IN RE NEW YORK, NEW HAVEN & HARTFORD RAILROAD CO.

• Citation: 330 F. Supp. 131
• Decision Date: 11 June 1971
• Docket Number: No. 30226.,30226.
• Court: U.S. District Court — District of Connecticut
• Parties: In the Matter of the NEW YORK, NEW HAVEN AND HARTFORD RAILROAD COMPANY, Debtor.

330 F. Supp. 131

In the Matter of the NEW YORK, NEW HAVEN AND HARTFORD RAILROAD COMPANY, Debtor.

No. 30226.

United States District Court, D. Connecticut.

June 11, 1971.

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MEMORANDUM OF DECISION ON ISSUE OF EQUITABLE LIEN AND OTHER MATTERS PRELIMINARY TO REMAND TO INTERSTATE COMMERCE COMMISSION

ANDERSON, Circuit Judge.^*

This is an unusual case, and the features which make it so stem from the basic circumstances that the New Haven Railroad, a deficit operation for several years prior to and throughout the seven years of operation in reorganization, was kept going in the public interest; that it was compelled, again in the public interest, to transfer its properties and assets to Penn Central Transportation Company (Penn Central),¹ receiving in return, at the time, only a small fraction of the true and actual value of the New Haven's properties and assets while it awaited a value determination by the Supreme Court; and that the Penn Central itself went into bankruptcy shortly before the Supreme Court's decision. Although the case is unique, the controlling principles are those of simple justice.

Penn Central filed its petition for reorganization in the Eastern District of Pennsylvania on June 21, 1970. Eight days later, on June 29, 1970 the Supreme Court decided the New Haven Inclusion Cases, 399 U.S. 392, 90 S.Ct. 2054, 26 L.Ed.2d 691. On July 31, 1970 the Supreme Court's judgment was filed in the New Haven reorganization court, which, on August 10, 1970, directed the Trustee of the New Haven and any other parties desiring to be heard to file written statements of position, particularly as to six designated subjects hereinafter referred to as paragraphs A, B, C, D, E and F,² to be considered by the court in connection with the form of order to be issued in carrying out the terms of the Supreme Court decision.

Statements of position and briefs were filed by the principal parties and the case is ready for remand by this court to the Interstate Commerce Commission (I.C. C.). Meanwhile many constructive steps have been taken and much has been accomplished in resolving the problems implicit in these subjects through negotiation by representatives of the Penn Central and New Haven estates, and through action taken by the Penn Central reorganization court, over which Judge John P. Fullam presides. Similarly in the case of the Boston and Providence Railroad Corporation (B & P), there were the additional collaboration of the representatives of the B & P estate and the necessary action by the B & P reorganization court, over which Judge Francis J. W. Ford presides. Thus as to ¶ F, the B & P reorganization has been fully consummated, and a railroad reorganization instituted in 1938 has thereby been concluded.

As to ¶ D, again through negotiation and this time with the approval of the Penn Central reorganization court and this court, the Penn Central Trustees and the New Haven Trustee divided equally some $18 million received from the sale of assets which the New Haven had conveyed to Penn Central on December 31, 1968. While the subject of future drawdowns by the New Haven estate of the proceeds from sales and leases of former New Haven property warrants continued consideration, the matters within ¶ D may at this time be dismissed without prejudice. The subjects of paragraphs A, B, C and E remain for consideration.

JURISDICTION

At the threshold, the Trustees of the Penn Central challenge the jurisdiction of this court to make a declaration as to the foregoing subjects and the issues they involve. This court, however, has long had jurisdiction over the person of Penn Central, both under its present and former name, as a party to this action. See 399 U.S. at 428, n. 57, 90 S.Ct. 2054. At the time of the conveyance of New Haven's assets to Penn Central on December 31, 1968 the court expressly reserved jurisdiction over subject matters relating to the payment of the price, including the form of payment. The Penn Central has appeared and actively participated in all of the proceedings before this court concerning the transfer of assets and payment for them from December 19, 1968 forward, including the period from the time when Penn Central petitioned in reorganization to the present.

