In re Penn Central Transportation Company, 70-347.

• Decision Date: 02 May 1974
• Docket Number: No. 70-347.,70-347.
• Citation: 382 F. Supp. 831
• Parties: In the Matter of PENN CENTRAL TRANSPORTATION COMPANY, Debtor. In re In Proceedings for the REORGANIZATION OF A RAILROAD.
• Court: U.S. District Court — Eastern District of Pennsylvania

382 F. Supp. 831

In the Matter of PENN CENTRAL TRANSPORTATION COMPANY, Debtor In re In Proceedings for the REORGANIZATION OF A RAILROAD.

No. 70-347.

United States District Court, E. D. Pennsylvania.

May 2, 1974.

Paul Duke, James Howard, John B. Rossi, Jr., and John De Podesta, Philadelphia, Pa., and Covington & Burling by Charles Horsky, Washington, D.C., for the trustees, Penn Cent. Trans. Co.

James William Moore, Philadelphia, Pa., Sullivan & Worcester by Joseph Auerbach, Boston, Mass., and Gratz, Tate, Spiegel, Ervin & Ruthrauff by Spencer Ervin, Jr., Philadelphia, Pa., for Richard Joyce Smith, trustee, New York, New Haven & Hartford Railroad Co.

James F. Dausch, Dept. of Justice, Washington, D.C., for the United States of America.

Ballard, Spahr, Andrews & Ingersoll by Frederic L. Ballard, and Alan Fellheimer, Philadelphia, Pa., for Girard Trust Bank and indenture trustees.

Willkie, Farr & Gallagher by Walter H. Brown, Jr., and Louis A. Craco, New York City, and Ballard, Spahr, Andrews & Ingersoll by Frederic L. Ballard, Philadelphia, Pa., for Institutional Investors Penn Cent. Group.

Rogers & Wells by William R. Glendon, New York City, and Clark, Ladner, Fortenbaugh & Young by William Charles Hogg, Jr., Philadelphia, Pa., for Committee of Interline Railroads.

Fox, Rothschild, O'Brien & Frankel by Nochem S. Winnet, Philadelphia, Pa., and Shearman & Sterling by Robert H. Mackinnon, W. Foster Wollen, New York City, and David Blau, for First National City Bank of New York.

David Berger, P. A. by David Berger, and Edward Rubenstone, Philadelphia, Pa., for Penn Cent. Co.

White & Case by Donald M. Wilkinson, Jr., Barry S. Greene, and Edmond C. Gregorian, New York City, for Bankers Trust Co., as indenture trustee.

Proskauer, Rose, Goetz & Mendelsohn by Philip M. Hahn, New York City, for The Bank of New York, as indenture trustee.

Reed, Smith, Shaw & McClay by Andrew N. Farley, Pittsburgh, Pa., for Mellon Bank, N.A.

Richards, Layton & Finger by Richard G. Elliott, Jr., Wilmington, Del., for Wilmington Trust Co., as indenture trustee.

O'Connell & Aronowitz by Cornelius D. Murray, Albany, N.Y., for National Commercial Bank & Trust Co. of Albany, New York.

Winthrop, Stimson, Putnam & Roberts by Edward A. Christensen, New York City, for Irving Trust Co., as indenture trustee.

Curtin & Heefner by Edward I. Dobin, Morrisville, Pa., for The Bank of New Jersey.

Morgan, Lewis & Bockius by John N. Schaeffer, Jr., and Edward B. Cloues, II, Philadelphia, Pa., for The Fidelity Bank.

Kelley, Drye, Warren, Clark, Carr & Ellis by Robert J. Minyward, and William F. Sorin, New York City, for Manufacturers Hanover Trust Co.

Wolf, Block, Schorr & Solis-Cohen by Michael L. Temin, Philadelphia, Pa., for First Pennsylvania Banking & Trust Co., indenture trustee.

Sharon, Pierson, Semmes, Crolius & Finley by William T. Finley, Jr., Washington, D.C., for Pennsylvania Co.

Marsh, Day & Calhoun by Peter Wilkinson, Bridgeport, Conn., for The City National Bank of Connecticut.

Winne & Banta by Peter G. Banta, Hackensack, N.J., for Peoples Trust of New Jersey, indenture trustee.

Migdal, Tenney, Glass & Pollack by Lester C. Migdal, New York City, for New York, New Haven & Hartford Railroad Co. First Mortgage 4% Bondholders Committee.

Leon Leighton, New York City, for minority stockholders of Mahoning Coal Railroad.

Tyler, Cooper, Grant, Bowerman & Keefe by Lawrence W. Iannotti, New Haven, Conn., for L. W. Iannotti, successor indenture trustee of New York, New Haven & Hartford First Mortgage Bonds.

Gordon P. Macdougall, Washington, D.C., for Commonwealth of Pennsylvania.

Leroy D. Touchton, Deputy Atty. Gen., for the State of New Jersey.

John C. McTiernan, Albany, N.Y., for New York State Dept. of Trans.

