# Petition for Writ of Certiorari — Great Northern Railway Co. v. Pullman Co.

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Petition for Writ of Certiorari
- **Published:** January 1, 1975
- **Citation:** 423 U.S. 863

## Text

; —

Supreme Coert, U. &

FILED
JUL 2 1975

MICHAEL RODAK, JR..CLERI

IN THE

Supreme Court of the United States

OCTOBER TERM, 1974.

No. Y5- 7 ;

THE GREAT NORTHERN RAILWAY COMPANY anp
THE NORTHERN PACIFIC RAILWAY COMPANY,
CORPORATIONS,

Petitioners,
vs.

THE PULLMAN COMPANY, A CORPORATION,
Respondent.

PETITION FOR A WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS
FOR THE SEVENTH CIRCUIT.

JOHN H. BisHop,
135 South LaSalle Street,
Chicago, Illinois 60603,
Attorney for Petitioners.

Of Counsel:
JAMES J. FLYNN,
One IBM Plaza,
Chicago, Illinois 60611.

Gunthorp-Warren Printing Company, Chicago e Financial 6-6565

erases ——_

INDEX.

PAGE
SY MI An iis de AUN p bee CRGA Ae eM Aa 2
Pummmmectiomal GIMMMNOME wo. ok cece cacccnces 2
SE eee Nin Cota AL 3
Oe CD knit sami ue hweuicaerediehs 4
Reason for Granting the Writ ...................... 16

The decision of the Court of Appeals violates the
mandate of Rule 52(a) of the Federal Rules of
Civil Procedure that findings of fact shall not be set
aside unless clearly erroneous and decisions of this

SY SOE SH GIN as vc wk can GON Cade cee ek 16
Prayer for Writ of Certiorari .................00005. 25
Appendix:

Opinion of the Court of Appeals ................ Al

Opinion of the District Court ................4.. Al8

List OF AUTHORITIES.

Cases.
Graver Tank & Mfg. Co. v. Linde Air Products Co., 339
EEE Wine ney hk aoe tie ees pase 22
Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U. S.
Se SD 0c cue e a a ale ba een Eee aed 21
Rule.

IN THE

Supreme Court of the Gnited States

OcToBER TERM, 1974.

THE GREAT NORTHERN RAILWAY COMPANY anp
THE NORTHERN PACIFIC RAILWAY COMPANY,
CORPORATIONS,

Petitioners,
vs.

THE PULLMAN COMPANY, a CORPORATION,
Respondent.

PETITION FOR A WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS
FOR THE SEVENTH CIRCUIT.

Petitioners pray that a writ of certiorari issue to the United
States Court of Appeals for the Seventh Circuit to review the
judgment of that Court entered on April 17, 1975. That judg-
ment reversed a judgment entered by Judge McLaren of the
District Court for the Northern District of Illinois. Chief Judge
Fairchild dissented from the judgment of the Court of Appeals.

Bi! EED THROUGH

PEE POP ERE IN ROR OE TD es ae Om

OPINION BELOW.

The opinion which incorporates the findings of the District
Court was not reported. It is contained in the Appendix hereto.
The opinion of the Court of Appeals for the Seventh Circuit is
not yet reported in the Federal Reporter. It is incorporated in
the Appendix hereto.

JURISDICTION.

The judgment of the Court of Appeals for the Seventh Circuit
sought to be reviewed was entered on April 17, 1975. A timely
Petition for Rehearing was denied on May 21, 1975.

The jurisdiction of this Court is invoked under 28 U. S. C.
§ 1254(1).

QUESTION PRESENTED FOR REVIEW.

In this case, the District Court held that, under a contract
known as the Uniform Service Contract between Respondent
Pullman and the Petitioners, Pullman was only entitled to re-
imbursement from Petitioners for separation payments made to
its employees if such payments constituted “operating expenses”
to Pullman as that term is defined and applied in accounting. The
District Court further found that separation payments by Pull-
man to its employees, which were occasioned by the cessation
of Pullman’s operations, or its non-operations, were not “operat-
ing expenses” as that term was used in the Uniform Service Con-
tract and is employed in accounting, and hence were not reim-
bursable to Pullman.

In reviewing the judgment and findings of the District Court
sitting without a jury, can a Court of Appeals set such findings
aside where they were based upon (1) expert accounting evi-
dence and (2) the undisputed accounting practices of Pullman
with respect to analogous accounting questions, without a show-
ing, or even an assertion, that such findings were clearly errone-
ous as is required under the provisions of Rule 52(a) of the
Federal Rules of Civil Procedure?

t LEI REEL Of IOI LLG DED IEEE ALLIS LE LER LNG ILE ELIE IAL

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NAR RAINE NIN HT TI A OP OIE: MERTEN

STATEMENT OF THE CASE.

In 1949, Respondent, The Pullman Company, executed the
Uniform Service Contract (“USC”) with virtually all of the
railroads in the United States which then offered sleeping car
service. That contract required each of the railroads to reim-
burse Pullman to the extent Pullman’s “operating expenses”,
“rental for cars”, and “taxes” exceeded its “operating revenues”
in conducting sleeping car service.

In 1968 and 1969, those railroads which still remained parties
to the contract withdrew from it as they had the right to do.
Pullman then terminated all of its business and operations.
This cessation, and Pullman’s anticipation of it, resulted in the
termination by Pullman of all of its employees. Most of those
employees were paid a separation allowance. These payments
totaled $14.9 million. Pullman classified these separation pay-
ments as “operating expenses” under the USC and then billed
the rai?*oads to recover the amounts so paid. Petitioners Great
Northe:. «nd Northern Pacific contested such billings on the
ground that the payments were costs attributable to the cessation
of Pdjiman operations and hence not operating expenses. Peti-
tioners-were sued for such unpaid billings. The petitioners denied
liabilixy and counterclaimed for the recovery of amounts paid to
Pullman for separation allowances. District Judge McLaren
found for the petitioners, holding that certain separation pay-
ments were not reimbursable operating expenses under the USC.
A statement of the facts underlying the District Court’s holding
follows. *

* Record references are employed herein as follows: “A” means
the printed appendix in the Court of Appeals for Great Northern
and Northern Pacific; “PX” means Plaintiff's exhibit; “DX” means
Defendants’ exhibit; “Cert. App.” means the appendix to this petition.

syewnrs: Qe ee cE NRIOL POLIS REIT HG STONE ORE ERI YORE EE PERMITE
PAE ER 9 ‘ i

The Purchase of Pullman Capital Stock by the Railroads and
the Uniform Operating Contract.

The United States, in 1940, filed suit under the Sherman Act
against Pullman, Inc. and its wholly owned subsidiaries Pull-
man-Standard, a manufacturer of sleeping cars, and Pullman,
which furnished, manned, and serviced sleeping cars. The Court
found that all three defendants had engaged in a monopoly in
violation of the Sherman Act. United States v. Pullman, 50 F.
Supp. 123, 132-134 (E. D. Pa., 1943). In May, 1944 a decree
was entered requiring Pullman, Inc. to divest itself either of
Pullman-Standard or Pullman (A. 114-116). Pullman, Inc.,
elected to divest itself of Pullman, and it proposed to sell to the
railroads its capital stock and the sleeping car business.

While the order of the District Court approving the proposed
sale (64 F. Supp. 108) was being appealed to the Supreme
Court, the buying group of railroads submitted a proposed
operating contract, which was designated “Uniform Operating
Contract” (“UOC”), to the Interstate Commerce Commis-
sion to obtain approval of its as a “pooling agreement”.* After
the Supreme Court affirmed the decree approving the sale (330
U. S. 806), the ICC approved the UOC, finding that each of
the 59 railroads had assented to its terms (268 I. C. C. 473).
On June 30, 1947, Pullman’s capital stock was sold to the
59 railroads who purchased that percentage of stock which was
equivalent to their percentage of use of Pullman service during
the year 1940 (A. 118).

The UOC specified the method of accounting between Pull-
man and each of the railroads with respect to revenues and ex-
penses of operation. It provided that Pullman should retain from
its “gross earnings” in each contract year the total of its expenses
of operation plus an interest return on Pullman’s investment in
cars operated. It further provided that if earnings exceeded ex-

* The complete text of the Uniform Operating Contract appears
at pp. 1-22 of Pullman’s Appendix in the Court of Appeals.

6

penses of operation and interest, the overage would be divided
equally between Pullman and the railroad, but that if expenses of
operation and interest exceeded earnings, then the railroad would
pay to Pullman the amount of the deficiency. The term “ex-
penses of operation” was define¢ to include “all of Pullman's
expenses of conducting its sleeping car business, except the cost
of maintaining and operating air conditioning apparatus. . . .”
Emphasis supplied. (A. 118-119.)

In early 1949, a new contract, known as the Uniform Service
Contract (“USC”), was submitted to the ICC for its approval.
The Commission approved the USC, and it became effective
July 1, 1949 (276 I. C. C. 5). The USC, as amended, provided
that for each year “Pullman shall furnish a statement . . . of
revenues, expenses, and a 3% return on Pullman’s investment
. . ., in accordance with Appendix A attached to and made a part
of this contract.” It required that: “If for any Contract Year the
expenses allocated to the Railroad plus a 3% return on Pullman’s
investment . . . shall exceed the revenues allocated to the Rail-
road, the Railroad shall pay to Pullman the amount of the
deficiency.”

Appendix A to the USC provided that:

“Expenses to be accounted for under this contract shall
include the following:
(A) Operating Expenses
(B) Taxes other than Federal Taxes on Income
(C) Rental for Cars”

After providing for the segregation of actual expenses into 10
cost groups, the appendix required that:
“({E]ach of [such] groups shall include direct and indirect
expenses pertaining thereto, . . . as provided for in Pull-
man’s ‘Classification of Accounts’ as prescribed by the
Interstate Commerce Commission.” (Pullman’s App. 34-
35, 79-80).
Under the USC each railroad had the right, upon the giving
of 6 months notice, to completely withdraw from and cancel

a

GONE AGS ETRE P T OL LL IEIEEE DOLE i ENN IOE BOE IT PE II IE LE PLING EOE EEE —_—

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the contract. Railroads also had the right to withdraw partially,
or take over from Pullman the actual operation of the cars while
leaving the maintenance and shopping of cars with Pullman.

Reduction in USC Operations and Job Protection Demands
by Pullman Unions.

In the 1950's, as the public turned from railroad service to
other modes of intercity transportation, Pullman’s operations
under the USC were reduced. That reduction of Pullman opera-
tions, magnified by the determination of many of the railroads
to go out of the passenger business, was to continue without
interruption (A. 11-12, 120, PX 3). As a consequence, a sub-
stantial disparity arose between the percentage of stock owner-
ship of many of the railroads and their respective percentage of
use of Pullman service. After 1958 the New York Central, which
in the 1940's had accounted for approximately 15% of use and
accordingly owned 15% of the capital stock of Pullman, no
longer accounted for any material use of service (PX 3).

The reduction in service, and withdrawals from Pullman
operations by the New York Central and others, resulted in
the termination from employment of large numbers of Pullman
employees (A. 12, PX 3). These terminations were followed
by union demands on Pullman for job protection.

In 1960, the conductors’ union demanded protection for its
members in the event of terminations of the USC. After the
procedures required by the Railway Labor Act had been ex-
hausted, the conductors authorized a strike to begin on April
12, 1962 (A. 124-125, Stip. Ex. Q). Pullman obtained first
a temporary and then a permanent injunction preventing any
strike (A. 125). That judgment was reversed (316 F. 2d 556),
and the injunction was dissolved in October, 1963; but in the
interim the conductors commenced litigation described hereafter
which effectively prevented for some time further withdrawals
from the USC.

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Shortly after the conductors’ strike had been enjoined, the
Pennsylvania notified Pullman that effective October 1, 1962
it would “partially withdraw” from the USC on its local lines.*
Pennsylvania was then the largest user of sleeping car service,
accounting for more than 15% of Pullman’s operations. In
the sense used by Pennsylvania, and later by other railroads
who did likewise, a partial takeover or withdrawal from the
USC resulted in the railroad assuming the operation of the
sleeping cars while leaving with Pullman the maintenance and
shopping of the cars. Pullman porters, conductors, and some
clerks were adversely affected by partial takeovers, as distin-
guished from complete takeovers which would adverscly affect
not only those classes of employees but also shopcraft workers
and supervisors (A. 126).

After service of Pennsylvania’s notice of partial withdrawal,
the conductors sued Pennsylvania and Pullman. In October,
1962 the District Court for the Northern District of Illinois
enjoined the withdrawal until such time as the ICC would find
that its approval of the USC and the pooling arrangement would
not be violated by the proposed withdrawal (Brogan v. Pennsyl-
vania R. R. Co. et al., 211 F. Supp. 881, N. D. Ill. 1962). The
Commission found in January, 1964 that Pennsylvania's pro-
posed action was contemplated by the USC and not violative of
its order approving the “pooling agreement” (322 I. C. C. 100),
and a three-judge court affirmed the ICC’s finding (263 F. Supp.
650, N. D. Ill. 1966). That judgment was affirmed by the
Supreme Court on June 12, 1967 (388 U. S. 455), leaving.
Pennsylvania, after 5 years of litigation, free to withdraw. The
Pennsylvania withdrawal was accomplished on August 1, 1967;
however, for five years, a moratorium had been effected upon
railroad withdrawals from the Uniform Service Contract (A.
127).

