Gendron v. Chicago and North Western Transp. Co.

• Decision Date: 30 November 1990
• Docket Number: No. 69582,69582
• Citation: 139 Ill.2d 422,564 N.E.2d 1207,151 Ill.Dec. 545
• Parties: , 151 Ill.Dec. 545, 136 L.R.R.M. (BNA) 2413, 117 Lab.Cas. P 10,449 T.J. GENDRON, Indiv. and on Behalf of All Others Similarly Situated, et al., Appellants, v. CHICAGO AND NORTH WESTERN TRANSPORTATION COMPANY et al., Appellees.
• Court: Illinois Supreme Court

Page 1207

564 N.E.2d 1207

139 Ill.2d 422, 151 Ill.Dec. 545, 136

L.R.R.M. (BNA) 2413,

117 Lab.Cas. P 10,449

T.J. GENDRON, Indiv. and on Behalf of All Others Similarly Situated, et al., Appellants, v. CHICAGO AND NORTH WESTERN TRANSPORTATION COMPANY et al., Appellees.

No. 69582.

Supreme Court of Illinois.

Nov. 30, 1990.

Timothy D. Kelly and Lee F. Arnold, of Kelly & Berens, Minneapolis, Minn., and Steven A. Weiss and Arthur J. Howe, of Schopf & Weiss, Chicago, for appellants.

Harold C. Hirshman, Jeffrey L. Dorman, William M. Walsh and Edward T. Perelmuter, of Sonnenschein, Nath & Rosenthal, and James P. Daley, Stuart F. Gassner and Myles L. Tobin, Chicago, for appellee Chicago & North Western Transp. Co.

Susan Getzendanner, of Skadden, Arps, Slate, Meagher & Flom, Chicago, for appellee Fox River Valley Railroad Corp.

Justice RYAN delivered the opinion of the court:

Plaintiffs, the Railway Labor Executives' Association (RLEA) and certain employees of defendant, Chicago & North Western Transportation Company (C & NW), sued in the circuit court of Cook County seeking to enjoin an allegedly fraudulent conveyance of a portion of the rail line of C & NW to defendant Fox River Valley Railroad Corporation (FRVR) and for damages allegedly occasioned by that conveyance. The circuit court dismissed plaintiffs' complaint on the ground that plaintiffs' State-law claims are preempted by the Federal Railway Labor Act (45 U.S.C. §§ 151 through 188 (1982)) (RLA) and the Interstate Commerce Act (49 U.S.C. §§ 10101 through 11917 (1982)) (ICA). The appellate court affirmed, with one justice dissenting. (190 Ill.App.3d 301, 137 Ill.Dec. 776, 546 N.E.2d 721.) We granted plaintiffs' petition for leave to appeal (107 Ill.2d R. 315), and now affirm the decision of the appellate court.

Plaintiff T.J. Gendron is an employee of C & NW. He alleges that he is also a creditor of C & NW. Plaintiff RLEA is a voluntary, unincorporated association of the chief executive officers of the standard national and international railway unions in the United States. RLEA also alleges that it is a creditor of C & NW.

Defendant C & NW is the nation's ninth largest rail system. Defendant FRVR was incorporated under the laws of Wisconsin in September 1987. In late 1987, C & NW and FRVR began negotiating the sale of 208 miles of Wisconsin rail line and incidental trackage rights from C & NW to FRVR. This rail line is known as the Duck Creek South Line.

The line sale was consummated in 1988, and took the form of a "leveraged buy out"; FRVR borrowed funds to purchase C & NW assets and will use the purchased assets as collateral to secure the borrowed funds. C & NW is to receive $61.1 million from the sale and will continue to operate as a Class I railroad.

On December 23, 1987, C & NW and FRVR (the railroads) filed with the Interstate Commerce Commission (ICC) a notice of exemption from regulation, seeking approval of the sale and requesting clarification of the ICC's jurisdiction over labor issues arising from line sale transactions. Under the procedures established in Ex parte No. 392 (1985), 1 I.C.C.2d 810, the ICC's authorization of the sale became effective on December 30, 1987. (The Staggers Rail Act of 1980 (49 U.S.C. § 10505(a) (1982)) authorized the ICC to exempt from regulation a broad range of rail-related transactions deemed to be of limited scope (49 U.S.C. § 10505(a) (1982)).) Pursuant to this authority, in Ex parte No. 392 (1985), 1 I.C.C.2d 810, aff'd sub nom. Illinois Commerce Comm'n v. Interstate Commerce Comm'n (D.C.Cir.1987), 817 F.2d 145, the ICC established a policy whereby a short rail line sale to a noncarrier, like FRVR, would be approved automatically seven days after the filing with the ICC of an application for exemption from regulation. As part of the policy established in Ex parte No. 392, the ICC announced that it would not, as a matter of course, impose "labor protective conditions" on such short-line sales. Such conditions, including pay and benefit protection for employees, were formerly imposed by the ICC as part of its approval of rail line sales. Following the ICC's authorization of a sale, a labor union may seek labor protection, or otherwise challenge the sale, by filing a petition to revoke the exemption pursuant to 49 U.S.C. section 10505(d). (Ex parte No. 392, 1 I.C.C.2d at 815. See also Chicago & North Western Transportation Co. v. Ry. Labor Executives' Association (7th Cir.1988), 855 F.2d 1277, 1279.) On January 29, 1988, the ICC responded to the railroads' request for clarification, expressing its view that it continued to have jurisdiction over rail line sales to the extent necessary to allow the parties to a sale to consummate a transaction previously authorized by the ICC. On February 19, 1988, the RLEA petitioned the ICC for revocation of the exemption from regulation. The ICC subsequently denied the RLEA's petition.

