov-

ernment that labor protection conditions will ordinarily

be imposed on rail line abandonments, the private ap-

pellees protest (80-415 Motion to Affirm 16) that the

Rock Island Act imposes a “wholly new” and unexpected

labor protection obligation on the Rock Island. The basis

for this contention is the fact that the Commission has

traditionally treated partial and whole line abandonments

differently with respect to labor protection. But, to the

extent the Commission has drawn such a distinction, it

has been solely as an exercise of its administrative dis-

cretion. In ICC v. Railway Labor Executives Ass’n,

supra, this Court held that the Commission has broad

discretion to attach labor protection conditions to aban-

donments, and it did not imply any restriction on the

Commission’s power with respect to whole line abandon-

ments. In exercising this mandate, the Commission ordi-

narily has imposed specific labor protection conditions on

partial abandonments; '* with respect to whole line aban-

donments, the Commission has determined that the ques-

tion whether employee protective conditions are war-

ranted depends on the facts of each case. See, ¢.9.,

Tennessee Central Ry. Abandonment, 333 I.C.C. 448, 454

6 For many years, the Commission customarily imposed the

“Burlington conditions,” which required that employees be pro-

tected from the adverse effects of the abandonment for the lesser

of four years or the duration of their employment. See Chicago,

Burlington & Quincy R.R. Abandonment, 257 1.C.C. 700 (1944).

(1968) ; East Carolina Ry. Abandonment, 324 I.C.C. 506,

521 (1964). Although, as a general rule, the Commis-

sion has declined to attach labor protection conditions to

whole line abandonments (see, ¢.g., Wellsville, Addison

& Galeton R.R. Abandonment, 354 I.C.C. 744 (1978)),

it has ruled in some cases that such conditions should be

imposed."*

The existence of this general Commission practice is

hardly a basis for asserting that Congress’ decision to

impose labor protection conditions on the abandonment

of the Rock Island interfered with the distinct expecta-

tions of the Rock Island investors to the degree that it

should be held to be a taking. First, as noted above, on

occasion the Commission has included the imposition of

labor protection conditions even in cases of complete

abandonments. The Commission’s prior policy thus gave

no assurance that it would not consider labor protection

necessary in the special circumstances of the Rock Island

abandonment. Those cases in which the Commission has

permitted whole line abandonments without labor pro-

tection involved smaller carriers and significantly fewer

employees than the Rock Island.'* Thus, the effect of

such abandonments on the national transportation policy

was comparatively minor; a small number of displaced

employees could be expected to be reabsorbed into the

17 See Washington & Old Dominion R.R. Abandonment of Entire

Line in Virginia, 331 I.C.C. 587, 601-603 (1968); East Carolina

Ry. Abandonment, supra, 324 I.C.C. at 520-521; Seaboard Air Line

R.R. Trackage Rights, Atlantic Coast R.R., 312 1.C.C. 797, 799-

801 (1962).

18 For example, in Okmulgee Northern Ry. Abandonment, 320

1.C.C. 637 (1964), on which the private appellees rely (80-415

Motion to Affirm 15), only five employees were subject to loss of

employment. 320 I.C.C. at 645. The Commission qualified its order

by stating that the imposition of labor protection provisions in

total line abandonments “would not serve, in most instances, to

strengthen the transportation system * * *” (ibid.; emphasis

added).

work force and the abandonment of a small carrier

would*not cause repercussions throughout the industry.

Here, by contrast, the failure to provide labor protection

in connection with the Rock Island could be expected to

have a serious effect on the morale of other employees in

the industry who would fear for their own financial se-

curity. See United States v. Lowden, supra, 308 U.S. at

236.'*

Moreover, it cannot be maintained that the passage of

the Rock Island Act was a sudden and unexpected impo-

sition of labor protection on a whole line abandonment.

On the contrary, it is arguable that the Rock Island was

subject to a labor obligation on the abandonment of its

lines well before the Rock Island Act was passed. Since

1976, the 4R Act, 49 U.S.C. (Supp. ITI) 10903(b) (2)

and 11347, and later the Milwaukee Railroad Restructur-

ing Act, 45 U.S.C. (Supp. III) 904(a) and 915(a), ap-

peared on their face to make mandatory the imposition

of labor protection conditions on whole line abandon-

ments. The Commission itself has noted that “the precise

language of Section 1a(4) of the [Interstate Commerce]

Act would appear to require imposition of employee pro-

tection conditions in all permitted abandonments.” Wells-

ville, Addison & Galeton R.R. Abandonment, supra, 354

I.C.C. at 745. Based on the legislative history (see S.

