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Union Pacific Railroad Company v. Surface Transportation Board

February 03, 2004


On Petition for Review of an Order of the Surface Transportation Board

Before: Henderson, Rogers, Circuit Judges, and Williams, Senior Circuit Judge.

The opinion of the court was delivered by: Williams, Senior Circuit Judge

Argued December 12, 2003

Separate opinion filed by Circuit Judge HENDERSON concurring in the judgment.

In an arbitration over benefits for workers adversely affected by a rail merger, the arbitrators decided the core liability issues against the carrier. The Surface Transportation Board declined to set aside or modify the award. The carrier appeals (now in the form of Union Pacific as successor by merger to the original acquiring firm). Applying the highly deferential standard of review that the Board claims is applicable, we find the Board's decision arbitrary and capricious and reverse.

The statutes governing the type of rail merger in question require the Board to condition any approval on the merged carrier's agreement to provide labor protection benefits. 49 U.S.C. § 11326(a). In granting its 1988 approval for the merger of the Denver & Rio Grande and the Southern Pacific, the Board imposed its standard requirements, known as the New York Dock conditions. See 49 U.S.C. § 11326(a); New York Dock Ry. -- Control -- Brooklyn E. Dist. Terminal, 360 I.C.C. 60, aff'd sub nom. New York Dock Ry. v. United States, 609 F.2d 83 (2d Cir. 1979).

In 1989 the merged carrier consolidated various activities. Among these were the prior railroads' Denver and San Francisco computer systems, which the carrier joined in a "Management and Information Services" ("MIS") division at Southern Pacific's computer headquarters in San Francisco. And in 1992 the carrier gave notice of further consolidations between operations of Southern Pacific and the former Denver & Rio Grande; as a result, it and the Transportation Communications Union entered into a 1992 Implementing Agreement governing protection for certain groups of potentially affected employees.

In 1993 a task force headed by Thomas Matthews, the carrier's Senior Vice President and Chief Administrative Officer, recommended that the carrier outsource the functions of its merged MIS department. It proceeded to do so, engaging a completely separate firm, Integrated Systems Solutions Corporation ("ISSC"), to perform the department's functions. Many of the MIS employees moved to ISSC. A dispute arose between the carrier and some non-contract, nonunion MIS employees over whether this outsourcing was subject to the New York Dock conditions imposed in 1988. In December 1993 four such employees, together with the Southern Pacific Empowered Employees Committee ("SPEEC," pronounced "speak"), a self-described "voluntary organization" purporting to represent such employees, invoked arbitration under Article IV of the New York Dock conditions.

The parties agreed to bifurcate the arbitration, initially addressing only those issues applicable to all claimants. After a lengthy and unexplained delay, the panel issued a decision on March 20, 2000 (the "2000 Award"), finding that the MIS outsourcing was causally related to the 1988 merger in a manner bringing it within the reach of New York Dock 's provisions, and that the named complainants and SPEEC-represented individuals were "employees" rather than management for purposes of New York Dock eligibility. See generally Newbourne v. Grand Trunk W. R.R. Co., 758 F.2d 193, 195 (6th Cir. 1985). The carrier appealed to the Board; while that appeal was pending, the panel issued a second decision on February 10, 2001, rejecting the carrier's claim that a key witness's recantation required it to vacate its 2000 Award.

On September 17, 2002 the Board issued the decision now at issue ("Board Decision"). It applied its highly deferential " Lace Curtain standard" -- established in review of an arbitration over a "lace curtain allowance," which is awarded for expenses incurred "preparing a newly-purchased home for occupancy." Chicago & N. W. Transp. Co. -- Abandonment (" Lace Curtain "), 3 I.C.C.2d 729, 730 n.2 (1987), aff'd sub nom. International Bhd. of Elec. Workers v. I.C.C., 862 F.2d 330 (D.C. Cir. 1988). As the Board said:

Under the Lace Curtain standard, we limit our review of arbitrators' decisions to "recurring or otherwise significant issues of general importance regarding the interpretation of our labor protective conditions." ... We do not review issues of causation, the calculation of benefits, or the resolution of other factual questions in the absence of egregious error.

Board Decision at 6. See also Lace Curtain, 3 I.C.C.2d at 735 (citing Loveless v. Eastern Air Lines, Inc., 681 F.2d 1272, 1275-76 (11th Cir. 1982)).

Finding that the carrier had "failed to make the requisite showing under our Lace Curtain standards," the Board "denied" the carrier's request that it "review" the award. Board Decision at 10. Although the wording may suggest that "review" is purely discretionary, the Board's 10-page, singlespaced opinion in reality expresses a ...

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