Railway Labor Executives Association v. Pittsburgh & Lake Erie Railroad Co., a Delaware Corp. Pleco, Inc., a Delaware Corp. S. Henry G. Allyn, Gordon E. Neuenschwander, G. Gray Garland, Bernard B. Smyth, Beloit Corp., a Wisconsin Corp., Chicago West Pullman Transportation Corp., an Illinois Corp., and P & Le Railco, Inc., an Illinois Corp. Appeal of Railway Labor Executives Association ("Rlea")
Docket: 87-3853
Court: Court of Appeals for the Third Circuit; October 14, 1988; Federal Appellate Court
The case involves an appeal by the Railway Labor Executives' Association (RLEA) against the Pittsburgh, Lake Erie Railroad Company (P. LE) and associated parties regarding a proposed sale of assets. This appeal is the third within a year concerning challenges by RLEA to the asset sale. The court previously ruled that the district court had no jurisdiction to enjoin a strike by RLEA unions under the Norris-LaGuardia Act, as it did not yield to the revised Interstate Commerce Act (ICA). Additionally, it was determined that the expedited approval of the sale by the Interstate Commerce Commission (ICC) did not exempt P. LE from its bargaining obligations under the Railway Labor Act (RLA).
RLEA claims that the asset sale violates Pennsylvania's Uniform Fraudulent Conveyance Act. The court agreed with the district court's conclusion that it lacked jurisdiction but decided to reverse the dismissal order and remand the case for further proceedings in state court. The background indicates that P. LE has faced financial difficulties, leading to an agreement to sell most of its assets to P. LE Railco, a subsidiary of Chicago West Pullman Transportation Corporation, with unions being notified of this proposed sale.
RLEA, an unincorporated association of chief executive officers from nineteen railway labor unions, including those representing employees of P. LE, initiated a lawsuit in Pennsylvania state court in October 1987. The lawsuit claimed that a proposed asset sale constituted a fraudulent conveyance under the Pennsylvania Fraudulent Conveyance Act (PFCA) and was part of a series of transactions violating that Act. Defendants included P. LE, its parent company Pleco, Inc., and several of Pleco's stockholders, officers, and directors. RLEA argued that employees are creditors under the PFCA due to unpaid wages, vacation pay, and other obligations owed by P. LE, while unions are creditors for unpaid union dues. RLEA alleged the proposed sale lacked fair consideration, would render P. LE insolvent, and was intended to defraud creditors, favoring some creditors at the expense of employees and others. RLEA sought declarations that the transactions violated the PFCA, an injunction against distributing sale proceeds until claims were settled, damages for PFCA violations, and subordination of certain creditors' claims.
Before responding to the complaint, defendants removed the case to federal district court, which dismissed RLEA's claim based on preemption by the Railway Labor Act (RLA) and the Interstate Commerce Act (ICA), asserting that such disputes should be resolved through arbitration or by the National Railway Adjustment Board (NRAB). RLEA's motion to remand the case to state court was denied, and the district court ruled it lacked jurisdiction. The appeal from this dismissal raised the primary issue of subject matter jurisdiction, with the district court stating that the RLA designated the NRAB as the exclusive forum for resolving such disputes. Defendants also contended that the ICA provided the Interstate Commerce Commission (ICC) as the exclusive forum. Additionally, the district court may have lacked jurisdiction under removal law principles due to RLEA's reliance on state law in its complaint.
Removal jurisdiction is not applicable in this case under the 'well pleaded complaint' rule, necessitating a remand unless the Railway Labor Act (RLA) or the Interstate Commerce Act (ICA) completely preempts the state cause of action under the Railway Labor Executives' Association (RLEA). The defendants’ claims of complete preemption providing jurisdiction were not addressed by the district court. The court concluded it lacked jurisdiction based on these removal law principles and should have prioritized the removal issue, remanding to state court for determination of forum preemption matters. The ruling clarifies that the state court must resolve whether the laws provided by the Public Facilities and Contracting Act (PFCA) are preempted by federal law, distinguishing between 'ordinary preemption' and the complete preemption and forum preemption doctrines. RLEA's complaint is rooted solely in state law, and according to 28 U.S.C. § 1441, only actions under federal jurisdiction can be removed. The 'well-pleaded complaint rule' mandates that a federal question must be evident from the plaintiff's complaint for removal under § 1441 and § 1331. Federal defenses, including preemption, cannot justify removal if they are the only issues in dispute. The complete preemption doctrine allows for certain claims to be considered federal if Congress has completely preempted an area, as established in cases like Metropolitan Life Ins. Co. v. Taylor and Avco Corp. v. Aero Lodge No. 735.
