Railway Labor Executives’ Assn. v. Gibbons – Oral Argument – December 02, 1981

Media for Railway Labor Executives’ Assn. v. Gibbons

Audio Transcription for Opinion Announcement – March 02, 1982 in Railway Labor Executives’ Assn. v. Gibbons

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Warren E. Burger:

We’ll hear arguments next in Railway Labor Executives’ Association against Gibbons.

Mr. Clarke, I think you may proceed whenever you are ready.

John B. O’Clarke, Jr.:

Mr. Chief Justice, may it please the Court.

About 18 months ago, Congress enacted the Rock Island Transition and Employee Assistance Act and as it considered to be an integral part of that Act, it added what it — what it considered to be essential to rails — continuation of rail service in the Midwest.

It added an alternative employee protective program that it — that it said should be made available immediately to the employees of the Rock Island who were displaced as a result of the demise of that carrier.

That program was enjoined approximately nine days, ten days after it was enacted, signed into law by President Carter.

Congress readdressed the situation during the summer of 1980 and in the Staggers Rail Act enacted an amendment to the Rock Island Act which was passed and signed into law on October 14th, 1980.

On October 16th, an order dated October 15th but actually entered on the 16th, the Court again enjoined, the District Court again enjoined the Act because it said the Staggers Rail Act was really only a cosmetic change in the law.

It didn’t change the substance of the Act.

At that point presumably Railroad Labor Executives’ Association, the appellant in these — in these consolidated cases, had earlier taken an appeal to this Court from the June 9th injunctive order.

That appeal is 80-415.

Once the Court entered the injunctive order on October 16th, RLEA took an appeal to the Seventh Circuit because in amending the Staggers Act, Congress had also amended where the appeal should go.

So we went to the Seventh Circuit and the Seventh Circuit was required by the Staggers Rail Act amendments to decide the case en banc within 60 days.

It did, but unfortunately, it split three-three and on — on December 16th, it entered an order affirming the District Court’s decision.

The next appeal was then taken by RLEA to this Court and on April 27th this Court accepted or noted probable jurisdiction in the second appeal 1239 case and deferred probable jurisdiction in the — or deferred consideration of probable jurisdiction in the first case.

At the outset, I would like to clear up one point.

RLEA submits that the first case, 80-415, the appeal was properly filed and timely filed in this Court.

However, the Staggers Rail Act amendments mooted that case because the Act, the injunctive order which is preventing the implement — implementation of the Rock Island Act Employee Protection is actually the October injunction and not the June injunction.

The June injunction is now moot and we submit probable jurisdiction should be noted in the case vacated in grounds of mootness.

Going to the questions that are before this Court, the first thing that the Court, we submit, has to address is the question raised in the noting of probable jurisdiction.

That is, basically, what issues are before the Court at this time?

We would submit that when we filed our brief the only issue that was really before this Court was the question of whether or not the Staggers Rail Act amendments and the Rock Island Act had granted the estate a remedy or means to obtain compensation.

If compensation was available, there cannot be, we submit, an unconstitutional taking of property because the whole substance of the — or it can be called the Just Compensation Clause or the Taking Clause or the Fifth Amendment is the adequate provision of compensation.

William H. Rehnquist:

Mr. Clarke, do you think that Congress Acting under its commerce power can impair the obligation of contracts which the — a State is specifically prohibited from doing by the — by the Constitution?

John B. O’Clarke, Jr.:

No, Your Honor, we do not believe that Congress has that power under the Commerce Clause to impair the obligation of contracts, but the problem in this case is, first of all, is that issue really before this Court that’s basically in the taking issue, and the second point is, are the obligations of contract being impaired?

And that gets into the question of whether there was a pre-existing obligation on the part of the estate which we submit there was and I will get into that in a second or two.

The trustee creditors and the trustee below and the court below, the District Court, found that the Rock Island Act affected an unconstitutional taking of property because the Court indicated that it came as a startling concept to him, to the Court, that Congress could impose an obligation upon the estate and take $75 million to be paid to employees.

As he went on to say, “Congress does not have the power to take private property for public use.”

We submit that that is looking at the wrong part of the Just Compensation or Taking Clause.

What has to be looked at, as this Court indicated before, is at the time of the taking, was there an adequate provision made for compensation?

John B. O’Clarke, Jr.:

If there was in fact an adequate provision, even though the money is not paid upfront, then there cannot be an unconstitutional taking because the vindicated — the gravamen of an unconstitutional taking is an uncompensated taking and this Court has indicated in the Rail Act cases and going back to the Cherokee case, the Kansas City — the Kansas Southern —

John Paul Stevens:

May I ask you a question there?

John B. O’Clarke, Jr.:

Yes, Your Honor.

John Paul Stevens:

Does everyone agree in this case that assuming there was a taking in the sense that you are taking money out of the estate that it was a taking for public use rather than a transfer of property from one group of private people to another group of private people?

John B. O’Clarke, Jr.:

Your Honor, I do not believe that everyone agrees to that.

We have a problem with the — the appellees, the Rock Island appellees, in the — in the position that Congress exceeded the scope of its authority under the Commerce Clause by enacting a private benefit for employees.

They indicated it as a basic — as Judge McGarr in the, a basic logic in the Rock Island Act which hopefully I will be getting to in a second.

John Paul Stevens:

But for — there could be a Tucker Act remedy, I take it would have to be not really a taking in the sense you take it from X but a taking for public use, otherwise it wouldn’t be a Tucker Act remedy, would there?

If it’s a taking from the railroad to the employees, who are private parties, is there necessarily a Tucker Act remedy?

John B. O’Clarke, Jr.:

Yes, Your Honor.

We submit if it’s a taking that’s a direction of Congress, by an Act of Congress.

John Paul Stevens:

Even if not for public use?

John B. O’Clarke, Jr.:

Even if not for public use.

If Congress believes it was necessary, it would not be a Taking Clause violation.

You might have a Due Process Clause violation but as far as a Taking Clause is concerned, we submit, it’s not —

John Paul Stevens:

What —

John B. O’Clarke, Jr.:

— a violation.

John Paul Stevens:

–what is the authority for the proposition that even if it’s not for a public use and nevertheless is a Tucker Act remedy?

John B. O’Clarke, Jr.:

Your Honor, basically, if you take a look at the Rail Act cases where the Court —

John Paul Stevens:

But there is a footnote in that opinion that says everybody agreed it was for public use.

John B. O’Clarke, Jr.:

That’s correct, Your Honor.

But then in the part of the decision we have Footnote 16 to it, the Court talked about the power of the — the Tucker Act and the Tucker Act meaning “a remedy available for a taking that is authorized by the Government.”

Authorized by the Government is by the Act of Congress.Here, Congress has specifically authorized the taking because at the time of the Act, it believed it had the power to do and we submit, it did have that power.

John Paul Stevens:

But you don’t have any authority right on that proposition?

John B. O’Clarke, Jr.:

No, I do not, Your Honor.

William H. Rehnquist:

Well, did you read the Fifth Amendment to provide that in the event that the taking is for private use rather than public use no compensation need be provided?

John B. O’Clarke, Jr.:

No, Your Honor.

If there is a taking and it is not a taking that it is a taking — now, this is discounting of course a proper statute, a — a regulatory type statute such as in the (Inaudible) case.

But if we have a — if we — the only justification for the Act of Congress is that it is a taking of property.

We — we do submit that the Constitution requires that there be compensation for that, but we are not at that point.

John B. O’Clarke, Jr.:

And this is the — the appellant submits that, first of all, the only issue that’s before this Court is a question of compensation for the taking.

And we submit that there was a much simpler question that seemed to indicate it is, namely, the Tucker Act is there and that solves the compensation issue.

The question of whether there’d be — whether there was a taking or not is nonjusticiable at this point because it is not properly presented in the factual situation where it is clear — a clear-cut concrete situation and that situation will not adequate — will not be presented.

William H. Rehnquist:

And what is your submission as to where that should be determined?

John B. O’Clarke, Jr.:

And basing it under the Tucker Act provisions —

William H. Rehnquist:

Before the Court of Claims?

John B. O’Clarke, Jr.:

— in the Court of Claims.

Yes, Your Honor, and I might clarify one thing.

On our initial brief, we indicated that the taking issue can arise where either the creditors and the trustees sue the Government in the Court of Claims for the recovery of monies that were paid out pursuant to the Act.

We submitted that the more likely scenario however would be that the creditors, the estate would actually borrow the money from the Federal Government because Congress had provided that money there.

And then the question of the legality of the priority that 110(a) granted to that debt will then be resolved either in the reorganization court or the Court of ClaiMs.

Byron R. White:

Mr. Clarke, it may be that if the United States takes a property for public use that the taking is not subject to an injunction because there is — compensation has been promised, but how about the situation where there is a taking — say the United States, actually we are taking your property but we are going to take it for private use, and you can’t complain now because you can go to the Court of Claims and get paid for it?

We are going to take your money and you can get it back by going to the Court of Claims.

But the plaintiff then says, “Well, it may be just fine when the taking is for public use.

This is for private use and we should be able to enjoin you.”

John B. O’Clarke, Jr.:

Your Honor, we will submit —

Byron R. White:

Do you have some authority on that point?

John B. O’Clarke, Jr.:

No, I do not.

