Consolidated Rail Corp. v. Trustees of Erie Lackawanna Railway Co. (577 F.2d 368, 1978)

WEICK, Circuit Judge.

Consolidated Rail Corporation (Conrail) and the United States Railway Association (USRA) have appealed from Order No. 506 of the United States District Court for the Northern District of Ohio, the Honorable Robert B. Krupansky presiding (Reorganization Court), in the matter of the reorganization of the Erie Lackawanna Railway Company (EL). That order, dated March 31, 1976, declared, inter alia, that the EL Trustees were to have no further liability for vacation benefits for those EL employees who were subject to collective bargaining agreements, on the ground that such agreements were assumed by Conrail as of April 1, 1976 pursuant to § 504(a) of the Regional Rail Reorganization Act of 1976 (Rail Act) as amended, 45 U.S.C. § 774(a). For the reasons stated below, we vacate the order of the Reorganization Court and remand for further proceedings.

The case arose in the course of proceedings under § 211(h)(3) of the Rail Act, 45 U.S.C. § 721(h)(3), in which USRA petitioned the Reorganization Court for an order identifying cash and other current assets of the EL estate for application to certain obligations of the estate. The obligations were to include vacation benefits earned by unionized employees prior to April 1, 1976, the date of the conveyance of EL’s rail properties to Conrail, but not yet received by the employees as of that date.

The Reorganization Court ordered that EL’s liability for any such vacation benefits terminated as of April 1, 1976, relying on § 504(a) of the Rail Act, 45 U.S.C. § 774(a). This statute provides in the following language that during the period immediately following the conveyance to Conrail:

[Conrail] shall, as though an original party thereto, assume and apply on the particular lines, properties, or facilities acquired [,] all obligations under existing collective-bargaining agreements .

Accordingly, the Reorganization Court stated (Order No. 506, at 8):

This statutory language mandates Conrail to relieve the EL estate of vacation pay liability . . . [to] all union employees, both for vacation earned in 1975 and not taken prior to conveyance, as well as any vacation allegedly earned to date in 1976.

After Order No. 506 was issued, however, Congress enacted the Rail Transportation Improvement Act of 1976 (RTIA), Pub.L. 94-555, §§ 203(a)-