IN RE PENN CENTRAL TRANSPORTATION COMPANY
| Decision Date | 08 August 1972 |
| Docket Number | No. 71-1627.,71-1627. |
| Parties | In the Matter of PENN CENTRAL TRANSPORTATION COMPANY, Debtor. Appeal of CONSOLIDATED EDISON COMPANY OF NEW YORK, Inc. |
| Court | U.S. Court of Appeals — Third Circuit |
Aaron M. Fine, Philadelphia, Pa., Harold E. Kohn, Dolores Korman, Philadelphia, Pa., for appellant, Consolidated Edison Co. of New York, Inc.; Bernard Hulkower, Asst. Gen. Counsel, Joel M. Lasker, New York City, Consolidated Edison Co. of New York, Inc., of counsel.
Norman L. Holmes, Blank, Rome, Klaus & Comisky, Philadelphia, Pa., Marvin Comisky, Matthew W. Bullock, Jr., Philadelphia, Pa., special counsel for Trustees, Robert W. Blanchette, Philadelphia, Pa., counsel for Trustees.
Before HASTIE, GIBBONS and MAX ROSENN, Circuit Judges.
Appellant, Consolidated Edison Company of New York, is a major supplier of power for traction and other purposes to Penn Central Transportation Company, a railroad in reorganization under section 77 of the Bankruptcy Act, 11 U. S.C. § 205. When the reorganization proceeding began on June 21, 1970 the railroad owed Consolidated Edison some $1,200,000 for energy already supplied. Shortly thereafter, the district court entered Order No. 18 directing the railroad to honor public utility charges "billed in regular course" and pay Consolidated Edison and similar suppliers "within fifteen calendar days of presentation of the bill" for energy supplied beginning June 22, 1970. Order No. 18 also deferred disposition of Consolidated Edison's claim for pre-reorganization indebtedness without prejudice to any priority to which this claim might be entitled. Finally, the order denied an application of Consolidated Edison for a deposit as security for future charges, without prejudice to subsequent reconsideration of the matter.
Some time later Consolidated Edison renewed its request that the court require the Penn Central trustees to deposit with it some $1,700,000 as security for future charges and also to pay forthwith the past due $1,200,000. The application pointed out that the business of the debtor continues to be operated at a loss. On the other hand, the court found that the debtor has paid each of the appellant's monthly billings substantially as the court had directed. By Order No. 263 the district court denied the renewed application. The present appeal has been taken from Order No. 263.
In support of its claim for $1,200,000 in payment for the pre-reorganization debt appellant points out and the debtor does not dispute that under the terms of its tariff, as validated under New York law, it is entitled to discontinue service if past due bills are not paid. Apparently appellant recognizes that, but for the railroad's need to continue purchasing energy from it in order to continue operations during reorganization, there would be no doubt that the reorganization court acted properly when it postponed payment of appellant's claim of $1,200,000 for pre-reorganization services until that future stage of reorganization at which the court in normal course will consider and act upon all claims. Indeed, it is the basic purpose and scheme of the corporate reorganization provisions of the Bankruptcy Act to enable a financially embarrassed debtor to postpone payment of accumulated financial obligations until there can be formulated and approved a fair and feasible plan for satisfying those obligations without liquidating the burdened enterprise.
Seeking a contrary result here, appellant seems to argue that its claim may and indeed must be paid now to prevent the discontinuance of an essential service.1 True, the petition upon which the district court acted alleges that it has a right to discontinue service to a delinquent customer. But nothing appears to indicate that the appellant has given notice of or taken any other action toward the discontinuance of service because pre-reorganization bills remain unpaid. Of course if appellant should take or threaten such action the reorganization court would then have occasion to consider enjoining any interruption of service. It would have to decide whether whatever right a New York public utility normally may have to discontinue service to a delinquent customer can prevail over the right and duty of the reorganization court under federal law to defer payment to pre-reorganization creditors that would jeopardize the achievement of otherwise feasible railroad reorganization.2 But the present dispute has not reached and may never reach that stage. We will not make an anticipatory ruling upon the correctness of what the district court might decide if occasion should arise. It is enough for now that the present record discloses no sufficient cause for immediate action upon appellant's $1,200,000 claim while pre-reorganization claims in general have been deferred for future determination, classification and payment in accordance with a plan of reorganization.3
There remains appellant's other and apparently principal contention that the reorganization court erred in refusing to require the railroad to make a large deposit to protect it against possible nonpayment of future bills. In substance appellant says that the court is forcing it against its will to extend credit to a financially embarrassed purchaser which already is in its debt for past services. Moreover, when the appellant, a New York public utility, undertakes to serve a customer it reserves, under sanction of New York law,4 the privilege to require a customer to deposit security for future service.
On this point the district court reasoned as follows:
Certainly section 77 reflects a normally paramount public interest in the uninterrupted operation of American railroads while potentially fruitful efforts at financial reorganization and rehabilitation...
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Matter of Penn Central Transp. Co.
...material essential to the conduct of the business until their pre-reorganization claims shall have been paid. In re Penn Central Transp. Co., 467 F.2d 100, 102 n. 1 (3d Cir. 1972). A group of creditors, most notably Consolidated Edison Corporation and various other electric utilities, Trail......
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Maertin v. Armstrong World Industries, Inc.
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...surplus earnings, leaving the capital expenditures in large part unexplained, however. Ibid.29 The court said that In re Penn Central Transp. Co., 467 F.2d 100 (3d Cir. 1972), correctly stated the Necessity of Payment doctrine. The appellate court summarized the Necessity of Payment rule, a......
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