Byron R. White:

I don’t think you do if you don’t have on the point that Justice Stevens asked you.

John B. O’Clarke, Jr.:

The only authority that might come close to that point is the case —

Byron R. White:

That’s what at issue here.

Can the — should the District Court have enjoined?

John B. O’Clarke, Jr.:

That’s correct, Your Honor, and we submit that it should not have been enjoined because the Tucker Act was available.

And the — this is not — the Wilson versus New case has sort of won this one point.

Because in order to determine that Congress is taking property for private as compared to public use, you have to look behind the enactment of — Congress’ enactment and you have to look at the reasons that Congress did what it did, granted this Court has the right to see if there is a rational connection.

But if Congress states in the preamble of its Act that it’s exercising its powers under the Commerce Clause to enact legislation which it believes has a public purpose and that the Act it is doing is simply compromising an obligation that already existed, and this is why we submit the taking issue when it finally does come up is not really (Voice Overlap) —

Byron R. White:

But if the District Court thought of that — that it was entitled to give an injunction if there was a taking for private use, it seems to me the taking issue is fairly opposed here.

If you happen to agree with the — if you happen to agree that the injunction would be authorized in the event of the taking for a private use, then the taking issue is opposed.

John B. O’Clarke, Jr.:

Your Honor, we’re still back to — it goes back to the question, it’s not so much the taking issue because the taking issue in this case is really when does a regulation become a taking?

That’s the ultimate part of the taking issue.

John B. O’Clarke, Jr.:

One aspect of the taking issue here would be the question of whether or not the Act that Congress did was for public or private benefit.

Now, one thing that has been sort of not highlighted in this case is the actual factual situation which leads to the conclusion that this was in fact an act of Congress under its Commerce Clause for a public benefit, a very strong public interest.

When the Rock Island Act was being considered by Congress, it started back in February and March of 1980 before the abandonment order was even authorized to be sought for, that didn’t occur until April 14th.

And when Congress was considering what to do with the demise of the Rock Island and the directed service which was to end on May 31st, at that point, there was no more authority in the ICC to authorize any continued operation over that line and the line would completely cease and all service will end at that point, so Congress had to address that issue.

And in addressing that issue, Congress realized as this Court has indicated from back in the 1930s, the interest of employees was an extremely important element in the perpetuation of that service.

And in order to afford that — that employee protection, if you want to call it, that arrangements to help the people who are being affected and to preserve the public interest, Congress had to look at the interest of employees, as this Court has again intended as part of the national interest.

And in doing that Congress worked and as the legislative history indicates, Congress worked along with Labor and representatives of rail management.

And the arrangement that came out of that combination of the parties was a combination of the Miami courts for the March 4 hiring agreement and this particular piece of legislation.

The basic logic that the Court found in this legislation only comes because he is disregarding the March 4 agreement.

The March 4 agreement is an integral part of the Rock Island legislation and between the two, they provide a form of protection for employees who have spent their time in operating this railroad who would then be available for continued rail operations over that line.

It takes experienced people to operate a railroad, operate it safely and efficiently and keep —

John Paul Stevens:

Is that correct the March 4 agreement related to employees continued to work?

John B. O’Clarke, Jr.:

That’s correct, Your Honor.

John Paul Stevens:

Whereas this protection is for people who were terminated.

John B. O’Clarke, Jr.:

That’s the second half of the — of the protection.

The protection to be adequate for an employee of a railroad has to cover the situation of an employee who was hired and an employee who is not hired.

The March 4 agreement was to encourage carriers to hire people.

John Paul Stevens:

Right.

John B. O’Clarke, Jr.:

And then when they are hired to give them some form of protection.

John Paul Stevens:

But is it not true that the benefits of the statute, if it’s held valid, will all go to terminated employees not to the same people who benefit from the March 4 agreement?

John B. O’Clarke, Jr.:

Terminated employees but who are still available for continued rail service in that area.

John Paul Stevens:

Well, yes, but —

John B. O’Clarke, Jr.:

There is another advantage —

John Paul Stevens:

But the purpose of it is to protect them in the event they don’t get further jobs.

John B. O’Clarke, Jr.:

Yes, but that purpose, — that — that’s immediate, I mean, that’s the way Congress — the end that Congress used to accomplish its purpose but it’s a purpose that Congress said it was doing was to provide a protection for employees to enable the continued operation of lines.

John Paul Stevens:

But — but it just doesn’t fit the facts.

John B. O’Clarke, Jr.:

But we submitted those, Your Honor, when you look at the — the agreement, the March 4 hiring agreement together with the Rock Island protection just like the Milwaukee situation.

The Milwaukee Section 9 agreement combined with the March 4 agreement gave the protection for the interim operations.

John Paul Stevens:

Those are all for people who are still working.

I understand that.

John B. O’Clarke, Jr.:

But not on the Milwaukee agreement, Your Honor.

The Milwaukee agreement had protection for people who were not working.

And then the March 4 agreement protected those who were carried over.

But there is a very strong public benefit that comes out of this type of enactment and that’s the fact that railroad workers do not have the type of pension systems that other people have and their whole collective bargaining agreements have protective arrangements build into it.

Those protective arrangements have provided a sort of guaranteed security for employees that in the event of any cessation of operations that they are not just going to be forgotten.

Thurgood Marshall:

Is the railroad Patent Act gone?

John B. O’Clarke, Jr.:

It’s not gone, Your Honor, but the benefits —

Thurgood Marshall:

But I thought you said they had no protection at all?

John B. O’Clarke, Jr.:

The only protection they have is —

Thurgood Marshall:

But that is a protection though.

John B. O’Clarke, Jr.:

— $25 a day for five days a week, and those benefits are almost exhausted for most of them.

Thurgood Marshall:

Certainly.

John B. O’Clarke, Jr.:

That’s a $125 a day —

Thurgood Marshall:

It is —

John B. O’Clarke, Jr.:

$125 a week.

Thurgood Marshall:

It is something.

John B. O’Clarke, Jr.:

That is correct, Your Honor.

Thurgood Marshall:

That’s all I’m trying to get you to say.

John B. O’Clarke, Jr.:

There is a protection of that sort but the guaranteed job security that these people have enjoyed over the years guaranteed them more than that type of protection.

It guaranteed them a different form of protection.

It guaranteed them sort of a preservation of their jobs.

And what we are facing here is a situation where Congress wanted to enact to this legislation, believed that its earlier enactments had require that that be imposed in this case.

And in order to make sure that that protection which it submitted was in the public interest be imposed, it enacted Section 106 of the Act.

I realize my time is very near the end.

I would ask to reserve whatever time I have left for rebuttal.

John Paul Stevens:

May I ask you a question —

John B. O’Clarke, Jr.:

Yes.

John Paul Stevens:

— without intruding on your time because I —

John B. O’Clarke, Jr.:

I appreciate that.

John Paul Stevens:

If it’s all right with the Chief Justice, because I — I — you — your position in part is that this did not create a new obligation but merely compromised a preexisting obligation.

John B. O’Clarke, Jr.:

That’s correct, Your Honor.

John Paul Stevens:

Could you tell me what in your view the magnitude of the preexisting obligation was and was it larger or smaller than the new obligation?

John B. O’Clarke, Jr.:

Your Honor, it’s hard to place a — an actual figure on it but the levels of protection which we submit, 11347, require that the Interstate Commerce Act was made mandatory here by 17(a)(1) of the — 17(a) of the Milwaukee Act, is that there’d be guaranteed income for six years with all cost-of-living adjustments added into it, in other words 100% of your income for six years from the date of your effect, or an option on the employee to take a separation allowance was equals three and for people with over ten years — five years of service, 360 times your last daily rate of pay.

John Paul Stevens:

And is it your position that — that the employees would have been entitled to that if this statute had never been enacted?

John B. O’Clarke, Jr.:

That’s correct, Your Honor.

Unfortunately, the Seventh Circuit has taken a different position but the important thing on this is the ICC up until 1976 always considered itself to have the discretion to impose this level or this type of protection in an entire line of abandonment case, that in 1979 when Congress — 1976, we submit, Congress took that discretion away.

In 1979, it transferred the remaining discretion and the power of the ICC had to authorize abandonments over to the reorganization court and the legislative history in the Rock Island Act prior to the whole confirmation of the abandonment coming up in the reorganization court indicates that Congress believed that the ’79 Act and the ’76 Act, based on the ’76 Act, had required that level of protection in this case.Thank you.

Warren E. Burger:

Ms. Stillman.

Elinor Hadley Stillman:

Mr. Chief Justice and may it please the Court, the federal appellees appeared here today in the support of RLEA’s appeal from the October order from the Seventh Circuit’s affirmance of the District Court’s October order holding an Act of Congress — enjoining an Act of Congress on grounds of its unconstitutionality.

We regard the earlier cases moot.

The federal appellees submit that the amended Rock Island Act does not, as the District Court concluded, affect an unconstitutional taking of private property.

We make two basic arguments on this point.

First, we submit that the Act does not take property within the meaning of the Fifth Amendment and second, if contrary to our submission, the Court were to find that it did affect the taking of property, we submit that a reasonable, proper and adequate provision for compensation has been made in the — in the Tucker Act and therefore for two reasons, it was improper for the District Court to enter this injunction.

