Clаy E. MONROE, Plaintiff-Appellant, v. MISSOURI PACIFIC RAILROAD COMPANY and Union Pacific Railroad Company, Defendants-Appellees.
No. 96-2862.
United States Court of Appeals, Seventh Circuit.
Argued Jan. 7, 1997. Decided June 10, 1997.
Relying again on Knetsch, the Commissioner argues that the income Finance earned on the transaсtions with Taxpayer is irrelevant; that a transaction does not necessarily have economic substance for tax purposes merely because one party profits from the arrangement. The Commissioner characterizes the one-percent profit Finance earned from the spread created by its borrowing and lending activities as a “fee” for accommodating Taxpayer in the Eurobond offering. The Commissioner‘s argument misses the mark. As we explained supra, the transaction in Knetsch was unrelated to any economic activity. The taxpayer paid money solely to obtain tax deductions and did not intend to profit in a true sense, as evidenced by the fact that the pre-tax interest outlay would be greater than the pre-tax interest received. Here, a profit motive existed from the start. Each time an interest transaction occurred, Finance made money and Taxpayer lost money. Moreover, Finance reinvested the annual $700,000 interest income it netted on the spread in order to generate additional interest income, and none of the profits from these reinvestments are related to Taxpayer.
Looking at the record as a whole, we find that the Tax Court did not clearly err by determining that Finance carried on sufficient business activity so as to require recognition of its interest transactions with Taxpayer for tax purposes. That being so, it is unnecessary to address Taxpayer‘s cross-appeal. The judgment of the Tax Court is AFFIRMED.
Kurt E. Reitz (argued), Mary S. Juen, Thompson Coburn, Belleville, IL, David A. Dick, St. Louis, MO, for Defendants-Appellees.
Before FAIRCHILD, CUMMINGS, and KANNE, Circuit Judges.
KANNE, Circuit Judge.
This case calls upon us to resolve whether the district court properly dismissed Clay Monroe‘s wrongful discharge claims, which he brought pursuant to the Federal Employers Liability Act (“FELA“) and Illinois public policy. We agree with the district court that it lacked subject matter jurisdiction to adjudicate Monroe‘s claims as they were preempted by the Railway Labor Act (“RLA“). Thus, we affirm the dismissal of Monroе‘s action.
I. HISTORY
Clay Monroe worked for thirteen years as a brakeman for the Missouri Pacific Railroad and the Union Pacific Railroad (collectively, “the Railroad“). Monroe was injured at work on July 20, 1992, and his doctor advised him to take a medical leave of absence. In October of that year, the Railroad hired a private investigator to conduct surveillance on Monroe as he had not yet returned to work due to his alleged injuries and physical incapacity. The Railroad‘s investigators discovered that Monroe was working at his father‘s business, where he was selling and installing satellite television systems. At one point, the investigators ordered a satellite dish from Monroe while posing as homeowners and then videotaped Monroe while he helped install the dish. In December 1992, Monroe‘s doctor permitted him to return to work for the Railroad.
The Railroad subsequently commenced a collective bargaining agreement (“CBA“) hearing regarding the propriety of Monroe‘s conduct while on mediсal leave. Evidence at the hearing included the videotape of Monroe installing the satellite system, as well as testimony from a doctor who opined that Monroe could do physical railroad work. This doctor, however, neither spoke with Monroe nor physically examined him. On December 17, 1992, the Railroad discharged Monroe for misrepresenting his physical condition.
Monroe subsequently filed four separate legal proceedings against the Railroad challenging his dismissal: 1) he filed a CBA labоr grievance based on his alleged wrongful termination1; 2) he brought a civil suit in the Madison County Circuit Court (Illinois) based on the Railroad‘s private investigation of him, including claims of fraud, conspiracy, and similar torts; 3) he filed another civil suit in the St. Louis Circuit Court (Missouri) pursuant to the FELA, seeking damages for the personal injuries he sustained on July 20, 1992; and 4) he brought the present action.
The Railroad removed the case to the United States District Court for the Southern District of Illinois on April 26, 1996, and it filed a Motion to Dismiss based on the federal court‘s lack of subject matter jurisdiction (
II. ANALYSIS
We must decide whether the district court correctly found that the RLA preempts Monrоe‘s wrongful discharge claims under the FELA and under Illinois public policy. We review de novo a district court‘s grant of a motion to dismiss for subject matter jurisdiction. Underwood v. Venango River Corp., 995 F.2d 677, 679 (7th Cir.1993), overruled on other grounds, Westbrook v. Sky Chefs, Inc., 35 F.3d 316 (7th Cir.1994).
