Chicago, Milwaukee, St. Paul and Pacific R. Co., Matter of

• Decision Date: 28 June 1984
• Docket Number: 83-1309,Nos. 83-1176,s. 83-1176
• Citation: 738 F.2d 209
• Parties: In the Matter of CHICAGO, MILWAUKEE, ST. PAUL AND PACIFIC RAILROAD COMPANY, Debtor. Appeal of The CITY OF NEW HAMPTON, IOWA.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 209

738 F.2d 209

In the Matter of CHICAGO, MILWAUKEE, ST. PAUL AND PACIFIC RAILROAD COMPANY, Debtor Appeal of The CITY OF NEW HAMPTON, IOWA.

Nos. 83-1176, 83-1309.

United States Court of Appeals Seventh Circuit.

Argued Sept. 19, 1983.

Decided June 28, 1984.

Kevin T. Keating, McDermott, Will & Emery, Chicago, Ill., for appellant.

David M. Spector, Isham, Lincoln & Beale, Chicago, Ill., for respondent.

Before BAUER and WOOD, Circuit Judges, and FAIRCHILD, Senior Circuit Judge.

FAIRCHILD, Senior Circuit Judge.

This appeal is from an order of the district court for the Northern District of Illinois, the court having jurisdiction over the reorganization of the Chicago, Milwaukee, St. Paul and Pacific Railroad Company (Milwaukee Road), setting aside and permanently enjoining condemnation proceedings initiated against the debtor's property by the City of New Hampton, Iowa (the City).

In the fall of 1981 the City began negotiating with the Milwaukee Road for the purchase of four parcels of land owned in fee by the railroad to complete a street paving project. Two of the parcels were located outside of the railroad's tracks and had been used as public streets for many years. The City sought to acquire a fee interest in those parcels. The other two parcels intersected with and continued crossings over the railroad's tracks. The City sought to acquire only a right-of-way easement in the crossings. The paving of the streets and crossings would not interfere with the railroad's operations. The City offered the railroad $21,000 for the property, but the negotiations broke down when the railroad conditioned the sale on reimbursement for installation of a crossing and the waiver by the City of $75,400 in assessments for 1980 and 1981.

When it appeared that a negotiated sale was unlikely, the City initiated a condemnation proceeding against the parcels. The City made no effort to seek the permission of the reorganization court, and proceeded with the condemnation in the face of p 10 of Order Number One, the universal restraining order entered pursuant to 11 U.S.C. Sec. 205(a) upon approval of the petition for reorganization. ¹ On July 25, 1982 the City notified the railroad of the parcels to be taken and that a compensation commission would meet August 5, 1982 to appraise damages. The City asserts that they condemned a right-of-way easement in the two crossings and a fee interest in the other two parcels. The Railroad differs, at least in asserting that the City condemned the fee in all parcels. Two business days after the notice was filed, counsel for the trustee wrote to the City's mayor and attorneys and the Chickasaw County Sheriff contending that the proposed condemnation was in violation of Sec. 77(a) of the Bankruptcy Act and p 10 of the reorganization court's Order Number One.

On August 5, 1982, the day of the hearing, Mr. Jerry Alt, Iowa counsel for the railroad, filed a motion to stay the proceedings with the Chickasaw County Clerk's Office and the Sheriff's Office. The Compensation Commission met on August 5, and Mr. Alt was present. Appellant contends that Mr. Alt actively participated on behalf of the railroad at the hearing before the Commission. The appellee contends that after delivering a prepared presentation concerning Order Number One's effect on the condemnation proceeding, the attorney merely responded to a few questions on valuation and tax matters.

On August 26, 1982 the Sheriff of Chickasaw County sent a "Notice of Appraisement of Damages and Time for Appeal" to the railroad, informing it that the Commission appraised the four parcels at $9,630 and that pursuant to Sec. 478.18 of the Iowa Code, the railroad had 30 days to appeal the award to the district court. The railroad did not appeal.

On September 13, 1982, the railroad applied to the district court for an order to enjoin, set aside and stay the condemnation proceedings by the City of New Hampton. The district court entered Orders 641 and 641-A setting aside and permanently enjoining the purported condemnation proceedings. The City of New Hampton appeals from these orders.