Either there was an adequate remedy at law or there was no violation to remedy.

I’m going to address the taking question first, a question that we do urge the Court to decide in this case and to understand what — why we are trying to say that this Act is not a taking, you have to step back for a moment and consider the crisis that Congress was responding to when it was considering and when it enacted the Rock Island Act.

And you have to consider also the legal and historical context with respect to employee protection against which Congress was also — to — to which Congress was also responding.

The Rock Island Act did not, as the private appellees occasional suggest, leap unannounced out of Congress’ brow three days before the District Court authorized the abandonment here.

In September of 1979, the Rock Island Act totally ceased operations overall of its lines.

It was a critical importance to the Middle West particularly to the shipment of — of farm products out there.

In the months thereafter, this transportation system was held together just essentially by direct service orders given by the ICC.

Congress was justifiably concerned with the effect of the liquidation of so large a railroad not only on the Middle West but on transportation services generally on its — its ripple effect with respect to other lines.

And the Rock Island Act which was the congressional response to this, the Senate report on this issued in March of 1980.

This Act called for the implement — among other things for the implementation of a plan either negotiated by the parties or devised by the ICC for providing limited compensation for those employees who were displaced as a result of the Rock Island’s termination of operations.

It further provided the cost of plan would be charge to administrative expenses of the estate, that the benefits could be paid through federally guaranteed loans and that there would be a top, a maximum of $75 million, it could not exceed that amount.

John Paul Stevens:

But Congress didn’t attempt to intervene in the proceeding to save that Rock Island — should continue to operate.

Elinor Hadley Stillman:

No, no, it gave certain directed service —

John Paul Stevens:

It just —

Elinor Hadley Stillman:

— authority to the ICC.

John Paul Stevens:

It just accepted what the reality was.

Elinor Hadley Stillman:

Well, it was trying — what Congress was really trying to do here was create a situation which would encourage buyers for these lines.

Elinor Hadley Stillman:

They want these lines to stay in business with other buyers.

They — they’ve put money on the Act for non-railroad carriers to buy some of these lines.

They — they want — they want the existing service to stay there to the extent possible and the states want this too.

And, they view this labor protection as counsel for RLEA tried to suggest as integral to holding the system together and I think what he was trying to suggest to you here when he was talking about the March 4th agreement is that, a large incentive for the union to enter into that agreement was that they assumed that Congress was preceding along the lines to enact this other legislation which would take care of these other employees.

John Paul Stevens:

What did —

Elinor Hadley Stillman:

They regarded it, I think, as part of a package.

That was one of the incentives to them.

Maybe they would have been wiser not to sign this agreement in March 4th, 1980 and wait to see if the other thing would be upheld but they didn’t.

John Paul Stevens:

Well —

Elinor Hadley Stillman:

But they didn’t.

John Paul Stevens:

— my suggestion — my question really is do you think Congress intended to amend or repeal any part of the reorganization law?

Elinor Hadley Stillman:

No, I think Congress — here, what I would like to say —

John Paul Stevens:

It didn’t attempt to intervene in the preceding to overturn any insurance?

Elinor Hadley Stillman:

No, I don’t believe Congress thought it was overturning anything as — as the counsel for RLEA has suggested, Congress is — they looked at the law affecting employee protection arrangements when they were — when they were devising the statute.

What was on the books then affecting this railroad was the Milwaukee Act — Section 17(a) of the Milwaukee Act which said, “Certificates of abandonment shall include conditions providing fair and equitable arrangements for the employees shall include.”

It was absolute language.

Now, it’s true that there had been interpretations of that language as giving discretion to the reorganization court similar to what the ICC had considered that it had under the 4-R Act, discretion not to impose employee protection arrangements in some cases of whole line abandonments.

But just as the ICC had always thought they had the discretion to create exceptions to their general rule that they wouldn’t a — apply these conditions and whole line abandonments, that discretion remained here.

There was a very real possibility while Congress was devising this operation — this legislation that this estate could have had imposed on it what are called the New York Dock conditions.

And that is a very high level of employee protection which goes up to six years.

And as to the question of how much liability there might have been for this railroad, for the estate if the New York Dock conditions had been imposed, I think you got some idea of that from Footnote 27 on page 52 of the private appellees’ brief where they discuss what happened under the Milwaukee Statute.

You know — you know the Rock Island provisions here were modeled on Section 6 and —

William H. Rehnquist:

Ms. Stillman, a moment ago you used the term “federally guaranteed loans.”

Elinor Hadley Stillman:

Yes.

William H. Rehnquist:

Does that mean that if the original obligor defaults and the Federal Government has to come in and make good on its guarantee, the Government has recourse against the original obligor?

Elinor Hadley Stillman:

Yes.

I think that money was put in escrow funds but, yes, I would say that the Government would have recourse.

What — what I’m trying to suggest is that there was a very large potential liability here.

Now, it wasn’t certain whether it would be imposed.

It was just it could be imposed.

William J. Brennan, Jr.:

Well, it’s now been decided that there was no such viability, isn’t it?

Elinor Hadley Stillman:

Well, this is after the fact —

William J. Brennan, Jr.:

Right.

Elinor Hadley Stillman:

— that the time Congress was legislating this there was —

William J. Brennan, Jr.:

But you are not suggesting that the unions didn’t really want this legislation, right?

Elinor Hadley Stillman:

No, I — I will say that neither the unions nor the estate had any concrete, absolute guarantee that that —

William J. Brennan, Jr.:

No, but there was a history of ICC total abandonments where they had —

Elinor Hadley Stillman:

Yes —

William J. Brennan, Jr.:

— not been imposed (Voice Overlap) —

Elinor Hadley Stillman:

— but the ICC had always said, “Well, we — we make exceptions in appropriate cases,” and the ICC had never —

William J. Brennan, Jr.:

But the union really didn’t want to take the risk.

That’s rather clear.

Elinor Hadley Stillman:

Well, there were risks on both sides — and the Congress —

Potter Stewart:

Well, the other —

Elinor Hadley Stillman:

and the Congress —

William J. Brennan, Jr.:

— side doesn’t think there was much —

Elinor Hadley Stillman:

Congress addressing these risks and — and I might say again in terms of the amount of money that they were talking about here, Footnote 27, on the private appellees’ brief says that it was calculated for the Milwaukee Railroad that if New York Dock conditions had been — been applied there, the liability might have been anything up to $1 billion.

They say the best estimate was $350 million.

Milwaukee Railroad was roughly comparable in size to the Rock Island.

I think it had a few more employees but not very many more employees.

So — and the ICC in its recommendation report to the reorganization court when it recommended approving the abandonment, they had a brief Section on labor protection.

They made no recommendation because they said, “As far as we are concerned, this is being taken care of by Congress,” so we don’t feel that we should make a recommendation.

They did note their policy of not having applied it in whole line abandonments but they never — they nevertheless told the reorganization court a viable option is in position of New York Dock conditions.

That was a very large liability and Congress looking at the state of the law which would have permitted the imposition of that liability simply said, “We think, considering all of the factors here, the necessity to have labor stability which will encourage other rail buyers to buy these lines.”

We — we think we also want to, by the way, encourage employees —

William J. Brennan, Jr.:

Was the —

Elinor Hadley Stillman:

— of other marginal carriers.

William J. Brennan, Jr.:

— March 4th agreement intended to enable sale of the lines by reducing the obligation of the employees?

Elinor Hadley Stillman:

That’s — that’s true, that’s true.

William H. Rehnquist:

Ms. Stillman, supposing the Rock Island had been a going concern, do you think Congress could have singled it out and said to its management, every employee on the Rock Island shall receive hourly wage of $5 an hour or more?

Elinor Hadley Stillman:

Well, that would be an exercise of Congress’ commerce power which as — always would have to be tested for a rational basis as to whether that was a rational decision or a reasonable consideration of the class.

And, I think it would stand or fall on that.

We think here this was a rational response.

The Rock Island was the only large railroad in the Middle West that was in these desperate straits.

They were simply applying a legislative solution that fit the particular problems they were addressing, a serious problem in Interstate Commerce which they had every — every right under the commerce power to address.

I would like also to address the question of whether this was just giving private property from one group of people to another group of people.

I don’t —

Byron R. White:

In that subject, let me just pose a question because I’m glad you are getting that.

In your brief although I notice perhaps other’s relative brief in page 19 you have the sense, “When a government regulation adjusting the burdens and benefits of economic life between private parties is held to be a taking the Government ordinarily should be given an opportunity to make a choice whether to rescind the regulation or pay just compensation.”

Elinor Hadley Stillman:

I think —

Byron R. White:

You contend this case comes within that sentence?

Elinor Hadley Stillman:

I think there are two ideas there that are included there in the sentence.

I think there is one idea that was —

Byron R. White:

Is this an adjustment between private parties?

Elinor Hadley Stillman:

An adjustment between private parties which is critical to the public interest.

And — and to address that point, what I would like to call the Court’s attention to is the case of Dayton-Goose Creek Railway against United States, a very early case which involved an —

Byron R. White:

Well, I first like to know whether you think that sentence applies to this case.

Elinor Hadley Stillman:

Yes, I think it does.

