In re: Pittsburgh & Lake Erie Properties, Inc. Thomas J. Hileman, Sr. v. Pittsburgh & Lake Erie Properties, Inc. on Appeal From the United States District…

PRECEDENTIAL
Filed May 14, 2002
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 01-1774
IN RE: PITTSBURGH & LAKE ERIE PROPERTIES, INC.
THOMAS J. HILEMAN, SR.; LEONARD PASINSKI, JR.,
Appellants
v.
PITTSBURGH & LAKE ERIE PROPERTIES, INC.
ON APPEAL FROM THE
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
(District Court No. 00-cv-00672)
District Court Judge: Roderick R. McKelvie
Argued: March 5, 2002
Before: ALITO, RENDELL, and HALL,1
Circuit Judges.
(Opinion Filed: May 14, 2002)
_________________________________________________________________
1. The Honorable Cynthia Holcomb Hall, Circuit Judge for the Ninth
Circuit, sitting by designation.
Robert L. Potter (Argued)
David A. Strassburger
Strassburger McKenna
Gutnick & Potter P.C.
322 Blvd. of the Allies, Suite 700
Pittsburgh, PA 15222
Counsel for Appellants
Stephen W. Spence
Phillips, Goldman & Spence, P.A.
1200 N. Broom St.
Bank of Delaware Building
Wilmington, DE 19806
Counsel for Appellee
OPINION OF THE COURT
HALL, Circuit Judge:
Appellants were injured in the course of their
employment on a railroad operated by Appellee and
brought suit under the Federal Employers’ Liability Act, 45

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U.S.C. S 51 et seq. ("FELA"). Appellee subsequently ceased
operations as a rail carrier after which it filed for
bankruptcy under Chapter 11 of the Bankruptcy Code.
Appellants filed proofs of claim against the estate, claiming
administrative expense status for their injury awards under
11 U.S.C. S 1171(a). The Bankruptcy Court found Section
1171(a) inapplicable because Appellee ceased being a
railroad for the purposes of Section 1171 prior to the
bankruptcy petition. The District Court affirmed. Appellants
contend that Section 1171 applies to former railroads
disposing of railroad assets and liabilities in bankruptcy as
well as entities that operate as railroads on the petition
date. We disagree, and affirm the order of the District
Court.
I.
Appellee, Pittsburgh and Lake Erie Properties, Inc.
("P&LE"), is a corporation that historically operated as a rail
carrier under the name Pittsburgh and Lake Erie Railroad
2
Company (the "Railroad"). Due to a persistent downturn in
rail usage connected with the collapse of the Pittsburgh
steel industry, the Railroad decided to cease operations as
a carrier in 1990. This was accomplished through a series
of transactions closed in 1991 and 1992 in which the
Railroad sold its track and rail operations. In 1993, the
Railroad also gave up its operating rights to run on specific
rail lines under Interstate Commerce Commission ("ICC")
regulations and the Interstate Commerce Act. However,
P&LE did retain certain rail assets connected with its old
operations including real estate, scrap, hoppers, and
hopper cars. The parties agree that at the time of the
bankruptcy petition, P&LE did not operate as a railroad but
did own some rail assets.
Appellants, Thomas J. Hileman Sr. and Leonard Pasinski
Jr., are two former Railroad employees who were injured on
the job in 1988 and 1991, respectively. Hileman was
injured while using a "steam gun" to clean railroad cars.
Pasinski was injured while using a defective wrench on
railroad tracks. Each filed a FELA action in the Court of
Common Pleas of Allegheny County, Pennsylvania, to
recover for their injuries. Hileman won a jury verdict of
$2.2 million which was subsequently reversed and
remanded for a new trial which was stayed by the
bankruptcy. During the bankruptcy proceedings the parties
stipulated to a claim amount of $1.5 million. Pasinski was
awarded $522,500 by a jury.
On March 22, 1996, P&LE filed for chapter 11 protection
in the U.S. Bankruptcy Court for the District of Delaware.
On or about December 10, 1996, Hileman and Pasinski
filed timely proofs of claim against the estate in the
bankruptcy court, classifying their claims as having
preferred unsecured status. P&LE, meanwhile, classified
Appellants’ claims in its liquidation plan as general

