# United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued October 21, 2010 Decided February 4, 2011

No. 10

- 7029

C ONSOLIDATED R AIL C ORPORATION

, A PPELLANT

v.

J AMES T. R AY

, FOR THE E STATE OF H AROLD F. B OYD

, DECEASED

, A PPELLEE

Appeal from the United States District Court

for the District of Columbia (No. 1:07

- cv

- 01148)

Laurence Z. Shiekman argued the cause and filed the briefs for appellant.

David B. Rodes argued the cause and filed the brief for appellee. Betsy E. Lehrfeld entered an appearance.

Before: G INSBURG

, H ENDERSON and R OGERS

, Circuit Judges

.

Opinion for the Court filed by Circuit Judge G INSBURG

.2

G INSBURG

, Circuit Judge : The Congress enacted the Regional Rail Reorganization Act of 1973, Pub. L. No. 93

- 236, 87 Stat. 985 (1974) (codified as amended at 45 U.S.C. §§

701

– 797m ) [hereinafter the Rail Act] , i n order to limit the

harm cause d by the bankruptcy of several major railr oad s.
T he Act created the Consolidated Rail Corporation , a/k/a Conrail, a private, for

- profit enterprise

, to acquire “free and

clear of any liens or encumbrances” the operating assets of the bankrupt railroads and to continue rail service in thei r stead.

The estate of a former employee of one of the failed roads sought to hold Conrail liable in tort for damages allegedly arising out of that employee’s exposure to asbestos , which

had occurr ed before Conrail was created . Conrail asked the

district court for a declaratory judgment that it could not be

held liable for such a claim . Because the tort claim at issue is

neither a “lien” n or an “encumbrance,” and personal injury claims against the railroad were not before the bankruptcy court in its reorganizat ion proceeding, we affirm the judgment

of the district court in favor of the employee.

I. Background

“ A rail transportation crisis seriously threatening the national welfare was precipitated when eight major railroads in the northeast and midwest regi on of the country entered reorganization proceedings under § 77 of the [now superseded] Bankruptcy Act.” Regional Rail Reorganization

Act Cases , 419 U.S. 102, 108 (1974). In 1973 the Congress passed the Rail Act to reorganize the “railroads in this region into an economically viable system capable of providing adequate and efficient rail service

. ” 45 U.S.C. § 701(b)(2)

. T he Act created a Special Court to “order the conveyance [to Conrail] of rail properties of railroads lease d , operated, or

control led by a railroad in reorganization in the region

. ” Id. §3

719(b)

. The Special Court was to resolve disputes related to the reorganization and to convey th e rail properties “free and clear of any liens or encumbrances

. ” Id. § 743(b)(2 ). *

In 1976 the S pecial Court issued an order conveying to
Conrail a majority of t he rail assets of several failed railroads, including the Erie Lackawanna Railway Company , which in

1972 had initiated a conventional reorganization proceeding under § 77 of the Bankruptcy Act then in effect . Upon the conveyance of its rail assets to Conrail, the Erie di scontinued operations ; it later emerg ed from the § 77 proceedings solely for the purpose of liquidat ing any remaining non

- rail assets. In re Erie Lackawanna Ry. Co. , 803 F. 2d 881, 882

– 83 ( 6th Cir. 1986).

The late Harold Boyd worked for the Erie from 1942

until it ceased operating in 1976, at which point he began working for Conrail ; he retired in 1978

. Consol. Rail Corp. v. Ray , 693 F. Supp. 2d 39 , 42 (D.D.C. 2010 ). James Ray, the executor of Boyd’s estate, filed suit against Conrail and others in an Ohio state court, seeking damages under the Federal Employers’ Liability Act for injuries allegedly arising from

his exposure to asbestos while on the job

. Id. Conrail then filed the present action in the district court , seeking a declaratory judgment that the Rail Act preclude s Conrail’s liability for FELA claims based upon an employee’s exposure

to asbestos while working for a predecessor railroad

. Id. at
42

– 43. That cour t denied Conrail’s motion for summary

* The jurisdiction of the Special Court, under which this claim arises, is now vested in the U.S. District Court for the District of Columbia. 45 U.S.C. § 719(b)(2).4

judgment and granted the estate’s motion for judgment on the pleadings, id. at 53, whereupon Conrail appealed.