Byron R. White:

You do —

Elinor Hadley Stillman:

But then I’d like to explain where I think —

Byron R. White:

And you think —

Elinor Hadley Stillman:

— that’s not applicable.

Byron R. White:

— Congress should be given a chance to decide whether or not if it is a taking, they want to pay for it.

Elinor Hadley Stillman:

Yes, yes, yes.

Byron R. White:

And that they have not yet made an unequivocal determination of this.

Elinor Hadley Stillman:

Well, let me say this.

If Congress failed to act now and that money is paid out and this Court considers it a taking, it will be bound.I mean, there is nothing they can do once the money is paid out.

Byron R. White:

But it isn’t paid out yet.

Elinor Hadley Stillman:

It isn’t paid out yet.

Byron R. White:

And if we said there was a taking, you think — you would like to know whether it’s a taking and that so —

Elinor Hadley Stillman:

That’s correct.

Byron R. White:

— Congress could know whether to repeal on the —

Elinor Hadley Stillman:

Well, that’s correct, yes.

Byron R. White:

They have to Act within 15 days as I understand it.

It’s our judgment.

Elinor Hadley Stillman:

Excuse me?

Byron R. White:

But they would have to Act within 15 days, would they not?

Because if the injunction is set aside there is a duty to decide the matter within 15 days.

Elinor Hadley Stillman:

Well, well, that’s right.

But then what happens is, the ICC then has to devise a plan and then it’s approved by —

Byron R. White:

But it’s a rather accelerated time schedule.

Elinor Hadley Stillman:

Yes, that’s true, that’s true.

There are some dispute, I think, between the private appellees and the RLEA as to how long it wold take before you could get actual payments of money.

But what I would like to say going to this question of the private parties, in the Dayton-Goose Creek Railway case, what happened there was the ICC had a regulation according to which they said, “If railroads are earning profits over a certain amount, above a certain rate of return, we consider those excess profits and we are going to require that they put half of those excess profits into this general fund and this general fund will provide equipment and loans for other weaker carriers and we see this is essential to the national transportation system.”

This Court upheld that.

Now, that was taking property from one party and giving it to another party and the Court found out a proper use of ICC power.

Now, what we say here is that the money that was in the estate at all — the $75 million if you want to segregate it out, at all times existed under the — under the potential liability under the Milwaukee Act under Section 17(a) of being awarded to the union under the employee protection arrangement.

That was the state of the law.

That — that potential claim existed there.

All that Congress did was fix that claim at a lower amount and make it certain that there would be $75 million.

So, really, all it did was amend the law to take what was potential, make it actual, and to fix it at a lower level.

We — we don’t see this as a taking of property.

We don’t see this as — as an irrational exercise of the commerce power nor do we see it as to an intervention into the reorganization court’s jurisdiction.

Byron R. White:

Well, if — do — do you see this case as one that’s within the Tucker Act if we, (a) said there was a taking, or (b) we said there was not a taking?

Elinor Hadley Stillman:

If you say there is a taking, it’s within the Tucker Act.

Byron R. White:

Alright, suppose we just pass the questions, say — say–

Elinor Hadley Stillman:

The Tucker Act is there.

Byron R. White:

Would you — I suppose that would bind the Government?

Elinor Hadley Stillman:

It will bind the Government if they do nothing.

If the money is paid out, if — if you say the Tucker Act is there, the money is paid out, and it later is determined to be a taking and the estate has paid out $75 million, the estate would have a claim in the Court of Claims —

William J. Brennan, Jr.:

But — but, Ms. Stillman, what if we say it’s a taking for private use then what happens?

Elinor Hadley Stillman:

This is a somewhat more difficult question because of course under United States against Testan, this Court has said that there is no liability against the United States in the Court of Claims except where there is a right for damages and of course the Just Compensation Clause provides such a right.

We certainly would have to agree that if there were a separation of powers violation or anything that there probably would not be a money remedy in the —

William J. Brennan, Jr.:

In which —

Elinor Hadley Stillman:

Court of Claims.

William J. Brennan, Jr.:

— event the question of an injunction comes up.

Elinor Hadley Stillman:

Yes, in which account then but we — but we very strongly argue here that there — there’s — is no serious question that there has not been a rational — in rational terms, some benefit to the public interest.

John Paul Stevens:

Do you think the United States would be foreclosed from arguing in the Court of Claims that it was a taking for private use and therefore the remedy is not available?

I know you are the — the appellees here, of course, argue that the remedy is available because they don’t want to get — they want to get the money somewhere assumedly.

Elinor Hadley Stillman:

But we —

John Paul Stevens:

But would not the United States have the right to argue, “Oh, no, this was a taking for public use, the — this — there was evidence of Congressional intent to make it — administer of expense and not incur an absolute liability”?

Elinor Hadley Stillman:

Your Honor, Congress made a finding in this legislation that it was in the public interest.

Now —

John Paul Stevens:

Was that the same —

William H. Rehnquist:

That — that’s not the same as the taking for public use.

Elinor Hadley Stillman:

I think it is.

I think the public — oh, yes —

John Paul Stevens:

Well, supposing Congress made a finding that the General Motors could run the Ford Company better than Ford does and transfer their assets to General Motors out of the public benefit.

Would that be a taking for public use?

They said Interstate Commerce will benefit because they are more efficient.

Elinor Hadley Stillman:

I guess one reason this is difficult is because that’s a sort of substantive due process to us (Voice Overlap) —

John Paul Stevens:

Well, I think it is difficult because there is no precedent —

Elinor Hadley Stillman:

Yes.

That’s right.

John Paul Stevens:

— that really supports your position.

Elinor Hadley Stillman:

Well, you have suggested I think in your opinion in Moore against City of East Cleveland that what the Court has done sometimes in the past is apply what you call a huge test of substantive due process test or the taking test.

It’s sometimes hard to tell which test the Court is applying because to some extent when you talk about justice and fairness under the takings test, you are taking about some of the same factors that you talked about under substantive due process.

William J. Brennan, Jr.:

Right.

But if you are not talking about a real taking but just as — just a unconstitutional interference with property then you can’t avoid the injunction process.

Elinor Hadley Stillman:

Well, I don’t —

William J. Brennan, Jr.:

Can you?

Elinor Hadley Stillman:

It seems to me that it is so clear here that there is a public — that the public use of this —

William J. Brennan, Jr.:

(Voice Overlap) —

Elinor Hadley Stillman:

— money is to benefit the public.

The fact that it is being given to private parties just doesn’t bear on that question.

William J. Brennan, Jr.:

Your avoidance of the question as I have taken it an answer.

Elinor Hadley Stillman:

Well, I’m reluctant to recklessly open up the treasury in the Court of Claims but on the other hand, I don’t want to suggest that this injunction should stand because we think, clearly, there is no basis for standing.

John Paul Stevens:

May I ask this question?

In deciding his position in this case did the Government give any consideration whatever to the position of the investors in this railroad concededly bankrupted and unable to operate further on assets of $204 million and the Government imposing an administrative claim of $75 million dollars ahead of those investors?

Elinor Hadley Stillman:

Yes.

John Paul Stevens:

Do you think anybody would have invested in another railroad if this can happen?

Elinor Hadley Stillman:

Well —

John Paul Stevens:

The Government could — on your theory, the Government could have said it or approved or authorized an administrative claim, a brand new one of $204 million.

Why stop at six years of compensation?

It could have been 16.

Elinor Hadley Stillman:

Well, under our theory the existing law authorized the imposition of a — a much larger liability, a law that was on the books, a law that the investors were aware of and —

John Paul Stevens:

But is — is the Government interested in encouraging people to invest in railroads?

Elinor Hadley Stillman:

Well, railroad invest —

John Paul Stevens:

What if the Government wants to take them over?

Elinor Hadley Stillman:

Your Honor, I can’t speak for the Government on that point.

John Paul Stevens:

Right.

Elinor Hadley Stillman:

But I would simply say that we believe that the injunction here was erroneous on both grounds that is — that it is not a taking within the meaning of the Fifth Amendment and that if it is, the Tucker Act remedy prevents the injunction.

Thank you.

Warren E. Burger:

Mr. Murray.

Daniel R. Murray:

Mr. Chief Justice, and may it please the Court, the principal issue presented in this appeal is whether by special legislation Congress can impose upon a bankrupt railroad already in liquidation a new obligation solely for the benefit of its former employees who are no longer going to be working in the railroad industry, an obligation that will displace the interest of the creditors and the shareholders of that railroad.

This proceeding depends under Section 77 of the Bankruptcy Act and this Act has two purposes – first, the pubic interest and the continued rail service, and secondly and an equally important purpose, the conservation of the estate in the interest of the creditors and the shareholders.

Now, with the outset of these proceedings, so when they were filed in March 17, 1975, Judge McGarr ordered the trustee to continue operations of the Rock Island.

And at that time he had to make a — a determination that the railroad was reorganizable and that the security of the creditors would not be impaired.

And I would submit to the Court that if Judge McGarr had thought at that time that there was a possibility of labor protection being imposed in the amounts that the RLEA and the Government contend was possible, he never would have permitted reorganization to go on at that time.

He would have stopped it right then and there because the thought of imposing six years of wages, giving that to employees in the event of liquidation would mean that there would be no way that — that the security of the creditors could be protected if reorganization proceedings would be ongoing.

