Brief for Appellant — United States Railway Ass'n v. Connecticut General Insurance
Supreme Court brief1974
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In Tut BITES.
Supreme Court of the United States
OCTOBER nn. 1974
um Appeal from the District Court for the
hastern District of Pennss lyani
BRIEF OF APPRELEANI
LCNITED STATES RATEWAY ASSOC TATION
* „
TABLE OF CONTENTS
TABLE OF AUTHORITIES
SUMMARY OF ARGUMENT
Introduction: The Rail Crisis and the Rail Aet
A. The Rail Act Is Designed To Provide New So-
lutions to New Problems that Created the Rail
Crisis *
1. The Rail Act Provides a Thorough Planning
2. The Rail Act Provides Resources Not Avail-
B. The Rail Act Provides Solutions to the Problems
that Have Made It Impossible To Reorganize
TABLE OF CONTENTS—Continued
3. Elimination of Uncompensated Passenger
4. Increased Revenues —— — of
New Finaneing
The Court Below Should Have Denied Equitable
Relief and Dismissed the Complaints as to the
“Taking” Issues on the Ground that Plaintiffs
Have an — — at Law Under the
A. Repeal of the Jurisdiction of the Court of
Claims Under the Tucker Act To Award Just
Compensation for Any Taking of Private
Property for Public Use May Not Be In-
ferred from Later Statutes that Do Not Ex-
pressly Repeal or Modify that Act and Do
Not Provide an Equivalent Remedy
B. The Rail Act Does Not Show an Intent To
Deprive the Court of Claims of Its Tucker
Act Jurisdiction To Hear „
Just Compensation
ä — Gow an
Intent To Deprive the Court of Claims of its
Tucker Act Jurisdiction To Hear Any Case
Claiming Just Compensation
Even in the Absence of a Tucker Act Remedy
— — —
Operation of the Rail Act
A. The Court Below Misconstrued Section 304
(t) of the Rail Act
B. The 304(f) Injunction Was Unwarranted
61
III.
TABLE OF CONTENTS Continued
C. It Was Error To Declare Section 303 of the
328 Unconstitutional on Its
1
D. The District Court Should Not Have En-
—— 2 2 ey ae oe
Under Section 209 (¢) nnn
There Is No Factual or Legal Basis for Conclud-
ing that the Rail Act Will Cause an “Erosion
Taking” of Private 2 for Which Just
Compensation Will Be Due
A. Plaintiffs Have Not Shown that Any Erosion
Will Occur .
B. Railroad Creditors and Shareholders Do Not
Have a Constitutional Right To Be Held
Harmless from Erosion During the Period
Reasonably Necessary 7 > — and
Save the Railroad
1. The Earliest Decisions Under Section 77
Established that Some Erosion Is Per-
missible Pending Reorganization .__.
2. This Court Reviewed and Reconfirmed
this Rule in the New Haven litigation .
3. External, as Well as Internal, Sources of
Aid Must Be Considered in Assessing the
Penn Central’s Future Prospects
4. The Public Interest in Implementing the
Act Clearly Outweighs * Forseeable
Burden on Investors
75
CASES:
TABLE OF AUTHORITIES
5
Amell v. United States, 384 U.S. 158 (1966)
American Communications Association, CIO v.
Douds, 339 U.S. 382 (1950)
American Power & Light Co. v. ‘SEC, 329 U.S. 90
(1946)
Armstrong v. ‘United States, 364 U.S. 40 (1960)...
Brooks-Scanlon Co. v. Railroad Commission, 251
U.S. 396 (1920) 70, 78, 83, 94,
Bullock v. Railroad Commission, 254 U.S. 513
—
Clement v. United States, 140 F. ‘Supp. 573 (Ct. Cl.
1956) 51
Communist Party v. ‘Subversive Activities Control
Board, 367 U.S. 1 (191) 63-64
Continental Bank v. Chicago, Rock Island & P. Ry.,
294 U.S. 648 (1938 22, 78-79, 84-85, 93
Crowell v. Benson, 285 U.S. 22 (1932) * 65
Eastern Railroad Presidents Conference v. Noerr
Motor Freight, Inc., 365 U.S. 127 (1961) 65-66
Eastport Steamship Corp. v. United States, 372
F.2d 1002 (Ct. Cl. 1967) 43
63
64
48
8 2 88 & &
Eccles v. Peoples Bank, 333 U.S. 426 (1948)
Electric Bond & Share Co. v. SEC, 303 U.S. 419
(1933535
Fawcett v. C.. R., 149 F.2d 433 (2d Cir. 1945)
Federal Sugar Refining Co. v. United States, 30
F.2d 254 (2d Cir. 1929), rev'd on other grounds
sub nom. Johnson v. United States Shipping
Board Emergency Fleet Corp., 280 U.S. 320
(1930)
FTC v. A. P. ‘Paper Co., 328 U.S. 193 (1946)
Fleming v. Rhodes, 331 U.S. 100 (1947)
Flemming v. Nestor, 363 U.S. 603 (1960)
Fletcher v. Peck, 10 U.S. (6 Cranch) 87 (1810)
Fort Berthold Reservation v. United States, 390
F.2d 686 (Ct. Cl. 1968) 4
Gibson v. United States, 166 U.S. 269 u) 8
Glidden Co. v. Zdanok, 370 U.S. 530 (1962)
3
SER 88988
*
TABLE OF AUTHORITIES—Continued
Page
Gould v. United States, 301 F.2d 557 (D.C. Cir.
1962) 59
H. K. Hele v. United States, 100 Ct. Cl. 289
(1943) 47
Hadacheck v. Sebastian, 239 U.S. 394 (1915) &3
Harlem Valley Transportation Association v. Staf-
ford, 360 F.Supp. 1057 (S.D.N.Y. 1973), aff'd,
No. 73-2496 (2d Cir., June 18, 1974) 34
Hooe v. United States, 218 U.S. 322 (1910) 46
Hurley v. Kincaid, 285 U.S. 95 (1932) 41, 44-45,
59, 60, 69
In re Boston & Maine Corp,, 484 F.2d 369 (ist Cir.
1973) N 79. 93
In re Florida East Coast Ry., 137 F.Supp. 693
(S.D. Fla.) aff'd per curiam, 227 F.2d 518 (5th
Cir. 1955) 36
In re New York, NH. & H.R. R. 378 F.2d 635 (2d
Cir. 1967) 63, 88
In re New York, VH. 4 H.R. R., 281 F.Supp. 65
(D. Conn. 1968) 89-90
In re New York, NH. & H.R. R. 289 F.Supp. 451
(D. Conn. 1968) 87, 90-92, 94, 95
In re New York, NH. & H.R. R.. 304 F.Supp. 793
(D. Conn. 1969) 88, 94
In re New York, NH. &HRR., 304 F.Supp. 1121
(D. Conn. 1969) 82
In re Penn Central Transportation Co., 494 F.2d
270 (34 Cir.), petition for cert. filed, 42
U.S.L.W. 3633 (U.S. May 8. 1974) (No. 73-
8 85
In re Penn Central Transportation Co., Bky. No.
70-347, Order No. 1 (E.D. Pa., June 21, 19700 67-68
In the Matter of Reading Co., Bky. No. 71-828
(E.D. Pa., July 1, 1974), appeal pending, No.
74-7 (Spec. Ct. R.R.R.A., filed Aug. 20, 1974) 79-80
International Longshoremen’s & Warehousemen's
Union, Local 37 v. Boyd, 347 U.S. 222 (1904) 64
Jackson v. United States, 230 U.S. 1 (1913) 83-84
TABLE OF AUTHORITIES—Continued
Page
Jacobs v. United States, 290 U.S. 13 (19333 43, 45
Joint Anti-Fascist Refugee Committee v. McGrath,
341 U.S. 123 (1951) 63
Kennedy v. Silas Mason Co., 334 U.S. 249 (1948). 63
Kent v. Dulles, 357 U.S. 116 (1958) . 66
Malone v. Bowdoin, 369 U.S. 643 (1962) 45
Marine Insurance Co. v. United States, 410 F.2d
BQ QUE SSS a 51
Mercantile National Bank v. Langdeau, 371 U.S.
555 (1963) 48
Nagano V. McGrath, 187 F.2d 759 (7th Cir. 1951),
aff'd, 342 U.S. 916 (1952) 48
New Haven Inclusion Cases, 399 U.S. 392 (1970) 22, 57,
59, 63, 70, 79, 88, 92-93
New York, VH. & H.R.R. Bondholders v. United
States, 289 F Supp. 418 (S.D.N.Y. 1968) 88. 92
Penn-Central Merger Cases, 389 U.S. 486 (1968). 22, 84,
88-89
Phelps v. United States, 274 U.S. 311 (1927 59
Phillips v. Commissioner, 283 U.S. 589 (1931) 59
Poe v. Ullman, 367 U.S. 497 (1961) 63
Portsmouth Harbor Land & Hotel Co. v. United
States, 260 U.S. 327 (1922) „%% 45
Public Affairs Press v. Rickover, 369 U.S. 111
—— ˙˙.iwA2ꝛ˙*n RN 63
Railroad Commission v. Eastern Tezas R. R., 264
US. 79 (1924) 78
Ralston Steel Corp. v. United States, 340 F.2d 663
(Ct. Cl.), cert. denied, 381 U.S. 950 (1965) 43
Reconstruction Finance Corp. V. Denver & Rio
Grande W. R. R., 328 U.S. 495 (1946) 22, 86, 93
Richard v. United States v. Stone Corral Irriga-
tion Dist., 282 F.2d 901 (Ct. Cl. 1960) . 45
Richmond Screw Anchor Co. v. United States, 275
U.S. 331 (1928) 65
St. Joe Paper Co. v. Atlantic Coast Line R. R., 347
U.S. 298 (1954) —
Shapiro v. Thompson, 394 U.S. 618 (1969) — 3
TABLE OF AUTHORITIES—Continued
Simon v. United States, 113 Ct. Cl. 182 (1949)
Steel Hill Development, Inc. v. Sanborton, 469 F. 2d
956 (ist Cir. 1972)
Tempel v. United States, 248 U.S. 121 (1918) .
Twenty Per Cent Cases, 87 U.S. 179 (1873)
United States v. Babcock, 250 U.S. 328 (1919)
United States v. Causby, 328 U.S. 256 (1946)
United States v. Darby, 312 U.S. 100 (1941)
United States v. Dickinson, 331 U.S. 745 (1947)
United States v. Goltra, 312 U.S. 203 (194)
United States v. National Dairy Products Corp.,
372 U.S. 29 (1963)
United States v. Pfitech, 256 U.S. 547 (1921)
United States v. Raines, 362 U.S. 17 (1960)
United States v. Thayer-West Point Hotel Co., 329
U.S. 585 (197
United States v. Thirty-Seven (37) Photographs,
402 U.S. 363 (1971)
United States v. United States Fidelity 4 Guar-
anty Co., 309 U.S. 506 (1940)
United States Civil Service Commission V. National
Association of Letter Carriers, AFL-CIO, 413
U.S. 548 (1973) 48, 65
Van Schaick v. McCarthy, 116 F.2d 987 (10th Cir.
es 86
West Coast Hotel Co. v. ‘Parrish, 300 U.S. 379
3 96
Wright v. Vinton Branch of the Mountain Trust
Bank, 300 U.S. 440 (1937) 48
Yearsley v. . A. Ross Construction Co., 309 U.S.
18 (1940) . N 43-44, 45, 60
Youngstown Sheet & Tube Co. V. ‘Sawyer, 343 U.S.
—— — 416. 96
2 8 8 * 5 e 2 §
CONSTITUTIONAL PROVISIONS AND STATUTES:
U.S. Constitution:
Art. I, § 8, cl. 3 (Commerce Clause) 3
Vill
TABLE OF AUTHORITIES—Continued
Page
ee ee) Cay Sen - J. 14, 62
Admiralty Act of 1920:
46 U.S.C. §§ 741 et seq. a
Bankruptcy Act:
Section 77, 11 U.S.C. §205 — 5. passim
Interstate Commerce Act:
Section 1, 49 U.S.C. 81 SS
Section 5, 49 U.S.C. §5 .
Judicial Code:
28 U.S.C. 88 1252 3
E 1 3
123i(a) ........... 2
2202 . 2
2282 2
2284 2
2516 59
National Environmental Policy Act of 1969:
42 U.S.C. §§ 4321, 4331-35 —
Rail Passenger Service Act of 1970, as amended:
45 U.S.C. §§ 501 et seq. 1 38
Regional! Rail Reorganization Act of 1973:
Pub. L. 93-236, 87 Stat. 985, 45 U.S.C.
1 701-93 — I. passim
Tucker Act:
2US.C. $1492 0 8, pein
TABLE OF AUTHORITIES—Continued
Other Statutes: Page
Pub. L. 65-182, 40 Stat. 704, 705 (July 1,
1918), as amended 28 U.S.C. § 1498 65
Pub. L. 93-5, 87 Stat. 5 (Feb. 9, 1973) 31
Pub. L. 93-240, 87 Stat. 1048 (Jan.2,1974) 28. 47
Pub. L. 93-305, 88 Stat. 195 (June 8, 1974) 28. 47
ADMINISTRATIVE PROCEEDINGS:
ICC Order, Ex Parte No. 293 (Jan. 14, 1974) 23
Penn Central Transportation Co. Reorganization,
Corp. Reorg. Rep. (Penn Central), Document
No. 95, at 1102:86 (ICC Finance Docket No.
26241, Sept. 28, 1973) 35, 37
LEGISLATIVE MATERIALS:
Conference Report, H.R. Rep. No. 93-744, 93d
Cong., Ist Sess. (1973) 27, 32
H.R. Rep. No. 93-620, 93d Cong., Ist Sess. (1973) 24,
passim
S. Rep. No. 93-601, 93d Cong., Ist Sess. (1973) 24, 30,
31,53
119 Cong. Rec.
H9731-32 (daily ed. Nov. 8, 1973) 54. 57
H9742 (daily ed. Nov. 8. 1973) ) 4
H9743 (daily ed. Nov. , 1973). 53
H9756 (daily ed. Nov. 8. 1973) 56
111,876 (daily ed. Dec. 20, 1973) 52. 56
$22,483 (daily ed. Dec. 11, 1973) — 34
$22,485 (daily ed. Dec. 11, 1973) 53, 56
$22,820 (daily ed. Dec. 13, 1973) 56
$23,778 (daily ed. Dec. 21, 1973) * 53
$23,780 (daily ed. Dec. 21, 1973) 50-51
S23,782-4 (daily ed. Dec. 21, 19733 34, 53, 55
Hearings on H.R. 6591, H.R. 4897, H.R. 5822, H.R.
5385, H.R. 6880, H.R. 7373 and H.J. Res. 50 be-
fore the House Comm. on Interstate and Foreign
Commerce, 93d Cong., Ist Sess. (1973) 31
*
In THE
Page Supreme Court of the United States
Hearings on S. 1031, S. 2188 and H.R. 9142 before OCTOBER TERM, 1974
the Senate Comm. on Commerce, 93d Cong.,
Ist Sess. (1973) 31
Secretary of Transportation, Northeastern Fall-
road Problem, A Report to the Congress, March N
26, 1973 1 ' 31. 33, 36 0. 74-167
Secretary of Transportation, Rail ‘Service in the
Midwest and Northeast Region, Feb. 1, 1974 33
Special Staff of Senate Comm. on Commerce, 92d
Cong., 2d Sess., The Penn Central and Other UNITED STATES RAILWAY ASSOCIATION,
Railroads, A Report to the Senate Comm. on
Commerce (Comm. Print 1972) 24 Appellant,
Statement of Secretary Brinegar in Hearings he- v.
fore the Surface Transportation Subcomm. of
Se ae Se eee SS CONNECTICUT GENERAL INSURANCE CORPORATION, et al.,
2, at 258 ( 30, 1973) ae 23-24
N — Appellees.
