Petition — Railway Labor Executives' Ass'n v. Scott

81-1805 Suprenie Court, U.S.

No. MAR 30 (982

' ALEXANDER L. STEVAS

IN THE CLERK

Supreme Court of the Tuited States

Ocroper TerM, 1981

Ramway Laspor Executives’ AssocraTion,

Petitioner,

v.

WiruiAM M. Gissons, Trustee Of The Chicago, Rock

Island & Pacific Railroad Company; CONTINENTAL

Inuinois NationaL Bank AND Trust COMPANY OF

Cartcaao, As Indenture Trustee; First NationaL BANK

or Cuicaco, As Indenture Trustee; Henry Crown,

et al.; Unrrep Srares or America, and The INTERSTATE

CoMMERCE COMMISSION,

Respondents.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

Joun O’B. CLARKE, JR.

Hicusaw & Manoney, P.C.

Suite 210

1050 - 17th Street, NW

Washington, D.C, 20036

(202) 296-8500

Attorney for Petitioner

Date: Mareh 30, 1982

Press or Byron S. ADAMS PRINTING, INC., WASHINGTON, D. C.

n caETEB 9

i

QUESTIONS PRESENTED

In the opinion of petitioner Railway Labor Execu-

tives’ Association (RLEA),* the following questions

are presented by this petition:

1.

Does a railroad reorganization court have the dis-

cretion to refuse to comply with the clear and

unambiguous mandate of Section 17(a) of the

Milwaukee Railroad Restructuring Act that a fair

arrangement be imposed whenever that court au-

thorizes any abandonment of the rail lines of a

railroad in reorganization ?

Do either the Due Process or Just Compensation

Clauses of the Fifth Amendment prohibit Congress

from requiring an unreorganizable railroad to aid

its employees bear the economic hardships caused

by the withdrawal of that debtor’s assets from

railroad operations ?

Does the fact that a reorganization court both has

presided over the unsuccessful efforts to reorganize

a railroad debtor and has ordered that debtor to be

liquidated justify that court’s refusal to conduct

an evidentiary hearing under 11 U.S.C. § 1170

when a party challenges the Trustee’s request to

abandon the entire railroad system ?

* Petitioner Railway Labor Executives’ Association (RLEA) isa

voluntary, unincorporated association of the Chief Executive Offi-

cers of virtually all of the standard labor organizations which rep-

resent railroad employees. RLEA’s member organizations are listed

in Appendix F to this petition at 6la. While many parties have

appeared before the reorganization court during the reorganization

proceeding, not all have expressed an interest in the issues raised

by this petition. RLEA has listed as respondents herein only those

parties who have participated in the appeal from which this Writ

of Certiorari is being sought.

ili

TABLE OF CONTENTS

Page

QumsrIons PRBSENTED 2... 2c cece vcccccsccccsscccoces i

ee I eed se coke ereettatennt V

IE NIER EA SEP POR IED EPL OC OR PORTO T 2

nN te oe ot 0) I ae bob ae ease ae 3

CONSTITUTIONAL Provisions aNb Statutes INvotvep ... 3

NS Cie CE TAN ie ee is ee ewes 4

BD. Dien AibemGammpet GeGae 2... cc ccccecccecccces ~

B. The Court of Appeals’ Decision .............. 12

Reasons ror GRANTING THE WRIT .............-0.-0- 16

J. This Case Presents Important Questions Of

Federal Law, Including Recurring Constitutional

Issues, Which Must Be Addressed By This

Court To Remove Unwarranted Obstacles Which

The Lower Courts Have Placed Upon Congress’

Regulation Of Railroad Reorganizations ...... 16

II. By Disregarding The Clear And Unambiguous

Command In Section 17(a) Of The MRRA That

Employees Be Protected Whenever A Section 77

Reorganization Court Authorizes An Abandon-

ment, The Lower Courts Have Decided An Im-

rtant Question Of Federal Law In A Manner

hich Conflicts With Applicable Decisions Of

EE ED wic-as bncdvdwancacvcvcisccnsectacee 21

III. By Concluding That 11 U.S.C. 41170 Permitted

The Rock Island Reorganization Court To Au-

thorize An Abandonment Of The Entire Rail-

road Without First Conducting An Evidentiary

Hearing Into The Validity Of Such An Aban-

donment, The Lower Courts Have Construed A

New Statuie In A Manner Which Conflicts With

Prior Decisions Of This Court ............... 25

I aT eee Te a ais bias ak aeeeuns 29

iv

Table of Contents Continued

Page

APPENDICES:

Appenpix A.

Appenprix B.

Appenpix C.

Appenvix D.

Appenpix E.

Appenpix F.

Per Curiam Order of the United States

Court of Appeals For The Seventh Cir-

cuit in Nos. 80-1788, 80-2199, 80-2286 .... la

In re Chicago, Rock Island & Pacific R.

Co.—Appeal No. 80-1788

B-1 N.D. Ill. No. 75 B 2697, Order No.

248, dated June 2, 1980 .......... 19a

B-2 N.D. Ill. No. 75 B 2697, Partiai

Transcript of Proceedings of June

EME inbadhdcccaasseusbecccasas 23a

B-3 Report of ICC in Docket No, AB 46

(Sub-No. 22), served May 27, 1980.. 33a

B-4 Decision of ICC in Docket No. AB

46 (Sub-No. 22), served December

UE So ceshsuksksanessuusaseen 5la

Judgment of Court of Appeals ......... 53a

Order Denying Rehearing, dated Decem-

BF SE SD WbbeuGevuenssceuxeeassesas 55a

NRE TIS inc cvccecvscsseectas 57a

v

TABLE OF AUTHORITIES

Page

Cases Reutiep Upon:

Andrus v. Shell Oil Co., 446 U.S. 657 (1980) ......... 24

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

oc siceuina ease uiisees eee neene eons 11, 27

Chicago & North Western Ry.—Control—Chicago,

Rock Island & Pac. R., 347 1.0.C. 556 (1974) ..... 4

Chicago, Rock Island & Pac. R. ( William Gibbons,

Trustee )—Abandonment, 363 L.C.C. 150 (1980)... 5

Continental Illinois National Bank & Trust Co. v.

Chicago, Rock Island & Pac. Ry., 294 U.S. 648

DEED Soin eusadaeenese6es 466 nudeneeseeeeesee 18.19

County of Los Angeles v. Davis, 440 U.S. 625 (1979)... 13

Directed Service Order No. 1398, 360 1.C.C. 289 (1979). = 6

Ecker v. Western Pac. R., 318 U.S, 448 (1943) ........ 28

Gibbons v. United States, 7th Cir. Nos. 79-2413, et al.,

IE WE so dcucccccswsdcesctecers 27, 28

Gibbons v. United States, 660 F.2d 225 (7th Cir. 1981). 27, 28

Goldberg v. Kelly, 397 U.S. 254 (1970) ............... 26

ICC v. Railway Labor Executives’ Assoc., 315 U.S. 373

DEED mgd edande wa bUnedhawens ees ede uadesnaees 17

In re Auto-Train Corp., 11 B.R. 418 (Bk. Ct. D.C. 1981)

vacated, D.D.C. No. 81-1721, decided October 28,

Pe cdeduedecncsenl obeeed6o4s060500000s0r0—8 19, 28

New Haven Inclusion Cases, 399 U.S, 392 (1970) .... 26, 27

New York Dock Ry.—Control, 360 L.C.C. 60 (1979),

aff’d sub nom., New York Dock Ry. v. United

States, 609 F.2d 83 (2d Cir. 1979) ............... 9

Palmer v. Massachusetts, 308 U.S. 79 (1939) ........ 26, 27

Penn-Central Transportation Co.—Reorganization, 347

EE Marcin 660s cen0s cusunssekonseos 24

Penn-Central Merger Cases, 389 U.S. 486 (1968) ..... 27

vi

Table of Authorities Continued

Page

Railway Labor Executives’ Association vy. Gibbons,

Sup. Ct. Nos. 80- 7 80-1239, decided March 2,

Se otis vkdcbne diecaweviedsobesciaeeee 15, 21

Railway Labor Executives’ Association vy. Gibbons,

Sup. Ct. No. 80-1899, cert. denied, October 5, 1981. = 7

Railway Labor Executives’ Association vy. Gibbons,

Os ee FU AUD wr ncucsccucesueceesuvesecees 3

Railway Labor Executives’ Association y. Scott, Sup.