* “Local line” service was sleeping car service conducted on the
lines of one railroad; “joint line” service was the operation of a line

of sleeping cars over the tracks of two or more railroads (Plaintiff's
App. 25-26).

9

During the period that the right of the Pennsylvania to
withdraw was being litigated, the porters, the conductors, and
the shopcraft unions entered into agreements with the contract
railroads for job protection in the event of railroad with-
drawals from the USC (A. 124-129).

Effects of Pennsylvania’s Withdrawal Activities.

During the five-year period in which Pennsylvania’s much-
litigated notice of withdrawal pended, the operating revenues
of Pullman dropped 50%, the number of cars operated de-
clined 40%, and the number of its employees was reduced by
about 35% (PX 96).

In June, 1967, after the Supreme Court affirmed the right of
Pennsylvania to withdraw, executive employment contracts were
immediately made between Pullman and all of its executives.
Those contracts required Pullman to maintain the executive's
existent salary and, in the event of termination of employment
prior to normal retirement, to pay monthly the difference be-
tween what the executive would have received if he had retired
at normal retirement date and the amount actually received
under the pension plan at the date of termination (A. 60). As
evidenced by the employment contracts, management was then
fearful that Pullman would not continue to exist because of the
Pennsylvania withdrawal and the threat of similar action by
other railroads (A. 456). So were the unions, for in late Au-
gust, 1967, after the Pennsylvania withdrawal had been effected,
the porters’ and clerks’ job protection demands, which had been
dormant for two years, suddenly were renewed. After the
National Mediation Board almost immediately terminated its
participation in these cases, the clerks and porters were in a
position to strike (A. 183-184). However, when Pullman
agreed to consider separation payment agreements for the clerks
and porters and in fact entered into a tentative agreement with
the clerks union, the threatened strikes were averted (A. 184-
186).

GRAS EPRI TN OAS ETE SORES EE EE RTO CSE FLAT TUE PS Rn ee ee |

10

Pullman appended to the clerks’ agreement the following
stipulation:

“It is understood and agreed that the attached [separation
pay] agreement shall be executed by The Pullman Com-
pany and your organization as scon as The Pullman Com-
pany receives authorization for the billing of these separa-
tion allowances from the railroads involved in sleeping car
operations under the Uniform Service Contract.” Emphasis
supplied. (PX 131, 190, p. 5, A. 185-186).

In considering these proposed agreements, Pullman’s Presi-
dent, George W. Bohannon, and its Director of Labor Rela-
tions, Fred J. Boeckelman, concluded that in order for Pullman
to recoup from the railroads any amounts paid to employees
under them, the approval of the railroads would be necessary
(A. 453-455). Bohannon and Boeckelman considered sub-
mitting an amendment to the Uniform Service Contract to the
railroads, but that course was rejected because they thought such
an amendment could not be obtained (A. 453-454, 460).
Rather than amending the USC, management determined to
first submit the agreements to the Pullman Advisory Committee
and its Accounting Subcommittee* and then to the contract rail-
roads for approval from a majority of them (A. 458). This
course or procedure which was followed by Pullman was not
authorized by the USC or by the order of the ICC approving the
USC. As reported by Pullman, it was the “consensus” of the
Advisory Committee that management should proceed to submit
to the railroads the proposed separation agreement and the
manner of recovery of any costs to be incurred (A. 295-296,
DX 124).

In March through May, 1968, Pullman communicated with
the railroads concerning these agreements. After a majority of
the railroads approved execution, Pullman signed the agreements

* The Pullman Advisory Committee was made up of officials
of some of the railroads. It was purely advisory, and it was without
authority to bind the railroads or to amend the USC. Great Northern
and Northern Pacific were not represented on the Advisory Com-
mittee or any of its subcommittees (A. 136, 461).

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11

on May 27, 1968 (A. 188-190). Each provided that employees
in active service on November 13, 1967 would, if separated after
that date, be entitled to a separation payment which could
amount to the equivalent of 16 months pay (Stip. Ex. AA, BB).

In April, 1968 Penn Central, formed by merger in February,
notified Pullman it would complete the withdrawal on its local
lines by the takeover of maintenance and shopping (PX 12-
14). At the same time, Penn Central was cajoling the roads
with which it had joint line service to withdraw completely from
the USC, which action would necessitate a comparable with-
drawal by virtually all of the eastern and southern railroads
(A. 266-270, PX 17, DX 218, DX 284-289). These railroads
accounted for 49% of Pullman operations in the first six months
of 1968 (PX 120, pp. 10-11).

In the first 6 months of 1968, Pullman had separated ap-
proximately 15% of its employees (DX 49). Further, Pullman
had closed its New York laundry and its St. Louis repair shop,
thus reducing its plant to one laundry and one repair shop
(PX 14).

As a result of the execution of the agreements with the
clerks and porters and Penn-Central’s withdrawal activities,
the remaining Pullman unions made requests for separation
payment agreements in the summer of 1968 (A. 190-191).
Pullman again took the position that it had no authority under
the USC to bill such costs to the railroads. It stated to the
National Mediation Board:

“The reason for our position is clearly outlined in the
. . . [porters’ and clerks’ cases], in which disputes it was
necessary for the unions to set strike dates in order to get
the issue to the attention of our railroad operators, who had
to approve the assumption of the separation allowance and
displacement allowance expense provided for in those
agreements.” (PX 136).

While the eastern and southern railroads were considering
withdrawals from the USC in early 1968, Great Northern,

ANS OL OLR WAY

"HR OUGH

12

Northern Pacific and CB&Q (sometimes “Northern Lines”) and
Santa Fe—all major users of Pullman service*—were discussing
withdrawal from the USC among themselves and with Pullman.
Pullman’s president advised the Northern Lines that withdrawal
by a major railroad user could result in a “snowball” effect which
would trigger withdrawals by all other railroads (PX 17, DX
218).

Bohannon’s fear of a “snowball” effect was well-founded,
for on August 20, Pullman was advised by Seaboard Coastline
that Penn Central had insisted upon partial takeover effective
November | and that Seaboard had no choice but to also effect
such a takeover (DX 66A). As a consequence, almost all of
the eastern and southern railroads served notices of partial with-
drawal effective November | (PX 20A-E, DX 53, DX 303).

As such notices of withdrawal were being received, Pullman
advised the railroads that the conductors’ union had “processed
its proposal” under the Railway Labor Act and had said it
would strike on September 14, but that the conductors would
accept the same type of separation pay agreement that had
been executed with the porters. The railroads were asked to
approve the execution of the agreement (PX 18, 19). On
September 11, 1968, Pullman determined that a majority of the
railroads had approved execution of the conductors’ agreement,
and it was signed on September 11 (A. 193).

The Proposal for an Orderly Withdrawal of the Railroads from
Pullman and the USC.

After the spring of 1968, Mr. W. T. Rice, President of Sea-
board, knew that the demise of Pullman was inevitable (A.
264). When the notices of partial withdrawal of the eastern
and southern railroads had been effected, he concluded that the
question was not whether to liquidate Pullman, but when and

* In the first six months of 1968, Santa Fe accounted for WW 4%
and the Northern Lines 14.7% of Pullman operations (PX 120,
pp. 10-11).

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how to do so. On that account, he and Stuart Saunders, Chair-
man of the Penn Central, determined to work out a program
for orderly withdrawals from the USC and the liquidation of
Pullman (A. 270-271, DX 306). On September 6, 1968,
Saunders wrote Rice, saying:
“Following our recent conversation, the Burlington, Great
Northern and Northern Pacific advised us of their plan of
partial withdrawal in November and complete withdrawal
effective March 1, 1969. We have heard informally that
other sleeping car lines are studying the situation.

“This confirms your view that the affected lines should be-
gin thinking of an orderly termination of operations. Be-
cause of the increased costs and other disadvantages of
being the last users of this service, our passenger people
expect an onslaught of such notices in the next several
months.” (DX 305).
Rice and Saunders arranged to schedule a meeting of the rail-
roads for September 27 so as to plan for the termination and
liquidation of Pullman (PX 24, DX 305, 306). President
Bohannon of Pullman attended the meeting, which was held in
Washington, D. C. (A. 266-267, PX 25). He urged the eastern
and southern railroads to retract their notices or, in the alter-
native, to change the effective date of them from November 1 to
January 1, 1969 (A. 271). The roads refused to retract their
notices, but it was agreed to reset the date of the withdrawal to
January 1, 1969, and Bohannon was so advised (A. 271-272,
DX 307-308). The remaining railroads in the east and south
were directed by Bohannon to serve like notices of withdrawal
from the USC (PX 26).

Afterwards on October 8, Bohannon thought that a further
series of withdrawals from the USC was inevitable. He suggested
to the president of the Chicago Burlington & Quincy that all
railroads should partially withdraw on January 1, 1969, in order
to avoid the complications that would result from a further series
of partial withdrawals (DX 248). In rapid succession like notices
of partial withdrawal were received from the western railroads

THR OUGH

14

(DX 53). It was then apparent that it would no longer be pos-
sible for Pullman to continue to operate sleeping cars. Thus,
Pullman on October 28 wrote each of the remaining contract
railroads requesting that notices of partial withdrawal be given
effective January 1, 1969 (PX 29).

Complete Withdrawal by the Western Railroads.

In early November, while Pullman prepared for the takeover
of the operation of railroad sleeping cars on January 1 (a loss of
at least 42% of its business), Pullman’s president thought and
stated that this takeover was but a first step to a probable subse-
quent takeover of all remaining services (PX 31B). Bohannon’s
prediction had a real basis in fact; for, in early November,
Southern Pacific, Union Pacific, and Milwaukee, which together
accounted for approximately 15% of Pullman operations, were
considering complete withdrawal from the USC (DX 81). Pull-
man made a presentation to these railroads on November 8, and
Bohannon then stated that “take-over of all [remaining] service
[maintenance and shopping] by several railroads would be the
signal for a similar action by all other [railroads]”, which circum-
stance was described as “a snowball” (DX 80). On December
10, Union Pacific and Southern Pacific notified Bohannon that
they would take over the maintenance and shopping of the cars
(a complete withdrawal) on July 1, 1969. In late December,
formal notices of complete withdrawal were received from Santa
Fe, Union Pacific, Southern Pacific, and Milwaukee (PX 35, 36,
37, and 38). Consequently, before year-end 1968, Pullman knew
that western railroads accounting for 25% of operations would
take over the services still remaining under the USC. These
notices were of extreme significance not only to Pullman but to
the other contract railroads. As a result Rice, President of Sea-
board, again arranged for Bohannon to meet with the chief
executives of the railroads in Boca Raton, Florida on January

PGR ES UY A ES I Saiiniiainies aver acted cae

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15

31, 1969, in order to “have another discussion similar to the one
held in Washington last fall” (PX 41).*

While the Boca Raton meeting was being arranged, Pull-
man met with the shopcraft unions and advised them that the
railroads had not approved execution of a separation payment
agreement for them, that there was particular objection to the
effective date of October 17, but that Pullman would consider
an effective date of January 1 (Tr. 1290-1291, A. 199, DX
343). The unions considered the situation, and there was immedi-
ate agreement to Pullman’s proposal. The agreement was executed
on January 16, 1969 (A. 199-200).

The Meeting at Boca Raton, Florida.

On January 31, and February 1, Pullman’s president
Bohannon attended the meeting at Boca Raton. Some railroads
said they would take over on July 1, and others said they were
taking over on October 1 or November 1. After the president of
the Southern Pacific said, “we had better get this over with”, all
railroads agreed to terminate all remaining Pullman operations
effective August 1, 1969 (A. 212-215).

After February 1, 1969, no sleeping cars were accepted for
overhaul at the Calumet shop, the entire work force there
was laid off, and then the shop was closed. Maintenance activi-
ties in terminals around the country ceased on August 1, 1969
(Tr. 3079-3082).

Payment of Separation Allowances.

Pullman paid 2,125 employees separation allowances which
totaled approximately $15.6 million. The bulk of these payments
were made in the period from August, 1968, through September,
1969.

* The stated purpose of the meeting in Washington, D. C. that

fall was to plan for the termination and liquidation of Pullman, supra,
pp. 12-13.

) THROUGH

16

REASON FOR GRANTING THE WRIT.

THE DECISION OF THE COURT OF APPEALS VIOLATES
THE MANDATE OF RULE 52(A) OF THE FEDERAL
RULES OF CIVIL PROCEDURE THAT FINDINGS OF FACT
SHALL NOT BE SET ASIDE UNLESS CLEARLY ERRONE-
OUS AND DECISIONS OF THIS COURT ENFORCING
THAT RULE.

