In re Consolidated Rail Corp.

• Decision Date: 18 November 1994
• Docket Number: No. 93-cv-0416 RMU.,93-cv-0416 RMU.
• Citation: 867 F. Supp. 25
• Parties: In re CONSOLIDATED RAIL CORPORATION and Delaware & Hudson Railway Company. CONSOLIDATED RAIL CORPORATION, Petitioner, v. DELAWARE AND HUDSON RAILWAY COMPANY, INC., Respondent.
• Court: U.S. District Court — District of Columbia

867 F. Supp. 25

In re CONSOLIDATED RAIL CORPORATION and Delaware & Hudson Railway Company.

CONSOLIDATED RAIL CORPORATION, Petitioner, v. DELAWARE AND HUDSON RAILWAY COMPANY, INC., Respondent.

No. 93-cv-0416 RMU.

United States District Court, District of Columbia.

November 17, 1994.

Order November 18, 1994.

Gerald Patrick Norton, Harkins & Cunningham, Washington, DC, for plaintiff.

Terrance Michael Hynes, Sidley & Austin, Washington, DC, for defendant.

MEMORANDUM OPINION

URBINA, District Judge.

I. BACKGROUND ON THE USRA, CONRAIL AND THE 3R ACT

Congress enacted the Regional Rail Reorganization Act of 1973 ("3R Act")¹ in response to the transportation crisis precipitated by the bankruptcies of major railroads in the Northeast and Midwest. The 3R Act charged the United States Railway Association ("USRA"), a federally chartered government corporation, with the primary responsibility to develop and implement a "Final System Plan" ("FSP") to preserve rail services previously provided by the bankrupt railroads.² After determining which routes of the bankrupt carriers could be operated profitably, the USRA designated particular lines for transfer from the estates of the bankrupt carriers to the Consolidated Rail Corporation ("Conrail"), a government-owned corporation created for the purpose of acquiring those lines.³

After the USRA completed the FSP and it was approved by Congress, the FSP was then transferred to the newly created Special Court.⁴ The Special Court was given exclusive jurisdiction over all proceedings relating to the FSP. Under the FSP, the Special Court issued "conveyance orders" requiring the bankrupt carriers to transfer their lines to Conrail. The Special Court then granted special operating rights to other carriers to prevent a Conrail monopoly in any area.

II. BACKGROUND OF THIS CASE

As a result of the FSP, several grants of operating rights were made to the Delaware and Hudson Railway Company ("D & H") to enable D & H to provide a competitive alternative to Conrail in areas of the Northeast where Conrail would otherwise have a monopoly on rail service.

Conrail and D & H negotiated "trackage rights" agreements setting forth the detailed terms and conditions for D & H's use of Conrail's lines pursuant to the operating rights grants. Conrail and D & H entered into two such Agreements, one in 1978 and another in 1979.

In the course of negotiating the agreements, a disagreement arose between Conrail and D & H as to the precise scope of the rights granted to D & H by the FSP. The parties agreed to have the USRA resolve the disagreement. The USRA appointed Douglas Siegel, USRA's former Assistant General Counsel, to consider the parties' positions and issue a decision detailing the nature of D & H's rights. Conrail and D & H filed written submissions, in support of their respective interpretations of the original USRA operating rights grants, with Mr. Siegel and he issued his decision on October 4, 1982 ("1982 USRA Decision").

D & H went into bankruptcy, and in 1990, the Delaware and Hudson Railway Company ("DHC") acquired substantially all of D & H's assets, including both the 1978 and 1979 agreements. At no time did D & H or has DHC sought to vacate, modify, correct or otherwise challenge the 1982 USRA decision concerning the scope of the rights granted to D & H. Because Conrail believes that DHC has made statements that it can operate in a manner inconsistent with the 1982 USRA decision, Conrail has moved to confirm the 1982 USRA decision, as an arbitration award, under the Federal Arbitration Act,⁵ the Distinct of Columbia Arbitration Act,⁶ and the common law.

The Defendant has moved for dismissal on the following grounds: (1) the 1982 USRA Decision is not an arbitration award subject to review under the Arbitration Act, and therefore this court lacks subject matter jurisdiction; (2) assuming arguendo that the USRA Decision is subject to review under the Arbitration Act, the statute of limitations applicable to the federal, District of Columbia and common law claim have expired; (3) the Plaintiff has failed to demonstrate the existence of an actual controversy between the parties giving rise to, or warranting this court's exercise of, jurisdiction over this matter; and (4) Plaintiff's petition contains procedural flaws which warrant dismissal.