es: Bee WEEE 6 ces uisaunsescocssunnnees 16, 19, 20, 23

Reiter v. Sonotone Corp., 442 U.S. 330 (1979) ........ 21

Service Order No, 1473, 33rd Rev., served Feb. 18,1982. 6

ro Ee FF fee eee 23

United Air Lines, Inc. vy. CAB, 569 F.2d 640 (D.C. Cir.

ee eer 23

United States Railroad Retirement Board vy. Fritz, 449

Wak GE GED 0.6.6 dekciseinccvssccensscheueeene 22

United States v. American Trucking Assoc., Inc., 310

ay Ge CHEE 0 en 6a0ueéedesestcxeus cube 21

United States v. Lowden, 308 U.S. 225 (1939) ........ 17

Wellsville, A.€G.R—Abandonment, 354 I.C.C. 247

GES dun nendcuceeséuwsenseesssesiounsaeenuen 23

ConsTITUTIONAL Provisions Retiep Upon:

Bankruptcy Clause, U.S. Const. art 1, § 8, cl. 4 ..... 16, 22

Commerce Clause, U.S. Const. art 1, § 8, cl.3....... 16, 22

Fifth Amendment, U.S. Constr. amend. V ........... 4, 20

Sratutes Reuiep Upon:

Bankruptcy Act of 1933, 47 Stat. 1467,

ee er 18

vii

Table of Authorities Continued

Page

Bankruptcy Act, 11 U.S.C. “1, et seq.,

eo ons cececoesesveneese 18

Mectren 77, 12 UBC. $906 .... ccc cccccees im passim

Section 77(d), 11 U.S.C. 4 205(d) ............. 7, 28

Bankruptcy Code, as amended, 11 U.S.C. 4101 et seq.,

Section 102(1)(A), 11 U.S.C. 4102(1)(A) ...... 13

Section 1161, et seq., 11 U.S.C. 41161 et seg. .... 19

Section 1165, 11 U.S.C. $1165 .............-..- 26

Section 1170, 11 U.S.C. 41170 ........ 3, 4, 13, 25, 28

Section 1170(a), 11 U.S.C. ©1170(a) ....... 9, 13, 25

Section 1170(¢), 11 U.S.C. 41170(e) .... 9,10, 13, 25

Section 1170(d)(1), 11 U.S.C. 41170(dj)Q1) ..... 12

SE GE BE WE DEBEO vcccccccccccesscs 19

Bankruptcy Reform Act of 1978, Pub. L. No, 95-598,

ss cebeticadepadceetecceeearecoves 4

Section 403(a), 92 Stat. 2683 .............0006- 4

Emergency Railroad Transportation Act of 1933,

4% Stat. 211,

EE 17

Interstate Commerce Act, 49 U.S.C. 4 19101, et seq.

Section 10903(b)(2), 49 U.S.C. © 10903(b)(2).. 17, 23

Section 11125, 49 U.S.C. § 11125 ............06. 6

Section 11343, 49 U.S.C. $11343 ............... 13

Section 11347, 49 U.S.C. § 11347 ............. 10,17

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

6 901, et seq.,

mestien Sta), 4 UBC. Gla) .....cccccccccees 16

CE 17

i a MEME OO... cccccccceccccees 17

Section 17, 45 U.S.C. $915 ............... 10, 11, 22

Section 17(a), 45 U.S.C. §915(a) ......... in passim

Section 17(b)(1), 45 U.S.C. §915(b)(1) ........ 13

Public L. No. 95-473, 92 Stat. 1337 (1978) ........... 15

viii

Table of Authorities Continued

Page

Railroad Revitalization and Regulatory Reform Act,

Pub. L. No. 94-210, 90 Stat. 31,

Section 802, codified as 49 U.S.C. § 10903, et seq. . 15, 23

Railway Labor Act, 45 U.S.C. § 151, et seq. .......... 5

ees Ee, Ge Was SD ce kcdescecccccccceses 5

Rock Island Transition and Employee Assistance Act,

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

Section 102(1), 45 U.S.C. §1001(1) ............ 18

Section 102(2), 45 U.S.C. §1001(2) ............ 18

Section 106, 45 U.S.C. § 1005 ........... 9, 17-18, 25

Section 122, 45 U.S.C. $1017 ......cccccccceess 6

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

PY idvccidecnkeanesenenessnednen ene 18

Bestion Sy, G6 Beat. BOGE 2... cccccccscccccces 19

Se SN UIE oc 6ecdduaddecececdbcenceseeonss 1,3

et Sy WE i p Lacinscuaescucsdekacedsesenes 3

Oruer Martertats Reviep Upon:

Bankruptcy Rule 8-303 Rules of Bankruptcy ......... 7

Bankruptcy Rule 8-703(a)(6) ..............000e eee 13

Circuit Rule 35(b) (2) (iv), Rules of the Seventh Cireuit. 2

Executive Order No. 12, 159, 44 Fed. Reg. 54687 (Sept.

Ss SE. 0640 bd nedhs vie Beduedeiecdenéecseccexes

H. Rpt. No. 96-1430, 96th Cong., 2d Sess. (1980) ... 18

H. Rpt. No. 96-1041, 96th Cong., 2d Sess. (1980) ... 18

H. Rpt. No. 96-839, 96th Cong., 2d Sess. (1980) .. 24, 25

H. Rpt. No. 96-583, 96th Cong., Ist Sess. (1979). 14-15, 23

H. Rpt. No. 1897, 72nd Cong., 2d Sess. (1933) ...... 18

eG, Ti GD GID ic ccccccccccccccccctascecs 19

126 Cong. Rec. H8619, Sept. 9, 1980 ............... 19

126 Cong. Rec. S5806, May 22, 1980 ............... 25

IN THE

Supreme Court of the United States

Octoser TERM, 1981

RarLway Lasor Executives’ Association,

Petitioner,

v.

WiiuiAM M. Gispsons, Trustee Of The Chicago, Rock

Island & Pacific Railroad Company; ConrINnENTAL

ILttInois NATIONAL BANK AND Trust COMPANY OF

Cuicaco, As Indenture Trustee; First NaTionaL BANK

or Cuicaco, As Indenture Trustee; HeENry Crown,

et al.; Untrep States or America, and The INTERSTATE

CoMMERCE COMMISSION,

Respondents.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

Petitioner Railway Labor Executives’ Association

[hereinafter, ‘‘RLEA”] respectfully requests pursuant

to 28 U.S.C. § 1254(1) that this Court issue a writ of

certiorari to the United States Court of Appeals for

the Seventh Circuit to review and to reverse the Judg-

ment of that court which was entered on October 13,

1981, affirming an order of the United States District

Court for the Northern District of Lllinois authorizing

2

the abandonment of the Chicago, Rock Island and

Pacific Railroad Company [hereinafter, ‘“‘CRI’’ or

“Rock Island’’] without conducting an evidentiary

hearing and without imposing an arrangement to pro-

tect employees as required by Section 17(a) of the

Milwaukee Railroad Restructuring Act [herein.uiter,

“MRRA”], 45 U.S.C. §915(a).

