Union Pacific Railroad’s Betrayal of Small-Town America

BNSF and Union Pacific train engines in Orange, Texas, in 2017. (Jonathan Bachman/Reuters)
Across the nation, the rail behemoth is taking advantage of the local partners that helped it grow so large.

NRPLUS MEMBER ARTICLE A t the start of the 19th century, America was a rural society that depended on boats and horses for its transportation needs. A century later, it was the greatest industrial power in the world. In the interim, the railroad had carried the industrial revolution across America, building the nation as we know it today.

Many nowadays forget this history, and the crucial role American workers, families, and communities played over generations in building our railroads and expanding them. And in the case of Palestine, in east Texas, that historical amnesia could have serious real-world consequences, as the Union Pacific Railroad now seeks to abandon its long-standing contractual obligations to the town.

In the immediate aftermath of the Civil War, Texas was still a vast and inaccessible frontier with only a few miles of railroads in the very eastern part of the state. Then Texans started building railroads, first expanding them to cover the rest of east Texas and then, eventually, across the entire state. With millions of acres in land grants from the state, and bonds raised for them by local communities like Palestine, the railroads took off, connecting local communities across the state and connecting the state to the nation.

At the heart of Texas’s growing railroads was Palestine, where local leaders negotiated with two early Texas railroads to create a rail juncture. As an incentive, the families of Palestine and Anderson County raised a bond of $150,000 — an enormous sum in those days — and the two railroads agreed to keep their general offices and other facilities in Palestine indefinitely. That agreement was signed in 1872, and within a year the railroads met at Palestine.

In the following decades, the railroads that serviced Palestine went through many reorganizations and changes in ownership. By the early 1950s, they had been acquired by the Missouri-Pacific railroad company. “MoPac,” as it was informally known, reached a deal with Palestine in 1954 to modify the original 1872 shop agreement. Palestine agreed to release the railroad from the 1872 agreement if the railroad would agree to keep 4.5 percent of its employees in Palestine across several specific job categories. If MoPac breached the contract, then the original shop agreement would go back into effect.

When Union Pacific railroad acquired MoPac in 1982, company executives were well-aware of the 1954 agreement and openly affirmed its validity. With Union Pacific’s much larger workforce, the percentage of its employees that had to be maintained in Palestine was much smaller, but otherwise the deal remained the same. In the decades that followed, Union Pacific repeatedly reaffirmed its commitment to the 1954 agreement, and the people of Palestine continued to rely on it in setting their city-planning and economic-development policies.

But then, last November, on the day before Thanksgiving, Union Pacific filed suit in federal court to have the 1954 agreement invalidated. It hopes, essentially, to take the money and run — to close up shop in Palestine, increasing its own profits by laying off scores of workers and leaving the community devastated.

This is no story of a railroad that has fallen on hard times. Union Pacific is one of the most profitable railroads in the world. At most, walking out on its obligations to Palestine will save it less money than some of its executives make in annual bonuses. But it does fit a larger pattern: Underneath the media’s radar, the company has been leaving one town after another reeling from sudden terminations and layoffs in the interest of its own bottom line. From St. Louis and Kansas City in Missouri to Omaha and North Platte in Nebraska to the town of Hermiston in Oregon, Union Pacific has been terminating lifelong employees and union members for years.

Still, the case of Palestine is in one way even worse: Closing up shop in Palestine would violate the terms of the agreement that allowed the railroads and the town to develop and grow alongside each other for generations.

Through most of their expansion, railroads in this country were public–private partnerships, like those that allowed for the development of our country’s highways and public schools. The states gave huge land-grants to the railroads. Local families donated land and rights-of-way, and built houses for railroad workers. Palestine and Anderson County helped finance their railroads the same way many communities finance construction of their public-school buildings. In exchange, the railroads agreed to maintain certain operations in the town. Such “shop agreements” were the base that allowed railroads to spread across the nation, protected by law through bankruptcies and reorganizations.

This is not the first time that the railroads have tried to walk away from their obligations to Palestine. The last time was in the 1970s, when MoPac proposed to merge two of its subsidiaries. At the time, such a merger required authorization from the Interstate Commerce Commission (ICC). Because it considered the 1954 agreement an added complication to the merger, MoPac asked the ICC to rule that the 1954 agreement was a burden on interstate commerce and terminate the agreement under its preemption authority.

The ICC decided in MoPac’s favor, but the U.S. Court of Appeals for the Fifth Circuit reversed that decision in the famous case of Palestine v. United States (1977), ruling that MoPac had gotten enormous value from Palestine and couldn’t simply walk away from the contract. Then, in 1995, Congress passed the ICC Termination Act, replacing the ICC with the Surface Transportation Board (STB). The Act provided the STB with exclusive authority to regulate railroad “practices, routes, services and facilities.” The Act also established that the STB’s remedies “with respect to the regulation of rail transportation” would be exclusive and preempt other legal claims such as those for breach of contract.

Union Pacific was aware of the Fifth Circuit’s ruling and of MoPac’s obligations under the 1954 Agreement when it acquired MoPac in 1982. It repeatedly reaffirmed its commitment to the contract, which it knew Palestine was relying on to craft city-planning and economic-development policies. Yet the company’s lawyers now argue, in effect, that because the ICC Termination Act’s remedies are exclusive, no contract that would otherwise be enforceable under state law is enforceable against it. That’s a clever argument, but it doesn’t withstand scrutiny: If it were made precedent, Union Pacific could sign an ordinary contract for delivery of any goods or services and then refuse to pay up because the contract was unenforceable.

Union Pacific must know that its legal reasoning is shaky, but it doesn’t care. It thinks that because it has infinite resources, while Palestine is just a small town that can barely afford to pay a handful of public officials, it can take advantage of us and walk away with the benefits of a contractual arrangement that has been repeatedly affirmed by the parties and upheld by the courts over almost 150 years.

Generations of families — including our families — have worked to make America’s railroad a national success. We did so because we trusted that the railroads would keep their side of the bargain. Now Union Pacific wants to break that trust, and our town is fighting back. It’s a fight all American families have a stake in.

Steve Presley is the mayor of Palestine, Texas. Robert D. Johnston is the county judge for Anderson County, Texas.

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