In Re Penn Central Transportation Company

Decision Date27 April 1973
Docket NumberNo. 72-1292 to 72-1294 and 72-1305 to 72-1308.,72-1292 to 72-1294 and 72-1305 to 72-1308.
Citation477 F.2d 841
PartiesIn the Matter of PENN CENTRAL TRANSPORTATION COMPANY, Debtor. Appeal of BETHLEHEM STEEL CORPORATION, a Delaware corporation in No. 72-1292. Appeal of REPUBLIC STEEL CORPORATION, Cleveland, Ohio in No. 72-1293. Appeal of BLUEBIRD FOOD PRODUCTS COMPANY in No. 72-1294. Appeal of HARRY R. DEFLER CORPORATION in No. 72-1305. Appeal of UNITED STATES STEEL CORPORATION in No. 72-1306. Appeal of THOMAS J. HOLT CO., INC., in No. 72-1307. Appeal of MILLER LUMBER CO., INC., Montross, Virginia in No. 72-1308.
CourtU.S. Court of Appeals — Third Circuit

COPYRIGHT MATERIAL OMITTED

W. Bradley Ward, Samuel D. Slade, Schnader, Harrison, Segal & Lewis, Philadelphia, Pa., for Bethlehem Steel Corp.

John S. Estey, William R. Dimeling, Montgomery, McCracken, Walker & Rhoads, Philadelphia, Pa., for Republic Steel Corp. and Miller Lumber.

Robert C. Cohen, Meltzer & Schiffrin, Philadelphia, Pa., for Blue Bird Food Products Co.

Henry T. Reath, Reeder R. Fox, Duane, Morris & Heckscher, Philadelphia, Pa., for H. R. Defler Corp. and U.S. Steel Corp.

Ned Stein, Comanor & Stein, Philadelphia, Pa., for Thomas J. Holt Co., Inc.

Marvin Comisky, Goncer M. Krestal, Blank, Rome, Klaus & Comisky, Paul R. Duke, Philadelphia, Pa., for appellee.

Before SEITZ, Chief Judge, ALDISERT, Circuit Judge, and LACEY, District Judge.

OPINION OF THE COURT

SEITZ, Chief Judge.

The basic issue presented on this appeal is whether a reorganization court in a § 77 proceeding has summary jurisdiction to enjoin a non-judicial set-off of claims for goods, services, and shipping losses and damages against freight charges, where such set-offs were effected prior to the Debtor's filing for reorganization.

The dispute arises out of a petition filed by the railroad trustees. The petition requested the court to issue an order directing certain shippers, including appellants, to pay bills still outstanding for pre-reorganization freight services, i.e., for charges incurred prior to June 21, 1970. Appellants filed answers and briefs asserting the right of set-off against these charges; these set-offs involved claims on charges for supplies and freight loss and damage claims arising during the period prior to the commencement of the reorganization proceedings.1 Appellants contend that the amount of these set-offs exceeded the amounts owed for freight charges.

Although an affidavit was filed by the trustees alleging the amounts due them, the hearing below focused relatively little upon the validity of these amounts. Rather, it consisted almost entirely of oral argument on whether the reorganization court's summary jurisdiction as to these claims was defeated by the presence of appellant shippers' competing claims. After hearing argument on this latter point, the court determined it had summary jurisdiction and entered an order enjoining any set-off by appellants against monies owed by them for pre-reorganization freight charges. However, it deferred ruling on the amount of those charges still outstanding. This appeal followed.

Two conclusions were basic to the court's determination that it had summary jurisdiction over this controversy. First, it concluded that a regulated carrier's freight charges constitute a chose in action. Secondly, it concluded that under §§ 3(1) and 6(7) of the Interstate Commerce Act 49 U.S.C. §§ 3(1) & 6(7) (1971), a shipper's claims against the carrier are not a defense to the carrier's claim for freight charges due. Therefore, since appellant shippers did not assert colorable adverse claims to the Debtor's choses in action, the court determined that it had the right to exercise summary jurisdiction with respect to the carrier's claims for freight charges.

