Howard v. Surface Transportation Board

United States Court of Appeals
For the First Circuit

No. 04-1800

JAMES E. HOWARD, Chapter 11 Trustee of Bangor and Aroostook
Railroad Company and Van Buren Bridge Company,

Petitioner,

v.

SURFACE TRANSPORTATION BOARD and UNITED STATES OF AMERICA,

Respondents.

PETITION FOR REVIEW FROM THE SURFACE
TRANSPORTATION BOARD

No. 04-1819

JAMES E. HOWARD, Chapter 11 Trustee of Bangor and Aroostook
Railroad Company and Van Buren Bridge Company,

Plaintiff, Appellant,

v.

CANADIAN NATIONAL RAILWAY COMPANY and WATERLOO RAILWAY COMPANY,

Defendants, Appellees.

APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MAINE
[Hon. George Z. Singal, U.S. District Judge]

Before
Torruella, Circuit Judge,
Coffin, Senior Circuit Judge,
Lynch, Circuit Judge.
 Thomas M. Reiter, with whom Rory FitzPatrick, Steven P.
Wright, Kirkpatrick & Lockhart, LLP, Roger A. Clement, Jr., Andrew
R. Sarapas, and Verrill & Dana, LLP, were on brief, for appellant
and petitioner.
William C. Sippel, with whom Thomas J. Litwiler, Fletcher &
Sippel, LLC, George J. Marcus, and Marcus, Clegg & Mistretta, P.A.,
were on brief, for appellees Canadian National Railway Company and
Waterloo Railway Company.
Alice C. Saylor, Attorney, Surface Transportation Board, Ellen
D. Hanson, General Counsel, Craig M. Keats, Deputy General Counsel,
R. Hewitt Pate, Assistant Attorney General, Department of Justice,
Makan Delrahim, Deputy Assistant Attorney General, Robert B.
Nicholson, Attorney, and John P. Fonte, Attorney, were on brief for
respondents Surface Transportation Board and United States of
America.
Charles A. Spitulnik, Alex Menendez, and McLeod, Watkinson &
Miller were on brief for Fraser Papers Limited, intervenor.

November 24, 2004
 LYNCH, Circuit Judge. These consolidated appeals present

the issue of law of whether the term "abandonment" in section 1170

of the Bankruptcy Code gives the bankruptcy courts the power to

adversely abandon a non-debtor railroad's easement and trackage

rights over rail lines owned by the debtor at the time of the

bankruptcy. This appears to be an issue of first impression in the

courts of appeals.

Section 1170, which resulted from the 1978 Bankruptcy

Code Amendments, is an exception to the normal rule that only the

Surface Transportation Board (STB), the successor to the earlier

Interstate Commerce Commission (ICC), has jurisdiction to authorize

the abandonment of rail lines or the discontinuance of operations

over any part of a rail line. See 49 U.S.C. § 10903. In the

section 1170 abandonment process, the STB still plays a role, but

it is an advisory one. See 11 U.S.C. § 1170 (b),(c). Outside of

the context of a bankrupt railroad, in order to achieve an

abandonment or a discontinuance, rail carriers must apply to the

STB for permission.

A discussion of some of the parlance of federal railroad

regulation is helpful. Generally, when a rail carrier or a third

party wishes to "abandon" its own rail line, it must seek

permission from the STB. 49 U.S.C. § 10903. If a rail carrier is

operating rail transportation over its own line or over the line of

another by the grant of independent trackage rights, it must seek

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permission from the STB to "discontinue" the service. Id. The

STB's authority and the standards governing its decisions are the

same regardless of whether it is granting an abandonment or a

discontinuance. See Id. § 10903(d).

Under 49 U.S.C. § 10903, this application can be brought

to the STB by the rail carrier itself or, in a more unusual

circumstance, by a third party. See Consolidated Rail Corp. v.

I.C.C., 29 F.3d 706, 708-09 (D.C. Cir. 1994). If the rail carrier

applies to abandon or discontinue its own lines or service, the

application is for an "abandonment" or "discontinuance" (what we

will call a "direct" abandonment or discontinuance for purposes of

clarity). By contrast, if a third party applies to abandon or

discontinue the lines or services of another rail carrier in an STB

proceeding, it is called an "adverse" abandonment or

discontinuance. Id. The STB can grant an adverse abandonment or

discontinuance on a third party's petition even if the owner of the

line or the trackage rights objects. The text of section 10903

itself does not distinguish between adverse and direct

abandonments, but the case law makes it clear that the STB has

authority to hear both types of applications. Thompson v. Texas

Mexican Ry. Co., 328 U.S. 134, 145 (1946)("There is no requirement

. . . that the application [for abandonment to the STB] be made by

the carrier whose operations are sought to be abandoned.").