In the decision reversing without remandment the judgment
of the District Court, where jurisdiction was based on diversity
of citizenship, the Court of Appeals found that separation pay-
ments made by Pullman to employees terminated by reason of
the cessation of its business operations—Pullman’s non-
operations—were “operating expenses”. That was the crucial
term used in the Uniform Service Contract which had been
executed by Pullman with virtually all of the railroads that fur-
nished sleeping car service. Chief Judge Fairchild dissented. He
found, consistent with the comprehensive opinion of the District
Judge, that such separation payments were not “operating ex-
penses” as that term was used in the contract but costs of liquida-
tion which should rightly be borne by the shareowners of Pull-
man. He, as did the District Judge, made the distinction, estab-
lished by expert accounting evidence and Pullman’s own account-
ing practices, between the expenses of a “going concern” and the
costs of a business in liquidation. The majority failed to make
that distinction or even to recognize that in accounting such a
distinction exists.

The reversal of the judgment by the Court of Appeals is of
exceptional importance, for it will govern not only the parties to
this action but the respective obligations as between Pullman and
numerous other railroads (A. 74). $15 million is at stake. For,
if the decision of reversal stands, Pullman’s last handful of sig-
nificant operators of sleeping cars will be required to bear the

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$15 million which Pullman in its last year paid to long-term
employees because of the termination of its operations. As a
consequence of the decision of reversal, the risk and cost of going
out of business will be shifted from the capital interests or owners
of Pullman to the last customers—a plain injustice.

The majority opinion of the Court of Appeals reaches a result
that overturns the findings of the District Judge which were
based upon substantial expert testimony. Those findings were not
shown to be erroneous let alone clearly erroneous. Further, the
findings that the Court of Appeals substitutes for those of the
District Judge are without any support in the record.

After hearing evidence comprising more than 3,200 pages of
transcript, much of it expert accounting evidence, and consider-
ing more than 600 exhibits, the District Court said:

“The term “operating expenses” is not defined in the Uni-
form Service Contract (“USC”). Even assuming arguendo
that the parties intended to have the railroads guarantee
against operating losses by Pullman (Stip. Ex. F, 268 I.C.C.
473, 479), this does not eliminate the necessity of defining
operating expenses or losses. In the absence of either a
definition in the contract or an established legal definition
of the term “operating expenses,” since it is a term of art
within the accounting profession and it appears that the
parties intended to use it in that sense, parol evidence of
usage within the profession is appropriate when the term is
capable of a definite interpretation. Phillips Petroleum Co.
v. Payne Oil Corp., 146 F. 2d 546, 547 (10th Cir. 1944);
Schrieffer's Motor Serv. Inc. v. United Freight Forwarders,
Inc., 210 F. Supp. 287, 291 (D. Minn. 1962).

“Among accountants, there appears to be a generally ac-
cepted definition of operating expenses. The term includes
those expenses incurred in the conduct of the major activi-
ties of a business which are generally recurrent in nature
and somewhat normal and dependable in their operation.
A non-operating expense is one which is not incurred
directly in the conduct of the normal or major operations
of the business, does not recur at regular intervals, and is
more or less fortuitous in its occurrence.

THR OUGH

TOC ODN

18

“This Court rejects Pullman's contention that separation
payments are operating expenses simply because signing the
separation pay agreements was necessary to avert strikes
and a need existed for the employees at the time of signing.
It is the circumstances existing at the time payments were
actually made that determines their treatment under the
USC." [Footnote 3 provides: This is supported by Pull-
man’s treatment of insurance premiums paid on policies that
were part of an employees’ group insurance program and a
pension plan, See finding 62, supra.)

“There are circumstances under which separation pay-
ments are properly considered operating expenses, In de-
ciding whether or not separation payments are operating
expenses, the cause of the separations and the materiality
of the payments are relevant.

“While accountants are in general conceptual agreement
about the term “operating expenses,” there is considerable
subjectivity involved in the decision as to when the separa-
tion payments here ceased being operating expenses charge-
able to the railroad-users and became instead chargeable to
surplus. In short, custom and usage within the accounting
profession is not uniform and does not provide definite
standards; accordingly, expert opinion carries less weight
in construing the parties’ intent than might otherwise be the
case.

“The Court is of the opinion that for purposes of deciding
the issue, the operations of Pullman should be divided into
two parts: (1) the full service that included (a) provision
of conductors, porters and other personnel and services re-
quired for operation of the cars and (b) supplying and
maintaining the cars, and (2) the limited service that only
involved supplying and maintaining the cars. This division
corresponds to the contractual provisions for partial and
complete withdrawal. When a railroad partially withdrew
it continued as a Pullman customer for service number 2.

“Both aspects of Pullman’s operations accounted for a
significant portion of its income. The separation pay agree-
ments can be readily identified with either one or the other
parts of Pullman's business. There also came a point in time
when it became clear that Pullman would cease providing
the respective services, After that time the separation pay-

ei Et

19

ments for employees in that segment of Pullman’s business
were material in amount. This Court is of the opinion that
once it became clear that Pullman was going to discontinue
a segment of its business, separation payments to employees
in that segment of its operations were no longer operating
expenses chargeable to the contract railroads.

“For porters, conductors and others associated with
operations of the cars, (1)(a) supra, the cut-off date for
charging the expenses to the railroads would be October
28, 1968. Sce finding 22, supra, The cut-off date for em-
ployees not in the above category would be January 31,
1969, See findings 27, 28, supra,” (Cert App. A46-A48),

The Court of Appeals does not disturb the finding that the
parties to the USC used the term “operating expenses” therein
in an accounting sense; indeed it endorses that finding, for in
support of its judgment that the separation payments were
operating expenses it relies upon an accounting text or hand-
book (Cert. App. Al3-A14). Indeed, Pullman has conceded
just that, for it said to the District Judge:

“There is litthke doubt that the term “operating ex-
penses” in the Uniform Service Contract has its origins in
railroad accounting.” (Reply Brief, p. 36).

What the Court of Appeals does disturb,-without any showing
of clear error by the District Judge, are the findings as to the
accounting meaning of the term “operating expenses” and the
application of that meaning to the circumstances of this case.

The accounting meaning of “operating expenses” and its
application to the circumstances of this case was not the subject
of documentary evidence; instead, it was the subject of the testi-
mony of expert witnesses—Mr. Kujawa for Pullman and Messrs.
Grogan, Paolo, and Murphy for Great Northern and Northern
Pacific.* On those issues, having observed the respective wit-
nesses, the District Court relied upon the testimony of the experts

* Kujawa was a partner in ‘Arthur “Anderson Co., Grogan, a
partner of Ernst & Ernst; Murphy, a former partner of Price, Water-

house; and Paolo was the former chief accounting officer to the Inter-
state Commerce Commission,

Y THR OUGH

20

propounded by the petitioners. Their testimony established that in
accounting an “operating expense” is One incur:ed in the con-
duct of the operations of a company, which is generally recur-
rent in nature and normal and dependable in incidence from
year to year. Their testimony further established that separation
payments made to employees by reason of the cessation of
all or a significant part of operation are not “operating ex-
penses” but appropriate charges against the surplus accounts
or accounts other than the operating accounts (Grogan, A,
316-320, 324-326, 330-333, 337-338, 350-355; Paolo, A, 394-
395, 396-398, 409-411; Murphy, A, 423-425, 428). Not only
was that expert testimony substantial, it became virtually over-
whelming because its correctness was confirmed by Pullman's
own accounting practices, For in accounting for loss and ex-
pense incurred from the cessation of its operations, Pullman gen-
erally charged all such loss and expense against surplus and not
as “operating expenses”. In winding up, Pullman charged against
surplus:

(a) The loss on wheel units and batteries used in the
continued operation of sleeping cars.

(b) The loss on the sale of linen.

(c) The loss on its material, equipment and machinery
in the railroad terminal yards.

(d) The loss on material on hand at the Calumet shop
(DX 38-42, A. 290, 274-275).

Pullman’s comptroller testified at trial that such charges against
surplus were proper (A. 290). Likewise, at the end of its
business operations Pullman was confronted with another situa-
tion quite analogous to separation pay, in that it involved em-
ployee-generated costs, when it paid premiums for group in-
surance for its employees. Although these employees had devoted
their years of service at Pullman to operations under the Uni-
form Service Contract, Pullman did not consider these amounts
in the main as operating expenses and did not charge operations;

“mean

21

instead, quite properly, as its president testified, the amounts
were charged against surplus (A. 290-291, 276-277, 466).

Further, in September 1968, Pullman’s president held the
judgment that any expense arising from Pullman's several
executive employment contracts (which were executed in June,
1967 in order to retain executives for operations) should be
charged against surplus. In discussing the accounting of Pull-
man because of the cessation of its operations, its president
said;

“The liquidation of assets, including obsolete materials,
disposition of facilities, and closing down of operations
would generally be charged to surplus, as also would be
liabilities due to closing down Mexican operations, lia-
bilities arising from executive employment contracts, and
liabilities under group insurance and pension plans.” (PX
25, Tr. 316).

The decision of the Court of Appeals overturning what the
trial found to be the accounting meaning of “operating expenses”
and the application of that meaning to the evidence of the cessa-
tion of Pullman’s operations is in plain violation of Rule 52(a)
of the Federal Rules of Civil Procedure, which governs appellate
review of actions tried without a jury. In pertinent part, that rule
provides:

“Findings of fact shall not be set aside unless clearly
erroncous, and due regard shall be given to the opportunity
of the trial court to judge of the credibility of the wit-
nesses.” Rule 52(a) F. R. Civ. P.

In Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U. S.
100 (1969), this Court, after a grant of the writ, applied the
mandate of that rule in reversing a judgment of the Court of
Appeals which had reversed a judgment of the District Court
awarding damages for the exclusion of an anti-trust counter-
plaintiff from a market. Mr. Justice White said:

“In applying the ciearly erroneous standard to the find-

ings of a district court sitting without a jury, appellate
courts must constantly have in mind that their function

22

is not to decide factual issues de novo. The authority of
an appellate court, when reviewing the findings of a judge
as well as those of a jury, is circumscribed by the deference
it must give to decisions of the trier of the fact, who is
usually in a superior position to appraise and weigh the
evidence. The question for the appellate court under Rule
52(a) is not whether it would have made the findings the
trial court did, but whether ‘on the entire evidence [it]
is left with the definite and firm conviction that a mistake
has been committed.’ United States v. United States Gypsum
Co., 333 U. S. 364, 395 (1948). See also United States v.
National Assn. of Real Estate Boards, 339 U. S. 485, 495-
496 (1950); Commissioner Vv. Duberstein, 363 U. S. 278,
289-291 (1960).” p. 123.

Such an application of Rule 52(a) is particularly appropriate
where the findings of the trial court deal with matters of a
technical nature which are governed by “principles not usually
contained in the general storehouse of knowledge and ex-
perience.” Graver Tank & Mfg. Co. v. Linde Air Products Co.,
339 U. S. 605, 609-610 (1950). That is precisely the case here,
for the meaning of “operating expenses” and the application of
that meaning to circumstances surrounding a cessation of opera-
tions is a matter of accounting.

Rather than dealing directly with the fact that it is over-
turning findings of fact based on substantial evidence, the
majority opinion of the Court of Appeals appears to attribute
its action to what it considers a more detailed consideration of
the underlying documents and to the “many cases which shed
light on the probable intention of the parties to the Uniform
Service Contract when they used the terms ‘operating expenses,’
‘actual expenses,’ and direct expenses’.” (Cert. App. Al2-A14).

Instead of focusing on the accounting meaning of “operating
expenses” and the application of that meaning to the facts of
this case, the majority attributes significance to the terms “actual
expenses”, “direct expenses” and “indirect expenses”, which are
also found in the USC, supra, p. 6, in order to determine
that the separation pay here was an “operating expense”. This

MER RT eI IP NETS EAN A . i SEE ee PLOTS m |

BIL EED

23

is a case of “tail wagging dog”, for it is clear from the USC
which, in pertinent part, is set forth in the District Court's
Opinion (Cert. App. A23-A24)* that such terms were used in
the sense of actual operating expenses, direct operating ex-
penses, and indirect operating expenses. To ignore that the
terms “direct expenses” and “actual expenses” are sub-categories
of “operating expenses” and to then equate the meaning of those
terms to the meaning of the term “operating expenses” is
fallacious, for what is “direct” or “actual” is not necessarily an
operating expense. The truth is that the termination payments
here in issue were both “direct” and “actual”—but they were
not “operating expenses”; instead, they were costs of liquidation
occasioned by the cessation of operations,

The infirmity in the reasoning of the majority is not cured
by the citation of five cases, which the majority describes as
“allied” to the issue (Cert. App. Al6), when in fact these cases
are inapposite. This Court in Social Security Board v. Nierotko,
327 U. S. 358 (1946), made no pronouncement concerning dis-
missal pay; it only quoted in a footnote from a regulation of the
Treasury Department which required that dismissal pay be taxed
as “wages” under the Social Security Act. Carragan v. Com-
missioner, {97 F. 2d 246 (2nd Cir. 1952) and Hooker v. Hoey,
27 F. Supp. 489 (S. D. N. Y. 1939) are cited for the proposi-
tion that a “severance allowance” and a “retirement allowance”
are taxable income and not gifts to the recipients thereof. With
the propositions that those cases stand for, we do not disagree.
Nor do we dispute that, as held in Inland Steel Co. v. NLRB,
170 F. 2d 247 (7th Cir., 1948), retirement and pension plans
are bargainable issues within the National Labor Relations Act’s
language of “pay, wages, hours of employment or other condi-
tions of employment”. All of this has been axiomatic for years,
as has the proposition stated in Alabama Power Co. v. FPC,
134 F. 2d 602 (Sth Cir. 1943) that bonuses are wages. These

* The Uniform Service contract and the Appendix thereto are com-

pletely reproduced in Pullman’s Appendix in the Court of Appeals
at pages 23 through 107.