II. Analysis

This case is both factually and legally narrow. Factually,

it is limited to Boyd’s exposure to asbestos during his employment by the Erie; Conrail does not seek a declaration with respect to its liability for Boyd’s exposure during his employment by Conrail . T he only legal issue , which we resolve de novo, see McFadden v. Ballard Spahr Andrews & Ingersoll, LLP

, 611 F.3d 1, 3 (D.C. Cir. 2010) (summary judgment); Nat’l Ass’n of Mfrs. v. Taylor , 582 F.3d 1, 9 (D.C. Cir. 2009) (judgment on the pleadings )

, is whether the Rail Act precludes Conrail’s liability for an employee’s pre

conveyance exposure to asbestos

, s ee Ray

, 693 F. Supp. 2d at
42

– 43

.

The Rail Act provide d the assets of failed railroads were to be “ conveyed [to Conrail] free and clear of any liens or encumbrances .” 45 U.S.C. § 743(b)(2) (emphases added)

. Ray argues that, by their plain meaning , the italicized terms
are limited to interests in property. Conrail does not meaningfully enga ge with Ray’s textual argument ; it prefers to avoid the plain import of the phrase “liens or encumbrances” by emphasizing instead what the Special Court has previously identified as the intent of the Congress to give the railroad industry a “fresh start.” See Penn Cent

. Corp. v. United States , 862 F. Supp. 437, 461

- 62 ( Regiona l Rail Reorg. Ct. 1994).

As the district court here noted , the Suprem e Court has already plowed this ground in Permanent Mission of India to

the United Nations v. City of New York , 551 U.S. 193, 1985

(2007), a case involving the Foreign Sovereign Immunities

Ac t : At the time of FSIA’s adoption in 1976, a “lien” was defined as “[a] charge or security or incumbrance upon property.” B LACK ' S L AW
D ICTIONARY 1072 (4th ed. 1951). “Incumbrance,” in turn, was defined as “[a]ny right to, or interest in, land which may subs ist

in another to the diminution of its value....”

Id. [] at 908.

Because the Rail Act was passed just three years before the

FSIA

, we see no reason to believe “lien s or encumbrance s ”

should be understood any different ly there

. Similarly, we

note the Ban kruptcy Code enacted in 1978 defines a “lien” as a “charge against or interest in property to secure payment of a debt or performance of an obligation.” 11 U.S.C. § 101(37).

Both t hese definitions focus upon property

- based, or in rem

, claims and not upon in personam claims. Accordingly , t he plain text of the Rail Act strongly supports Ray’s position that

the assets of failed railroads were not conveyed to Conrail “free and clear” of liability for personal inju r ies

.

Conrail nonetheless argues imposing liability for a pre

conveyance personal injury would violate “the policy goals underlying the Rail Act,” particularly that of giving Conrail a “fresh start.” Ray responds Conrail has not shown that immunity from liability for such a person al injury claim is sufficiently important to the purpose of the Rail Act as to

overcome what he characterizes as “the strong presumption that Congress would not eliminate the possibility of a remedy for injured railroad workers without expressly saying so. ” See

Bates v. Dow Agrosciences LLC , 544 U.S. 431, 449 (2005) (“If Congress had intended to deprive injured parties of a long6

available form of compensation, i t surely would have expressed that intent more clearly”).

The reasoning of the Special Court in Consolidated Rail Corp. v. Reading Co. , 654 F. Supp. 1318 ( Regiona l Rail Reorg. Ct. 1987), is persuasive on this point. There the court considered the Northeast Rail Service Act of 1981, which

added to the Rail Act a provision , 45 U.S.C. § 797h(b), requiring Conrail to pa y (without necessarily assuming liability for ) personal injury claims asserted by employee s of

a predecessor railroad during the pendency of that railroad’s bankruptcy proceeding

. Reading , 654 F. Supp. at 1321

– 22

. Because the Congr ess must have known some railroad

workers had suffered injuries that would not be manifest until

after the reo rganization proceedings had ended, the Special

Court concluded the legislature’s “ failure to make specific provisions for these employees in the R ail Act can hardly be interpreted as a determination that they be bereft of any otherwise available remedy,” to wit, a suit against Conrail.