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 Here the debtor railroad through its trustee seeks to

adversely abandon not its own interest, but the interests of a

third party in an easement and trackage rights over lines once

owned by the debtor at the time of bankruptcy. The rub is that it

seeks to do so in the bankruptcy court, not before the STB. The

district court held that the statutory language in section 1170,

giving the bankruptcy court authority over abandonments of rail

lines, does not include the authority to grant adverse abandonments

of a non-debtor's trackage or other rights. The plaintiff/trustee

in bankruptcy appeals this decision.

We affirm the district court's dismissal of Count III of

the trustee's complaint. In doing so, we hold that the bankruptcy

court does not have the authority under section 1170 to adversely

abandon the lines or trackage rights of a non-debtor, on the

petition of a debtor railroad who owned those lines at the time of

bankruptcy. Such authority lies, instead, within the jurisdiction

of the STB under 49 U.S.C. § 10903. We also affirm the decision of

the STB under 49 U.S.C. § 10903 denying permission for the relief

the trustee seeks.

I.

In March 2001, Bangor & Aroostook Railroad Company (BAR)

and Canadian National (CN) (which includes Canadian National

Railway Company (CNR) and its subsidiary, Waterloo Railway Company

(Waterloo)) entered into a series of pre-bankruptcy agreements

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involving the movement of rail cars over the Madawaska rail line.

At the time of the agreements, BAR and its wholly owned subsidiary,

Van Buren Bridge Company (VBBC), owned this line. The Madawaska

line runs from the Fraser paper mill in Madawaska, Maine, to an

interchange with a CN line at St. Leonard, New Brunswick, Canada.

In exchange for the rights granted under the agreements,

CN paid BAR five million dollars in cash. The first agreement

between the two parties was a Junction Settlement Agreement, under

which BAR agreed to move CN's railcars over BAR's Madawaska line,

between the connection with CN's rail lines at St. Leonard and the

Fraser paper mill.1 CN agreed to pay BAR a specified per-car price

for performing these haulage services and has done so. The parties

also entered into a Trackage Rights Agreement. Under this

agreement, CNR acquired limited local trackage rights which allowed

it to run its own trains over the Madawaska line to the Fraser

paper mill. Finally, in a third agreement BAR granted Waterloo a

non-exclusive freight easement, under which Waterloo could also

operate its trains over the line. It is the last two agreements

which the trustee seeks to undo here.

The STB approved the Trackage Rights and Easement

Agreements on an application by CN on March 21, 2001. Since this

time, CN has not itself used its own trackage rights or the

1
The parties and the STB agree that the STB does not have
regulatory authority over this agreement.

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easement; instead it has relied on the haulage agreement to service

the Fraser mill, and pays BAR a fee for its services.

On August 15, 2001, certain creditors filed an

involuntary Chapter 11 bankruptcy proceeding against BAR. In

December 2001, the bankruptcy court entered an order for relief

under Chapter 11. It appointed James Howard as trustee in

bankruptcy.2 As part of the bankruptcy plan, Montreal, Maine &

Atlantic Railway LTD (MM&A) acquired the Madawaska line and other

BAR rail assets from the trustee in January 2003. The effect of

the agreement between MM&A and BAR is that the trustee no longer

has ownership rights as to the line.

There was also what we suspect was an unusual arrangement

in a part of the acquisition agreement: MM&A agreed to pay BAR five

million dollars if BAR successfully removed CN from the Madawaska

line prior to January 1, 2005. The trustee's sole remaining

interest in the line is the potential five million dollar payout

from MM&A. As a result, BAR had a financial incentive to attempt

to oust CN from the Madawaska line, although it no longer owns the

line. CN, of course, had no interest in abandoning any of its

rights in that line (which it recently had paid five million

dollars to BAR to acquire).

2
In May 2002, BAR's subsidiary, Van Buren Bridge Company
(VBBC), filed for voluntary bankruptcy under Chapter 11 of the
Bankruptcy Code. The court appointed Howard as the trustee for its
proceedings as well.

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 In March 2002, the trustee filed a motion in bankruptcy

court to reject the Junction Settlement Agreement, the Trackage

Rights Agreement, and the easement as executory contracts under 11

U.S.C. § 365. The trustee initially acknowledged that the

elimination of CN's trackage rights and easement was subject to the

exclusive jurisdiction of the STB, but later changed his position

on this issue.

