MATTER OF VAL. PRO., ETC., REG. RAIL REORG.

• Docket Number: Misc. No. 76-1.
• Decision Date: 18 November 1977
• Citation: 445 F. Supp. 994
• Parties: In the Matter of the VALUATION PROCEEDINGS UNDER SECTIONS 303(c) AND 306 OF The REGIONAL RAIL REORGANIZATION ACT OF 1973.
• Court: Special Court — Regional Rail Reorganization Act

445 F. Supp. 994

In the Matter of the VALUATION PROCEEDINGS UNDER SECTIONS 303(c) AND 306 OF The REGIONAL RAIL REORGANIZATION ACT OF 1973.

Misc. No. 76-1.

Special Court, Regional Rail Reorganization Act.

October 12, 1977.

On Motions for Reconsideration November 18, 1977.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Edwin M. Zimmerman, William D. Iverson, Stuart C. Stock, Washington, D. C. (Charles E. Buffon, Paul R. Duke, David B. Isbell, Harris Weinstein, Eugene D. Gulland, John D. Taurman, William P. Skinner, Wynne M. Teel, Theodore Voorhees, Jr., and Covington & Burling, Washington, D. C., John B. Rossi, Jr., Philadelphia, Pa., of counsel), for Penn Central Trustees and Certain Affiliated Transferors.

Louis A. Craco, New York City (Walter H. Brown, Jr., Thomas L. Bryan, Michael B. Targoff, Rebecca T. Halbrook, Richard L. Posen, and Willkie, Farr & Gallagher, New York City, Frederic L. Ballard, Sr., and Ballard, Spahr, Andrews & Ingersoll, Philadelphia, Pa., of counsel), for intervening Penn Central Lienholders.

George J. Wade, New York City (Robert H. MacKinnon, Thomas M. Geisler, Jr., Gary G. Lyons, and Shearman & Sterling, New York City, of counsel), for intervenor Citibank, N.A., as Agent for the Committee of Secured Bank Creditors in the Penn Central Transportation Company Reorganization Proceedings.

David Berger, Philadelphia, Pa. (Daniel M. Berger, David Berger, P.A., Philadelphia, Pa., of counsel), for intervenor Penn Central Company.

Joseph Auerbach, Boston, Mass. (Morris Raker, Thomas R. Wardell, Harvey E. Bines, Thomas D. Halket, and Sullivan & Worcester, Boston, Mass., James Wm. Moore, New Haven, Conn., Thomas W. Armstrong, Washington, D. C., of counsel), for Trustee of The New York, New Haven and Hartford Railroad Co.

Harry G. Silleck, Jr., New York City (John L. Altieri, Jr., and Mudge, Rose, Guthrie & Alexander, New York City, of counsel), for Trustees of Erie Lackawanna Railway Company and Certain Affiliated Non-Bankrupts.

Howard H. Lewis, Philadelphia, Pa. (James A. Sox, and Obermayer, Rebmann, Maxwell & Hippel, Philadelphia, Pa.; Lockwood W. Fogg, Jr., Plymouth Meeting, Pa., of counsel), for Trustees of the Reading Company and for Its Wholly-Owned Subsidiaries.

Stanley Weiss, Newark, N. J. (M. Elaine Jacoby, Dean R. May, and Carpenter, Bennett & Morrissey, Newark, N. J., of counsel), for Trustee of the Central Railroad Co. of New Jersey.

David C. Toomey, Philadelphia, Pa. (Jared I. Roberts, Richard M. Abrams, and Duane, Morris & Heckscher, Philadelphia, Pa., of counsel), for Trustee of the Lehigh Valley Railroad Co.

Timothy V. Smith, New York City, for Trustee of The Lehigh and Hudson River Railway Co.

Charles I. Thompson, Jr., Philadelphia, Pa., for The North Pennsylvania Railroad Company, the Delaware and Bound Brook Railroad Company, the Philadelphia, Germantown and Norristown Railroad Co. and Plymouth Railroad Co.

Alan C. Kauffman, Philadelphia, Pa. (Obermayer, Rebmann, Maxwell & Hippel, Philadelphia, Pa., of counsel), for the Peoria and Eastern Railway Co.

Robert W. Ginnane, Washington, D. C. (George F. Galland, and Galland, Kharasch, Calkins & Brown, John M. Gibbons, and Stroock, Stroock, & Lavan, Washington, D. C., of counsel), for Norwich & Worcester Railroad Co.

Frank B. McShane, New York City (Walsh & Frisch, New York City, of counsel), for Mahoning Coal Railroad Co.

Edmund J. Kenney, Chicago, Ill. (James E. Hussey, Winston & Strawn, Chicago, Ill., of counsel), for Trustee of the Chicago River and Indiana Railroad Co.

Michael E. Patterson, New York City (Steven R. Gross, and Debevoise, Plimpton, Lyons & Gates, New York City, Edward I. Dobin, and Curtin & Heefner, Morrisville, Pa., of counsel), for Trustees for Pennsylvania Tunnel and Terminal Railroad Co., and Trustee for the New York Connecting Railroad Co.

Joseph S. Radom, and Thomas B. Radom, Detroit, Mich., for Trustee of the Ann Arbor Railroad Co.

Leon Leighton, New York City, for Minority Stockholders of Mahoning Coal Co., amici curiae.

Perrin C. Hamilton, Philadelphia, Pa., for the East Pennsylvania Railroad Co.

Earl J. Krock, Cleveland, Ohio, for Kalamazoo, Allegan & Grand Rapids Railroad Co.