Id. at 1333. We agree with the Special Court

. T here is no reason to suppose the Congress would both provide a pa th to

recovery for workers with a manifest injury and intend

, “ sub

silentio

, to foreclose an y available remedy from those workers who did not (and through no fault of their own could not) file

identical claims u ntil after their former employer s had been discharged in bankruptcy.” Id.

Next, Conrail points to § 363 of the Bankruptcy Code,

which authorizes a bankruptcy trustee to sell a debtor’s asset “free and clear of any interest in such property

. ” 11 U.S.C. § 363(f). As Conrail notes

, many co urts have interpreted

“interest in such property ” to include liability for an in personam tort claim even though, like “lien s or encumbrance s ,” the plain meaning of that phrase does not7

compel such a broad reading

. See, e.g.

, In re Trans World

Airlines

, Inc. , 322 F.3d 283, 288

– 90 (3d Cir. 2003). As Ray persuasively argues, however, because § 743(b)(2) of the Rail

Act uses different terms than does § 363 (f) of the Bankruptcy Code, an interpretation of the latter statute does not in form our reading of the former. In any event, Conrail points to nothing to indicate the Special Court, if it did have the power to quash in personam claims, exercised that power i n conveying the Erie’s assets to Conrail

.

Conrail also argues that because , at the time of their

c onveyance, it valued the Erie ’s assets with the understanding

that the Erie would be responsible for personal injury claims, allowing such claims agai n st Conrail would mean it had overpaid for the assets. As the district court noted, however, the parties presumably were aware of this risk and “‘the valuation ... would have taken tort claims brought under

FELA into account.’” Ray , 693 F. Supp. 2d at 49 n. 13 (quoting Penn Cent

. , 862 F. Supp. at 464).

Finally, Conrail argues Ray’s FELA claim was subject t o the control of the bankruptcy court in the Erie reorganization proceeding under § 77 of the Bankruptcy Act , which was ongoing at the time of the conveyance order, and therefore

was never among the liabilities the Special Court could have conveyed to Conrail. This argument is unpersuasive because § 797h (b) and former § 774 (g) of the Rail Act , both of which specifically provided for Conrail to pay personal injury claims brought by employees of predecessor railro ads, 45 U.S.C. §

797 h (b); i d

. § 774(g) (repealed 1981), would have been superfluous if such claims were subsumed by the § 77 proceeding. See Zhu v. Gonzales , 411 F.3d 292, 295 (D.C. Cir. 2005) (quoting United States v. Menasche , 348 U.S. 528,8

538

– 39 (1955 ) ) (“ w e must ‘give effect, if possible, to every clause and word of a statute’”).

Having reached the conclusion that personal injury claims were not before the bankruptcy court in the Erie’s § 77 proceeding , we have no occasion to decide whether it would have been appropriate for that court to have discharged Ray’s FELA claim. For the same reason, we note, the district court went further than necessary in concluding Ray’s claim was not discharged ; that conclusion was not necessary to the court’s holding. *

III. Conclusion

For the foregoing reasons, we hold the Rail Act does not preclude Conrail’s liability for an employee’s pre

- conveyance exposure to asbestos. Accordingly, the Ohio court may proceed to evaluate the merits of Ray’s claim and t he judgmen t of the district court is Affirmed.

* Similarly, because Ray’s claim is not part of the § 77 proceeding, there is no merit to Conrail’s argument that permitting Ray to assert his claim would “grant a priority to [Ray] in preference over the claims of other preconveyance creditors, in contrave ntion of fundamental reorganization principles.” Neither of the cases Conrail cites in support of this argument involves a conveyance pursuant to the Rail Act

.