In May 2002, the bankruptcy court stayed the proceedings

pending action by the STB on appropriate requests for relief by the

trustee to the STB. With the STB, the trustee filed a petition to

"revoke" CN's trackage and easement rights, pursuant to 49 U.S.C.

§ 10502(d). This effort was unsuccessful, and the STB explained

that because CN's trackage and easement rights were "authorized by

the agency, [they] will remain in effect until discontinuance

authority is granted [under 49 U.S.C. § 10903]." Canadian Nat'l Ry.

Co., STB Finance Docket No. 34014, 2002 WL 1365812 at *6 (STB June

25, 2002). Basically, the STB said the trustee had used the wrong

procedural vehicle. The STB also said that even if it were to

construe a petition to revoke as a request for adverse

discontinuance under 49 U.S.C. § 10903 (the correct vehicle), there

was no basis in the record to grant such a request. Id. at *7.

After the STB's rejection of the trustee's petition to

revoke, the bankruptcy court extended the stay of the proceedings,

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pending the trustee's completion of the adverse abandonment

proceedings before the STB under 49 U.S.C. § 10903.

The trustee then switched tracks (metaphorically). On

April 16, 2003, the trustee asserted for the first time in

bankruptcy court that the STB did not have final authority over the

forced abandonment of CN's rights, and that the bankruptcy court

could unilaterally oust CN from the line pursuant to its authority

under 11 U.S.C. § 1170. It is apparent that the trustee

calculated, rightly or wrongly, that he was more likely to get the

five million dollar payment from MM&A by being in bankruptcy court

on the adverse abandonment issue, rather than before the STB.

On May 7, 2003, the bankruptcy court issued an oral order

that lifted the stay on the proceedings and converted the matter to

an adversary proceeding. The trustee filed his complaint in the

adversary proceedings against CN on June 17, 2003. Count III of

the complaint sought an order from the bankruptcy court authorizing

the discontinuance of CN's trackage rights and the abandonment of

CN's easement.

After a telephone conference with the parties, the

bankruptcy court issued a procedural order dated June 19, 2003.

The court stated that it was uncertain whether BAR's efforts "not

to discontinue its own existing service over a portion of a rail

line, but . . . to 'adversely abandon' [CN's] rights to use [BAR's]

tracks" were within the scope of a bankruptcy court's power under

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11 U.S.C. § 1170. On June 25, 2003, CN filed an unopposed motion

to withdraw reference of the adversary proceeding to the bankruptcy

court. The motion was granted on June 30, 2003, and all further

proceedings took place in the federal district court of Maine. On

July 22, 2003, CN moved to dismiss the trustee's complaint, arguing

that the bankruptcy court had no authority to issue adverse

abandonments of a non-debtor's lines under 11 U.S.C. § 1170.

The magistrate judge issued a recommended decision that

section 1170 of the Bankruptcy Code did not apply to the trustee's

efforts to remove CN from the Madawaska Line, and that the relief

sought by the trustee could only be obtained if the STB granted the

adverse abandonment pursuant to section 10903. The decision

concluded that the plain language of the statute did not determine

its meaning and that recourse to the legislative history was

appropriate. The magistrate judge concluded that the legislative

history made it "reasonably clear that in enacting section 1170

Congress was concerned with streamlining and accelerating the

process of abandonment or discontinuance of a cash-strapped

debtor's own rail lines," not the lines of non-debtors. This

interpretation was further supported by the STB’s decision in

Chicago, Rock Island & Pac. R.R. Co., 363 I.C.C. 150 (1980), which

the magistrate judge found "reasonably . . . construed sections

10903 and 1170, in tandem, to preserve [the STB's] power . . . to

adjudicate an adverse-abandonment petition filed by a debtor

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railroad." Finally, the magistrate judge concluded that the

language used by Congress in enacting different legislation in 1979

which applied section 1170 to the then-pending Milwaukee Railroad

restructuring supported an interpretation limiting the abandonment

authority of the bankruptcy court to the debtor's own lines. In

this legislation, Congress stated, "the bankruptcy court may

authorize the abandonment of lines of the Milwaukee Railroad

pursuant to section 1170 of Title 11." 45 U.S.C. § 904(a)(1).3

On November 18, 2003, the district court agreed with the

decision of the magistrate judge and adopted its reasoning. The

district court's order granted CN's motion to dismiss Count III of

the complaint under Rule 12(b)(6), Fed. R. Civ. P. It also

deferred adjudication of the motion as it pertained to the

remaining counts of the trustee's complaint pending the STB's

disposition on the trustee's adverse discontinuance application.