Daniel R. Murray:

And I submit that that would be true in almost every railroad reorganization proceeding, that the proceeding would have to stop right there if the liability of that magnitude could be imposed upon the estate of a railroad.

Now, in pursuit of these public interest objectives of Section 77 however, the reorganization court permitted the — the ongoing rail operations.

And for five years, the trustee of the Rock Island paid out $1 billion in wages and benefits to the Rock Island employees while the estate eroded in an amount in excess of $210 million.

And in answer to Justice Marshall’s question about the continuation of the railroad Unemployment Insurance Act and the railroad retirement fund, I should point out that during this time of reorganization, the Rock Island trustee contributed over $14 million to the railroad unemployment insurance fund and in excess of a $100 million to the railroad retirement fund just as the Rock Island had done in years prior to reorganization.

Of course, we have no question about the propriety of those contributions.

As the reorganization entered its fifth year, three key events occurred and they had been alluded to thus far in the argument.

The first occurred in the summer of 1979 when the employees of the Rock Island struck the Rock Island and as a result, it ceased rail operations and on September 26, 1979, the Interstate Commerce Commission declared the Rock Island trustee cashless.

And from that point forward the trustee himself was not able to conduct any rail operations.

The second key event was on January 25, 1980 when the reorganization court found that there no longer was any possibility of a successful reorganization of the Rock Island and he ordered the trustee to commence liquidation.

And really, from that point forward the Rock Island’s fate was sealed.From that point forward it was clear that the Rock Island was withdrawing from the public interest service.

Then on June 2 of 1980, the reorganization court formally confirmed the total abandonment of all of its lines and at that time, declined to condition abandonment on the payment of any form of the so-called traditional labor protection, and that order was affirmed by the Seventh Circuit Court of Appeals.

It was just on the eve of that particular order that Congress enacted and President Carter signed into law the Rock Island Transition and Employee Assistance Act which its new labor protection obligation of $75 million.

And that Act in essence would — would impose a payment of 80% of a former employee’s salary for up to three years or a lump sum payment of each — to each employee of $25,000 depending upon seniority.

The Congress stated the purpose of that Act to be a public purpose, to continue rail service in the midwest, but as Judge McGarr found, there was no connection between the payment of a lump sum severance pay to a former employee who is no longer going to continue in any rail service, there was no connection between that and ongoing rail operations in the midwest.

William H. Rehnquist:

This Act didn’t reactivate the operations of the Rock Island.

Daniel R. Murray:

They did not reactivate the operation by the trustee.

There was some directed service that was ongoing imposed by the Interstate Commerce Commission and that’s a subject of separate litigation but — but as of September when the strike occurred, September of 1979, the Rock Island trustee no longer operated any railroad.

That was the point at which the Rock Island stopped all rail operations.

We questioned the public purpose of this Act because in our view, it is not being paid to employees who are continuing in rail service.

It is being paid to employees who are no longer in the railroad industry, who have not been employed by railroads who are continuing operations of the railroads.

So, there is no relationship.

This case is quite unlike the Louden case, for example, in which the RLEA relies upon where there was an ongoing rail service by the Rock Island in one of its earlier reorganizations and there was a rationale in that case to pay labor severance pay because it was a — that case involved a partial merger or consolidation.

The railroad was ongoing, it was obtaining net income that was generated by the savings that were affected by the consolidation of rail service and in that case, “Those savings,” the Court said, “could be forced to be apportioned between the employees who were displaced.”

Byron R. White:

Mr. — Mr. Murray, do you think that the — do you think the ICC could have imposed any kind of a — of a — a termination burden on the estate?

Daniel R. Murray:

In the event of a total liquidation?

Byron R. White:

Yes, which —

Daniel R. Murray:

In the event of a total liquidation, we would say it could not and that is the position that the Seventh Circuit took in connection with —

Byron R. White:

Do you just flatly disagree with the Government’s position and your opponents that there was any room at all in this reorganization proceeding to impose any termination pay.

Daniel R. Murray:

That is correct, Justice White.

We believe —

Byron R. White:

No labor protective provisions were — were —

Daniel R. Murray:

In the event of a total abandonment by a railroad, that was in liquidation.

Now, I draw that — that particular qualification because there are cases where a railroad that is not in liquidation might decide to withdraw from rail service and it might be a perfectly healthy enterprise and there might be a situation in which labor protection could be imposed, but that’s not our case.

Our case is one where this railroad has totally consumed itself in the public interest and —

Byron R. White:

Well, if the — if the Interstate Commerce Commission had some authority to impose some labor protective provisions in this case on the facts of this case, they had just discretion to do so.

Suppose it did and then Congress came along and said, “Well, we are going to exercise your discretion for you.”

Daniel R. Murray:

Well, I submit that in this case they did not have any discretion on the context of a railroad in liquidation.

Byron R. White:

We have to decide that to — to hold for you, I guess.

Daniel R. Murray:

Well, I think that’s an — that’s an important question in this case and I think the Seventh Circuit has already indicated its position on the case (Voice Overlap) —

Byron R. White:

It’s for us, too.

Daniel R. Murray:

I understand that, Your Honor and —

William H. Rehnquist:

How do you — how do you distinguish the Dayton-Goose Creek case?

Daniel R. Murray:

Well, that was a case where a railroad that was ongoing was required to share its excess profits with other railroads and I think it’s understood that all railroads operate in a kind of a community of interest.

They — they operate their interlined payments that are — are generated.

There are all kinds of — there’s a common carrier — there’s a common fleet of cars.

It’s important to one ongoing railroad that all the other ongoing railroads are healthy, but that’s not the situation of the Rock Island.

The Rock Island is withdrawing from the railroad business.

It’s with the — the — under the Brooks-Scanlon case, the creditors and the shareholders of the Rock Island cannot be compelled to continue their investment in a railroad for an indefinite period — period with continuing law suits.

There has to come an end at some point to that and that is what Judge McGarr held happened on January 25, 1980.

So the Rock Island is withdrawing from that group of common carriers that have a common enterprise together and I think that is the distinction of that Dayton case.

The Seventh Circuit’s reasoning has been — has been followed by the court in the Third Circuit in the Susquehanna case and by the special court in the evaluation proceedings case in a decision just handed down on November 24, 1981 in which the Court stated that, “We would have considerable doubt regarding the constitutionality of Interstate Commerce Commission in position of labor protection conditions and the abandonment of a hopelessly losing railroad.”

Warren E. Burger:

Let me if I understand your earlier point.

Suppose the railroad designed that it was going to just cut off some of its outlying services and the ICC approved and a severance pay was ordered as a condition by the ICC.

That would certainly be an appropriate corporate purpose, would it not?

Daniel R. Murray:

Absolutely, that is correct, Your Honor.

Warren E. Burger:

What — is there any relationship between that?

Let me put it this way.

I got an impression from you that if the railroad were an ongoing operation, you would have a different situation with respect to the hypothetical I just presented to you.

Daniel R. Murray:

We would be in the position, for example, of the Milwaukee Road which is an ongoing rail operation and it is in the process of contracting and it does have a labor protection obligation under the traditional form of labor protection and the Milwaukee Railroad Restructuring Act does benefit it because it takes what would be a larger obligation and scales it down.

But the commissions are always drawn as a distinction between a total abandonment and a partial abandonment.

Daniel R. Murray:

In a partial abandonment situation, the railroad has an interest in cutting back, scaling back that obligation.

There is a savings that is generated that creates a net — a greater net income that the ICC has said should be shared with the employees who have to bear the brunt of that loss.

In a total abandonment situation, it’s a loss situation.

There is no net income (Voice Overlap) —

Byron R. White:

What — what if it is just a total abandonment, just a withdraw, no liquidation or no — it is not in Section 77 reorganization and it’s not — it’s not liquidating under — in it?

Daniel R. Murray:

I think that is the exception I posed earlier that there might be a situation where a perfectly healthy railroad for whatever reason —

Byron R. White:

Yes.

Daniel R. Murray:

— is withdrawn.

I think that’s a different case and perhaps as a matter of statutory law, a labor protection obligation could be imposed in that case.

Brooks-Scanlon — and as Brooks-Scanlon —

Byron R. White:

So if the railroad says —

Daniel R. Murray:

— say so that it would not be operating it.

Byron R. White:

— that we are going to withdraw from the railroad business, but we have got a lot of money.We are going to go to some other businesses, do you think that (Voice Overlap) —

Daniel R. Murray:

That would be a different case.

Byron R. White:

Yes.

But that’s not this case?

Daniel R. Murray:

That’s not the Brooks-Scanlon case.

This is a situation in which this railroad has — had massive losses over the last five years and is simply in the — in the process of withdrawing and — and trying to provide for a liquidation, a complete liquidation.

Thurgood Marshall:

But what about an employer who is on a — in a losing situation when the Fair Labor Standards Act was provoked — passed, provided from minimum wages?

Do you think that he could claim an exemption because he was in a bad financial position?

Daniel R. Murray:

No.

As a matter of fact, I would say that under the — I have already indicated in the case of the Rock Island.

The Rock Island was paying even though it was losing money over the course of the reorganization.

It was making contributions to the railroad retirement fund and to the railroad unemployment insurance fund and I would suggest that that is an instance in which there is legitimate investment backed expectation which is one of the tests under the New York Central cases.