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unsecured claims which it expected would be recovered at
a rate of about 3%-5% of nominal value. Hileman and
Pasinski objected to this liquidation plan, reiterating their
position that they are entitled to priority.
In arguing their position to the Bankruptcy Court,
Hileman and Pasinski asserted that their claims are
preferred because they are entitled to administrative
3
expense status under 11 U.S.C. S 1171(a), which gives
priority to claims of individuals with injuries arising out of
the operation of the debtor. In response, P&LE argued that
Section 1171(a) only applies to cases in which the debtor is
an actual railroad on the petition date. P&LE asserted that
it was not a railroad on the petition date because it was no
longer a common carrier or owner of trackage. The
Bankruptcy Court agreed and issued orders confirming
P&LE’s liquidation plan and classifying Hileman and
Pasinski’s claims as general unsecured. On appeal, the
District Court summarily affirmed the orders of the
Bankruptcy Court, finding that the plain language of 11
U.S.C. S 103(g) limits the applicability of Section 1171(a) to
debtors that are railroads on the petition date.
II.
This court exercises plenary review over the
determinations of a district court ruling on appeal from a
bankruptcy proceeding such that our task is essentially
direct review of the Bankruptcy Court. In re: Gi Nam, 273
F.3d 281, 284 (3rd Cir. 2001). We review the District and
Bankruptcy Courts’ legal rulings de novo. In re: Top Grade
Sausage, Inc., 227 F.3d 123, 125 (3d Cir. 2000).
Section 1171(a), the sole basis for Appellants’ claim of
priority, is located within Subchapter IV of Title 11.2 The
scope of application of that subchapter is defined by 11
U.S.C. S 103(g), which provides, "Subchapter IV of chapter
11 of this title applies only in a case under such chapter
concerning a railroad." The term "railroad" is defined in 11
U.S.C. S 101(44) as a "common carrier by railroad engaged
in the transportation of individuals or property or owner of
trackage facilities leased by such a common carrier."
Because P&LE was not a railroad carrier or owner of leased
_________________________________________________________________
2. Section 1171(a) provides:
There shall be paid as an administrative expense any claim of an
individual or of the personal representative of a deceased individual
against the debtor or the estate, for personal injury to or death of
such individual arising out of the operation of the debtor or the
estate, whether such claim arose before or after the commencement
of the case.
4

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trackage on the petition date, it was not a railroad at that
time or during the course of the bankruptcy proceedings.
Hileman and Pasinski nevertheless assert that the
District and Bankruptcy Courts erred in refusing to grant
them the administrative expense priority provided in 11
U.S.C. S 1171(a). They claim that the plain meaning of
Section 103(g), in light of its use of the term"concerning,"
includes former railroads seeking bankruptcy adjustment of
assets and liabilities obtained while they were railroads, as
well as entities that actually operated as railroads on the
petition date. On their reading, a case unambiguously
"concerns" a railroad if it deals with facts having a
historical source in or connection to a railroad even if none
of the parties in the case are railroads. They thus argue
that we need go no further than the language of Section
103(g) to find that Section 1171(a) is applicable to this case.
We disagree with this reading of Section 103(g), the text
of which does not obviously support their interpretation
and is at best somewhat ambiguous. Contrary to their
attempts to spin the language of Section 103(g) to include
former railroads, a natural reading of that section confines
the scope of application of Subchapter IV to bankruptcy
petitioners who are railroads at the time of petition or
thereafter. While Appellants focus on the broad possibilities
of the term "concerning," they ignore the fact that this is
essentially a connecting term, the scope and meaning of
which is defined in part by the terms it modifies. In this
case, the connected terms are "case," which is of course a
"judicial proceeding for the determination of a controversy
between parties wherein rights are enforced or protected, or
wrongs are prevented and redressed." Black’s Law
Dictionary, (6th Ed. 1990), and "railroad" which is defined
in Section 101(44) using the present-tense "engaged." A
chapter 11 bankruptcy "case" raised by an entity that has
abandoned being engaged in transporting goods and people
does not on the most natural reading of this language
concern a railroad, it concerns a former railroad. The case
can only be said to be "concerning a railroad" in the highly
attenuated sense that rights asserted to the bankruptcy
court by certain creditors arose from their interaction with
what was at that time a carrier engaged in rail
transportation.
5
Moreover, if the language of Section 103 seen in isolation
may leave some doubt as to its meaning, any ambiguity
permitting the reading urged by Appellants is removed by
the terms and structure of Subchapter IV. See Nelson v.
American Dredging Co., 143 F.3d 789, 797 (3rd Cir. 1998)
(the plainness or ambiguity of statutory language is
determined by reference to the language itself, the specific
context in which that language is used, and the broader
context of the statute as a whole). When a debtor petitions
for bankruptcy in a case concerning a railroad, Subchapter
IV provides special rules and procedural machinery which