In the meantime, the trustee had filed on October 6,

2003, an application with the STB for the abandonment of CN's

trackage rights and easement over the Madawaska line. This was

essentially an application for an adverse abandonment under section

10903; but the trustee noted that his position was that if the

final authority was in the bankruptcy court under section 1170,

then the STB’s opinion should be viewed only as an advisory opinion

3
Unlike the district court, we do not rely on the later
enacted 45 U.S.C. § 904(a)(1) in determining the meaning of 11
U.S.C. § 1170.

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as permitted by section 1170. From the perspective of the STB,

whether it is acting in an advisory capacity or as the final

authority, the substantive standards for the two determinations are

the same. Treating it as a matter under section 10903, the STB on

April 30, 2004, denied the application because it found the trustee

had failed to meet its burden of showing that the "public

convenience and necessity" required the ouster of CN from the

Madawaska line. Waterloo Ry. Co., STB Docket No. AB-124, 2004 WL

941227, at *1 (STB April 30, 2004).

The STB determined that the public is best served by

allowing CN to remain on the Madawaska line. In coming to its

conclusion, the STB balanced the competing benefits and burdens on

all interested parties. One such interested party was Fraser

Papers. Fraser Papers had intervened in and opposed the trustee's

abandonment action before the STB. Fraser stressed that in the

past its mill at Madawaska, Maine, had been served only by BAR and

that in late 2000 it had expressed strong concern to CN that BAR's

financial condition4 was deteriorating and that a consequent loss

of rail service would likely result in a shutdown of the Madawaska

mill. Fraser said that the Madawaska mill is highly interdependent

4
Fraser points out that even if BAR ousts CN and brings in
more revenue to MM&A, somehow MM&A has to finance the five million
dollar payment to BAR. That need to finance could weaken MM&A's
financial condition, raising the prospect that MM&A would suffer
the same fate as BAR and that the Madawaska mill would be left with
no rail service.

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with another mill in Edmundston, New Brunswick, Canada. If the

Madawaska mill were shut down, the Edmundston mill would be shut

down as well, depriving 1600 employees of work and depriving Fraser

of 8.5 million dollars in revenue per week. The STB agreed that

the loss of competitive rail service would be a detriment to Fraser

and perhaps would impact the economic development and well-being of

communities and rural areas near the mill. Id. at *4-*5, *8.

Although it was not required by statute to do so, the STB

also considered the needs of BAR's creditors, the benefits to the

bankrupt estate, and the fairness of the arrangement to the parties

involved. Id. at *5-*8, *8-*9. The STB found that the trackage

rights obligation between CN and BAR (and now honored by MM&A) in

March 2001 was fair and entered into at arm's length. It also

determined that the retention of CN on the Madawaska line would not

affect MM&A's survival or cause the abandonment of other MM&A line

segments. The Board ultimately determined that the interests of

the bankrupt estate did not "justify stripping CN of its right to

provide competitive rail service to Fraser or depriving Fraser of

its right to receive that service." Id. at *9.

The STB rejected challenges made to the standing of the

trustee in light of the sale of the line by BAR to MM&A. Id. at

*3.5 No party challenges that determination on appeal. After the

5
The bankruptcy court does not specifically address the issue
of standing. The bankruptcy court commented that this was
essentially a "transportation dispute" between CN and MM&A, but

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STB issued its decision, the trustee filed in court a consented to

motion for the voluntary dismissal of the remaining counts of the

trustee's complaint without prejudice, pursuant to Rule 41(a)(2),

Fed. R. Civ. P. On June 3, 2004, the district court granted the

voluntary dismissal without prejudice as to the remaining counts of

the trustee's complaint and entered a separate and final judgment

in CN's favor, pursuant to Rule 58(a), Fed. R. Civ. P. The trustee

timely appealed the dismissal of Count III to this Court in No. 04-

1819. Fraser has intervened and has filed a brief in this court in

support of affirmance of the district court's opinion.

