In re Penn Central Transportation Company
| Decision Date | 23 December 1971 |
| Docket Number | No. 19340-19346.,19340-19346. |
| Citation | 453 F.2d 520 |
| Parties | In the Matter of PENN CENTRAL TRANSPORTATION COMPANY, Debtor. Appeal of FIRST WISCONSIN NATIONAL BANK OF MILWAUKEE, WISCONSIN, in No. 19,340. Appeal of MARINE MIDLAND GRACE TRUST COMPANY OF NEW YORK, in No. 19,341. Appeal of NATIONAL BANK OF DETROIT, in No. 19,342. Appeal of LINCOLN ROCHESTER TRUST COMPANY, ROCHESTER, NEW YORK, in No. 19,343. Appeal of CENTRAL PENN NATIONAL BANK, PHILADELPHIA, PENNSYLVANIA, in No. 19,344. Appeal of CITIZENS FIDELITY BANK & TRUST COMPANY, LOUISVILLE, KENTUCKY, in No. 19,345. Appeal of FIRST NATIONAL BANK OF MARYLAND, BALTIMORE, MARYLAND, in No. 19,346. |
| Court | U.S. Court of Appeals — Third Circuit |
John S. Estey, Montgomery, McCracken, Walker & Rhoads, Philadelphia, Pa. (John F. Headley, Philadelphia, Pa., on brief), for National Bank of Detroit and Lincoln Rochester Trust Co., Rochester, N. Y.
Fred W. Freeman, John A. Krsul, Jr., Dickinson, Wright, McKean & Cudlip, Detroit, Mich., for National Bank of Detroit, on brief.
Ruth B. Rosenberg, John R. Tyler, Jr., Nixon, Hargrave, Devans & Doyle, Rochester, N. Y., for Lincoln Rochester Trust Co., Rochester, N. Y., on brief.
David E. Beckwith, F. Anthony Maio, Foley & Lardner, Milwaukee, Wis., Howard Gittis, Michael L. Temin, Wolf, Block, Schorr & Solis-Cohen, Philadelphia, Pa., for First Wisconsin National Bank of Milwaukee, Wis., on brief.
Thomas W. Bullitt, Tarrant, Combs, Blackwell & Bullitt, Louisville, Ky., for Fidelity Bank & Trust Co., Louisville, Ky., on brief.
James P. Gillece, Robert B. Barnhouse, Piper & Marbury, Baltimore, Md., for First National Bank of Maryland, Baltimore, Md., on brief.
John Francis Gough, White & Williams, Philadelphia, Pa. (Thomas R. White, Jr., LeRoy E. Perper, Philadelphia, Pa., on brief), for Central Penn National Bank, Philadelphia, Pa., Citizens Fidelity Bank & Trust Company, Louisville, Ky., and First National Bank of Maryland, Baltimore, Md.
Alan J. Davis, Wolf, Block, Schorr & Solis-Cohen, Philadelphia, Pa., for Marine Midland Grace Trust Co. of N. Y., on brief.
Marvin Comisky, Blank, Rome, Klaus & Comisky, Philadelphia, Pa. (Robert W. Blanchette, Richard P. McElroy, Philadelphia, Pa., on brief), for the Trustees of the Property of the Penn Central Transportation Co., appellees.
Before SEITZ, Chief Judge, HASTIE, Circuit Judge, and HERMAN, District Judge.
A proceeding for the reorganization of Penn Central Transportation Company, a railroad corporation, under section 77 of the Bankruptcy Act, 11 U.S.C. § 205, was initiated by an order of June 21, 1970, wherein the District Court for the Eastern District of Pennsylvania approved the railroad's petition for reorganization and made various provisions concerning the continuation of the debtor's business and the operation of the railroad.
Paragraph 10 of the order reads in part as follows:
"All persons, firms and corporations, . . . holding for the account of the Debtor deposit balances or credits be and each of them hereby are restrained and enjoined . . . from off-setting the same, or any thereof, against any obligation of the Debtor, until further order of this Court."
Paragraph 7 of the order, as amended on June 23, 1971, authorizes depositories of the debtor's funds to continue to honor the debtor's checks and drafts against its bank accounts, provided that such action "shall be without prejudice to any claim of set-off and/or any claim of priority by such depositor."
The debtor maintained bank accounts aggregating millions of dollars in some 142 banks in various places and drew on these accounts to meet payrolls and other essential expenses of current operations. The present appellants are such banks. After the reorganization order of June 21 had been entered, each of the appellants set off the balance in the debtor's bank account against amounts the debtor owed it.
The reorganization court then required the appellants to show cause why they should not honor the debtor's withdrawals and also be adjudged in contempt of the judicial prohibition of set-off. After a hearing and the consideration of evidence the court particularly ordered each of the appellants to restore to the account of the debtor "all balances as the same existed on June 21, 1970" and to permit withdrawals in normal course to the full extent of such restored balances. There was no adjudication of contempt. The appellants complied with this order, 315 F.Supp. 1281, under protest and noticed and perfected the present appeals from it.
The appellants contend that prohibition of set-off of the debtor's bank accounts was beyond the jurisdiction of the reorganization court and could lawfully be accomplished only in plenary proceedings in each of which a competent court of general jurisdiction should obtain personal jurisdiction over a depository bank.
Section 77 of the Bankruptcy Act provides that upon a district court's approval of a railroad petition for reorganization, ". . . the court in which the order is entered 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 shall have and may exercise in addition to the powers conferred by this section all the powers, not inconsistent with this section, which a court of the United States would have had if it had appointed a receiver in equity of the property of the debtor for any purpose." 11 U. S.C. § 205(a). The bank accounts with which this appeal is concerned are property of the debtor in the form of choses in action. The appellant banks, being both creditors and debtors of the railroad, are contending that the reorganization court, though vested by express provision of section 77 with ". . . all the powers . . . which a court of the United States would have had if it had appointed a receiver in equity of the property of the debtor . . ." cannot lawfully exercise jurisdiction to the extent of restraining them from satisfying their claims against the debtor by setoff and from thus, through self help, eliminating or reducing the balances outstanding in the debtor's bank accounts, as this intangible property existed at the time the reorganization petition was approved.
Even in Chapter X corporate reorganizations, where normally the public interest in the survival of the enterprise is a less compelling consideration than in railroad reorganization, a reorganization court may exercise the power of an equity court administering a receivership to restrain creditors from selling the debtor's collateral or pledges, or from setting off the debtor's choses in action, to satisfy outstanding obligations. Lowden v. Northwestern National Bank, 1936, 298 U.S. 160, 56 S.Ct. 696, 80 L.Ed. 1114; Continental Illinois National Bank v. Chicago, R. I. & Pac. Ry., 1935, 294 U.S. 648, 55 S.Ct. 595, 79 L.Ed. 1110; Susquehanna Chemical Corp. v. Producers Bank & Trust Co., 3rd Cir. 1949, 174 F.2d 783; In re Cuyahoga Finance Co., 6th Cir. 1943, 136 F.2d 18.1 In an a fortiori situation where, as here, the debtor was a railroad in reorganization,2 this court has approved an order of a reorganization court prohibiting another railroad from applying the procedure of set-off to obligations outstanding between it and the debtor. In re Central R. R. Co. of New Jersey, 1968, 392 F.2d 589, aff'g per curiam D.N.J. 1967, 273 F.Supp. 282.
The appellants seek to distinguish some, if not all, of these cases on the ground that the dispositive proceedings in the reorganization courts were plenary rather than summary. It is true that, ex necessitate rei, the original order...
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Matter of Penn Central Transp. Co.
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