get ready to tell you something they've read the briefs good morning your honors may have please the court my name is jonathan ball representing norfolk southern railway company this morning we're asking the court to hold that the bankruptcy court and the district court erred in dismissing at the motion to dismiss stage our claim to these disputed funds which we claim in the complaint are subject to the interline trust fund doctrine previously recognized by the six and third circuits you want us to create federal common law and yes we do your honor we think it's always like it but i feel that the president sort of stacked against us some precedents might seem that way at first blush your honor but when you dig into the two statutes in place here and you look at the case law i think this is well suited and actually demands the application of federal common law i would note that the seventh circuit when they rejected it and this is the court excuse me the case that both of the lower courts w some very fact specific holding the i will read it it's pretty general i mean judge easterbrook went through the statutory history went through the various different theories potential theories and then finally trucking and you make the same distinction yes but we don't use the bill in voucher system a class one system is different and we think that the sixth circuit has in fact gotten it right when they said once it's in the wind it doesn't matter whether it's railroad to read road motor carry it around road because both types of carriers are obligated as a matter of federal statute to align with each other and the federal government the congress delegated to now the s t b has the authority to not only review but also implement in the first instance joint through rates which basically all these movements in dispute here are joint through rate movements if in fact paid for that now understand i mean a good bet but in but conceptually there are many many creditors on bankruptcy who could raise similar probably fact pattern so they say well i what the intent of the parties was from the circumstances but the don't of intent of the shipper when it tenders those funds it's paying for every like of that transportation and there's a duty imposed on c f c f they're not claiming they earned every cent that was paid to them in fact in many of the movements our earned division or share as it's called far exceeds what c f actually earned and they knew that going in the unusual for the money to be paid in not necessarily on a truck by truck faces but on the basis of informal agreements and basically in situation of bankruptcy if you have a secured if you get proper security it's a forceful if you don't you're not secure crafter if you're referring to the sale of an actual truck not the services because don't forget we're we're dealing in services here in our services are as personable sometimes of the commodities we're carrying once we render them the gone you can't there's nothing the take a security interest or collateral in what we've provided for value here so that distinguishes us from solar's of durable goods for example i mean in a draw if you're distributor  it's the same situation to the extent it's target or has any claim of services over involve the price of the vehicle but always is surely services because you could distinguish the two i think they clearly are distinguishable but i think with the third circuit has gotten right in the sixth circuit likewise in some of the district courts we've cited is if you look at what we do and how were regulated every other aspect of our operation is federally regulated where we can operate to a large degree what we can charge the reasonable mist of our practices the reasonable reasonableness of our t and electricity case are are telecommunications the difference here is that one of the telephone cases that are upon in the cited is the payment is actually for use of the other person's facilities we're paying you our customer wants to make a call and we're going to pay to use your facilities to continue the transmission they're not paying us the shipper is paying us they have they did not buy services they're not the owner of the goods and that's the difference here because the shipper has paid for all the movements regardless of who did it tariffs we have other informal arrangements that we have to share payments and it is true that the telephone example may be distinguished on its facts but that there's a telephone others like tricity with us natural gas those industries are very heavily different from those that we demand a new common law it's one of the staffs here and that's because this case there are plenty of industries that are heavily federally regulated that's correct they've cited them in the brief your honor recognizes that but it's the unique facts of our case and health intermodal transportation and then they commerce works that's different they're not paying for the right to use our tracks other railroads might but that's not factored into a shipping cost there's track leases there's trackage rights there's all sorts of ways to do that but this is this is different than the phone company a saying i've got a call i want to run it through your facility i want to pay you for the right to run it through your lines that's not what they're doing because they can't use our lines only we can use those lines unless we have some other agreement with them which we don't we're not on a train but but the concert draw the inference from you of being an on reasonable charge or an unreasonable practice and that would fall within primary jurisdiction of the s t v but by saying as a matter of law there is no set of facts in this universe in which you could be entitled to any relief without allowing discovery and seeing factually how our relationship works to consider whether it is in fact different as we submit from the telephone carriers and the airlines that's the mistake well let me take a different ta congress apart from from watching what congress might have