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protect the public interest in the availability and
continuation of rail travel and deal with other special
problems in reorganizing or dissolving a railroad. For
example, Section 1163 makes appointment of a bankruptcy
trustee nominated by the Secretary of Transportation
mandatory, while Section 1165 requires the bankruptcy
court and trustee to consider the public interest in all
actions. 11 U.S.C. SS 1163, 1165. Section 1170 permits a
court to authorize abandonment of a railroad line only if
doing so is consistent with that interest. 11 U.S.C.S
1170(a)(2). Similarly, various sections of Subchapter IV
reserve roles for the Secretary of Transportation, the ICC,
and local regulators in the bankruptcy process, while
others concern issues such as the handling of rolling stock
equipment and the effect of rejection of leases of a railroad
line. See 11 U.S.C. SS 1163, 1164, 1166, 1168, 1169, 1170,
1172. These provisions function as an integrated scheme of
procedural safeguards which are appropriate to and
assume that the debtor is a railroad engaged in the
transportation of persons or property. The design of
Subchapter IV to protect the public interest in the provision
of rail transportation thus manifests a Congressional intent
that Section 103(g) be applied to require application of this
statutory scheme in cases where it would be appropriate,
i.e. when the debtor is a railroad or owner of trackage
whose disposition of assets or reorganization could affect
the public interest.
Conversely, the need for the procedural machinery
created by this statutory scheme is not implicated in the
case of a debtor that has already abandoned its rail
operations. In addition to the fact that it no longer has its
6
own rail operations to be protected, such a debtor, if
formerly subject to national regulation, has already
undergone a process of asset disposal subject to ICC
approval. 49 U.S.C. S 10903 gives the ICC the power to
directly regulate the abandonment or discontinuation of rail
lines or service outside of bankruptcy. It also has the power
under 49 U.S.C. S 10909 to control the disposal of
individual rail properties during an abandonment when
such properties are "suitable for public use." An entity such
as P&LE that has abandoned operations as a railroad has
thus already had properties that federal regulators consider
important to the public interest disposed of in accordance
with that interest. An interpretation of the scope of Section
103(g) that would include former railroads such as P&LE
would nonsensically require the use of the costly extra
machinery of Subchapter IV where such expenditure has
no justification.
Although we need go no further than the text of Section
103(g) together with the text and structure of Subchapter
IV in order to determine the former’s meaning, we also note
that the legislative history and our prior caselaw are both
consistent with this reading. The Senate Report
accompanying the 1978 Bankruptcy Reform Act states that

