Vollmar v. CSX Transp., Inc.

Decision Date10 February 1989
Docket NumberCiv. A. No. 88-0938-A.
Citation705 F. Supp. 1154
CourtU.S. District Court — Eastern District of Virginia
PartiesJohn VOLLMAR and James Mitchell, On behalf of themselves and all other persons similarly situated, Plaintiffs, v. CSX TRANSPORTATION, INC., Defendant.

COPYRIGHT MATERIAL OMITTED

William H. Callaway, Jr., Richard A. Allen, Jayme Rizzolo Epstein, Sherrice A. Knisely, Zuckert, Scoutt & Rasenberger, Washington, D.C., for plaintiffs.

Jay D. Zeiler, Ronald M. Johnson, Jonathan A. Gruver, Akin, Gump, Strauss, Hauer & Feld, Washington, D.C., for defendant.

MEMORANDUM OPINION

ELLIS, District Judge.

I. Introduction

This conditionally certified class action grows out of a unique context and presents novel questions. Plaintiffs are Canadian employees of defendant who claim that their various unions negotiated a lower wage increase in 1973 than otherwise would have been the case in return for defendant's agreement to pay a greater share of plaintiffs' retirement taxes and to seek legislation to accomplish this. Congress obliged; it passed the Railroad Retirement Act of 1974 (the "Act"), 45 U.S.C. §§ 231 et seq. For five years the arrangement worked. Then, in 1978, as a result of changes in Canadian immigration rules, changes beyond the control of plaintiffs or defendant, the Railway Labor Board ruled that Canadian employees of United States railroads could no longer participate in the system of pension benefits under the Act. Railroads and their Canadian employees were permitted to recover the pension contributions they had made. In plaintiffs' view, this result deprived them of the benefit of the bargain their unions struck with defendant in 1973; defendant recovered the pension contributions it made on plaintiffs' behalf; plaintiffs recovered their own contributions and were excluded from the Act's benefits; yet nothing was done to restore plaintiffs' demand for wage increases they claim were foregone in 1973 as part of the bargain. In other words, as plaintiffs see it, defendant won a wage concession from the unions, but ultimately gave up nothing for this benefit, whereas plaintiffs accepted lower wages, but contrary to the premise of the bargain, received nothing in return for this detriment. Thus, plaintiffs, citing contract and quasi contract theories, now seek recovery for the unquantified wage increases they claim were foregone in 1973.

The matter is before the Court on plaintiffs' summary judgment motion. The parties' extensive briefs and affidavits1 and the range of issues raised make clear that a more complete explication of the facts is needed for adequate illumination of the parties' claims.

II. Facts
A. The Parties

Defendant, CSX Transportation, Inc. (CSXT), is a Virginia corporation engaged in the business of operating a railroad that includes approximately 20,000 miles of track in the United States and 200 miles in Canada's Ontario province. In its current form, CSXT is the result of a series of railroad mergers. Among the predecessor railroads are the C & O Railway (the Chessie System) which included the Pere Marquette Railroad Company, a Canadian railroad.2 CSXT employs some 34,000 persons, of whom 200 are Canadian citizens working for CSXT in Canada.

Plaintiffs, John Vollmar and James Mitchell are two of CSXT's Canadian employees. Vollmar is a clerk, while Mitchell is a conductor. They sue on behalf of themselves and all others similarly situated. Following briefs and a hearing on the class certification question, the Court, pursuant to Rule 23(b)(2), Fed.R.Civ.P., conditionally certified the following class:

All past and present unionized employees of defendant CSX Transportation, Inc. and its predecessor companies ("CSXT") who have resided and worked for CSXT in Canada and whose retirement benefits under the Railroad Retirement Act were terminated or curtailed by the Railroad Retirement Board's ruling of January 10, 1984 (adapting its General Counsel Opinions L-83-79 and L-83-79.2), as affirmed upon remand from its ruling of May 6, 1986, and the heirs and successors of such employees.

The certification is conditional because CSXT sharply disputes plaintiffs' standing to assert the claims at bar. Resolution of the standing issue in a manner favorable to plaintiffs is a prerequisite to final class certification.

