Matter of Penn Central Transp. Co.
| Decision Date | 10 August 1978 |
| Docket Number | No. 70-347.,70-347. |
| Citation | 458 F. Supp. 1346 |
| Parties | In the Matter of PENN CENTRAL TRANSPORTATION COMPANY, Debtor. In re DISAFFIRMANCE of EXECUTORY CONTRACTS. |
| Court | U.S. District Court — Eastern District of Pennsylvania |
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Carl Heimetag, Ralph W. Pickard, Andrew P. Corcoran, Jr., John B. Rossi, Jr., Philadelphia, Pa., for Penn Central Trustees.
Fell, Spalding, Goff & Rubin by William P. Quinn, Jon C. Sirlin, Philadelphia, Pa., for Pittsburgh & Lake Erie Railroad Co.
Wexler, Weisman, Maurer & Forman, P. C. by Edward H. Rubenstone, Philadelphia, Pa., for John VanVorst, Mohawk Metals, Village of Frankfort, New York.
Gubman & Sitomer by R. W. Goldfaden, New York City, for Lexington-43rd, Inc.
Willkie, Farr & Gallagher by Walter H. Brown, Jr., New York City, for Industrial Investors Penn Central Group.
Shearman & Sterling by Kenneth M. Kramer, New York City, for Citibank, N. A. as agent for the Committee to Secured Bank Creditors.
Sheinfeld, Maley & Kay by Myron M. Sheinfeld, Houston, Tex., for Shell Oil Co.
Proskauer, Rose, Goetz & Mendelsohn by Steven J. Stein, New York City, for Grand Central Building, New York Life, Bankers Trust Co. and Title Guaranty.
Bachner, Tally & Mantell by Sol V. Slotnik, New York City, for Rose Associates.
Weil, Gotshal & Manges by Michael L. Cook, Lawrence Mittman, New York City, for Madison Square Garden Center, Inc. and Penn Plaza Ventures.
Moses & Singer by Jerome M. Lasky, New York City, for Bankers Trust Co.
Kaye, Scholer, Fierman, Hays & Handler by Julius Berman, New York City, for 245 Park Avenue Co., 320 Park Avenue Co., Aetna Life Ins. Co.
Pepper, Hamilton & Scheetz by Laurence Z. Shiekman, Philadelphia, Pa., for Consolidated Rail Corp.
Dinsmore, Shohl, Coates & Deupree by Gerald V. Weigle, Jr., Cincinnati, Ohio, for The Procter & Gamble Co.
Jerome P. Schneider, New York City, for The New York Bank for Savings.
Kirk Q. Jenne, Pittsburgh, Pa., for H. J. Heinz Co.
Richard H. Stokes, Gen. Atty., Jamaica, N. Y., The Long Island Rail Road Co. Drinker, Biddle & Reath by Jack B. Justice, Philadelphia, Pa., Milbank, Tweed, Hadley & McCloy by David C. L. Frauman, New York City, for Chase Manhattan Bank.
Patrick Ramirez S. Bupara, U. S. Dept. of Justice, San Francisco, Cal., for United States and General Services Administration.
Dechert, Price & Rhoads by James E. Hipolit, Philadelphia, Pa., for Weccusor Realty Co.
Wolf, Block, Schorr & Solis-Cohen by Michael L. Temin, Philadelphia, Pa., for Metropolitan Life Ins. Co., Graybar Building Associates, Harry Helmsley d/b/a Graybar Building, Aetna Life Ins. Co., Equitable Life Assurance Society of United States, Prudential Ins. Co.
Hewlett G. Skidmore, pro se.
Fox, Rothschild, O'Brien & Frankel by Nathan L. Posner, Philadelphia, Pa., for Philadelphia Refrigerated Terminals, National Refrigerated Terminals.
Trubin, Sillcocks, Edelman & Knapp by Edward A. Manuel, New York City, for State of New York as Trustee of the Common Retirement Fund.
Ballard, Spahr, Andrews & Ingersoll by F. L. Ballard, Vincent Hatton, Philadelphia, Pa., for Schedule D Indenture Trustees, Girard Trust, Indenture Trustee of Connecting Railway, P.R.R. General Mortgage, Northern Trust, Indenture Trustee, Indiana Harbor Belt Railroad Co., First Mortgage.
Gratz, Tate, Spiegel, Ervin & Ruthrauff by Spencer Ervin, Jr., Philadelphia, Pa., for New Haven Trustee.
Saul, Ewing, Remick & Saul by Guy T. Moore, Philadelphia, Pa., for B & O, C & O, Western Maryland Railway.
Larry Filler, Gaby Gross, Trenton, N. J., for State of New Jersey.
Clark, Ladner, Fortenbaugh & Young by W. Charles Hogg, Jr., Philadelphia, Pa., for Committee of Interline Railroads and Louisville & Nashville Railroad Co.
Clark, Ladner, Fortenbaugh & Young by Edward C. Toole, Jr., Philadelphia, Pa., for Committee of Interline Railroads, and Chicago Union Station Co.
Section 6.2 of the Penn Central Plan and Section 5.2 of each of the Plans of the Secondary Debtors, provide that all executory contracts other than those affirmed pursuant to §§ 6.1 or 5.1 of the Penn Central and Secondary Debtor Plans are disaffirmed. Specifically reserved from the operation of these sections are all issues relating to the leases between Penn Central and the Secondary Debtors, and between Penn Central and the nonbankrupt leased lines. (For convenience, the Penn Central Trustees, the Secondary Debtor Trustees, and the Connecting will be referred to as the Trustees).
