Opinion ID: 413116
Heading Depth: 2
Heading Rank: 2

Heading: The Commission's Authority to Exempt States from Labor Protection Provisions of the ICA

Text: 27 At the heart of petitioner's appeal is his contention that the Commission lacks the authority to exempt state-supported rail programs from statutorily imposed provisions protecting certain workers when rail services are terminated. 46 According to petitioner, Congress precluded the Commission from granting an exemption from labor protection requirements when it amended section 10505 in the Staggers Act by adding subsection (g). Subsection (g) reads in pertinent part: The Commission may not exercise its authority under this section ... (2) to relieve a carrier of its obligation to protect the interests of employees as required by this subtitle. 47 In petitioner's view, section 10505(g)(2) is retroactive in effect, circumscribing not only the Commission's future exemptive authority, but also requiring the Commission to amend prior exemptions it had granted, such as the modified certificate program, if in conflict with section 10505(g)(2). As authority for this interpretation petitioner cites a recent decision of this court, McGinness v. Interstate Commerce Commission, 662 F.2d 853 (D.C.Cir.1981), in which this court held that the Staggers Act amendment to section 10505 was intended to modify then existing exemptions from labor protection provisions granted to a class of rail carriers known as designated operators. 28 Petitioner's reliance on McGinness is inapposite. At issue in McGinness was the exemption granted designated operators from the merger and consolidation provisions of 49 U.S.C. Secs. 11343, 11347; in contrast, the issue in the instant case concerns exemptions from the statutory provisions involving rail line abandonments, 49 U.S.C. Secs. 10901, 10903. This court recognized in McGinness the differences between the two and carefully confined the holding of McGinness to the narrow class of designated operators. 48 McGinness left open the question of the effect of the Staggers Act on the scope of the exemptive authority involving abandonments, and, accordingly, we are not bound by that decision. 29 This is not to say that we need to rework entirely the field of statutory history we plowed in McGinness. As we noted in that decision, the conference report on the Staggers Act stated Congress's expectation that Commission exemptive orders made prior to the Staggers Act effective date would be modified only to the extent necessary to bring the exemptive orders within the limitations imposed by subsection (g). 49 We find, however, on review of the discretion granted the Commission by Congress in the design and implementation of labor protective provisions under 49 U.S.C. Sec. 10903(b)(2) in the case of abandonments, of prior Commission precedent in imposing labor protection in abandonment cases, and of the development of the feeder rail line program in the Staggers Act, that Congress did not intend to curtail the Commission's program to aid state rail programs when it modified section 10505 by adding subsection (g)(2). 30 Rail lines are abandoned for a variety of reasons: migration of major shippers to other locations, competition from other forms of transportation, or escalating operating costs that cause a rail line to become unprofitable. 50 Whatever the causes for termination, the Commission has carefully controlled the efforts of rail carriers to terminate service on a given line. Until the Staggers Act a rail carrier desiring to abandon a line applied to the Commission for permission; the Commission usually held hearings and granted permission to abandon the line only if it found that the public convenience and necessity did not require continuation of service over that line. If the Commission made such a finding, it issued a certificate of abandonment that granted the railroad formal permission to terminate service along the line. 51 31 An important consideration in approving an abandonment is the need for provisions protecting the economic security of rail employees. In the usual abandonment case involving a common carrier continuing operations on another line, the carrier must forgo some of its long term savings from abandoning some service by absorbing the short term costs of labor protection. The costs of obtaining greater labor stability are thereby spread throughout the carrier's system. By avoiding the destabilizing effect that might follow from worker displacement, job protection has as its ultimate objective and primary justification the strengthening of the national transportation system. 52 Although individual employees are the primary beneficiaries of this policy, their interests are secondary to promoting the welfare of the national transportation system. 32 The statutory authority for the imposition of labor protective provisions in abandonment cases reposes in 49 U.S.C. Sec. 10903(b)(2) (Supp. IV 1980), which directs that the Commission shall provide labor protective provisions in abandonments at least as protective as those imposed in cases of mergers and consolidations under 49 U.S.C. Sec. 11347 (Supp. IV 1980). Even under the straightforward directive of section 10903(b)(2), however, the Commission possesses wide discretion to tailor employee protective provisions to the facts and circumstances attending a particular abandonment. 53 In cases of whole line abandonments, for example, in which the rail carrier is closing down its entire operation, the Commission has usually refrained from imposing any labor protection at all. 54 The policy of not imposing labor protection in whole line abandonments is based on the simple realization that there will remain no other rail services performed by the exiting carrier upon which to impose the costs of labor protection. 55 Any other result would simply tax the creditors of the abandoning carrier to provide labor with protection. 56 Other unusual circumstances can also justify the Commission's refusal to impose less labor protection than is customarily applied in the normal abandonment of part of a carrier's line. 57 Finally, it has been the long-standing practice of the Commission to impose labor protection only upon the exiting carrier, not upon a non-carrier that may acquire an abandoned line in order to resume service. 