Whether a federal law preempts another law that establishes a cause of action is a question of congressional intent. Hawaiian Airlines, Inc. v. Norris, 512 U.S. 246, 251-52, 114 S.Ct. 2239, 2243, 129 L.Ed.2d 203 (1994). The arguably preemptive federal law in this case—the RLA—provides a comprehensive framework for resolving labor disputes, including a mandatory arbitral mechanism for “the prompt and orderly settlement” of two classes оf disputes. Id.; see
Minor disputes grow “out of grievances or out of the interpretation or application of agreements covering rates of pay, rules, or working conditions,”
In Hawaiian Airlines, the Supreme Court addressed the preemption of minor disputes under the RLA. The Court held that not all grievances or employment-related disputes are considered “minor disputes” for RLA рreemption purposes. Hawaiian Airlines, at 252-54, 114 S.Ct. at 2244. Rather, “‘grievances,’ like disputes over ‘the interpretation or application’ of CBAs, refers to disagreements over how to give effect to the bargained-for agreement.” Id. Hawaiian Airlines ultimately found that the RLA did not preempt the plaintiff‘s state-law tort actions—which were based on the state‘s public policy and its whistle-blower statute—because those claims necessitated a purely factual inquiry into the retaliatory motivations of the employer and did not require intеrpretation of the relevant CBA. Id. at 266, 114 S.Ct. at 2251.
We have had the opportunity to decide RLA preemption cases since Hawaiian Airlines adopted the Lingle standard. In Bielicke v. Terminal R.R. Ass‘n, 30 F.3d 877 (7th Cir.1994)—a case strikingly similar to the one before us—we held that the RLA preempted the plaintiffs’ FELA claims, which alleged that the rаilroad wrongfully discharged plaintiffs and improperly abused its investigatory powers in an attempt to discourage plaintiffs from pursuing other FELA actions to recover damages for their job-related personal injuries.2 Significantly, we reasoned that “[o]ne cannot determine whether Terminal Railroad conducted the investigations for legitimate purposes under the collective bargaining agreements or if they abused the investigation procedures allowed by the collective bargaining agreements—without focusing the case on the collective bargaining agreements themselves.” Id. at 878.
More recently, we held that the RLA did not preempt a plaintiff‘s retaliatory discharge action filed under the Illinois Workers’ Compensation Act. See Westbrook v. Sky Chefs, Inc., 35 F.3d 316 (7th Cir.1994). In Sky Chefs, we found that plaintiff‘s cause of action was not a minor dispute (and thus not preempted) because it involved “rights and obligations that exist independent of the collective bargaining agreement.” Id. at 318 (quoting Hawaiian Airlines, at 258-60, 114 S.Ct. at 2247). In reaching this conclusion, we based our decision solely on the fact that the CBA did not provide the “only source” of plaintiff‘s rights, and we had no occasion to address whether the adjudication of plaintiff‘s state-law claim would involve interpretation or application of a CBA. See id. at 317-18.
In this case, the Railroad argues that Monroe‘s claims are preempted because they are minor disputes that require interpretation of the CBA. Monroe, in contrast, maintains that his claims are not minor disputes because they are not based on the rights given by the CBA, but rather are “independently based” on rights conferred by the FELA and the State of Illinois. The gravamen of Monroe‘s claim is that the Railroad terminated his employment in order to interfere with his potential FELA personal injury claim, and that both the FELA and Illinois public policy prohibit such action by the
Like the district court, we agree that an uncritical glance at Monroe‘s claims seems to compel a finding of no preemption in light of the Supreme Court‘s Hawaiian Airlines and our Sky Chefs decisions. We need not analyze any part of the CBA to determine that the Railroad actually terminated Monroe. Moreover, Monroe correctly asserts that the source of his claims is independent of the CBA because they are found in the FELA and in Illinois public policy.3 Monroe‘s argument falters, however, when he asserts that the Railroad‘s motivation behind his termination involves a purely factual question that requires no interpretation or application of the CBA.
Unlike the claims in Hawaiian Airlines and Lingle, Monroe‘s claims do not involve purely factual questions, and they do require interpretation of the CBA. Any analysis of Monroe‘s wrongful discharge claims necessarily requires interpretation of the CBA in order to determine the validity of his arguments regarding thе Railroad‘s retaliatory intent.
