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Railway Labor Executives' Association v. United States

May 22, 1986

RAILWAY LABOR EXECUTIVES' ASSOCIATION, PETITIONER,
v.
UNITED STATES OF AMERICA, AND INTERSTATE COMMERCE COMMISSION, RESPONDENTS, THE STATEN ISLAND RAILROAD CORPORATION, THE STATEN ISLAND RAILWAY CORPORATION, INTERVENORS



Petitions to review two Interstate Commerce Commission orders approving the sale under 49 U.S.C. § 10905 of 16.68 miles of railroad track and under 49 U.S.C. § 10901 of 14.48 miles of trackage rights to the Staten Island Railway Corporation from the Staten Island Railroad Corporation without the imposition of labor protective conditions. Petitions are denied and dismissed.

Author: Miner

Before: VAN GRAAFEILAND, NEWMAN and MINER, Circuit Judges.

MINER, Circuit Judge :

These are two consolidated petitions to review two Interstate Commerce Commission ("ICC") orders approving the sale under 49 U.S.C. § 10905 of 16.68 miles of railroad track by the Staten Island Railroad Corporation ("SIRC") to the Staten Island Railway Corporation ("SIRY"), a newly formed, wholly owned subsidiary of the New York, Susquehanna & Western Railway Corporation ("NYS&W"), and exempting from the provisos of 49 U.S.C., § 10901 the collateral assignment by SIRC to SIRY of trackage rights over 14.48 miles of track, owned by the Staten Island Rapid Transit Authority ("SIRTOA").*fn1 The Railway Labor Executives' Association ("RLEA"), whose member unions represent for collective bargaining purposes thirty-one SIRC employees affected by the transactions, filed these petitions to challenge the ICC's determination not to impose any labor protective conditions upon the parties.

The petitions raise the issues whether SIRC's initial application to abandon its rail service was a subterfuge to permit it to sell its lines to a carrier through the financial assistance provisions of 49 U.S.C. § 10905; whether the ICC is empowered to impose labor protective conditions on the parties to a section 10905 sale; whether the line acquisition provisions of 49 U.S.C. § 10901, governing acquisitions by noncarriers, encompass the assignment of trackage rights by a rail carrier to a noncarrier; and, if such transactions are included within section 10901, whether a newly formed, wholly subsidiary of a rail carrier may be considered to be a noncarrier for the purpose of a trackage rights acquisition under section 10901. We hold that RLEA's failure to raise its subterfuge argument before the ICC precludes us from reviewing the issue here. We further conclude that the ICC's interpretation of section 10905, which prohibits the imposition of labor protective conditions in sales under that provision, and of section 10901, which embraces trackage rights acquisitions of the type at issue here, are reasonable. Accordingly, we affirm the ICC's orders and deny and dismiss the petitions.

I. BACKGROUND

A. SIRC's Application to Abandon and the Sale of Rail Line Under 49 U.S.C. § 10905

Prior to the approval of the transactions at issue, SIRC's rail system consisted of 31.16 miles of track and trackage rights running across Staten Island and into northern New Jersey. The system provided essential rail transportation services to industrial and business concerns throughout Staten Island and was considered by local officials to be "important to the local economy as well as to the overall economic health of the City of New York." Joint Appendix at 61. In December of 1984, SIRC gave public notice of its intention to abandon its entire rail system, claiming loss of profits and poor conditions of the lines as the bases for its decision.*fn2 Pursuant to 49 U.S.C. § 10903, which allows a rail carrier to abandon a portion of its rail system "only if the [ICC] finds that the present or future public convenience and necessity require or permit the abandonment or discontinuance," SIRC filed an application to abandon with the ICC. The application indicated that SIRC had commenced negotiations with the Delaware Otsego System ("DO"), the noncarrier owner of NYS&W, over the possible sale of the lines to DO. SIRC further requested that the ICC impose no labor protective conditions on the abandonment on the ground that SIRC was attempting to abandon its entire line and therefore would no longer be in the business of providing rail service.*fn3

In accordance with the requirements of 49 U.S.C. § 10904(a)(3), SIRC published its notice of intent and forwarded copies of the notice to all significant users of the line for public comment. In its formal comments to the ICC on the application, RLEA requested that the ICC impose labor protective conditions on the parties, as required by 49 U.S.C. § 10903(b)(2). On February 1, 1985, the ICC issued a decision approving the abandonment application and the issuance to SIRC of a certificate of public convenience and necessity. In light of RLEA's comments and the requirements of section 10903(b)(2),*fn4 however, the ICC imposed on SIRC the labor protective conditions set forth in Oregon Short Line Co. --Abandonment--Goshen, 360 I.C.C. 91 (1979).*fn5

