Kennedy v. Long Island Rail Road Company

• Decision Date: 14 June 1963
• Docket Number: Docket 27989.,No. 322,322
• Citation: 319 F.2d 366
• Parties: W. P. KENNEDY, as President of the Brotherhood of Railroad Trainmen, etc., et al., Plaintiffs-Appellants, v. The LONG ISLAND RAIL ROAD COMPANY, etc., et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Second Circuit

319 F.2d 366 (1963)

W. P. KENNEDY, as President of the Brotherhood of Railroad Trainmen, etc., et al., Plaintiffs-Appellants, v. The LONG ISLAND RAIL ROAD COMPANY, etc., et al., Defendants-Appellees.

No. 322, Docket 27989.

United States Court of Appeals Second Circuit.

Argued May 6, 1963.

Decided June 14, 1963.

Arnold B. Elkind (of Zelenko & Elkind), New York City, for plaintiffs-appellants.

Otto M. Buerger and James T. Gallagher, Jamaica, N. Y., for defendant-appellee Long Island R. Co.

James B. Donovan and Gerald E. Bodell (of Watters & Donovan), New York City (Howard J. Trienens, Kenneth F. Burgess, Douglas F. Smith, Stuart S. Ball and Gary L. Cowan (of Sidley, Austin, Burgess & Smith), Chicago, Ill., of counsel), for defendant-appellee Railroads and Association of American Railroads.

Paul G. Reilly, New York City, Clarence M. Mulholland, Toledo, Ohio, Edward J. Hickey, Jr., James L. Highsaw, Jr., Washington, D. C., Reilly & Curry, New York City, Mulholland, Robie & Hickey, Washington, D. C., of counsel, for Railway Labor Executives' Ass'n.

Before LUMBARD, Chief Judge, and KAUFMAN and MARSHALL, Circuit Judges.

KAUFMAN, Circuit Judge.

The question presented to us on this appeal is the legality under the Railway Labor Act, 45 U.S.C. §§ 151 et seq., the Interstate Commerce Act, 49 U.S.C. § 5 (1), and the Sherman Act, 15 U.S.C. § 1, of the Service Interruption Policy or so-called strike insurance plan adopted by the railroad industry.

Chief Judge Ryan, in the court below, tried the issue of liability and reserved for jury consideration, should it prove necessary, the question of damages. With two lengthy depositions and an agreed statement of facts before him, Judge Ryan held that the industry's strike insurance plan runs afoul of none of the above-mentioned statutes. 211 F. Supp. 478 (S.D.N.Y.1962). He therefore dismissed the complaint of the Brotherhood of Railroad Trainmen (B.R.T.) and its officers against, inter alia, the Long Island Rail Road Company, twenty-two other railroads participating in the insurance plan, and the Association of American Railroads (A.A.R.).¹ That complaint sought damages totalling roughly $3,400,000.00 (to be trebled for purposes of the claim under the Sherman Act) for injuries allegedly incurred by the union during its strike of the Long Island Rail Road for twenty-six days in July and August of 1960, injuries which are claimed to have resulted from the "conspiracy and unlawful agreement" consummated by the defendants.

We hold appellants' claim that the strike insurance plan before us constitutes a per se violation of the Railway Labor Act, the Interstate Commerce Act, and the Sherman Act to be wholly without merit, for the reasons so thoroughly set forth in the comprehensive opinion of Judge Ryan. We therefore affirm his judgment dismissing the complaint.

The importance of the issue presented in this case, however, warrants additional comment. We shall not repeat in detail the facts fully set out in Judge Ryan's opinion, 211 F.Supp. at 480-486, but shall assume familiarity with them. In essence, the strike insurance plan represented the reaction of the nation's leading railroads to the combined effects of economic distress and selective strike tactics (known as "whipsawing") by the unions. Economic distress was strikingly evident in the year 1959, when the return on investment of the average road was 2.72%, and that of the Long Island Rail Road, 0.72%. The Long Island's principal source of income flows from its 54 million commuter passengers annually, and its predominating element of costs (approximately 67% of its total operating cost) is the wages and benefits paid to employees represented by the appellant B.R.T.; such wages and benefits averaged nearly $8,000 per employee in 1959, an increase of 41% in five years. One of the reasons assigned for the union's success in securing such increases on a nationwide scale in the past decade is its use of the "whipsaw" strike, in which the strike effort is directed at a single railroad; concessions extracted by the union in a single case, it is suggested, soon become predominant throughout the country, because of the highly interdependent wage structure of the railroad industry. The harsh economic impact upon the striking employees is cushioned by strike benefits which emanate from a fund to which all railroads are required by law to contribute.