1® Contrary to appellees’ suggestion (80-415 Motion to Affirm

15-16), the Commission did not recommend in its May 23, 1989,

report to the reorganization court that its precedents declining

to impose labor protection in whole line abandonments should be

applied here. Rather, the Commission pointedly refused to make

any recommendation and specifically noted that “the entire issue

of imposing labor protective conditions may be rendered moot

shortly by Congressional action” (80-415 Motion to Affirm App.

I-17), which in fact it was by the enactment of the Rock Island

Act six days later.

Section la(4) of the Interstate Commerce Act, 49 U.S.C.

(Supp. III) 10903(b) (2), provides in pertinent part:

Each certificate [of abandonment) shall also contain provisions

to protect the interests of employees. The provisions shall be

Conf. Rep. No. 94-595, 94th Cong., 2d Sess. 218 (1976) ),

the Commission has taken the position that the 4R Act

legislation did not remove its discretion to decline to order

labor protection payments, and the reorganization court

ultimately adopted an analogous interpretation in this

case with respect to the Milwaukee Act (J.A. 270a-271a),

but the private appellees had no assurance that the stat-

ute would be interpreted in this fashion and there is

certainly some question whether the reorganization

court’s interpretation is correct. See H.R. Rep. No. 96-

839, 96th Cong., 2d Sess. 21-23 (1980) .**

Thus, the “expectation” of the private appellees that

allegedly has been frustrated by the Rock Island Act is

nothing more than the hope that labor protection condi-

tions would not be imposed upon the abandonment of its

lines. Although this hope was perhaps a plausible one,

appellees had no reasonable certainty that it would come

to fruition and no basis for taking any actions in reli-

ance on it such that Congress’ contrary decision that the

public interest does require labor protection in the cir-

cumstances of this case should be considered a taking.

Cf. Board of Regents v. Roth, 408 U.S. 564, 577 (1972);

at least as beneficial to those interests as the provisions estab-

lished under section 11347 of this title and section 565(b) of

title 45.

Section 17(a) of the Milwaukee Act, 45 U.S.C. (Supp. III)

915(a), provides in pertinent part:

In authorizing any abandonment pursuant to this section,

the court shall require the carrier to provide a fair arrange-

ment at least as protective of the interests of employees as

that required under section 11347 of title 49.

21 Section 17(a) of the Milwaukee Act transfers from the Com-

mission to the reorganization court the power to authorize aban-

donments, with its attendant requirement that labor protection

be imposed, in cases pending under Section 77 of the old Bank-

ruptey Act, such as the Rock Island reorganization. See 45 U.S.C.

(Supp. III) 915(a). In these cases, the Commission acts in an

advisory capacity. See 11 U.S.C. (Supp. III) 1170.

Dames & Moore v. Regan, supra, slip op. 15-16 n.6.

Moreover, whatever the reasonableness of the appellees’

hope that they would be relieved of any employee protec-

tion obligation, that hope is not the type of investment-

backed expectation to which this Court has referred.

When the appellees invested in the Rock Island, they cer-

tainly had no expectation that it would be forced to

abandon all of its rail operations. Rather, they would

have considered much more likely the possibility that at

some point in the future some rail lines might have to be

abandoned, which necessarily would entail the payment

of employee protection expenses. Thus, it cannot be said

that the appellees invested in the Rock Island on the

assumption that they would not be required to make labor

protection payments.

The private appeilees’ taking claim contrasts sharply

with those cases where this Court has found an inter-

ference with investment-backed expectations that rises to

constitutional dimensions. In Kaiser Aetna v. United

States, supra, for example, a private company “invested

substantial amounts of money in making improvements”

to convert a shallow lagoon into a marina. 444 U.S. at

176. The purpose of these improvements, including es-

tablishing access from the marina to the ocean, was to

enable the company to provide a service for which it

would charge a fee. Under these circumstances, this

Court held that it would be a taking for the government

to require free public access to the marina once it was

connected to the ocean; the government’s unconditional

consent to the dredging of a channel to the ocean created

an “expectancy” that the dredging would not cause the

marina to lose its character as private property, on which

the company relied in making its substantial investment.

