Deford v. Soo Line Railroad

867 F.2d 1080
CourtCourt of Appeals for the Eighth Circuit
DecidedFebruary 9, 1989
DocketNo. 87-5376
StatusPublished
Cited by4 cases

This text of 867 F.2d 1080 (Deford v. Soo Line Railroad) is published on Counsel Stack Legal Research, covering Court of Appeals for the Eighth Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Deford v. Soo Line Railroad, 867 F.2d 1080 (8th Cir. 1989).

Opinions

JOHN R. GIBSON, Circuit Judge.

This appeal is brought by Robert F. De-ford, on behalf of himself and all other employees of the Soo Line Railroad Company adversely affected by the sale of a portion of Soo Line’s rail lines, and by the [1082]*1082Railway Labor Executives’ Association (RLEA).1 The district court2 denied a motion to remand the case to state court and dismissed appellants’ complaint under Fed. R.Civ.P. 12(b)(1) for lack of subject matter jurisdiction. The district court, in statements from the bench, determined that the case was a “minor dispute” under the Railway Labor Act (RLA), 45 U.S.C. §§ 151— 188 (1982), and that the RLA completely preempted Deford’s state law claims of fraud, conspiracy, and tortious interference with creditor’s rights, and required arbitration rather than court adjudication. We affirm the district court’s judgment denying remand to state court and dismissing the complaint, and conclude that the district court properly analyzed the preemptive effects of the RLA. We further hold that under the circumstances of this case the Interstate Commerce Act (ICA), 49 U.S. C. §§ 10101-11917 (1982), is also an appropriate basis to preempt the state law claims.

I.

On April 2, 1987, Soo Line, a class I railroad with approximately 7,750 miles of rail lines in twelve states, agreed to sell a portion of its rail lines (1,960 miles) known as the Lake States Division to Wisconsin Central Ltd. Wisconsin Central, a recently formed Illinois corporation, was not a carrier prior to the transaction, but became a completely independent railroad upon the sale of the Lake States Division. The structure of the sale was a leveraged buyout, where Wisconsin Central, having little equity in the investment, financed a substantial portion of the purchase price. Wisconsin Central’s lender then took a first lien on all the assets of the Lake States Division.

Sales such as these are governed by the Interstate Commerce Act (ICA), which provides for Interstate Commerce Commission (ICC) regulation of railroad acquisitions. To comply with the ICA, Wisconsin Central was required to either obtain ICC approval of the sale or receive an exemption from the ICC approval procedures. Wisconsin Central filed a notice of exemption with the ICC on September 4,1987. The ICC stayed the effectiveness of the notice of exemption through October 27,1987 to investigate the acquisition and invited comments by interested parties. After evaluating comments by several labor organizations, including the RLEA, the ICC lifted the stay but continued to review the transaction. The sale became effective three days later. The RLEA then filed a petition to revoke the exemption, which the ICC denied on July 8, 1988.

Deford and RLEA brought this action in Minnesota state court on June 12, 1987, asserting claims under Minnesota common law and the Minnesota Uniform Fraudulent Transfer Act, Minn.Stat.Ann. §§ 513.41-51.3 Deford first alleged that the sale of [1083]*1083the Lake States Division to Wisconsin Central was an attempt to defraud Soo Line employees and the RLEA of their rights and benefits as creditors, in the form of accrued but unpaid wages, vacation pay, labor protection pay, insurance premiums, and pension contributions. Deford further alleged that the transfer of proceeds from the sale was not for fair consideration, leaving Soo Line with an unreasonably small amount of capital for future operations. Further, Deford stated that the sale proceeds will be disbursed to shareholders and other creditors of Soo Line, not to Soo Line employees. Thus, the position of the plaintiffs as creditors of an undercapital-ized post-sale entity would be severely impaired. Deford also alleged that the leveraged sale of Lake States Division is a fraudulent conveyance as to those Soo Line employees who will quit and join Wisconsin Central, because Wisconsin Central’s secured lenders will have superior claims to Lake States assets. Finally, Deford alleged common law claims of conspiracy to frustrate creditors’ rights and tortious interference with creditors’ rights, arguing that the purpose and effect of the transaction was to circumvent Soo Line’s labor agreement obligations to its employees and union creditors.

Deford sought a declaration that the sale of the Lakes States Division, the distribution of proceeds from the sale, and the creation of any security interests on the assets of the Lake States Division constituted a fraudulent conveyance. Deford further sought an order that the proceeds from the sale not be disbursed or pledged until the rights of the plaintiffs are adequately provided for, and that a receiver be appointed so that the sale proceeds may be placed in trust for the benefit of Soo Line employees and creditors.

Thereafter, the suit was removed to the United States District Court of Minnesota on the grounds that federal law preempted the state claims. Upon Deford’s motion to remand and Soo Line’s motion to dismiss, the district court concluded:

plaintiffs have asserted rights arising under certain collective bargaining agreements and their contractual arrangements with the Defendant. * * * [Tjhese claims are governed by the Railway Labor Act. * * * The application of this statute and the necessity of its interpretation establish the existence of a federal question as an essential element of the plaintiff’s cause of action providing the basis for removal.

Deford v. Soo Line R.R. Co., No. 4-87-582, (D.Minn. August 20, 1987). The district court further stated that Deford could not avoid removal by failing to plead necessary federal questions and that artful pleading by the plaintiffs would not conceal the true nature of the complaint. Finally, the district court held that the case involved a “minor dispute” which must be arbitrated according to the procedures of the RLA, which provides that the exclusive forum for a union dispute is the National Railway Arbitration Board (NRAB). The district court concluded that since the state court lacked subject matter jurisdiction, the district court acquired none upon removal. The suit was therefore dismissed for lack of subject matter jurisdiction. Deford now appeals, alleging error in the removal of the case to federal court and the subsequent dismissal of the case.

II.

The nature of the claims asserted by Deford have in essence two purposes. The first is to protect the rights and benefits of employees and the second is to raise questions about the financial soundness of the conveyance of the rail line from Soo Line to Wisconsin Central. These purposes in turn involve consideration of the protections afforded the employees by the Railway Labor Act, and the regulatory structures involved [1084]*1084in approval of the transfer under the Interstate Commerce Act.

The primary issue before us is whether removal of Deford’s state fraudulent conveyance and common law claims to federal court was proper, giving the district court power to dismiss for lack of subject matter jurisdiction. To determine this, we must decide whether the Railway Labor Act, the Interstate Commerce Act, or both completely preempt the state law claims.

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Deford v. Soo Line Railroad Company
867 F.2d 1080 (Eighth Circuit, 1989)

Cite This Page — Counsel Stack

Bluebook (online)
867 F.2d 1080, Counsel Stack Legal Research, https://law.counselstack.com/opinion/deford-v-soo-line-railroad-ca8-1989.