In re Penn Central Transportation Company

Citation452 F.2d 1107
Decision Date28 December 1971
Docket Number71-1151.,No. 71-1066,71-1066
PartiesIn the Matter of PENN CENTRAL TRANSPORTATION COMPANY, Debtor. Appeal of STATE OF NEW YORK, 71-1066. Appeal of STATE OF NEW JERSEY, 71-1151.
CourtUnited States Courts of Appeals. United States Court of Appeals (3rd Circuit)

Vincent P. Molineaux, Asst. Atty. Gen., State of N. Y., Dept. of Law, Albany, N. Y., for appellant.

Edwin P. Rome, Blank, Rome, Klaus & Comisky, Philadelphia, Pa., for appellee.

Before SEITZ, Chief Judge, and KALODNER and GIBBONS, Circuit Judges.

OPINION OF THE COURT

SEITZ, Chief Judge.

Shortly after the trustees were appointed to reorganize Penn Central Transportation Company, it became apparent that anticipated revenues from company operations and other sources would be insufficient to meet its current operating obligations. A substantial part of its current obligations consists of tax assessments levied by various states and their municipalities on property owned or leased by Penn Central. Annually these assessments approximate $64,000,000.

In an attempt to maintain rail service despite the foreseeable operating deficit, the trustees petitioned the reorganization court for authority to defer their obligation to pay property taxes accruing since the beginning of the reorganization. During the hearing on their petition, the trustees presented cash-flow projections, affidavits and other exhibits. These indicated that a deferral of such taxes was mandatory if other current operating expenses such as payroll, fuel and maintenance obligations were to be met. On the basis of this evidence the district court found that it would be "impossible for Penn Central to pay any substantial part of its tax liability by December 31, 1970." Neither appellant disputes that finding. The court then entered Order No. 70 directing the trustees to make no payment of taxes until further order and enjoining all governmental entities from taking any action involving seizure, foreclosure, or a tax sale. The only exceptions to the order authorized payment of all payroll and withholding taxes as well as all current taxes owed taxing entities which filed proof that the company's unpaid tax liability to such entity equaled or exceeded 15% of that entity's current annual budget.

The states of New Jersey and New York have appealed Order No. 70 on behalf of themselves and their respective municipalities asserting tax assessments against Penn Central.

The principal issue to be considered is whether the reorganization court was empowered pursuant to the Bankruptcy Act to authorize the trustees in reorganization to defer temporarily the payment of property taxes accruing during the reorganization and to enjoin appellants from instituting any self-help measures to collect their respective assessments. Since they accrued during reorganization the taxes here at issue are administrative expenses entitled ultimately to share pro rata with all claims within the first priority classification under section 64 of the Act, 11 U.S.C. § 104. Pro rata participation, however, does not necessarily imply that all claims are entitled to simultaneous participation. To so hold would unduly impair the flexibility so essential to a reorganization proceeding. As noted by the Supreme Court in Continental Illinois National Bank & Trust Co. v. Chicago, Rock Island & Pacific Ry., 294 U.S. 648, 676, 55 S.Ct. 595, 606, 79 L.Ed. 1110 (1935), which involved the authority of a reorganization court to enjoin foreclosure by creditors against secured collateral:

"It may be that in an ordinary bankruptcy proceeding . . . an injunction . . . would not be sustained. . . . But a proceeding under § 77 is not an ordinary proceeding in bankruptcy. It is a special proceeding which seeks only to bring about a reorganization, if a satisfactory plan to that end can be devised. And to prevent the attainment of that object is to defeat the very end the accomplishment of which was the sole aim of the section, and thereby to render its provisions futile."

After due inquiry the district court concluded in effect that immediate payment of the property taxes in question would probably defeat the reorganization. It therefore decided that under the circumstances the only viable recourse was to postpone such payment for a reasonable time, taking into consideration the competing public interests inherent in reorganizing the railroad and in maintaining the revenues of the various taxing entities affected by the injunction. Appellants do not point to any record basis which would suggest that ultimately the company's assets will be inadequate to meet in full the reasonably foreseeable first...

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20 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
    ...to an express Order of this Court, duly affirmed on appeal. In re Penn Central Transp. Co., 325 F.Supp. 294 (E.D.Pa. 1970), aff'd, 452 F.2d 1107 (3d Cir. 1971), cert. denied, 406 U.S. 944, 92 S.Ct. 2040, 32 L.Ed.2d 331 (1972). To hold that the estate should be punished for continuing to pro......
  • Chicago, M., St. P. & Pac. R. Co., Matter of, s. 80-1347
    • United States
    • United States Courts of Appeals. United States Court of Appeals (7th Circuit)
    • August 17, 1981
    ...Valley Railroad Co., 458 F.2d 1041, 1045 (3d Cir. 1972) (payment of lien on debtor's property deferred); In re Penn Central Transportation Co., 452 F.2d 1107, 1108-09 (3d Cir. 1971), cert. denied, 406 U.S. 944, 92 S.Ct. 2040, 32 L.Ed.2d 331 (1972) (payment of taxes accruing during the reorg......
  • Boston and Maine Corp., In re, 83-1086
    • United States
    • United States Courts of Appeals. United States Court of Appeals (1st Circuit)
    • September 30, 1983
    ...of discretion in determining when taxes are to be paid. See In re Boston and Maine Corp., 693 F.2d at 5; In re Penn Central Transportation Co., 452 F.2d 1107, 1108-09 (3d Cir.1971), cert. denied, 406 U.S. 944, 92 S.Ct. 2040, 32 L.Ed.2d 331 (1972). The court's ability to defer taxes is a ref......
  • Cent. R. Co. of New Jersey, Matter of, 77-1960
    • United States
    • United States Courts of Appeals. United States Court of Appeals (3rd Circuit)
    • June 22, 1978
    ...the district court to permit such deferral. In re Penn Central Transportation Co., 325 F.Supp. 294, 300 (E.D.Pa.1970), Aff'd 452 F.2d 1107 (3d Cir. 1971), Cert. denied 406 U.S. 944, 92 S.Ct. 2040, 32 L.Ed.2d 331 (1972). As a result, New Jersey and its local authorities now have claims for u......
  • Request a trial to view additional results

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