OPINIONS BELOW

Except for the report by the Interstate Commerce

Commission [hereinafter, ““ICC’’ or ‘‘Commission’’]

recommending the abandonment at issue, all of the

decisions in this case are not officially reported. The

unpublished order of the court of appeals* which was

entered on October 13, 1981, is reproduced herein as

Appendix A. Minor technical corrections were made

to that order by a subsequent per curiam order which

was issued sua sponte on October 22, 1981, and which

is reproduced herein as Appendix A-1 at 17a. On De-

cember 10, 1981, the court of appeals denied RLEA’s

petition for rehearing; that order is reproduced as

Appendix D at 55a.

The unpublished order of the District Court which

was affirmed by the appellate court was dated June 2,

1980, and is reproduced herein as Appendix B-1 at

19a. The District Court orally stated its reasons for

that order, and the transcript of its oral comments is

* Rule 35(b) (2) (iv) of the Circuit Rules of the Seventh Circuit

provides that an unpublished order:

Except to support a claim of res judicata, collateral estoppel

or law of the case, shall not be cited or used as precedent (a)

in any federal court within the circuit in any written docu-

ment or in oral argument; or (b) by such court for any

purpose.

3

reproduced as Appendix B-2 at 23a. That decision was

made after the ICC had submitted a report under

Section 17(a) of the MRRA, served May 27, 1980,

which is reported at 363 LC.C. 150 (1980); relevant

portions of that report are reproduced herein as Ap-

pendix B-3 at 33a. Appendix B-4 at 5la is a repro-

duction of an unreported ICC decision denying as

moot RLEA’s request for the ICC to reconsider its

remarks on employee protection in Appendix B-3.

JURISDICTION

The unpublished order (Appendix A) and its accom-

panying judgment (Appendix C at 53a) by the court

of appeals, which RLEA is asking this Court to review,

were entered on October 13, 1981. RLEA filed a timely

petition for rehearing and a suggestion for rehearing

en bane on November 10, 1981; the petition for re-

hearing was denied on December 10, 1981. Appendix

D at 55a. On March 4, 1982, and then on March 17,

1982, petitioner was granted extensions to and includ-

ing March 30, 1982, in which to file this petition. RLEA

v. Gibbons, Sup. Ct. No. A-761. This petition has been

filed within that extended time and within one hundred

and fifty (150) days of the date of the court of appeals’

denial of the petition for rehearing. 28 U.S.C. § 2101

(ce). Petitioner seeks to involze this Court’s jurisdiction

under 28 U.S.C. § 1254(1).

CONSTITUTIONAL PROVISIONS AND STATUTES INVOLVED

This case involves the construction of the employee

protective provision of Section 17(a) of the MRRA,

45 U.S.C. §915(a), as well as the proper interpreta-

tion to be given to the hearing requirements in Section

1170 of the Bankruptcy Code, 11 U.S.C. § 1170. Both

4

Section 17 of the MRRA and 11 U.S.C. § 1170 are

reproduced in Appendix E at 57a. The Due Process

and Just Compensation Clauses of the Fifth Amend-

ment of the Constitution of the United States’ will

be involved in this case if this Court concludes that

Section 17(a) of the MRRA makes the imposition

of employee protection mandatory in any abandon-

ment proceeding.

STATEMENT OF THE CASE

After operating at a loss for at least eight (8)

years, the Rock Island on March 17, 1975, sought the

aid of Section 77 of the Bankruptcy Act, 11 U.S.C.

§ 205,* and filed a petition with the United States Dis-

trict Court for the Northern District of Illinois to

reorganize under the provisions of that statute. At

the time it filed that petition, the Rock Island was

one of the largest railroads in this country, operating

in thirteen (13) states over more than 10,000 miles

of track and employing approximately 10,000 em-

ployees. See, Appendix B-3 at 37a-38a. It was, as the

ICC recognized in 1974, an important segment of this

nation’s continental transportation system. E.g., Chi-

cago & North Western Ry.—Control—Chicago, Rock

Island & Pac. R., 347 1.C.C. 556, 595 (1974).

? Relevant portions of the Fifth Amendment provide as follows:

‘‘(NJor [shall any person] be deprived of life, liberty, or prop-

erty, without due process of law; nor shall private property be

taken for public use without just compensation.’’

* The Bankruptcy Act, including Section 77, 11 U.S.C. § 205, has

been repealed by the Bankruptcy Reform Act of 1978, Pub.L. No.

95-598, 92 Stat. 2549. That appeal, however, is not effective for

eases, such as the proceeding at bar, which were pending under

the Bankruptcy Act when the Reform Act was enacted. Section

403(a), 92 Stat. 2683.

5

Shortly after the petition to reorganize was filed,

respondent William M. Gibbons was appointed as

Trustee of the Rock Island’s properties, and he con-

tinued to operate that railroad. Although the car-

rier’s cash position was temporarily improved by the

Trustee's ability under Section 77 to defer interest and

principal payments, the Rock Island continued to ex-

perience operating losses (¢.g., $38.5 million in 1977)

as well as a steady erosion of its traffic base. See,

Chicago, Rock Island & Pac. R. (William M, Gibbons,

Trustee )—--Abandonment, 363 1.C.C, 150, 175-77 (1980).

This rapidly deteriorating financial position was ex-

acerbated by the severe winter of 1978-79 which sharply

increased the Rock Island’s operating losses and sub-

stantially damaged its physical plant (Jd. at 177-81),

and thus, by the summer of 1979, both the ereditors

and the shareholders of the debtor were demanding

its Liquidation.

As August 1979 came to a close, first one and then

another of Rock Island’s labor organizations struck

that railroad after those unions had exhausted the

procedures of the Railway Labor Act, 45 U.S.C. § 151,

et seq., in unsuccessful attempts to resolve major dis-

putes with the Trustee. Once the labor organizations

went on strike, the Trustee ‘‘locked-out’’ his contract

employees and attempted to operate a truncated system

using non-union personnel. Because of the impact

which the Rock Island’s curtailed operations had on

the rail transportation system, the President, on Sep-

tember 20, 1979, invoked the status quo provisions of

Section 10 of the Railway Labor Act, 45 U.S.C. § 160,

by creating an Emergency Board under that Section.

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

tember 21, 1979).

6

When it became apparent that the Trustee lacked the

cash to resume operations, the ICC exercised its powers

under 49 U.S.C. § 11125 on September 26, 1979, and

directed the Kansas City Terminal Railway Company

[hereinafter, ‘*KCT’’] to operate ‘virtually all” of

the Rock Island’s rail lines. Directed Service Order

No. 1398, 360 1.C.C, 289, 290-92 (1979). On that same

day, the reorganization court denied the oral applica-

tion of the Trustee to continue operating the Rock

Island system. Directed Service operations by the

KCT began October 5, 1979, and continued until March

1980. In March, other rail carriers assumed the obli-

gation to operate portions of the Rock Island, first

under uncompensated directed service orders pursuant

to 49 U.S.C. § 11125, and then under interim authori-

ties granted pursuant to Section 122 of the Rock Island

Transition and Employee Assistance Act [hereinafter,

“RITA”’], 45 U.S.C. § 1017, after the enactment of

that Act on May 30, 1980. While a substantial portion

of the Rock Island is not operated today, portions

have been sold for continued rail usage,‘ and other

portions are being operated under temporary authori-

ties issued pursuant to Section 122 of RITA. See,

Service Order No. 1473, 33rd Revision, served Feb-

ruary 18, 1982.