HR OUGH

©
AR Sem IE = 0 tacos el

PRES at ROR OF

24

cases are not in point, and they do not establish or purport to
establish the meaning of the term “operating expenses” or that
the separations payments in question here were operating ex-
penses or non-operating expenses.

The Court of Appeals states its justification for overturning
the trial court's findings at the conclusion of its opinion where
it is said:

In allied contexts, separation pay has uniformly been
considered to be a part of wages and part of direct labor
costs. We can only conclude that the separation payments
herein involved were intended by the parties to the Uni-
form Service Contract to be part of “all of Pullman’s ex-
penses of conducting its sleeping car business and com-
missary services” and to be an “operating expense” or
“actual expense” or “direct expense” of such business.

(Cert. App. Al6).
Notwithstanding the fact that the quoted phrase “all-of Pull-
man’s expenses of conducting its sleeping car business and com-
missary service” does not appear in the Uniform Service Contract
but only in the predecessor uniform operating contract, the
conclusion drawn by the majority just does not follow from the
premise—merely because a cost is wages. or akin to wages, or
a direct labor cost does not make it an operating expense.
Would the wages paid to employees guarding Pullman’s idle
physical plant and inactive fleet of sleeping cars and assisting
the auctioneers of that property because of the cessation of opera-
tions be “operating expenses”? Plainly not. Not in an account-
ing sense or in any sense.

Pullman’s comptroller testified that a liquidating expense is
one caused by going out of business (A. 298). Pullman stipu-
lated at the trial that from and after February 1, 1969, it was in
liquidation (A. 208-209). Yet, the bulk of the payments the
majority opinion deems to be operating expenses—$10.7 million
—were made after February 1, 1969 (DX 134).

The Court of Appeals has wholly disregarded the substantial
expert accounting evidence upon which the District Court's find-

BIEETL

25

ings were based. By reason thereof, the Court of Appeals has
wholly failed to discharge the appellate review required by Rule
$2(a).

PRAYER FOR WRIT OF CERTIORARI.

WHEREFORE, Petitioners pray this Court’s writ of certiorari
issue to review and reverse the judgment of the Court of Appeals
for the Seventh Circuit in this case.

Respectfully submitted,

JOHN H. BisHop,
135 South LaSalle Street,
Chicago, Illinois 60603,
Attorney for Petitioners.

Of Counsel:
JAMES J. FLYNN,
One IBM Plaza,
Chicago, Illinois 60611.

Dated: June 30, 1975.

LILO ALY NEEL LIL TES LASERS iv ’ ERLE PI ES PAI EEL NET REE ET

THR OUGH

GEV le ENON LIP RTI

et

me Ree pee ee va

etn ei ee OR

reo: CL

Al

APPENDIX.

IN THE UNITED STATES COURT OF APPEALS
For the Seventh Circuit.

Nos. 74-1493, 74-1494

THE PULLMAN COMPANY,
Plaintiff-A ppellant,
VS.

THE GREAT NORTHERN RAILWAY COMPANY and THE
NORTHERN PACIFIC RAILWAY COMPANY,
Defendants-A ppellees.

Appeal from the United States District Court for the
Northern District of Illinois, Eastern Division

No. 70 C 267

RICHARD W. MCLAREN, Judge.

Argued January 23, 1975—Decided April 17, 1975

Before FAIRCHILD, Chief Judge, SwYGERT and SPRECHER,
Circuit Judges.

SPRECHER, Circuit Judge. The question presented by this
appeal is whether separation payments made to terminated em-
ployees by The Pullman Company by reason of the cessation of
its sleeping car operations constitute “operating expenses” to be
borne by railroads which had contracted to use sleeping car
service.

—"LIKC onl ive il

ESET ODER MTEL NIE ONE ELIA IE PTB ADRES CML LEL NA TORE A EOIS. A OE

A2 OPINION OF THE COURT OF APPEALS

I.

George M. Pullman organized the Pullman Palace Car Com-
pany in 1867, which built Pullman sleeping cars and operated
them under contracts with railroads. In 1899 the company be-
came The Pullman Company; in 1924 Pullman Car & Manufac-
turing Corporation was formed to operate the manufacturing
business; in 1927 Pullman Incorporated was created as a holding
company, holding all of the stock of Pullman Car & Manufactur-
ing Corporation (which in 1934 became Pullman-Standard Car
Manufacturing Company) and all except a small fraction of the
stock of The Pullman Company.

In a suit filed by the United States, the District Court for the
Eastern District of Pennsylvania, finding that a monopoly existed
in violation of Section 2 of the Sherman Act, entered a decree
on May 8, 1944 requiring Pullman Incorporated to divest itself
of either the manufacturing business conducted by Pullman-
Standard or the sleeping car business conducted by The Pullman
Company.

Pullman Incorporated elected to divest itself of its interest
in the sleeping car business and the properties used in con-
nection therewith. On June 30, 1947, the stock of The Pull-
man Company was sold to 59 railroads, who purchased the same
percentage of Pullman Company stock as their percentage of
total Pullman car use during the year 1940.

The Interstate Commerce Commission approved the stock
sale to the railroads and also the execution by Pullman of agree-
ments with each of the railroads utilizing its service in the form
of a “Uniform Operating Contract,” pursuant to which Pullman
operated and serviced sleeping cars, received fares paid by
Pullman patrons, and pooled and allocated revenues and ex-
penses among the railroads which used Pullman’s services.
Proposed Pooling of Railroad Earnings and Service Involved in
Operation of the Pullman Company under Railroad Ownership,
268 I. C. C. 473 (1947).

e RES Si Rie i a Fs aS | SEI EEE RR PG IRCCS BO OMEN ERM I SNORE 2 PEE ED

RiFeE]

THR OLIGH

OPINION OF THE COURT OF APPEALS A3

The Uniform Operating Contract provided that if in any
contract year total gross earnings were less than Pullman’s
“Expenses of Operation,” the railroads would pay Pullman the
amount of the deficiency. “Expenses of Operation” were defined
to include “all of Pullman’s expenses of conducting its sleeping
car business and commissary services,” except income taxes, and
except the cost of operating air conditioning equipment which
cost would be paid directly by each railroad instead of being
pooled.

The Interstate Commerce Commission concluded that these
provisions required the contracting railroads to assure the operat-
ing expenses of the “joint enterprise” by participating “in a
guaranty against operating losses by Pullman.” Jd. at 479.

Effective July 1, 1949, the Uniform Operating Contract was
replaced by the “Uniform Service Contract,” which provided in
Section 7(c) that “[i]Jf for any Contract Year the expenses
allocated to the Railroad plus the 3% return on Pullman’s
investment allocated to the Railroad, shall exceed the revenues
allocated to the Railroad, the Railroad shall pay to Pullman the
amount of the deficiency.” The Contract specified that “[e]x-
penses to be accounted for under this contract shall include the
following: (A) Operating Expenses, (B) Taxes other than
Federal Taxes on Income, (C) Rental for Cars.”

An amendment to the Uniform Service Contract, Appendix A.
became effective January 1, 1956 and provided in part that
“[a]ctual expenses shall be segregated into the following [ten]
general cost groups,” including such items as “Car Repairs,”
“Conductors” and “Porters.” Appendix A also provided that:

Each of the above groups shall include direct and
indirect expenses pertaining thereto, as well as appropriate
proportions of district and general administrative expenses
and taxes, other than Federal taxes on income, as provided
for in Pullman’s “Classification of Accounts,” as pre-
scribed by the Interstate Commerce Commission.

a |

an oe Sane

A4 OPINION OF THE COURT OF APPEALS

This Classification of Accounts is also known as Pullman’s
System of Accounts, establishing several categories of accounts,
including property accounts, revenue accounts, expense accounts,
income accounts, earned surplus accounts and balance sheet
accounts. Each category contains accounts in which specific items
are to be included. The System of Accounts also established vari-
ous clearing accounts.

The separation payments involved in this appeal were charged
by Pullman to a clearing account, 6-22, General Administration,
which included “[plensions and relief expenses not otherwise
provided for; . . . and other expenses.”

During the years following World War II, travel in the
United States increasingly moved by automobile and airplane at
the expense of the railroads. Under the Uniform Service Contract,
a railroad had the right to withdraw wholly or partially from the
Contract and to assume the functions theretofore served by
Pullman.

A complete withdrawal, for which six months’ written notice
to Pullman was necessary, required the particular railroad to
furnish and operate its own sleeping cars and maintain them in
shops of its own choosing. A partial withdrawal, for which a
60 days’ written notice to Pullman was customarily given, re-
quired the particular railroad to operate sleeping cars with its
own conductors and porters, while continuing to obtain cars from
and having them maintained and shopped by Pullman.

On July 1, 1958, the New York Central Railroad withdrew
completely from Pullman service on most of its lines. In 1967
and 1968, several roads withdrew partially, and these and most
of the other roads were in the process of considering complete
withdrawal.

The chief executives of the Pullman contract railroads met in
Boca Raton, Florida, on January 31, 1969, to consider a uni-
form withdrawal date. The two principal executives of Pullman
attended the meeting. At the meeting all the contract railroads,

PRESS AS PALE TE SIME N ST I

BILE!

OPINION OF THE COURT OF APPEALS AS

including the two defendant railroads, The Great Northern and
The Northern Pacific, and the Burlington which they jointly
owned, indicated their decision to withdraw completely effective
August 1, 1969. At that time it became certain that the rendition
by The Pullman Company of a sleeping car service would come
to an end and that Pullman would go out of business. Shortly
after the Boca Raton meeting, all of the remaining contract
railroads gave notice of complete withdrawal effective as of
August 1, 1969.

Throughout the period of declining railroad and Pullman
business, the railroad unions began to negotiate for job termina-
tion agreements with the railroads.

On May 21, 1936, most of the railroads had executed the so-
called Washington Job Protection Agreement with the Order of
Railway Conductors whereby conductors who lost their jobs as
the result of a consolidation, merger or pooling of facilities would
receive 60 percent of their compensation for a period up to five
years, or, in the alternative, a lump-sum separation allowance.
On December 9, 1963, the conductors entered into the Wolfe-
Wise Agreement, subsequently ratified by 31 railroads including
The Great Northern and The Northern Pacific, whereby a con-
ductor who lost his job as the result of the withdrawal of a
Pullman contract railroad had the option of receiving 60 percent
of his compensation for up to 24 months or the lump-sum
separation allowance provided in the Washington Job Protection
Agreement.

The Brotherhood of Sleeping Car Porters entered into the
Wolfe-Randolph Agreement on December 17, 1963, subse-
quently ratified by 33 railroads, including The Great Northern
and “The Northern Pacific, whereby porters offered employment
by a withdrawing Pullman contract railroad would retain the
same employment rights they had at Pullman but receive no
separation pay in the event of the loss of their jobs.

The six shopcraft unions obtained an agreement from the
railroads on September 25, 1964, extending the Washington

> THROUGH

A6 OPINION OF THE COURT OF APPEALS

Job Protection Agreement to discontinuances of services. The
Brotherhood of Railway and Steamship Clerks obtained an agree-
ment from the railroads on February 7, 1965, extending certain
separation rights to clerks.

The railroad unions then began to negotiate for job termina-
tion agreements with The Pullman Company. The porters and
clerks made the first demands on Pullman.

On March 13, 1968, Pullman sent a letter to the chief
executives of the Pullman contract railroads, advising that it
would enter into separation pay agreements with the porters and
clerks if railroads which together incurred more than 50 percent
of Pullman’s 1967 expenses of operations approved its doing so.
It indicated that any expenses incurred pursuant to the agree-
ments, if executed, would be charged to the contract railroads in
proportion to their 1967 percentage of Pullman’s operations.
In response, none of the contract railroads. including The Great
Northern or The Northern Pacific, objected to the indicated
method of allocating the separation pay expenses. Contract rail-
roads, including The Northern Pacific, which together incurred
91.2464 percent of Pullman’s 1967 expenses of operations,
approved Pullman’s execution of the agreements. The Great
Northern did not approve.