MISCELLANEOUS:
Coleman, /s Railroad Accounting Off the Track?,
TABLE OF AUTHORITIES—Continued
130 J. Accountancy 64 (Oct. 1970) 3 77 On Appeal from the Distriet Court for the
3A Collier on Bankruptcy “ 63.16 (14th ed. rev. Eastern District of Pennsylvania
J. Moore) ; 82
5 Collier on Bankruptcy © 77.20 (14th ed. rev. 1.
——A ee 82
Frankfurter, Som- ‘Reflections on the Reading of BRIEF OF APPELLANT
Statutes, 47 Colum. I. Rev. 527 (1947) 54-55 UNITED STATES RAILWAY ASSOCIATION
Iron Age, June 25, 1970 a — 81
Iron Age, July 22, 1974 én 81
Note, Takings and the Public Interest in Railroad
Reorganization, 82 Yale I. J. 1004 (1973) 85 This is an appeal from the decision of a three-judge
L. — at aime 28 Law of Eminent 2 — 11 —— Court sitting in the Eastern
Domai ial D ts: Richard strict vania, which held unconstitutional
388 8 1 Nixon 8 (Jan. 34 certain sections of the Regional Rail Reorganization Act
Spychalski, Imperfections in ‘Railway Line Aban- of 1973, Public Law 93-236, 45 U.S.C. §§ 701-93 (the
donment Regulation and Suggestions for their “Rail Act” or “Act”). Appellant is the United States
Correction, 40 ICC Prac. J. 454 (1973 35 Railway Association (“USRA” or the Association“), a
“government corporation” formed pursuant to Section
201 of the Rail Act.
OPINIONS BELOW
The opinion and concurring opinion in the district
court and its order of June 25, 1974, are reprinted in
the Joint Appendix (“JA”)* at JA 9-83. The opinions
are not yet officially reported.
JURISDICTION
These cases were brought pursuant to 28 U.S.C. §§ 1331
(a), 1337, 2201 and 2202, seeking a declaratory judg-
ment that the Rail Act is void for repugnance to the
United States Constitution and seeking an injunction
against the enforcement, operation and execution of the
Rail Act. Three-judge courts were convened pursuant
to 28 U.S.C. §§ 2282 and 2284. By consent of the parties,
two of the actions originally brought in the District
of Columbia were transferred to and consolidated for
disposition before the three-judge court in the Eastern
District of Pennsylvania.
The order appealed from, declaring certain provisions
of the Rail Act null and void as violative of provisions
of the Constitution and enjoining Appellant from taking
certain actions pursuant to the Rail Act, was entered on
June 25, 1974 in all of the cases. No order has been
issued respecting a rehearing. Notice of Appeal to this
Court was filed in the United States District Court for
the Eastern District of Pennsylvania on July 17, 1974.
JA 386. Appellant’s Jurisdictional Statement was filed
A Joint Documentary Submission (“J. Doc.“) has been
filed with this Court. ’ *
on August 23, 1974. This Court has jurisdietion pursuant
to 28 U.S.C. §§ 1252 and 1253. See Shapiro v. Thomp-
son, 394 U.S. 618, 625 (1969); United States v. Raines,
362 U.S. 17, 20 (1960); Fleming v. Rhodes, 331 U.S.
100, 102-04 (1947).
CONSTITUTIONAL PROVISIONS
AND STATUTES INVOLVED
Article I, Section 8, Clauses 3 and 4 of the United
States Constitution provide:
“The Congress shall have Power
“To regulate Commerce with foreign Nations, and
among the several States, and with the Indian
Tribes;
“To establish an uniform Rule of Naturalization,
and uniform Laws on the — of Bankruptcies
throughout the United States, .
The Fifth Amendment to the United States Constitu-
tion provides in pertinent part:
“No person shall. . . be deprived of life, liberty,
or property, without due process of law; nor shall
private property be taken for public use, without
just compensation.”
The Regional Rail Reorganization Act of 1973, Pub.
L. 93-236, 87 Stat. 985, 45 U.S.C. §§ 701-93, is set forth
at JA 391-431.
The Tucker Act, as amended, 28 U.S.C. § 1491, pro-
vides in pertinent part:
“The Court of Claims shall have jurisdiction to
render judgment upon au claim against the United
States founded either upon the Constitution, or any
Act of Congress, or any regulation of an executive
department, or upon any express or implied con-
4
tract with the United States, or for liquidated or
unliquidated damages in cases not sounding in
3
QUESTIONS PRESENTED
1. Whether the court below erred in granting injunc-
tive relief on Plaintiffs’ claims that the Rail Act may
effect a taking of their property without just compensa-
tion, when Plaintiffs have adequate remedies at law in-
cluding a suit in the Court of Claims under the Tucker
Act, 28 U.S.C. § 1491.
2. Whether the court below breached its duty to con-
strue statutes so as to save their constitutionality when
it construed the Rail Act, despite its silence on the sub-
ject, as amending the Tucker Act by implication so as
to bar any suit in the Court of Claims to recover any
difference between the consideration provided in the Rail
Act and the “constitutional minimum” expressly recog-
nized in the Rail Act—a construction of the Rail Act
which led the court to declare certain provisions of the
Rail Act unconstitutional.
3. Whether the court breached its duty to construe
statutes so as to save their constitutionality when, after
holding that the Rail Act impliedly amended the Tucker
Act to bar a remedy for constitytional claims of the rail
estates, the court
(a) construed Section 304(f) of the Rail Act to
authorize USRA to forbid discontinuance of rail
service or abandonment of rail properties even if the
“erosion” of the railroad estate should pass the limits
beyond which operations can no longer be constitu-
tionally required without compensation—a construc-
tion of Section 304(f) which led the court to hold
Section 304(f) unconstitutional; and
(b) construed Section 303 of the Rail Act, which
expressly requires a “constitutional minimum” con-
sideration for transfers of rail property, to exclude
consideration for erosion beyond constitutional limits
—a construction of Section 303 which led the court
to hold Section 303 unconstitutional.
4. Whether the court below erred in first enjoining
all Defendants from taking any action under Section
304(f) to require continuation of rail service that would
result in “erosion” beyond constitutional limits and there-
after nullifying other provisions of the Rail Act solely
for their failure to provide explicitly for just compensa-
tion for the very “erosion” beyond constitutional limits
that the court had already enjoined Defendants from
causing.
5. Whether, in any event, an injunction unconditionally
prohibiting USRA from certifying any Final System Plan
for reorganized rail service to a federal court was a
necessary or appropriate remedy to prevent the possibility
of erosion beyond constitutional limits that the court had
already enjoined USRA and all other Defendants from
causing.
STATEMENT OF THE CASE
Eight major railroads operating in the Northeast/
Midwest region of the United States are now in reor-
ganization proceedings pursuant to Section 77 of the
Bankruptcy Act, 11 U.S.C. § 205. Because of the serious
threat that this rail crisis presented to the welfare of
the region and of the United States, and because of the
inability of the procedures and resources of Section 77
to resolve the underlying problems of these railroads,
Congress enacted the Regional Rail Reorganization Act of
1973, which became law on January 2, 1974.
Plaintiffs below are creditors and the sole shareholder
of the largest of the railroads now in reorganization,
Penn Central Transportation Company (“Penn Central”).
They brought these actions seeking declaratory judg-
ments that the entire Rail Act is unconstitutional on its
face on a large number of grounds, and further seeking
injunctions against the implementation of all of its pro-
visions. JA 161-75. The Trustees of the property of
Penn Central Transportation Company, Debtor (“Penn
Central Trustees”) intervened as Defendants. JA 191.
Both sides filed Motions for Summary Judgment. JA
221-25. This appeal is taken from a final judgment
granting in part Plaintiffs’ Motions for Summary Judg-
ment and denying Defendants’ Motions. JA 9-83.
The Rail Act Reorganization Process
The following five steps required by the Rail Act
are essential to an understanding of the proceedings be-
low. In the Introduction to the Argument there is a
fuller discussion of the statutory provisions intended
by Congress to achieve “the reorganization of railroads
in this region into an economically viable system capable
of providing adequate and efficient rail service to the
region.” Section 101(b) (2).
(1) Each nited States district court having jurisdic-
tion of a railroad in the region in reorganization under
Section 77 (“Reorganization Court”) was required to
determine within 180 days of enactment whether its
railroad should be reorganized pursuant to the Rail Act.
Section 207(b). Such determinations (which are described
below under the heading “Reorganization Court Proceed-
ings”) have been made and are now under review by a
special United States district court of three judges
(“Special Court”) which was authorized by the Rail Act,
Section 209(b), and which has been formed in the Dis-
trict of Columbia.
-
‘
(2) A new government corporation, Appellant USRA,
is required to prepare a “Final System Plan” for re-
structuring the rail properties of the railroads being
reorganized pursuant to the Rail Act into a “financially
self-sustaining rail service system.” Sections 201, 202,
204-06. A central feature of the Final System Plan will
be the transfer of designated rail properties to a new,
for-profit corporation called Consolidated Rail Corporation
(“Conrail”) in exchange for all the securities of Con-
rail, plus up to 8500 million of USRA obligations guar-
anteed by the United States. Sections 206(d)(1), 210.
(3) USRA is required to submit a proposed Final
System Plan to Congress within 450 days of enactment
(i. e., by March 28, 1975). Section 208(a). The Plan
becomes “effective” if neither House of Congress disap-
proves it within sixty continuous session days after sub-
mission. Section 208. The Plan is then transmitted by
USRA, within 90 days after its effective date, to the
Special Court, which has exclusive jurisdiction of all
“proceedings with respect to the Final System Plan.”
Section 209. The Special Court is then directed to order
the trustees of each railroad in reorganization to transfer
to Conrail all right, title and interest in the rail prop-
erties designated in the Final System Plan. Section 303
(b).
(4) The Special Court is directed then to determine
whether the exchange of rail properties for Conrail se-
curities, USRA obligations and such “other benefits” as
the Rail Act provides, is fair and equitable to the estate
of each railroad in reorganization. Section 303ic). If
the Special Court finds that the transfer is not fair and
equitable “in accordance with the standard of fairness
and equity applicable to the approval of a plan of re-
organization or a step in such a plan under Section 77
of the Bankruptcy Act,” the Court is directed to order
a reallocation of the Conrail securities, and or to order
the issuance of additional Conrail securities and USRA
obligations (subject to an overall $500 million limitation
on USRA obligations used for this purpose), and/or to
enter a judgment against Conrail. Id. Section 303 does
not authorize the Special Court to enter a judgment
against the United States. Section 303 does, however,
recognize that the consideration to be transferred in
exchange for the rail properties must equal the “con-
stitutional minimum” and directs the Special Court to
make necessary adjustments so that this “constitutional
minimum” is not exceeded. The judgment of the Special
Court may be appealed directly to this Court. Section
303 (d).
(5) Section 304 of the Rail Act provides that railroads
in reorganization subject to the Act may discontinue
service over, and may “abandon”—i.ec., dispose of as
they wish—any rail properties not designated for trans-
fer under the Final System Plan. In the interim, how-
ever, Section 304/f) permits a railroad in reorganization
to discontinue service on or to abandon lines of railroad
only with the consent of USRA.
Reorganization Court Proceedings
Section 207(b) of the Rail Act required each Re-
organization Court to decide, in two stages, whether its
railroad should be reorganized pursuant to the Rail Act.
First, each Reorganization Court was to decide, within
120 days of the Rail Act’s enactment, whether (a) its
railroad is reorganizable on an income basis within a
reasonable time under Section 77 of the Bankruptcy Act
and if so whether (b) the public interest would be better
served by continuing the reorganization under Section
77 than by proceedings under the Rail Act. If a Re-
organization Court made both affirmative findings, it was
authorized to keep its railroad out of all subsequent
Rail Act proceedings. Railroads not eliminated at the
“120-day” stage went through the second stage, or “180-
day” proceeding, in which each Reorganization Court was
to order that reorganization proceed under the Rail Act
unless it found that the Rail Act “does not provide a
process which would be fair and equitable to the estate
of the railroad in reorganization.”
On the date of enactment, eight major railroads were
in reorganization in the region. In addition, fifteen
of Penn Central's railroad subsidiaries (“Secondary
Debtors”) were considered separately from Penn Central
in distinct “120-day” and “180-day” proceedings in the
Penn Central Reorganization Court. Hence, the major
railroads and the Secondary Debtors required nine de-
terminations by the Reorganization Courts under Section
207 (b.
On May 1, 1974, two railroads—the Boston & Maine
and the Erie Lackawanna—were kept out of the Rail
Act procedures on the “120-day” grounds that they are
reorganizable on an income basis under Section 77 and
that the public interest would be better served by con-
tinuing under Section 77. These determinations have
not been appealed. In the remaining seven cases, the
railroads were not taken out of the Rail Act at the 120-
day stage. In six of these cases, the Reorganization
Courts found that the railroads were not reorganizable
on an income basis under Section 77. Certain of the
Secondary Debtors were found to be reorganizable on an
income basis under Section 77 but the Court was unable
to conclude that the public interest would be better
1 were and are the only operating railroads in reorganiza-
tion in the United States, except for a tiny carrier, the Cadillac and
Lake City Railroad. The Cadillac and Lake City, which is also in
region, has been excluded from further proceedings under the
on the ground that it is separately reorganizable on an income
is under Section 77 and the public interest would be better served
by continuing under Section 77.
10
served by reorganization under Section 77 than by pro-
ceedings under the Rail Act.
These seven cases were therefore the subject of the
subsquent “180-day” proceedings in the respective Reor-
ganization Courts. On July 1, 1974, six days after the
decision of the three-judge Court below in the present
ease, two Reorganization Courts, having before them
Reading Company and The Ann Arbor Railroad Com-
pany, ordered that their reorganizations proceed under
the Rail Act. In the remaining five proceedings, which
dealt with Penn Central, Secondary Debtors, Lehigh
Valley Railroad Company, The Central Railroad Com-
pany of New Jersey, and The Lehigh and Hudson River
Railway Company, the Reorganization Courts con-
cluded, wholly or in substantial part on the basis of the
decision below in the present case, that the Rail Act
does not provide a fair and equitable process and de-
clined to order reorganization under the Rail Act.
Section 207(b) provides that appeals from Reorgani-
zation Court orders pursuant to that section shall be
made to the Special Court. It further provides that
there shall be no appeal from the decision of the Special
Court. These seven 180-day determinations are all on
appeal to the Special Court, which is required by See-
tion 207(b) of the Rail Act to render its decision within
80 days after the appeals were taken, a period which
expires on September 29, 1974. Appellant USRA and
other parties intend to suggest to the Special Court that
it render its decision at that time but stay its mandate
pending the determination by this Court of the issues
on this appeal.
These five determinations were made by three courts: the Penn
Central, Secondary Debtors, and Lehigh Valley reorganizations are
all before Judge um in the Eastern District of Pennsylvania.
Judge Fullam was aiso a member of the court below.
In the case of The Central Railroad of New Jersey, the 80-day
period expires on September 26, 1974.
ee ee RS ee
11
Proceedings Below
Plaintiffs in the court below challenged the constitu-
tionality of the Rail Act on a number of grounds. A
primary contention was that the consideration provided
in the “Final System Plan” for required transfers of
rail property pursuant to that Plan will or may, despite
the statutory requirement that the consideration be equal
to the “constitutional minimum standard of fairness and
equity,” fall below constitutiona! requirements so that
the transfers will constitute a taking of Plaintiffs’ prop-
erty for less than just compensation in violation of the
Fifth Amendment. This contention was rejected by the
court below as premature. JA 9 at 23-25.
Plaintiffs also contended below that a taking of their
property without just compensation will result from a
combination of the allegedly required continuation of rail
operations pending implementation of the Fina! System
Plan with the alleged “erosion” beyond constitutional
limits of the Penn Centra! estate during this period.
