Penn Central Transp. Co., Matter of

• Citation: 570 F.2d 1189
• Decision Date: 04 January 1977
• Docket Number: 1516,Nos. 76-1514,Nos. 76-1515 and 76-1516,1515,Nos. 76-1514 and 76-1516,s. 76-1514,s. 76-1514 and 76-1516,s. 76-1515 and 76-1516
• Parties: In the Matter of PENN CENTRAL TRANSPORTATION COMPANY, Debtor. Appeal of CONSOLIDATED RAIL CORPORATION and United States Railway Association, inIn the Matter of LEHIGH VALLEY RAILROAD COMPANY. In the Matter of READING COMPANY, Debtor. . Argued as toon
• Court: United States Courts of Appeals. United States Court of Appeals (3rd Circuit)

Page 1189

570 F.2d 1189

In the Matter of PENN CENTRAL TRANSPORTATION COMPANY, Debtor Appeal of CONSOLIDATED RAIL CORPORATION and United States Railway Association, in Nos. 76-1514, 1515, 1516 In the Matter of LEHIGH VALLEY RAILROAD COMPANY In the Matter of READING COMPANY, Debtor.

Nos. 76-1514 and 76-1516.

United States Court of Appeals Third Circuit.

Argued as to Nos. 76-1515 and 76-1516 on Jan. 4, 1977.

Submitted as to No. 76-1514 on Dec. 1, 1977.

Decided Feb. 3, 1978.

John G. Harkins, Jr., Laurence Z. Shiekman, Pepper, Hamilton & Scheetz, Philadelphia, Pa., for appellant, Consolidated Rail Corp.

James E. Howard, Philadelphia, Pa., Charles A. Horsky, Covington & Burling, Washington, D. C., for appellees, Robert W. Blanchette, Richard C. Bond and John H. McArthur, Trustees of the property of Penn Central Transp. Co., Debtor.

Lewis A. Grafman, Philadelphia, Pa., Edwin Rector, Howard M. Wilchins, U. S. Railway Association, Stephen C. Rogers, U. S. Railway Ass'n, Washington, D. C., for appellant, United States Railway Association.

Howard H. Lewis, Jeffrey B. Rotwitt, Obermayer, Rebmann, Maxwell & Hippel, Philadelphia, Pa., for appellees, Andrew L. Lewis, Jr. and Joseph L. Castle, Trustees of Reading Co.

Frederic L. Ballard, Oliver C. Biddle, Lewis A. Grafman, James D. Coleman, Ballard, Spahr, Andrews & Ingersoll, Philadelphia, Pa., for appellees, Institutional Investors and Certain Indenture Trustees.

William R. Traub, Duane, Morris & Heckscher, Philadelphia, Pa., for appellee, Lehigh Valley Railroad Co.

Before ADAMS, VAN DUSEN, Circuit Judges, and TEITELBAUM, District Judge. ^*

OPINION OF THE COURT

ADAMS, Circuit Judge.

These appeals arise out of railroad reorganization proceedings pertaining to the Penn Central Transportation Company, the Reading Company and the Lehigh Valley Railroad Company. Specifically, the Consolidated Rail Corporation (ConRail) and the United States Railway Association (USRA) challenge rulings entered by the reorganization courts in the course of proceedings under § 211(h) of the Regional Rail Reorganization Act of 1973, as amended by the Railroad Revitalization and Regulatory Reform Act of 1976 (together referred to here as the "Rail Act").

Two issues are presented: first, whether we have jurisdiction over the orders in question that were entered by the reorganization courts; and second, whether the reorganization courts erred in ruling that as a matter of law it was not proper to identify the sums of money held in the escrow accounts in question as "cash and other current assets" within the meaning of § 211(h)(3)(A), and thus transferable to ConRail. We have concluded that both questions should be answered in the affirmative.

A.

The Rail Act, 45 U.S.C. §§ 701, et seq., arose out of a recognition of the crisis that resulted from the bankruptcies of a number of railroads in the Northeast and the Midwest. It represented Congress' response to this "threat to the national welfare." In Re Penn Central Transportation Company, 384 F.Supp. 895, 902 (Special Court, 1974).

An overriding theme of the Rail Act is the protection of the public interest in continued operation of rail services. ¹ Among the principal tenets emerging from the Act itself, its legislative history and court decisions upholding its constitutionality are the following:

First, it was necessary to restructure the rail system in the affected region, in particular by creating ConRail; ² second, ConRail was to be allowed to begin its existence with a relatively clean slate, so that rail properties, with a few express exceptions, were to be transferred to it free of liens and encumbrances; ³ third, the estates ⁴ were to continue rail operations until the day of conveyance of the rail properties to ConRail; fourth, to offset to some extent the financial burden imposed on the estates by requiring them to continue rail operations up to the date of conveyance, Congress provided for grants and loans to the estates under reorganization; ⁵ and fifth, a remedy under the Tucker Act was found to exist, and to be constitutionally sufficient, in the event that compensation received by the estates pursuant to the Rail Act proved inadequate to cover the erosion of assets, if any, which occurred during the period of operations. ⁶