In No. 04-1800, the trustee also timely petitioned this

court for review of the STB's order denying the trustee's

application for discontinuance and abandonment. See 28 U.S.C. §

2321. Both Fraser and CN have intervened in this matter. The

trustee argues that the STB had no jurisdiction to issue a binding

decision under 49 U.S.C. § 10903 and that it could only issue an

advisory report under 11 U.S.C. § 1170. The trustee does not

attack the merits of the STB's decision. In response, the STB has

also filed a brief, pointing out that it had been made a party only

recognized the trustee's desire to effect a plan and the importance
of the five million dollars to the estate. Also, the bankruptcy
court included, upon the request of CN, a provision in its October
9, 2002 order approving the sale of BAR's estate assets to MM&A
that expressly reserved "all rights and obligations of the parties
to the CN Junction Settlement Agreement, the CN Trackage Rights
Agreement, and the Waterloo Easement . . . subject to further
ruling by this Court or any other court of competent jurisdiction."

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in appeal No. 04-1800, and that the issue of whether section 1170

applied was an issue only in appeal No. 04-1819. The STB says that

whatever the outcome of that question, the trustee has waived any

argument addressed to the merits of the STB's determination. The

STB asks that we affirm the Board's decision.

II.

Review of the dismissal of a claim under Rule 12(b)(6)

for failure to state a claim upon which relief can be granted is de

novo. Martin v. Applied Cellular Tech., Inc., 284 F.3d 1, 5 (1st

Cir. 2002).

The trustee makes an argument based on the "plain

meaning" of the statutory text of 11 U.S.C. § 1170. The relevant

parts of section 1170 provide as follows:

(a) The court, after notice and a hearing, may authorize
the abandonment of all or a portion of a railroad line if
such abandonment is --
(1)(A) in the best interest of the estate; or
(B) essential to the formulation of a plan; and
(2) consistent with the public interest.
(b)If . . . such abandonment would require approval by
the [STB] under law of the United States, the trustee
shall initiate an appropriate application for such
abandonment with the [STB]. The court may fix a time
within which the [STB] shall report to the court on such
application.
(c) After the court receives the report of the [STB], or
the expiration of the time fixed under subsection (b) of
this section, whichever occurs first, the court may
authorize such abandonment, after notice to the [STB],
the Secretary of Transportation, the trustee, any party
in interest that has requested notice, any affected
shipper or community, and any other entity prescribed by
the court, and a hearing.

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11 U.S.C. § 1170. The trustee argues that section 1170 is not

limited to abandonment of the debtor's own operations and that the

phrase "all or a portion of a rail line" shows that the term

"abandonment" is not so limited.6

In fact, BAR's argument does not rely on the plain text

of section 1170, but requires reference to a prior judicial

construction of section 10903. The relevant parts of that section,

in turn, provide:

(d) A rail carrier providing transportation subject to
the jurisdiction of the Board under this part may--
(1) abandon any part of its railroad lines; or
(2) discontinue the operation of all rail
transportation over any part of its railroad
lines;
only if the Board finds that the present or future public
convenience and necessity require or permit the
abandonment or discontinuance.

49 U.S.C. § 10903. BAR's argument is that the term "abandonment"

as used in section 10903 has been construed by both the agency and

the courts to include adverse abandonment. See Consolidated Rail

Corp., 29 F.3d at 708-09. From this, the trustee argues that

6
The language of section 1170 refers only to "abandonments."
As CN points out, an "abandonment" is distinct from a
"discontinuance." See 49 U.S.C. § 10903(d). Despite this, the
legislative history states that "[t]he subchapter provides that the
court rather than the [STB] has the authority to authorize
abandonments or discontinuances of rail service." S. Rep. No. 95-
989, at 12 (1978), reprinted in 1978 U.S.C.C.A.N. 5787, 5798
(emphasis added). This case involves the abandonment of the
Waterloo easement and the discontinuance of CN's trackage
agreement. Both parties have taken the term "abandonment" in
section 1170 to cover both abandonment and discontinuance. We
pursue it no further.

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Congress was aware of the construction of "abandonment" in section

10903 and is presumed to have adopted that construction in section

1170.

The trustee also argues that his reading of section 1170

is sensible and would not have improper effects on third parties.

The trustee says first that concerns about non-debtor railroads are

irrelevant because any consequences to them are exactly what

Congress intended, as the plain text demonstrates. Further, the

trustee points out that section 1170 requires the court to consult

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the STB and consider the public interest.7 That is enough, the