Appellant USRA contended below that, (i) on any theory
of “erosion,” the record before the court below did not
permit a determination of the amount of erosion suffered
by any railroad estate or a determination that any rail-
road estate has reached the “constitutional limit” be-
yond which operations cannot be required to continue
without an adequate remedy at law for compensation;
(ii) railroad creditors and owners can constitutionally
be required to sustain a reasonable burden of interim
erosion while efforts are being made to restructure the
railroad on a profitable basis: and (iii) in any event
Plaintiffs were not entitled to an injunction or a declara-
tory judgment of unconstitutionality because, if it should
ultimately be determined that the Rail Act had caused
an erosion of their interests beyond constitutional limits,
Plaintiffs would have an adequate remedy at law in the
Court of Claims under the Tucker Act for any claimed
shortfall in their compensation.
12
The court below determined that the present existence
of operating losses in the Penn Central system made
the erosion issue “ripe for adjudication.” JA 9 at 40. The
court did not define erosion, nor did it decide whether
the Penn Central or any other railroad has yet reached
the constitutional limit of erosion, nor did it attempt to
define the constitutional limit. The court said only that,
“we are persuaded that a significant possibility
exists that a point of erosion either has been or
may soon be reached so that it can be said that
plaintiffs’ contention of interim unconstitutional tak-
ing by continued loss operations is ripe for adjudi-
cation.” Id.
Without resolving the factual issues further, the court
then turned to the relevant statutory issues. The court
apparently read Section 304(f), which requires a railroad
in reorganization to obtain the approval of USRA be-
fore it discontinues rai! service or abandons rail lines dur-
ing the planning process, as authorizing USRA to with-
hold approval even if a court has determined that “ero-
sion” has gone beyond constitutional limits and even if an
adequate remedy at law for compensation is barred by
the Rail Act.
The court then concluded that the Rail Act did bar an
adequate remedy at law. It explicitly rejected the con-
tention of Appellant, of the other Government Parties,
and of the Penn Centra! Trustees that if the constitu-
tional limit of permissible uncompensated erosion should
be passed, Plaintiffs would have an adequate remedy at
law in the Court of Claims under the Tucker Act for
just compensation. JA 9 at 53. The court construed the
Rai! Act. despite its silence on the subject, as precluding
the Court of Claims from taking jurisdiction of any suit
for compensation for actions taken under the authority
of the Rail Act. The court also apparently decided that
the power of the Special Court, pursuant to Section 303.
—
13
to determine whether transfers of rail properties are fair
and equitable to the estate of each railroad in reor-
ganization and to award the “constitutional minimum,”
does not include the power to remedy erosion beyond con-
stitutional limits. Id. at 53, 82.
Based on this analysis, the court below held Section
3040
“null and void as violative of the Fifth Amendment
of the United States Constitution, to the extent that
it would require continued operation of rail services
at a loss in violation of the constitutional rights
of the owners and creditors of a railroad.” Id. at
82-83.
The court did not define such constitutional rights, but
it ined all Defendants,
“from taking any action to enforce the provisions of
Section 304(f) with respect to any abandon-
ment, cessation or reduction of service which has
been or may hereafter be determined by a court of
competent jurisdiction to be necessary for the pres-
ervation of rights guaranteed by the United States
Constitution.” Id. at 82.
Technically, this order has effect only if some other
court (presumably a Reorganization Court) determines
that an abandonment, cessation, or reduction of service
is constitutionally required.
The court below went on to declare that Section 303
of the Rail Act, relating to transfers of rai! properties
pursuant to the Final System Plan, is
“null and void as contravening the Fifth Amendment
of the United States Constitution insofar as it fails
to provide compensation for interim erosion pending
final implementation of the Final System Plan
„ A
In addition, without explanation, the court enjoined
USRA, unconditionally, from certifying any Final Sys-
14
2352225 Cat pumas & Get ee
e).
Plaintiffs made a third challenge to the Rail Act on
the ground that it is not uniform“ within the meaning
of Article I, Section 8, Clause 4, of the Constitution,
providing that Congress shall have the power to enact
“uniform Laws on the subject of Bankruptcies through-
out the United States.” The court below rejected this
contention except as to one sentence of Section 207(b).
Id. at 83. That sentence provides that if any Reorganiza-
tion Court determines, in the “180-day proceedings,”
that the Act does not provide a fair and equitable process
for the reorganization of its debtor and therefore that
the debtor shall not be reorganized in accordance with
the Act, then the Reorganization Court shall dismiss the
Section 77 proceedings. Since the court’s ruling nullifying
A ~ 7 does not materially affeet the
nistration Rail Act, we do not a
this part of the court’s order. —
SUMMARY OF ARGUMENT
The * Act provides varied and substantial new
resources meet a rail crisis that is centered i
- ond Witness ten Gomme Ge aden ac an
entire nation. These resources can be used to create a
self-sustaining rail service system that will meet the
needs of the public. The creation of that system will
resolve the several present railroad reorganization pro-
ceedings and will afford fair and equitable treatment to
the creditors and shareholders of the bankrupt railroads.
The Rail Act has been attacked on the nd
under some hypothetical circumstances 22 2 —
to these private interests would not be assured. The
Act itself, with its commitment of major new public
resources, its revamping of the regulatory framework,
15
and its imaginative adaptation of traditional railroad re-
organization procedures and principles, provides ample
refutation of the Act’s detractors. The short answer to
their contentions, however, is that if, despite all of the
resources that Congress pledged and all the care it de-
voted to legislating a constitutional solution to the rail
crisis, the Act should require the use or transfer of rail
properties for less than the “constitutional minimum”
consideration that the Act expressly recognizes to be due,
a suit for just compensation in the Court of Claims under
the Tucker Act is an adequate and proper remedy at law,
and no injunction is justified.
Tucker Act. In the court below, Plaintiffs sought (a)
a declaration that the Rai) Act is unconstitutional on
its face and (b) an injunction against its implementa-
tion. Their primary contention was that the Rai! Act
will cause a “taking” of their “property” for “public
use” without “just compensation” in violation of the
Fifth Amendment to the Constitution of the United
States. The court below should have responded to that
challenge by denying the relief sought and dismissing
the complaints on the ground that if Plaintiffs should
ever wish to present such a claim, they will have an
adequate remedy at law in the form of a suit for just
compensation in the United States Court of Claims under
the Tucker Act, 28 U.S.C. 81491. Decisions of this
Court have clearly established that since just compensa-
tion remains available in a suit under the Tucker Act,
it is inappropriate ever to enjoin duly authorized federal
action on the ground that it may constitute a taking for
less than the just compensation that must be paid. The
same decisions establish that this adequate legal remedy
makes it unnecessary and inappropriate for a court of
equity, when asked for such an injunction, even to in-
quire into whether a taking in fact has occurred or will
occur.
16
The court below, however, ruled that the Rail Act
bars a Tucker Act remedy for claims arising under the
Rail Act. The court assumed that the existence of such
a remedy depends on the intention of Congress, when
it passed the Rail Act, to make a Tucker Act remedy
available. Hence, the court stated the question as whether
there was an “implied remedy at law,” JA 9 at 41, and
concluded that to “read a Tucker Act remedy into the
Rail] Act” would be “judicial legislation on a grand,
if not arrogant, scale.“ Id. at 53.
In fact, the Tucker Act stands by itself as a century-
old bulwark both against inadequately compensated tak-
ings of property and against unwarranted prior restraint
by courts of equity against the efforts of Congress to
provide for the needs of the nation. The Tucker Act,
by itself, confers jurisdiction on the Court of Claims
to hear money claims arising under the Constitution of
the United States, including claims for just compensation
for the public use of private property. This remedy is
available for any claim of taking (including claim of a
taking of the use of property) that results from au-
thorized federal action. It is not necessary, when Con-
gress passes later substantive legislation which someone
alleges to have caused a taking, that Congress have in-
tended a taking, or have provided a remedy, or have
explicitly or implicitly preserved the availability of the
Tucker Act remedy in the later legislation.
The only question properly before the court below on
this issue was whether the Rail Act repealed the jurisdie-
tion of the Court of Claims pro tanto as to affected
rail estates. This it clearly did not do. The Rail Art
nowhere mentions either the Tucker Act or the Court of
Claims, although it contains thirteen separate provisions
explicitly modifying or repealing other federal statutes,
including an entire section entitled “Relationship to Other
Laws.” While it is clear from the statute and its legis-
EPS Ce 0 —
17
lative history that Congress did not expect that the con-
sideration provided under the Rail Act would be ju-
dicially determined to be less than the “constitutional
minimum” that the Rail Act expressly recognizes to be
due, there is nothing in the Rail Act or its legislative
history to suggest that Congress intended to deny the
traditional Court of Claims remedy to anyone asserting
such a claim.
The questionable inference, drawn by the court below,
that the Rail Act implicitly repealed a basic grant of
jurisdiction to a federal court, was especially inappropri-
ate in light of its consequences: ta) to impute to —
gress a deliberate nace to - „ — 42
r iring transfers of rail p "
vane Ming thet might judicially be determined to be
less than the “constitutional minimum” Congress itself
recognized and by barring any remedy to recover the
shortfall, and (b. to strike down portions of a major
federal statute that the Court apparently would have
upheld if it had drawn the opposite inference. The
action of the court below thus violated the basic precept
of constitutional litigation that a statute shall be inter-
preted, where possible, so as to save rather than destroy
its constitutionality.
ion 30 Apart from its rejection of the Tucker
ot saan: oo district court’s resolution of the merits
of the “taking” allegations was also erroneous. One of
Plaintiffs’ allegations was that Section 304(f ) of the
Rail Act, which forbids railroads in reorganization from
discontinuing service or abandoning rail lines during the
rail planning process without the approval of USRA,
has caused and or will cause a “taking” of Plaintiffs
property in the form of “erosion” of railroad estates
through continued rail operations. The court below did
not decide whether “erosion” amounting to a “taking’
has occurred or will occur. Indeed, the court neither de-
18
fined “erosion” nor specified the constitutional limits
beyond which erosion becomes a taking and cannot be
compelled unless an adequate remedy for just compensa-
tion is available. Instead, the court took the following
extraordinary steps: (a) it decided that the constitu-
tionality of Section 304(f) was ripe for adjudication even
though the constitutional limit of erosion had not been
found to have been reached and might not ever be
reached; (b) it interpreted Section 304(f) as barring
discontinuances and abandonments even though the re-
sult would be erosion beyond constitutional limits for
which the court had ruled no adequate remedy was
available; (c) it declared Section 304 /f, as so construed.
unconstitutional as applied to these hypothetical circum-
stances; (d it enjoined USRA, now, from interfering
with any discontinuance or abandonment that another
court may hypothetically find constitutionally required ;
and (e finally, it declared other portions of the statute
unconstitutional, without explanation, because they do
not specifically provide a remedy for the very erosion
beyond constitutional limits that the court itself had al-
ready done more than necessary to prevent.
The court, based on its ruling that the Rail Act barred
an adequate remedy at law, declared Section 304(f) “null
and void as violative of the Fifth Amendment to
the extent that it would require continued operation of
rail serivees at a loss in violation of the constitutional
rights of the owners and creditors of a railroad.” JA 9
at 82-83. The court then enjoined the Defendants
“from taking any action to enforce the provisions
of Section 304(f) of the Regional Rail Reorganiza-
tion Act of 1973, with respect of any abandonment,
cessation, or reduction of service which has been or
may hereafter be determined by a court of compe-
tent jurisdiction to be necessary for the preserva-
tion of rights guaranteed by the United States Con-
stitution.” Id at 82.
19
If this were all the court below had done, its order
would be merely gratuitous. The court did not need
to interpret Section 304(f) as permitting USRA to
such constitutional rights as a later court may
declare. It did not need to strike down the section,
or to enjoin USRA, now, from violating constitutional
rights declared by a hypothetical later court. Even if
the court correctly construed the Rail Act as denying
an adequate remedy at law, the entire resulting problem
could have been resolved by interpreting Section 304 (f)
as conferring authority only within the bounds permitted
by the Constitution. If, as the court below hypothesized,
some later court finds that an abandonment, cessation
or reduction of railroad service is required to preserve
constitutional rights, there is no reason to assume now
that USRA will act in violation of that hypothetical de-
termination or that the later court would not be able
itself to issue such injunctive and other orders as may
be necessary to enforce the constitutional rights it has
declared.
ion 303. The court below did not stop at en-
* — action under Section 304 f '. It also declared
that Section 303 of the Rail Act, which provides for the
conveyance of rail properties to Conrail pursuant to the
Final System Plan and for the valuation of those prop-
erties and the consideration therefor
. contravening the Fifth Amend-
—— = — States Constitution insofar as it
fails to provide compensation for interim erosion
pending final implementation of the Final System
Plan pursuant to the statute.” JA 9 at 82.
holding void a section of the statute that is
„ enney Rae for incidental references) in the
court’s opinion, was wholly unnecessary and erroneous
even on the court’s view of the Tucker Act and erosion
issues. In the first place, the court below did not de-
termine that an erosion taking, requiring just compensa-
tion, either has occurred or would occur if the process
of the Act were allowed to go forward unimpeded. Con-
sequently, even on the court’s view of the facts, the
erosion question may never arise.
More important, by its treatment of Section 304(f),
the court below itself eliminated any possible objection
to Section 303. The court enjoined all Defendants from
taking action under Section 304(f) that would conflict
with any future judicial determination that service should
be discontinued or property abandoned in order to avoid
erosion beyond constitutional limits. In fact, no Reor-
ganization Court or other court has yet determined that
the constitutional limit has been reached in the case
of its railroad. If any Reorganization Court or other
federal court determines that the constitutional limit
has been reached, it will presumably order selective or
total discontinuance of rail service or abandonments of
rail lines. As noted above, (a) once the court below
held that the Rail Act bars an adequate remedy at law,
it should not have interpreted Section 304(f) of the Rail
Act to purport to give USRA authority to prevent dis-
continuances or abandonments in such circumstances,
(b the Reorganization Court or other federal court
making such determination would obviously have power,
should it for some reason be necessary, to enjoin USRA
from interfering with its orders issued on constitutional
grounds, and (c) in any event, the court below itself
enjoined USRA from interfering with such hypothetica!
future constitutionally required discontinuances or aban-
donments. Consequently, if there was ever any possibility
that the Act would cause any railroad estate to reach
the constitutional limit of erosion and yet require such
railroad to continue to operate beyond that point, this
defect has been anticipatorily remedied by the court be-
low. There was no need to declare Section 303 uncon-
stitutional for failing to provide just compensation for
21
an erosion taking caused by the Rail Act when the pos-
sibility of any such taking has been more than adequately
eliminated.
Certification of the Final System Plan. a >
low did not stop even with this second ruling. Pore
on to enjoin USRA from certifying any Final —
Plan to the Special Court. . 4
in the opinions below that offers an — or —
ruling prohibiting the central step contempla =
Act. oO Gates ae ee
e 8
reached, it may be possible for the affected railroad,
USRA, and ethers including Congress snd the Special
Court to devise a basis for continuing rail service — ject
to adequate compensation in the Final System fn
otherwise. If that is not possible, the Reorganization
Court (or another appropriate court) a: Oe Se
tinuance or abandonment, as necessary, on constituti —
grounds. If it be presumed that USRA would —
any such order, USRA has now been enjoined from ng
80. rr
could the certification of a Final System Plan by
to the Special Court be an unconstitutional step; nor
could an injunction against this step serve in any —
to remedy any defect in the Rail Act found by the cou
below.
\ I ion of erosion requires
Calculation of Erosion. Calculation
a comparison between the consequences to creditors and
reholders reorganization under the Rail Act with
— — of some other alternative now avail-
record case does not permit a determina-
— 28 — of a long and expensive liquida-
tion — — OH, Ge ay cies See
able alternative. Nothing in the record demonstrates —
proceedings under the Rail Act, including the 5
tion of going- concern values in a railroad system su
to the present economic environment, the ability to obtain
state, local and private support for important but un-
profitable rail services, the abandonment and transfer of
unprofitable lines in a prompt and orderly manner, fed-
eral assumption of labor protection costs, substantial di-
rect and indirect cash subsidies and the use of federally
guaranteed debt, will yield creditors and shareholders
less than they can receive from any available alternative.