58 33 Congress has recognized the need to balance competing policies in abandonment cases, and while making significant changes in the procedures and governing law to be applied in abandonments, it has left the Commission's policies toward labor protection largely untouched. The 4-R Act incorporated the labor protection standards applicable to mergers into abandonment proceedings, but did not alter the traditional fair and equitable 59 standard nor overturn the long-standing Commission policy toward labor protection in whole line abandonments. 60 Likewise, in the Staggers Act Congress made significant changes in the handling of applications for permission to abandon service but left unchanged the language relating to labor protection standards. 61 The Staggers Act, as noted earlier, modified the Commission's exemptive authority to prevent the Commission from exempting rail carriers from the labor protective provisions required by subtitle IV; this modification is a clear reference to the Commission's authority to impose, or decline to impose under existing law, labor protection in abandonment cases. 34 Nothing in the Commission's new rules threatens to change the protection provided labor in the usual abandonment case. Even under the abbreviated timetable for approving abandonments implemented by the Staggers Act, the Commission must still impose labor protection on the carrier abandoning service. 62 What the Commission did in promulgating its rules was to create a special class of carriers with modified service obligations reflecting the novel and unusual elements of this class of service. 35 Commission precedent and the statutory scheme under which the modified certificate program operates provide sufficient authority for the Commission to implement its modified certificate program. In the Tennessee Central Ry. Co. Abandonment proceeding, 63 for example, the Commission explicitly recognized the competing interests that must be reconciled in adopting employee protection conditions. In Tennessee Central service over the entire system of the exiting carrier was to be terminated, but three other carriers stood ready to purchase most of the abandoning carrier's lines and resume service. Even though the Commission had the apparent authority to impose labor protection on the carriers purchasing the lines, since permission to purchase the lines had to be obtained from the Commission, it refused to impose any such conditions. 64 The Commission realized that labor protection costs would jeopardize the resumption of service and subvert the broader goal of maintaining service when public necessity demanded. 65 36 The state programs bear a close resemblance to the situation presented to the Commission in the Tennessee Central abandonment decision. Like the private carriers that stood ready to take over portions of the abandoned line in Tennessee Central, state governments are willing to undertake programs to retain local rail service. Given the vagaries of funding such programs, 66 the Commission quite properly found that the likelihood of states undertaking significant rail programs would be diminished if labor protection provisions were not modified to impose them only on the original carrier abandoning the line. Moreover, by continuing service along lines deemed uneconomic by private carriers, the state programs provide prospective employment opportunities to railway labor that would otherwise not exist. 67 In light of this, the congressional recognition of the competing interests involved in crafting labor protection provisions is especially significant. 68 Since the state rail programs present similar compelling concerns to continue service to shippers, the modified certificate program is consistent with the requirements of section 10903. Thus, the labor protective provisions as applied to the states in these circumstances do not seem to be part of a carrier obligation required by this subtitle and so are not subject to the bar of section 10505(g)(2). 37 Not only does the Commission's action seem consistent with traditional labor protection standards, but a review of the legislative history pertaining to the Commission's exemptive authority convinces us that Congress did not evince an intent in passing section 10505(g)(2) to require the Commission to curtail state rail programs by reimposing potentially costly labor protection on the states. Both the House and Senate versions of the legislation that eventually became the Staggers Act contained new versions of section 10505. The Senate version of section 10505 was characterized as merely a restatement of the Commission's exemptive authority in clearer terms. 69 The Senate version continued the limited scope restriction on the use of the Commission's exemptive powers if the potential for abuse of market power was present. In such cases, exemptions could be granted, as before, only if the Commission found the exemption to be of limited scope and not necessary to carry out the national transportation policy. Where the potential abuse of market power was absent, the limited scope provision did not apply and findings were not necessary. While the Senate amendments to section 10505 imposed other restrictions on the Commission's exemptive authority, the Senate version of section 10505 made no reference to labor protection. 38 In large part the House amendments to section 10505 were identical to the Senate version. The committee report characterized the House amendments as clarifying and broadening the Commission's exemptive authority under section 10505. 70 Unlike the Senate version, however, the House amendments to section 10505 contained a provision affecting the Commission's authority to exempt a rail carrier from the labor protective provisions of the ICA. The language of that provision remained unchanged in the final version of the Staggers Act. 71 In reporting this restriction, the committee characterized the change as minor and prospective, 72 an interpretation that conflicts with the conference report. 