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Section 103 refers to the special rules for "railroad
reorganizations," suggesting its scope is limited to
petitioners who are railroads. S. Rep. 95-989, *28 reported
in 1978 U.S.C.C.A.N. 5787. The report also emphasizes that
the basic purpose of Subchapter IV taken as a whole is to
create enhanced procedural safeguards to protect the
public interest in the availability and continuation of rail
transportation. See id. at *12, *133. There is no indication
that Congress intended Subchapter IV to be applied in
cases other than those involving railroad reorganizations.
As for prior caselaw, the only case decided by this Court
which speaks to analogous facts also supports this reading.
In Wheeling-Pittsburgh Steel Corp. v. McCune, 836 F.2d 153
(3rd Cir. 1987), the issue was whether Subchapter IV
bankruptcy requirements, including both appointment of a
trustee and application of Section 1171, applied to a small
intrastate railroad that did not in fact act as a common
carrier serving the public, but which technically retained a
7
state "certificate of public convenience" designating it a
common carrier. In that case, the debtor had historically
been chartered as a railroad for public use but had at least
since 1980 served only to haul materials locally for its
parent company. Id. at 156. At the time of the bankruptcy
petition, the railroad’s application to the state for a
certificate authorizing it to abandon certain tracks and
cease operations as a common carrier was before the
Pennsylvania Supreme Court. Id. at 157. Shortly thereafter,
the state court affirmed an order to grant the application on
the basis that the railroad was no longer a common carrier.
Id. At the time of the bankruptcy proceeding, the
Pennsylvania Supreme Court had ruled, though the
railroad technically remained certified pending the
resolution of related proceedings before the Pennsylvania
Public Utilities Commission. Id.
Against this background, this Circuit held that it was
error for the district court to find that the debtor was a
railroad and stay the bankruptcy proceedings rather than
allow them to proceed under the chapter 11 procedures for
non-railroads. The Court noted that the "essence of
common carrier status is service of the public trust" and
found:
in light of the failure of the parties to adduce any
evidence to the bankruptcy court on the issue of[the
bankrupt’s] status as a common carrier other than that
summarized in the decisions of the [Pennsylvania
Public Utilities Commission] and the Pennsylvania
courts, the bankruptcy court’s finding that [the debtor]
is not a common carrier was not clearly erroneous.
There was absolutely no evidence that it offered its
services to the public generally. We have already
explained that the bankruptcy court did not err as a
matter of law in refusing to base its decision on the
outstanding state certificate, in light of the

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Pennsylvania Supreme Court decision. It follows that
the district court erred in staying the bankruptcy
proceedings in order to await the conclusion of the[the
Public Utilities Commission’s] decision.
Id. at 161. The Court thus determined that Subchapter IV
did not apply to a debtor who was not at the time a
8
common carrier. It made this determination without regard
to the possibility that the debtor may have been a railroad
prior to the bankruptcy petition or the fact that it retained
assets that had been used in rail operations.3
Finally, Appellants also argue that denying employees the
protection of Section 1171 under circumstances such as
these will create the potential for debtors and creditors to
collude to the detriment of employees by deliberately taking
a debtor out of the railroad business before declaring
bankruptcy. This, they point out, would frustrate Congress’
intent to ensure that injured railroad workers receive
preferred status so that railroads will bear the risk of
workers injured on the job. While we recognize that this
argument does have some force, we are constrained to
conclude that it is directed at the wrong place. It is
Congress that chose to tie the protections of Section 1171
to the bankruptcy machinery reserved for the
reorganization or dissolution of current rather than former
railroads, and we are not empowered to undo that decision.
III.
The amended order of the District Court affirming the
Bankruptcy Court’s orders classifying Appellants’ claims as
general unsecured claims and confirming Debtor’s plan of
liquidation is AFFIRMED.
A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit
_________________________________________________________________
3. Appellants claim that Wheeling-Pittsburgh is distinguishable because it
did not specifically set out the test for Section 103 as whether the debtor
is a common carrier on the petition date. The facts of that case do
suggest that the debtor might not have been a common carrier for
purposes of the bankruptcy code for quite a long time prior to the
petition date. However, the language of the decision indicates that the
court would normally have presumed that the railroad was a common
carrier based on the state certificate. Id. at 160.
9

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