Plaintiffs initiated the present class action on January 22, 1988, by filing a three-count complaint in the circuit court of Cook County. The complaint alleges that the sale of the Duck Creek South Line constitutes a fraudulent conveyance under Illinois law (Ill.Rev.Stat.1987, ch. 59, par. 4), and is the product of a civil conspiracy between the railroads to deprive plaintiffs of their rights and benefits as creditors of C & NW. In their complaint plaintiffs seek to enjoin the sale or to create a lien on the Duck Creek South Line, other injunctive relief and damages allegedly occasioned by the sale.

Plaintiffs allege in their complaint that C & NW's purpose in selling the Duck Creek South Line is to avoid the cost burden of ownership, including continuing to pay plaintiffs' wages and benefits. Plaintiffs claim that the sale is a highly leveraged buyout and that C & NW will use the proceeds of the sale to pay favored creditors or to pay dividends or other benefits to C & NW's shareholders rather than satisfying plaintiffs' claims. Plaintiffs further allege that FRVR will be left dangerously undercapitalized, with the bulk of its assets pledged as security for the benefit of creditors other than plaintiffs.

On February 1, 1988, the railroads filed a petition for removal to Federal court pursuant to 28 U.S.C. sections 1441 and 1446, and the case was accordingly removed. Plaintiffs filed in the Federal district court a motion to remand, and the railroads filed a joint motion to dismiss plaintiffs' complaint on the ground that plaintiffs' causes of action are preempted by the RLA and the ICA. The Federal court remanded the case to State court, holding that neither the RLA nor the ICA are "complete preemption" statutes; a preemption defense under these statutes is insufficient to confer removal jurisdiction on Federal courts. (See Caterpillar Inc. v. Williams (1987), 482 U.S. 386, 107 S.Ct. 2425, 96 L.Ed.2d 318 (discussing the "complete preemption" doctrine).) Having determined that it lacked jurisdiction over this case, the Federal court accordingly declined to pass on the question whether plaintiffs' particular claims are preempted by the RLA and/or the ICA.

Upon remand to the circuit court of Cook County, the railroads again filed a motion to dismiss the complaint. The circuit court granted the motion, ruling that plaintiffs' causes of action are preempted by the RLA and the ICA. Following affirmance by the appellate court (190 Ill.App.3d 301, 137 Ill.Dec. 776, 546 N.E.2d 721), plaintiffs appealed to this court. We need only decide whether plaintiffs' causes of action under the Illinois Fraudulent Conveyance Act (Ill.Rev.Stat.1987, ch. 59, par. 4), since repealed and replaced by the Uniform Fraudulent Transfer Act (Ill.Rev.Stat.1989, ch. 59, pars. 101 through 112), and for civil conspiracy are preempted by Federal law. We hold that they are, and, as noted above, we accordingly affirm the dismissal of plaintiffs' complaint.

The parties' contentions before this court may be briefly outlined as follows. Plaintiffs assert that the appellate court erred in finding that the plaintiffs' fraudulent conveyance action is a "minor dispute" within the meaning of the RLA and, therefore, subject to the exclusive jurisdiction of the National Railway Adjustment Board (NRAB). The railroads respond that plaintiffs' claims in fact constitute a "minor dispute" within the RLA, and are thus preempted by that statute. Plaintiffs further argue that their claims are not preempted by the ICA because the relief plaintiffs seek would not conflict with any order of the ICC. The railroads counter by noting that the ICC expressly approved this line sale. The railroads contend that the granting of plaintiffs' requested relief would impermissibly interfere with the ICC's approval and would constitute an undue interference with the ICC's exclusive jurisdiction over these types of railroad line sales. We consider first the arguments concerning the RLA.

Congress enacted the Railway Labor Act to promote stability in labor-management relations in the railroad industry. (Union Pacific R.R. Co. v. Sheehan (1978), 439 U.S. 89, 94, 99 S.Ct. 399, 402, 58 L.Ed.2d 354, 359.) The "general purposes" section of the RLA, in part, states that "[t]he purposes of the chapter are: (1) To avoid any interruption to commerce or to the operation of any carrier engaged therein; * * * (4) to provide for the prompt and orderly settlement of all disputes concerning rates of pay, rules, or working conditions; (5) to provide for the prompt and orderly settlement of all disputes growing out of grievances or out of the interpretation or application of agreements covering rates of pay, rules, or working conditions." (45 U.S.C. § 151a (1982).) We note parenthetically that the RLA also covers the airline industry. See 45 U.S.C. § 181 et seq. (1982).

Labor disputes subject to the dispute-resolution processes of the RLA are characterized as either "major disputes" or "minor disputes." The terms "major" and "minor" do not appear in the RLA...