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Consolidated Rail Corp. v. Ray

March 2, 2010

CONSOLIDATED RAIL CORPORATION, PLAINTIFF,
v.
JAMES T. RAY, FOR THE ESTATE OF HAROLD F. BOYD, DEFENDANT.



The opinion of the court was delivered by: Ricardo M. Urbina United States District Judge

Re Document Nos.: 11, 15

MEMORANDUM OPINION

GRANTING THE DEFENDANT'S MOTION FOR JUDGMENT ON THE PLEADINGS; DENYING THE PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT

I. INTRODUCTION

The plaintiff, Consolidated Rail Corporation ("Conrail"), commenced this action seeking declaratory relief under the Regional Rail Reorganization Act of 1973 ("Rail Act"), 45 U.S.C. §§ 701 et seq., as amended by the Northeast Rail Service Act of 1981 ("NSRA"), 45 U.S.C. §§ 1101 et seq. Conrail seeks a declaratory judgment that the Rail Act precludes it from being held liable as a successor for asbestos claims stemming from the conduct of insolvent predecessor railroads whose rail assets were conveyed to Conrail "free and clear of any liens or encumbrances" pursuant to the Rail Act. Conrail contends that the "free and clear" provision of the Rail Act, incorporated into the orders conveying the rail assets to Conrail, forecloses its liability for the pre-conveyance conduct of the predecessor railroads.

The defendant is the estate of a former employee of Erie Lackawanna Railroad Company ("Erie Lackawanna"), one of the insolvent railroads whose rail assets were conveyed to Conrail pursuant to the Rail Act. Alleging that the decedent was negligently exposed to asbestos during his employment with Erie Lackawanna, the estate commenced an action in an Ohio state court against Conrail and other defendants under the Federal Employer's Liability Act ("FELA"), 45 U.S.C. §§ 51 et seq. The estate contends that Conrail is liable for the decedent's asbestos-related injuries under state law successor liability principles.

As discussed below, the court concludes that the "free and clear" provision of the Rail Act does not categorically preclude the estate from holding Conrail liable for FELA claims based on the decedent's exposure to asbestos prior to the conveyance of Erie Lackawanna's assets to Conrail. Put differently, the Rail Act does not prevent the estate from asserting in the Ohio state court action that Conrail may be held liable under the FELA based on state law successor liability principles.*fn1 Accordingly, the court grants the estate's motion for judgment on the pleadings and denies Conrail's motion for summary judgment.

II. BACKGROUND

A. History of the Rail Act

Beginning in the late 1960s, "[a] rail transportation crisis seriously threatening the national welfare was precipitated when eight major railroads in the northeast and midwest region of the country entered reorganization proceedings under § 77 of the Bankruptcy Act."

Blanchette v. Conn. Gen. Ins. Corps., 419 U.S. 102, 108 (1974).*fn2 "Congress concluded that solution of the crisis required reorganization of the railroads, stripped of excess facilities, into a single, viable system operated by a private, for-profit corporation." Id. at 341-42. To implement this solution, "Congress supplemented § 77 with the Rail Act, which became effective on January 2, 1974." Id. at 342. As one senator remarked, the Rail Act was "intended to wipe the slate clean, to allow these rail systems to correct mistakes that led them into financial collapse and to enable them to start anew and continue on a profitable basis." 119 Cong. Rec. S23,784 (daily ed. Dec. 21, 1973) (statement of Sen. Long).

The Rail Act created a government corporation, the United States Railway Corporation ("USRA"), tasked with creating a Final System Plan for restructuring the railroads. 45 U.S.C. § 716(a)(1). The Final System Plan, published by the USRA in July 1975, designated certain rail properties held by the railroads in reorganization for transfer to a newly-formed private corporation, Conrail. Pl.'s Mot. for Summ. J. ("Pl.'s Mot.") at 7 & Ex. B; see also 45 U.S.C. § 741(d). As required by the Rail Act, the USRA submitted the Final System Plan to Congress, which approved the plan shortly thereafter. Pl.'s Mot. at 8; see also 45 U.S.C. § 718(a).