444 U.S. at 179. And in Allied Structural Steel Co. v.

Spannaus, 438 U.S. 234 (1978), relied on by appellees

(80-415 Motion to Affirm 19) although it is not a taking

case, the Court struck down as violative of the Contract

Clause a Minnesota law that altered established vesting

schedules in a pension plan. The Court found that the

statute imposed a “completely unexpected liability” on a

company that had “relied heavily, and reasonably, on [a]

legitimate contractual expectation” that its employees’

pension rights would vest in accordance with the terms

of the pension plan, 438 U.S. at 246-247,

Here, by contrast, appellees do not allege that they

made any investment in reliance on an expectation that

has been defeated by the Rock Island Act. They are

seeking to avoid an obligation that they always knew

might be imposed upon them, simply on the basis that

they had reasonably hoped that the obligation would be

avoided. This Court has consistently rejected this type

of contention: “‘[{T] hey invested their capital in a public

utility that does owe an obligation to the public... .

[Bly their entry into a railroad enterprise, [they] as-

sumed the risk that in any depression or any reorganiza-

tion the interests of the public would be considered as

well as theirs.’” New Haven Inclusion Cases, supra, 399

U.S. at 491-492, quoting Reconstruction Finance Corp.

v. Denver & Rio Grande Western R.R., 3828 U.S. 495,

535-536 (1946).

3. The Determination that The Rock Island is

Unreorganizable Does Not Convert Its Labor

Protection Obligation Into a Taking

ICC v. Railway Labor Executives Ass’n, supra, and

United States v. Lowden, supra, establish beyond dispute

that labor protection conditions attached to a rail line

abandonment do not effect a taking. The district court’s

contrary conclusion rests solely on the proposition that

the principles underlying those cases are inapplicable

once a railroad has been declared to be unreorganizable.

In response to this contention, it should be noted at

the outset that the fact that the Rock Island will not

resume rail operations does not mean that the estate

has not received any benefits from the Rock Island Act

that counterbalance its labor protection obligation to some

extent. Cf. United States v. Lowden, supra, 308 U.S.

at 240.

The Rock Island Act was enacted before the district

court’s abandonment order was entered. At that time,

under the plain language of the Milwaukee Act, 45 U.S.C.

(Supp. III) 915, the Rock Island was still subject to the

potential imposition of labor protection specified in 49

U.S.C. (Supp. III) 11847, which requires at least protec-

tion against adverse effects on an employee for the lesser

of six years or the period of the individual’s employment.

See New York Dock Ry. v. United States, 609 F.2d 838

(2d Cir. 1979). The Rock Island Act limited this poten-

tial obligation and provided a means for funding it, thus

helping pave the way for the beginning of the liquidation

process by minimizing the delay that would be likely

further to erode the value of the estate. Indeed, one of

the express purposes of the Act was to avoid disturbing

pending purchase applications for Rock Island lines.

See Section 102 of the Rock Island Act, 94 Stat. 399

(to be codified at 45 U.S.C. 1001). In its subsequent

consideration of the Staggers Rail Act, Congress identi-

fied several ways in which it had assisted the Rock

Island in preserving the value of its estate, such as

by making funds available and expediting agency

consideration. H.R. Conf. Rep. No. 96-1480, 96th Cong.,

2d Sess. 138 (1980).** The fact that the private appellees

do not deem these benefits of the Act to outweigh the

burden of the labor protection provisions does not convert

22 The Conference Report noted:

[T]he conferees believe the Rock Island estate has benefitted

from the Rock Island Transition Act by the reduction in its

employee protection liability and through the Congressionally-

supported March 4, 1980, agreement, the ability to lease its

facilities and the use of funds to purchase its facilities, thus

preserving its value as a going concern, and the expeditious

consideration of Rock Island transactions at the Commission.

H.R. Conf. Rep. No. 96-1480, 96th Cong., 2d Sess. 138 (1980).

See also H.R. Rep. No, 96-839, 96th Cong., 2d Sess. 22 (1980).

the Act into a taking. See Penn Central Transportation

Co. v. New York City, supra, 488 U.S. at 135.