Therefore, on May 27, 1968, Pullman entered into substan-
tially identical separation pay agreements with the porters and
clerks. The agreements provided that employees in active service
with Pullman on November 13, 1967, would receive a lump-sum
separation allowance of $2,500 from Pullman if they accepted
employment by a railroad and nothing if they refused such em-
ployment. Furloughed employees would receive separation pay
equal to 360 days’ pay, depending on their length of service.

After demands by the conductors, Pullman submitted a draft
of a separation pay agreement involving the conductors to the
contract railroads for approval. Railroads, including The North-
ern Pacific, which together incurred 65 percent of Pullman’s

OPINION OF THE COURT OF APPEALS A7

1968 expenses of operations, approved Pullman’s execution of
the agreement. The Great Northern disapproved. Thus, Pullman
on September 11, 1968, executed a separation pay agreement
with the conductors which was patterned after the porters’ and
clerks’ agreements. In submitting the agreement to the railroads,
Pullman stated that expenses incurred pursuant to the agreement
would be charged to the contract railroads in proportion to their
1968 percentages of Pullman’s expenses of operations. None of
the responses to Pullman, including those of The Great Northern
and The Northern Pacific, expressed any objection to the charg-
ing of expenses to the contract railroads.

Pullman had entered a partial separation pay agreement with
the six shopcraft unions on July 19, 1966. Following the porters’
and clerks’ agreements, the shopcrafts demanded equal separation
pay benefits. On January 16, 1969, Pullman entered into an
agreement with the shopcraft unions, which was similar to the
porters’ and clerks’ agreements except that it did not provide
for the transfer allowance of $2,500. Railroads accounting for
74.5535 percent of the Pullman operating expenses for the
first six months of 1968 approved of the modified agreement
with the shopcrafts.

On January 29, 1969, Pullman executed a separation pay
agreement with its supervisors through the American Railway
Supervisors Association. This agreement was similar to that
executed with the shopcrafts and had been part of the solicitation
of and approval by a majority oj the contract railroads of the
shopcraft agreement.

In June 1967, Pullman had entered into employment con-
tracts with 21 of its executives and key employees, which required
Pullman to maintain various benefits. On November 4, 1968,
the board of directors of Pullman approved a resolution that
its non-union employees be paid the pattern separation allow-
ance. Pullman did not enter into a separation pay agreement
with United Transport Service Employees, representing its
laundry workers.

A8 OPINION OF THE COURT OF APPEALS

In regard to the separation pay negotiations and agreements,
the district court made the following significant finding of fact:

Pullman’s negotiations with respect to each separation
pay agreement it entered into were at arm’s length. On each
occasion on which Pullman committed itself to making
separation payments, there was no decision to cease the
operations involved and Pullman acted with the reasonable
expectation that in its operations there would be a need
to employ the group of employees to whom it agreed to
pay the separation allowances, although the duration of
that need was not clear.

During the period June 1968 to October 1971, Pullman made
separation payments to its employees totalling $15,647,461.05
in accordance with the various agreements and the board reso-
lution of November 4, 1968. It billed the separation pay expenses
to the Pullman contract railroads as operating expenses in
proportion to their respective shares of Pullman’s operating
expenses in the years in which the seperation pay liabilities
were incurred.

The amount billed by Pullman to The Great Northern for
separation pay and not paid was $537,630.22. The amount billed
to The Northern Pacific and not paid was $458,282.17.

Pullman brought suit against The Great Northern and The
Northern Pacific to recover the separation pay expenses not paid.
Each railroad in turn filed a three-count counterclaim seeking
to recover separation pay expenses previously billed by Pullman
and paid by each road. The foregoing is a summary of the district
court’s 62 findings of fact, none of which are disputed by the
parties.

Il.

The complaint against The Great Northern (Count I) and
The Northern Pacific (Count Il) as well as Count I of the
counterclaim of each of those roads raised essentially the same
issues and were disposed of together by the district court, which
phrased the issues as follows:

&

OPINION OF THE COURT OF APPEALS A9

Pullman's theory is that under the Uniform Service Con-
tract the railroads were obligated to pay all operating
expenses and that, since the separation pay agreements
were entered into at a time when there was a need for
the employees and were necessary to avert strikes, the costs
associated with those agreements are reimbursable operating
expenses.

.. . Great Northern and Northern Pacific have taken the
position they are under no obilgation to reimburse Pull-
man for separation payments that were made once it was
determined not to operate or to cease Pullman sleeping
car operations in the United States or to litigate, dissolve
or cause the cessation of such operations.

As noted in part I supra, the district court found that the
final separation pay agreements were entered into with the
various groups of Pullman employees upon the following dates:

Porters and Clerks — May 27, 1968
Conductors — September 11, 1968
Non-union — November 4, 1968
Shopcrafts — January 16, 1969
Supervisors — January 29, 1969

The court further found that the decision to cease all oper-
ations and to liquidate Pullman was made at the Boca Raton
meeting on January 31, 1969, a date subsequent to the conclu-
sion of all separation pay agreements. Consequently, the court
found that “at the time each of the separation pay agreements
was entered into, there had been no decision to terminate the
operations involved and that there was a need to employ the
group of employees to which it was agreeing to pay the separation
allowances.”

The Interstate Commerce Commission in 1947 had approved
the operating agreements between Pullman and the contracting
railroads, characterizing the agreements as follows:

The contract would make an important change from the
present arrangement, due to the fact that in the future each

Al0 OPINION OF THE COURT OF APPEALS

contracting railroad would have to participate in a guar-
anty against operating losses by Pullman.

268 I. C. C. at 479.

Both The Great Northern and The Northern Pacific were appli-
cants in that proceeding seeking approval of the agreements.
Id, at 493. The Order of Railway Conductors had intervened
and expressed concern over the possible effect of the changes on
Pullman employees.

In reassuring the employees, the Commission pointed out that
the District Court for the Eastern District of Pennsylvania, in
approving the sale of Pullman stock to the railroads on January
4, 1946, had ordered:

This order is made without prejudice to the rights of the

employees of the Pullman Company under existing con-
tracts and practices.

Id. at 494,

The Commission further mollified the Pullman employees
by noting:

In October 1945 the railroad buying group gave the follow-

ing assurance in writing, which was repeated in their inter-

vening petition in the district court and is reiterated in
this record by the applicants:

The Pullman Company under its railroad ownership
will faithfully perform and keep the obligation and
commitments to labor under the outstanding agree-
ments and practices according to the law of the land.

Id. at 491.

At that time the railroads had already executed the 1936
Washington Job Protection Agreement with the conductors,
providing for separation allowances. Thus, there was nothing
extraordinary in The Pullman Company's negotiating and
eventually executing the separation pay agreements of 1968
and 1969. Furthermore, Pullman obtained the express approval
of the railroads which incurred more than 50 percent of its

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OPINION OF THE COURT OF APPEALS _ Ail

expenses of operations prior to executing each of the separation
pay agreements.

The district judge found that the term “operating expenses”
is not defined in the Uniform Service Contract. He then held
that in the absence of either a definition in the contract or an
established legal definition and that “since it is a term of art
within the accounting profession and it appears that the parties
intended to use it in that sense, parol evidence of usage within
the profession is appropriate when the term is capable of a
definite interpretation.”

Having heard some expert testimony,* however, the district
judge observed:

While accountants are in general conceptual agreement
about the term “operating expenses,” there is considerable
subjectivity involved in the decision as to when the separa-
tion payments here ceased being operating expenses charge-
able to surplus. In short, custom and usage within the
accounting profession is not uniform and does not provide
definite standards; accordingly, expert opinion carries less
weight in construing the parties’ intent than might other-
wise be the case.

The district judge then concluded:

This Court is of the opinion that once it became clear that
Pullman was going to discontinue a segment of its business,
separation payments to employees in that segment of its
operations were no longer operating expenses chargeable
to the contract railroads.

* The district court drew the following conclusion:

Among accountants, there appears to be a generally accepted
definition of operating expenses. The term includes those
expenses incurred in the conduct of the major activities of a
business which are generally recurrent in nature and somewhat
normal and dependable in their operation. A non-operating
expense is one which is not incurred directly in the conduct
of the normal or major operations of the business, does not
recur at regular intervals, and is more or less fortuitous in its
occurrence.

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Al2 OPINION OF THE COURT OF APPEALS

For porters, conductors and others associated with oper-
ations of the cars, . . . the cut-off date for charging the
expenses to the railroads would be October 28, 1968... .
The cut-off date for employees not in the above category
would be January 31, 1969.

The reference to October 28, 1968 pertains to the court's
finding that “[b]y October 28, 1968 railroads using a sub- f
stantial majority of Pullman’s sleeping car services had either
served or intended to serve notices of partial withdrawal effective
January 1, 1969.”

Accordingly, the court entered judgment in favor of Pullman
for those separation payments made to the respective groups of
employees before the cut-off dates and in favor of Great Northern
and Northern Pacific for any payments made to Pullman in
respect to separation payments after the cut-off dates. As a
result judgment was entered in favor of Great Northern for
$183,513.16 plus costs and in favor of Northern Pacific for
$158,844.49 plus costs.

Il.

We affirm and adopt the district court’s findings of fact
numbered 1 through 62. We part with the court in some of the
conclusions it reaches in applying those facts.

In the first place, the court disposed of the basic documents
we are interpreting in too summary a fashion.

Article IV, Secton 1(c) of the original Uniform Operating
Contract, which had been approved by the Interstate Commerce
Commission, provided that:

If, for any contract year, the total gross earnings of all
sleeping cars operated under the terms of this contract
shall be less than the total amount of Pullman’s “Expenses
of Operation” of such cars . . . , the Railroad shall pay
to Pullman the amount of the deficiency.

Article IV, Section 3 provided in part:

Except as herein otherwise provided, the term “Ex-
penses of Operation” as used in this contract shall include

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OPINION OF THE COURT OF APPEALS A\l3

all of Pullman’s expenses of conducting its sleeping car
business . . . and also including but not limited to the
various items elsewhere herein expressly provided to be
included in “Expenses of Operation”; ... .

Article V, Section 1 provided in part that “[tJhis contract
shall be construed liberally so as to secure to each party all
the rights, privileges and benefits herein provided or manifestly
intended... .”

The later adopted Uniform Service Contract provided in
Section 7(c):

If for any Contract Year the expenses allocated to
the Railroad plus the 3% return on Pullman’s investment
allocated to the Railroad, shall exceed the revenues al-
located to the Railroad, the Railroad shall pay to Pullman
the amount of the deficiency.

In an appendix the Uniform Service Contract specified that
“[e]xpenses to be accounted for under this contract shall in-
clude the following: (A) Operating Expenses. . . .” The Con-
tract appendix provided that “[a]ctual expenses shall be segre-
gated into the fo ‘owing [ten] general cost groups” and that
“{e]ach of the above groups shall include direct and indirect
expenses pertaining thereto, as well as appropriate proportions
of district and general administrative expenses. . . .”

In a book dealing with accounting and the law it was said
that:
The cost of direct labor has long been recognized as a
basic cost chargeable directly to the particular product or
service with which it is associated. For legal and account-
ing purposes, the cost of direct labor is not limited to
wages paid, but embraces within its meaning various direct
economic benefits to workers flowing from the employ-
ment relationship.
* * *

Direct items have been identified and distinguished from
indirect labor and from general and administrative ex-
pense, particularly in decisions as to reimbursement under
contracts of the cost-reimbursable type. Thus, included in

Al4. OPINION OF THE COURT OF APPEALS

cost of direct labor in addition to wages are overtime pre-
mium pay, vacation pay, pay for “coffee breaks” and
holidays not worked, pay for travel time, standby pay,
severance pay, and incentive pay.
G. Hills, “The Law of Accounting and Financial Statements,”
194-97 (1957).

The parties have not directed us to any case, nor have we
found one, which is directly on point, but there are many
cases which shed light on the probable intention of the parties
to the Uniform Service Contract when they used the terms
“operating expenses,” actual expenses,” and “direct expenses.”

In holding that “back pay” shall be treated as “wages” under
the Social Security Act, the Supreme Court pointed out that
“dismissal pay” constitutes wages. Social Security Board Vv.
Nierotko, 327 U. S. 358, 366, n. 17 (1946). Wages, in turn,
are direct labor expenses.

The Second Circuit held in Carragan v. Commissioner, 197
F. 2d 246, 248 (2d Cir. 1952), that a severance allowance upon
liquidation of the employing corporation was additional com-
pensation to the employee for past services and not a tax-free
gift. Earlier the Second Circuit had held that “retiring allow-
ances” constituted taxable income as one form of compensation
for personal service. Hooker v. Hoey, 27 F. Supp. 489 (S. D.
N. Y.), aff'd, 107 F. 2d 1016 (2d Cir. 1939).

