Matter of Penn Central Transp. Co.

• Decision Date: 17 March 1978
• Docket Number: No. 70-347.,70-347.
• Citation: 458 F. Supp. 1234
• Parties: In the Matter of PENN CENTRAL TRANSPORTATION COMPANY, Debtor. In re OPINION APPROVING PLAN OF REORGANIZATION.
• Court: U.S. District Court — Eastern District of Pennsylvania

458 F. Supp. 1234

In the Matter of PENN CENTRAL TRANSPORTATION COMPANY, DebtorIn re OPINION APPROVING PLAN OF REORGANIZATION.

No. 70-347.

United States District Court, E. D. Pennsylvania.

March 9, 1978.

Order Approving the Plan March 17, 1978.

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Charles A. Horsky, Brice M. Clagett, Philip R. Stansbury, J. Michael Hemmer, Wesley S. Williams, W. Crosby Roper, Jr., Jeffrey S. Berlin, Wynne M. Teel, Eric A. Eisen, John E. Heintz, Covington & Burling, Washington, D.C., James J. Howard, Carl Helmetag, Jr., Terrence M. Quirin, Philadelphia, Pa., John F. Bomster, John F. Corrigan, Providence, R.I., John J. Ehlinger, Jr., Robert Szwajkos, Philadelphia, Pa., for Penn Central Trustees.

White & Williams by John Francis Gough, Philadelphia, Pa., for Brown Brothers Harriman and Co., et al., The Cleveland Trust Co., City of Indianapolis, et al.

Becker, Ross & Stone by Stephen E. Michelman, New York City, for Sterling National Bank and Trust Co. of New York.

Leon Leighton, Scarsdale, N.Y., for Minority Stockholders at Mahoning Coal.

Winthrop, Stimson, Putnam & Roberts by Stephen A. Weiner, Fredrick I. Miller, New York City, for Irving Trust Co.

Ballard, Spahr, Andrews & Ingersoll by Frederic L. Ballard, Frederick W. Clark, Vincent Hatton, Philadelphia, Pa., for the Girard Bank.

Duane, Morris & Heckscher by Henry T. Reath, Reeder R. Fox, Gene E. K. Bruton, Philadelphia, Pa., for New England Merchants National Bank.

Ropes & Gray by David L. Thomas, Jr., Boston, Mass., for New England Merchants National Bank.

Edith I. Spivack, New York City, for the City of New York.

Sullivan & Worcester by Joseph Auerbach, Morris Raker, Boston, Mass., for Richard Joyce Smith, Trustee, New Haven Railroad.

James William Moore, New Haven, Conn., for Smith, Trustee of the New York, New Hampshire and Hartford Railroad.

Shearman & Sterling by George J. Wade, Robert H. Mackinnon, Kenneth M. Kramer, Michael K. Diana, New York City, for Cikhank, N.A., as agent for the Committee of Secured Bank Creditors.

Willkie, Farr & Gallagher by Louis A. Craco, Walter H. Brown, Jr., Thomas L. Bryan, Michael B. Targoff, New York City, for Institutional Investors Penn Central Group.

John J. Degman, Atty. Gen. of N.J. by Herbert K. Glickman, Barry D. Szaferman, Douglas G. Sanborn, Deputy Attys.Gen., Trenton, N.J., for the State of New Jersey.

Proskauer, Rose, Goetz & Mendelsohn by Philip M. Hahn, New York City, for the Bank of New York as Indenture Trustee.

Dahlberg, Mallender & Gawne by John J. Iseman, Birmingham, Mich., for Manufacturers National Bank of Detroit.

Kohn, Savett, Marion & Graf by Stuart H. Savett, Robert A. Swift, Philadelphia, Pa., for Consolidated Edison Co., Philadelphia Electric Co., Pennsylvania Power & Light, Baltimore Gas & Electric Co., Duquesne

Light Company and Evans Products Co.

Pepper, Hamilton & Scheetz by Laurence Z. Shiekman, Teresa R. Novick, Philadelphia, Pa., for Consolidated Rail Corp., Excelsior Truck Leasing Co., Pennsylvania Truck Lines, Merchants Dispatch Transp. Co.

Lipper, Lowey & Dannenberg by Richard B. Dannenberg, New York City, Nemser & Nemser by Stanley Nemser, New York City, David Berger, P.A. by Daniel Berger, Philadelphia, Pa., and David Berger, Philadelphia, Pa., for Robinson petitioners.

Fell, Spalding, Goff & Rubin by William P. Quinn, for Trailer Train Co.

Krusen, Evans & Byrne by Thomas A. Bell, Philadelphia, Pa., for American Dredging Co., Burroughs Corp. and Dresser Industries, Inc.

White & Case by Ted Neuenschwander, John E. Osnato, New York City, for Bankers Trust Co.

Rogers & Wells by William R. Glendon, Donald F. Luke, New York City, for the Committee of Interline Railroads.

Clark, Ladner, Fortenbaugh & Young by Edward C. Toole, Jr., Philadelphia, Pa., for the Committee of Interline Railroads.

Douglas MacGillivray, Bellefontaine, Ohio, for Ohio's County Treasurers and Local Taxing Authorities.

United States Railway Association by Gearold L. Knowles, for United States Railway Association.

Dechert, Price & Rhoads by Alfred W. Cortese, Jr., Philadelphia, Pa., for Amoco Oil Co., Ashland Oil, Inc., Exxon Co., U.S.A., Shell Oil Co., The Standard Oil Co.(Ohio) and Texaco, Inc.