The railroads sought to ameliorate their plight by subscribing to an insurance program which, by supplying a limited amount of funds to roads hit by a certain limited class of strikes, was expected to strengthen their bargaining position and render less economically drastic the effects of a work stoppage. In 1959, after consultations within the Law Committee of the A.A.R. and after making financial arrangements with a London insurance brokerage firm and its newly formed insurance company in the Bahamas, the railroads became subscribing parties to a "Service Interruption Policy." A policy was issued to the Long Island Rail Road upon its deposit of $50,000, specified as its Daily Indemnity; this figure, composed of the average daily fixed costs of the Long Island represented not only its initial deposit but also the amount which would be paid to it daily should it be confronted by a work stoppage as defined in the policy. A similar initial deposit, based upon daily fixed costs, was made by each of the subscribing roads. These premiums constituted the fund from which the strike insurance proceeds were eventually to be paid, and as proceeds were in fact paid out, the fund was supplemented by further pro rata deposits by the non-struck roads during any given strike period.

A "work stoppage" is defined in the insurance contract as

"a cessation of work by a part or all of the employees of the Insured for the purposes of enforcing demands made by one or more labor organizations on, or of resisting proposals of, a common carrier by railroad in instances (1) where such cessation of work (a) is contrary to the provisions of the Railway Labor Act or (b) is to enforce demands contrary to the recommendations of an Emergency Board appointed by the President of the United States, pursuant to the Railway Labor Act or (c) is in resistance to the application of recommendations of such an Emergency Board."

and also, not relevant to the case before us, a cessation of work in which the union's demands affect railroads paying 50% of the premiums and an Emergency Board has not been appointed or has failed to make findings or recommendations. Insurance proceeds are to cover only fixed costs suffered during the course of the strike; property taxes, interest charges on debt, payments toward sinking funds and equipment-purchase obligations, pensions and payments into pension funds, and the expense of supervisory and other forces necessarily incurred during the work stoppage. Such proceeds do not cover the railroad's loss of profits, loss of revenues necessary to carry out rehabilitation programs, or permanent losses resulting from diversion of traffic to alternative roads or alternative forms of transport.

The union demand which precipitated the strike of July and August 1960 centered principally upon the wages and hours of its employees engaged in short turnaround or commuter service; the B.R.T. demanded a reduction of the work week from six days to five days, without any reduction in pay. A strike against the Long Island was set for December 1959 but was postponed when the National Mediation Board interceded in order to encourage further bargaining regarding the terms of a new collective agreement. Bargaining having failed, the Board requested that the parties submit to arbitration; the Long Island consented, but the B.R.T. refused and set a new strike date. A week before that date, the President appointed an Emergency Board, which made findings and recommended that the union withdraw its demands; again, the B.R.T. refused to comply. Further concessions were made by the Long Island (see footnote 3), none of which were satisfactory to the B.R.T. The strike began on July 10, 1960 and continued until August 3, during which period the railroad was completely shut down.

Since the B.R.T.'s work stoppage fell within the definition in the Service Interruption Policy, the Long Island received its $50,000.00 daily indemnity for each day of the strike, totalling $1,300,000.00. From the fund contributed by the railroads themselves in accordance with law, strikers and non-strikers received approximately $943,014; the B.R.T. itself paid out more than $158,121, for a total of $1,101,136.00 received by railroad employees during the 26-day walkout.

It is appellants' contention that the strike insurance plan adopted by the railroads undermines the federal policies which lie at the heart of our labor and antitrust laws. We find this contention thoroughly unconvincing. The most critical defect in the appellants' argument before this Court is their misunderstanding as to the nature of a so-called per se statutory violation. They argue that the participation of the defendants in the Service Interruption Insurance program constitutes a per se violation of the Railway Labor Act, the Sherman Act, and the Interstate Commerce Act and that, in determining this question, the trial court should have excluded all evidence regarding the actual operational effects of the plan as well as the actual course of strike settlement negotiations between the representatives of the Long Island Rail Road and of its employees. They assert that "the only evidence which would be relevant * * * would be (a) the strike insurance plan itself and (b) the theoretical operational effect of the plan insofar as it might impinge upon competition or any statutory duties imposed on the railroads * * *" (Emphasis added). Thus we are told, as an illustration, that since, in certain conceivable circumstances, insurance proceeds may be so great as to render...