done and regulating interstate travel congress did pass a bankruptcy code that provides for priorities and it wanted to provide for a priority of special treatment it could have done that as it did in many many other instances but it's not to that and we're cautioned in bankruptcy law that we are somewhat restricted how we can do this courts to  create additions if he will con ladish into the bankruptcy but congress also enacted five forty one d which is where our claim lies at least the way we framed it in our complaint so the question is not priority amongst creditors to what is  dly the debtors the state our position is that we believe we can prove and should be offered the opportunity to reduce our facts to prove that those funds were never part of the estate and if they're not part of the estate there's no priority question there's no readable distribution question and our opponents in reply to our brief of argued well you know that destroys read about distribution on the one hand they say there's no federal interest in this case and they say the reason the well first of all if it's not part of the estate which is argument then radical distribution doesn't come into play but to say there's no significant federal interest involved in this case on of it that's that's just because obviously the federal interest involved because the bank of the distribution that's why we're here inside and state court but also because it's freight charges which would independently justify it supports federal questions or stiction so it's a matter that congress wanted federal oversight of in federal jurisdiction rather than leave these to the vagaries of the different states laws because think about if you apply patchwork state by state law to this problem then you have carrier saying well see after next trucking company i think you're in a little financial difficulty so if you want to enter a line with me you can't do it in chicago because that's in the seventh circuit you can give it to me in ohio that's in the sixth circuit i'll do business with you there is two you're faced with right now given but in a conflict we are but that's the reason why there should be a uniform federal common law and that's why we think the six and  circuit have the better view of this problem than the seventh circuit because it certainly wouldn't be the most effective means of promoting cooperation amongst carriers and smooth economic and operative conditions in the transportation injury to force industry she is made to force carriers to do that grow with your statement policy objectives but that falls a little bit short of saying congress intended to do something in a field as a shipment on a through bill of lading that then involved north folks southern on inland domestic carriage the court talked about what was inherently local interest is there to determine any rights and liabilities of carriers and shippers lading in the modern economy and modern interstate and international commerce and transportation if you don't want to submit things to the vagaries of different states laws you want to have a body of uniform law because that promotes the fair effect of an efficient interstate commerce and transportation and certainly that wasn't around when i awoke was decided it wasn't around when the third circuit and six circuits made their decisions but we think circumstance but the groundwork has been laid whether this court chooses to follow the third sex or the seventh circuit we think that the groundwork is there and this if you look  talk about what congress didn't do in the last amendments to both the bankruptcy act and even the interstate commerce terminations act which began the s t v thing new of the third circuit's decision they didn't overrule it they're saying that congress didn't and acts or adopt the third circuit congress usually doesn't drop that decision if the decisions out there and they have no problem with that why address it  court decision that they will take affirmative action and saying we're writing this to legislatively overrule something so they didn't do either so i'm not sure what they did at least in an in the seventy eight code and so is  is provide some indication that congress was aware of the problem and chose not to deal with that you're right but i don't know that that's any more persuasive than the fact that the supreme court was asked to hear the penn central case and denied cert i mean someone proposed this is wrong this should be something different should be done and at the time the supreme court was not prompted to act on it so the fact that a proposal was defeated they didn't take that next step and say we're aware of penn central we don't like that decision we're legislatively overruling it so i don't think that the field is tipped as far as our opponents say and i think if you look at the three criteria for federal law when federal common law is appropriate they're all present here and the one that our opponent seems to focus on the most is that you have private parties and that that diminishes and maybe gets rid of the need for a federal common law but we've had that in other areas for him age discrimination racial discrimination the employment cases the litigants or private parties the rights and obligations are creatures of federal statute and the courts have stepped then where the legislation is silent like the shifting burden of proof congress didn't say this is what you have to do to win the case they said here's some rights and the courts have to fashion how the intent of congress is best going to be carried out in the absence of congress doing it specifically what we have here is a statute we have regulations there was a problem that perhaps they just didn't carry all the way through and think of every permutation of it and specifically address it but federal question george stiction has granted for all these issues congress clearly thought that the federal courts would become involved in it and here's an instance just like the shifting burdens in the employment cases