In Inland Steel Co. v. NLRB, 170 F. 2d 247 (7th Cir.
1948), we held that an employer must bargain with respect to
retirement or pension plans since they fall within the National
Labor Relations Act’s language of “pay, wages, hours of em-
ployment or other conditions of employment.” The Supreme
Court denied certiorari upon the pension issue in 336 U. S.
960 (1949), and affirmed the balance of the opinion in Ameri-
can Communications Ass'n Vv. Douds, 339 U. S. 382 (1950).

In Alabama Power Co. v. FPC, 134 F. 2d 602 (Sth Cir.
1943), in determining reimbursable construction costs under

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OPINION OF THE COURT OF APPEALS _ AI15

the Federal Power Act, the Fifth Circuit held that bonuses to
employees are “often considered good business as tending to
satisfy employees with their wages, and as an incentive to
greater effort. . . . [The bonuses] were paid for labor, and
not from philanthropy, and ought to be included with the wages
they supplemented, as construction costs.” Jd. at 610.

In summary, the railroads, with the approval of the Inter-
state Commerce Commission, agreed “to participate in a guar-
anty against operating losses by Pullman.” 268 I. C. C. at 479.
In the original Uniform Operating Contract, approved by the
Commission, the railroads agreed to pay Pullman “all of Pull-
man’s expenses of conducting its sleeping car business and com-
missary services.” In the subsequent Uniform Service Contract,
also approved by the Commission, the railroads agreed to pay
Pullman’s expenses including “operating expenses” and “actual
expenses,” which include “direct and indirect expenses.”

Pullman had been placed on notice by the District Court
for the Eastern District of Pennsylvania in 1946 and by the
Commission in 1947 to observe the rights of its employees,
which by then already included in regard to conductors separa-
tion allowances under the 1936 Washington Job Protection
Agreement. Beginning as early as 1960, the various unions
pressed for expanded separation pay rights. The Great Northern
and The Northern Pacific joined with most of the railroads in
granting separation pay allowances in 1963 to the conductors
and porters, in 1964 to the shopcrafts and in 1965 to the
clerks.

After succeeding with the railroads, the unions pressed Pull-
man to enter into similar separation pay agreements. Pullman
executed the various agreements in 1968 and early 1969 only
after the threat of strikes by each union (findings 41, 46, 53,
56) and after the approval by a majority of the railroad users
of Pullman service as to each contract. The railroads were ad-
vised prior to approving that Pullman intended to charge the
separation pay expenses to the railroads in accordance with

Al6 OPINION OF THE COURT OF APPEALS

the Uniform Service Contract and none of them, including The
Great Northern or The Northern Pacific, objected.

The district court expressly found that the Pullman negotia-
tions with respect to each separation pay agreement were at
arm’s length, that each commitment to make separation pay-
ments was made prior to the decision to cease operations and
that Pullman acted with reasonable expectation that there would
be a need to continue to employ each group of employees in-
volved (finding 59).

Pullman charged the separation payments to clearing ac-
count 6-22, General Administration, which was part of the
System of Accounts approved by the Interstate Commerce Com-
mission on October 4, 1950, and which included “[p]ensions
and relief expenses not otherwise provided for . . . and other
expenses.”

In allied contexts, separation pay has uniformly been con-
sidered to be a part of wages and part of direct labor costs.
We can only conclude that the separation payments herein in-
volved were intended by the parties to the Uniform Service
Contract to be part of “all of Pullman’s expenses of conducting
its sleeping car business and commissary services” and to be
an “operating expense” or “actual expense” or “direct expense”
of such business.

Insofar as the district court entered judgment in favor of
Great Northern and Northern Pacific against Pullman in respect
of separation payments, the judgment is reversed and the cause
remanded with directions to enter judgment in favor of Pull-
man and against Great Northern and Northern Pacific as sought
in Counts I and II of the complaint and under Count I of the
respective counterclaims. We affirm the judgments in favor of
Pullman and against Great Northern and Northern Pacific under
Counts II and III of the counterclaims for the reasons expressed
by the district court.

REVERSED IN PART; AFFIRMED IN PART.

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OPINION OF THE COURT OF APPEALS AIl7

FAIRCHILD, Chief Judge, dissenting in part.
I respectfully dissent, in part.

It seems to me that Judge McLaren’s definition of an operat-
ing expense as an expense “incurred in the conduct of the
major activities of a business which [is] generally recurrent in
nature and somewhat normal and dependable in [its] opera-
tion” is reasonable. I agree that the cost of separation pay is
an operating expense to an on-going business, but here the ex-
pense has become a cost of liquidation. Such cost ought to be
borne by the company’s shareholders in proportion to their
ownership interests, not in proportion to their use of the com-
pany’s assets.

Pullman’s treatment of liabilities arising from executive em-
ployment contracts and under group insurance and pension
plans confirm the soundness of this distinction. Both the execu-
tive employment agreements, which in substance provided pro-
tection in the event the business terminated, and the employee
insurance and pension plans were executed to attract and re-
tain qualified employees to run Pullman's operation. Yet, once
it was decided to liquidate the business these liabilities were
quite properly charged to surplus. I can see no meaningful dis-
tinction between these expenses and the separation allowances
the majority now deems to be “operating expenses.”

Accordingly, I would affirm the judgment of the district
court in all respects.

een sere

Al8

IN THE UNITED STATES DisTRICT COURT,
For the Northern District of Illinois,
Eastern Division.

THE PULLMAN COMPANY, >
Plaintiff,

Vs.

+ No. 70 C 267
THE GREAT NORTHERN’ RAILWAY
COMPANY and the NORTHERN
RAILWAY COMPANY,

Defendants. 7

MEMORANDUM OPINION AND ORDER.

This matter was tried on the merits before the Court and
without a jury. At issue is whether or not the defendant rail-
roads are obligated to reimburse The Pullman Company (“Pull-
man”) for separation payments made by Pullman to various
employees. Pullman alleges that the separation payments are
“operating expenses” chargeable to its users pursuant to the
contract between Pullman and its users; the theory being that
at the time Pullman signed the agreements obligating it to make
the separation payments, there was a continuing need for the
employees involved and the agreements were necessary in order
to continue operations. The defendants take the position that
the separation payments are not “operating expenses” for which
they are obligated to reimburse Pullman, but are instead charge-
able to Pullman’s surplus accounts.

The defendants filed counterclaims. Count I alleges that
Pullman wrongfully billed defendants for separation payments
and that defendants erroneously paid such charges, but are now
entitled to a refund for such amounts as were erroneously paid.
Count II alleges that Pullman, its officers and agents owed de-

OPINION OF THE DISTRICT COURT Al9

fendants a duty to terminate employees in connection with the
cessation of operations and the liquidation of Pullman without
incurring unnecessary or unwarranted severance pay liabilities
to Pullman’s employees. It is further alleged that, contrary to
specific requests from defendants, Pullman did unnecessarily
incur such liabilities, with the result that defendants will re-
ceive a lesser amount in liquidation of Pullman than would
otherwise be available for distribution. Count III alleges that
Pullman wrongfully failed to comply with its Interstate Com-
merce Commission approved System of Accounts in accounting
for separation payments to its employees and that by reason
thereof the defendants were billed for such expenses in viola-
tion of their contract with Pullman. Defendants demand that
Pullman refund those amounts that were allegedly wrongfully
billed.

When this suit was filed The Southern Railway Company was
also named as a defendant, but a settlement was agreed upon
between it and Pullman. It appears that the other user-railroads
have reimbursed Pullman for the cost of separation payments.
However, Pullman has stated that it will apply the result in this
case to the other user-railroads. In this regard, it should be
noted that each of the user-railroads was also a shareholder.

At one time every Pullman shareholder contracted with
Pullman for the provision of sleeping car services, but by the
time the separation payment agreements were entered into be-
tween Pullman and the unions, some of the shareholders had
discontinued the use of such services. The instant dispute thus
centers around whether the costs of the separation payments
will be paid by the railroads who were continuing to use Pull-
man services in proportion to their use at a given time or
whether the costs will be paid by all shareholders in proportion
to their stock ownership.

I.

The following constitute the Court’s findings of fact.

A20 OPINION OF THE DISTRICT COURT

JURISDICTION.

1. When this action was filed, The Pullman Company
was an Illinois corporation with its principal and only place
of business in Chicago, Illinois. The Great Northern Railway
Company was a Minnesota corporation, and The Northern
Pacific Railway Company, a Wisconsin corporation. Both
railroad companies maintained their principal places of busi-
ness in St. Paul, Minnesota. There is, therefore, diversity of
citizenship between the parties.

HIsTORY OF THE PULLMAN COMPANY.

2. In 1867, George M. Pullman organized Pullman’s Palace
Car Company, which became The Pullman Company in 1899.
Between 1867 and 1899, the company acquired several other
sleeping car companies, and on December 31, 1899 became
the only sleeping car company in the United States. Between
1900 and 1935, The Pullman Company acquired substantially
all of the sleeping car facilities of every railroad which during
that period had owned and operated its own sleeping cars. As
of 1939, The Pullman Company furnished and serviced, under
contracts with the railroads, virtually all of the sleeping cars
operated in the United States.

3. From 1881 until 1924, The Pullman Company manu-
factured, with a few exceptions, all new sleeping cars used by
it in furnishing Pullman sleeping car service to the railroads.
In 1924, Pullman Car & Manufacturing Corporation was organ-
ized to operate the manufacturing business which had there-
tofore been conducted by The Pullman Company. In 1927,
Pullman Incorporated was created as a holding company, holding
all of the stock of Pullman Car & Manufacturing Corporation and
all except a small fraction of the stock of The Pullman Com-
pany. In 1934, Pullman Car & Manufacturing Corporation
changed its name to Pullman-Standard Car Manufacturing
Company.

OPINION OF THE DISTRICT COURT A21

4. On July 12, 1940, the United States filed suit under
the Sherman Act in the United States District Court for the
Eastern District of Pennsylvania against The Pullman Company,
Pullman-Standard Car Manufacturihg Company, and Pullman
Incorporated. In an opinion rendered April 20, 1943, the Dis-
trict Court, 50 F. Supp. 123, found that a monopoly, in vio-
lation of Section 2 of the Sherman Act, had been established.

5. The final decree entered May 8, 1944 required Pull-
man Incorporated to divest itself of either the sleeping car
business conducted by The Pullman Company or the manu-
facturing business conducted by Pullman-Standard and, as
long as it continued in the sleeping car business, to furnish
and service its sleeping cars to any railroad on request on a
reasonable and nondiscriminatory basis.

PURCHASE OF THE PULLMAN COMPANY BY THE RAILROADS
AND THE POOLING ARRANGEMENT UNDER
WHICH IT WAS TO BE OPERATED

6. Thereafter, Pullman Incorporated elected to divest itself
of its interest in the sleeping car business and properties used
in connection therewith. On June 30, 1947, the stock of The
Pullman Company was sold to 59 railroads, who purchased
the same percentage of Pullman stock as their percentage of
total Pullman car use during the year 1940. Apart from the
combining of percentages consequent to railroad mergers, those
stock percentages have remained the same at all times since.

7. The sale of the stock of The Pullman Company (here-
after “Pullman”) to the railroads followed approval by the
Interstate Commerce Commission of the sale, 268 I. C. C. 473.
The Interstate Commerce Commission also approved the sale
by Pullman of all of its sleeping cars regularly assigned to
railroads to the railroads to whom they were assigned, the
retention by Pullman of the balance of its sleeping cars as
a poo! available for use by the railroads when needed, and

A22 OPINION OF THE DISTRICT COURT

the lease from the railroads of the cars sold in exchange for
rent. It approved the execution by Pullman of agreements with
each of the railroads utilizing its services in the form of a
‘Uniform Operating Contract,’ pursuant to which Pullman
operated and serviced sleeping cars, received fares paid by
Pullman patrons, and pooled and allocated revenues and ex-
penses among the railroads which used the cars and services
of Pullman.

8. The Uniform Operating Contract provided that if in any
contract year total gross earnings of all sleeping cars operated
under the contract were less than Pullman’s “Expenses of
Operation,” the railroads would pay to Pullman the amount of
the deficiency. “Expenses of Operation” were defined to include
“all of Pullman’s expenses of conducting its sleeping car busi-
ness and commissary services,” except income taxes, and except
the cost of maintaining and operating air conditioning ap-
paratus which the contract provided would be paid directly
by the railroads rather than pooled. The Interstate Commerce
Commission found, with respect to these provisions, that the
contracting railroads assured the operating expenses of the
“joint enterprise” by participating “in a guaranty against oper-
ating losses by Pullman,” 268 I. C. C. 473, 479.