Moreover, the Rock Island.“ Denver & Rio Grande,’
Penn-Central Merger and New Haven Inclusion’ cases
make it clear that even if it could be shown that interim
operations will lead to a less satisfactory result for
claimants than some alternative available now, a reason-
able burden of “erosion” may constitutionally be imposed
while efforts are made to restructure their railroads into
a viable going concern. The “property” of railroad
creditors and owners is inherently subject to the right
of the public to make reasonable efforts to preserve es-
sential rail operations on a self-sustaining basis. There
is no reason to assume, at this time, that the implementa-
tion of this major federal program in accordance with
the very tight time schedule provided in the Act itself
will subject creditors or shareholders to an unconstitu-
tional erosion of their property.
*Continental Bank v. Chi , Rock
ees (1988). hicago Island & P. Ry., 294 US.
5 Reconstruction Finance C v. i
328 U.S. 495 (1946). orp. v. Denver & Rio Grande N. K. K.
Penn - Central Merger Cases, 389 U.S. 486 (1968).
Neu Haven Inclusion Cases, 399 U.S. 392 (1970).
— GD ae x —ͤ—
23
ARGUMENT
Introduction: The Rail Crisis and the Rail Act
Eight major railroads* operating in the Northeast
Midwest Region of the United States are now in re-
organization proceedings pursuant to Section 77 of the
Bankruptcy Act, 11 U.S.C. £205. The resulting threat
to the welfare of the Region and of the United States,”
*Seven are Class | railroads: the Penn Central, Reading, Erie
Lackawanna, Central of New Jersey, Lehigh Valley, Boston & Maine,
and Ann Arbor. Of these, the Erie Lackawanna and Boston &
Maine were found by their Reorganization Courts to be separately
reorganizable under Section 77, and consequently will not be reor-
ganized under the Rail Act. A Class I railroad is defined by the
Interstate Commerce Commission (“ICC”) as a railroad with 85
million or more of annual revenue. ICC Finance Dockets show
these seven to be the only Clase I railroads in the nation in re-
organization.
In addition to these Class | railroads, one significant (lass II rail-
road. the Lehigh 4 Hudson River, is in reorganization in the
Region. As noted above, a second, tiny Class II railroad, the
Cadillac and Lake City, is also in reorganization in the Region but
has been found to be separately reorganizable and will not be re.
organized under the Rail Act. See p. 9 note 1 supra. The 160
Finance Dockets disclose that the only Class II railroad in re-
organization outside the Region ceased all operations in 1968 and
sold substantially all of its lines in 1969.
* The Act defines “Region” as “the States of Maine, New Hamp-
shire, Vermont, Massachusetts, Connecticut, Rhode Island, New
York, New Jersey, Pennsylvania, Delaware, Maryland, Virginia,
West Virginia, Ohio, Indiana, Michigan, and Illinois; the District
of Columbia; and those portions of contiguous States in which are
located rail properties owned or operated by railroads doing business
primarily in the aforementioned e diet ions 4 determined by the
ice by order Section 102(13) ICC Order, Ex Parte No. 293,
approved January 14, 1974, delineated areas near Louisville, Ken-
tucky St. Louis, Missouri, and Kewaunee and Manitowoc, Wiscon-
sin, as included in the Region. As used herein, the term “Region”
refers to the area defined in the statute and by the ICC
„A 1970 Department of Transportation study concluded that
within eight weeks of a complete shutdown of the Penn Central,
GNP for the nation would drop by 2.7% and for the Northeast by
5.2%. Nearly two million Penn Central and other affected employees
would be laid off. Statement of Secretary Brinegar in Hearings be-
|
i
5
that the railroads’ problems in the 1970’s are not pri-
marily problems of capital structure but arise from
shifting economic trends and are in part the result
of regulatory policies make the limited resources of
™ See S. Rep. No. 93-601, gad Cong, Ist Sess. (“Sena Report”
6-7 (1973). As the House Committee stated, — which
Cong. Ist Sess. (“House Report") 29 — No. 93-620, 93d
of several railroads into a single con-
solidated unit.
1. The Rail Act Provides a Thorough Planning and
Review Process
(a) USRA, with the assistance of the Secretary
of Transportation (“Secretary”) and the Rail Services
Planning Office (“RSPO”), a new office created by the
Rail Act within the ICC is to prepare a Final System Plan
for restructuring the operations of the railroads in reor-
ganization.” A central feature of the Final System Plan
will be the transfer of designated rail properties of rail-
roads in reorganization to Conrail, a private corporation
for profit to be created, pursuant to Section 301, to own
and operate the restructured system. The Final System
Plan will provide for the issuance to the transferor es-
tates of securities of Conrail, plus up to $500 million of
USRA obligations guaranteed by the United States. Sec-
tions 206(d) (1), 210. It may also provide for transfer to
and consideration from profitable railroads, Section 206
(ce) (1) (b+ and 206/d)(2),” and may provide for addi-
tional Government obligations, subject to approval by
joint resolution of Congress. Sections 206% . (i), and
210 0b).
Sections 202, 204, 205, and 206. The statutory deadlines in
Sections 204 and 205(d)(1) for preliminary reports by the Secre-
tary and RSPO have been met.
These transfers are subject to expedited review by USRA
and the ICC, whose rulings are not reviewable by any court. Section
2061 d)(3).
(b) Following publication of and hearings on a
preliminary system plan, USRA must submit a proposed
Final System Plan to the ICC and Congress within 450
days after enactment e., by March 28, 1975). See-
tions 207 e, 208(a). The Plan becomes effective if
neither house of Congress disapproves it within 60 con-
tinuous session days. Section 208. Within 90 days after
it becomes effective, the Final System Plan is to be
transmitted to the Special Court created pursuant to See-
tion 209 of the Rail Act. Section 209 (e, The Conrail
securities and USRA obligations designated in the Final
System Plan as consideration for rail properties to be
transferred to Conrail under the Pian, and the considera-
tion from any profitable railroad purchasing property,
must be delivered to the Special Court within ten days
after the Plan is transmitted. Section 303(a). Within
a further ten days, the Special Court is to order the
transfer of the rail properties designated in the Plan.
Section 303 0b
e The Special Court is then to determine whether
the exchange of rail properties for securities and “other
benefits” is fair and equitable to the estate of each
railroad in reorganization “in accordance with the stand-
ard of fairness and equity applicable to the approval!
of a plan of reorganization or a step in such a plan
under Section 77 of the Bankruptcy Act.” Section 303(c)
(1)(A). Congress recognized that, for the exchange to
be “fair and equitable,” the value of the consideration for
the transferred properties had to equa! the “constitutional
minimum,” and directed the Special Court to make any
adjustment needed so as not to exceed this “constitu-
tional minimum.” Sections 303(¢)(1)(B), (e¢) (3). The
Special Court is required, if it finds that the
is not fair and equitable, to order a reallocation of the
Conrail securities, and or to order the issuance of addi-
tional Conrail securities or USRA obligations, and or to
enter a judgment against Conrail. Section 303 ( % (2). A
finding, determination, order, or judgment of the Special
CU, ts ð̊ la ay ˙
27
Court under Section 303 may be appealed directly to this
Court. Section 303d).
2 The Rail Act Provides Resources Not Available
in Section 77 Reorganizations
Section 77 was designed primarily to provide a pro-
cedure for the recapitalization of a single railroad. It
does not provide any means of trimming rail operations
to meet changed economic and competitive conditions, or
any means of compensating employees whom the railroads
are obligated to employ but who are unneeded in a
slimmer system. It does not provide any government
financial assistance. It does not provide any specific
means of transferring rail properties either to other rail-
roads which might put them to more profitable rail use |
or to governments or other entities for rail or non-rail
use. Finally, it provides no means of coordinating the
reorganizations of two or more railroads in the same
area.
The Rail Act was designed in part to supplement
Section 77 in these respects. The center of the Rail Act
is its provision for a planning process leading to a re-
structuring of rail operations and the abandonment of
excessive facilities. At the same time, the Act includes
special features, funded by up to $250 million of au-
thorized federal appropriations, to protect employees who
might be adversely affected. Title V.
Four additional forms of financial support provided
by the Rail Act deserve special mention:
(a) USRA is authorized to issue $1.5 billion in
Government-guaranteed obligations. Of this sum, up to
$1 billion may be issued to Conrail, of which not less than
The differing Senate and House approaches and their resolu-
tion are described in the Conference Report, H.R. Rep. No. 93-744,
93d Cong. Ist Sess. (“Conference Report“ 61-68 (1973).
28
half must be used by Conrail for rail rehabilitation and
modernization. Section 210 0b). Additional amounts above
this revolving $1.5 billion ceiling may be issued if ap-
proved by joint resolution of Congress. Id. The Act
permits Conrail’s obligations to USRA to be on terms dif-
ferent from the terms of USRA’s government-guaranteed
obligations. Thus, $1 billion in financing can be made
available to Conrail on terms more favorable than are
ordinarily available in the commercial market.
(b) The Secretary, with USRA’s approval, is au-
thorized to enter into agreements (involving the issuance
of up to $150 million in USRA obligations) for the ac-
quisition, maintenance, or improvement of property that
will be included in the Final System Plan. Section 215.
e To meet emergency needs pending implementa-
tion of the Final System Plan, the Secretary is further
authorized to make payments not exceeding $85 million
4 trustees of railroads in reorganization. Section
: (d) The Secretary and USRA may provide to pub-
lie agencies (within a $180 million authorization) sub-
sidies for continuing non-economic service and loans for
the acquisition and modernization of rail properties. Since
these funds are to be made available on a 70-30 matching
basis, the assistance under these programs is actually
approximately $250 million.
To overcome the difficulty of severing and transferring
properties in the traditional Section 77 process, Con-
The court below stated, JA 9 at 32, that only $25 milli i
amount had been appropriated. The current he is — 2
See Foreign Assistance and Related Programs Appropriations Act
of 1974, Pub I. 93-240 (Jan. 2, 1974) ($35 million) ; Second Sup-
939392 Act, 1974, Pub. L. 93-305 (June 8. 1974)
See Interstate Commerce Act § 5, 49 U.S.C. 5; Paper
Co. v. Atlantic Coast Line K.K., 347 U.S. 298 A1 *
— , ⏑ ] ¶ rr e
gress provided that the Final System Plan could require
rail properties of the railroads in reorganization to be
sold for their fair value pursuant to the Final System
Plan to (i) profitable railroads in the Region, (ii) the
National Railroad Passenger Corporation (“Amtrak”) for
rail passenger service, (iii) state, regional, or local
transportation authorities for commuter and intercity
rail services, and (iv) various recipients for other public
purposes, including highways, conservation, education,
and recreation. As already mentioned, railroads in re-
organization will also be able, subject to USRA’s ap-
proval, to dispose of unneeded rail properties for the
best price under simplified abandonment and termination
procedures.” The Act also provides for the possibility that
Congress will authorize USRA to guarantee Conrail ob-
ligations, Section 206(i), or to issue obligations in excess
of the $1.5 billion limit in order to implement the Final
System Plan, Sections 206(h) and 210(b).
Finally, the Rail Act reflects Congress’ recognition of
the need to coordinate the reorganization of adjoining
and competing railroads in reorganization: “{Njo one
Court can restructure the entire system under Section
77.”" Congress therefore created a new agency——-USRA
—to formulate “essentially a railroad reorganization plan
which would consolidate parts of [the] bankrupt carriers
into a new for-profit carrier.“ and, to review and ap-
prove the Plan, it created a single new court—the Special
Court—with all the powers of a Section 77 court.”
— —
Soc tion 206(c).
Section 304.
„House Report at 29.
0 Jd. at 23-24.
Section 209 0b
B. The Rail Act Provides Solutions to the Problems that
Have Made It Impossible To Reorganize the Penn
Central Under Section 77
All Plaintiffs in this case have claims against the
Penn Central estate, and the Penn Central Trustees have
intervened as Defendants. Consequently, although Plain-
tiffs challenged the Rail Act as unconstitutional on its
face, the Penn Central reorganization proceeding pro-
vides an essential backdrop against which their conten-
tions must be evaluated.
The Penn Central entered reorganization under Section
77 on June 21, 1970. During the first 30 months of re-
organization, the Penn Central Trustees identified and
attempted to satisfy four conditions which they judged
necessary to a successful Section 77 reorganization :
{1) rationalization of the physical plant by elim-
inating excess capacity;
(2) elimination of unnecessary labor expense;
(3) full compensation for all passenger service:
and
(4) inereased freight traffic and revenues.”
Since the primary focus of the Act was on the Penn Central.
this and the following section of this Brief present examples of
how and why Congress thought the Rail Act was a reasonable
approach to the Northeast/Midwest problem. Although the ex-
amples are drawn specifically from the Penn Central reorganization
proceeding, it is clear that Congress considered many of the Penn
Central's problems to be shared by other Northeast/Midwest rail-
roads. See Senate Report at 6-14; House Report at 25-29.
The first three conditions were identified in the Preliminary
Report of Trustees Concerning Premises for a Reorganization
(February 10, 1971), J. Doc. 1 at 3. As for the fourth condition.
a September 1971 report concluded that a study of Penn Central's
revenue-producing potential was necessary. Second Report of
Trustees on Status of Reorganization Planning (September 17.
1971) (“September 1971 Report“ . J. Doc. 3 at 14-18. In February
1972 the Trustees reported that a successful reorganization re-
quired, inter alia, attaining a certain projected volume of freight
31
The Penn Central Trustees reported for the first time
on January 1, 1973, that they believed substantial gov-
ernment financial assistance was essential in order to
achieve service improvements that would attract the
necessary increases in freight traffic and revenues.
Seven days after the Penn Central Trustees February
1973 Report quantified this needed assistance at $600-
$800 million. Congress passed Joint Resolution 59 di-
recting the Secretary to submit within 45 days “a full
and comprehensive plan for the preservation of essential
rail transportation services in the Northeast .. . - * Aft-
er studying various measures to relieve the rail crisis
during the remainder of 1973, Congress approved the Rail
aff Reorganiza-
traffic and revenue increases. Report of Trustees on 2
tion Planning February 15. 1972) (“February 1972 Report”).
J. Doe. 4 at 1. a atin
These f conditions were made especially eit in 2 enn
Central Trustees’ Plan for Reorganization April 1. 1972) (“April
1972 Reorganization Plan J. Doc. 5 at 1, and were reiterated in.
„% Trustees’ Interim Report of October 1, 1972 (“October 1972
Report”). J. Doc. 7 at 1: Trustees’ Interim Report of January 1.
1973 (“January 1973 Report”), J. Doe. 8 at 1; and Trustees Report
on Reorganization Planning April 5, 1974) (“April 1974 Report”).
J. Doe. 10 at 4.
Penn Central Trustees’ January 197% Report. J. Doc. & at I
penn Central Trustees’ Interim Report of February 1, 197%
(“February 197% Report”). J. Doe. Sat 2
; ; his require-
„pub I. 93-5, 87 Stat. 5. The Seeretary satisfied t
ana Northeastern Railroad Problem, A Report to the Con-
gress, submitted to Congress on March 26. 1972 (“Northeastern
Railroad Problem”).
* i 17. May & 9, 10, 21, 30, and 31, and June 6
and ee 1 . Committee on Interstate and Foreign Cor.
merce held hearings on H.R. 6591, H.R. 4897, HR 5822, HRK 5585.
HMR 6880, H.R. 7373, and HJ. Res. 50. On February 2. March 2.
May 30 and 1. and June 4, 15. 21. and 22, 1978. the Senate ——
mittee on Commerce held hearings on S. 1031, and. oe.
15. 16, and 19, 1973, it held hearings on S. 2188 and — N
Out of these hearings evolved the 1973 Act. The House and Se te
Reports are dated November 4 and December 6, 1973. respectively,
Bankruptey Act. The Reorganization Court
described the Penn Central's situation in part as follows:
i
|
;
i
721
i
;
.