73 39 The Senate version of the Staggers Act, S. 1946, was reported out of committee on December 7, 1979, 74 and the House bill, H.R. 7235, on May 16, 1980. 75 Lengthy debate followed in both houses, but neither counsel nor our own research has disclosed any discussion in either house on the effect of the section 10505 amendments on the development of state rail programs. The possible effect of the Staggers Act on these state rail programs was discussed in three other contexts in the House bill, however. Section 304 of H.R. 7235 contained a provision extending labor protection to employees affected by the construction or extension of a rail line. Section 309 required the imposition of labor protection in cases of abandonments made by a bankrupt carrier. Section 502 had a provision relating to employee protection in instances in which a state or other entity acquired a rail line. 76 Because two of these provisions, sections 304 and 309, present the same basic concerns that underlie all rail labor protection, and because all three sections of H.R. 7235 operate in the same statutory framework of labor protection as that invoked by the House amendment to section 10505, it is worthwhile to examine the discussion of these three provisions closely. The intentions of Congress in passing these provisions help illuminate what Congress probably intended in passing the amendments to section 10505. 40 Section 304 of H.R. 7235 liberalized the standards a railroad has to meet in order to obtain Commission approval to enter a new market by constructing or extending a rail line. In discussing section 304, the committee stressed the need for increased competition and sought to encourage greater intra-modal competition between railroads by easing carriers' access to new markets. 77 The Senate bill contained a substantially similar version relating to new construction and entry, but only the House version provided any protection for labor. 78 As reported out by the House committee, section 304(e) of H.R. 7235 required the Commission to impose employee protection on any rail carrier constructing or extending a rail line. 79 The committee stated that it was also its intent to extend the benefits of employee protection not only to the employees of the entering carrier, but also to those employees of other railroads that were affected by the proposed extension. 80 This statement suggests an intent to change existing law, since the Commission had in other cases refused to extend employee protection to employees of railroads not involved in the transaction. 81 41 Section 309 of H.R. 7235 required employee protection conditions to be imposed in cases in which a carrier was acquiring the lines of a bankrupt carrier that was operating under chapter 11 of the Bankruptcy Act of 1978. The committee report characterized this section as merely placing employees of railroads proceeding in bankruptcy under the 1978 Act on par with employees of rail carriers that petitioned for bankruptcy under the old bankruptcy code. 82 The Senate bill contained no similar provision. 83 42 Concern for local rail services was also expressed in section 502 of H.R. 7235, which established a feeder line program facilitating the conveyance of rail lines abandoned by neglect or with formal Commission approval to other parties who would operate the lines as part of a local rail system. 84 Found only in the House bill, this program was designed to complement the Local Rail Service Assistance Act of 1978 and existing provisions of the ICA. 85 Because of its central importance to this case, it is useful to examine the House program in detail. 43 The feeder rail program compels the Commission to order a rail carrier to sell a line to a financially responsible person if the Commission finds either that the public convenience and necessity permitted the sale or that the line had been listed as subject to abandonment. The first condition for sale can be met over the carrier's objection if the prospective purchaser proves that the existing carrier refuses to provide adequate service within a reasonable time to shippers. Eligible purchasers are those persons, including states, who are capable of paying the legal minimum price and providing service for at least three years. Expressly excluded from this category, however, are class I and class II railroads. 86 Congress also limited the rail lines that can be purchased under this program; for the first three years after the effective date of the Staggers Act only lines that carried less than 3,000,000 gross ton-miles of freight in the previous calendar year can be purchased. Thereafter, any line can be purchased under the aegis of section 10910. Although selling carriers were expressly required to provide normal labor protection to their employees, any person operating a line under this section can elect to be exempt from nearly all provisions of the ICA, including the labor protection provisions of 49 U.S.C. Sec. 10903. 87 In fact, the only labor protection Congress imposed on the acquiring party is the mandate to the Commission to require the purchasing party to hire displaced employees of the exiting carrier to the maximum extent practicable. Finally, Congress made the exemption retroactive, allowing any eligible person who had acquired a line abandoned within the eighteen months before the effective date of the Staggers Act to take advantage of the exemption. 88 44 During the House debate on the Staggers Act, two members raised serious questions concerning the effect of sections 304(e) and 309 on state rail programs. Congressman Abdnor of South Dakota discussed the problems faced by South Dakota following the collapse of the bankrupt Milwaukee Road, since that carrier had over 1,320 miles of rail line in the state. Congressman Abdnor stated, it is my understanding, however, that the committee will offer changes in these sections [304, 309] to insure that neither the State nor any operator the State may retain will be burdened with labor protection costs in maintaining service on rail lines abandoned by other carriers. 