First of all, Monroe‘s complaint alleges that the Railroad failed to avail itself of its right to compel him to undergo a physical examination if it contested his medical condition. The CBA provides the Railroad with its right to compel such an examination. Second, a court must apply and interpret the standards regarding an employee‘s physical condition—which are implied terms of the CBA—when analyzing Monroe‘s claim of pretextual discharge. See Fry v. Airline Pilots Ass‘n, Int‘l, 88 F.3d 831, 836 (10th Cir.1996) (A “plaintiff‘s clаims are minor disputes if they depend not only on a right found in the CBAs, but also if they implicate practices, procedures, implied authority, or codes of conduct that are part of the working relationship.“). Third, Monroe questions the propriety of his disciplinary hearing as well as the sufficiency of the evidence proffered at that hearing by objecting to the testimony of a doctor who never examined him. This hearing was conducted pursuant to the CBA and the RLA, thereby necessitating the court‘s interpretаtion of that agreement and those laws. Fourth, Monroe‘s claims involve past and future wages, benefits, and promotions—all of which are determined by the CBA. Finally, in one of Monroe‘s three other legal actions, Monroe himself argued that his claim against the Railroad for unmeritorious discipline (i.e., his dismissal) must be analyzed under the CBA and the RLA.5 In light of these facts, we must conclude that Monroe‘s FELA and Illinois public policy claims involve interpretation of the CBA, and thus they are minor disputes that can only be adjudicatеd under the RLA.
Monroe asserts that Hawaiian Airlines specifically rejected the notion that a CBA4
Moreover, contrary to Monroe‘s assertions, we can easily harmonize our decision today with our decision in Sky Chefs. Sky Chefs relied upon only one aspect of the RLA preemption standard set out in Hawaiian Airlines and Lingle—whether a CBA provided the only source for a plaintiff‘s wrongful discharge claim. Sky Chefs, 35 F.3d at 318. Here, we have the occasion to address a second facet of the Hawaiian Airlines—Lingle standard—whether the adjudication of a plaintiff‘s claim requires interpretation of a CBA. Our Sky Chefs decision should not be narrowly construed to eliminate this latter, and crucial, element of the Hawaiian Airlines—Lingle preemption standard.
Our finding of preemption here also complies with the recent application of Hawaiian Airlines by two other circuits. In Kollar v. United Transp. Union, 83 F.3d 124 (5th Cir.1996), the Fifth Circuit found that the RLA preempted plaintiffs’ fraud claim because it involved the interpretation of plaintiffs’ seniority, which was controlled by a CBA and other modifying agreements. Id. at 126. Significantly, the court found that even though the plaintiffs couched their claim in terms of fraud—a source independent of the CBA—the resolution of that claim required interpretation of the CBA: “To prove the falsity of the representations, Plaintiffs would have to show that the relevant seniority provisions of the CBA, the transfer agreement, and modifying letter agreement, differ from the representations made by the Union. This requires interpretation of the CBA left appropriately to procedures established under the RLA.” Id.
Similarly, the Tenth Circuit in Fry found that several plaintiffs’ federal and state claims were preempted because they could not “be understood without reference to the various CBAs.” Fry, 88 F.3d at 836. That court first noted that the threshold question for RLA preemption after both Hawaiian Airlines and Lingle remained “whether resolution of the federal and state law claims of the plaintiffs requires interpretation or application of the CBAs.” Id. at 836. Then it determined that plaintiffs’ claims were minor disputes, and thus preempted, because the district court needed to review the relevant CBAs in order to determine the appropriateness of the employer‘s motives in discharging the striking pilots. Id. at 836-37.
Without question, the Supreme Court‘s Hawaiian Airlines decision makes this a close case (or at lеast a much closer one than before Hawaiian Airlines was decided). Moreover, we recognize “that not all cases which tangentially touch collective bargaining agreements call for ... preemption.” Loewen Group Int‘l, Inc. v. Haberichter, 65 F.3d 1417, 1423 (7th Cir.1995); accord Livadas v. Bradshaw, 512 U.S. 107, 122-26 & n. 18, 114 S.Ct. 2068, 2078-79 & n. 18, 129 L.Ed.2d 93 (1994). The factual particularities of Monroe‘s complaint, however, require an interpretation of the CBA and thus mandate our finding of preemption.
Simply put, we believe that the district court correctly determined that what Monroe “attempts to do in this lawsuit is to litigate his labor-related claims under FELA,” and that such a “course of action is not permitted by Hawaiian Airlines.” Monroe v. Missouri Pacific R.R. and Union Pacific R.R., No. 96-CV-0351-PER, slip op. at 6 (S.D.Ill. July 9, 1996). We cannot allow Monroe to “artfully plead” himself around the preemptive effect of the RLA by framing his CBA claims as wrongful discharge causes of action under the FELA and Illinois public policy. See Hammond v. Terminal R.R. Ass‘n, 848 F.2d 95, 97 (7th Cir.1988) (“A claim does not arise under the FELA merely because the plaintiff names that statute in his complaint and omits (accidentally or by design) the
FAIRCHILD, Circuit Judge, dissenting in part.