§ 211(h), one of the 1976 amendments to the Rail Act, should be viewed against this background. It allows for the provision of financial means by which certain pre-conveyance obligations of the estates, unpaid at the date of the conveyance of the rail assets to ConRail, may be satisfied "in order to avoid disruptions in ordinary business relationships." ⁷ The section was predicated upon the realization that the estates, in maintaining rail operations up to the date of the conveyance, would accumulate unpaid obligations to other railroads, shippers, suppliers and labor sources; and that there should be some mechanism facilitating payment of such obligations in order to prevent disruption of service or a smooth transition. Pursuant to § 211(h)(3)(A), USRA was authorized to petition the reorganization courts for an order identifying "cash and other current assets" of the estates which were to be made available in the post-conveyance period to pay pre-conveyance obligations, as identified in Section 211(h)(1). And USRA could seek an order providing for the payment of such obligations by the trustees.

The disputes regarding the merits of this appeal arose in the course of hearings held by the reorganization courts pursuant to § 211(h)(3). During the hearings, USRA sought an order to identify various accounts held by the estates including escrow accounts as "cash and other current assets" within the meaning of § 211(h)(3)(A). USRA also requested a directive that vacation pay which had accrued prior to the conveyances by the estates to ConRail continue to be an obligation of the estates. In response, the estates objected to the granting of an order to identify the accounts, and took the position that the accrued vacation pay was not an obligation of the estates after March 31, 1976, the date of the conveyances to ConRail.

In response to these motions, the reorganization courts ruled that (1) it was not proper to identify the sums of cash held in escrow accounts as "cash and other current assets," and (2) as of April 1, 1976, the vacation pay that had been a pre-conveyance obligation of the estates ceased to be such and instead became an obligation of ConRail. ConRail and USRA filed joint notices of appeal from the orders entered by each of the reorganization courts, and the appeals were then consolidated.

After oral arguments dealing with the consolidated appeals, the cases were held in abeyance at the request of the parties, who sought to resolve their differences amicably. Thereafter, the parties advised the Court that they had settled their differences regarding vacation pay, but not as to the status of the various escrow accounts. In practical terms, the effect of the rulings by the reorganization courts relating to the escrow accounts is that ConRail would have a lesser amount of cash available with which to pay pre-conveyance obligations than would have been available had the accounts been designated "cash and other current assets" under the terms of the Act and thereafter transferred to ConRail.

B.

The threshold question is whether, at this point in the litigation, we have jurisdiction over the appeals from the orders in question. The jurisdictional issue has arisen because, as the estates maintain, the orders by the reorganization courts of concern here are interlocutory, not final.

As a general rule, of course, this Court hears appeals only from orders of the district courts that are final. See 28 U.S.C. § 1291; Bachowski v. Usery, 545 F.2d 363, 368-369 (3d Cir. 1976). However, among the limited exceptions to this rule are interlocutory orders issued pursuant to "proceedings in bankruptcy" under § 24(a) of the Bankruptcy Act, 11 U.S.C. § 47(a). ⁸ Therefore, the issue before us is whether the orders here fall within the category of those interlocutory orders that are appealable under the Bankruptcy Act.

USRA and ConRail maintain that the orders in question are appealable. In opposition, the estates argue, first, that § 24(a) of the Bankruptcy Act applies only to appeals arising from orders entered pursuant to a court's bankruptcy powers, and that the orders in this case were not entered under the courts' bankruptcy authority, but rather were entered under § 211(h)(3) of the Rail Act. For this reason, say the estates, the orders are not appealable as a general matter under the Bankruptcy Act. Second, the estates urge, even if the orders here are construed as having been entered pursuant to the courts' bankruptcy powers, they flow from "controversies arising in proceedings in bankruptcy," not out of "proceedings in bankruptcy," and as such are not appealable under the terms of § 24(a) of the Bankruptcy Act.

The estates' first argument that the issuance of orders under § 211(h)(3) does not constitute an exercise of the courts' bankruptcy powers rests in part on the notion that the passage by Congress of the Rail Act, including § 211(h)(3), involved the exercise of a number of constitutional powers: namely, Congress' powers to act in the areas of bankruptcy, of eminent domain, and of interstate commerce. The estates contend, in effect, that because Congress, in passing the Act, relied on more than its bankruptcy power alone, a court acting pursuant to the Act necessarily exercises more than its bankruptcy power taken singly.

Such an argument is flawed because it avoids discussion of the particular issue arising in the judicial action in question. It is imaginable, of course, that a reorganization court will undertake to resolve a controversy under the Rail Act that does not call for the exercise of the court's bankruptcy power. However, this does not exclude the possibility that in...