The Supreme Court addressed the implications of the Avco decision in Franchise Tax Board, where a state tax authority sought to levy funds held in trust for construction employees under an ERISA-covered vacation benefit plan. After the trustees did not comply, the tax authority filed suit in state court, which was subsequently removed to federal court. The Court considered whether the state law claims were effectively federal claims due to Avco's preemptive force over state causes of action related to employer-labor organization contracts.
However, the Court ruled that the complete preemption doctrine did not apply in this case. It highlighted that while ERISA's section 502(a) creates certain federal causes of action, it does not provide claims for state governments to enforce tax levies. The Court noted that ERISA does not intend to entirely preempt state causes of action related to ERISA plans, as it contains provisions that preserve certain state laws. The Court also emphasized that the enforcement of state tax levies is not a primary concern of federal ERISA regulations. Consequently, while the state's enforcement action might eventually be found preempted, it was not completely preempted.
In a subsequent case, Metropolitan Life, the Court revisited complete preemption within ERISA, focusing on state common law claims related to benefit claims under ERISA plans. The issue was whether such claims were not only preempted by ERISA but also displaced by ERISA's civil enforcement provision, specifically section 502(a)(1)(B). The Court held that state law causes of action that fell within the scope of section 502(a) were removable to federal court.
The Court expressed a clear intention to restrict the application of the complete preemption doctrine, even in the context of ERISA, which has strong preemptive qualities. The Court highlighted its reluctance to apply this doctrine without explicit Congressional direction. This reluctance was overridden in the case of Metropolitan Life due to Congress's clear intent to allow suits under ERISA’s Sec. 502(a)(1)(B) to be treated as federal questions for jurisdictional purposes, similar to Sec. 301 of the LMRA. The Court determined that actions falling within Sec. 502(a) must be considered federal, regardless of whether preemption was evident at the time of filing. Justice Brennan, while agreeing with the majority, clarified that the congressional intent was about making state law claims removable, not displacing state law entirely. He advised that unless federal courts find a clear intent for removal jurisdiction in future cases, they should remand to state courts.
In a later case, Caterpillar, Inc. v. Williams, the Court analyzed the complete preemption doctrine regarding Section 301 of the LMRA. The case involved employees suing for breach of individual contracts after being reclassified by their employer. The Court ruled that complete preemption did not apply since the employees' claims were not created by or substantially dependent on the collective bargaining agreement, emphasizing that complete preemption differs from ordinary preemption. A mere possibility of preemption under the NLRA does not suffice for federal removal.
The well-pleaded complaint rule allows a plaintiff to avoid federal jurisdiction by relying solely on state law, even if that state law is potentially preempted by federal law. State courts have the authority to determine issues of preemption unless Congress indicates otherwise. Federal courts can only recharacterize a state law claim as federal if the federal statute cited by the defendant has civil enforcement provisions that encompass the plaintiff’s state claim. If no federal cause of action exists that aligns with the state claim, recharacterization is not permitted. Additionally, even if a civil enforcement provision exists, the federal court must verify if Congress intended to allow removal of exclusively state law claims. If such intent is lacking, the federal court should not decide on the preemption issue, leaving it for state court upon remand.
In the case of the Railway Labor Act (RLA), defendants failed to identify any federal cause of action that would allow for recharacterization of RLEA's state claim. Consequently, the doctrine of complete claim preemption does not apply, and there is no evidence of Congressional intent to allow removal in this context. Similarly, the Interstate Commerce Act (ICA) also lacks civil enforcement provisions that would create a federal cause of action for claims like RLEA's, and there is no indication from its legislative history that such state claims were intended to be removable. Therefore, the district court cannot recharacterize RLEA's state cause of action as federal under the ICA.