With all respect I do not agree that Monroe‘s asserted state law claim involves interpretation of the collective bargaining agreement to any significant extent. If the claim has any merit under Illinois law, it exists “independent of the collective bargaining agreement.” Hawaiian Airlines, Inc. v. Norris, 512 U.S. 246, 264-66, 114 S.Ct. 2239, 2250, 129 L.Ed.2d 203 (1994).
That leads to other questions, not addressed by the majority.
I. Removal.
Monroe brought his action in an Illinois court. Defendant Railroad Companies removed it to federal district court.
In Count I Monroe invoked only the FELA and claimed:
10. The sole reason for the hearing and termination of Plaintiff‘s employment was to defeat any claim Plaintiff might have for personal injury against the Defendants in an action under the FELA.
11. Such wrongful discharge was illegal in that it violated the
45 U.S.C. § 55 in that it is a device designed to prevent plaintiff from enforcing his rights under the FELA.
In Count II Monroe invoked both the public policy of the FELA and the State of Illinois, alleging that the “discharge violated the public policy of the FELA and the State of Illinois in that it attempted to prevent him from fully exercising his right to collect damages for injuries on the job.”
Monroe‘s theory, sound or not, is that the discharge “arguably eliminates the railroad‘s liability for Mr. Monroe‘s lost wages in his injury claim, effectively eliminating much of his remedy under the FELA.” Appellant‘s Brief, pp. 35-36.
There may be two reasons why
II. Claims are not predicated on breach of contract.
Both Counts I and II allege that the discharge was wrongful because of defendants’ purpose to defeat or impair plaintiff‘s rights under the FELA. There is no allegation that it was wrongful because defendants breached some term of the collective bargaining agreement. It is true that paragraph 9 of both counts alleged that defendants had a right to a physical examination of plaintiff, but failed to exercise it. Presumably the collective bargaining agreement was the source of the right. Whatever evidentiary bearing failure to exercise this right might have in proving that the discharge was motivated as alleged, and therefore wrongful, the defendants’ failure to exercise their contract right was not an element of the claim. The majority said (see supra p. 518) that “Monroe questions the propriety of his disciplinary hearing as well as the sufficiency of the evidence,” but there is nothing in the complaint challenging the disciplinary hearing.
The majority cites Bielicke v. Terminal R.R. Ass‘n, 30 F.3d 877 (7th Cir.1994) and Hammond v. Terminal R.R. Ass‘n of St. Louis, 848 F.2d 95 (7th Cir.1988). In neither was a state-law claim asserted. Bielicke was
One cannot determine whether Terminal Railroad conducted the investigations for legitimate purposes under the collective bargaining agreements or if they abused the investigation procedures allowed by the collective bargaining agreements ... without focusing the case on the collective bargaining agreements themselves.... [T]hese claims are directly connected with the collective bargaining agreements and thus the claim arises under the RLA, not the FELA.
30 F.3d at 878. Monroe‘s state law claim requires no such focus.
In Hammond, a pre-Hawaiian decision, this court held that a claim which nominally invoked the FELA did not arise under the FELA, but under the RLA. The court said that the complaint as it stood at the time of removal “complained only about the railway‘s having filed allegedly unmeritorious disciplinary charges; it was a pure breach of contract claim....” 848 F.2d at 97.
Neither Bielicke nor Hammond supports the proposition that Monroe‘s state-law claim is a breach of contract claim, governed by the RLA.
III. The validity of Monroe‘s state-law claim.
Monroe‘s state-law claim relies on Kelsay v. Motorola, Inc., 74 Ill.2d 172, 23 Ill.Dec. 559, 384 N.E.2d 353 (1978), recognizing the tort of wrongful discharge where an employee was discharged because she filed a worker‘s compensation claim. “Because of the similarity of purpose between FELA and the Illinois worker‘s compensation statute, no principled distinction can be made which will disallow a finding of wrongful discharge where the Illinois courts have recognized the tort in the context of worker‘s compensation.” Appellant‘s Brief p. 28.
There will be difficulties in deciding that issue, but I am convinced that that is the question this case presents to this court. As already indicated, I think there is no foundation for a holding that Monroe‘s state law claim is рreempted.
