Chicago, Milwaukee, St. Paul and Pacific R. Co., Matter of

• Decision Date: 25 March 1986
• Docket Number: No. 85-1785,85-1785
• Citation: 784 F.2d 831
• Parties: In the Matter of CHICAGO, MILWAUKEE, ST. PAUL AND PACIFIC RAILROAD COMPANY, Debtor. APPEAL OF SOO LINE RAILROAD COMPANY and the Milwaukee Road, Inc., Appellants, Escanaba & Lake Superior Railroad Company, Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 831

784 F.2d 831

In the Matter of CHICAGO, MILWAUKEE, ST. PAUL AND PACIFIC RAILROAD COMPANY, Debtor APPEAL OF SOO LINE RAILROAD COMPANY and the Milwaukee Road Inc., Appellants Escanaba & Lake Superior Railroad Company, Appellee.

No. 85-1785.

United States Court of Appeals Seventh Circuit.

Argued Feb. 14, 1986.

Decided Feb. 27, 1986.

Rehearing and Rehearing En Banc Denied March 25, 1986.

Marvin F. Metge, Gorham, Metge, Bowman & Hourigan, Chicago, Ill., for appellants.

Larry H. Mitchell, Arnall, Golden & Gregory, Washington, D.C., for appellees.

Before POSNER, FLAUM and EASTERBROOK, Circuit Judges.

EASTERBROOK, Circuit Judge.

The Chicago, Milwaukee, St. Paul & Pacific R.R. entered bankruptcy proceedings in 1977. In February 1985 the district court approved the sale of the Milwaukee's railroad assets to the Soo Line R.R. for $571 million. That sale has produced myriad issues. We consider today whether the order approving the sale gave the Soo Line unencumbered title to 21 miles of track between Crivitz and Marinette, Wisconsin.

This line runs east-west and connects longer north-south lines of the Chicago & North Western R.R. (CNW) and the Escanaba & Lake Superior R.R. In 1982 the Escanaba purchased from the Trustee of the Milwaukee a line of track from Green Bay, Wisconsin, north to Iron Mountain, Michigan. Crivitz is on the Green Bay--Iron Mountain line about mid-way between these cities. The sale of the Green Bay--Iron Mountain line left the Crivitz--Marinette line in the Milwaukee's hands, but as it connected the Escanaba's line to a line of the CNW, the Milwaukee's position was precarious. The Milwaukee therefore secured "trackage rights" (that is, the right to operate trains) on the Green Bay--Crivitz portion of the Escanaba's line. These rights enabled the Milwaukee's trains to reach Crivitz, from which they could reach Marinette and from there Menominee. (The Milwaukee had a trackage rights agreement with the CNW permitting travel from Marinette to Menominee.) The Crivitz--Marinette line affords shippers in these cities the benefit of competition between the Milwaukee and the CNW.

The Escanaba and the Trustee signed a "trackage rights agreement" allowing the Milwaukee to use the line between Green Bay and Crivitz and establishing detailed conditions and rates of payment for the use. Section 19.2 of this agreement provides that if the Milwaukee offers for sale the Connecting Line (defined as the Crivitz--Marinette line plus the Marinette--Menominee trackage rights), the Escanaba "shall have a right of first refusal to purchase the Connecting Line." The agreement requires the Milwaukee to notify the Escanaba of any offer and gives the Escanaba 60 days to enter into an agreement "under the same terms and conditions". If the Escanaba declines to match the offer, the Milwaukee may sell as it pleases. Section 24.1 provides that disputes between the parties "in connection with" the agreement shall be arbitrated.

The Milwaukee transferred the Connecting Line to the Soo as part of its whole railroad. Order No. 809, which approved the sale, transfers the "rail assets" of the Milwaukee to the Soo "free and clear of all liens, security interests, claims and encumbrances, of whatever nature, whenever arising, ... except only liens, security interests, claims and encumbrances created by, or specifically permitted to remain on the Rail Assets pursuant to" the "asset purchase agreement." The asset purchase agreement is a detailed specification of the terms and conditions of the transfer, to which we return. The idea was to transfer to the Soo the rail operations and related assets of the Milwaukee while leaving the Trustee to satisfy any unrelated claims.

The Escanaba believed that the negotiation of the asset purchase agreement (which preceded the entry of Order No. 809) was a sale of the Connecting Line, and it demanded the right to match the Soo's offer. This was not easy--not only because the Soo had made a general bid not broken down by segment of track but also because the Soo wanted the Milwaukee system as a unit. The Trustee of the Milwaukee refused to sever the Connecting Line from the package, and the Escanaba instituted an arbitration under Sec. 24.1 of the trackage rights agreement. The Escanaba asked the district court to carve the Connecting Line out of the rights to be transferred to the Soo; the Trustee replied that the transfer would bind the Soo to the provisions of the trackage rights agreement (including the right of first refusal), although the Trustee also maintained that the sale of the Milwaukee as a unit did not trigger the Escanaba's right of first refusal. Shortly before the entry of Order No. 809, the panel of arbitrators concluded that the sale to the Soo violated the Escanaba's right of first refusal, and it called for further proceedings to fix a valuation on the Connecting Line. The Trustee obviously could not convey the Connecting Line after the sale to the Soo, and the Escanaba wanted the line rather than damages. So the Escanaba asked the district court to substitute the Soo for the Milwaukee as its adversary in the arbitration. The district court granted the motion, and the Soo has appealed.

Our initial hurdle is jurisdictional. The Soo portrays the order as one compelling arbitration under 9 U.S.C. Sec. 4, which it calls "final." But an order compelling parties to arbitrate is not a "final" decision. More remains to be done, and the grant of a request to arbitrate is not much different from setting a case for trial. There are hundreds of case-management orders in a large piece of litigation, any of which may affect the outcome, and almost none of which is appealable. See Tenneco Inc. v. Saxony Bar & Tube, Inc., 776 F.2d 1375, 1378-79 (7th Cir.1985). Through a "fluke in the law" (see Graphic Communications Union v. Chicago Tribune Co., 779 F.2d 13, 15 (7th Cir.1985)), the genesis of which we need not explore, an order to arbitrate is nonetheless appealable if it terminates all proceedings in the district court. Whyte v. THInc Consulting Group Int'l, 659 F.2d 817, 818 n. 2 (7th Cir.1981). Order No. 816, which substituted the Soo for the Milwaukee in the arbitration, did not terminate all proceedings; it is a step in a complex reorganization, best understood as a construction of Order No. 809 and the asset purchase agreement. The substitution therefore is not appealable as an order to arbitrate.

It is nonetheless appealable as an order in the reorganization. Under the Bankruptcy Act of 1898, which applies to this case, any interlocutory order in a "proceeding" could be reviewed on appeal. See Section 24(a), 11 U.S.C. Sec. 47(a) (1976 ed.). This statute does not...