III. LEGAL ANALYSIS

A. Jurisdiction

1. The 1982 USRA Decision is an Arbitration Award

The first issue the court must address is whether the 1982 USRA Decision is an arbitration award. The Defendant claims that the issue presented to the USRA representative involved a determination of the scope and proper interpretation of the operating rights grants designated to D & H in the FSP. Defendant contends that the USRA Decision is not an arbitration award but is "an order issued by a federal agency pursuant to the 3R Act which was issued to clarify `what USRA intended' in making its original grants to DHRC DHC."⁷ The Plaintiff argues that "since both the 1978 and 1979 agreements demonstrate that Contrail and D & H intended USRA to be their chosen instrument for definitive settlement of the existing access issue, the 1982 proceeding was intended to be an arbitration."⁸ Plaintiff additionally contends that its position is bolstered by the fact that both parties and the USRA have, at various times, referred to the 1982 USRA Decision as an "arbitration". Defendant denies that these references were intended to have any legal significance.

Black's Law Dictionary defines arbitration as "a process of dispute resolution in which a neutral third party (arbitrator) renders a decision after a hearing at which both parties have an opportunity to be heard."⁹ In both the 1978 & 1979 agreements Conrail and D & H agreed to submit the question concerning the scope of trackage rights to the USRA and they agreed to be bound by the USRA's decision.¹⁰ The parties requested USRA to resolve the matter and it appointed Douglas Siegel, a former USRA lawyer, to consider the parties' positions and to render a decision. Both sides prepared briefs in support of their positions and submitted them to Mr. Siegel; there were no oral arguments. Mr. Siegel prepared a detailed decision setting forth each parties' rights under the 1978 & 1979 agreements.

Conclusion

This court, finding that Conrail and D & H agreed to have the matter decided by the USRA instead of seeking judicial action, that the USRA appointed a neutral third-party to resolve the dispute, and further that both sides had the opportunity to be heard before a decision was rendered, holds that the 1982 USRA Decision rendered by Mr. Siegel is an arbitration award.

2. The Applicable and Legally Cognizance Statute(s) of Limitations Have Run

a. Federal Arbitration Act Statute of Limitations

The relevant portion of § 9 of the Federal Arbitration Act ("FAA") provides:

If the parties in their agreement have agreed that a judgment of the court shall be entered upon the award made pursuant to the arbitration, and shall specify the court, then at any time within one year after the award is made any party to the arbitration may apply to the court so specified for an order confirming the award.¹¹

Defendant argues that the FAA creates a one year statute of limitation and, since Plaintiff brought this action 11 years after the "arbitration," this action is time-barred. Plaintiff argues that this court should follow the holding of the Fourth Circuit's decision in Sverdrup Corp. v. WHC Constructors, Inc.¹² and hold that the one year period referred to in the statute is "permissive" and does not create a statute of limitation. The D.C. Circuit has not addressed this issue. This court has reviewed the cases cited by the parties and concludes that the FAA does provide a one year statute of limitation.

Precedent Considerations

The Fourth Circuit in Sverdrup Corp. v. WHC Constructors, Inc., held that "§ 9 must be interpreted as its plain language indicates, as a permissive provision which does not bar the confirmation of an award beyond a one year period."¹³ In its opinion, the court notes that the word "may" in a statute normally indicates "a discretionary power, not a mandatory power", and states that "an examination of the FAA's language gives rise to the inference that Congress understood the plain meaning of `may' to be permissive."<sup>14</sup> Specifically, the court states "the use of alternating permissive and mandatory language throughout the FAA indicates that Congress was cognizant of the difference in meaning between the term `may' and `must' and intended that the term `may' be construed as permissive."¹⁵

In its opinion, the Fourth Circuit examines the history of arbitration and, noting that the FAA supplements previously existing remedies, states that "an action at law remains a viable alternative to confirmation under § 9 therefore reading § 9 as a street statute of limitations would be an exercise in futility."¹⁶

The Fourth Circuit additionally states that the benefits of arbitration would be thwarted by a one year statute of limitations because

instead of cutting off the rights of the parties to receive the proceeds of arbitration, it would merely encourage, at the expense of judicial economy, the use of another analogous method of enforcing awards ... individuals who prevailed in arbitration and failed to confirm within the one-year time limit would simply resort to filing actions at law ... and ... this would inevitably lead to inefficiency, delay and court congestion.¹⁷

Moreover, that court reasons that "the resultant proliferation of confirmation motions provides an equally compelling reason to refrain from interpreting § 9 as containing a strict statute of limitations since individuals would be forced to protect their awards gained through arbitration by filing motions to confirm in every case."¹⁸ In support of this position, the court cites to a First Circuit decision, Derwin v. General Dynamics Corp.¹⁹

In Derwin...