89 Congressman Florio, floor manager of the bill and chairman of the subcommittee that originated H.R. 7235, assured Congressman Abdnor that the committee would offer language to alleviate the concern of the State of South Dakota with regard to labor protection costs. 90 Later in the debate on H.R. 7235, Representative Kastenmeier of Wisconsin, another state with an extensive rail service program, directed the House's attention to the possibility that section 304(e) might be interpreted to require states operating abandoned rail lines to provide labor protection programs. 91 Again Congressman Florio answered with strong assurances: [I]t has never been the intention of the committee to apply section 304(e) to a rail carrier or other entity that is proposing solely to operate or acquire an existing line. 92 45 We find this last comment of Congressman Florio especially significant because section 304(e) brought into play the same labor protection provisions that the petitioner now says must be imposed by reason of the amendments to section 10505. On the contrary, these colloquies on the floor of the House, where the disputed provision of section 10505 originated, indicate most dramatically that Congress was made aware of the concerns of the states in responding to the opportunities to preserve rail service presented to them by Congress in earlier legislation. Indeed, a review of changes made in section 304(e) indicates that Congress took the concerns of Representatives Abdnor and Kastenmeier to heart. The enacted version of the provision relating to rail entry gives the Commission express discretion to determine whether labor protection conditions are needed, and further clarified the language of section 10901 to indicate that labor protection only applies to new line construction. 93 46 Notwithstanding Congressman Florio's response to the statement of Congressman Abdnor, no changes were made in the text of section 309. 94 Given the committee's characterization of that section as merely placing all rail employees on an equal footing in bankruptcy proceedings, and Congressman Florio's direct statement that section 309 would have no impact on state rail programs, it is clear that Congress intended no substantive changes in the labor requirements imposed under 49 U.S.C. Sec. 11347 when it enacted section 309. Moreover, at least one court has found that section 11347 does not require non-carriers purchasing rail lines abandoned by bankrupt carriers to assume the burden of labor protection for the employees of the abandoning carrier. In re Chicago, St. Paul & Pacific R.R. Co., 658 F.2d 1149, 1168-69 (7th Cir.1981). 47 The House debate on section 502 illuminates Congress's awareness of recent Commission actions to exempt state rail programs from Commission regulations. In proposing the adoption of the feeder rail line program, Congressman Madigan of Illinois stated: The Interstate Commerce Commission has, by regulation, already exempted lines approved for abandonment by the Commission or a bankruptcy court from many Commission regulations if States provide financial assistance to these lines. My amendment [to section 502] extends certain exemptions to the person acquiring a line. 95 Floor manager Congressman Florio responded, [T]his provision is one of the really truly innovative new programs that is being incorporated into this legislation. 96 Comments from other congressmen were equally favorable. 97 The endorsement given the feeder line program in the House was modified only slightly in conference, the most pertinent change being the elimination of the 3,000,000 ton-mile limitation after three years. 98 48 In sum, several reasons compel our conclusion that the Commission's modified certificate program is consistent with the changes made by the Staggers Act to the Commission's exemptive powers. Even under the substantive labor protective provisions imposed by 49 U.S.C. Sec. 11347, the Commission still possesses discretion to impose labor protection in cases of whole line abandonments. The balancing of competing interests inherent in that grant of congressional discretion in section 10903(b)(2)--improved labor relations versus continued service and creditor protection--is likewise present in the modified certificate program. Given the congressional delegation of responsibility to the states to preserve local rail service in earlier legislation, as well as in the Staggers Act, and the directive to the Commission to cooperate with the states, the Commission had the authority to establish its modified certificate program. 49 This conclusion is further supported by our review of the legislative history of certain provisions of the Staggers Act. It is abundantly evident that Congress desired to facilitate the development of state rail programs, a policy established initially in the 4-R Act and continued in the Staggers Act. The reaction of the House leadership shepherding the Staggers Act through that chamber to concerns expressed over the potential effect of sections 304 and 309 of H.R. 7235 is a strong indication that Congress did not intend to interfere with state rail assistance programs when modifying section 10505 of the ICA. More significantly, the Commission's modified certificate program closely parallels the feeder rail line program implemented by 49 U.S.C. Sec. 10910, differing only to the extent that the Commission's exemptive power reaches back further in time to encompass state programs started well before the Staggers Act. Even so, the class of prospective operators given exemptions under the modified certificate program is smaller than the class eligible for exemption under section 10910. Moreover, since the modified certificate program is available only to states, it is consistent with the broader policy objective enunciated by Congress in 49 U.S.C. Sec. 10101(a)(5). The restriction imposed by section 10505(g)(2) makes no express provision for the role of the states in assisting in the provision of rail services, probably because Congress's primary concern in adding that restriction was the possibility that the Commission would exempt existing private, non-subsidized rail carriers from the employee protection provisions of sections 10903 and 11347. That the Commission has not done. 50