This court has the exclusive jurisdiction to determine the effect of the Supreme Court's mandate in the New Haven Inclusion Cases, and this court must decide what is to be done to implement it. The full price required to be paid for the New Haven's assets was decided, but the terms of the payment were not; and this court alone must review and determine what means, pursuant to the Supreme Court's mandate, are proper. The I.C.C. cannot adjudicate the issues of law now before this court, for these lie outside its jurisdiction. The Commission itself has so held in principle in the Boston & Providence Railroad Reorganization Proceedings, 290 I.C.C. 363, 382 (1954), 327 I.C.C. 10, 15 (1966), and, again, in the very proceeding before this court the Commission stated:

"It is not within our jurisdiction to fix New Haven's legal rights, if any, in the Grand Central Terminal properties." Pennsylvania Railroad Company — Merger — New York Central Railroad Company, 331 I.C.C. 643, 680 (1967).

This court, with the aid of a special master appointed by it, adjudged those rights.

So here, the Commission has no jurisdiction to decide the legal questions of the New Haven's status, whether as that of a stockholder or creditor, including the type of creditor, and the further related question as to whether or not the New Haven estate has a full security interest in its former properties for the balance of the purchase price. These are legal questions which are for this court's determination in construing the Supreme Court's mandate. In the circumstances of this case ordinary sense and logic call for a resolution of these paramount issues before remand of the case to the I.C.C. in order that it may proceed with prior knowledge of how the legal questions have been adjudicated.

The Penn Central Trustees point to § 77(a) where it says the reorganization court "* * * shall, during the pendency of the proceedings under this section and for the purposes thereof, have exclusive jurisdiction of the debtor and its property wherever located * * *," and argue that all jurisdiction is in the Penn Central reorganization court and only that court can impose or declare a lien or determine any other questions affecting the New Haven properties transferred to Penn Central on December 31, 1968. Of course, the language of § 77(a) literally gives the New Haven reorganization court exclusive jurisdiction over all legal or equitable interests which the New Haven has in any property, even though it may be in the possession of the Penn Central. The Penn Central's Trustees' argument ignores the fact that the New Haven reorganization court not only reserved jurisdiction over the matter of payment for the assets transferred to Penn Central by the inclusion order itself, but it has a mandate from the Supreme Court to deal further with questions relating to the determination of the rights and obligations of the parties with regard to the form of payment for the property of the New Haven transferred to the Penn Central. It would be odd, indeed, if by the same decision, this court were barred, for example, from determining whether or not in the circumstances an equitable lien should be declared which would relate back to December 31, 1968, the date of the transfer, because meanwhile the transferee, over whom this court has long had jurisdiction with respect to the terms of the transfer, filed for § 77 reorganization itself in the Eastern District of Pennsylvania. It should clearly be borne in mind, however, that this court claims only the power to declare the existence of an equitable lien on the conveyed property, including a constructive trust to the extent of the capitalized value of one-half of the excess income from the Grand Central properties, for the balance due on the purchase price. With the property in the possession of the Trustees of the Penn Central and with the duties of operation resting on that company's Trustees, the New Haven reorganization court does not under present circumstances assert the power to enforce such a lien. The declaration of a lien will have no adverse impact on the ability of the Penn Central to operate as a railroad, and the Penn Central reorganization court will remain wholly in control of the effect, if any, of such a lien on the operations of the railroad and on its reorganization plan formulation.

The fact that the adjudication which the court is now making does not interfere with Penn Central operations or plan formulation distinguishes this case from Gardner v. New Jersey, 329 U.S. 565, 67 S.Ct. 467, 91 L.Ed. 504 (1947), where New Jersey was attempting to pull out chunks of the railroad from the reorganization court's jurisdiction; and from Warren v. Palmer, 310 U.S. 132, 60 S.Ct. 865, 84 L.Ed. 1118 (1940), where the Supreme Court relied on § 77(c) (6) and the principle against interference with operations to sustain the jurisdiction of the New Haven reorganization court. Warren v. Palmer clearly illustrates that the "exclusive jurisdiction" clause cannot literally be relied on. In that case the B & P was under the "exclusive jurisdiction" of the reorganization court in Boston. The New Haven and the Old Colony Railroads were under the "exclusive jurisdiction" of the United States District Court at New Haven. The Old Colony Trustees and the New Haven Trustees rejected the B & P lease; the New Haven was ordered to operate the formerly leased lines for the account of the B & P; and the question was whether the New Haven reorganization court could adjudge a lien for operations on the B & P property. Here there were two reorganization courts, each with "exclusive...