trustee says, to allay any untoward effects on third parties.8

Indeed the trustee attacks the district court ruling

itself as leading to untoward results. The trustee argues, for

example, that if the debtor wants to abandon its own underlying

7
The standards used by the bankruptcy court to determine
whether to permit abandonment under section 1170 are not identical
to those used by the STB under section 10903. The court must find
that the abandonment is (1) "in the best interest of the estate" or
"essential to the formulation of a plan" and (2) "consistent with
the public interest." 11 U.S.C. § 1170(a)(1)-(2); see also 11
U.S.C. § 1165 ("In applying section[] . . . 1170 . . . the court
and the trustee shall consider the public interest in addition to
the interests of the debtor, creditors, and equity security
holders."). The STB's advisory report is supposed to represent the
public interest while the trustee and various creditors represent
what is in the best interest of the debtor and its creditors. S.
Rep. No. 95-989, at 12 (1978), reprinted in 1978 U.S.C.C.A.N. 5787,
5798. "The court will balance the various interests and make an
appropriate decision." H. Rep. No. 95-595, at 424 (1978),
reprinted in 1978 U.S.C.C.A.N. 5963, 6380.
The STB may permit abandonment of rail lines or discontinuance
of operations "only if the [STB] finds that the present or future
public convenience and necessity require or permit the abandonment
or discontinuance." 49 U.S.C. § 10903(d). Unlike the court, the
STB is not required to consider what is in the best interests of
the debtor's estate. Further, in determining the public interest,
the STB must consider whether the abandonment or discontinuance
will have a "serious, adverse impact on rural and community
development." Id. The STB must also adhere to the national
transportation policy of promoting competition between rail
carriers. 49 U.S.C. § 10101(1),(4). In applying the public
interest standard, the STB weighs the interests of the carrier, the
affected shippers, the community, and interstate commerce
generally. Purcell v. United States, 315 U.S. 381, 384 (1942).
8
The trustee argues it is highly unlikely a court would ever
rule contrary to the STB's advisory opinion. This is ironic, given
that the STB has already ruled that the relief the trustee seeks is
against the public interest and what the trustee wants is a second
bite at the apple in district court.

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rail lines, the bankruptcy court could not grant this abandonment

until the debtor first sought an application with the STB to

discontinue the overlying trackage rights of a non-debtor. See Mo.

Pac. R.R. Co., 9 I.C.C.2d 1228, 1230 (1993) (An "abandonment may

not be consummated until [the rail carrier with trackage rights']

discontinuance has been authorized and interested persons are given

an opportunity to seek imposition of trail use and public use

conditions.").9

Finally, the trustee argues that legislative history

should not be considered, but that if it is, it supports the

trustee's interpretation.10 We take each argument in turn.

The meaning of the term "abandonment" as it is used in 11

U.S.C. § 1170 is not self-evident and cannot be resolved on textual

plain meaning grounds. One cannot tell by reading the term

9
Of course, BAR, pursuant to agreement with MM&A, does not
seek the abandonment of the underlying Madawaska line, only the
discontinuance of CN's trackage rights over that line and the
abandonment of CN's easement. BAR wants to keep the lines and oust
CN, so the issue it raises does not apply to its own situation.
In any event, requiring the debtor to apply to the STB for the
adverse discontinuance of the trackage rights of a non-debtor will
not prevent the bankruptcy court from discontinuing the debtor's
rail operations over that line. The bankruptcy court can still
discontinue the debtor's own "money-losing operations over the
line" in the short term to stem the cash drain that the rail
operation is causing the debtor.
10
The trustee also argues that In re New York, Susquehanna &
W. R.R. Co., 160 F.2d 29, 32 (3d Cir. 1946), illuminates the
meaning of 11 U.S.C. § 1170. Susquehanna presents a factual
scenario similar to the one before us, but the similarities stop
there. Susquehanna was decided before the passage of section 1170,
and it did not squarely address the question before us today.

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"abandonment" in section 1170 whether the term includes "adverse

abandonment." Nor can one tell whether this is so simply from the

fact that the term "abandonment" in section 10903 has been

construed to include adverse abandonments as well. In determining

what the statute means, we cannot simply rely on a few phrases in

a complicated statutory structure. Section 1170 must be read in

the context of what Congress was trying to do when it gave the

bankruptcy court abandonment authority over a debtor railroad in

bankruptcy. Both that context and the legislative history lead us

to reject the trustee's interpretation.

In designing the statutory scheme, Congress set up an

interplay between 11 U.S.C. § 1170 and 49 U.S.C. § 10903. Under

section 10903, the STB is the regulatory board charged with

implementing overall Congressional rail transportation policy.

Rail carriers are subject to the jurisdiction of the STB, and when

a rail carrier intends to abandon its underlying rail lines or

discontinue rail transportation or trackage rights over a line, it

must seek permission by filing an application with the STB. 49

U.S.C. § 10903. Generally, the STB's authority over abandonment of

rail lines is exclusive and plenary. Chicago & N.W. Transp. Co. v.