7
,
i
17
.
:
ö
8 5
71
4
The accomplishment of the very task the Penn C
Reorganization Court found impossible under my
—the creation of a viable system—is described in the Rail
Act as the first goal of the Final System Plan. Section
206(a)(1). To achieve this goal, the Act provides the
resources and mechanisms—unavailable in Section 77—
that are necessary.
1. Elimination of Excess Capacity
The Penn Central Trustees,” the Department of Trans-
and the Conference Report is dated (in the House) December 20
and in the Senate) December
January 2. 1974. 26, 1973. Enactment occurred on
* In re Penn Central Transp. Co., Bky. No. 70-347, M
and Order No. 1543 (E.D. Pa., May 2, 1974), JA 84 at 102.
The Penn Central Trustees’ February 1972
at 2, proposed “(i) taking advantage of the be ine Doc. 4
— the Penn Central Reorganization Court,”
and Congress have all recognized that the Northeast
railroads, and the Penn Central in particular, are bur-
dened by an excessive physical plant. By January 1.
1973, the Trustees had filed applications with the ICC
to abandon over 3.000 miles of lines which they deemed
to be uneconomic, of which the ICC had
th
income by 1976 could not be achieved. The problem
plant redundancy also includes the operation of duplica-
tive facilities by two railroads in an area that can sup-
port only one, a problem that the Rail Act can ameliorate
but ae
efficiency made possible in theory by the 1968 merger but never
realized in fact, (ii) abandonment of those freight lines which
have neither busines nor public service justification, and (iii) mak
ing appropriate arrangements for continuing those freight lines
found to be essential to the public service but inoperable on a sound
business basis.” See also Trustees’ January 1973 Report. J. Doe.
&: Trustees’ April 1974 Report, J. Doc. 10.
Northeast Region, February 1, 1974 (“Secretary's Rail Serwiee
Report”).
Memorandum and Order No. 1543, supra, JA 84 at 88.
House Report at 27.
penn Central Trustees’ January 1973 Report, J. Doc. Sat 3.
„ Secretary's Rail Service Report, supra at 3, concludes that 96%
of the 1972 freight carloads carried on the railroads in reorgan!-
zation could have been accommodated on 75% of the 1972 route
mileage.
tion Courts. In general, Section 77 makes no provision
for restructuring rail operations, and discontinuance of
service and abandonment of property could be accom-
plished only on a line-by-line basis following standard ICC
procedures. The Act turns the process around by per-
mitting USRA to select the services and properties that
are to be kept in operation, with essentially automatic
diseontinuance and abandonment of everything else. That
process goes far to explain why there is a reasonable
prospect of creating a viable Conrail under the Act
even though the Penn Central and other railroads now
in reorganization cannot b made viable in Section 77
proceedings.
(a) Abandonments have been difficult, and have
not been accomplished with sufficient speed, because of
the need to comply with ICC and National En.ironmenta!
Policy Act procedures.” The Act dispenses with the need
for both, and permits USRA—in the absence of reason-
able objection from affected state or local governments—
to authorize prompt interim abandonments. Sections 304
(f) and 601(c).
A core system could not be established by the Penn
Central Reorganization Court because it has no authority
See Harlem Valley Transp. Ass'n Stafford, 360 F. Supp. 1057
(S. D. N. V. 1973), aff'd, No. 73-2496 (2d Cir., June 18, 1974). Be-
tween the district court's decision in that case in July 1973 and
the court of appeals’ affirmance in June 1974, there was a de facto
moratorium on almost all abandonment applications pending before
the ICC.
The economic burden imposed on railroads by lengthy abandon-
ment procedures is emphasized in House Report at 27 and 55 and
in the debates at 119 Cong. Rec. S22.483 (daily ed. Dec. 11, 1973)
(remarks of Senator Hartke) and 119 Cong. Rec. S23,782-83 (daily
ed. Dec. 21, 197%) (remarks of Senator Hartke). In addition, the
advantageous procedures for abandonments contained in the Act
were stressed by the President when he signed the bill into law.
10 Presidential Documents: Richard Nixon 8 (Jan. 2, 1974).
a —
to order the restructuring of the debtor’s rail operations.”
Even a final reorganization plan under Section 77 would
be dependent on piecemeal abandonments, each subject
to ICC approval.” The Act, on the contrary, permits the
selection of properties that have going-concern value and
permits the prompt discontinuance of service, without
ICC action, on all lines and properties not so selected.”
(b) Excessive duplication of plant and service
among competing carriers could not be effectively dealt
with by the Section 77 reorganization process because
of the difficulty of negotiations between carriers that are
in reorganization,” the need for ICC approval of mergers
and consolidations “ and the ICC’s lack of authority under
Section 77 to authorize mergers not initiated by the
debtor,” antitrust law considerations, and, of course,
Section 77 makes no provision for a comprehensive restruc-
turing of rail operations as part of the reorganization process.
Discontinuance of service and abandonment of lines can be ac-
complished, during Section 77 proceedings, only by ICC proceed ngs
on a line-by-line basis. For example, abandonments that would
require the closing of some line segments which, viewed individually,
appear viable, but whose continuation reduces the carrier's over-
all earnings from what they could be if the carrier were allowed to
concentrate its traffic on fewer routes may not be possible within
present ICC regulatory guidelines. Spychalski, Imperfections in
Railway Line Abandonment Regulation and Suggestions for their
Correction, 40 1CC Prac. J. 454, 456-57 (1973). No such constraints
limit the broad power of USRA to exclude rail lines from the Con-
rail system.
* See Penn Central Transportation Co. Reorganization, Corp.
Reorg. Rep. (Penn Central), Document No. 95, at 1102:86, 104
(ICC Finance Docket No. 26241, Sept. 28, 1973).
Sections 304(a) and 601(b). Operations may be continued
on a fully subsidized basis. See Section 304(c).
See House Report at 29.
Interstate Commerce Act § 5, 49 U.S.C. § 5.
„See St. Joe Paper Co. v. Atlantic Coast Line R.R., 347 US.
(1954). That case states “that those who in the absence of § 77
would wield the corporate merger powers must initiate and work
each reorganization court's lack of jurisdiction over other
carriers in reorganizations under the supervision of other
judges. The Act offers an entirely different framework.
USRA will have final control, subject only to review by
Congress, over the design of the intramodal environment
in which Conrai! will compete.” USRA can encourage
— where 1 can support it, but USRA
can con competition among carriers in reorganization
and duplication of facilities where necessary to produce
a viable system. N
b e Transfer of the burden of uneconomic but
significant lines to the states, localities, and private inter-
ests affected was difficult under Section 77 but becomes
possible under the Act. The Penn Central Trustees, as
early as February 15, 1972, expressed the hope that lines
that were producing losses for the Penn Central but
were asserted to be important to particular localities
and shippers could be continued, under contracts with
those localities and shippers that would make Penn Cen-
tral whole.” Penn Central, however, had little bargaining
leverage because the alternative of selective discontinuance
of service was a very remote possibility. The Depart-
ment of Transportation's proposals for the Northeast rail
problem included the suggestion that “states and local
communities will be given the opportunity to ensure the
continuation of rai! service if they find it necessary and
are willing to subsidize the deficits fully.” “* Under See-
out the merger now.” /d. at 309 n. 12. “The implication is plain
the efllcers and directors of the Debtor are the ence naattin' a,
initiate and work out a merger.” In re Florida East Coast Ry., 137
F. Supp. 693, 694 (S.D. Fla). aff’ curiam,
(Sth Cir. 1955). * ä
See Sections 207 and 208.
* Penn Central Trustees’ February 1972 Report, J. Doc
See also Trustees’ February 1973 Report, J. Doc. 9 at 1. oes
“ Northeastern Railroad Problem, supra at 48 (emphasis added
37
tion 304 of the Act, service on lines not included in the
Final System Plan may be terminated promptly unless
the service is fully subsidized or the lines are purchased
and operations are provided for by the purchaser.”
2. Elimination of Unnecessary Labor Expense
The Penn Central Trustees and the Reorganization
Court identified elimination of excess |abor costs for rail-
way operating personnel as another requirement for a
successful reorganization.“ This problem involves both
crew size on operating lines and labor protection in
connection with necessary abandonments. Title V of the
Rail Act offers labor protection in connection with neces-
sary abandonments, and authorizes $250 million of federal
assistance to pay the cost of this protection. Section 509.
3. Elimination of Uncompensated Passenger Service
The third condition for a successful reorganization of
the Penn Central is the elimination of the burden of pas-
senger service for which the railroad is not fully com-
pensated.“
One of the major issues in litigation between the Penn
Central and Amtrak has been whether Penn Central
should receive a return on investment as part of its
compensation for the use by Amtrak of its rail prop-
* See Section 304(a)-(d).
Fe. Memorandum and Order No. 1543, supra, JA 84 at 88;
Penn Central Trustees’ February 1972 Report, J. Doc. 4 at 2;
Trustees’ April 1972 Reorganization Plan, J. Doc. 5 at 1; Trustees’
January \973 Report, J. Doc. 8 at 3.
„See, „, Penn Central Transportation Co. Reorganization,
supra, Corp. Reorg. Rep. (Penn Central) at 1102:104-06; Penn
Central Trustees’ January 1973 Report, J. Doc. 8 at 3; Trustees’
October 1972 Report, J. Doc. 7 at 3-4.
* See, %. Memorandum and Order No. 1 supra, JA
Penn Central Trustees’ February 1972 J. Doe. 4 at 5.
erties in the Boston-Washington corridor. The Rail Act
provides for the sale or lease to Amtrak of those rail!
properties. Sections 206% 10, GO1id).”
As pointed out above, the Act further provides for a
system of subsidies, involving matching federal grants
authorized at $180 million for two years to state, local,
or regional authorities, to ensure the continuation of rail
services, including passenger services. Sections 401 and
402. This USRA authority should enhance the prospects
that other governmental! entities will subsidize uneconomic
commuter passenger operations. Also, USRA can make
loans to state, local, or regional transportation authorities
to acquire rail properties and to modernize their prop-
erties. Section 403.
4. Increased Revenues Through Application of New
Financing
The Penn Central Trustees have noted that the Penn
Central has been caught in “a vicious civele.” In order
to become viable it needed to increase the volume and
efficiency of freight traffic and operations, but inade-
quate revenues and lack of horrowing capacity made un-
attainable the necessary substantial additions and im-
provements to the physical plant as well as substantial
catch-up maintenance.
The Act offers a means by which Conrail can break
the circle. Section 210 provides, in effect. $1 billion in
federally guaranteed obligations of USRA to enable Con-
rail to borrow funds on the favorable interest and pay-
ment terms enjoyed by the United States. Half of this
cum wust be used to rehabilitate and modernize the phy-
© The methed of compensation for services provided to Amtrak
is covered by the Rail Passenger Service Act of 1970, as amended,
45 U.S.C. $8 501 ef seq.
“Penn Central Trustees’ January 1973 Report, J. Doc. 8 at 2.
See also Trustees’ April 1974 Report, J. Doc. 10 at 3.
—
sical plant, and USRA may make available the remaining
half, if necessary, for that purpose.
The Act, clearly, is broadly responsive, and in many
ways more than responsive, to the concerns expressed
by the Penn Central Trustees when they first outlined
their views on the necessary government financial assist-
ance.” They themselves, of course, have acknowledged
the soundness and responsiveness of the Act as it relates
to the creation of a self-sustaining rail service system:
“The basic concept of the Act is, in the Trustees’
judgment, sound. The Act envisions the transfer
to a new entity ‘Consolidated Rail Corporation,
CRC) of those Penn Central lines, and ines of other
bankrupt carriers, which, following a thorough
planning process, are found to offer the prospect of
a viable rail network in the Northeast. Provision is
made for public support or abandonment of those
lines not deemed essential in the restructuring proc-
ess. Provision is also made for government-guar-
anteed financing of improvements to the plant being
conveyed to CRC. The Act embodies a labor pro-
tection arrangement, satisfactory to both labor and
industry, whereby Federal funding is available to
certain employees whose services would not be re-
quired after the restructuring.” “
‘In the interim period before implementation of the Final
System Plan. USRA is avtherived to issue up to £150 million in
obligations to finance agreements with the Penn Centra! and other
railroads in reorganization for the maintenance and improve:
ment of rail properties. Section 215. In addition, $85 million in
subsidies is authorized for the continued provision of essential
transportation services. Section 215.
Penn Central Trustees’ February 1973 Report, J. Doc. 9 at 1-2.
Penn Central Trustees’ April 1974 Report. J. Doc. 10 at 4. The
Penn Central Reorganization Court shares the Trustees’ view that
“the basic approach of the statute is fundamentally sound.” Memo-
rundum in Support of Findings and Order No. 1596, In re Penn
Central Transportation Company, Debtor (E. D. Pa., July 2, 1974
JA 124 at 148. (“Penn Central ‘180-Day’ Decision“
I. The Court Below Should Have Denied Equitable Relief
and Dismissed the Complaints as to the “Taking” Issues
on the Ground that Plaintiffs Have an Adequate
Remedy at Law Under the Tucker Act
Plaintiffs alleged in the court below that implementa-
tion of the Rail Act would cause, or threatened to cause,
a “taking” of their property for public use without
just compensation, contrary to the Fifth Amendment
to the Constitution. They alleged two sorts of “takings” :
first, they contended that there would or might be a trans-
fer of rail properties pursuant to the Final System Plan
for less than the constitutionally required consideration
(alleged “permanent taking”); second, they contended
that by allegedly requiring Penn Central to continue op-
erating its railroad until! the implementation of the Final
System Plan, the Rail Act would or might cause an “in-
terim” or “erosion” taking for which just compensation
would be due.
Appellant believes that when the processes of the Rail
Act have run their course, no such taking, of either kind,
will be found to have occurred. The ultimate determina-
tion of this question, however, will depend on facts not
of record in this case, events in the future including the
actions of USRA and other governmental bodies, and the
resolution of many large and complex statutory and con-
stitutional issues whose exact scope will depend on the
course of events.
Appellant urged the court below to follow the decisions
of this Court in similar cases and decline to inquire into
the merits of the taking allegations, on the ground that
provided for railroad estates under the Rail Act, plain-
tiffs have an adequate legal remedy in the form of a suit
in the Court of Claims under the Tucker Act. The rule
of law for which Appellant contended can
— —
41
stated: an equity court may never enjoin congressionally
authorized, otherwise proper federal action on the ground
that it may cause a taking for which compensation may
be due, because a plaintiff always has another forum,
the Court of Claims, in which he can obtain just com-
pensation if his claims are upheld. This is the teach-
ing of Hurley v. Kineaid, 285 U.S. 95 (1932), and ac-
counts for the fact that, so far as we are aware, no fed-
era! court has issued such an injunction between the
decision in Hurley and the present case.
The court below did not question the principle that
equitable relief should be denied, without further inquiry,
when there exists an adequate remedy at law. Nor did
the majority question the fact that the Tucker Act
remedy, if available to railroad estates, would be an ade-
quate remedy.” Rather, it ruled that the Court of Claims
would not have jurisdiction over any claim for a taking
allegedly caused by the Rail Act because the Rail Act
does not explicitly make a Tucker Act remedy available.
It said that to “read a Tucker Act remedy into the
[Rail] Act” would be “judicial legislation on a grand, if
not arrogant scale.” JA 9 at 53
The court below, we respectfully submit, put the Tuck-
er Act question the wrong way around. The century-old
Tucker Act needs no supplemental implementing legis-
lation, judicial or otherwise. The remedy is available
unless later legislation repeals or modifies it. Nothing
in the Rail Act repeals or modifies the Tucker Act and
nothing in the Rail Act provides a basis from which re-
peal or modification can be inferred, especially when the
consequence of the inference is to invalidate a major
federal statute.
The Tucker Act is the basic jurisdictional statute for
suits seeking just compensation from the United States
The adequacy of the remedy is discussed below at pp. 58-60.
for takings of private property for public purposes.