where it begs the court to say how are we going to interpret this that's what statutory construction is for and this is an area where the court needs to take that next step and say in order to effect congress's intent in the rail transportation and also under five forty one d or the bankruptcy code how are we going to make determinations whether something is or is not part of the bankruptcy estate thank you shouldn't there are instances where it's a smaller scale if it's you know someone doing their own home single home construction and a contractor goes bankrupt and hasn't paid his sub contractor that's a smaller scale and it might be perfectly appropriate for state law to determine what the relationships are between that contractor and sub contractor but here why should the relationship between norfolk southern and c f for example be different whether the interchange occurred in the seventh circuit accordance with them you know we said this is recognizable under a trust that other cases have been not acknowledged already in the district court came back and said well i were railroad i'm going to follow that it's more persuasive the court did say you know i'll give you the opportunity to amend but i think this is more persuasive i don't see any reason to do it then we would have to go back and look at every single transaction where was the interchange taking place what would determine which state law governed who state's law would have the primary interest in governing this resolution well this where no payment was made not only where the trust is imposed that's a trust law terms of conflicts of law payment was earmarked it's the only reason they make that payment is to cover the cost of transporting goods from point a to point b in interstate commerce regardless of the number of terriers involved most of the time when you're looking we're more concerned about people not paying for the shipment here the shipment was paid for this case is an even stronger case because c f can articulate what interest they really have in th funds other than their own earned division and i would suggest that if the s t be if the case were to develop that one carrier was accepting payment and not remitting other carriers are in portions of the s t v might declare that that is an unreasonable practice you can't do that and if they did then how does the s t p ruling and or play with different states courts views of constructive law constructive trust law west coast truck lines inc vs warehouse or company it's at eight ninety three f second ten sixteen and your honor discusses primary jurisdiction of the i c c and now s t and that there are certain issues that are just so specific to this industry the think command referral to the s t v we were cut short of even putting trying to with use the evidence finding out how were these payments handle third and six circuits and adopt the cut federal commonwealth rule of the interstate trust doctrine it doesn't and the case here remained as necessary either to let the s t v determine what practices they should have engaged in with respect  those funds or to allow us to do the tracing and say we can show we participated in movements a through z and we can show that you got paid for those movements and that would determine how much we can  recover i see that i appreciate the court's indulgence a court robert climate of late and walk ins on behalf of consolidated freeways nor folks southern in getting into the donor to the ten of the shipper and whether or not a constructive pressure be impose fails to establish what the supreme court has said is a absolutely critical foundation to the establishment of federal home a law and that is a unique and important federal interest that would be in substantial conflict with state law and the best norfolk southern can do is to contend that a unique federal interest exists to promote a coordinated an efficient rail transport for assure that the carrier actually receives payment neither of those can withstand scrutiny first with respect to the claim that the promotion of officiant and coordinated transport is a unique federal interest norfolk southern ignores the fact that for one hundred years before penn central there was no federal common law governing in a line transportation the railroad transportation system seems not to a halt in the seventh circuit or in any of the ten circuits where circuit courts have not adopted the third thirty sixth circuit position this requires also said for the principle of uniformity to promote  efficient and coordinate and to coordinate transportation is the weakest of all justifications for federal kamel and other industries as your honour's have noted have similar bland policy statements of off the promotion of a fis coordination but courts have routinely treated there in a line valances as general debts for example in telecommunications the main purpose of the telecommunications act of one thousand nine hundred six was to take the regulation of local telephone service away from the states and according to the fourth circuit establish a new federal regime designed to promote competition yet those debts between telecommunications carriers are recognized as general says no such thing one zero seven zero five a one provides at the surface transportation board may or may not shall may prescribe the division of joint rates and shall if the public interest a man has no discussion in the statute of what the public interest is but a one says nothing about in a line trust us one zero seven zero five b provides at the surface transportation board shall prescribe rates to be received by a carrier that's norfolk southern talk that language when the board determines that it the division of rates will violate forty nine u s c one over seven or one unique and strong federal interest in ensuring the north folks other a sophisticated commercial party able to contract for its own protections could or should give priority over every other creditor a bankruptcy  factually no different in line and having the same rights