The doctrine of complete preemption is limited in scope and has not been applied where no federal cause of action corresponds to a state cause of action. The Supreme Court emphasizes that complete preemption should only occur with clear Congressional intent to allow removal despite a plaintiff's reliance on state law. In this case, there is no relevant federal cause of action under the Railway Labor Act (RLA) or the Interstate Commerce Act (ICA), nor is there evidence of such Congressional intent, leading to the conclusion that removal jurisdiction does not exist.
When Congress designates a specific forum for exclusive jurisdiction over particular disputes, this forum preemption excludes other courts from exercising subject matter jurisdiction. The application of this doctrine was illustrated in the Supreme Court case International Longshoremen's v. Davis, where it was ruled that state courts lack jurisdiction if the conduct in question falls within the exclusive purview of the National Labor Relations Board (NLRB) under the National Labor Relations Act (NLRA).
Both parties agree that the National Railroad Adjustment Board (NRAB) has exclusive jurisdiction under Section 153 First(i) of the RLA for "minor disputes," which involve collective bargaining agreement interpretations between railroads and employee representatives. The district court noted several appellate decisions supporting this view, asserting that the NRAB's exclusive jurisdiction prevents state courts from hearing such disputes. However, there is a disagreement over whether the RLEA's complaint constitutes a "minor dispute."
The defendants argue that RLEA's claim relies on the collective bargaining agreement to establish its members' creditor status, qualifying it as a minor dispute. In contrast, RLEA contends that its claim under the Pennsylvania Fraudulent Conveyance Act (PFCA) can be resolved without reference to the collective bargaining agreement, focusing solely on the existence of claims against a debtor. The district court sided with the defendants, concluding that determining the nature of the rights involved requires interpretation of the collective bargaining agreement. Consequently, the court ruled that state court jurisdiction is preempted and dismissed the case.
The district court erred in dismissing the case instead of remanding it to state court, as no removal jurisdiction was established due to the absence of diversity or a federal question in the plaintiff's complaint. Under the well-pleaded complaint rule, when a plaintiff relies solely on state law without complete preemption, state courts should adjudicate all issues. The district court should have first addressed the complete preemption issue and then remanded the case. The ruling clarifies that the court has no jurisdiction over this matter and emphasizes that the case should return to state court rather than be dismissed. The court did not decide whether the ICA grants exclusive jurisdiction to the ICC or if forum preemption under the RLA would influence the litigation. The proposed sale to Railco has been rendered moot due to a settlement agreement, and the court refrained from ruling on mootness, allowing RLEA to renew its motion in state court. The distinction between federal and state remedies is noted, emphasizing the need for the district court to determine if complete preemption exists, which would necessitate litigation in federal court.
Resolution of the forum preemption issue may be premature. The defendants assert this case involves a 'minor dispute'; however, P. LE has not identified any disagreement regarding the collective bargaining agreement's interpretation. RLEA has not initiated a breach of contract claim, nor does it allege that P. LE has denied its obligations related to the employees' and unions' rights. RLEA is primarily concerned with bankruptcy and the ability to collect unchallenged claims. Thus, there appears to be no 'minor dispute' for the NRAB to address, as no conflict exists regarding the agreement. Clarification on any dispute concerning the collective bargaining agreement is necessary to determine if RLEA's state law claims under the PFCA require addressing a 'minor dispute' by the NRAB. Further record development may be beneficial, but this does not imply a stance on the appropriateness of interim relief under the PFCA during this process. Pennsylvania law may provide interim relief to RLEA as a claimholder, similar to precedent cases, to prevent asset dissipation relevant to potential damage awards. Such interim relief could be granted without infringing upon NRAB's authority.
Under 49 U.S.C. § 10505(a), a railway acquisition by a non-carrier may be exempted from regulation if deemed unnecessary to fulfill transportation policies and if limited in scope. The ICC approved exemptions for Railco and CWPT while denying RLEA's petition to reject these exemptions and to stay the sale's consummation. RLEA subsequently filed for revocation of these exemptions, claiming the sale to Railco was a fraudulent conveyance favoring selected creditors over others, including employees. The ICC upheld its previous decisions, and defendants argue that RLEA's PFCA suit is preempted by the ICC's actions under the ICA.