The court's determination was based upon the holding of this circuit in Matter of Penn Central Transportation Company, 453 F.2d 520 (1972).2 There we held that where there is no bona fide dispute concerning the Debtor's right in a chose in action at the time reorganization proceedings are instituted, the reorganization court can exercise summary jurisdiction under the statute with respect to the enforcement of that chose. Therefore, assuming the freight charges owed can be conclusively established on remand, the issue for our resolution becomes whether the pre-reorganization set-offs effected by appellants in settlement of their claims created a bona fide dispute as to the Debtor's legal entitlement to the freight charges previous to the filing of the reorganization petition.3

Under the Interstate Commerce Act, freight charges incurred pursuant to a filed tariff are accorded a legally superior status: that of a law. The only defense which can be raised to a carrier's suit for these legal charges is that the services have been paid for, that the services were not rendered, that the services were charged under an inapplicable tariff schedule, or that the rates were unreasonable.

The purpose of this limitation on defenses to an action by a carrier was to prevent secret kickbacks and preferences between large shippers and carriers. Thus, a set-off for damages incurred in shipment is not considered a defense since the potential for effecting preferences under such a guise seemed manifest. Similarly, a shipper and carrier cannot make provision for the supplying of goods and/or services in exchange for carriage. See, e.g., Northeast Airlines v. CAB, 345 F.2d 662 (1st Cir. 1965). Complementing this statutory scheme was a provision mandating that freight was not to be delivered until paid for in order to prevent the giving of preferences through the extension of credit. 49 U.S.C. § 2(1971). Present Interstate Commerce Commission regulations in fact require a carrier to institute suit promptly if payment for freight charges is not made within ten days. Therefore, freight tariffs are accorded a special legal status which make inapplicable analogy to normal rules of commercial law.

Appellants rely principally upon the Supreme Court's opinion in Chicago & N.W. Ry. v. Lindell, 281 U.S. 14, 50 S. Ct. 200, 74 L.Ed. 670 (1930). There, as here, a carrier sued to collect freight charges; the shipper counterclaimed, asserting a loss due to the carrier's failure to perform under the shipping contract. The Court allowed the counterclaim to be asserted against the carrier in the same action, stating:

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25 cases
  • Matter of Penn Central Transp. Co.
    • United States
    • United States District Courts. 3th Circuit. United States District Court (Eastern District of Pennsylvania)
    • March 17, 1978
    ...the petition was filed, are treated as pre-bankruptcy obligations. However, to the extent that, under the ruling in In re Penn Central Transp. Co., 477 F.2d 841 (3d Cir.), probable jurisd. noted, United States Steel Corp. v. Penn Central Transp. Co., 414 U.S. 885, 94 S.Ct. 231, 38 L.Ed.2d 1......
  • 41 243 Baker v. Gold Seal Liquors, Inc 8212 804
    • United States
    • United States Supreme Court
    • June 17, 1974
    ...loss and damage claims against amounts owed for transportation claims. That order, 339 F.Supp. 603, was affirmed by the Court of Appeals, 477 F.2d 841, and by this Court, sub nom., United States Steel Corp. v. Trustees of Penn Central Transp. Co., 414 U.S. 885, 94 S.Ct. 231, 38 L.Ed.2d The ......
  • Reading Co., Matter of, s. 82-1557
    • United States
    • United States Courts of Appeals. United States Court of Appeals (3rd Circuit)
    • June 16, 1983
    ...the existence and the amount of his obligation to the debtor. Lehigh Valley Railroad, 458 F.2d at 1043-44; see In re Penn Central Transportation Co., 477 F.2d 841, 844 (3d Cir.), aff'd in part, 414 U.S. 885, 94 S.Ct. 231, 38 L.Ed.2d 137, cert. denied in part, 414 U.S. 923, 94 S.Ct. 219, 38 ......
  • Consolidated Rail Corp. v. Primary Industries Corp.
    • United States
    • United States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York
    • November 10, 1994
    ...Amendment, which by its nature makes claims for shipping charges and claims for damages separate causes of action. In re Penn Cent. Transportation Co., 477 F.2d 841 (3d Cir.), cert. denied, 414 U.S. 923, 94 S.Ct. 219, 38 L.Ed.2d 157 (1973); Southern Pacific Co. v. Miller Abattoir Co., 454 F......
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