That — that is a legitimate investment backed expectation that an ongoing business even if it suffers a loss has to make some contributions, for example, to health insurance or to unemployment insurance.

What’s so unusual about this case is that it was a retroactive obligation that it was imposed in one lump sum and was utterly unprecedented.

Byron R. White:

But if the employer in Justice Rehnquist’s examples said, “Well, as long as I operate, I have to live up to the law but if it’s too expensive, I’m going to quit,” and if he quit, there’d be different questions.

The Government then said, “Well, you can quit but you are going to have to pay your employees for a couple of years.”

Daniel R. Murray:

That — that would — that would be a problem, I think.

That’s right.

Byron R. White:

Well, that’s — that’s what your case is.

Daniel R. Murray:

Yes.

Right, that is correct, Your Honor.

That’s correct.

The Government has argued that the Rock Island has benefited from the labor stability that was created in the — in the case of the Rock Island and we think this is belied by the record in the first place.

There was a strike by the employees of the Rock Island.

It was the approximate cause of its collapse.But in any event, we have to suggest that the Rock Island had suffered massive losses over the five years of operation and how it can be suggested that the Rock Island benefited in this particular situation is quite distinct from (Voice Overlap) —

Warren E. Burger:

We will resume at one o’clock.

Counsel, you may resume.

Daniel R. Murray:

Thank you very much, Your Honor.

This morning, I alluded to the decision of the Seventh Circuit Court of Appeals finding that there was no labor protection in the Rock Island abandonment situation and I would like to explain the reasoning that the Seventh Circuit provided and the reasoning that we have stated in our brief which was filed before the Seventh Circuit decision.

Labor protection arose originally in connection with mergers and consolidations.

And the theory behind labor protection was that to the extent that a merger or consolidation resulted in a savings for a particular ongoing railroad and jobs were lost in the process, those savings ought to be shared with the employees who — who lost their jobs.

Subsequently, Congress provided that labor protection should also be accorded in an abandonment situation and in doing so, Congress cross-referenced the statute on Abandonment with the statute on — on Consolidations and Mergers and said that the labor protection that would be imposed in an abandonment situation would be the same as that imposed in a merger and consolidation situation.

This involved the payment of the so-called New York Dock conditions which were applied in a partial abandonment situation, the six years of labor protection, 80% of an employee’s wages.

The ICC developed a consistent practice of exempting or declining to impose any labor protection in a total abandonment situation and when Congress re-codified the Interstate Commerce Act, it indicated in the legislative history of the adoption of that statute that no change in the law developed by the ICC respecting total abandonments was intended.

And that same point was made when Congress transferred authority over abandonments in bankruptcy situations from the ICC to the reorganization court and I should note this on the side that in the Rock Island case, it is the reorganization court under Section 17 of the Milwaukee Road Restructuring Act that has authority and discretion as to whether to impose labor protection in an abandonment situation.

But all the time that Congress was re-codifying these languages and amending and then transferring it, it always referred back to the language that had — to the to the language of the statute that had been interpreted by the ICC as not requiring labor protection in a total abandonment situation and that is what the —

William H. Rehnquist:

The ICC said it was forbidden.

Daniel R. Murray:

The ICC indicated that they would not impose it.

They did not say it was forbidden.

That is correct, Your Honor.

William H. Rehnquist:

Well, you’re saying it’s forbidden.

Daniel R. Murray:

It’s forbidden in the situation of a liquidation where the — under Brooks-Scanlon where a railroad has operated in a loss consistently.

William H. Rehnquist:

Well, the ICC has never said that.

Daniel R. Murray:

That is correct, Your Honor.

William H. Rehnquist:

That’s a — a new question.

Daniel R. Murray:

It has been indicated by Judge McGarr in his abandonment order and that’s correct.

That is the one place it has been mentioned.

The — the particular vice of the Rock Island Transition Act is that it attempts to retroactively impose labor protection in a situation where the Rock Island has already been adjudicated entitled to liquidate.

Daniel R. Murray:

This is not a situation where Congress is trying to enact legislation that will apply to all railroads or all railroads that subsequently enter into liquidation and to reorganization.

It applies only to the situation where only the situation of the Rock Island after it has been adjudicated entitled to liquidate.

The vice of this kind of retroactive legislation in part is that it impacts upon the creditors and the shareholders of the Rock Island because they made their investment in the railroad industry on the understanding that under this consistent ICC practice that it developed over the years, there would be no labor protection imposed in a total liquidation situation, that they will come upon —

William H. Rehnquist:

That — that’s true of all investors in any corporation prior to 1938 in the passage of the Fair Labor Standards Act, isn’t it?

They — they made their investment with the understanding that the company could pay its help as little as it could get by with.

Daniel R. Murray:

It’s true that that was the situation with the Fair Labor Standards Act but what we are saying here is that this is a — a substantial obligation that’s being imposed upon this particular railroad estate that has already served the public interest for five years with $210 million.

In an ordinary situation, if a corporation, a non-railroad went into bankruptcy, it would just go into straight liquidation.

There would be no requirement that it continue on operation for five years with $210 million of losses.

What is special about this case is that under Section 77 of the Bankruptcy Act, because a railroad has a partial public service obligation, this railroad has been required to continue operations unlike any other corporation has been required to continue operations for five years with immense losses and it has — it has served the public interest totally and it can — it can give no more to that public interest.

That is the meaning of Judge McGarr’s liquidation order of January 25, 1980 and that is the distinction from any other non-railroad corporation under the —

William H. Rehnquist:

What if —

Daniel R. Murray:

— Fair Labor Standards Act.

William H. Rehnquist:

What if congress in 1970, say prior to the Milwaukee liquidation, prior to the Rock Island liquidation, had said affirmatively there will be labor benefit programs for all railroads that subsequently go into liquidation?

Daniel R. Murray:

That would clearly be a more difficult case for us.

It would — there would not be the same degree of retroactivity that exists on this particular case.

This case is exacerbated by the fact that it occurred after the reorganization added this liquidation phase and the relevance of that point is, that during the course of reorganization, this railroad amassed $250 million of expenses of administration.

These are administrative claimants, small businesses, various grouped companies that dealt with the Rock Island on the assumption —

William H. Rehnquist:

Lawyers?

Daniel R. Murray:

Anybody that would be on the assumption that they would be entitled to priority under the Railroad Reorganization Statute under Section 77 and under the very first order that Judge McGarr entered in the case.

Now, Congress, after the liquidation, is attempting to impose a claim that is either on the same plain with or prior to that but it is going to have the effect of displacing or diluting those administrative claims, people who relied upon the provisions of Section 77 with respect to the priority of expenses of administration and that will have an impact upon — if Congress can constitutionally impose such a prior claim and at the twelfth hour, you know, in — in the course of liquidation, that will have an impact upon the ability of the courts to conduct reorganizations where there is a precarious financial situation for a particular railroad or any company for that matter because the possibility always exists but then — that Congress could come along, enact a new statute and displace the interest of the expensive administration claimants.

Byron R. White:

Well, are you really suggesting that the — that the estate is so depleted that it would not cover all administrative expenses including the $75 million if it is imposed?

Daniel R. Murray:

Your Honor, at the present time —

Byron R. White:

Or do you know?

Daniel R. Murray:

We do have some idea, Your Honor, that at the present time, there are over — there are $250 million of expensive administration claims.

There are 70 — between principal and interest, somewhere around $75 million of claims of first mortgage bond holders and the sales that have been made to date have been minimal.

William H. Rehnquist:

So, what is the estate valued at?

Daniel R. Murray:

At the present time, the escrow fund amounts to approximately $130, $135 million and there are no major sales pending.

William H. Rehnquist:

But there certainly is a liquidation value on the remaining assets.

Daniel R. Murray:

We have — we —

William H. Rehnquist:

Except we can’t find any value in them, I guess.

Daniel R. Murray:

That’s correct, Your Honor.

It’s very difficult to —

William H. Rehnquist:

So you’re really saying if the $75 million is imposed, if it is going to be paid in total, it necessarily will be a priority administrative expense and will dilute to the other claims to administrative expenses.

Daniel R. Murray:

At least dilute them and perhaps displace them depending upon the priority that is accorded by the reorganization court.

William H. Rehnquist:

Mr. Murray, how realistic is the $7500 figure?

Daniel R. Murray:

Your Honor, we have in the record an affidavit by the trustee indicating that assuming 3,700 eligible employees, this appears at page 122a of the joint appendix, there would be an immediate pay-out of $46 million and a total pay-out of $69 million.

That was calculated in based upon figures that were available in December of 1979 assuming 3,700 eligible employees.

Subsequently, it appears that there are even fewer employees who had been employed by other railroads and therefore, the number is expected to be higher so it would appear in all likelihood that it would be the full $75 million.

Sandra Day O’Connor:

Counsel, assuming that the Court were to find that it was not a taking for a private purpose, the railroad could then, would you concede, recover that amount that it paid out under the Tucker Act?

Daniel R. Murray:

Well, assuming that it could not be — that this was not a — for a private purpose, we would — we would say that there was still irreparable harm to the Rock Island estate because this estate is in the process of withdrawing from the rail service and from the public service and the effect that we would have is to prevent a partial distribution that the reorganization court wants to make to the expense of administration claimants.

