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In re Chicago

*fn*: June 16, 1981.


Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 77-B-8999 -- Thomas R. McMillen, Judge .

Before Fairchild, Chief Judge, Pell, Circuit Judge, and Crabb, District Judge.*fn**

Author: Fairchild

This appeal forms another chapter in the reorganization litigation of the Chicago, Milwaukee, St. Paul and Pacific Railroad (Milwaukee Road). It raises questions of whether the Reorganization Court has jurisdiction to decide issues relating to real and personal property that are part of a railroad spur line on which service has been abandoned and whether, assuming that it does, the court should nonetheless have referred the case to the Montana state courts because of unsettled questions of state law and matters of convenience. The Reorganization Court held that it has exclusive jurisdiction over the property and that there is no reason for it to decline to exercise it. We agree and therefore affirm.

The Facts

The Milwaukee Road, on November 30, 1977, filed with the Interstate Commerce Commission (ICC) a notice of intent to abandon its railroad operations over certain lines including a line in Gallatin County, Montana, and on December 19, 1977, petitioned for reorganization in the United States District Court for the Northern District of Illinois. Order No. 1 of the reorganization, which was entered on December 20, 1977, in paragraph 10, stayed the continuance or commencement of all third party proceedings against the railroad, with certain exceptions not applicable here. With approval of the Reorganization Court, the Milwaukee Road, on December 30, 1977, filed an application with the ICC to abandon certain branch lines, including the approximately 45 miles in Gallatin County. On February 24, 1978, the ICC issued an Order and Certificate of Public Convenience and Necessity permitting the abandonment and on May 8, 1978, the Reorganization Court authorized the trustee to take that action.

Once approval of the abandonment had been received, the railroad engaged contractors to remove and sell the rails and ties from the former line, and began to sell the underlying realty to the adjoining property owners and others.

The Court Proceedings

On August 31, 1979, petitioners, as representatives of the adjoining land owners, commenced a class action in state court to quiet title to the spur line property and to enjoin the county clerk and recorder from filing deeds purporting to transfer any portion of the abandoned line. Essentially, petitioners claimed that as a result of the abandonment the railroad's easement interests in the right of way terminated and that title to the real property reverted immediately to the adjoining property owners. The same was true, they alleged, of the rails, ties, and bridges which had become fixtures to the land. In response to these arguments, the railroad filed a motion to dismiss on the ground that the Montana court had no jurisdiction over the Milwaukee Road's property because exclusive jurisdiction had vested in the Reorganization Court.

On October 8, 1979, the state court, among other things, granted the requested injunctive relief, reserved for a period of sixty days any ruling on the question of jurisdiction,*fn1 and directed petitioners to file with the Reorganization Court, within sixty days, a request to abstain from exercising jurisdiction over the matter in question.

Pursuant to the state court's order the request to abstain was filed in federal court where it was treated as a motion to grant relief from the stay provisions of paragraph 10 of Order No. 1. The motion was denied on April 8, 1980, in reorganization Order No. 313. The Reorganization Court held that it had exclusive jurisdiction over the property in question under 11 U.S.C. § 205(a), and that abstention was not warranted since "no particularly unusual or unsettled question of Montana law seemed to be involved" and because the convenience to the petitioners of litigating in Montana did not outweigh the convenience to the estate of litigating in the Northern District of Illinois. Thereafter, an appeal was taken to this court.


The law is clear that a reorganization court has exclusive jurisdiction over a petitioning railroad and "its property wherever located," 11 U.S.C. § 205(a) (1976),*fn2 and that the court's summary jurisdiction extends to the adjudication of competing claims of title to all property which the railroad possesses at the time its petition is filed. Matter of Boston & Maine Corp., 596 F.2d 2, 7 (1st Cir. 1979), citing Thompson v. Magnolia Petroleum Co., 309 U.S. 478, 481-482, 60 S. Ct. 628, 629-630, 84 L. Ed. 876 (1940).*fn3 In an attempt to escape the force of this rule, petitioners argue that the Milwaukee Road was not in possession of the spur line property on December 19, 1977, because prior to the filing of its petition the railroad had in fact abandoned the line. We find it impossible to accept this contention.

Petitioners' state court complaint, which was annexed to the papers it submitted in federal court, alleged only that the "railway line has in fact been abandoned and no railroad operations have been had on the easement ... since the year 1978" which was subsequent to the filing of the reorganization petition. Even if we assume that this allegation is not inconsistent with a claim that abandonment actually occurred prior to December 19, 1977, and that there is no insufficiency of pleading, we are convinced by statements made at oral argument that petitioners cannot prevail on this issue. The following colloquy took place between the court and petitioners' counsel:

Counsel: "... I made the comment that there has been absolutely no rail traffic since 1978, which is correct. In addition to that you will find that in fact we would intend to present to the trial court that the railroad activity other than an occasional train running up and down the rail for only that purpose, just so that (they) could say that (they) had a train running on the track it didn't operate .... As far as I am ...

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