Kalo Brick & Tile Co., 450 U.S. 311, 321-23 (1981).

One exception to this exclusive STB authority is the

abandonment of rail lines when a debtor railroad is in bankruptcy.

Congress designed special provisions in those limited circumstances

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for railroad reorganization that attempted to allow the railroad to

emerge as "a living, not a dying, . . . enterprise." See New Haven

Inclusion Cases, 399 U.S. 392, 431 (1970)(internal quotations

omitted). One such provision can be found in the 1978 Amendments

to the Bankruptcy Code, 11 U.S.C. § 1170.

Section 1170 replaced section 77(o) of the Bankruptcy

Act, formerly codified at 11 U.S.C. § 205(o). The courts had

construed the former section dealing with railroads in bankruptcy

to require an STB determination of whether an abandonment of a

debtor's rail line was adverse to the public interest as a

prerequisite to abandonment in bankruptcy. E.g., Palmer v.

Massachusetts, 308 U.S. 79, 87-88 (1939). Palmer involved a direct

abandonment by a debtor rail line of its own lines. In an effort

to streamline the process, Congress made it clear in enacting 11

U.S.C. § 1170 that it wanted the bankruptcy court, not the STB, to

make the final determination of whether a debtor's rail lines could

be abandoned and the STB to play an advisory role, subject to time

constraints. This would speed up the decisional process.

Importantly, the STB was not ousted of its exclusive

jurisdiction over all matters pertaining to bankrupt railroads.

See 11 U.S.C. § 1166 ("Except with respect to abandonment under

section 1170 [and certain other situations]. . . the trustee and

the debtor are subject to the provisions of subtitle IV of title 49

[the chapter authorizing the STB] that are applicable to railroads

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. . . .). If, for example, the debtor as part of its

reorganization plan wanted to "construct an extension to any of its

railroad lines," "construct an additional railroad line," or

"provide transportation over . . . an extended or additional

railroad line," it would first have to apply to the STB for a

certificate authorizing such activity. See 49 U.S.C. § 10901.11

Under section 1170, the STB still plays an important

advisory role in the granting of permission for the abandonment of

a reorganizing debtor's rail lines. If the STB issues an advisory

report within the time allowed by the bankruptcy court, the

bankruptcy court should consider the STB's report, but the STB's

conclusions are not binding. 11 U.S.C. § 1170 (b),(c).

The legislative history of section 1170 illuminates

Congress's intent in several ways. First, it identifies the

regulatory problem that needed to be remedied. Second, it

identifies the type of problems suffered by debtor railroads which

were of concern. Third, it focuses on which railroads' (debtor or

non-debtor) interests were of concern. Fourth, it emphasizes that

other types of issues concerning a debtor's rail line remain within

the STB's exclusive jurisdiction.

11
Under 11 U.S.C. § 1166, after the STB grants the debtor the
right to go forward with the rail line or service, the bankruptcy
court must also approve the plan if these actions require "the
expenditure . . . of money from the estate." 11 U.S.C. § 1166 (1).

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 In enacting section 1170, Congress was attempting to

remedy specific problems which arose from the judicial

interpretation of the old scheme. The regulatory problem was that

when the debtor was first required to go to the STB to seek the

abandonment without any time limits for the STB decisions and then

go to the court, there was a delay. The Senate Report states:

The incorporation of railroad reorganizations into the
general reorganization provisions of the bill eliminates
the cumbersome and duplicative procedure of section 77
under which plans of reorganization shuttled back and
forth between the [STB] and the courts and proceedings
were inevitably more time consuming and expensive. Under
the bill, the bankruptcy court, rather than the [STB],
assumes the primary responsibility for the reorganization
proceeding.

S. Rep. No. 95-989, at 11-12 (1978), reprinted in 1978 U.S.C.C.A.N.

5787, 5797-98. In turn, this delay exacerbated the cash drain12 on

a rail carrier operating a financially unsound line while waiting

for the STB to consider its application to abandon that line:

In the case of a railroad being administered under title
11, the necessity to stem the bankrupt carrier's cash
drain requires expeditious treatment of abandonment
applications. This subchapter provides that the court

12
The trustee says that its earlier three agreements with CN,
reached in late March 2001, before the December 2001 bankruptcy,
have proven to be bad deals for BAR (now MM&A). The trustee argues
that the fees it is paid by CN are not as profitable as BAR would
like and so BAR has an interest in forcing CN to abandon its
rights. This is also the sort of "cash drain" referred to in the
legislative history, he says. However, as Fraser points out, the
trustee does not say BAR is losing money from its operation under
the haulage agreement. He says only that BAR can make more money
if CN had no rights. BAR (now MM&A) essentially would have a
monopoly if CN were ousted and it could exercise monopoly pricing.