Several months after the KCT began its directed

service operations over the Rock Island, the Trustee

*In his status report on the liquidation process for the period

ending December 31, 1981, the Trustee reported that only 133 miles

of track (excluding the 1,027.3 miles involved in appeals Nos. 80-

2199 and 80-2286) had been sold as of December 3!, 1981. An addi-

tional 403 miles were the subjects of signed but unconsummated

sale agreements.

7

filed a plan of reorganization on December 28, 1979.°

By Order No. 221, issued January 9, 1980, the re-

organization court gave all interested parties until

January 28, 1980, in which to file comments which the

court would then transmit together with the Trustee’s

plan to the ICC for consideration under Section 77(d)

of the Bankruptcy Act, 11 U.S.C. § 205(d). However,

before the comment date had passed, the court received

a report on January 21, 1980, from an independent

consultant firm which concluded that the Trustee’s pro-

posed reorganization was not viable. On January 25,

1980, the court found that the consultant’s study was

‘‘a good study’’ and that the court was ‘‘compelled

... if logie prevails, to accept the conclusion that the

plan of reorganization proposed by the Trustee has

no hope of success.’” RLEA v. Gibbons [hereinafter,

“Liquidation Petition’’|, Sup. Ct. No. 80-1899, Ap-

pendix C at 2la, cert. denied, October 5, 1981. The

court then refused to transmit the plan to the ICC

as Bankruptcy Rule 8-303 required, and instead in-

structed the Trustee ‘‘to commence preparation of [a]

preliminary plan for liquidation’’ of the debtor. Liqui-

dation Petition, Appendix B at 18a. RLEA noted an

appeal from that order, but on February 11, 1981,

the Seventh Circuit affirmed in an unpublished per

curiam opinion. Liquidation Petition, Appendix A.

This Court subsequently denied RLEA’s petition for

a writ of certiorari. RLEA v. Gibbons, Sup. Ct. No.

80-1899, cert. denied, October 5, 1981.

‘The Trustee’s plan called for a ‘‘core’’ type of operation by

which the reorganized system would operate much less than one-

half of the CRI system, basically in the northeastern portion of

its system.

A. The Abandonment Order

On April 14, 1980, the reorganization court directed

the Trustee to file an application with the ICC under

Section 17 of the MRRA ‘‘for its report confirming

the abandonment of the Rock Island’s total railroad

system subject to sale of portions of such system to

other entities for their operation thereof... .’’ Order

No. 232, dated April 14, 1980, at 1-2. That order also

instructed the ICC to file its report with the court

thirty (30) days after the Trustee filed his applica-

tion, and set comment and hearing dates for further

action on the Trustee’s abandonment motion. The

Trustee filed his application with the ICC on April 24,

1980, and the ICC accepted that application over

RLEA’s objections that the application lacked neces-

sary financial information. Appendix B-3 at 36a. On

May 27, 1980, the ICC served its report and stated:

We conclude that abandonment of the Rock

Island and its dissolution as an operating railroad

is [sic] required by the public convenience and

necessity. We have reviewed the carrier’s present

financial position and future prospects and con-

clude that it has no realistic hope for reorganiza-

tion or continued public service in its present

form. The extremely deteriorated condition of its

lant and severe erosion of its traffic base (through

interrupted and uncertain operations) make it

clear that the Rock Island will not be able to re-

cover. Consequently, fairness to its creditors and

stockholders dictates that the carrier be liquidated.

Nevertheless, the communities and shippers served

by the Rock Island have also shown that many

of its services are essential and can be profitable.

We recommend to the court that, in permitting

abandonment, it take steps to insure that the ser-

vice over the viable portions of the Rock sland

9

is not interrupted and that these portions are sold

as operating lines... .

Appendix B-3 at 34a-35a. The Commission also com-

mented upon the Court’s obligation under Section

17(a) of the MRRA to provide a fair arrangement to

protect employees. After observing that the New York

Dock conditions® are ‘‘apparently mandated by See-

tion 17(a) of the MRRA” (Appendix B-3 at 45a),

the ICC went on to note the ‘‘options’’ which it be-

lieved the court had in this area. According to the

ICC: “The New York Dock conditions can be imposed

on the Rock Island. However, another viable option

is not to impose any form of labor protection.’’’

RLEA filed its comments on May 30, 1982, and as-

serted that inter alia Section 17(a) of the MRRA and

11 U.S.C. § 1170(c) required the reorganization court

to condnet an evidentiary hearing at which the trustee

would have the burden of establishing that the aban-

donment of the entire Rock Island system satisfied

the test established by 11 U.S.C. §1170(a).* RLEA

° Those employee protective provisions promulgated in New York

Dock Ry.—Control, 360 1.C.C. 60 (1979), aff’d sub nom., New

York Dock Ry. v. United States, 609 F.2d 83 (2d Cir. 1979).

*RLEA asked the ICC to reconsider that advice, but on Decem-

ber 15, 1980, the ICC served a decision which dismissed that re-

quest as moot because the ICC viewed Section 106 of RITA, as

amended, as ‘‘effectively pre-empt[ing| labor protection to Rock

Island employees resulting from the abandonment . . . .’’ Appendix

B-4 at 52a.

* RLEA asserted that an evidentiary hearing was necessary: (1)

to examine whether the Rock Island was ‘ |] ‘‘cashless’’ and would

continue to remain so even after selling assets; (2) to determine

whether the carrier could operate essential rail services in a re-

duced system; and (3) to determine the impact of the proposed

abandonment on employees.

10

also asserted that if the court approved the abandon-

ment application in whole or in part, it was required

by Section 17(a) of the MRRA ‘to provide a fair

arrangement at least as protective of the interests of

employees as that required under... [49 U.S.C.

§ 11347].”" 45 U.S.C. §915(a). At the hearing on

June 2, 1980, the reorganization court rejected both

arguments and issued Order No. 248 which ‘‘ confirmed

and decree __ the ‘‘total systems abandonment of Rock

Island’s lines and the discontinuance of all of its rail

services and obligations as a common carrier... .”°

Appendix B-1 at 21a. Order No. 248 further provided

that ‘‘no claim or arrangement of any kind or nature

for employee labor protection payable out of the assets

of the Debtor’s estate is allowed or required by this

Court pursuant to Section 17’’ of the MRRA. Id.

RLEA’s assertion that Section 17(a) of the MRRA

and Section 1170(¢c) of the Bankruptcy Code required

an evidentiary hearing was rejected by the reorgani-

zation court because it concluded that in the course of

presiding over the Rock Island’s reorganization it had

been ‘‘holding hearings on the subject of abandonment

of the Rock Island for five years.’’ Appendix B-2 at

27a. Because of its extensive participation in the Rock

Island’s attempts to survive, the court concluded that

the prior court proceedings were ‘‘all the hearings I

have to have or need to have on the subject of the need

and desirability of an order to discontinue operations.”’

Id.

®* Those CRI rail lines listed in Appendix D to the ICC report

were exempted from that abandonment authority for a period which

was extended once, but which expired on March 31, 1981. See,

Appendix A at 9a n.4.

11

When it addressed the merits of the Trustee’s and

the creditors’ joint request for an abandonment order,

the court noted that: ‘‘Abandonment is really only a

technical recognition in this case of what I might have

previously ordered and what has actually happened.”’

