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10/30/89 T.J. Gendron, Indiv. and v. Chicago & North Western

October 30, 1989

T.J. GENDRON, INDI

v.

AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED, ET AL., PLAINTIFFS-APPELLANTS,

v.

CHICAGO & NORTH WESTERN TRANSPORTATION COMPANY ET AL., DEFENDANTS-APPELLEES



APPELLATE COURT OF ILLINOIS, FIRST DISTRICT, FIRST DIVISION

546 N.E.2d 721, 190 Ill. App. 3d 301, 137 Ill. Dec. 776 1989.IL.1714

Appeal from the Circuit Court of Cook County; the Hon. Richard L. Curry, Judge, presiding.

APPELLATE Judges:

JUSTICE QUINLAN delivered the opinion of the court. MANNING, P.J., concurs. JUSTICE O'CONNOR, Dissenting.

DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE QUINLAN

This appeal is brought by creditors of a railroad to enjoin the sale of a portion of the railroad as a fraudulent conveyance and for damages occasioned by the fraudulent conveyance. The trial court entered judgment dismissing plaintiffs' complaint on the basis that it was preempted by the minor dispute provisions of the Railway Labor Act (45 U.S.C. § 151 et seq. (1982)), and by the Interstate Commerce Act (49 U.S.C. § 1001 et seq. (1982)). The trial court also held that Illinois common law preempts plaintiffs' claim of civil conspiracy. We affirm.

Defendant Chicago and North Western Transportation Company is one of the nation's largest rail systems. Defendant Fox River Valley Corporation was incorporated in September 1987 for the purpose of acquiring 208 miles of Wisconsin rail line and incidental trackage rights from C&NW (Duck Creek South Line).

Plaintiff T.J. Gendron (Gendron) is an employee of C&NW and alleges that he is a creditor of C&NW. Plaintiff Railway Labor Executives' Association is a voluntary, unincorporated association of the chief executive officers of the standard national and international railway unions in the United States and alleges that it also is a creditor of C&NW.

In late 1987, C&NW and FRVR began negotiating C&NW's sale of the Duck Creek South Lines and certain other trackage rights to FRVR. As part of the transaction, FRVR is to receive trackage rights over C&NW lines and C&NW has reserved an easement over FRVR lines. C&NW is to receive $61. *fn1 million from the sale and will continue to operate as a Class I railroad.

On December 23, 1987, C&NW and FRVR filed with the Interstate Commerce Commission (ICC or Commission) a notice of exemption, seeking approval of the sale and requesting clarification of the Commission's jurisdiction over labor issues arising from line sale transactions.

On January 29, 1988, the Commission granted defendants a license exemption, giving defendants authority to proceed with the sale. On February 19, 1988, the RLEA filed a petition for revocation of the exemption from regulation. At the time this appeal was filed, that petition was still pending before the Commission.

Prior to the granting of the license exemption, on January 22, 1988, plaintiffs filed a three-count complaint in the circuit court of Cook County.

The complaint alleged that the sale constituted a fraudulent conveyance under Illinois law and was the product of a civil conspiracy. The complaint sought to enjoin the sale or to create a lien on the track to be sold, other injunctive relief and damages.

In their complaint, plaintiffs alleged that C&NW's purpose in making the sale to FRVR was to avoid the cost burden of ownership, including continuing to pay plaintiffs' wages and benefits. Plaintiffs claim that the transaction is a highly leveraged buyout and that C&NW will use the proceeds of the sale to pay favored creditors or to pay dividends or other benefits to its shareholders rather than addressing plaintiffs' debts. It also alleges that FRVR will be left dangerously undercapitalized, with the bulk of its assets pledged as security for the benefit of persons other than the plaintiffs.

On February 1, 1988, C&NW and FRVR filed a petition for removal under 28 U.S.C. §§ 1441 and 1446 and the case was removed to Federal court. Plaintiffs filed a motion to remand, and defendants filed a joint motion to dismiss, asserting that plaintiffs' causes of action were preempted by the RLA and ICA. The Federal district court held that neither the RLA nor the ICA was a complete preemption statute and, thus, did not give rise to Federal removal jurisdiction.

Upon remand to the circuit court, defendants moved to dismiss the complaint as preempted by the RLA and ICA. The trial court granted the motion to dismiss and plaintiffs now bring this appeal.

The principal issue on appeal is whether plaintiffs' causes of action under the Illinois fraudulent conveyance act (Ill. Rev. Stat. 1987, ch. 59, par. 4) are preempted by the Railway Labor Act and the Interstate Commerce Act. Plaintiffs' contention is that their fraudulent conveyance action is not a "minor dispute" within the meaning of the Railway Labor Act and, therefore, the claim is not subject to the exclusive jurisdiction of the National Railway Adjustment Board . Defendants argue that the plaintiffs' contentions are in fact matters within the collective-bargaining agreement and are accordingly a minor dispute within the Railway Labor Act. Furthermore, the defendants assert, the plaintiffs' claims here are preempted by the Interstate Commerce Act.

