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MCKEON v. TOLEDO

October 5, 1984

MICHAEL J. MCKEON AND R. DEAN PETERSON, PLAINTIFFS,
v.
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.

MEMORANDUM OPINION

FACTUAL BACKGROUND

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 $38,981.52.

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
  arbitration committee."

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 any claim against ...


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