Appendix B-2 at 27a. According to the reorganization

court, the debtor was a “‘bankrupt business’’ whose

private ereditors could no longer be required to sup-

port forever its operations at a loss. 7d. at 24a. It was

that finding which had led the court to conclude that

‘‘continued operation of the Rock Island has passed

that point where it is mandated by the public interest

and is such a serious financial disservice to the credi-

tors that it was terminated and had to be terminated.”’

Jd. at 25a. And it was that conclusion which led the

court to find in its order at bar that the ‘‘ Rock Island’s

unconditional discontinuance of service and its total

system abandonment is constitutionally mandated ....”’

Appendix B-1 at 20a. This Court’s decision in Brooks-

Scanlon Co. v. Railroad Commission, 251 U.S. 396

(1920), was cited as support. Jd.

Even though Section 17(a) of the MRRA provided

that in ‘authorizing any abandonment pursuant to this

section, the court shall require the carrier to provide

a fair arrangement [to protect employees]”’ (45 U.S.C.

§915(a) (emphasis added) ), the reorganization court

concluded that Section 17(a) did not ‘‘control the

situation’’ it faced. Appendix B-2 at 27a. The court

reached that conclusion because it believed that: ‘‘Sec-

tion 17 . . . and its labor protection provisions con-

template less than entire system abandonment in im-

posing labor protection obligations ... .’’ Jd. In its

order authorizing the abandonment, the court stated

as follows in further explaining its decision to dis-

12

regard the congressional mandate in Section 17(a) that

employee protection be provided:

..+ Rock Island’s systemwide termination of oper-

ations and total line abandonment... do not war-

rant 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, .. . and, that consistent 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 iabor protection arrangements may

be imposed on the Rock Island estate... .

Appendix b-1 at 20a-21la. RLEA noted an appeal from

that order on June 9, 1980."°

B. The Court of Appeals’ Decision

Althe gh the reorganization court had relied upon

constitutional principles in concluding both that the

estate had an immediate and unconditional right to

abandon and that the assets of the debtor could not

be used to aid Rock Island employees, the Seventh

Cireuit did not address those constitutional issues in

affirming the abandonment order. Rather, the court of

appeals relied upon its construction of Section 1170

© After the reorganization court refused on June 2, 1980, to stay

the abandonment as required by 11 U.U.C. § 1170(d)(1), RLEA

asked the Seventh Circuit on June 9, 1980, to enforce 11 U.S.C.

§ 1170(d) (1). That request was denied. On July 7, 1980, appellant

asked the court to reconsider its ruling, but on September 18, 1980,

that request also was denied.

13

of the Bankruptey Code and of Section 17(a) of the

MRRA to affirm.”

RLEA had argued to the appellate court that See-

tion 1170 of the Bankruptey Code, which was made

applicabie to this case by Section 17(a) of the MRRA,

required the reorganization court to conduct an evi-

dentiary hearing before it authorized any abandon-

ment. Indeed, the requirement for a pre-abandonment

hearing appears in both subsections (a) and (ce) of

Section 1170. Nevertheless, relying upon Section 102

(1)(A) of the Bankruptey Code, 11 U.S.C. § 102(1)

(A), the court of appeals concluded that the ‘‘par-

ticular cireumstances’’ of each case must be considered

in determining whether an ‘‘adequate evidentiary hear-

ing’’ was provided. Appendix A at 4a. Observing that

the CRI reorganization court ‘‘had been totally im-

™ The court of appeals also dismissed as moot two (2) appeals

which RLEA had taken from orders of the reorganization court

authorizing the sale of Rock Island lines to two (2) existing car-

riers, but refusing to impose arrangements to protect Rock Island

employees. RLEA argued in one of those appeals (i.¢., No. 80-2286)

that the court did not have the right to disregard the ICC's order

authorizing that sale under 49 U.S.C. § 11343, which approved the

sale on the condition that the estate provide a fair arrangement

to protect CRI employees, In the other appeal (1.¢., No. 80-2199),

RLEA asserted that Section 17(b)(1) of the MRRA, 45 U.S.C.

§ 915(b)(1), required the protection of both CRI employees and

the purchasing carrier’s employees who were not covered by what

is known as the March 4 Hiring Agreement. The court of appeals

dismissed those appeals as being moot because, relying upon Bank-

ruptey Rule 8-703(a)(6), it concluded that since the sale orders

were not stayed, an appeal could not change the terms of the com-

pleted sales. While RLEA submits that its appeals were not moot

(see, County of Los Angeles v. Davis, 440 U.S. 625, 631 (1979)), it

is not presenting that issue with this petition.

14

mersed in the Rock Island’s affairs since March 17,

1975”’ (Id.), the appellate court found that the re-

organization court did not abuse its discretion “in

concluding that, under the particular circumstances

before it, an additional evidentiary hearing was not

required.” Id. at 5a.

The reorganization court’s refusal to hold a hearing

was also justified, the court of appeals opined, because

RLEA ‘‘was seeking an evidentiary hearing to deter-

mine essentially whether the Rock Island was reorgan-

izable—a question that had been previously decided in

the negative by the reorganization court in its January

25, 1980, liquidation order.’’ Appendix A at 5a. Since

liquidation could not proceed without abandonment

authority, the abandonment order simply “fulfilled an

important procedural requirement’’ to effectuate ‘‘sub-

stantive decisions that had already been made.” Jd.

Thus, ‘ta further evidentiary hearing would . . . have

served no useful purpose.”’ Jd. ~*~

When it addressed RLEA’s assertion that Section

17(a) of the MRRA required the reorganization court

to provide a fair arrangement to protect Rock Island

employees, the court of appeals noted that ‘*RLEA’s

position is certainly reflected in the language of the

statute.’’ Appendix A at 10a. ‘‘But,’’ the court con-

tinued, ‘‘it is contrary to what seems so clearly to be

the intent of Congress in enacting § 17a [sie].’’ ld.

Relying upon a statement in the Conference Report

to the MRRA, the court concluded that the language

used by Congress in Section 17(a) of the MRRA must

be interpreted in light of Congress’ intent ‘‘to make

no change in existing law as it affects employee pro-

tection.’’ H. Rpt. No. 96-583, 96th Cong., Ist Sess. at

15

27 (1979). To determine what that ‘existing law’’ was,

the court reviewed ICC practice, primarily as it existed

prior to 1976 when Congress made employee protection

mandatory in abandonment cases (see, Section 802,

Pub. L. No. 94-210, 90 Stat. 31, 127), and it found

that ‘existing law regarding labor protection includes

the long established L.C.C. practice of denying labor

protection in total abandonments.’* Appendix A at 10a.

Thus, the appellate court concluded, the reorganization

court ‘“‘properly declined to provide labor protection

in connection with the total abandonment of the Rock

Island.”’ Jd. at 13a.

RLEA was granted to November 10, 1981, in which

to petition for rehearing, and on that day it filed a

suggestion that the Seventh Circuit rehear the appeals

en banc and a request that the panel reconsider the

employee protection and mootness issues. On Decem-

ber 10, 1981, the court issued an order denying RLEA’s

petition for rehearing. Appendix D at 55a.”

In its review of prior ICC practice, the court of appeals in-

correctly assumed that the pre-1976 ICC practice was developed

under a statute which made employee protection mandatory in

abandonment cases. See, Appendix A at 10a-lla. This misconcep-

tion is evident from the court's citation (Jd. at lia) of the 1976

Conference Report as being the conference report to the 1978 re-

codification statute—Pub. L. No. 95-473, 92 Stat. 1337 (1978).