Once approval of the abandonment was obtained, SIRC began to actively pursue a sale of its entire line under section 10905, entitled "Offers of financial assistance to avoid abandonment and discontinuance." Section 10905 is a "forced sale" provision which attempts to preserve rail service over lines that otherwise would be abandoned. Under section 10905, within ten days of the publication of the ICC's decision on the abandonment, "any person may offer to pay the carrier a subsidy or offer to purchase the line." Id. § 10905(c). The effective date of the abandonment certificate simultaneously is stayed pending a determination of the legitimacy of any offers. Id. § 10904(c)(4). If within fifteen days after the publication an offeror is determined to be financially responsible and the offer to be statutorily satisfactory, the ICC is required to "postpone the issuance of a certificate" in order to give the parties an opportunity to negotiate a final sale. Id. § 10905(d). If the parties are able to reach an agreement for the sale which ensures continued rail service on the line, "the Commission shall approve the transaction and dismiss the application for abandonment or discontinuance." Id. § 10905(e). If, however, the parties are unable to reach an agreement, either party may request that the ICC fix a price for the sale, based upon the fair market value of the line. Id. § 10905(f)(1). The ICC's decision then becomes binding on the parties unless the offeror withdraws its offer to purchase the line within ten days of the ICC's decision. Id § 10905(f)(2).

Here, within ten days of the ICC's approval of SIRC's application to abandon, NYS&W made an offer to purchase SIRC's entire line and informed the ICC of its intention. NYS&W's offer indicated that, prior to consummation of the sale, it might substitute a new corporate affiliate, wholly owned by NYS&W, as the purchasing entity. This affiliate, SIRY, was to be formed specifically for this transaction and thus had not participated in rail carriage operations previously. The offer also indicated that DO would "guarantee the financial responsibility of [SIRY]."*fn6 Joint Appendix at 70.

On February 20, 1985, the ICC issued a decision finding NYS&W's offer to be bona fide and NYS&W to be financially responsible under section 10905(d). Accordingly, the ICC postponed the issuance of SIRC's abandonment certificate to give SIRC and NYS&W an opportunity to negotiate. The ICC, however, also found that only the sale of the 16.68 miles of track owned by SIRC itself could be processed through the sale provisions of section 10905, and its disapproved the inclusion under that provision of the acquisition of trackage rights over 14.48 miles of track owned by SIRTOA. Noting that "[t]he purpose of section 10905 is to allow for the continuation of rail service," The Staten Island Railroad Corporation--Abandonment and Discontinuance of Service--In Richmond County, NY and Union County, NJ, A.B.-231 (Feb. 20, 1985), the ICC determined that "[by] its very nature, a line over which a party has trackage rights is a line that will remain in service whether the trackage rights are transferred or not." Id.

Within days of the ICC's decision, SIRC requested that the ICC withdraw that portion of SIRC's abandonment application which dealt with trackage rights, leaving only the sale of the tracks owned by SIRC as the topic of the section 10905 sale. On March 1, 1985, the ICC approved this request. Two weeks later, SIRC, NYS&W and SIRY informed the ICC that they had reached an agreement for the sale under section 10905 of the 16.68 miles of track and requested final approval of the sale. The parties further requested that the ICC impose no labor protective conditions. RLEA opposed approval of the section 10905 sale without the imposition of such conditions. It asserted that the ICC should read section 10903(b)(2), which mandates imposition of labor protective measures for all partial line abandonments, in conjunction with section 10905 so as to impose such conditions for all sales under that provision.

On April 19, 1985, following the directives of section 10905(e), which requires the ICC to approve a sale and dismiss the application for abandonment of the line once an agreement between the purchasing and selling parties has been reached, the ICC authorized the sale to SIRY. In so doing, it tacitly declined to impose labor protective conditions on the sale, apparently adhering to its prior view that the lack of any specific reference to such conditions within the text of section 10905 foreclosed the ICC from imposing them in such a sale. E.g., Illinois Central Gulf Railroad--Abandonment--in Alexander County, Illinois, 366 I.C.C. 911 (1983), aff'd sub nom. Simmons v. I.C.C., 760 F.2d 126 (7th Cir. 1985), cert. denied, 474 U.S. 1055, 54 U.S.L.W. 3460, 88 L. Ed. 2d 769, 106 S. Ct. 791 (U.S. Jan. 13, 1986).

B. Trackage Rights Acquisition Under 49 U.S.C. § 10901

On the same day that SIRC requested the ICC to withdraw the portion of its application for abandonment dealing with trackage rights, DO, NYS&W and SIRY submitted to the ICC a petition for an exemption, pursuant to 49 U.S.C. § 10505, from the requirements of 49 U.S.C. § 10901 for a proposed independent assignment of SIRC's trackage rights to SIRY. Section 10901 governs rail line acquisitions by entities not previously in the rail carriage business and permits such acquisitions "only if the [ICC] finds that the present or future public ...


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