9. As a result of complaints by some of the railroads that
the method of allocating expenses under the Uniform Operating
Contract was unfair to them, and following an engineering
study of Pullman’s operations, Pullman, effective July 1, 1949,
entered into contracts in the form of the Uniform Service Con-
tract with each railroad then utilizing Pullman sleeping car
service, including the Great Northern and the Northern Pacific
which remained parties to it until August ', 1969. The Uniform
Service Contract had to receive the approval of the ICC. 49
U. S.C. § 5(1). While the Uniform Service Contract changed
the method of allocation provided in the Uniform Operating
Contract, it left undisturbed the obligation of the contracting
railroads to pay to Pullman the amount of any deficiency in

OPINION OF THE DISTRICT COURT A23

its operating expenses. It provided, Sec. 7(c), that “[i]f for any
Contract Year the expenses allocated to the Railroad plus the
3% return on Pullman’s investment allocated to the Railroad,
shall exceed the revenues allocated to the Railroad, the Rail-
road shall pay to Pullman the amount of the deficiency.” It
specified that “[e]xpenses to be accounted for under this con-
tract shall include the following: (A) Operating Expenses,
(B) Taxes other than Federal Taxes on Income, (C) Rental
for Cars.” It divided “actual expenses” into ten cost groups
and stated that each group “shall include direct and indirect
expenses pertaining thereto.”

An amendment to the Uniform Service Contract, Appendix

A, became effective January 1, 1956. As amended, the per-
tinent provisions of Appendix A provided:

“Expenses

Expenses to be accounted for under this contract shall
include the following:

(a) Operating Expenses;

(b) Taxes other than Federal Taxes on Income;

(c) Rental for Cars.

Expenses relative to operations in Mexico are excluded.

Assignment to Railroads

Actual expenses shall be segregated into the following
general cost groups:

I Car Repairs-Shop (separately by classes of cars)

Il Car Repairs-Yard (separately for Electrical and
Other )

Ill Car Distribution

IV Car Cleaning

V Conductors

VI Porters
VII Linen, Laundry and Car Supplies
VIII

(a) Advertising

A24 OPINION OF THE DISTRICT COURT

(b) Traffic (Tariffs) and Revenue Accounting
IX Car Ownership (separately by classes of cars)
X Commissary
Each of the above groups shall include direct and in-
direct expenses pertaining thereto, as well as appropriate
proportions of district and general administrative expenses
and taxes, other than Federal taxes on income, as provided
for in Pullman’s ‘Classification of Accounts’ as prescribed by
the Interstate Commerce Commission.”

10. After the effective date of the Uniform Service Con-
tract, Pullman prepared a System of Accounts and submitted it
to the Interstate Commerce Commission (“ICC”) for approval.
On October 4, 1950, the ICC entered an order approving this
System of Accounts. Pullman was permitted by the terms of the
ICC order to apply the system retroactively to January 1, 1950.
Since that time Pullman has been required by the ICC to abide
by the System of Accounts.

11. As noted in finding 9, supra, Appendix A to the Uni-
form Service Contract provides that for purposes of assigning
expenses to the railroads, the expenses shall be divided into
various cost groups and that each shall include certain expenses
as provided for in Pullman’s “Classification of Accounts.” This
Classification of Accounts is also known as Pullman's System
of Accounts and it will be referred to here as such. Said System
of Accounts established several categories of accounts, including
property accounts, revenue accounts, expense accounts, income
accounts, earned surplus accounts and balance sheet accounts.
Each of those categories contains accounts in which specific
items are to be included. Appendix No. 1 to the System of
Accounts established various clearing accounts. Pullman charged
the separation payments that are disputed here to one of those
clearing accounts—6-22, General Administration—which pro-
vides:

“This account shall include the general administrative
expense that is not includible in other accounts. The ex-
pense[s] assignable to this account are as follows:

OPINION OF THE DISTRICT COURT A25

“(a) Salaries of officers—The pay of the president,
vice presidents in charge of accounting and operations,
general counsel, secretary, treasurer, general auditor, au-
ditor of disbursements, director of sanitation, relief and
safety, and assistants, and officers whose duties are such
that they cannot be specifically charged.

“b) Salaries of clerks and attendants.—The pay of
chief clerks, clerks stenographers, etc. in offices of the
officers listed in the above paragraph (a).

“(c) Other expenses.—Pensions and relief expenses not
otherwise provided for; traveling and other expenses of
employes included in paragraphs (a) and (b) above; di-
rector’s fees and expenses; telegraph expense and telephone
toll service; directories, periodical law books and other
expenses. Arbitration expense borne by the Company and
sundry licenses; taxes and injury expense to employes that
cannot be localized to specific accounts; also the applicable
proportion of clearing accounts.

“The expense shall be apportioned to the expense ac-
counts (excluding car ownership) on the basis of total
charges to each acount, including charges redistributed to
those accounts from the several clearing accounts.”

The defendants contend that Pullman should have accounted
for the separation payments in an earned surplus account—
613. Miscellaneous Debits—which provides:

“This account shall include all decreases in corporate
resources not properly deductible from current income.
Among these are: loss upon disposition of land, investment
securities, or noncarrier property, or the conversion of land
to noncarrier use; loss in the reacquisition of funded debt
at a premium; unextinguished discount on funded debt
when reacquired; payment of old accounts previously writ-
ten off; and fines or penalties not provided for elsewhere.”

It appears that if the separation payments had not been charged
to that account the user-railroads would not have been billed for
that expense.

A26 OPINION OF THE DISTRICT COURT

DECLINE IN TRAFFIC.

12. During the years following World War II, travel in
the United States underwent substantial change. Millions of
dollars were expended in the construction of four-lane in-
tercity highways. A larger percentage of the population became
automobile owners and used them with increasing frequency to
travel between cities and states, both for business and for per-
sonal reasons. At the same time, with the development of better
and faster airplanes and the construction of commercial airports
at a substantially increased number of locations, airplane travel
increased substantially. On the other hand, the post-war de-
cline of intercity railroad passenger travel was virtually un-
interrupted, with the exception of the Korean War period.

13. During the post-World War II years, the decline of Pull-
man’s business was also virtually uninterrupted, with the excep-
tion of the Korean War period. Its operating revenues were
$132,593.965 in 1946; $95,590,989 in 1956; $50,355,655 in
1962; and $17,778,168 in 1968. It operated 5,531 cars in
1946; 2,666 in 1956; 1,114 in 1962; and 425 in 1968. It had
36,982 employees in 1946; 16,793 in 1956; 6,392 in 1962;
and 2,945 in 1968.

WITHDRAWALS OF PARTICIPATING RAILROADS.

14. Under the Uniform Service Contract, a railroad had the
right to withdraw wholly or partially from the contract and to
assume the functions theretofore served by Pullman under the
contract. If a railroad withdraw completely, for which six
months’ written notice to Pullman was required, it would there-
by undertake to furnish and operate its own sleeping cars and
to maintain them in shops of its own choosing. The railroads
also had the option, for which they customarily gave 60 days’
written notice to Pullman, of withdrawing partially and there-
after operating the cars themselves with their own conductfor]s

OPINION OF THE DISTRICT COURT A27

and porters, while continuing to obtain cars from and having
them maintained and shopped by Pullman.

15. Effective July 1, 1958, the New York Central exer-
cised its right to withdraw completely from Pullman service on
its local lines—service confined to the lines of a single rail-
road—and on all but four of its joint lines—service on the
lines of more than one railroad. Although the New York Cen-
tral was then Pullman’s second largest customer, representing
somewhat less than one-sixth of its total business, Pullman
assured the other contract railroads that it was able to effect
economies which would prevent the New York Central with-
drawal from increasing the cost of Pullman service to its other
customers. Some railroads which were then considering with-
drawing on account of the New York Central withdrawal did
not then do so.

16. In the years that followed the withdrawal of the New
York Central, Pullman, at the request of various railroads, pre-
pared studies and participated in the preparation of studies,
comparing the cost of Pullman service with that which the rail-
roads might incur if they withdrew partially or completely
from the Uniform Service Contract. Nonetheless, there was no
further significant withdrawal from Pullman service until the
Pennsylvania, after litigating its right to do so for five years
following giving notice on May 29, 1962, withdrew partially
on its local lines on August 1, 1967. At the time of the 1962
notice of partial withdrawal, the Pennsylvania was Pullman’s
largest user of sleeping car service and accounted for more
than 15 per cent of Pullman’s total operations.

17. On April 1, 1968 the New York, New Haven and
Hartford Railroad Company notified Pullman that it wished
to withdraw partially from Pullman service, effective June 1,
1968, on its local lines and on those lines that it operated
jointly with Penn-Central. A corresponding notice was received
from Penn-Central partially withdrawing on its joint lines with
the New York, New Haven and Hartford. By notice of April

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A28 OPINION OF THE DISTRICT COURT

22, Penn-Central notified that it would withdraw completely on
its local lines. However, Penn-Central continued to have full
Pullman service on all joint lines with railroads other than the
New York, New Haven and Hartford.

18. In the spring and summer of 1968, the Penn-Central
put pressure on a number of eastern and southern railroads with
which it maintained joint line service to join it in withdrawing
completely from Pullman service. While neither the Penn-Cen-
tral nor any other eastern or southern railroad gave notice at
that time of complete withdrawal, in late August 1968 the
Illinois Central, the Louisville & Nashville, the R. F. & P. and
the Seaboard, as well as the Penn-Central with respect to the
remainder of its joint lines, gave Pullman novice of partial
withdrawal effective November 1, 1968, which they later
agreed, at Pullman’s request, to make effective as of January
1, 1969.

19. In 1958, 1963, 1965, 1966 and again in 1967, the
Great Northern and the Northern Pacific, and the Burlington
which they jointly owned, compared the cost of Pullman service
with that which they might provide themselves. In December
1967, their joint committee studying the comparative costs rec-
ommended to the operating vice-presidents of the railroads
that a partial withdrawal be effected. It made no recommenda-
tion as to complete withdrawal. During 1967 these railroads
accounted for 14.2% of Pullman’s operations. The operating
vice-presidents, however, referred the matter back to the com-
mittee for further study.

20. On July 26, 1968, the joint study committee recom-
mended that the railroads serve on Pullman notices of partial
withdrawal and six months’ notices of complete withdrawal at
the earliest opportunity. This recommendation was accepted
by the president of the Northern Pacific. However, since the
president of The Great Northern expressed a desire to study
the matter further, and since it was understood that the three
railroads would act jointly, no notice of withdrawal was then

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OPINION OF THE DISTRICT COURT A29

served by any of the three railroads; and, as of September 27,
1968, no joint decision by the management of the three rail-
roads had been reached as to either a partial or a complete
withdrawal.

21. Following a discussion between the chief executives of
the Seaboard and the Penn Central, arrangements were made by
the president of the Association of American Railroads for a
meeting of the chief executives of the railroads in Washington,
D. C., on September 27, 1968, to discuss the Pullman situation.
The arrangements were made with a view to forestalling a
unilateral complete withdrawal by any of the railroads, which
could increase the cost of Pullman service to those remaining
under the Uniform Service Contract, and to promote joint,
orderly action by the contract railroads, when and to the extent
that the liquidation of Pullman might become appropriate.
George Bohannon, Pullman’s president, was invited to attend.
At the meeting, Bohannon urged that it was in the best interest
of the contract railroads to continue to utilize Pullman services.
He suggested that the railroads which had recently given notice
of partial withdrawal cancel their notices. He was advised that
the railroad executives would consider his views in that regard.

22. The railroads whose notices of partial withdrawal were
outstanding on September 27, 1968 did not cancel their notices
following the meeting held on that date. Within a few weeks,
additional railroads served notice of partial withdrawal. By
October 28, 1968 railroads using a substantial majority of Pull-
man’s sleeping car services had either served or intended to serve
notices of partial withdrawal effective January 1, 1969. On that
date Bohannon sent a letter to the Pullman contract railroads
in which he stated that it would be “impractical and uneco-
nomical for Pullman to attempt to continue full service in the
remaining limited situations and it is therefore expected that
these railroads [that have not served notices of partial with-
drawal] will also promptly serve their notices requesting a partial
form of service to be effective January 1, 1969.” By that date,

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A30 OPINION OF THE DISTRICT COURT

if not before, it thus became clear that only a partial form of
service would be performed by Pullman after January 1, 1969.

23. On November 13, 1968, Bohannon informed the C&O-
B&O that it was his opinion that the partial withdrawal of all
railroads which had been noticed for January 1, was, in the
minds of some of the chief executive officers of the railroads, a
probable “first step to complete take over” of Pullman’s sleeping
car service.

24. When the notices of partial withdrawal became effective
on January 1, 1969, Pullman’s business was confined to furnish-
ing, maintaining and shopping cars. With its business so con-
fined, Pullman no longer had occasion to employ conductors or
porters. It did, however, have a need to employ some shopcraft
workers, shop supervisors, and some of the clerks it had thereto-
fore employed.

25. While Pullman had, prior to January 1, 1969, disposed
of all of its other shopping facilities, it retained its Calumet
shop which was the largest and best equipped facility for the
shopping of sleeping cars in the United States.

COMPLETE WITHDRAWAL BY THE REMAINING RAILROADS.