There is no need for Congress, every time it passes sub-
stantive legislation that might lead to a taking of private
property, to make an explicit or implicit new grant of
authority in order for the Court of Claims to exercise
its historic jurisdiction. No court, so far as we have
been able to discover, has ever required such a supple-
mentary grant of jurisdiction, and no case suggesting
such a notion was cited by the court below.
The question, properly framed, is whether Congress, in
the Rail Act, took away the Court of Claims’ jurisdiction
with respect to claims based on actions authorized by the
Rail Act. The court below found a congressional intent
to bar a Tucker Act remedy, not in the words of the Rail
Act, which is silent, nor even in the reports of the con-
gressional committees, none of which discuss the point.
Rather, the entire decision rests on several exchanges
among individual members on the floor of the Senate and
House. But these exchanges, more thoroughly discussed
below, show only a congressional intent to restructure
Northeast Midwest rail services in a manner that Con-
gress believed would not result in any taking or transfer
of property for less than the “constitutional minimum”
value that the Rail Act expressly recognizes to be due.
There is no basis in these exchanges for concluding that
Congress intended to bar the normal Tucker Act remedy
if, contrary to Congress’ expectation, the steps taken pur-
suant to the Rail Act should require transfers for a con-
sideration that the Special Court and this Court on re-
view! determined to be less than the “constitutional min-
imum.”
Nevertheless, the court below read these portions of the
legislative history as showing an affirmative intent in the
Rail Act to deny the constitutionally required remedy
even if the consideration provided for the transfers under
the Fina! System Plan is eventually found to be less than
43
the “constitutional minimum.” In so doing, as we show
below, that court engaged in the very type of judicial
legislation from which it professed to abstain.
A. Repeal of the Jurisdiction of the Court of Claims
Under the Tucker Act To Award Just Compensa-
tion for Any Taking of Private Property for Public
Use May Not Be Inferred from Later Statutes that
Do Not Expressly Repeal or Modify that Act and
Do Not Provide an Equivalent Remedy
The Tucker Act, 28 U.S.C. § 1491, confers jurisdiction
on the Court of Claims:
“to render judgment upon any claim against the
United States founded either upon the Constitution,
or any Act of Congress, or any regulation of an
executive department, or upon any express or im-
plied contract with the United States, or for liqui-
~~ or unliquidated damages in cases not sounding
n tort.”
Section 1491 is the Court of Claims’ “general jurisdie-
tional statute.” Ralston Steel Corp. v. United States, 340
F.2d 663, 668 n.5 Ct. Cl), cert. denied, 381 U.S.
950 (1965); Simon v. United States, 113 Ct. Cl. 182,
190-91 (1949); see also Eastport Steamship Corp. v.
United States, 372 F.2d 1002, 1007-08 (Ct. Cl. 1967)
(dictum), and Jacobs v. United States, 290 U.S. 13
(1933). One is not required to seek in any later act, no
matter how significant, a renewed grant of jurisdiction
to the Court of Claims to hear a suit “founded” upon
the later act or upon any constitutional claim thereunder,
including any claim for just compensation for an alleged
taking. The Court of Claims has such jurisdiction under
28 U.S.C. § 1491 unless Congress has in the later act
withdrawn it.
In Yearsley v. W.A. Ross Construction Co., 309 U.S.
18 (1940), for example, plaintiffs sought damages against
44
a government contractor for land erosion alleged to have
been caused by performance of a government construc-
tion contract. The statute authorizing the construction
contract was silent on claims of government liability to
third parties. The Court held that the defendant con-
tractor could not be held liable for carrying out a con-
tract authorized by Congress and found it unnecessary
to determine the merits of plaintiffs’ argument that they
were entitled to recover compensation from the defend-
ant for what amounted to a governmental taking of their
property. If a taking had occurred, the Court said, an
adequate remedy for compensation existed by way of suit
in the Court of Claims, because
“in the case of a taking by the Government of pri-
vate property for public use . it cannot be
doubted that the remedy to obtain compensation from
the Government is as com ve as the require-
ment of the Constitution ... Id. at 22 (Mr. Chief
Justice Hughes).
Hurley v. Kineaid, 285 U.S. 95 (1932), is even more
directly in point and is, we submit, dispositive of this
case. Hurley involved a statute authorizing a flood con-
trol project and providing for condemnation of any land
in the path of planned diversion channels. Plaintiff sought
to enjoin work on the project, alleging that his land had
not been condemned although his land was in the path of
the planned diversion channels. Although the authorizing
statute expressly provided that the United States shall
have “|nJo liability of any kind . . for any damage from
or by floods” (id. at 102 n.2), a unanimous Court, speak-
ing through Mr. Justice Brandeis, held that injunctive
relief should have been denied. The Court reasoned that
if the acts alleged did constitute a taking, just compen-
sation under the Tucker Act was an available and ade-
quate remedy at law.
Hurley shows how reluctant courts have been to infer
that later statutes bar the Tucker Act remedy; the Court
45
found that remedy available despite a statutory provi-
sion expressly barring Government liability for flooding.
Hurley also is living proof of Chief Justice Hughes’ state-
ment in Yearsley that if the Government takes property.
the remedy to obtain compensation “is as comprehensive
as the requirement of the Constitution 309 U.S.
at 22), and demonstrates that a congressionally directed
taking cannot be enjoined because a Tucker Act remedy is
always available until Congress affirmatively withdraws
it.
pensation was made at or before the time of taking.
Armstrong v. United States, 364 U.S. 40, 48-49 1960
United States v. Dickinson, 331 US. 745 1947
United States v. Causby, 328 US. 256 (1946);
Jacobs v. United States, 290 U.S. 13 1933 Forte
mouth Harbor Land & Hotel Co. v. United States, 260
U.S. 327. 330 (1922); Richard v. United States v. Stone
Corral Irrigation Dist., 282 F.2d 901, 904 Ct. CL
1960). See also Malone v. Bowdoin, 369 U.S. 643, 647 n.
8 (1962) dictum For example, in Causby, supra, this
Court held that the Court of Claims could award com-
pensation on a claim, based directly on the taking clause
of the Fifth Amendment, that low and frequent flights
—— ——
“The earlier cases, such as Portsmouth Harbor, reached the
result on an implied contract theory. “If the acts amounted to a
taking, without assertion of an adverse right, a centract would be
implied whether it was thought of or not.” 260 U.S. at 330. A
similar rationale was used in Yeersley. Later cases, such as
Causby, find the Government's promise to pay in the Constitution
itself. Thus it is not necessary to find a promise to pay implied in
the legislation which authorizes the taking. Nothing in these cases
supports the suggestion that they are limited to situations where
Congress did not attempt to prescribe any consideration for the
property taken, and Yearsley and Hurley show that no such limited
reading is proper.
328 U.S. at 260 (footnote omitted). Of course, the result is
different (a) im cases in which there was a mere trespass (“sound-
img im tort”) rather than a taking, „ Tempel v. United States,
248 U.S. 121, 129 (1998), LIAN
of
47
With respect to the Court of Claims in particular, Con-
gress’ intent to limit its jurisdiction “must be evidenced
expressly or by necessary implication.” . E. Hele v.
United States, 100 Ct. Cl. 289, 294 (1943) ‘statute pro-
viding that reasonable value of improvements on tracts
occupied by the United States “be determined by the
courts of the Canal Zone” did not oust Court of Claims
of jurisdiction over suit brought under predecessor of
28 U.S.C. £1491 for breach of contract arising from
failure to pay reasonable value’. See also United States
v. Pfitach, 256 U.S. 547 1921
Moreover, the fact that Congress authorized a limited
amount of appropriations and made a limited amount of
government-guaranteed obligations available as part of
the consideration for acquisition of rai] properties, in the
belief that the Rail Act would not require the transfer of
property for less than the “constitutional minimum,”
does not indicate that Congress intended to withdraw a
remedy if such transfers should occur. In Fort Berthold
Reservation v. United States. 390 F.2d 686 Ct. ©).
1968). the Court of Claims held that acquisition of
Indian lands under a statute containing a provision fixing
a per-acre payment was a taking, for which the Court of
(aims could award compensation above the statutory
vided a constitutionally adequate remedy by suits in admiralty.
The case thus inst rates only that where the United States creates
„ wicht against tert and provides a special and constitutionally
adequate remedy, it may make that remedy exclusive. See United
States Vv. Babcock, 250 U.S. 328 (191%)
* The court below also relied on th. facts that authorizations for
emergency assistance under Section 213 of the Rail Act are limited
in amount and that Congress had appropriated less than half of the
authorized amount. in fact, Congress has now appropriated al-
most all of the authorized amount. See Foreign Assistance and
Related Programs Appropriations Act. 1974. Pub. I. 93-240. &7
Stat. 1048 (Jan. 2. 1974) ($35 million); Second Supple: sental Ap-
propriations Act. 1974, Pub. I. 93-305, 88 Stat. 195 (June 8, 1974)
($39.8 million).
per-acre limit. The specification of a per-acre price
Congress was held not to oust the Court of Claims
jurisdiction to award a larger amount as
pensation.
constitutionality. For more than a century this precept
has been invoked to save the constitutionality of statutes
where First Amendment rights are involved, United
States Civil Service Commission v. National Association
of Letter Carriers, AFL-CIO, 413 U.S. 548, 571 (1973):
American Communications Association, CIO v. Douds,
339 U.S. 382. 407 (1950); and to construe in a consti-
tutional manner statutes affecting “existing contracts,
rights of actions, or . . . vested rights,” Twenty Per Cent
Cases, 87 U.S. 179, 187 (1873), as well as the Bank-
ruptey Act itself, Wright v. Vinton Branch of the Moun-
tain Trust Bank, 300 U.S. 440, 461 1937
B. The Rail Act Does Not Show an Inter i To Deprive
the Court of Claims of Its Tucker Act Jurisdiction
To Hear Any Case Claiming Just Compensation
When Congress intended the Rail Act to override other
important federal statutes, it did not rely on judicial
inference and conjecture. For example, in Section 601
of the Rail Act. entitled “Relationship to Other Laws,”
Congress explicitly declared the antitrust laws to be in-
The decision below also violates the rule of construction that
repeal of a siatute is not to be inferred unless there is no other
reasonable way to construe the subsequent statute. F.., Amell v.
United States, 284 U.S. 158 (1966); Mercantile Nat'l Bank v.
Langdeau, 371 U.S. 555 (1963); FTC v. AP.. Paper Co., 328 U.S.
198 (1946); Nagano v. McGrath, 187 F.2d 759, 766-67 (7th Cir.
1951). aff'd by an equally divided court, 342 U.S. 916 (1952):
Faweett v. C1.R., 149 F.2d 433, 435 (2d Cir. 1945).
— ee ee — —
applicable to the actions taken to formulate the Final
System Plan (Section 601(a)); it declared portions of
the Interstate Commerce Act and the Bankruptcy Act
to be inapplicable to the extent inconsistent with the
Rail Act (Section 601(b)); and it declared certain pro-
visions of the National Environmental Policy Act of
1969 inapplicable to actions authorized by the Rail Act
before the effective date of the Final System Plan.
Section 601 1e. Congress also provided that a railroad
in reorganization could disecntinue service or abandon
rail property only in accordance with the Rail Act,
not withstanding
provision of any other Federal law. the consti-
tition or law of any State, or decison or order of
or the pendency of any proceeding before any
eral or State court, agency, or authority.” Section
304(f).
In all, the Rail Act contains no fewer than 13 provisions
repealing or making inapplicable provisions of various
laws or excluding the jurisdiction of federal courts on
various subjects.”
There is, of course, no explicit provision relating to
the Tucker Act. One searches the Rail Act in vain for
a sentence such as “The Court of Claims shall have
no jurisdiction over any action alleging that the property
of any person has been taken pursuant to this Act with-
out just compensation.” The fact that Congress gave
meticulous and explicit attention to modifying other laws
should at least make one pause before concluding that
Congress, without saying so, amended the Tucker Act
and implicitly removed the traditional remedy should
actions taken pursuant to the Rail Act give rise to a
claim for just compensation for a taking of property.
elm addition to those cited in the text, see Sections 202(a).
20806 (2), 206(d)(3), 207(b), 209(a), 209(b), 303(b)(2), 303
(d and 304(c).
of an intent to amend the Tucker Act.
The court below apparently inferred an intent to
repeal the Tucker Act from Section 209(b), providing
that all judicial proceedings with respect to the final
system plan” shall be consolidated before the Special
Court, and from the further provision in Section 303
(d) for appeal from the Special Court's determinations
and findings directly and exclusively to this Court.“ In
the first place, as a matter of language, a suit against
— — roy" for compensation for erosion that
rs et's processes work is not, on
ee
to the final system plan.“ More fundamentally, the
}
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2
5 f
1
2
8
by a diversity of legal proceedi
tion, with different theories canceling each
out very often, and not resolvable until you get to
the Supreme Court, and sometimes not even
Here, by exercising the authority we first exercised
"JAY at 46-49, 51.
51
in the Judiciary Act of 1789, we have provided for
consolidating these proceedings and appointing a
special court for the purpose. I think it is a very,
very gifted position, for which the Committee is en-
titled to great credit.” 119 Cong. Ree. 823.780
(daily ed. Dec. 21. 1973
The function of the Special Court is to prevent a
multiplicity of suits in different courts on such questions
as the value of the rail properties transferred to Conrail
and of the consideration received by the transferors.” A
subsequent suit against the United States in the Court of
Claims would neither infringe upon the Special Court's
functions nor invalidate the congressional purpose in
consolidating the valuation proceedings. Indeed, if the
Special Court (and the Supreme Court on review) found
the values of the rail properties transferred to be greater
than the values of the consideration provided therefor.
so that the consideration fel! below the “constitutional
minimum,” these values would presumably be binding on
the private parties in any subsequent Court of Claims
suit.” Whether or not these determinations were tech-
nically binding on the United States. they would still be
dispositive, as a practical matter, of the same issues in
the Court of Claims.
The court below also referred to Section 303 (c. which
specifies how the Special Court shall determine “fair
and equitable” compensation and states the means not
including a judgment against the United States) by which
the Special Court could remedy any deficiency, as show-
ing an intent to bar subsequent claims under the Tucker
House Report at 52
See Marine Insurance Co. v. United States, 410 F 2d 764 ‘Ct.
Cl. 1969) Clement v. United States. 140 F Supp. 573 Ct. Cl. 1956).
* See United States v. United States Fidelity & Guaranty Co.
309 U.S. 506 (1940).
Act.” But the court below ignored the provisions of
Section 303 that equate “fair and equitable” with
“constitutional minimum.” Those provisions require the
Special Court to determine whether the value of the con-
sideration to be received by each rail estate is “fair and
tion 303% show beyond doubt that Congress intended
to provide compensation out of the
mum — no more and no less. It cannot be fairly con-
strued to mean that Congress intended to provide less
the Supreme Court on review) should ultimately find that
the value of the consideration available for award under
Section 303% to any rail estate is less than the con-
stitutional minimum,” Congress intended to deny the
traditional Tucker Act remedy for the difference. Com-
pare Fort Berthold Reservation v. United States, supra,
holding that a statutory per-acre price for transferred
lands did not bar the Court of Claims from awarding
compensation above the statutory price. To infer here
that the statutory consideration is exclusive even if be-
low the “constitutional minimum recognized in the
statute is to suggest that Congress deliberately intended
to act in an unconstitutional manner.”
~ JA 9 at 50-51.
“Such an inference would contradict the flat statement of Rep-
resentative Adams, for example, that consideration other than
Conrail common stock was to be “at the lowest possible limit to meet
the constitutional guarantees.” 119 Cong. Rec. H11,876 (daily ed.
Dec. 20, 1973).
Hi
rik
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0 4., Senate at 18: House Report at 54; 119 Cong.
2 daily n (remarks of Senator Hartke
id. at S23.778 (remarks of Senator Beall); 119 Cong. Rec. 522.485
(daily ed. Dec. 11, 1973) (remarks of Senator Hartke); 119 Cong.
