United States District Court, Central District of Illinois, Peoria Division
October 5, 1984
MICHAEL J. MCKEON AND R. DEAN PETERSON, PLAINTIFFS,
TOLEDO, PEORIA AND WESTERN RAILROAD COMPANY AND/OR ATCHISON, TOPEKA AND SANTA FE RAILWAY COMPANY, DEFENDANT.
The opinion of the court was delivered by: Mihm, District Judge.
Prior to 1980 the Toledo, Peoria and Western Railroad
Company was a 50%-owned subsidiary of the Atchison, Topeka and
Santa Fe Railway Company. The other 50% of TP & W's capital
stock was owned by the Pennsylvania Transportation Company. On
July 20, 1979 the Santa Fe
Railway reached an agreement with the Pennsylvania
Transportation Company under which it purchased the other's
50% interest in TP & W. In a decision dated December 17, 1980
the Interstate Commerce Commission approved the sale of all of
the Pennsylvania Company's stock to the Santa Fe Railway.
Because the transaction involved the merger of a
wholly-owned subsidiary and was thus classified as a
"corporate simplification", the Santa Fe Railway Company was
exempt from the requirement of Commission approval. Therefore,
a special agreement incorporating the New York Dock conditions
for employee protection was necessary. This was effected in a
Notice of Exemption dated August 17, 1983, stating:
". . . accordingly, as a condition to use of the
subject exemption for this merger, any employee
of TP & W or Santa Fe affected by the merger
shall be protected pursuant to the conditions in
New York Dock."
At the time of the merger, the Plaintiff Michael McKeon had
been employed by TP & W since September of 1979, and the
Plaintiff R. Dean Peterson since June 30, 1972. Both were,
therefore, covered under the employee protection agreement.
A further term of the merger was the abrogation of an
agreement between TP & W and Consolidated Rail Corporation
(Conrail), which guaranteed the maintenance of existing rates,
routes and services of TP & W. Thereafter, in June of 1981,
Conrail closed the Logansport Gateway. The Plaintiffs claim
that, as a result of that closing, both lost their positions
on November 1, 1982 in violation of the protection agreement
under New York Dock. The Plaintiff McKeon claims losses of
$94,482.83 and the Plaintiff Peterson claims losses of
The issue presented for resolution is whether this Court has
jurisdiction to decide the applicability of the protective
conditions of New York Dock in this case.
THE POSITION OF THE DEFENDANT
The Defendants claim that the employee protection
arrangement under which Plaintiffs seek relief includes
mandatory arbitration, and that this arbitral remedy is
exclusive, depriving the Court of the authority to hear this
case. The claim is that the controlling law is set out in the
"conditions" of New York Dock Railway-Control-Brooklyn Eastern
District, 360 ICC 60 (1979). The relevant portion of the New
York Dock conditions is section 11, which establishes a
grievance mechanism to resolve, through final and binding
arbitration, disputes relative to the interpretation,
application, or enforcement of its provisions.
Section 11 reads in relevant part:
"Arbitration of Disputes. (a) in the event a
railroad and its employees or their authorized
representatives cannot settle any dispute or
controversy with respect to the interpretation,
application or enforcement of any provision of
this appendix, except sections 4 and 12 of this
article I, within 30 days after the dispute
arises, it may be referred by either party to an
Although the language of the section implies that arbitration
is discretionary, it is the contention of the Defendants that
the federal courts have definitively established over the
years that the arbitration remedy is compulsory and exclusive,
and that the courts lack jurisdiction of claims under those
conditions. The Defendant places particular emphasis on
Walsh v. United States, 723 F.2d 570
(7th Cir. 1983), arguing
that this case decisively establishes the Seventh Circuit
position that Plaintiffs have a plain, effective and compulsory
arbitral remedy. For that reason, Defendants maintain
Plaintiffs' complaint should be dismissed.
A second issue is raised by the Defendants' motion. Does the
fact that TP & W's corporate existence had ceased but its
rights, interests and liabilities have devolved by operation
of law upon Santa Fe require the dismissal with prejudice of
claim against TP & W? Santa Fe is currently named as a
co-defendant in the case.
THE POSITION OF THE PLAINTIFF
Addressing first the motion for dismissal, Plaintiffs claim
Walsh v. United States, supra, does not address the issue
before the Court because the Seventh Circuit ". . . was not
presented with the issue of whether an employee has a private
right of action against a railroad for the denial of protective
conditions under the New York Dock decision."
Plaintiffs rely heavily on Modin v. New York Central Company,
650 F.2d 829 (6th Cir. 1981), in which the Sixth Circuit,
citing Norfolk and Western Railway Co. v. Nemitz, 404 U.S. 37,
92 S.Ct. 185, 30 L.Ed.2d 198, stated:
"Employees have a private right of action for
damages against a railroad for violation of the
employee arrangements imposed by the ICC in
connection with the approval of railroad
The Plaintiffs argue that, since Modin was decided nearly two
years after New York Dock, the Sixth Circuit must have been
aware of the arbitration provisions contained in New York Dock
when it ruled that employees do have a private right of action
for redress of violations of protective conditions. Apparently,
Plaintiffs believe that Modin bears more directly on the
question than does Walsh, which is the Seventh Circuit case.
The Plaintiffs further argue that Defendants' failure to
comply with a 90-day notice provision of the New York Dock
conditions constitutes a waiver of the right to mandatory
arbitration. They have alleged that they were given two weeks'
notice of the change or elimination of their positions.
With respect to the summary judgment alternative in
Defendants' motion, Plaintiffs claim there exist genuine
issues of material fact making summary judgment inappropriate.