Friedman, Medalie & Ochs by Alvin Friedman, Washington, D.C., for Union Bank of Los Angeles.

U. S. Dept. of Justice by John H. Broadley, Washington, D.C., for United States.

Reavis & McGrath by Leonard M. Leiman, Lawrence W. Boes, New York City, for Special Representatives Noyes Leech and Robert H. Mundheim.

Grant G. Guthrie, Washington, D.C., for Securities and Exchange Commission.

Tyler, Reynolds & Craig by H. Theodore Cohen, Boston, Mass., for Charles S. Jeffrey.

Schnader, Harrison, Segal & Lewis by Gilbert W. Oswald, Philadelphia, Pa., for Penn Central Co.

Schnader, Harrison, Segal & Lewis by David S. Hope, Philadelphia, Pa., for First National Bank of Chicago, et cetera.

Schnader, Harrison, Segal & Lewis by Gilbert W. Oswald, David S. Hope, Philadelphia, Pa., for AT&T and its subsidiaries, General Motors Corporation, Syntonic Technology, Incorporated, Federal Transportation Company, Frank and Vincent Visceylia, Federal Storage Warehouses and Peddie Buildings.

Jaffin, Schneider, Conrad & Wertheimer by George M. Jaffin, New York City, for Carret & Co., et al.

Wolf, Block, Schorr & Solis-Cohen by Michael L. Temin, Philadelphia, Pa., for First Pennsylvania Bank, N.A.

City of Pittsburgh by D. R. Pellegrini, Grace S. Harris, Pittsburgh, Pa., for the City of Pittsburgh, County of Allegheny.

Harold H. McLean, Pittsburgh, Pa., for Earl E. Barton, Betty Barriger, John W. Barriger, Stanley Barriger, Margret Henderson, Arthur M. McLean, Harold H. & Sarah N. McLean, Hugh C. & Katherine McLean and Ann Salyard.

Hepburn, Ross, Willcox & Putnam by Herbert G. Schick, Philadelphia, Pa., for Philadelphia & Trenton, Union of Baltimore, Northern Central, Michigan Central, Pittsburgh, Youngstown & Ashtabula.

Goodman & Ewing by William H. Ewing, Joseph J. Connolly, Philadelphia, Pa., for The Connecting Railway Co., TrusteeJohn C. Kohl, Fairfax Leary, Trustee of the United New Jersey Railroad & Canal Co.

Kelley, Drye & Warren by Edward Roberts, III, New York City, for Manufacturers Hanover Trust Co.

Henry Fogler, pro se.

                                TABLE OF CONTENTS
                                                     PART I
                                                                                             Page
                A.  INTRODUCTION ..........................................................  1243
                B.  SUMMARY OF OPINION ....................................................  1244
                                                   PART II
                A.  BACKGROUND
                    1. Reorganization Process .............................................  1245
                    2. History of the Penn Central Reorganization .........................  1248
                B.  SUMMARY OF THE PLAN
                    1. Introduction .......................................................  1254
                    2. New Securities and Their Distribution ..............................  1256
                    3. Scope of the Plan ..................................................  1260
                C.  THE "COMPROMISE" FEATURES OF THE PLAN .................................  1261
                D.  MAJOR COMPROMISES
                    1. United States Claims ...............................................  1264
                    2. Settlement of Pennco Pledge Dispute ................................  1266
                    3. New Haven Trustee Claims ...........................................  1269
                E.  THE VALUATION CASE
                    1. Status of the Valuation Case .......................................  1270
                    2. Relationship of the Valuation Case to the Plan Distributions .......  1274
                F.  STATE AND LOCAL TAX CLAIMS
                    1. Description of Claims ..............................................  1276
                    2. Treatment of State and Local Tax Claims Under the Plan .............  1279
                    3. The Alternative Settlement Program .................................  1280
                    4. Objections to the Plan by State and Local Tax Claimants ............  1280
                       a. Exclusion of Penalties ..........................................  1281
                       b. Payment in Full in cash .........................................  1281
                    5. Fairness to Tax Claimants ..........................................  1283
                    6. Objections of Taxing Entities in the State of Ohio .................  1284
                G.  CLASS Jâ  SECURED CREDITORS
                    1. The Distribution to Class J Creditors ..............................  1284
                    2. "Super Secureds" Objections ........................................  1290
                       a. Identifying the "Super Secured" Claims ..........................  1290
                       b. The Alleged Disparities in Treatment ............................  1291
                       c. The Proposed Alternate Distribution Scheme ......................  1293
                       d. Tracing Retained Asset Values ...................................  1295
                       e. Liquidation Analogy .............................................  1297
                       f. Comparison with General Creditors and Equity Interests ..........  1300
                    3. Disputes Involving the Retained Asset Analysis .....................  1302
                       a. The R & I Mortgage ..............................................  1303
                          i. Chargeback Against Michigan Central and Big Four for Operating
                             Losses .......................................................  1303
                         ii. The Harlem Leasehold .........................................  1307
                        iii. Rents from the Park Avenue Properties; Dividends on the Harlem
                             Stock ........................................................  1309
                         iv. Interest on Beech Creek, Harlem and Big Four Bonds ...........  1311
                          v. Prebankruptcy Sales ..........................................  1312
                         vi. Lien Rights of Matured Bonds .................................  1314
                

                        TABLE OF CONTENTSâ  Continued

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