26. On November 5, 1968, the Union Pacific recommended
to the Southern Pacific and the Milwaukee, with which it op-
erated joint lines, that the three railroads give six months’ notice
of complete withdrawal to Pullman on December 1, 1968. On
November 22, 1968, Mr. Bohannan had learned from Mr.
Quinn, President of the CB&Q, that it was probable that the
Northern Lines would withdraw completely from the Uniform
Service Contract (“USC”), effective August 1, 1969. Bohannon
advised Mr. Crippen, President of the Milwaukee, that he ex-
pected that to happen. While the Milwaukee was reluctant to
join the other two railroads in giving the notice, and requested
and obtained from them an extension of time to permit it to
study the matter further, when it appeared that the Union Pacific

Deere RTE EN LR THELEN BELEN TT

OPINION OF THE DISTRICT COURT A31

and the Southern Pacific were adamant, it joined them in serv-
ing a six months’ notice on approximately December 27, 1968,
effective July 1, 1969. The Santa Fe also served a similar notice
on December 23, 1968, to become effective immediately upon
and concurrently with any other notice of withdrawal that was
served thereafter.

27. The notices served by the Union Pacific, Southern
Pacific, Milwaukee, and Santa Fe made it apparent that an
agreement as to joint, rather than unilateral, action by the Pull-
man contract railroads had not been achieved at the meeting on
September 27, 1968. Said notices would tend to intensify the
concern of the other contract railroads that if the four railroads
which had served notice of complete withdrawal actually with-
drew, the cost of Pullman service to those who remained might
be substantially increased, especially if others also withdrew
completely. With these considerations in mind, arrangements
were made for a further meeting of the chief executives of the
Pullman contract railroads to discuss the Pullman situation in
Boca Raton, Florida, on January 31, 1969. Bohannon was
again invited to attend. Prior to January 16, 1969, F. J.
Boeckelman, an employee and subsequently president of Pull-
man, and Bohannon knew that the major railroads were consider-
ing withdrawing from the USC, and Bohannon told Boeckelman
at that time that if the railroads were going to do this on a
wholesale basis that there ought to be a uniform withdrawal
date rather than one railroad doing it one month and another
doing it the next month. Prior to going to Boca Raton, Bohan-
non told Boeckelman that a topic of discussion would be whether
the railroads were going to present a “uniform” notice of with-
drawal from The Pullman Company in 1969.

28. At the meeting at Boca Raton, the Seaboard, which had
a continuing concern as to its inability to shop sleeping cars in
the event Pullman went out of business, tried to persuade the
four western railroads which had served notice in December 1968
of their complete withdrawal to cancel their notices and not to

A32 OPINION OF THE DISTRICT COURT

withdraw until such time as the contract railroads agreed it was
in their interest as a whole to withdraw jointly. After it became
apparent that the four western railroads would not cancel their
notices, all the contract railroads, including the Great Northern,
the Northern Pacific, and the Burlington, which had not there-
tofore served notices of their intent to withdraw completely,
indicated their decision to withdraw and to do so effective August
1, 1969. It thus became certain at this time that the rendition
by Pullman of a partial form of sleeping car service would come
to an end; that Pullman would go out of business; and that it
would go into liquidation.

29. Within a short time after the Boca Raton meeting, the
four western railroads revised their notices to make them effec-
tive August 1, 1969, and all other contract railroads gave notice
of complete withdrawal effective on the same date. Pullman con-
tinued to furnish and maintain cars until August 1, 1969. Since
then, it has not rendered any sleeping car services to the con-
tract railroads, but has instead been in the process of winding
up its affairs, which process commenced after the Boca Raton
meeting.

30. After February 1, 1969, Pullman had the ability to
continue shopping sleeping cars with its then force of shopcraft
employees. Pullman determined, however, to continue to shop
only cars which were in the Calumet Shops on February 1 and
to lay off such employees as such cars were completed.

THE VARIOUS JoB TERMINATION AGREEMENTS.
Background: Union Agreements with the Railroads.

31. By reason of the continuing decline in the number of
conductors employed by Pullman, the Order of Railway Con-
ductors (“Conductors”) served Pullman with a notice on No-
vember 7, 1960, pursuant to Section 6 of the Railway Labor
Act, to initiate bargaining for job protection. The notice sought,
among other things, the extension of the benefits of the Wash-
ington Job Protection Agreement, executed by most United

OPINION OF THE DISTRICT COURT A33

States railroads and railroad unions on May 21, 1936, to con-
ductors who lost their jobs with Pullman as a result of the dis-
continuance of a conductor position for any reason.

The Washington Job Protection Agreement was limited to
railroad employees who lost their jobs as an incident to the
consolidation, merger or pooling of railroad facilities by two or
more railroads. The agreement provided that any employee who
retained their jobs, following a consolidation, merger or pooling
of facilities, would not, for a period of five years thereafter, be
placed in a worse position with respect to compensation and
working conditions than they had enjoyed before. It provided
that any employees who lost their jobs, following a consolidation,
merger or pooling of facilities, would receive 60% of their com-
pensation for period up to five years, or, in the alternative, a
lump-sum separation allowance.

32. When Pullman refused to agree to afford the union the
job protection it demanded for its members, the Conductors
progressed their demands to the point of setting a strike date.
After the strike was enjoined and an Emergency Board appointed,
the Board recommended that Pullman, the Conductors and the
railroads enter into an agreement affording some job protection
to conductors who lost their jobs with Pullman as an incident to
the withdrawal of Pullman contract railroads. Ultimately, on
December 9, 1963, two days before the date set by the Con-
ductors for a strike. the National Railway Labor Conference,
the bargaining arm of the railroads, entered into an agreement
[with] the Conductors, known as the Wolfe-Wise Agreement.
Under the terms of the agreement, which was subsequently rati-
fied by thirty-one railroads, including the Great Northern and the
Northern Pacific, if a conductor lost his job as a result of the
withdrawal of a Pullman contract railroad, he had the option of
receiving 60% of his compensation for a period not to exceed
twenty-four months or the lump-sum separation allowance pro-
vided in the Washington Job Protection Agreement. Pullman
was not a party to the agreement.

A34 OPINION OF THE DISTRICT COURT

33. The Brotherhood of Sleeping Car Porters (“Porters”),
confronted with a continuing decline in the number of porters
employed by Pullman, initiated its job protection demands on
Pullman that there be no reductions in forces except those conse-
quent to normal attrition, and that any porter affected by a
change in Pullman’s operations be granted the benefits of the
Washington Job Protection Agreement, with a Section 6 notice
served March 8, 1962. When Pullman refused to agree to pro-
vide job protection for the porters, the Porters pressed their
demands until, on December 17, 1963, three days before the
date set by the Porters for a strike, the National Railway Labor
Conference entered into an agreement with the Porters, known
as the Wolfe-Randolph Agreement. The agreement, which was
subsequently ratified by thirty-three railroads, including the
Great Northern and the Northern Pacific, provided that porters
offered employment by a withdrawing Pullman contract railroad
would retain the same seniority, compensation, and vacation
rights as they had at Pullman. Unlike the Wolfe-Wise Agree-
ment, the Wolfe-Randolph Agreement did not provide separation
pay to those who lost their jobs consequent to the withdrawal
of a Pullman contract railroad. Pullman was not a party to the
agreement.

34. The six shopcraft unions (collectively the “Shopcrafts”)
and the Brotherhood of Railway and Steamship Clerks
(“Clerks”) each served Pullman with a Section 6 notice seeking
job protection which was identical to the notices served on the
railroads nationally. The Shopcrafts did so on October 15,
1962. The Clerks did so on May 31, 1963. In each case, Pull-
man persuaded the unions to await the outcome of the national
negotiations before pressing their demands. On September 25,
1964, the Shopcrafts obtained an agreement from the railroads
extending the job protection and separation pay allowance pro-
visions of the Washington Job Protection Agreement to abandon-
ment and discontinuances of facilities 2-4 services and transfers
of work. The Clerks obtained an agreement from the railroads

OPINION OF THE DISTRICT COURT A35

on February 7, 1965. That agreement required railroads to
maintain their forces intact unless their business declined 5%,
measured in gross operating revenues and net revenue ton-miles.
It also gave fifteen-year employees which the railroads proposed
to transfer or reassign the option of accepting the transfer or
reassignment with their compensation protected, or resigning and
accepting a lump-sum separation allowance.

THE AGREEMENT WITH THE PORTERS AND THE CLERKS.

35. After the execution of the Wolfe-Randolph Agreement
on December 17, 1963, the Porters on May 25, 1964 served a
Section 6 notice on Pullman which was substantially the same
as that served by the Clerks on May 31, 1963. By that means,
the Porters renewed their demand for a limitation on reductions
in forces and the application of the provisions of the Washington
Job Protection Agreement to porters affected by a change in
Pullman’s operations, which it had sought in its Section 6 notice
of March 8, 1962 but had not obtained in the Wolfe-Randolph
Agreement. Negotiations with respect to that aspect of the
Porters’ May 25, 1964 Section 6 notice commenced on April
25, 1965, following the execution of the national agreement with
the Clerks on February 7, 1965. Negotiations with respect to
the Clerks’ May 31, 1963 Section 6 notice were reopened on
March 8, 1965. In both instances, Pullman refused to agree to
the application of the force reduction provisions of the Febru-
ary 7, 1965 national agreement to it, on the ground that the net
revenue ton-mile criterion of that agreement had no relevance
to Pullman’s operations.

36. When Pullman persisted in its opposition to the freight
ton-mile criterion at a joint conference with the Porters and the
Clerks in November 1966, both unions invoked the services of
the National Mediation Board, which held a joint conference in
January 1967. No agreement was reached. After the Porters
set a strike for October 13, 1967, the National Mediation Board
arranged a conference which was held on October 11, 1967.

A36 OPINION OF THE DISTRICT COURT

Although Pullman again refused to agree to the force reduction
terms of the February 7, 1965 agreement, it did indicate a
willingness to enter into a lump-sum separation pay agreement
if the Pullman contract railroads approved its doing so. Pullman’s
draft of such an agreement was rejected on November 28, 1967
by the Porters which continued to insist on the terms of the
February 7, 1965 agreement.

37. On November 14, 1967, Pullrnan reached a tentative
understanding with the Clerks as to a separation pay agreement.
The execution of that agreement was conditioned by Pullman
on its obtaining the National Railway Labor Conference’s ap-
proval of its terms, and on its obtaining authorization from the
Pullman contract railroads to bill any separation payments made
pursuant to its terms. Thereafter, Pullman secured the agreement
of the Clerks to revisions suggested by the National Railway
Labor Conference, and the approval of the Conference to. the
agreement as revised.

38. A short while later, Pullman rejected a counter-
proposal by the Porters and the National Mediation Board ar-
ranged a joint conference of Pullman, the Porters and the Clerks
on March 5, 1968. At that conference, the Board persuaded
the Porters to accept the terms of a separation pay agreement.
Thereafter, Pullman obtained the National Railway Labor
Conference’s approval of the submission by Pullman to the rail-
roads of the draft of the separation pay agreement with the
Porters.

39. On March 13, 1968, Pullman sent a letter to the chief
executives of the Pullman contract railroads, advising that it
would enter into the separation pay agreements with the Porters
and the Clerks if railroads which together incurred more than
fifty percent of Pullman’s 1967 expenses of operations approved
its doing so. It indicated that any expenses incurred pursuant
to the agreements, if executed, would be charged to the con-

OPINION OF THE DISTRICT COURT A37

tract railroads in proportion to their 1967 percentage of Pull-
man’s operations.’

40. In response none of the contract railroads, including
the Great Northern and the Northern Pacific, objected to the
indicated method of allocating the separation pay expense. Rail-
roads which together incurred more than fifty percent of Pull-
man’s 1967 expenses of operations did object, however, to one or
more features of the draft agreements, including the provision
that those furloughed by Pullman after November 13, 1966
were eligible for separation pay and the provision that the
railroads, under implementing agreements, pay a separation al-
lowance of $2,500 to employees offered employment by a rail-
road.

41. When the National Mediation Board was advised of the
responses Pullman had received, the Board proposed that the
draft agreements be modified so as to eliminate one year of
retroactivity and to provide for the payment by Pullman, rather
than the railroads, of a separation allowance of $2,500 to em-
ployees taken over by the railroads. That proposal was accepted
by the Porters and the Clerks, and by Pullman subject to the
submission of the revised drafts to the contract railroads for
approval . Pullman was advised on May 3, 1968 that the Porters
and the Clerks had set May 28, 1968 as the date on which they
would strike if Pullman did not enter into the agreements. The
railroads were informed of this strike date in a letter of May
16, 1968 from Bohannon.

1. In late 1967, Pullman management, particularly Boeckel-
man, was of the opinion that Pullman would need the approval of the
railroads for it to recoup from the railroads whatever amounts
Pullman would pay to employees under separation pay agreements.
Earlier, Boeckelman and Bohannon had considered securing an
amendment to the Uniform Service Contract to accomplish this;
however, they apparently concluded that such an amendment could
not be secured from the railroads, and no amendment was sub-
mitted. An alternative was devised in late 1967, in discussions be-
tween Bohannon and Boeckelman, to the effect that the proposed
separation pay agreement would be

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385608_1229%3A1. Public record. Not legal advice.