Chicago, Milwaukee St Paul & P. R. Co., Matter of

• Decision Date: 19 May 1981
• Docket Number: No. 80-1677,80-1677
• Citation: 648 F.2d 1261
• Parties: In the Matter of CHICAGO, MILWAUKEE, ST. PAUL AND PACIFIC RAILROAD COMPANY, Debtor. Appeal of CITY OF PRINCEVILLE RAILROAD, The Marinette, Tomahawk & Western Railroad and The Valdosta Southern Railroad.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1261

648 F.2d 1261

In the Matter of CHICAGO, MILWAUKEE, ST. PAUL AND PACIFIC

RAILROAD COMPANY,

Debtor. Appeal of CITY OF PRINCEVILLE RAILROAD, The

Marinette, Tomahawk & Western Railroad and The

Valdosta Southern Railroad.

No. 80-1677.

United States Court of Appeals, Seventh Circuit.

Argued Feb. 23, 1981.

Decided May 19, 1981.

Arthur W. Friedman, Chicago, Ill., for appellant.

Edward Malstrom-Isham, Lincoln & Beale, Chicago, Ill., for appellee.

Before FAIRCHILD, Chief Judge, PELL, Circuit Judge, and CRABB, District Judge. ^*

FAIRCHILD, Chief Judge.

This case raises the question of whether a prior order of the district court entitles certain interline railroads to current payment of car repair accounts for which the Chicago, Milwaukee, St. Paul and Pacific Railroad (Milwaukee Road) became liable prior to initiation of its reorganization proceedings. We hold that the district court did not err in determining that payment in full out of current funds is not mandated by the terms of the earlier order and therefore affirm the judgment appealed from.

The facts relevant to this appeal may be simply stated. The Milwaukee Road filed a petition for reorganization under the bankruptcy laws in the federal district court on December 19, 1977. The following day, in paragraph 3-B of the first order entered in the reorganization proceedings (Order No. 1), the court directed and authorized the Milwaukee Road to pay out of funds then or thereafter in its possession:

"(a)ll interline accounts and balances such as car repairs which are first due to be stated or presented for settlement on or after February 1 1978, (which) could not have been so stated or presented prior thereto."

The petitioners in the instant action are three interline railroads ¹ whose six cars ² were damaged while on the Milwaukee Road's line at various times between December 1976 and November 1977, prior to the filing for reorganization. In each instance the Milwaukee Road, which is responsible for the damages, attached a defect card to the damaged car specifying the nature of the damage and at the request of the respective petitioner moved the car to a Transco, Inc., repair facility in Minnesota, all pursuant to the rules of the Association of American Railroads (AAR). Transco did not complete work on four of the cars until after February 1, 1978, and though the other two cars were finished on January 26, 1978, invoices for them were not received by petitioners until after the February 1 deadline.

Claiming that the car repair accounts could not have been stated or presented for settlement prior to February 1, 1978 because the amounts of those charges were as of then still unknown to them petitioners requested the district court to compel the Milwaukee Road to currently pay for the repairs. That petition to enforce Order No. 1 was denied by the court with a brief memorandum. Though the court did not clearly enunciate the basis for its decision, it observed, in part, that petitioners had conceded "that their car damage charges (did) not constitute current expenses and costs incurred by the trustee," and declined to order that "petitioners' claim for pre-petition car damage should be paid while claims for post-petition state property taxes, interest on funded or fixed debt, and employee claims for labor protection (were) deferred."

On appeal petitioners urge that the district court's action cannot be reconciled with the language of its prior order. It is their position that the terms of Order No. 1 are clear and without need of interpretation; that the relevant inquiry is simply whether the charges could have been stated or presented before February 1, 1978; and that because those amounts were at that point unknown, the accounts were entitled to payment from current funds.

We begin our analysis by noting that there are two distinct parts to the language of paragraph 3-B. First, the account must be "first due to be stated or presented on or after February 1, 1978"; secondly, it must also be one which "could not have been so stated or presented prior thereto." Both criteria must be met for a claim to qualify for current payment.

The principal difficulty with petitioners' argument is that it conveniently overlooks several terminological ambiguities in key phrases of paragraph 3-B. Petitioners assume that "first due to be stated or presented" is equivalent to "first able to be stated or presented," and insist that because they did not have the invoices from Transco, they were unable to state or present those claims before February 1. It may be asserted, not implausibly, however, that by using the word "due" the court was speaking in terms of accrual not ability, and that it was concerned with the point at which the liability attached, rather than when the amount of the liability became certain. Under this view, a charge would be "due" to be first stated or presented once the liability had been incurred. Similarly, petitioners uncritically assume that the car repair claims "could not have been stated or presented prior" to February 1 because, as events turned out, they had not received the bills for the repairs. In contrast, however, the Milwaukee Road suggests that the words "could not" should be read restrictively and that since the repairs could conceivably have been done more quickly, current payment should be denied. Added to the above uncertainties is the further question of whether there is a difference between what constitutes a first statement and a first presentment.

These ambiguities are not merely sophistic, but instead go to the heart of what the district court intended in issuing Order No. 1. Petitioners offer little in the way of operative facts, past practice, or legal precedent that is capable of resolving these questions.

First, petitioners chiefly rely upon AAR rule 102(19), which is incorporated by reference, along with the Association's other rules, into Order No. 1. Rule 102(19) states:

"Charges in effect at date defect card repairs are completed will govern regardless of the date of defect card."

This rule does not purport to define what constitutes a statement or presentment of an account, nor does it say when such action is first due to be taken or could not have been taken. It simply requires that the amount eventually paid be calculated in accordance with prices in effect at the time the work is finished. Rule 102(19) no more informs us of how to properly interpret Order No. 1 than does AAR rule 102(20) which petitioners do not cite which, by providing that the "(r)ule in effect on date of defect card shall govern responsibility for repairs," indicates that liability arose prior to the...