I

The threshold issue in this litigation is whether the reorganization court's Order Number One, enjoining all persons from commencing or continuing any court or other proceedings against the debtor, was effective against a state condemnation proceeding. Under Sec. 77(a) and Sec. 77(j) of the Bankruptcy Act of 1898, 11 U.S.C. Sec. 205 (1976) (repealed 1979), the bankruptcy court has "exclusive jurisdiction over the debtor and its property wherever located" and may enjoin or stay the commencement or continuation of suits against the debtor until after final decree. This jurisdiction is broad and plenary and cannot be infringed upon by proceedings in another court. The original jurisdiction of the reorganization court is superior to that of any other court as a result of the Bankruptcy Act and the Supremacy Clause of Article VI of the Constitution. ² See also New Haven Inclusion Cases, 399 U.S. 392, 420, 90 S.Ct. 2054, 2072, 26 L.Ed.2d 691 (1970); In re New York, New Haven and Hartford Railroad Co., 447 F.2d 428, 429-30 (2nd Cir.1971); In re Chicago and Northwestern Railway Co., 121 F.2d 791, 797 (7th Cir.1941). As Justice Brandeis explained in Ex Parte Baldwin, 291 U.S. 610, 615, 54 S.Ct. 551, 553, 78 L.Ed. 1020 (1934):

[W]here a court of competent jurisdiction has, through its officers, taken property into its possession the property is thereby withdrawn from the jurisdiction of other courts. Having possession, the court may not only issue all writs necessary to protect its possession from physical interference, but is entitled to determine all questions respecting the same.

To protect its jurisdiction from interference the court may issue an injunction against proceedings that have the potential to hamper an effective reorganization. Such an injunction was properly issued in this case upon entry of the general restraining order in p 10 of Order Number One.

Because of the exclusive jurisdiction of the reorganization court it is necessary for a state or municipality contemplating an eminent domain proceeding to obtain leave of the reorganization court. In re New York, New Haven and Hartford Railroad Co., 447 F.2d 428 (2nd Cir.1971); Chicago, Rock Island & Pacific Ry. Co. v. City of Owatonna, 120 F.2d 226 (8th Cir.1941); Blanchette v. State of New York, 412 F.Supp. 219 (S.D.N.Y.1976); but see Commonwealth v. Bartlett, 384 F.2d 819 (1st Cir.1967), cert. denied, 390 U.S. 1003, 88 S.Ct. 1245, 20 L.Ed.2d 103 (1968). Relief from the automatic stay must be obtained even where it can be established, as alleged here, that the taking of the property sought to be condemned would not in any way interfere with the operation of the railroad nor otherwise hamper the prospects for an effective reorganization. In re New York, New Haven and Hartford Railroad Co. ³

The City of New Hampton asserts that prior approval of the reorganization court was unnecessary for the City to proceed with the condemnation, relying on Commonwealth v. Bartlett. Bartlett involved a portion of a right-of-way presently used for railroad operation. The consent of the Interstate Commerce Commission (ICC) had not been sought. However, the Commonwealth conceded that it would be necessary. The holding necessarily assumed that such consent would be obtained, and concluded that further consent by the reorganization court need not be obtained, presumably because the guardian of the public interest in interstate transportation was the ICC.

Bartlett seems to imply that the state may condemn a piece of property of a railroad in reorganization without the consent of the reorganization court if the condemnor can establish, when later challenged, that the taking did not affect railroad operation. Noting that "exclusive jurisdiction of the debtor and its property" was given "for the purposes" of the reorganization proceeding, the court would permit a court or tribunal other than the reorganization court to determine that a particular taking did not impair the purposes of the reorganization and thus that the taking did not impair the reorganization court's "exclusive jurisdiction" properly qualified.

The flaw in this reasoning seems to us to be that some tribunal must decide whether a particular taking is inimical to the purposes of the proceeding, and such decision seems logically to fall within the exclusive jurisdiction given to the reorganization court. The reorganization court must make the determination in the first instance of whether the proposed proceeding would infringe upon the purposes of the reorganization and based upon that inquiry grant or deny relief from the stay. That is the more orderly procedure. Accordingly, we follow the holding of In re New York, New Haven and Hartford Railroad Co. and the other cases cited above, in preference to the holding of Bartlett.

The district court had jurisdiction to issue Order Number One and to enforce it through Orders 641 and 641-A against the City of New Hampton's condemnation proceedings.

II

The City next contends that the permanent injunction issued by the reorganization court is defective because the Milwaukee Road failed to prove irreparable harm and the lack of an adequate remedy at law. This contention is based upon a misunderstanding of the nature of the injunction issued in this case. This is a statutorily authorized injunction pursuant to Sec. 77(j) of the Bankruptcy Act and the All Writs Act. ⁴ The bankruptcy court may issue an injunction when necessary to prevent the defeat or impairment of its jurisdiction. Continental Bank v. Rock Island Ry., 294 U.S. 648, 675-76, 55 S.Ct. 595, 605-06, 79 L.Ed. 1110 (1935); Ex Parte Baldwin, 291 U.S. 610, 54 S.Ct. 551, 78 L.Ed. 1020 (1934).

By proceeding against the debtor's property in eminent domain without prior approval of the reorganization court the City of New Hampton was infringing upon the...