William J. Rubin, Asst. Atty. Gen., for the State of Maryland.

Mulholland, Hickey & Lyman by Geoffrey N. Zeh, Washington, D.C., for Railway Labor Executives' Association.

Joseph A. Schafer, C.P.A., appearing on his own behalf as independent minority stockholder.

Richard H. Streeter, Washington, D. C., for Interstate Commerce Commission.

MEMORANDUM AND ORDER NO. 1543, and FINDINGS PURSUANT TO THE FIRST SENTENCE OF § 207(b) of the Regional Rail Reorganization Act of 1973

FULLAM, District Judge.

Section 207(b) of the Regional Rail Reorganization Act of 1973 (hereinafter the "Act"), provides:

"Within 120 days after the date of enactment of this Act each United States district court or other court having jurisdiction over a railroad in reorganization shall decide whether the railroad is reorganizable on an income basis within a reasonable time under section 77 of the Bankruptcy Act (11 U.S.C. § 205) and that the public interest would be better served by continuing the present reorganization proceedings than by a reorganization under this Act. . . ."

The Debtor is a "railroad in reorganization" as defined in the Act. The statute became effective January 2, 1974, which means that the decision as to reorganizability is to be made not later than May 2, 1974.

By Order No. 1426, this Court directed that a hearing be held on March 25, 1974, in relation to the decision required by the quoted language of the statute, and invited all interested parties, at stated times in advance of the hearing, to specify and brief the legal and factual issues they deemed relevant to the required determination. In response to this invitation, a wide range of questions have been briefed and presented, but in view of the factual record developed at the hearing, not all of these issues need now be discussed.

I. Jurisdictional and Other Preliminary Issues

It is necessary to note at the outset that the constitutionality of the Act is being challenged on a variety of grounds in other litigation now pending in this District and elsewhere.¹ Many of the same constitutional issues have been raised in the present proceeding. For the most part, they will not now be considered. Apart from the question of whether this Court should attempt to avoid deciding the constitutional issues, in deference to the three-judge proceedings, it would seem that these issues can and should be deferred for consideration in connection with the findings contemplated by the second clause of § 207(b) (the so-called "180-day findings").

The only constitutional issues which must be faced now are those expressing a challenge to the jurisdiction of this Court to make the findings required by § 207(b).

The findings contemplated by the first sentence of § 207(b), the so-called "120-day" findings, embrace two areas of inquiry (1) whether the Debtor "is reorganizable on an income basis within a reasonable time under section 77 . . ." and (2) "whether the public interest would be better served by continuing the present proceedings than by a reorganization under this Act. . . ." The New Haven Trustee contends that this Court lacks power to make findings on either subject because there is no "case or controversy" before the Court; and further argues that making findings with regard to "the public interest" is not a judicial function and cannot be delegated to a court, at least in the absence of adequately defined standards.

A. "Case or Controversy"

I have concluded that a finding on the issue of reorganizability may properly be made by an Article III court. The reorganization proceeding itself is the "case or controversy" which justifies judicial action. While there might perhaps be some question as to the validity of legislative intrusion into specific pending litigation by fixing deadlines for decision of particular issues (a question which has not been raised in the present proceeding, and as to which I intimate no view), it is entirely clear that a court may properly comply with such deadlines; its pre-existing jurisdiction would not be impaired.

It is true that the Act does not prescribe procedural machinery for making the required findings in an adversary setting: there is no petitioner or respondent; indeed, the Act does not even mandate a hearing. But there is no requirement that the norms of procedural due process must be disregarded, and they have not been. All parties have been afforded ample opportunity to be heard.

It is also true that the statute provides little or no guidance on the question of the proper allocation of the burden of proof; but that shortcoming is not, in my view, jurisdictional.

In short, there appears to be no valid reason for reaching any conclusion other than the obvious one, namely, that a reorganization court does have jurisdiction to make findings concerning reorganizability of the Debtor.

B. Public Interest

The principal thrust of the New Haven Trustee's jurisdictional argument is that a determination as to whether the public interest would be better served by continuing the § 77 proceeding or by proceeding pursuant to the 1973 Act is essentially legislative in character, and cannot be delegated to an Article III court. The government and other parties counter with the argument that the Act itself adequately discloses what Congress intended to define as the public interest, and that all that is required is performance of the normal judicial function of fact-finding.

Unless there is a finding that the Debtor is reorganizable under § 77, there is no necessity for making a public interest comparison under § 207(b). Since I have reached the conclusion that the Debtor is not reorganizable, there is no present necessity for resolving the second phase of the jurisdictional argument.

II. Definition of "Reorganizable on an Income Basis Within a Reasonable Time under § 77 of the Bankruptcy Act"

The parties are not in complete agreement as to whether the standards for determining reorganizability under the Act are different from, or identical to, the standards of § 77. More importantly, there is lack of agreement as to what constitutes a valid plan of reorganization under § 77.

For example, the New Haven Inclusion Cases, 399 U.S. 392, 90...