On August 4, 1980, the United States noted an appeal from

Order No. 248 of the reorganization court; that appeal was

docketed as 7th Cir. No. 80-2075, and has been held in abeyance

pending the outcome of this Court's consideration of Railway

Labor Executives’ Assoc. v. Gibbons, Sup. Ct. Nos. 80-415 and

80-1239, decided March 2, 1982. On March 19, 1982, the government

moved to dismiss its appeal.

16

REASONS FOR GRANTING THE WRIT

I. This Case Presents Important Questions Of Federal Law, In-

cluding Recurring Constitutional Issues, Which Must Be Ad-

dressed By This Court To Remove Unwarranted Obstacles

Which The Lower Courts Have Placed Upon Congress’ Regu-

lation Of Railroad Reorganizations

It is axiomatic that the Constitution of the United

States gives Congress and not the federal courts the

power to regulate interstate and foreign commerce and

to establish uniform laws on the subject of bank-

ruptcies. U.S. Const. art. 1, § 8, cls. 3, 4. If that sep-

aration of powers is to retain its validity, federal

courts must not hinder the legitimate regulation of

commerce or expand the scope of bankruptcy laws

under the guise of either statutory construction or the

protection of general, undefined constitutional rights.

Moreover, it is but a corollary of the separation of

powers doctrine that this Court has an obligation to

review actions of the federal judiciary which, as in

the case at bar, place unwarranted obstacles upon Con-

gress’ efforts to exercise its constitutional powers under

the Commerce and Bankruptcy Clauses. Petitioner

RLEA respectfully submits that this case, as well as

that presented in Railway Labor Executives’ Assoc. Vv.

Scott [hereinafter, ‘‘Susquehanna”|, Sup. Ct. No. 81-

1715, present situations in which review by this Court

is necessary to enable Congress to exercise effectively

its powers under both the Commerce and Bankruptcy

Clauses.

When it passed Sections 5(a) and 17(a) of the

MRRA in November 1979, Congress transferred to

Section 77 railroad reorganizaton courts the powers

to regulate the abandonment of bankrupt railroad lines

which had been delegated previously to the Interstate

17

Commerce Commission. But, consistent with its long-

standing policy of requiring railroads to protect the

interests of employees,"* Congress qualified the aban-

donment authority it was delegating to the Section 77

courts by providing that: ‘‘In authorizing any aban-

donment pursuant to this section, the court shall re-

quire the carrier to provide a fair arrangement at least

as protective of the interests of employees as that re-

quired under ... [49 U.S.C. § 11347].”’ 45 U.S.C, § 915

(a) (emphasis added). As this Court has long recog-

nized, such employee protections serve a strong public

interest in guaranteeing the “stability of the labor

supply available to the railroads ....’’ ICC v. Railway

Labor Executives’ Assoc., 315 U.S. 373, 377 (1942).

Moreover, such protection obligations may be imposed

upon even a railroad in reorganization without af-

fronting the Due Process guarantees of creditors and

investors. United States v. Lowden, supra note 14, 308

U.S. at 240.

Congress obviously relied upon those past decisions

of this Court in devising the means it would use in

the MRRA to protect both the public and debtor-

creditor interests in railroad reorganizations. And as

shown by its actions in authorizing the Milwaukee Rail-

road Trustee to enter into an alternative employee

protection program (it.e., Sections 9 and 15, MRRA,

45 U.S.C. §§ 908, 914), Congress considered adequate

employee protection to be important to the preserva-

tion of essential rail services. Moreover, as Congress’

actions in twice enacting the employee protective pro-

grams of RITA show (i.e., Section 106, 45 U.S.C,

* E.g., United States v. Lowden, 308 U.S. 225 (1939) ; Section 7,

Emergency Railroad Transportation Act of 1933, 48 Siat. 211, 213-

14; 49 U.S.C. §§ 10903(b) (2), 11347.

18

§ 1005), Congress has concluded that the protection of

employees affected by the demise of the Rock Island

is essential to the preservation of rail service in the

CRI service area. Sections 102(1) and (2) of RITA,

45 U.S.C. §§ 1001(1), (2); H.Rpt. No. 96-1041, 96th

Cong., 2d Sess. at 26 (1980).

Besides intending to assure an adequate supply of

railroad employees, Congress has required the imposi-

tion of employee protective provisions in railroad re-

organizations to serve another purpose as well—i.e.,

to discourage railroad liquidations. As Congress ex-

plained in its Conference Report to the Staggers Rail

Act of 1980 [hereinafter, ‘‘SRA”], Pub.L. No, 96-448,

94 Stat. 1895:

The conferees reiterate that it is the intention

of Congress that employee protection be imposed

in bankruptcy proceedings involving major rail

carriers, for to do otherwise would be to promote

liquidations, to the detriment of the employees and

the public interest.

H. Rpt. No. 96-1430, 96th Cong., 2d Sess. at 138-39

(1980).

Congress, petitioner RLEA submits, clearly has the

right under its Bankruptcy Clause powers to limit the

ability of railroads to liquidate under the Bankruptey

laws it enacts. Indeed, prior to 1933, railroads were

“‘excluded from the operation of the bankruptcy law.”’

H.Rpt. No. 1897, 72nd Cong., 2d Sess. at 5 (1933). And

when Congress passed Section 77 of the Bankruptcy

Act of 1933, 47 Stat. 1467, 1474 (1933), it did not give

the full benefit of those laws to railroads. See, Section

4 of the Bankruptcy Act, 11 U.S.C. § 22. As this Court

explained in Continental Illinois National Bank &

Trust Co. v. Chicago, Rock Island & Pac. Ry., 294 U.S.

19

648, 676 (1935) (emphasis added): ‘“‘[A] proceeding

under § 77 is not an ordinary proceeding in bankruptcy.

It is a special proceeding which seeks only to bring

about a reorganization, if a satisfactory plan to that

end can be devised.’’ Thus, Congress’ approach to the

financial plight of railroads has been to encourage ‘*con-

tinued rail service through railroad reorganizations

rather than liquidations ... .’’ 126 Cong. Ree. H8619,

col. 2 (September 9, 1980). Its use of employee pro-

tection requirements to aid in fostering that goal is

clearly consistent with that purpose, and is an integral

part of both the MRRA modifications to Section 77’s

and the Bankruptey Code’s railroad reorganization

provisions,” as modified by Section 227 of the SRA,

94 Stat. 1931.

Unfortunately, the decisions below, by themselves

and especially when taken together with those in the

Susquehanna case, have effectively undermined the

statutory scheme which Congress has so carefully

woven to regulate railroad reorganizations. Not only

have thousands of Rock Island employees been denied

the needed protections which Congress has decreed

are required by the public interest, but it is clear that

as the law now stands, no employee protection will be

imposed by a reorganization court or by the ICC in

any subsequent entire line abandonment case under

the MRRA, the Bankruptey Code, or the Interstate

Commerce Act. See, In re Auto-Train Corp., 11 B.R.

418 (Bk.Ct. D.C. 1981), vacated, D.D.C. No, 81-1721,

decided October 28, 1981. Moreover, the lack of an

911 U.S.C. §§ 1161-1174. Section 1174 of the Code now author-

izes the liquidation of a debtor railroad ; that provision in the Code,

Congress has stated, was a change from existing law under Section

77. S.Rpt. No. 95-989 at 12 (1978).

20

employee protection obligation in an entire line aban-

donment case will encourage liquidations of failing rail-

roads rather than their restructuring because liquida-

tions have now become the less expensive alternative.”