The Trustees' report on executory contracts (Doc. No. 14122), as amended (Doc. No. 14503), sets forth four classes of executory contracts to be affirmed and exceptions with respect to two of these classes. To be affirmed are all contracts in which the Debtors are lessors or lessees, subject to specific exceptions, all options to purchase in favor of the Debtors, and all tax allocation agreements. No one has objected to affirmance of these contracts, and the record demonstrates affirmance is in the best interest of the estate.
In addition, the Trustees specifically reaffirm the Harlem lease which they previously affirmed with this Court's approval. The affirmance of the Harlem lease is subject to certain terms and conditions protective of the interest of the Harlem's equity and debt holders. The Indenture Trustees of the Harlem bonds and the Harlem have agreed on the terms of those conditions. Equity holders have been protected by a fund adequate to service the dividends due on the publicly held stock of the Harlem and to permit purchase of the outstanding stock, at least over time, if the reorganized company undertakes a purchase effort. The Court has reviewed those terms and finds that they are in accord with the suggestions of the Securities and Exchange Commission in its report in connection with the Plan and otherwise fair and equitable and, therefore, the conditions are hereby approved by the Court.
A number of parties have objected to the Trustees' purported disaffirmance of their contracts, and after hearing some objectors have filed extensive briefs. It is clear that in a number of instances fundamental legal questions have been raised which are amenable to resolution without the need to further develop the factual evidence.
The conveyance to ConRail terminated the Trustees' prior business activity—supplying freight and passenger train service. As a consequence, the bulk of the contracts the Trustees seek to disaffirm, approximately 175,000 in number, relate in one way or another to their prior ownership of rail property or the provision of train service. The general categories of these agreements are as follows: wire, pipe and private grade-crossing agreements; joint facility and trackage right agreements; side-track agreements; bridge maintenance agreements; collective bargaining agreements with operating employees; agreements relating to the furnishing of material and supplies; agreements with respect to office, data processing and computer equipment; and utility agreements.
Most, but not all, of these agreements have been assumed by ConRail pursuant to the Regional Rail Reorganization Act (RRRA).1 With respect to the contracts assumed by ConRail, the Trustees' disaffirmance serves a rather limited procedural purpose, because no damages flow from disaffirmance. Disaffirmance in this context is merely a procedural convention for putting the other party on notice that any claim arising under the contractual relationship will have to be asserted in the reorganization proceedings.2 The Trustees concede that with respect to claims arising between the filing of the § 77 petition and the conveyance of the properties to ConRail, the contracting party's claim will be an administration claim, and in most instances the amount will be determined in accord with the terms of the contract. Many, but not all, of these claims will be eligible for § 211(h) funding and will be paid in cash through the Agency Agreement with ConRail. The others will be classified as administration claims and satisfied pursuant to the Plan.
Therefore, disaffirmance of the contracts assumed by ConRail is not even necessary because the result sought by the Trustees could be achieved as easily by simply directing that post-petition claims be filed. On the other hand, since there are some contracts which have not been assumed, and since the Trustees have initiated the procedure through the disaffirmance mechanism, it may well be that it will be simpler in the proof of claims process to denominate the claimants as executory contract claimants.
The Long Island Railroad Company has filed the only objections on the merits of the Trustees' disaffirmance. The Long Island and the Penn Central entered into a joint facility agreement covering Penn Station in New York in 1966. The basis for the Long Island's objection to the disaffirmance of this agreement is somewhat obscure. ConRail assumed the agreement and thereafter assigned it to Amtrak. The Long Island recognizes that in this context disaffirmance is of little consequence. The real points in issue appear to be the Long Island's desire to have all its claims against the Trustees resolved in proceedings separate from those involving any other claimants (Tr. 17993-96), and the Long Island's assertion that administration claim status is inappropriate for its claim under the joint facility arrangement because the Trustees' obligations to the Long Island should be characterized as trust obligations. The second point may be mooted when the post-bankruptcy amount of the Long Island's claim is determined, because the claim appears to be eligible for payment under § 211(h). The reasoning of the Long Island for its conclusion that § 211(h) funding will not be available is simply without merit. With respect to the trust relationship theory, the Long Island is free to assert that status in connection with the Proof of...
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...of the only remaining non-insider creditor.9 "The bankruptcy laws are intended as a shield, not as a sword." In re Penn Central Transp. Co., 458 F.Supp. 1346, 1356 (E.D.Pa.1978). The debtor-in-possession in this case seeks to invert this maxim by wielding the battle-ax of avoidance as a wea......
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...to be used as a shield and not as a sword. Shell Oil Co. v. Waldron, 785 F.2d 936, 938 (11th Cir.1986) (quoting In re Penn Cent. Trans. Co., 458 F.Supp. 1346, 1356 (E.D.Pa.1978)), cert. dismissed, 478 U.S. 1028, 106 S.Ct. 3343, 92 L.Ed.2d 763 (1986); In re Lee Road Partners, 155 B.R. 55, 64......
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...party fracas, contrary to the principle that our "bankruptcy laws are intended as a shield, not as a sword." In re Penn Central Trans. Co., 458 F.Supp. 1346, 1356 (E.D.Pa.1978). Where, as here, a debtor's Chapter 11 effort involves essentially a two party dispute based on state law, and the......
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Dunes Hotel Associates v. Hyatt Corporation, C/A No. 2: 98-535-18 (D. S.C. 2000), C/A No. 2: 98-535-18.
...of the only remaining non-insider creditor.9 "The bankruptcy laws are intended as a shield, not as a sword." In re Penn Central Transp. Co., 458 F. Supp. 1346, 1356 (E.D.Pa. 1978). The debtor-in-possession in this case seeks to invert this maxim by wielding the battle-ax of avoidance as a w......
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Commercial Financing Problems Under the New Bankruptcy Code
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