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

• Decision Date: 28 February 1985
• Docket Number: 84-1622,Nos. 84-1377,s. 84-1377
• Citation: 756 F.2d 508
• Parties: Bankr. L. Rep. P 70,298 In the Matter of CHICAGO, MILWAUKEE, ST. PAUL AND PACIFIC RAILROAD COMPANY. Appeal of GRAND TRUNK CORPORATION.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 508

756 F.2d 508

Bankr. L. Rep. P 70,298

In the Matter of CHICAGO, MILWAUKEE, ST. PAUL AND PACIFIC RAILROAD COMPANY Appeal of GRAND TRUNK CORPORATION.

Nos. 84-1377, 84-1622.

United States Court of Appeals Seventh Circuit.

Argued Jan. 10, 1985.

Decided Feb. 28, 1985.

Basil Cole, Jr., Hamel & Park, Washington, D.C., Denise O'Brien, Wis. Dept. of Transp., Madison, Wis., for plaintiff.

Robert H. Wheeler, Isham, Lincoln & Beale, Chicago, Ill., Henri F. Rush, I.C.C., Washington, D.C., Michael L. Cook, Skadden, Arps, Slate & Meagher & Flom, New York City, for defendant.

Before ESCHBACH, POSNER, and COFFEY, Circuit Judges.

POSNER, Circuit Judge.

We are asked in this interlocutory appeal by the Grand Trunk Corporation to decide whether the district court that is presiding over the reorganization in bankruptcy of the Milwaukee Road (the Chicago, Milwaukee, St. Paul and Pacific Railroad Company) erred in allowing the Soo Line Railroad Company (1) to join the bidding competition for the Milwaukee Road's remaining railroad assets and (2) to submit its bid under section 5(b) of the Milwaukee Railroad Restructuring Act, which establishes procedures for the sale of rail lines of the Milwaukee Road but, the Grand Trunk argues, not for the sale of the Milwaukee Road's entire remaining rail business. We must first decide an issue of appellate jurisdiction and then, depending on how we resolve that issue, consider the interrelationship of section 5(b) of the Milwaukee Act, 45 U.S.C. Sec. 904(b), the line-acquisition and corporate-control (merger and consolidation) provisions of the Interstate Commerce Act, 49 U.S.C. Secs. 10901 and 11343-11345, respectively, and section 77 of the Bankruptcy Act of 1898, 11 U.S.C. Sec. 205 (1976 ed.). Although section 77 has been repealed, it remains applicable to proceedings filed under it before the repeal. See Bankruptcy Reform Act of 1978, Pub.L. 95-598, Title IV, Sec. 403(a), 92 Stat. 2683.

In 1977 the Milwaukee Road, then the country's seventh largest railroad, sought shelter under section 77. It became apparent that to avoid complete collapse the railroad would have to sell or abandon at least two-thirds of its lines. The difficulty was that under the rules of the Interstate Commerce Commission any purchaser of those lines would be required to assume astronomical financial obligations to the workers made redundant by the purchase. It seemed the only way out was for the district court presiding over the reorganization to "embargo" (authorize cessation of operations on) the lines the Milwaukee wanted to get rid of, in the hope that the Commission could be bypassed in this way. When we upheld the embargo, In re Chicago, M., S.P. & P.R.R., 611 F.2d 662, 668-70 (7th Cir.1979) (per curiam), a major shutdown of rail service was imminent and Congress promptly stepped in and passed the Milwaukee Railroad Restructuring Act. See In re Chicago, M., S.P. & P.R.R., 713 F.2d 274, 277-78 (7th Cir.1983).

The trustee of the Milwaukee Road proceeded to dispose of lines piecemeal till only a third of the original lines were left, but even in its shrunken state the Milwaukee Road is a substantial operating railroad with more than 3,000 miles of track and more than $300 million in annual revenues. In 1981 the Grand Trunk Railway expressed interest in buying what was left of the railroad. (The Milwaukee Road also has real estate and other nonrail assets, but they will remain with the reorganized corporation when it emerges from bankruptcy.) The trustee agreed with the Grand Trunk to coordinate the services of the two railroads in the hope of improving service and reducing costs and later agreed to sell the common stock of the Milwaukee Road to the Grand Trunk subject to the district court's approval.

