STAKES MOUNT FOR CNW AS IT WAITS FOR RULING

STAKES MOUNT FOR CNW AS IT WAITS FOR RULING

The stakes continue to mount for the railroad industry in its latest court showdown with its unions, as all parties await a U.S. appeals court verdict in a landmark case involving labor's rights in the sale of branch lines.

The CNW Corp., which is trying hard to sell itself to an investor group and a collection of its current managers, is on the horns of a dilemma: Its $578 million sale is contingent upon selling a major branch line; but its labor unions have warned they will shut down the Chicago & North Western Railway if the line is sold.CNW Corp. lawyers backed away from the precipice Friday during a meeting at U.S. District Court in Chicago, when they assured lawyers for the rail unions that no attempt would be made to implement the sale of the Duck Creek South line to FRVR Corp., a subsidiary of the Itel Rail Corp.

In return, labor's lawyers said the unions won't strike, as they had threatened when the sale is completed.

It is a familiar scenario, quite similar to that in the landmark case that is before the 3rd U.S. Circuit Court of Appeals in Philadelphia and that involves the Pittsburgh & Lake Erie Railroad.

And it is even closer to what happened to the Atchison, Topeka and Santa Fe Railway when it attempted to spin off the Toledo, Peoria and Western branch in November.

At that time, the Railway Labor Executives' Association, an umbrella group of the chiefs of most rail labor groups, threatened to shut down the 11,000- mile Santa Fe over the sale of the 300-mile line.

The Santa Fe tried and failed to get the U.S. District Court in Chicago to enjoin the strike; that is the same court CNW has asked to enjoin the unions in this battle.

The judge in the Santa Fe case refused to issue the injunction, instead referring the case to a magistrate for a hearing. The Santa Fe then backed off on the sale, apparently pending a decision in the P&LE case.

The P&LE is appealing a ruling by a federal judge in Pittsburgh that the unions had a right to be included in sales negotiations on short lines, since the sales usually led to changes in working conditions, most often by the firing of employees.

That ruling came after the Philadelphia appeals court dissolved an injunction against the strike that had been issued by the Pittsburgh judge.

The P&LE effectively was prevented from selling itself until it had reached an agreement with labor. It appealed the decision to the court of appeals.

The ruling basically froze what had been a burgeoning business in short lines, since much of the financial appeal of the branches to investors came

from abrogating the existing labor contracts through the sale.

Labor has contested the sales bitterly for that same reason, in an attempt to preserve jobs or at least secure separation benefits.

The Philadelphia court heard the appeal Jan. 8 and promised a speedy ruling.

CNW Corp. is planning to sell itself to an investor group, Gibbons, Green, van Amerongen and a group of its senior management.

The company that results from the leveraged buy-out will be heavily debt- ridden.

The prospective new owners are counting on such things as the sale of the 208-mile Duck Creek South branch to help finance the deal. The line runs between Duck Creek and Granville, Wis.

Attempts to reach CNW Corp. officials were unsuccessful Tuesday.

The CNW saga already has had more than its share of fallout within the industry.

At CNW's request, the ICC issued a policy statement on labor protection in short-line sales, in which it stated its belief that it, and not the courts, had jurisdiction over that issue.

That decision led to a 3-2 vote and sharply worded dissent from Commissioners Paul Lamboley and J.J. Simmons III.

While CNW has agreed to pay some benefits to employees who lose their jobs as a result of the sale, labor is clearly not satisfied.

One way or the other, the day that the Philadelphia court issues its ruling is sure to be a memorable one in the railroad industry.

However, an appeal to the Supreme Court by the losing side is seen by most observers as a virtual certainty.