The Rail Act also called for the creation of a Special Court, which would have exclusive jurisdiction over proceedings relating to the Final System Plan. 45 U.S.C. § 719. Following Congress's approval of the Final System Plan, the Special Court would issue conveyance orders, directing the trustee of each railroad in reorganization to convey all right, title and interest in the designated rail properties to Conrail.*fn3 28 U.S.C. § 743(b)(1). The Rail Act required that "[a]ll rail properties conveyed to [Conrail] . . . be conveyed free and clear of any liens or encumbrances." Id. § 743(b)(2).

B. Conveyance of Eric Lackawanna's Assets to Conrail

In June 1972, Erie Lackawanna filed for bankruptcy pursuant to § 77 of the Bankruptcy Code. See In re Erie Lackawanna Ry. Co., 803 F.2d 881, 882 n.2 (6th Cir. 1986). In March 1976, the Special Court ordered Erie Lackawanna and various other railroads to convey the bulk of their rail assets to Conrail ("the Conveyance Order"), pursuant to § 743 of the Rail Act. Pl.'s Mot. at 8; see generally Compl., Ex. B.

Following the conveyance of a railroad's assets to Conrail, the Rail Act required the bankruptcy court "to reorganize or liquidate such railroad in reorganization pursuant to Section 77 on such terms as the court deems just and reasonable." 45 U.S.C. § 791(b)(4). The conveyance of Erie Lackawanna's assets to Conrail left it with insufficient resources to permit it to be reorganized as an ongoing business entity. Erie Lackawanna, 803 F.2d at 882. Accordingly, in November 1982, the bankruptcy court discharged Erie Lackawanna from bankruptcy as Erie Lackawanna, Inc., whose purpose was "to liquidate its remaining assets as expeditiously as practicable." Id. at 883.

C. The Estate's Claims Against Conrail

The decedent was a railroad worker employed by Erie Lackawanna from May 1942 through March 1976. Pl.'s Mot. at 4. Following the conveyance of Erie Lackawanna's rail assets to Conrail, he worked for Conrail from April 1976 until his retirement in 1978. Id. On May 8, 2002, the executor of Boyd's estate filed a complaint in a state court of Ohio ("the Ohio complaint") against various railroad defendants, including Conrail. Id.; see generally Compl., Ex. A. The Ohio complaint alleges that during the course of his employment as a railroad worker, the decedent was negligently exposed to asbestos, in violation of the FELA.*fn4 Compl., Ex. A ¶¶ 11-12. The Ohio complaint further alleges that the decedent's exposure to asbestos resulted in his developing of mesothelioma and caused him severe injury, ultimately resulting in his progressive disability and death. Id. ¶¶ 14-15. Through the Ohio state court action, the estate seeks to hold Conrail liable for the decedent's exposure to asbestos by Erie Lackawanna prior to the April 1976 conveyance. See id. ¶ 2.

D. Procedural History

Conrail filed this complaint on June 26, 2007, seeking a declaratory judgment that the Rail Act precludes the estate from holding it liable for the decedent's pre-conveyance exposure to asbestos by Erie Lackawanna. See generally Compl. In addition, Conrail asks the court to enjoin the estate from seeking to hold Conrail liable for any FELA violations committed by Erie Lackawanna. See generally id. By agreement, the parties stayed the Ohio action pending the resolution of this action. See Def.'s Mot. for J. on the Pleadings ("Def.'s Mot.") at 2.

On June 12, 2009, the estate moved for judgment on the pleadings pursuant to Federal Rule of Civil Procedure 12(c). See generally Def.'s Mot. On July 2, 2009, Conrail moved for summary judgment. See generally Pl.'s Mot. Both motions address the same core issue: whether the Rail Act precludes the estate from asserting successor liability against Conrail for the decedent's pre-conveyance exposure to asbestos while employed by Erie Lackawanna. ...


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