In any event, apart from any benefit to the estate

from the Rock Island Act, it is clear that the require-

ment that the estate pay a pre-existing obligation can-

not constitute a taking. Brooks-Scanlon Co. v. Railroad

Commission, supra, establishes that a railroad need not

continue to operate at a loss indefinitely once it is de-

termined that the railroad cannot be reorganized on a

profit-making basis.** But to say that an unreorganizable

railroad may be relieved of the burden of running a

losing operation does not mean that it must be relieved

of its specific preexisting obligations. It is manifest that

if an obligation imposed on an enterprise is properly

viewed as a regulation (for example, an obligation to

pay for the cleanup of oil spills), it is not converted

into a “taking” merely because the enterprise becomes

insolvent. Similarly, the Rock Island should not be re-

lieved of its obligation to provide financial assistance to

its displaced employees simply because it is going to be

liquidated.** This obligation merely reflects the service

28 This principle is qualified by the rule that an unreorganizable

railroad may be required to operate at a loss for some period

pending an examination of alternatives to total abandonment. /n

re Chicago, Milwaukee, St. Paul & Pacific R.R., supra, 611 F.2d

at 667. See page 27, supra. The Rock Island has not suffered

any of these losses. Prior to the reorganization court's finding in

January 1980 that the Rock Island could not be reorganized, the

Rock Island had ceased providing service over its lines. The lines

were being operated by a directed service carrier, pursuant to 49

U.S.C. (Supp. III) 11125, at the expense of the United States

(see J.A, 379a n.3).

24 Obligations to employees traditionally have been given a high

priority in the dissolution of bankrupt railroad estates. Under

Section 77(n) of the old Bankruptcy Act, 11 U.S.C, 205(n), per-

sonal injury claims of employees were to be treated as operating

expenses of the railroad. This provision was unsuccessfully chal-

lenged in the courts as effecting a taking without just compensa-

tion. See Thompson Vv. Siratt, 95 F.2d 214 (8th Cir. 1938); Jn re

Chicago, Rock Island & Pacific Ry., 90 F.2d 812 (7th Cir.), cert.

denied, 302 U.S. 717 (1987). See also 11 U.S.C. 104 (wage claims

given high priority ip bankruptcy proceedings).

these employees gave the railroad when it was an on-

going operation.

The public interest requirements that give rise to a

potential labor protection obligation when an investor

enters the railroad business do not evaporate when a

railroad the size of the Rock Island commences liquida-

tion. The need “to compensate the loss to employees”

(United States v. Lowden, supra, 308 U.S. at 240) be-

cause of their displacement is equally present when em-

ployees are displaced because of a liquidation, rather

than a reorganization. Although the Rock Island is not

destined to resume rail service, several of its lines are

being purchased for continued rail use; thus, maintaining

“service uninterrupted by labor disputes” and preventing

“loss of employee morale” remain important objectives.

See id. at 236.°° Moreover, a rule that provided for em-

ployee protection in reorganizations but not in major

liquidations would be particularly inimical to the public

interest. Work force stability would be endangered be-

cause employees would be reluctant to continue working

for a carrier in financial difficulties for fear that it

would commence liquidation, leaving the employees with

no protection against displacement. And, as Congress

noted, the failure to impose labor protection require-

ments in major rail bankruptcies would “promote liquida-

tions, to the detriment of the employees and the public

interest.” H.R. Conf. Rep. No. 96-1430, 96th Cong., 2d

Sess. 138-139 (1980). In short, the obligation to pay

labor protection when the public interest requires is an

25 This Court has recognized that a railroad remains responsible

to the public interest even if it has been declared unreorganizable.

In the New Haven Inclusion Cases, supra, 399 U.S. at 461, the

Court observed that “no one here quarrels with the proposition

that in the event of a liquidation, New Haven would have been

obliged to obtain a certificate from the Commission pursuant

to §1(18) of the Interstate Commerce Act.” That section em-

powers the Commission to attach to the certificate of abandonment

conditions necessary for the public convenience, including labor

protection.

obligation assumed by railroad investors when they enter

the railroad business, and requiring them to honor that

obligation in the course of a liquidation does not con-

stitute a taking.

CONCLUSION

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

should be reversed. The order of the district court in

No. 80-415 should be vacated as moot.

Respectfully submitted.

LAWRENCE G. WALLACE

Acting Solicitor General

KENNETH S. GELLER

Deputy Solicitor General

ALAN I, HOROWITZ

Assistant to the Solicitor General

RICHARD A. ALLEN

General Counsel

HENRI F. RusH

Associate General Counsel

EVELYN G. KITAY

Attorney

Interstate Commerce Commission

JULY 1981

8. 8. Covennment painting orrice; 1901 351341 556

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