It is no answer to the dilemma posed for Congress

and employees by this case and by the Susquehanna

decisions to assert that Congress can enact new legis-

lation if it considers this issue to be important. Con-

gress’ ability to legislate effectively in this area is now

questionable, for the Susquehanna case and the deci-

sion by the CRI reorganization court have concluded

that the Constitution (presumably, the Due Process

and Just Compensation Clauses of the Fifth Amend-

ment) prohibits Congress from requiring a liquidat-

ing railroad to use any of its ‘‘assets for protec-

tion payments to employees whose jobs with [the

debtor] ... are no longer in existence by reason of

such total abandonment and operational discontinu-

ance.’’ Appendix B-1 at 20a. These constitutional ques-

tions, as RLEA explained in its petition to this Court

in the Susquehanna case (Sup.Ct. No. 81-1715, Pet. at

20-24), have been posed recently by other courts and

have been argued to this Court, but have not been

answered directly by this Court. Consequently, Con-

gress cannot be assured that the federal courts will

enforce whatever regulations it might enact to regulate

** Congress’ fear that the lack of an employee protection obli-

gation in major line systemwide abandonments will encourage

liquidations is not mere conjecture. The unsecured creditors and

the debtor in the Milwaukee Railroad Reorganization proceeding

already see the liquidation of that railroad as a desirable goal and

have opposed further borrowings which are needed to aid it re-

organize. The decisions at bar only serve to encourage their efforts

to liquidate rather than to reorganize.

21

railroad reorganizations. Moreover, as this case and

the fate of the employee protective program of RITA ”

clearly show, Congress’ purpose in requiring employee

protection will be frustrated if its commands are not

enforced when the need for those protections arises.

RLEA respectfully submits that this area is too im-

portant to be left in such a state of great uncertainty.

II. By Disregarding The Clear And Unambiguous Command In

Section 17(a) Of The MRRA That Employees Be Protected

Whenever a Section 77 Reorganization Court Authorizes An

Abandonment, The Lower Courts Have Decided An Important

Question Of Federal Law In A Manner Which Conflicts With

Applicable Decisions Of This Court

This Court has frequently admonished federal courts

that the ‘‘starting point” in the construction of a

statute is ‘‘the language employed by Congress.’’ Reiter

v. Sonotone Corp., 442 U.S. 330, 337 (1979). If that

language is clear and unambiguous, the search for the

intent of Congress is complete, for there is, ‘‘of course,

no more persuasive evidence of the purpose of a statute

than the words by which the legislature undertook to

give expression to its wishes.’’ /nited States v. Ameri-

can Trucking Assoc., Inc., 310 U.S, 534, 543 (1940). In

tiis case, however, the lower courts have ignored both

those admonitions and the plain meaning of Section

17(a) to legislate an exception to the unambiguous

command in that Section that: “In authorizing any

abandonment pursuant to this section, the court shall

‘* This Court has recently concluded that the employee protec-

tive program of RITA was repugnant to the Constitution as being

a non-uniform law of bankruptcy. Railway Labor Executives’

Assoc. vy. Gibbons, Sup.Ct. Nos. 36-415, 80-1239, decided March 2,

1982.

22

require the carrier to provide a fair arrangement’’ to

protect employee interests. 45 U.S.C. §915(a) (em-

phasis added). Unfortunately, by judicially legislating

an exception to the all-inclusive mandatory language

of Section 17(a) for entire line abandonments, the

court of appeals has thwarted Congress’ legitimate ex-

ercise of its Commerce and Bankruptcy Clause powers.

When Congress enacted the employee protection re-

quirements in Section 17(a) of the MRRA, it used

words which clearly and unambiguously stated that the

requirement was mandatory and applied to the au-

thorization of ‘‘any abandonment pursuant”’ to that

section. Indeed, by stating that RLEA’s position on

employee protection was “certainly reflected in the

language of the statute’? (Appendix A at 10a), the

court of appeals implicitly acknowledged that the

statute was clear and unambiguous. Federal] courts

have been instructed to stop searching for the mean-

ing of a statute at that point, ‘or this Court has ‘‘his-

torically assumed that Congress intended what it en-

acted.’’ United States Railroad Retirement Board v.

Fritz, 449 U.S. 166, 179 (1980). Nevertheless, without

even acknowledging the limitations upon its jurisdic-

tion to modify a statute by statutory construction, the

court of appeals interpreted that mandatory language

as being permissive because, in its view, applying See-

tion 17(a)’s plain meaning would be ‘‘contrary to what

seems so clearly to be the intent of Congress in en-

acting’ Section 17(a). Appendix A at 10a.

To the detriment of both Rock Island employees and

Congress’ policies in this area, the court of appeals

misconstrued the intent of Congress in enacting Sec-

tion 17’s employee protection requirements. While it is

correct that the legislative history of Section 17 shows

23

that Congress intended that section ‘‘to make no change

in existing law as it affects emplovee protection’? (H.

Rpt. No. 96-583, 36th Cong., Ist Sess. at 27 (1979)),

there is not a single statement in either congressional

reports or debates on the MRRA which mentions the

“entire line abandonment”’ exception. Any attempt to

raise such an ambiguous reference in a congressional

report into being an implied exception to language

which admits of no exception is contrary to the basie

canons of statutory construction. E.g., TVA v. Hill,

437 U.S. 153, 173 (1978); United Air Lines, Ine, v.

CAB, 569 F.2d 640, 647 (D.C. Cir. 1978). Moreover,

such an interpretation of legislative intent is also re-

futed by both the ‘‘existing law’’ on employee protec-

tion and subsequent statements by the same Congress

while it was considering this very issue in connection

with RITA.

Contrary to the court of appeals’ citation of pre-

1976 court and ICC decisions upholding the “entire

line abandonment”’ exception to employee protection

(Appendix A at lla), the sole support for the asser-

tion that pre-MRRA “‘existing law” included such an

exception are several decisions by the ICC construing

the mandatory employee protection language in 49

U.S.C. § 10903(b)(2). E.g., Wellsville, A.&G.R.—

Abandonment, 354 I.C.C. 247 (1978). Pre-1976 cases

are not relevant because it was not until 1976 that

Congress amended the Interstate Commerce Act to

make employee protection mandatory in abandonment

eases. Section 802, Pub. L. No. 94-210, 90 Stat. 31,

127 (1976) (since recodified as 49 U.S.C. § 10903, et

seq.). Post-1976 ICC decisions, besides being errone-

ously decided (see, RLEA Pet. at 17-19, Susquehanna,

supra), are inapposite because they did not involve a

major carrier such as the Rock Island. In the only

24

pre-1976 ICC case involving the potential abandon-

ment of an entire rail system of a major railroad, the

ICC specifically rejected the assertion in that case that

there should be ‘‘the wholesale senaration from employ-

ment [of railroad employees] without adequate com-

pensation ... .’’ Penn Central Transportation Co.—

Reorganization, 347 1.C.C. 45, 92 (1973).

When it concluded that it was ‘ clear’’ that Congress

intended an implied exception to exist in this ease, the

court of appeals ignored post-MRRA statements by

the same Congress which enacted the MRRA that it

viewed its earlier actions in passing the MRRA as hav-

ing imposed a mandatory employee protection obliga-

tion in this case.” While Congress was considering leg-

islation which eventually became RITA, the House

Committee on Interstate and Foreign Commerce re-

ported out that legislation in March 1980, and stated:

During the period of directed service, the bank-

ruptey court, on January 25, 1980, ordered the

Rock Island to be liquidated on the grounds it

could not be reorganized. As part of the litigation

[sic] order, the Rock Island must obtain a cer-

tificate of abandonment from the bankruptcy judge

with a fair arrangement for employees at least as

protective of the employees as required under sec-

tion 11347 of Title 49 of the United States Code.