Sandra Day O’Connor:

How long would it take to process a Tucker Act claim?

Daniel R. Murray:

It’s taken a — this Act was passed over a year ago and has taken a year to litigate this.

It — I would imagine it would take at least a year or two years assuming the Government raises certain defenses and — and there’s a question about the amount.

Sandra Day O’Connor:

So, what really is the problem is that it delays a partial distribution?

Daniel R. Murray:

That is correct, Your Honor.

The — the real problem here is with the cost of administration claimants.

(Voice Overlap) —

Sandra Day O’Connor:

— the harm will be the difference between the interest rate.

It should get on your Tucker Act claim and what you could do with your money if you got it now.

Daniel R. Murray:

Your Honor, the problem there is that there are — there are costs of administration claimants as Judge McGarr found who cannot afford to wait for their money.

These are people, businesses who dealt with the trustee as they would deal with any other ongoing business assuming they would be paid and what happened in September of 1979 when the strike occurred and when the Rock Island became cashless is that it was unable to pay those expenses of administration that would be paid in any case and those people are now being deferred.

Judge McGarr indicated that he receives letters each week from these people who are very necessitous including local governments and state —

Sandra Day O’Connor:

Why could the partial distribution not be made?

Daniel R. Murray:

Because the escrow fund is not large enough to cover both the first mortgage bonds and the $75-million lien that would be imposed upon the estate and that is why he is unable to proceed and he has so indicated to the various costs of administration claimants who come to his court on each status report date asking when are they going to be paid.

It is because the amount of this lien that is overhanging the Rock Island estate and will overhang if it waits until a Tucker Act claim is prosecuted.

That makes it impossible to make that partial —

Sandra Day O’Connor:

How about a —

Daniel R. Murray:

— distribution.

Sandra Day O’Connor:

— partial pro rata distribution?

Daniel R. Murray:

Your Honor, the — the difficulty with that is that again the escrow fund is not large enough to cover both the first mortgage bond holders and the $75 million so that there would be nothing left at that point or — or just a miniscule amount left for the expense of administration claimants.

William H. Rehnquist:

What is the priority between the administrative expenses and the first mortgage bond holders?

Daniel R. Murray:

Your Honor, that has not been adjudicated by the reorganization court.

It is a very complicated question and I am sure that is going to take quite a bit of time in the reorganization court.

It would appear in some aspects, some aspects of the expense administration claims are subordinate to the first mortgage bond holders but —

William H. Rehnquist:

But a lot of them are not to the extent that (Voice Overlap) these mortgage bond holders have profited by it.

Daniel R. Murray:

Again — I would have to say that I think that — that most of the first mortgage bonds would be prior to the cost administration claimants but that is a question under Section 77 and Judge McGarr has not ruled upon that and you —

William H. Rehnquist:

(Voice Overlap) —

Daniel R. Murray:

— would get different answers to that question.

William H. Rehnquist:

And he’d have to do so if the fund were large enough to cover both.

Daniel R. Murray:

That is correct and the problem there, of course, is you would get different answers to that question from different counsel for whom I am speaking today so I should make that clear.

We are concerned, of course, in connection with the Tucker Act remedy that it may not be available here because it is a taking for private benefit of the former employees of the Rock Island and we believe does not relate to a public purpose.

The Government and the RLEA has tried to indicate that some public purpose is served by this but we are suggesting that the — the payments that are going to be made are not payments.

Sandra Day O’Connor:

Counsel, would you say that in the case of an ongoing enterprise or even a reorganization of the railroad that for the Government to impose such liability would also lack a public purpose?

Daniel R. Murray:

In that particular situation, Your Honor, I — I — because the railroad remains in the railroad business, I think it would be a harder question.

I mean that would be a — in fact, the — the Court has held in RLEA versus ICC that it is a —

Sandra Day O’Connor:

Yes, it was my understanding we really have upheld legislation of that kind.

Daniel R. Murray:

That is correct, Your Honor, but there, the thought is that it — that the rationale there is the connection between the fact that an ongoing railroad profits from the partial abandonment that is affected and that the Congress can regulate the sharing of that profit with employees who are displaced because only a few employees have to bear the burden for which the entire railroad profits.

Sandra Day O’Connor:

How do you deal with the argument that presumably the investors in the railroad understood that some liability might well attach in any event under the other Act that was enforced, the Milwaukee Act?

Daniel R. Murray:

Well, I think they understood it to mean that if the rail — I think they understood Brooks-Scanlon and the cases that have followed Brooks-Scanlon like New Haven Inclusion per se, that if a railroad operates at a loss consistently over the years, they have a right to withdraw their investment from rail service and that cannot be subject to conditions such as the Congress tried to attach here.

That’s — I think that’s really the bottom line in terms of the constitutional right that they assume they could withdraw their investment and they assumed that that could not be conditioned by the imposition of a large labor protection claim particularly in light of the consistent ICC interpretation of the abandonment statutes.

I want to address very briefly the question of — the problem of this law is a non-uniform law in bankruptcy because I think that is a matter that’s of concern to us in this particular situation.

One of the aspects of this law is that it does not attempt to generally amend Section 77 of the Bankruptcy Act to apply to all railroads and it does not attempt even to deal with — with all railroads that are now currently in Section 77.

It applies only to one railroad which is the Rock Island Railroad.

And the difficulty we have with that is, of course, that it permits Congress to tamper with an individual bankrupt estate and we think that that — the device of that is that there is — we think there is some protection that — that exists in the uniform law on Bankruptcy Clause of the Constitution because the framers required that legislation, for one, must apply to all and it prevents some tampering with one individual railroad estate.

And that’s —

William H. Rehnquist:

Was — was the Milwaukee reorganized out of the Northern District of Illinois?

Daniel R. Murray:

Yes, it is, Your Honor.

Yes, it is, but the Milwaukee is on a different situation.

In fact, the way the Act applied in the Milwaukee Railroad case was quite differently — quite different in the way it applied to the Rock Island case.

The Milwaukee was, when the Milwaukee Railroad Restructuring Act was enacted and it is now an ongoing railroad.

Daniel R. Murray:

And, of course, there was a partial abandonment labor protection liability there.

We do not have that situation here when our Act was enacted.

We had already been adjudicated entitled to liquidate.

The — the Government argues that this is a law affecting commerce and therefore, is not — they are not bound by the uniformity requirement of the bankruptcy power in the Constitution.

The difficulty with this argument, I think, is that — is two-fold.

On the one hand, Congress — almost every bankruptcy law attempts and it — it involves in some way Interstate Commerce, I think, one would have to say.

And secondly, we think that just as the — we think that the commerce power is qualified by other more specific constitutional provisions and we think that is the case here.

This is a more specific constitutional provision than any law in bankruptcy must in some sense be uniform if a Bankruptcy Act can — can apply only one — to one railroad that seems to us to suggest that the Uniformity Clause really doesn’t have any meaning any longer.

Another concern that this particular Act raises is the disregard for the doctrine of separation of powers and — and that particular connection, I should note, that this particular legislation compels Judge McGarr to enter an order without any exercise of his own discretion just immediately preceding a date on which he was scheduled to enter his decision on the particular matter.

In a sense, this — this particular legislation dictated the decision only days before the decision was to be made.

It is, thus, like United States versus Klein.

It is unlike ex parte McCardle because there was no attempt to withdraw jurisdiction.

They simply imposed a particular rule of decision (Voice Overlap) —

Byron R. White:

But Congress had added the bottom line and said, “By the way, to the extent the bankruptcy acts must be amended to achieve the above, they are so amended.”

Daniel R. Murray:

I don’t believe they did that though, Your Honor.

It’s —

Byron R. White:

If they had, there’d be no separation of powers problem, wouldn’t there?

Daniel R. Murray:

If they did it prospectively for all railroads and did it in connection with this —

Byron R. White:

I don’t — I don’t think the separation of powers means it has to be uniform.

You — you rely on the Bankruptcy Act for that.

Daniel R. Murray:

That is correct, Your Honor.

Byron R. White:

The Bankruptcy Clause.

Daniel R. Murray:

Right, the Bankruptcy Clause.

Byron R. White:

So it wouldn’t be a separation of powers problem.

Daniel R. Murray:

It wouldn’t, but on this particular circumstance, what they did was they tried to dictate the decision.

They said that the decision that the ICC would enter would be one that was fair and equitable.

Both — what they defined that to mean whatever happened in the Milwaukee Road must happen here.

Of course, the two are utterly unlike.

William J. Brennan, Jr.:

Mr. Murray, do you have any precedence for this argument to support you on this?

Daniel R. Murray:

Your Honor, we — we have cited the United States versus Klein case.

Daniel R. Murray:

I would say that it’s very rare that Congress has enacted a piece of legislation in this circumstance.

William J. Brennan, Jr.:

My question is, are there any precedence that you can —

Daniel R. Murray:

The — the Klein case —

William J. Brennan, Jr.:

Only the Klein case?

Daniel R. Murray:

— is only one precedent in which we rely on, Your Honor.

We are particularly concerned about the way this particular Act operates when you combine the uniformity point that it operates only on one particular railroad and the fact that it operates on the eve of when the Court was to make a decision and — and precludes a court’s decision in a matter that is then pending and about to be decided.