as other people who are instrumental to the operation of consolidated freight with their two counts of the compliance first count and the compliance deals with i think  motion on a generic construct of trust argument without taking evidence in the ninth circuit in in re mark air and other cases that held that a constructive trust remedy is not available in a bankruptcy case where a party has not obtained a judicial impression of a trust on a specific race before the commencement of bankruptcy that the claim of trust that is not perfected in that way is subject is in cohen and the subject to avoidance under the trustee stronger powers under section five hundred four and that has been established in the ninth circuit for some perv time we brief that below the court ruled on that below and on that point norfolk southern appeal the court follow sad ari if you after listening to the similar types of arguments made below the bankruptcy judge said if you think you can show that there was actual intent to create a trust by either by contract or by the operation of the relationships between the parties i will grant you nor for southern forty five days leave to amend to file a complaint for result in trust they decided to rest their entire case on whether or not federal common law should be applied to create this in a line trust there what they ignore i pointed out by the seventh circuit is that there is nothing in the statute which prohibits creditors like norfolk southern from taking contractual protections to perfect themselves norfolk southern could have at the outset of the relationship or at any time said you know what i'm not going to take this next shipment i'm not to have anything further to do with you unless you post a letter of credit for the average amount of the balance that you all they use c f o us at the end of every month they chose not to do it that isn't administratively simple way for norfolk so then to protect itself not only in this case but every other they decided that city now there's also no conflict will stay lo the second peonage of the argument of the of the test set forth by the supreme court since at least nine hundred seventy nine the supreme court in butner of the us has held the property ri bankruptcy cases are to be termed determined by state law that's to avoid the windfall for one party getting different rights in a bankruptcy case that it might have outside of a bankruptcy case in terms of what its actual property rights and claims were visa v the death it's well established under supreme court precedent the bankruptcy courts only modify the usual state law remedies and rights to the extent that such modifications are specifically authorized by the bankers now norfolk southern argues well at the time that the bankruptcy code was amended in one thousand nine hundred seventy eight they didn't have to legislatively over rule  ten central as the only case out there and you know what's the big deal well prior to penn central as identified in the seventh circuit case there were many cases stating that there interline trust theory that granted a priority above and beyond other unsecured creditors in favor of railway companies moreover since that time the bankruptcy code has been amended several times including an amendment which occurred effective as of october eighteenth of this year at no time since one thousand nine hundred seventy eight or there after as the bankruptcy code been amended to create this remedy in addition none of you should take the liberty as judges to create a remedy well the supreme court has already said in in texas industries that were in areas heavily legislated and held it heavily regulated and congress has decided not to create a remedy it is not up to the courts to create that remedy courts can interpret in the shifting determined to regulate many aspects of it but not to grant a right of contribution so the courts were not going to create that right a contribution here there are many many regulations and dealing with interval transportation and the right to wear railway carriers and the operation of interstate commerce yet congress has never decided to specifically identify that the balance is between interline carriers should have the remedy and the right of having this trust that it would've been perfectly easy for them to do it and and congressional silence according to the supreme court is highly instruct now the third circuit and the sixth circuit didn't get it right the third circuit in in intense on traill got it right in one respect and that was a trust the majority opinion in ten central which is the major case relied upon by north or southern is one based on analysis of state law not an analysis of federal common law the penn central majority concurring opinion criticize the majority for relying on the time worn tenants of trust law there is no mention of federal common law in the majority and no identification of a unique federal interest threatened by an application a state law now the concurrence says we don't really like this application of trust law because we don't think it's broad enough so we're going to apply federal kamel but in so doing the no rigorous analysis of what the federal interest was vs what the conflict in with state law would be and in fact the conflict identified in the current was that the departure from the inter netting might well undermine the entire system of interline rail transportation bill that was not hers and i mention in tennis all circuits there's no federal common law decision at the circuit court level  federal common law would apply and the court raised the issue should federal common law apply or not the parties were to just assume that the court look to the congressional policy of encouraging interline rail transportation just like your folk the destruction of the nation's railroad that hasn't happened and that isn't a conflict or a worry that has as threaten the viability the railway system since that one in colombia gas which is also  solar the third circuit got it right and