Rec. H9743 daily ed. Nov. 8 1973) (remarks of Representative
Kuykendall ).
— House Report at 54. The intent to act constitutionally appears
as well from other passages in the House Report, such as:
— 4 — problems interwoven into the various bank-
ruptcies involved.” Id. at 29; see id. at 47.
{ Footnote continued on page 54
54
The House Report also stated at 55:
“The Committee is of the opinion that provisions
of this title of the Act, and especially the provision
for deficiency judgment and payment of obligations
of the Association provided in the preceding subsec-
tion, are more than adequate to guarantee that the
creditors of the bankrupt railroad will receive all
that they may Constitutionally claim.“
Congress plainly intended to provide constitutionally
adequate compensation to the owners of the rail prop-
erties transferred to Conrail. Whether the consideration
specifically provided in the Act will be adequate for that
purpose is both premature and, for the purpose of this
argument. beside the point. There is nothing in the
legislative history to support the view that if the con-
sideration is eventually found by the Special Court ‘and
by this Court on review) to be less than “fair and equit-
able — , less than the “constitutional minimum
Congress intended to foreclose a Court of Claims remedy
for the difference.
The few statements on the floor of the Senate and
House quoted by the court below to show that Congress
intended to bar subsequent claims under the Tucker Act
prove no such thing. They reinforce the view that Con-
~ | Continued |
See also 119 Cong. Rec. H972%1-"%2 daily ed. Nov. K. 197%) (remarks
of Representative Adams); id. at H9742 ‘remarks of Representa-
tive Kuykendall) .
“In both of the above quotations, as Section Me clearly
shows, the Committee regarded “fair and equitable” as effectively
synonymous with the “constitutional minimum.” See also House
Report at 2. 31. 43.
The majority opinion below professed to be guided in construing
the Rail Act by Frankfurter, Some Reflections on the Reading of
Statutes, 47 Colum. I. Rev. 527 (1947). Mr. Justice Frankfurter
reflections included the following at 542:
Foot note continued on page 55 |
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1 745
under the Act would be sufficient" to prevent such a
claim from being “sustained in the Court of Claims.”
(Emphasis added.
No different light on what Congress meant is cast
by the portion of House debate set forth in the opinion
below at JA 9 at 49. The dialogue focuses on “the
deficiency judgment” and whether Section 303 would
keep “the Federal court,” i. e., the Special Court, from
having “the key to the Treasury” in “the court proceed-
ings. Because the context of this dialogue was not
brought to the attention of the court below, that court
may have gravely misconstrued its meaning. Neither the
Senate nor the House bil] contained a counterpart to
Section 303% 2 (C), providing for a deficiency judg-
ment in money against Conrail.’ This provision was
added in conference; the subsequent House discussion
seems clearly intended to explain it and to assure mem-
bers that any such money judgment against Conrail
would not be a judgment against the United States.
Representative Kuykendall’s several references to “the
Federal Court” and “the court proceedings” are, we
submit, clearly references to the Special Court and its
authority added in Section 303(c}(2)‘(C). Representa-
tive Adams’ careful response that there was a limit to
authorizations “under the bill“ was entirely correct. As
we read the dialogue, he was not asked and did not
volunteer a view as to whether there could be liability
of the United States otherwise than “under the bill“
Senator Hartke expected Conrail to be profitable, as is dem-
onstrated by his comments cited at p. 53 note 67 supra.
"2119 Cong. Rec. H11,876 (daily ed. Dec. 20, 1973).
See Section 303(c)(2) of the Senate bill, 119 Cong. Rec.
$22,820 ‘daily ed. Dec. 13, 1973) and Section 502(d) of the House
bill, 119 Cong. Rec. H9756 daily ed. Nov. 8, 1973). Both versions
authorized the Special Court to award additional Conrail or USRA
securities to railroads in reorganization, but neither authorized the
entry of a money judgment against either.
57
if, despite Congress’ expectation to the contrary, the
consideration available under Section 303(c) were ju-
dicially determined to be less than the “constitutional
minimum.” Indeed, the dialogue itself stressed Mr.
Adams’ concern that any amount other than Conrail
securities “was to be at the lowest possible limit to meet
the constitutional guarantees.” (Emphasis added.)
Earlier Mr. Adams had stated his view that the con-
stitutional minimum in a reorganization is liquidation
value, and asserted that “we have done everything pos-
sible in the legislative history . . to make certain
that no more than the constitutional minimum for liquida-
tion as defined by the Supreme Court will be paid by
the new corporation Mr. Adams, we submit,
was contrasting a congressional commitment to considera-
tion equal to liquidation value for non-rail purposes
which he regarded as constitutionally necessary and was
willing to support—with an open-ended commitment es-
timated at up to $15 billion as the cost of “nationaliz-
ing“ the properties, as some members of Congress had
urged.”
We do not believe that this Court can fairly read the
language in the dialogue about keeping “the Federal
Court” from having “the key to the Treasury” as refer-
ring to claims against the Government for the amount,
if any, by which the value of the consideration trans-
119 Cong. Rec. H9732 (daily ed. Nov. 8, 1973) (emphasis
added). Appellant does not accept the view that liquidation value
is the constitutional minimum. Creditors and shareholders would
appear to be entitled to liquidation value only if they have an
underlying constitutional right to liquidate. Whether there is a
constitutional right to liquidate an essential railroad that is, or
can be made, viable has never been decided. The issue was expressly
reserved by this Court in New Haven Inclusion Cases, 399 U.S. 392.
489-490 (1970).
Id. at H9731.
ferred under the Act might some day be found by the
Special Court (and on appeal by this Court) to fal!
below the “constitutional minimum.” The inference that
Cong ess intended to bar a claim under the Tucker Act
for this difference does not square with its express
recognition in Section 303(c) of the need to provide the
“constitutional minimum.”
To summarize, there are two possible ways to read
the Rail Act in relationship to the Tucker Act. One
is to agree with the court below that even if the Special
Court should ultimately find the consideration available
to be paid for rail properties under the Act to be less
than the “constitutional minimum,” Congress intended
to bar a Tucker Act claim for the difference. A second
is to conclude that Congress, believing that the value
of the consideration available under Section 303 would
in fact equal the “constitutional minimum,” never ad-
dressed itself in the Rail Act to the question of what
would happen if the Special Court found to the con-
trary.
We respectfully submit that the first reading, if it
is possible, is not plausible since it requires the con-
clusion that Congress, in a statute expressly and repeat-
edly recognizing the existence of a “constitutional mini-
mum,” also decided to bar a claim to obtain that mini-
mum. We further submit that wnder the second reading,
the Tucker Act remedy must be found to remain avail-
able, and the Rail Act must be found constitutional.
D. The Tucker Act Remedy ls Adequate
Having concluded that Congress meant to repeal or
modify the Tucker Act, the majority of the court below
did not examine the adequacy of the Tucker Act remedy.
However, the concurring judge questioned the due process
adecnacy of relegating claimants to the and
complex” procedures of the Rail Act and then, if there
—— ———
—ä—ũĩä— — —
should remain a basis for a claim against the United
States, to the Court of Claims.” No rule of due process
holds that a process that results in full and complete
compensation is unconstitutional merely because it may
be lengthy and complex.”
Three points deserve mention. First, even in a con
demnation case, which reorganization under the Rail Act
is not, it is unquestionably constitutional to complete a
“taking” before a judicial determinaticn of the required
amount of compensation.” Second, a Court of Claims
award of compensation for an inadequately compenstated
taking under the Rail Act would be a “perfect” remedy:
although interest is not generally recoverable against the
United States in the absence of a statute or contract
expressly authorizing it,” interest on a just compensation
award runs from the date of the taking.” Third, as
we have noted above, a Tucker Act suit after the
Special Court ‘and the Supreme Court on review) had
*JA 9 at 81. These doubts were not so serious as to prevent
the same judge from concluding in the Penn Central “180-Day”
Decision at JA 124 at 148 that:
agree with the Trustees that the basic approach of the stat-
ute is fundamentally sound. If I were persuaded that Congress
had intended to permit recourse to a Tucker Act remedy in the
event that implementation of the RRRA [Regional Rail Reor-
ganization Act] proved violative of constitutional rights, an
affirmative § 207(b) finding might be permissible.”
See Phillips v. Commissioner, 283 U.S. 589, 596-99 (1931).
™ Hurley v. Kincaid, 285 U.S. 95 (1932). Moreover, as indicated
in the discussion below of the New Haven Inclusion litigation.
there is precedent in the reorganization field fon transfer before
valuation or payment.
28 U.S.C. § 2616; United States v. Goltra, 312 U.S. 203, 207-08
(1941); Gould v. United States, 301 F.2d 557, 558-59 (D.C. Cir.
1962).
United States v. Thayer-West Point Hotel Co, 329 U.S. 585,
588 (1947); Phelps v. United States, 274 U.S. 341, 344 (1927).
found the relevant values would not, as a practical mat-
ter, require retrial of these issues.
Il. Even in the Absence of a Tucker Act Remedy the
Court Below Should Not Have Enjoined the Operation
of the Rail Act
Even if the court below correctly construed the Rai!
Act to bar a Tucker Act remedy for erosion beyond
constitutional limits, each element of its order was er-
roneous. The order rested on other misconstructions of
the statute. It anticipated problems that may not arise
and can be remedied at the time if they do. Moreover,
even on the district court’s stated view of both the law
and the facts, the relief it granted, relief whose most
crucial features were wholly unexplained, was super-
fluous.
The court below held that the erosion issue was “ripe
for adjudication,” but it did not in fact decide whether
or to what extent the asset values available to satisfy
pre-reorganization creditors have declined during the Penn
Central reorganization or will decline in the future. Nor
did the court decide the extent to which pre-reorganiza-
tion creditors may be required to accept such “erosion”
during the reorganization process, on account of the
public interest in continued rail service, where, as here,
there is a reasonable prospect of reorganizing the rail-
road on a self-sustaining basis. We argue, in Part III
below, that the extent of any erosion problem cannot
—
Concerns that Congress might not appropriate funds to pay a
judgment do not vitiate the adequacy of a Tucker Act suit. No
such concern was mentioned in Yearsicy and Hurley, supra. More-
over, in concluding that the Court of Claims is an Article III court,
Mr. Justice Harlan rejected an argument to the contrary based on
that court's inability to enforce its judgments, saying “there seems
to be no sound reason why the Court of Claims may not rely on
the good faith of the United States,” Glidden Co. v. Zdanok, 370
U.S. 530, 571 (1962). None of the other opinions in that case chal-
lenged his view.
61
be determined on the present record and without refer-
ence to the benefits of reorganization under the Rail Act,
and that in any event a reasonable erosion burden may
be imposed on persons who invest in a railroad while
and substantial public efforts are made to create
a “self-sustaining rail service system.” Our argument
here is that even if it is assumed that the constitutiona!
limit of erosion—the point beyond which service may not
be required without an adequate remedy at law for com-
pensation—may be reached before implementation of the
Final System Plan, and even assuming that the court
below correctly read the Rail Act to bar an adequate
remedy at law, the orders issued by the court below were
nevertheless unwarranted and erroneous.
A. The Court Below Misconstrued Section 304(f) of
the Rail Act
Before passage of the Rail Act, Section 1(18) of the
Interstate Commerce Act required any railroad
(whether or not in reorganization) to obtain ICC ap-
proval for discontinuance of rail service on any line of
track, or for the abandonment of such rail properties.
This procedure was replaced, with respect to railroads in
reorganization in the Region, by Section 304 of the Rail
Act. Section 304, whose primary purpose is to provide
a more efficient means for a substantial reduction and
streamlining of the Northeast’ Midwest rail system, per-
mits the Region’s railroads, without the approval of any
entity, to discontinue service over and to
abandon (i.¢., liquidate as they wish) all rail properties
= 49 U.S.C. 61018) provides in pertinent part:
“(No carrier by railroad subject to this chapter shall abandon
all or any portion of a line of railroad, or the operation there-
of, unless and until there shall first have been obtained from
the Commission a certificate that the present or future public
convenience and necessity permit of such abandonment.”
not designated for transfer pursuant to the Final System
In order, however, to facilitate a planning process
that is required to be completed within 450 days after
enactment, Section 304(f) provides as follows:
“After the date of enactment of this Act, no rail-
road in reorganization may discontinue service or
abandon any line of railroad other than in accord-
ance with the provisions of this Act, unless it is
ee SS & SS Seen as ate
no affected State or or regional transportation
authority reasonably opposes such action, notwith-
standing any provision of any other Federal law tbe
constitution or law of any State, or decision ( order
of, or the pendency of any proceeding befoe y
Federal or State court, agency, or authority.”
As we read the opinions and order of the court below,
all of the court’s objections to the Rail Act (except one
1 flow from its interpretation of that Sec-
The district court interpreted Section 304(f) as au-
thorizing the required continuation of rail operations after
the (hypothetical! point has been reached at which con-
tinuation of service can no longer be constitutionally
required without compensation. Having construed the
section to authorize an unconstitutional action in a hy-
pothetica! situation, the court declared the section to that
extent unconstitutional on its face.
In the first place, the court reached its troublesome
construction prematurely. Having concluded that the
The one exception is the court's holding that the irement,
in Section 207(b), that Section 77 proceedings be dismisned im the
case of certain railroads not being reorganized under the Rail Art.
violates the requirement of Article I. Section 8, Clause 4, of the
Constitution that bankruptcy laws shall be uniform throughout the
United States. USRA does not agree with this ruling but, in view
of the fact that the ruling has no material effect on USRA’s
planning process, USRA has not appealed on this que: ion.
— —
erosion issue was “ripe for adjudication,” the court pro-
ceeded not to adjudicate whether the constitutional limit
of erosion had been or would be reached, nor to define
the limit. Instead, the district court proceeded as if the
erosion limit had in fact passed, when in fact it remains
possible that the issue will never arise.
The objections to premature decision of hypothetical
legal issues, particularly on an incomplete factual! record,
are too familiar to be repeated at length here. The
district court itself recognized the dangers in another
context. JA 9 at 23. Suffice it to say that the objections
to premature decision are especially forceful where there
is a major question of statutory construction which re-
lates directly to the constitutionality of the statute and
the decision is adverse to constitutionality. E.g., Poe v.
Ullman, 367 U.S. 497, 502-03 (1961); Communist Party
„Courts do not review issues, especially constitutional issues,
until they have to.” Joint Anti-Fascist Refugee Comm. . McGrath,
341 U.S. 123, 154-55 (1961) Frankfurter, J., concurring). A court
should stay its hand when the injurious impact of the challenged
condition depends on the “concurrence of .. . contingent events .
too speculative to warrant anticipatory judicial determinations,”
Eccles w Peoples Bank, 333 U.S. 426, 432 (1948). Courts, moreover,
do not adjudicate “matters of serious public concern” on a record
that is not “adequate and full-bodied.” Public Affairs Press Vv.
Rickover, 269 U.S. 111, 112-13 (1962). Kennedy v. Silas Mason Co.
334 U.S. 249, 256 (1948).
The courts reviewing the inclusion of the New Haven in the
merged Penn Central illustrated these rules by refusing to decide
issues that were premature or where the factual record was in-
complete. E.g.. In re New York, VH AH ARK. 378 F 2d 635, 640
(2d Cir. 1967):
“Since we thus are by no means certain the plan the Com-
mission and the court will approve .. will contain the features
to which appellants object, we think it improper to pass upon
their objections at this time.
[There was no occasion to involve Judge Anderson
or us in an advisory opinion to the Commission on legal issues
that may never arise.”
See also New Haven Inclusion Cases, 399 U.S. 392, 447 n. 65 (1970).
v. Subversive Activities Control Board, 367 U.S. 1, 81
(1961); International Longshoremen’s & Warehouse-
men's Union, Local 37 v. Boyd, 347 U.S. 222 (1954);
Electric Bond & Share Co. v. SEC, 303 U.S. 419 (1938).