We think that raise — raises very great constitutional questions.

Sandra Day O’Connor:

Mr. Murray, do you — are there any specific authorities that truly resolve the question of whether this particular Act may be said to be an act of bankruptcy, the Act that we’re considering that Congress passed —

Daniel R. Murray:

Your Honor —

Sandra Day O’Connor:

— so as to bring in the play, the uniformity problem?

Daniel R. Murray:

I don’t have any specific authorities that I can cite to you, Your Honor.

Now, I can explain though that this is an Act that purports to — to create a claim to adjudicate the existence of the claim to state that — the priority of the claim, it’s talking about a claim in bankruptcy and, of course, it only relates to a bankrupted railroad.

It relates to no other entity.

Sandra Day O’Connor:

On a railroad which is ceasing to operate maybe the bankruptcy stage is — is indicative.

I’m not sure.

Daniel R. Murray:

The bankruptcy —

Sandra Day O’Connor:

My — my concern is whether this Act may properly be characterized as a bankruptcy.

Daniel R. Murray:

Your Honor, my view would be that it’s even more of a bankruptcy situation.

Now earlier, there was some public interest component in this particular case.

Now that it’s in liquidation, it’s in straight liquidation and it really represents a pure bankruptcy just as any other —

William H. Rehnquist:

It’s actually a Section 77 proceeding, isn’t it?

Daniel R. Murray:

It is still a Section 77 proceeding.

William H. Rehnquist:

And Section 77 is passed pursuant to the bankruptcy power.

Daniel R. Murray:

That is correct, Your Honor.

William H. Rehnquist:

And this is going to be a plan of liquidation in the Section 77 proceeding.

Daniel R. Murray:

That is correct and that is why it would be a question (Voice Overlap) —

William H. Rehnquist:

Then the question is what claims are you going to pay?

Daniel R. Murray:

That is correct, Your Honor.

That is why we believe it is a Bankruptcy Act.

I mean, it seems to us that the overwhelming component of this particular legislation involves bankruptcy and to the extent, there is any commerce implication forward, it’s coincidental.

Lewis F. Powell, Jr.:

Mr. Murray, would you summarize again why you think the Staggers Act does not provide appropriate relief assuming we find a taking?

Daniel R. Murray:

Your Honor, our concern there is with respect to the fact that this benefits employees who are not former employees, who are not going to be working for other railroads.

It doesn’t serve any specific public purpose.

It doesn’t benefit the Rock Island in any way because the Rock Island has no preexisting claim in our view.

Therefore, we are concerned that the Government could raise the defense at the time of a Tucker Act proceeding that it — it was not on appropriate matter under the Tucker Act.

All the Staggers Act says is that our Tucker Act remedy — nothing in this Act shall preclude or limit a Tucker Act remedy.

It does not say whether in fact the Tucker Act Remedy exists.

It is very careful not to say that.

The — the legislation is very careful not to say that particular point.

The Government in their brief indicates that there are situations where a Tucker Act remedy would not be available.

For example, where there is no legislative authority for a particular taking, they say that that would not be an appropriate remedy under the Tucker Act.

What we are saying here is that there may also be — there is no — there is no direct precedent on the point but they may also raise the defense that this is not serving a governmental public purpose and therefore, there is no right to bring an action for compensation under the Tucker Act and we won’t know that until a later date which will be of a — of a — preclude any remedy for us.

Lewis F. Powell, Jr.:

Who — who would —

Daniel R. Murray:

We are not bringing in the Tucker Act Remedy by that Act.

Lewis F. Powell, Jr.:

Who would — who would litigate the Tucker Act question?

Would the trustee do it or would creditors or who?

Daniel R. Murray:

I would assume that the trustee would bring the action on behalf of all creditors.

Of course, if there is no Tucker Act Remedy, then the money is paid out to all of the private employees and it would be impossible to recover the money.

Lewis F. Powell, Jr.:

Well, I understand that but somebody would have to initiate the litigation to determine whether or not the Tucker Act applied.

Daniel R. Murray:

And I assume that would be the trustee —

Lewis F. Powell, Jr.:

Yes.

Daniel R. Murray:

— but — but it would come on a later date after the —

Byron R. White:

More administrative expense.

Daniel R. Murray:

Pardon me, Your Honor.

Byron R. White:

More administrative expense.

Daniel R. Murray:

That’s right, Your Honor.

What — the Judge — what Judge McGarr wishes to do at this point in the proceeding is to conclude this liquidation as soon as possible because the liquidation has already been going — ongoing for five years.

This railroad has lost $210 million.

It’s amassed $250 million of expensive administration claims.

He wishes to — to pay as many claims as he can and close the estate to get this matter ended.He believes that that is what he is entitled to do — what he must do under the constitutional dictates of the Brooks-Scanlon case.

William J. Brennan, Jr.:

I — I understand.

Your concern is that if you were admitted to a Tucker Act remedy and you brought it, the United States might — may defend on the ground though there isn’t any Tucker Act remedy because counsel, the argument they — they gave here today is — was not for public purpose.

Daniel R. Murray:

Your Honor, I do not believe they have ever committed to paying the money in every circumstance and I believe they are very careful in their brief as I indicated —

William J. Brennan, Jr.:

Are you concerned they might make that kind of defense notwithstanding the argument here?

Daniel R. Murray:

Yes, Your Honor, I would have a concern about that.

But there is also the point that there is irreparable harm to the Rock Island in that an estate which has been — which has already been existent in reorganization for five years with immense losses and all of these costs of administration claims that that is going to be prolonged for another several years while the Tucker Act claim is being prosecuted and there is no reason for that.

There might have been a reason for that on the 3R Act Cases where the Government had to cease specific property to maintain rail service in the Northeast.

Here, we are talking about fungible money that could just as well come from the Government if, in fact, any public purpose is being serve.

We do not think there is.

It could just as well come from the Government as it could come from a bankrupt estate.

If this — if this operates as a taking, what the Rock Island is doing in essence is advancing money for the Federal Government and that we submit that just doesn’t make any sense.

Thank you very much, Your Honor.

Warren E. Burger:

Very well.(Voice Overlap) —

John B. O’Clarke, Jr.:

Mr. Chief Justice, may I proceed?

Warren E. Burger:

You have three minutes remaining.

John B. O’Clarke, Jr.:

Okay, thank you, sir.

The one point that has been — seems to be focused on and becomes almost like the central point is whether or not this Act, the 106 and 110 of the Act create a private benefit rather than serves a public purpose.

Now, we submit that the rationale given by the creditors for what is the purpose — the whole purpose behind labor protection misses the mark.

This Court in the Louden case and then in the ICC versus the Railway Labor Executives’ Association case stressed that the only justification for imposing employee protection is part of the Public National Transportation system is to increase this ability of the labor force.

I just like to read one short paragraph or part of a paragraph from the Railway Labor Executives’ Association case 315 U.S.373.

This is the abandonment case.

“There is nothing in the Act,” namely the Interstate Commerce Act, “to prevent the commission from taking action in furtherance of the public convenience and necessity merely because the total impact of that action will include benefits to the private persons —

Warren E. Burger:

Mr. Clarke —

John B. O’Clarke, Jr.:

— by the carrier’s employees.”

Warren E. Burger:

— how do you distinguish Brooks-Scanlon?

John B. O’Clarke, Jr.:

Your Honor, Brooks-Scanlon has been interpreted by this Court to allow a railroad to eventually withdraw itself from rail service but until the public interest and continued rail services are satisfied, the public interest factor remains a viable consideration and the railroad can be required to continue on even if there is an erosion of the interest of secured creditors and that’s in the —

Warren E. Burger:

Well, certainly, Brooks-Scanlon does not say that.

John B. O’Clarke, Jr.:

Brooks-Scanlon doesn’t, Your Honor, but the New Haven case, I believe the Penn-Central merger and the Denver and Rio Grande case which is cited in our brief, indicate that the Brooks-Scanlon doctrine is qualified by the fact that all our railroad cannot be allowed to continue indefinitely at a loss.

There can be a reasonable period of time while a public solution, public interest solution is found and we submit the difference that we have with the creditors and the trustee on this is that part of the public interest solution that has to be found here is how do you provide for a stabilized labor force?

Now, the ICC case goes on to indicate that the Louden case specifically recognized that the imposition of conditions similar to those sought here might strengthen the national system through their effect on the morale and stability of railway workers generally.

John B. O’Clarke, Jr.:

Exactly the same considerations of national importance are applicable and operative here.

And we submit they’re applicable and operative here as well because the entire purpose of labor protection is not just for Rock Island people.

It is for all railroad employees.

Mr. Murray has indicated that the railway system is a national community type of establishment.

What happens to me — what happens to one railroad here affects another railroad either through direct intercourse of commerce or through the passing of the word of mouth.

If employees know that if the railroad goes bankrupt and they are going to be cut out in the cold unless they are lucky enough to get a job with somebody else, why should a railroad employee stay with any other carrier today that’s in financial problems?

It’s because of that consideration and the need to continue railroad workers on their jobs and how that’s quite available to discontinue.

This is exactly what the Act did and I realize my time is up.

Thank you.

Warren E. Burger:

Thank you, counsel.

The case is submitted.