The trustee filed an amended plan of reorganization with the district court, recommending approval of the sale, and the court referred the matter to the Interstate Commerce Commission for consideration under the corporate-control provisions of the Interstate Commerce Act. Under these provisions the Commission "shall require" that inconsistent applications for a merger or consolidation between two Class I railroads be filed within 90 days, 49 U.S.C. Sec. 11345(b)(2), and the district court imposed the same deadline for any inconsistent plan of reorganization. This meant that such a plan would have to be filed with the court and Commission no later than July 27, 1983. On that day the Chicago and North Western Railroad submitted to the court and the Commission an inconsistent plan of reorganization whereby it rather than the Grand Trunk would buy the Milwaukee Road. The Soo did not enter the picture till August 1983, when it told the district court that it was planning to ask the court's permission to propose its own plan; and it was not until January 1984 that the Soo asked for an extension of time to file its plan and also for authorization to buy the Milwaukee Road under section 5(b) of the Milwaukee Railroad Restructuring Act. Section 5(b)(1) empowers the district court to "authorize the sale or transfer of a line of the Milwaukee Railroad to be used in continued rail operations, subject to the approval of the Commission under" section 5(b)(2), which allows the court to approve the sale or transfer if the Commission either approves it or takes no action on it within 180 days.

In February and March 1984 the court granted both of the Soo's requests and referred its application to the Commission, and it is these actions by the district court that the Grand Trunk is trying to appeal to us. The Commission obligingly waived its 90-day deadline for the Soo and permitted the Soo to proceed under section 5(b). The Grand Trunk and the C & NW then filed their own section 5(b) applications--the Grand Trunk under protest. The Commission processed the three applications under the same standards it uses for evaluating a proposed railroad merger or consolidation, only did so within 180 days as required by section 5(b). In September 1984 the Commission announced that it had approved the Soo's offer but had disapproved the Grand Trunk's and had taken no action on the C & NW's. Chicago, M., S.P. & P.R.R.--Reorganization--Acquisition by Grand Trunk Corp., Fin.Dkt. No. 28640 (Sub-No. 9). The Commission estimated that the Soo and C & NW offers were each worth about $570 million, compared to $410 million for the Grand Trunk's. See id. at p. 54. In December, after the C & NW had further sweetened its offer, the Commission decided to approve that offer too. The Commission's decisions put the ball back in the district court, which after holding hearings on the question whether to approve the sale of the Milwaukee Road to the Soo or the C & NW announced on February 8, 1985, that it was approving the sale to the Soo.

Section 24(a) of the Bankruptcy Act of 1898, 11 U.S.C. Sec. 47(a) (1976 ed.), gives us appellate jurisdiction over "proceedings in bankruptcy, either interlocutory or final, and in controversies arising in proceedings in bankruptcy," with limitations not pertinent here. This confusing wording, making an interlocutory proceeding appealable but not an interlocutory controversy, without indicating what the difference between a "proceeding" and a "controversy" is, has been the source of endless difficulties, though it may be hoped that this appeal will be one of the last occasions on which the issue must be faced. For the Bankruptcy Act enacted in 1978 and amended in 1984 has eliminated the distinction. Under the new act, interlocutory orders by bankruptcy judges are appealable to the district court, but only with the district court's permission; and only final decisions by the district court are appealable to the court of appeals. See 28 U.S.C.A. Secs. 158(a), (d) (West Supp. Sept. 1984); In re Riggsby, 745 F.2d 1153 (7th Cir.1984).

A "controversy" under section 24(a) is basically a claim--a neatly severable dispute within the overall framework of the bankruptcy proceeding, much like a separate lawsuit--to which the normal requirement of finality is fully suitable. A tort claim against the bankrupt would be a good example; it is functionally a small lawsuit nested in the overall bankruptcy proceeding. A proceeding, in contrast, has reference to the actual administration of the bankrupt estate. Put differently (and not entirely precisely), a controversy relates to disputes with actual or potential creditors over dividing up the pie represented by the bankrupt estate, while a proceeding relates to disputes over trying to make the pie as big as possible. See, e.g., Citibank, N.A. v. Fullam, 580 F.2d 82, 88-89 (3d Cir.1978); cf. Taylor v. Voss, 271 U.S. 176, 180-81, 46 S.Ct. 461, 463, 70 L.Ed. 889 (1926). Alternatively, the statutory term "interlocutory proceedings" can be read to make interlocutory orders in the bankruptcy proceeding itself, as opposed to orders finally disposing of separable controversies, appealable. Read either way, section 24(a) creates the prospect that most of the hundreds of orders that a court issues in the course of a protracted reorganization such as this one (now in its eighth year) are appealable as a matter of right. It is an ominous prospect; the orders that the Grand Trunk has appealed are numbered 730 and 736. It might mean that if a party wanted to file an oversized brief that was not related to a "controversy," and the district court refused to let him, he could appeal to us.

The courts have avoided this ridiculous result by reading into section 24(a) an exception for "trivial orders." See, e.g., 9 Moore's Federal Practice p 110.15, at p. 226 (2d ed. 1983). If the "trivial order" doctrine seems rather a bold exercise in judicial rewriting of unequivocal statutory language, it can nevertheless be defended by noting that orders in bankruptcy proceedings, whether interlocutory or final, originally were appealable only with the permission of the court of appeals. This...