Herbert G. Schick, and Hepburn, Ross, Willcox & Putnam, Philadelphia, Pa., Jerome K. Walsh, and Walsh & Frisch, New York City, for Secondary Debtors of The Penn Central Transportation Co.

Joseph J. Connolly, and Goodman & Ewing, Philadelphia, Pa., for Little Miami Railroad Co. and Fort Wayne & Jackson Railroad Co. and Secondary Debtors of the Penn Central Transportation Co.

Lloyd N. Cutler, William T. Lake, William R. Perlik, Louis R. Cohen, Kevin P. Charles, Robert H. Kapp, David R. Johnson, Washington, D. C. (Stephen F. Black, John F. Cooney, Jay P. Urwitz, Wilmer, Cutler & Pickering, Howard R. Moskof, Peter F. Rousselot, Joe Chartoff, Eric A. Von Salzen, George W. Mayo, Jr., Hogan & Hartson, Cary W. Dickieson, Stephen C. Rogers, G. Joseph King, Francis P. Dicello, Peter J. Carre, and Jordon Jay Hillman, Sp. Counsel, U. S. Railway Association, Washington, D. C., of counsel), for United States Railway Association.

Barbara Allen Babcock, Asst. Atty. Gen., Rex E. Lee, Asst. Atty. Gen., Paul M. Tschirhart, John H. Broadley, U. S. Dept. of Justice, Washington, D. C., Linda Heller Kamm, Gen. Counsel, Donald T. Bliss, Deputy Gen. Counsel, Alexander P. Humphrey, Justine Fischer, Phillip J. Ward, U. S. Dept. of Transportation, Washington, D. C., for United States of America.

John G. Harkins, Jr., Philadelphia, Pa. (Richard M. Rindler, Pepper Hamilton & Scheetz, Ronald M. Dietrich, John F. DePodesta, Philadelphia, Pa., of counsel), for Consolidated Rail Corp.

Before FRIENDLY, Presiding Judge, and WISDOM and THOMSEN, Judges.

FRIENDLY, Presiding Judge:

I. Introduction

In this opinion we continue the discussion of the nature of the Rail Act in Part III of our opinion of October 18, 1976, 425 F.Supp. at 270-71, and shall consider the constitutionality of compensating the transferors in other than cash, an issue on which we requested briefing by our notice of April 14, 1977. We shall also deal with certain of the issues outlined in our Memorandum of June 16, 1976, 425 F.Supp. 266, 281-87, relating to the determination of net liquidation value (NLV) under § 306 of the Rail Act, of constitutional minimum value (CMV), and of value of other benefits (VOB). In accordance with our Memorandum of June 16, 1976, 425 F.Supp. at 289, opening briefs on the issues of NLV, CMV, and certain other matters were received on January 6, an answering brief of the Government parties on February 20, and reply briefs on March 18, 1977. By order of December 15, 1976, we set a schedule with respect to the VOB issue which required initial briefs to be exchanged on February 22, 1977 and further briefs on March 18, 1977. We heard oral argument on April 12 and 13, 1977. In the meanwhile, discovery has been continuing under the supervision of Judge Thomsen.

As indicated in the Memorandum of June 16, 1976, 425 F.Supp. at 277-78, the court believed that extensive briefing and argument of certain general questions at this time would permit us to announce our views with respect to a number of legal issues and enable us to establish procedures for the further conduct of the necessarily complex valuation proceedings required by the Rail Act, and thereby reduce the time and expense, huge under the best of circumstances, which will be required to conclude this case. We thought then, and we think now, that simply to appoint a number of special masters who would be set loose without any guidelines from us "would produce utter chaos," 425 F.Supp. at 277.¹ We remain convinced of the wisdom of proceeding in the manner outlined in our June 16, 1976 Memorandum, even though it now appears that decision on some issues that have been briefed would be premature. Even as to such issues the efforts of counsel will not have been wasted, since these questions, or most of them, will have to be decided at a later date.

II. Reorganization v. Eminent Domain:

The Propriety of Compensation Other than Cash

In our memorandum of June 16, 1976, we noted that "a question lurking in the case is whether the standard of valuation should be different if the Act be regarded as a reorganization statute, as an eminent domain statute or as both," 425 F.Supp. at 280 (footnote omitted), and requested that this issue be included in the first round of briefing. Responding to such briefing in our opinion of October 18, 1976, 425 F.Supp. at 270-71, we said that perhaps the question could be more accurately stated as being whether the Act involves a taking and, if so, whether the "constitutional minimum" required both by the terms of the Act and by the Fifth Amendment differs if the Act should be regarded as a reorganization statute enacted under the bankruptcy power or as a statute enacted under the commerce power or as both. For reasons there developed, we deferred decision until after the final round of briefing and argument called for by our June 16 Memorandum.

The issue has lost much of what once seemed to be its significance because of the concession of the Government parties (Brief at 12):

We do not contend that the Act cannot involve a "taking" or that the Fifth Amendment standard differs depending on which powers Congress invokes.

See also id. at 14-15. Indeed, it now appears that the chief, if not the sole, importance of the question how far the Act is a reorganization statute may be in its bearing on the issue framed in our notice of April 14, 1977:

whether payment in the manner provided in the Rail Act, namely, that net liquidation value shall be paid in securities of ConRail and certificates of value and that only the excess of constitutional minimum value, if any, as finally determined, shall be paid in cash, is constitutional.²

A large step toward answering this question was taken by the Supreme Court in the Rail Act Cases, 419 U.S. 102, 95 S.Ct. 335, 42...