And, in response to Defendants' move to dismiss the action
against TP & W, Plaintiffs cite Illinois Revised Statutes, ch.
32, § 157.94 to the effect that an action may be brought
against the dissolved corporation up to two years after its
There appear to be three steps involved in the resolution of
a complaint such as the one Plaintiffs present. The first step
is a factual determination of whether the specific action or
omission complained of is a result of the merger. The second
is a determination by the ICC of whether or not that action
violates the applicable employee protection arrangement. The
third and final step is a decision by the federal court, on
appeal, that the ICC's decision is or is not arbitrary and
In this case, Plaintiffs are alleging that the loss of their
jobs is a direct result of Conrail's closing of the Logansport
Gateway and a violation of the protections afforded them by
New York Dock and by 49 U.S.C. § 11347 (which the courts
generally agree is a codification of the New York Dock
conditions). Because of the attenuation between the merger
itself and the loss of Plaintiffs' jobs, it would seem that the
case would require a factual determination of whether the
merger did in fact cause the loss. Thus, it is a step one
Defendants' contention that "the federal courts have
definitively established that this arbitration remedy is
compulsory and exclusive, and the courts lack jurisdiction of
claims under these conditions", seems to be a fair and
accurate one. Such decisions have come down in the Fifth,
Sixth, Seventh and Eighth Circuits. Of particular interest is
the pre-New York Dock case of Burlington Northern, Inc. v.
American Railway Supervisor's Association, 503 F.2d 58 (1974),
the Seventh Circuit case. The case involved a merger of
railroads under the Railway Labor Act. The ICC had imposed, as
a condition of its approval of the merger, an employees' merger
protection agreement which included an agreement to arbitrate.
The court held that, "when an agreement to arbitrate is one of
the protections afforded employees under § 5(2)(f) of the
Interstate Commerce Act the obligation to arbitrate will be
enforced by the courts."
In 1979, the ICC decided New York Dock, supra, in which the
Commission developed and standardized the requirements of
employee protection which are to condition its approval of
mergers. These conditions include a section 11 which
establishes a grievance mechanism, subsection (a) of which was
set out above. Subsection (e) reads as follows:
"(e) In the event of any dispute as to whether or
not a particular employee was affected by a
transaction, it shall be his obligation to
identify the transaction and specify the
pertinent facts of that transaction relied upon.
It shall then be the railroad's burden to prove
that factors other than a transaction affected
The Eighth Circuit case, Sorensen v. Chicago & M.W.
Transportation Co., 627 F.2d 136 (8th Cir. 1980), was decided
after New York Dock and held that arbitration deprives the
court of jurisdiction over alleged violations of protective
On December 13, 1983 the Seventh Circuit decided Walsh v.
United States, supra. Plaintiffs rightly point out that the
court in Walsh is construing the Staggers Rail Act; however,
the court's analysis makes clear that they feel that the
relationship between the Staggers Rail Act and the conditions
of New York Dock is very clear and straightforward. The court
notes that § 219(g) requires the ICC to provide employees of
rate bureaus with arrangements no less protective than those
established pursuant to 49 U.S.C. § 11347. The Seventh Circuit
court quoted the ICC in Western Railroads-Agreement, 364 ICC
782 (1981) as follows:
"It is clear that Congress intended that affected
employees of these [rate] bureaus are to have at
least the same minimum protection as granted to
rail employees affected by mergers, acquisitions,
consolidations and similar transactions. These
protections developed pursuant to 49 U.S.C. § 11347
are set forth in New York Dock."
The Court goes on to say, "accordingly, we do not dispute
the ICC's determination that the minimum protective
arrangements established pursuant to 49 U.S.C. § 11347 are, in
fact, the New York Dock conditions." The court then bases the
rest of its analysis, and apparently its opinion, on the New
York Dock conditions.
After noting that the phrase "may be referred by either
party to an arbitration committee" would ordinarily connote
discretion, the court said that the real meaning of "may" is
dependent on the intention of the legislature to confer a
discretionary power or to impose an imperative duty. Thus, the
court found it necessary to determine the ICC's intention in
using the word "may". Following its examination of the
language of the ICC in New York Dock and language of the United
States Supreme Court in interpreting a similar provision of the
Railway Labor Act, the court decided:
"Based upon the deference due the ICC's
interpretation of its own language and the
Supreme Court's directive we conclude that the
New York Dock conditions impose mandatory
arbitration for disputes such as petitioner's that
require a factual determination of whether or not a
rate bureau employee's dismissal was caused by the
ICC's deregulation of a rate bureau industry."
The court went on to dismiss, as of no consequence, the
petitioner's status as a non-union employee. This could have
been, but was not, raised as an issue in this case.
It appears that, although the Seventh Circuit in
Walsh is construing the Staggers Rail Act, in effect and in
actuality its analysis is also of the New York Dock conditions
and whether or not arbitration under those conditions is
In Walsh, the ICC had refused to hear a case involving a
factual dispute under § 219(g) and the plaintiff petitioned the
Seventh Circuit to review the ICC's decision dismissing
petitioner's complaint. The Seventh Circuit affirmed that
decision of the ICC based on the foregoing analysis.
It seems clear that the Seventh Circuit is saying that the
initial factual dispute must be submitted to arbitration,
that only after such arbitral finding is the ICC required to
make a decision regarding whether or not the protective
conditions have been violated, and only when the ICC decision
is appealed is there jurisdiction for a court to review. That
review rests appropriately with an appellate court and the
standard of review is whether or not the agency action was
arbitrary, capricious, an abuse of discretion, or otherwise not
in accordance with the law.
Thus, it would seem that this Court does lack jurisdiction
in this matter and the Defendant's Motion to Dismiss is hereby
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