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 rather than the [STB] has the authority to authorize
abandonments or discontinuances of rail services.

H. Rep. No. 95-595, at 423 (1978), reprinted in 1978 U.S.C.C.A.N.

5963, 6379. The legislative history makes it clear that Congress

was concerned with making the system for the abandonment of debtor

railroad’s rail lines quicker, more efficient, and less costly for

the debtor railroad.

The legislative history emphasizes that many of the

operations of the debtor railroad remain within the exclusive

jurisdiction of the STB:

[S]ince a plan of reorganization for a railroad may
propose changes in transportation patterns or operation
by, among other things, granting operating rights over,
or transferring, the debtor's rail lines, the bill
retains the [STB's] jurisdiction with respect to such
proposals. The subchapter requires that such proposals
be referred to the [STB] for its approval, disapproval,
or modification and requires the reorganization court to
give binding effect to the [STB's] findings on such
aspects of a plan.

S. Rep. No. 95-989, at 11 (1978), reprinted in 1978 U.S.C.C.A.N.

5787, 5797 (emphasis added). In referring to the powers that are

exclusively retained by the STB, the legislative history says, "the

debtor's rail lines," evidence that Congress's concern was for the

debtor's own lines,13 not those of a financially sound railroad.

13
The parties have essentially framed the issue as if BAR
continued to own the line and have not suggested that the sale of
the line to MM&A moots the matter. As the sale of the line was
part of the reorganization plan, this treatment is a reasonable
position and we do not look behind it.

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 Against this backdrop, there is little reason to think

Congress intended, by using the word "abandonment" in section 1170

to include "adverse abandonment" by a debtor railroad, to oust a

third party from rights in the debtor's own lines, and thus

silently strip the STB of its exclusive jurisdiction over the

abandonment of a non-debtor’s lines or trackage rights.14

In addition to being at odds with the expressed intent of

Congress, the trustee's interpretation would create a new set of

problems. Included among those problems is the creation of

financial incentives for bankrupt railroads to attempt to disrupt

the operation of other healthy railroads. This is against public

policy. Congress surely did not intend to create a bounty system,

as here, that allows debtors in bankruptcy to sell their lines to

a non-debtor and then use bankruptcy courts, not the STB, to

eliminate competition between other non-debtor rail carriers.

Finally, to the extent the STB has spoken on this issue,

we give some15 weight to what it has said. In an advisory opinion

14
In the alternative, the trustee, in his reply brief and at
oral argument, argued a narrower interpretation of the statute.
The trustee’s interpretation would limit the bankruptcy court's
reach, but still allow this court to grant the relief that the
trustee seeks. He proposes allowing the bankruptcy court authority
over abandonments of a non-debtor's rail lines and trackage rights
in situations in which the debtor has a property or contract
interest in the non-debtor's lines or trackage rights.
Significantly, the interpretation resolves none of the problems
discussed in this opinion, and we reject it.
15
We emphasize the word "some." The agency issued its
interpretation as an advisory opinion to the bankruptcy court

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to the bankruptcy court, Chicago, Rock Island & Pac. R.R. Co., 363

I.C.C. 150, 171 (1980), the STB stated that the bankruptcy court

cannot abandon or discontinue lines jointly owned by debtor and a

financially healthy company. The STB noted that the only way for

these lines to be abandoned is through an application to the STB,

pursuant to 49 U.S.C. § 10903. This holding obviously is

consistent with our disposition here.

It follows not only that the bankruptcy court had no

power to approve the adverse abandonment and discontinuance sought

by the trustee here, but also that the STB had power to issue a

binding final order in this case. No attack on the merits of the

STB's decision having been made by the trustee, such an attack has

been waived. We affirm the district court's dismissal of Count III

of the trustee's complaint for failure to state a claim upon which

relief can be granted. We affirm the STB’s final order denying the

trustee's application to adversely discontinue and abandon the

trackage rights and easement of CN. So ordered. Costs are awarded

to CN and Fraser.

pursuant to 11 U.S.C. § 1170(b). An advisory opinion, as opposed
to the final order issued under section 10903, does not have the
force of law and indeed is not binding on the bankruptcy court.
See Christensen v. Harris County, 529 U.S. 576 (2000).

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