Congress enacted the Railway Labor Act in an effort to promote stability in labor-management relations by providing "effective and efficient remedies for the resolution of railroad-employee disputes arising out of the interpretation of collective-bargaining agreements." (Union Pacific R.R. Co. v. Sheehan (1978), 439 U.S. 89, 94, 58 L. Ed. 2d 354, 359, 99 S. Ct. 399, 402 (per curiam).) More specifically, the RLA was enacted to prevent disruption in rail service by providing for the prompt and orderly settlement "of all disputes concerning rates of pay, rules or working conditions" and "all disputes growing out of grievances or out of the interpretation or application of agreements covering rates of pay, rules or working conditions." 45 U.S.C. § 151a (1982).

Labor disputes under the RLA are classified as either "major" or "minor." A "major dispute" involves the acquisition of new rights, such as the formation of a collective-bargaining agreement or changes to an existing agreement. (See Gregory v. Burlington Northern R.R. Co. (D. Minn. 1986), 638 F. Supp. 538, 541, aff'd (8th Cir. 1987), 822 F.2d 1092.) A "minor dispute," which defendants assert is what is at issue here, involves the interpretation or application of existing contracts. Brotherhood of R.R. Trainmen v. Chicago River & Indiana R.R. Co. (1957), 353 U.S. 30, 33, 1 L. Ed. 2d 622, 625, 77 S. Ct. 635, 637.

The exclusive remedy for "minor disputes" is the Federal dispute resolution procedure set forth in RLA section 3 First (45 U.S.C. § 153 First (1982)), which requires that such disputes must be pursued initially through the railroad's internal procedures, and, if not resolved there, may be submitted to a division of the National Railroad Adjustment Board . (See Atchison, Topeka & Santa Fe Ry. Co. v. Buell (1987), 480 U.S. 557, 94 L. Ed. 2d 563, 107 S. Ct. 1410.) Exclusive jurisdiction over "minor disputes" is vested with the NRAB because of the Board's administrative expertise in interpreting collective-bargaining agreements and because of the importance of uniform administrative interpretation of such agreements. Pennsylvania R.R. Co. v. Day (1959), 360 U.S. 548, 551-52, 3 L. Ed. 2d 1422, 1426, 79 S. Ct. 1322, 1324.

In our view, plaintiffs' claims in this case are substantially related to the rights and obligations embodied in the collective-bargaining agreement and would, of necessity, require interpretation of the agreement. Therefore, we agree with defendants' argument that the RLA preempts plaintiffs' fraudulent conveyance action and provides the sole and exclusive remedy for plaintiffs' claims here.

Our Supreme Court recently considered a similar issue in Koehler v. Illinois Central Gulf R.R. Co. (1985), 109 Ill. 2d 473, 488 N.E.2d 542. There the court determined that any claim involving a State tort claim is preempted by the RLA regardless of the nature of the claim.

In Koehler, the Supreme Court found in pertinent part:

"The RLA is an elaborate and extensive administrative scheme. (45 U.S.C. secs. 151 through 163 (1982).) Under . . . [which] 'disputes . . . growing out of grievances' are to be resolved in the first instance by the parties. If the parties are unsuccessful, the RLA provides that the dispute be referred to the National Railroad Adjustment Board for resolution. (45 U.S.C. sec. 153 First (i) (1982).) Decisions of the Adjustment Board are final and binding. (45 U.S.C. sec. 153 First (m) (1982).) Under the RLA, a party dissatisfied with a decision of the Adjustment Board may obtain limited review in Federal district court with appeal to the court of appeals. (45 U.S.C. sec. 153 First (q) (1982).) The RLA does not accord original jurisdiction over employment-related disputes to either Federal or State courts. Original, exclusive jurisdiction is given to the Adjustment Board. (45 U.S.C. sec. 153 First (i) (1982).) . . .

[Hence] [o]ur review of the RLA indicates that plaintiff's [tort] suit for retaliatory discharge is precluded as an 'undue interference' with the dispute-resolution scheme of the RLA. Stripped to its essentials, plaintiff's suit is a reformulation in tort of his grievance which, as the record shows, fell within the purview of the RLA. Allowing plaintiff's suit to proceed would allow a State court, applying State law, to resolve 'disputes . . . growing out of grievances.' (45 U.S.C. sec. 153 First (i) (1982).) . . . [Such a] result would unduly interfere with the operation of the dispute-resolution machinery of the RLA." Koehler, 109 Ill. 2d at 479-80, 488 N.E.2d at 545-46.

The court there concluded:

" A thorough reading of the RLA makes clear Congress' intent that employment-based disputes between parties covered by the RLA are to be resolved exclusively pursuant to the Act. Under the RLA, State courts have no jurisdiction to hear and resolve such disputes. (45 U.S.C. secs. 153 First (i), (q) ...


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