Most CSXT employees in Canada and the United States are represented by unions. In the railroad industry, again in both Canada and the United States, each craft or class is represented by a different union. There are eleven different crafts of CSXT employees represented by eleven separate unions. Each union represents both American and Canadian employees, the latter through subunits of the American-based international. Plaintiff Vollmar, as a clerk, is represented by the Transportation Communications Union International. Plaintiff Mitchell, as a conductor, is represented by the United Transportation Union. Collective bargaining agreements between CSXT and each of the craft unions cover both American and Canadian employees.3 These agreements cover the terms and conditions of employment, but none provides for pension benefits or a retirement plan. As more fully described below, since 1937, pension or retirement benefits for railroad employees have been provided exclusively by the congressionally established United States Railroad Retirement System. Canadian employees are also covered under the Canada Pension Plan, Canada's equivalent of Social Security.4

B. The Railroad Retirement System5

Enacted as a response to the Great Depression, the United States Railroad Retirement System (System) has been in effect since 1937. The Railroad Retirement Act, 45 U.S.C. §§ 231, et seq., defines the structure of the System, the class of eligible employees, the eligibility requirements for benefits as well as the types and levels of such benefits.6 In essence, the System covers employees of American railroads and their affiliates. This includes foreign employees of American railroads who work in a foreign country. Significantly, however, a 1940 amendment to the Act excludes from the Act's coverage any foreign employees working in a country whose immigration laws require railroads to employ citizens of that country. This "Foreign Exclusion" reads, in pertinent part, as follows:

Notwithstanding the provisions of subdivisions (1) and (2) of this subsection, an individual not a citizen or resident of the United States shall not be deemed to be in the service of an employer when rendering service outside the United States to an employer who is required under the laws applicable in the place where the service is rendered to employ therein, in whole or in part, citizens or residents thereof.

45 U.S.C. § 231(d)(3) (1940).

The System is administered by the Railroad Retirement Board (the Board), a federal agency charged with determining whether an employee is eligible for benefits and the appropriate level of benefits.7 It also disburses benefits to eligible employees, their spouses or survivors. Benefits include retirement annuities (i.e., pension payments), disability annuities and supplemental annuities. The Act establishes a complex set of rules governing entitlement to the various benefits. In general, employees must have 120 months of creditable railroad service to qualify. As noted, the Board is the arbiter of eligibility.

The Systems' funding mechanism is established and described in the Railroad Retirement Tax Act (Tax Act), 26 U.S.C. §§ 3201 et seq. The primary funding source is a payroll tax levied on the employer and the employee. Amounts paid to the IRS as railroad retirement taxes are based on income levels. In this respect, the System resembles Social Security. The Tax Act specifies the railroad retirement tax rates and percentages to be paid by the employer and employee. The employer withholds the employee's share and remits it and the employer's share directly to the IRS. See 26 U.S.C. § 3202 (1982).

Retirement tax levels and percentage contributions have varied over time. From 1937 through September, 1973, the burden was shared equally by the employer and the employee; each made equal railroad retirement contributions of 10.6% of each employees' earnings. As a result, at least in part, of the 1973 negotiations between the railroads and the unions, Congress amended the Railroad Retirement Act to implement basic changes in structure. To begin with, the 1973 amendments discarded the previous system of equal employee-employer contribution to the System. In its place, Congress substituted a two-tiered structure. Tier I taxes are essentially equivalent to Social Security taxes. Tier I taxes are paid by the railroads and the employees in equal amounts calculated on the basis of earnings and years of service. Until 1977, the Tier I tax rate for both employee and employer was 5.85% of earnings, a rate equivalent to the social security tax rate. Thereafter, the Tier I tax rate changed as follows:8

                  1978 ......................... 6.05%
                  1979-80 ...................... 6.13%
                  1981 ......................... 6.65%
                  1982-83 ...................... 6.70%
                

Tier II taxes, "are designed to fund benefits comparable to those paid over and above Social Security benefits by other industrial pension systems." Retirement Handbook at 5. Until 1981, the railroads paid all the Tier II taxes. In that year, Congress enacted a 2% Tier II tax on employees and this rate was subsequently raised by amendments in 1983 and 1987. The following table summarizes the history of Tier II taxes:9

                                Tier II Taxes
                    Year         Employee        Employer
                  1973-1980        0               9.5%
                  1981-1983        2%             11.75%
                  1984-1985        2.75%          12.75%
                  1986             3.5%           13.75%
                  1987             4.25%          14.75%
                  1988             4.9%           16.10%
                

At present, therefore, CSXT pays railroad retirement taxes for its covered employees...

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