H. Rpt. No. 96-839, 96th Cong., 2d Sess. at 21 (1980)

(emphasis added). The committee’s statement was

** RLEA acknowledges that subsequent legislative history forms

a hazardous basis for devining the intent of Congress, Andrus Vv.

Shelli Oil Co., 446 U.S. 657, 666 n.8 (1980) ; however, such infor-

mation is instructive in a case such as this where it explains the

intent of Congress before any court inferred that Congress did not

intend such a result.

25

based upon the knowledge that it had earlier in the

*'RRA required the imposition of employee protec-

tion in this case. Moreover, it was premised upon that

interpretation of its own intent that Congress enacted

the alternative employee protective program of RITA,

45 U.S.C. § 1005. Compare, 126 Cong. Ree. 85806 (May

22, 1980) (Remarks of Sen. Kassebaum), with, H. Rpt.

No. 96-839, supra, at 21-23.

By disregarding the instructions of this Court that

the plain language of a statute is to be followed, the

lower courts have construed Section 17(a) of the

MRRA in such a way that the goals which Congress

sought to achieve by the enactment of that provision

have been frustrated, both for the Rock Island situa-

tion and probably for the future. RLEA respectfully

submits that, because the decisions below have had

such a debilitating impact on Congress’ legitimate at-

tempts to regulate commerce and to discourage railroad

liquidations, this Court should review this case.

Ill. By Concluding That 11 U.S.C. §1170 Permitted The Rock

Island Reorganization Court To Authorize An Abandonment

Of The Entire Railroad Without First Conducting An Eviden-

tiary Hearing Into The Validity Of Such An Abandonment,

The Lower Courts Have Construed A New Siatute In A

Manner Which Conflicts With Prior Decisions Of This Court

Section 1170 of the Bankruptcy Code, 11 U.S.C.

§ 1170, provides in two subsections that the reorgani-

zation court may authorize an abandonment pursuant

to that section only after notice and a hearing. 11

U.S.C. §1170(a), (¢). That hearing requirement is not,

petitioner RLEA submits, a mere hortatory provision,

but rather, it is a command which seeks both to protect

the public interest and to assure that basic due process

26

guarantees are provided. Cf, Goldberg vy. Kelly, 397

U.S. 254, 267 (1970). Both the reorganization court

and the court of appeals concluded, however, that the

evidentiary hearing requested by RLEA was unneces-

sary in this case because of the reorganization court’s

‘*total immersion” into the CRI’s reorganization (Ap-

pendix A at 4a; Appendix B-2 at 27a), and because

of the earlier decision that the carrier was unreorgan-

izable. Appendix A at 5a; Appendix B-2 at 27a.

By treating the Rock Island’s rights to abandon its

entire system as being justified by the prior reorgani-

zation proceedings, and as being compelled by the

earlier decision to liquidate, the lower courts have de-

prived the abandonment authorization requirement of

any substantive merit; that requirement has become a

mere “procedural requirement” (Appendix A at 5a)

which is simply a ‘‘technical recognition’’ of what has

previously been ordered. Appendix B-2 at 27a. That

emasculation of the need for abandonment authority

clearly conflicts with prior decisions of this Court which

have required such authority before a carrier ceased

operations, even in the face of an erosion of the debtor’s

estate. E.g., New Haven Inclusion Cases, 399 U.S. 392,

461 (1970) ; Palmer v. Massachusetts, 308 U.S. 79, 87-

88 (1939).

This Court has long recognized that the public’s in-

terest in continued rail transportation is not to be

ignored merely because a railroad enters reorganiza-

tion under Section 77." Indeed, this Court has con-

sistently held that the protection of the public’s in-

* The new Bankruptcy Code has not changed this principle for

11 U.S.C. § 1165 infuses the public interest into railroad reorgani-

zations under the Code.

27

terest in continued rail service is one of the dual ob-

jectives of Section 77. £.g., New Haven Inclusion Cases,

supra, 399 U.S. at 431. While it is correct that a

‘carrier cannot be compelled to carry on even a branch

of business at a loss, much less the whole business of

carriage’’ , Brooks-Scanlon Co. v. Railroad Commis-

sion, 251 \J.8. 396, 399 (1920) ), it is also well accepted

that the “public interest is not merely a pawn’’ to be

sacrificed to the private interests of the creditors and

debtor. E.g., Penn-Central Merger Cases, 389 U.S. 486,

511 (1968). As the Seventh Cireuit recently sum-

marized in another case involving the Rock Island:

When the continuation of rail service is essen-

tial for the protection of the public interest, the

courts have . . . determined that the shareholders’

right to realize the value of the property may be

held in abeyance for a reasonable period while a

solution, acceptable to both the publie and private

interests, can be devised.

Gibbons v. United States (hereinafter, ‘‘Gibbons IT’’]

7th Cir. Nos. 79-2413, et al., decided October 7, 1981,

slip op. at 20.

The abandonment process is one method by which

that solution can be devised, Palmer v. Massachusetts,

supra, and thus, it is clear that a carrier, even a cash-

less oe such as the Rock Island, cannot withdraw iis

assets from the railroad business until it obtains regu-

latory approval to abandon its operations. E.g., New

Haven Inclusion Cases, supra, 399 U.S. at 461; Gibbons

v. United States (hereinafter, ‘Gibbons I’’], 660 F.2d

225, 229 (7th Cir. 1981). However, in viewing the pur-

pose to be served by requiring abandonment approval

before actually liquidating, it must be borne in mind

that Section 77 places the primary responsibility for

28

devising the solution acceptable to the public upon the

ICC under Section 77(d). Ecker v. Western Pac. R.,

318 U.S. 448, 468 (1943). Moreover, it should also be

remembered that unless a line of railroad authorized

to be abandoned is sold or leased for continued rail

usage, there is no bar to the scrapping of that line.

Since Section 77(d) has been bypassed in this case, the

abandonment process, with all of its dangers, was the

sole mechanism available to the public to assure that

rail lines which could be preserved for rail usage were

in fact saved.”

By denying RLEA the right to challenge the validity

of the solution recommended by the ICC, the lower

courts have deprived the abandonment authority proc-

ess of its reason for existing. If, as the courts below

have concluded, the abandonment authority is simply

a technical recognition of the liquidation order, then

there is no justification for holding in abeyance the

shareholders’ right to realize the value of their prop-

erty while that procedural formality is being obtained.

Indeed, one court has already reached such a conclu-

sion. In re Auto-Train Corp., supra. But yet, it is well

settled that the abandonment process does hold those

rights in abeyance. Gibbons II, supra; Gibbons I, supra,

660 F.2d at 229. If that process is to retain its sub-

stantive validity under Section 1170 of the Bankruptcy

Code, then the hearing requirement must call for an

actual evidentiary hearing when an interested party

challenges the justification to abandon all rail lines of

the debtor, especially those which the ICC has con-

cluded are essential to the communities served by those

*° The danger of not examining closely the validity of an aban-

donment order encompassing lines which are clearly essential to

affected communities is evident from this case, See, note 4, supra,

at 6.

29

lines. The decisions below have substantially jeopar-

dized Congress’ intent that the abandonment process

retain its integrity under both the MRRA and the

Bankruptcy Code.

CONCLUSION

For the reasons set forth herein, Petitioner Railway

Labor Executives’ Association respectfully requests

that a Writ of Certiorari be issued to review and to

reverse the Judgment of the Seventh Circuit.

Respectfully submitted,

JOHN O’B. CLARKE, JR.

Hicusaw & Manoney, P.C.

Suite 210

1050 - 17th Street, NW

Washington, D.C. 20036

(202) 296-8500

Attorney for Petitioner

Dated: March 30, 1982