they got it right because columbia gas involved a federal program that created a rebate with specific direction that the funds for that rebate would flow through conduit corporations so the ultimate beneficiary the very purpose of the federal rule was to supersede private contractual rights in the application of state law according to the court which frustrate the clear cites to ann arbor railroad a sixer case and in that case there was no one else of standards for the application of federal common law merely adopted sentential without any discussion of a unique federal interest or state law conflict or any disruption of commercial expectations now norfolk southern  clearfield trusts the rights of the united states under federally created lending programs like us became and the cases cited by norfolk southern do not carry the day in kirby for example the most recent case that the norfolk southern side of the federal a federal act the character of goods by the sea act fixed limits of libel the contract was maritime and the was novel and australian manufacturing company sold containers of machinery to a g m plant in alabama the manufacturing company hired an australian freight forwarder the freyer freight forwarder issued a bill the bill of lading invoked the default liability under the carriage of goods by the c i a german ocean shipping company hired norfolk southern to transport machinery from the port in the us to alabama the norfolk southern trains the rail cars damaged the machine and the issue was whether norfolk southern was subject to the limits of libel the parties again assume federal law all fly in the court agreed and  courts the issue there was not a creation of a new remedy but it was merely an interpretation of a conference and the court held that federal common law govern maritime  because the federal there was a constitutional mandate to protect and regulate maritime commercial intercourse between the united states and other nations and between states in most of the nations in this reply norfolk southern also argues that under five forty one the whether the debtor is held in trust the balance of an overfunded pension plan must be determined by federal common law not state law citing e d s pension in the us and british case that's a district of bankruptcy court in delaware that case looked to construct a trust law under five forty one and as i mentioned the ninth circuit has already spoken on that that if you haven't impressed the race with a trust before the commencement of a bankruptcy case there's no trust that survives nor are also argued and cited c a r transport that an action by a common carrier to recover unpaid freight charges presented a federal question supporting jurisdiction the federal policy here was to avoid discrimination and therefore any action between the carriers and the shippers arising from the filed rate was subject to present a federal question but that's not our case there's not a dispute about a  the court also say the consolidated doesn't end up with a windfall consolidate dozen of them with all the other creditors all the creditors who are similarly situated who may have advanced product and not been paid for  advance funds and not gotten goods share radically under the bankruptcy bill it's not a windfall the c s it's an ethical distribution for parties in a bankruptcy case who had the same protections and rights of these of the consolidated bankruptcy is that the case confirmed there was a liquidating plan of reorganization and money is being distributed to creditors pursuant to that plan of your organization creditors voted on the plan and the plan was successfully confirmed and their trucks as far as i know what's important about is the description of the assets or the dollar amount it was the third largest shipping company in the trucking company in the united states i don't know off the top of my head of what it was that was in the many hundreds of millions of dollars your honor i might also add that in ca our transfer which was cited by norfolk southern the court held that subject to the rule the prohibits discrimination the parties are free to contract when or with whom and  of the extraordinary cases that demands federal common law they haven't identified or argued the standards and under the ninth under the u s supreme court rulings the application of federal common law is an extraordinary remedy to be used few and far between and only in restricted is the first of your time questions thank your honour's i appreciate indulgence the first point i wish to make is the seventh circuit whose iowa decision we've been discussing one week after they decided the i want case they the seven circuit doesn't want it to result in railroads refusing to take goods and interchange and keep the flow of goods moving the second point is earlier today there was some discussion of let's not l common sense get lost in all this and there's two aspects of common sense here one is what is the c f c claim of the title meant to the honored portions of the shipment costs that were paid by the shippers your honor asked didn't they have a windfall and i said well we don't get any of it so it's no one's fault of us commonsense here on the statute of course says that their creditors can't have any more rights than they had so common sense and logic if they ha no right to it neither did the creditors of the bankruptcy estate thing and the other common sense point is what's happened all the railroads over half the cases cited in both parties or railroads that have gone bankrupt there's only four or five class ones left the economic conditions in this industry these are the types of problems we suffer from and this is why there are so far fewer railroads and there where before so let's not lose sight of that in the common sense part of the formula true it's always been a perilous industry but so many of them have gone bankrupt and this is just one example of what happens and why it had ended up happening and why this is an important enough interest to warrant federal