Having decided to reach the erosion issue, the district
court then took a second headlong leap into the path
of a constitutional problem. Although it had construed
the Rail Act to bar a Tucker Act remedy for erosion past
constitutional limits, the court decided to construe Sec-
tion 304(f) as purporting to confer authority to require
continuation of rail service even where discontinuance
is required to protect constitutional rights. This construc-
tion was wholly unwarranted. In the assumed absence
of a remedy at law, Section 304% could and should
have been construed to confer approval power only within
constitutional limits as the courts may declare them.
A statute cast in general terms need not recite the con-
stitutional limits on its reach in order to avoid being
declared unconstitutional on its face. If it is inferred
that Congress barred suits in the Court of Claims for
required erosion beyond constitutional limits, the entire
statutory scheme could nevertheless function as fairly
(though possibly less successfully) if it were also inferred
that Congress intended to require continued operations
only within constitutional limits.”
No rule of construction is more well established than
the rule that federal courts should accord acts of Con-
gress a “strong presumptive validity” and seek an “inter-
pretation which supports the constitutionality of legisla-
tion.” United States v. National Dairy Products Corp.,
There are, of course, substantial problems in determining,
in any actual case, whether discontinuances or abandonments
constitutionally required. The resolution of that problem in indi-
vidual cases, however, is no easier after the decision below than
was before, since the court offered no guidance on either the
stance or procedures involved in that determination.
Fs
372 U.S. 29, 32 19630. There are numerous cases in
which federal courts have gone to considerable lengths
to construe statutes to uphold their constitutionality.
The case of Richmond Screw Anchor Co. v. United States,
275 U.S. 331 (1928), is a good illustration. As the law
stood immediately before July 1, 1918, the owner of a
patent infringed by a government contractor could or-
dinarily sue either the contractor or the United States.
If the owner were an assignee, however, his suit against
the United States would be barred by the general statute
prohibiting assignment of unliquidated claims against
the United States. On July 1, 1918, Congress passed a
new statute depriving a patent owner of a suit against
a government contractor and imiting him to his remedy
against the United States. The 1918 statute, together
with the general anti-assignment statute, thus appeared
to prevent an assignee from suing either the contractor
or the government. The Court, noting that this result
would seem to raise a serious question as to the con-
stitutionality of the Act of 1918 under the Fifth Amend-
ment,” id. at 345, and stating that it is our duty in
the interpretation of federal statutes to reach a conclu-
sion which will avoid serious doubt of their constitu-
tionality,” id. at 346, interpreted the 1918 statute as
making the genera! anti-assignment statute inapplicable
to patent rights covered by the 1918 statute, so that the
assignee could sue the United States in the Court of
Claims.
In Eastern Railroad Presidents Conference v. Noerr
Motor Freight, Inc., 365 U.S. 127 (1961), a unanimous
Court held that the Sherman Act does not prohibit a
“ Accord, % United States Civil Service Commission v. Va-
tional Association of Letter Carriers, AFL-CIO, 413 U.S. 548, 571
(1973); Flemming » Nestor, 363 U.S. 603, 617 (1960); Crowell
v. Benson, 286 U.S. 22, 62 (1982); Fletcher v. Peck, 10 U.S. (6
Cranch) 87, 128 (1810).
"See also United States v. Thirty-Seven (37) Photographs,
402 U.S. 3683 (1971); American Power 4 Light Co. v. SEC, 329
U.S. 90 (1946).
conspiracy or combination to influence the passage of
legislation or the enforcement of the laws, even where
the objective is to harm competition and the means used
are deceptive. The Court reached its construction of the
statute by considering policies underlying the First
Amendment and, in part, because a contrary construc-
tion “would raise important constitutional questions.” Id.
at 138. Similarly, in Kent v. Dulles, 357 U.S. 116
(1958), when faced with a constitutional challenge to
regulations of the Secretary of State governing the issu-
ance of passports, the Court decided that the statutory
power of the Secretary, though “expressed in broad
terms,” id. at 127, should be construed more narrowly
so as to avoid constitutional questions. This case is a
good example of the rule that a delegation in broad
terms should be narrowly construed to avoid constitu-
tional questions rather than broadly construed and then
struck down.”
B. The 304(f) Injunction Was Unwarranted and
Erroneous
The court below then enjoined USRA from
This injunction against a federal agency just
in good faith, on the Herculean task Congress
it was unwarranted and erroneous.
be Kent case divided the Court 5-4 on the statutory issues,
75
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strained and enjoined from interfering with, seizing, convert-
ing, appropriating, attaching, garnisheeing, levying upon, or
enforcing liens upon, or in any manner whatsoever disturb-
have as much power both to make this findi
) ng and to or may not be sufficient to achieve the congressional ob-
— issued — di 1 out without the in- jective of providing each estate the “constitutional mini-
co court as it has in light mum” on the ground that in any event
the of the Act not adequately assure that
|
Special Court shall order transfers of rail properties | ** Appellant's position is that since Plaintiffs were alleging only s
in accordance with the Final System P! ond aol taking or threatened taking of their property without just compen-
then order the distribution of the consideration ) — — t- 1 *
vided . pro- any taking result from the processes of the Rail Act,
therefor after determining that the exchanges are the court below should have followed the decision of this Court in
“in the Hurley v Kincaid, supra, and avoided the difficult statutory and
public interest and are fair and equitable constitutional issues by leaving Plaintiffs to their plain and ade-
to the estate of each railroad in reorganization in | quate remedy at law. See Part I, supra.
accordance with the standard of fairness and equity On the assumption that the court below correctly construed the
applicable to the approval of a plan of Rail Act to bar a Tucker Act remedy, we agree that the question
tion or a step in such a plan under Section 77 of whether the consideration available under the express terms of the
the Bankrupty Rail Act itself will meet the constitutional minimum is premature
(a) it is impossible to determine at this time the value to which
and that the exchanges are not “more fair and equitable the cataten wl be es te he Fined Spee Te ten ot toe
than is j — properties to be | in i System ve not been
required as a constitutional minimum. . identified. (b) It should be assumed that the 82 carefully
n context, it is clear that designed after long study by Congress will be to achieve the
“np alae Cane statutory goal of a “self-sustaining rail service system” and
aul an exchange in which that the rail properties transferred to Conrail will therefore have
estate receives the “constitutional minimum” con- substantial going-concern value; the dollar amount of this value.
sideration—no more and no less. Congress thus exhibited however, is obviously incalculable today. e If, after the Final
its concern, throughout Section 303, tha System Plan has become effective, there are grounds for contending
— cates Gn t each railroad in the assumed absence of a Tucker Act remedy) that its imple-
constitutionally required consideration mentation will cause a taking of private property for less than just
for its properties. ion. these grounds can be urged upon the Special Court
tion ** during the period of uP un h. e which the Special Court
of trains, buses. the Final System the on Court is
i. onl amen Geen Ge eee directed to order the transfer of rail properties; if these grounds
Ihn appear substantial, the Special Court may then decide that it can-
whether as trustee or otherwise, to rolling st 4b not constitutionally order the transfer until the constitutional issue
leased or conditionally sold to the Debtor, and equipment has been resolved; this theoretical possibility does not make it
Nr necessary to resolve the series of complex statutory and consti-
with the provisions of any auch lease or conditional aale con- tutional issues involved until there is some basis for concluding
Saen that the processes of the Rail Act have failed to provide the “con-
order stitutional minimum” consideration that Congress commanded.
70
Nevertheless, the court below declared that
“Section 303 of the Regional Rail Reorganization
Act of 1973 is null and void as contravening the
Fifth Amendment of the United States Constitu-
tion insofar as it fails to provide compensation for
interim erosion pending final implementation of the
Final System Plan pursuant to the statute.” JA 9
at 82.
Reading that part of the court’s order, one might
assume that the court below concluded that all such
“interim erosion” is compensable under the Fifth Amend-
ment. We argue in Part III, infra, that any such con-
clusion would be erroneous. In fact, the court below
reached no such conclusion. On the contrary, the court
did not define “erosion” or its constitutional limits, and
did not determine that the point has been or will neces-
sarily be reached at which erosion becomes compensable.
The closest the court below came ‘o stating its view of
the law of erosion was in footnote 23, JA 9 at 41, where
it quoted as follows:
“*(T)here are limits beyond which . . the] public
interest cannot be served without violating the con-
stitutional prohibition against appropriation of pri-
vate property for public use without just compensa-
tion. New Haven Inclusion Cases, 399 U.S. 392, 90
S. Ct. 2054, 26 L.Ed.2d 691 (1971); ef. Brooks-Scan-
lon Co. v. Railroad Commission of Louisiana, 251
U.S. 396, 40 S.Ct. 183, 64 L.Ed. 323 (1920). These
limitations are measured both in terms of the amount
of erosion of the Debtor’s estate which can be per-
mitted to occur before impairing liquidation value,
and in terms of the length of time that is reasonable
for assessing the ultimate prospects of achieving
sufficient profitability to support a valid recapitaliza-
tion of the enterprise.’ Jn Re Penn Central Trans-
2 Company, 347 F.Supp. 1246, 1366 (E. D.
*
71
We read the court’s order, therefore, as declaring Sec-
tion 303 unconstitutional only insofar as it fails to pro-
vide compensation for erosion that is determined to ex-
ceed constitutional limits unless an adequate remedy at
law for compensation is provided. This part of the order,
so read, parallels the court’s Section 304(f) injunction
in which the court left the determination of the actual
limit to a fut-ure court.
So read, the court’s Section 303 order is premature
for the same reasons as its Section 304(f) injunction; it
deals with a situation that has not arisen and may not
arise. There are, however, even more fundamental ob-
jections: the court’s reading of Section 303 was er-
roneous and the court’s order, on its own view of the
issues, was superfluous.
In the first place, there was no reason to read See-
tion 303, with its repeated emphasis on fairness, equity,
and the “constitutional minimum” consideration, as de-
liberately excluding one element of that consideration,
that the court below thought might turn out to be con-
stitutionally required. On the contrary, if it is later
determined that the constitutional limit of erosion has
been reached, and if the Act is construed to require
rail operations to continue beyond that point, then this
must be taken into account when the Special Court meas-
ures the “fairness and equity” of the exchanges. Rather
than presume, in the face of clear congressional concern
for constitutionality, that Congress deliberately intended
an unconstitutional result in the hypothetical situation
the court itself constructed, the court below could have
solved its own problem by construing Section 303’s con-
stitutional minimum” to inelude all constitutionally re-
quired consideration.”
As a practical matter, there would be no insurmountable diffi-
culty if the Special Court ruled, for example, that the “constitu-
72
There is, however, an even more obvious point. Rail
estates in reorganization are entitled to compensation
for erosion only to the extent that the United States
requires them to continue rail operations or preserve
their properties beyond the point at which uncompensated
erosion can no longer be required. The only section of the
Rail Act that could conceivably impose such a require-
ment is Section 304(f). We have argued above, in Part
II(A), that the court below could and should, in the
assumed absence of a Tucker Act remedy, have construed
Section 304(f) as not imposing any such requirement.
Instead, the court below construed Section 304(f) as im-
posing such a requirement but then declared the Section
pro tanto unconstitutional and enjoined the enforcement
of the objectionable requirement. At that point, the
court had achieved by constitutional adjudication what
it could have achieved by construction: it eliminated any
requirement in the Rail Act that rail estates suffer any
erosion for which an adequate remedy for compensation
would be constitutionally required. In so doing, it elimi-
nated any possible claim to compensation.
Once any Reorganization Court has determined that
discontinuance of service or abandonment is constitu-
tionally required in the absence of compensation, USRA
(and the other Defendants) will be powerless to inter-
fere and, unless provision is made for compensation
satisfactory to the Reorganization Court, the discon-
tinuance or abandonment will occur. Under these cir-
cumstances, there was no basis for invalidating Section
303 for an imputed failure to provide compensation for
an “erosion taking” that cannot lawfully occur.
tional minimum” is the amount necessary to place the Penn Central
estate in the position it would have been in had the o-
curred on some earlier date determined bv the Special Court to be
appropriate.
— ona
73
D. The District Court Should Not Have Enjoined
Certification of a Final System Plan Under
Section 209(c)
Section 209(c) of the Rail Act provides that after
the Final System Plan has been prepared and reviewed
by Congress and become effective, USRA shall “de-
fied
special court” and shall certify to the Special Court,
among other things, that the Plan is in the public
interest and is fair and equitable. This step is obviously
central to the processes of the Act. The court below,
however, enjoined USRA from “certifying a Final Sys-
tem Plan to the Special Court pursuant to Section 209
(e.“ JA 9 at 82. The injunction appears to be un-
qualified and unconditional.
While this part of the court’s order presents the
most significant obstacle to USRA’s discharge of its
statutory responsibilities, USRA is somewhat at a loss
to respond to it because the court below offered no
explanation whatsoever of the reason for this particular
order. Section 209(c) is mentioned only twice in the
court’s opinion, once at JA 9 at 16 where its existence
and text are recited without comment as part of a
general summary of the Rail Act, and once in the second-
to-last paragraph of the principal opinion, which, im-
mediately after discussion of the Tucker Act question,
reads in its entirety as follows:
“Accordingly, we hold that Section 304(f), in re-
quiring mandatory interim operations without pro-
viding a legal remedy to furnish fair and just com-
pensation for an erosion of property beyond consti-
tutional limits, offends the Fifth Amendment; that
Section 303. the only provision of the Act pertain-
ing to valuation of the railroad estate, in failing to
provide a remedy for any unconstitutional erosion
caused by mandatory interim operations under Sec-
74
tion 304(f), is also defective; that because the effect
of Section 207(b) precludes a form of liquidation
under Section 77 of the Act, it is con-
stitutionally defective as set forth in Part II of the
separate opinion of Judge Fullam; and that because
of these conclusions the United States Railway As-
sociation must be enjoined from certifying a Final
System Plan to the Special Court pursuant te See-
tion 209 (e).“ JA 9 at 53.
It is unclear what evil the court thought it was remedy-
ing with this order.” The only conceivably relevant
constitutional objection to the Rail Act is the assumed
failure of the Act to deal with the possible problem of
erosion beyond constitutional limits. As discussed above,
this problem may never arise in fact. Moreover, any
possibility of its arising could have been avoided by a
construction of Section 304(f) that would not allow USRA
to require continued operations after the point of un-
constitutional erosion has been reached, or by a con-
struction which presumes that the Special Court will
take such operations into account when determining
the consideration under the Act necessary to satisfy the
“constitutional minimum.” In any event, the court below
has more than adequately eliminated any possible prob-
lem by prohibiting the application of Section 304 (f to
require erosion beyond constitutional limits. Finally,
there was no reason for an unconditional order prohibit-
ing the certification of any final system plan, even one
that makes full and adequate provision for all constitu-
tional rights of the private parties.
One thing that seems clear is that the 209(c) order to which
we are now objecting has nothing to do with the 207(b) problem
referred to in the quoted paragraph, from which no appeal is taken.
The 207(b) p blem, as described in Judge Fullam's separate opin-
ion, relates oniy to the question whether Section 77 proceedings
should be dismissed in the case of railroads that are not to be re-
organized under the Act.
— — —
75
III. There Is No Factual or Legal Basis for Concluding
that the Rail Act Will Cause an “Erosion Taking”
of Private Property for Which Just Compensation Will
Be Due
We have presented two reasons why it was unnecessary
for the court below even to reach the constitutional merits
of Plaintiffs’ claims that the Rail Act will cause a taking
of their property through erosion: First, Plaintiffs have
an adequate remedy at law under the Tucker Act, which
precludes their obtaining injunctive relief against the
implementation of the Rail Act. Second, in the absence
of the Tucker Act remedy, the Rail Act should not have
been construed to require rail operations beyond the
point at which compulsory operations become compen-
sable. The court below failed to adopt either of those
propositions, but proceeded to decide that the danger of
an erosion taking justified its enjoining the implementa-
tion of key provisions of the Act. Having erred in
dealing with the Tucker Act and statutory construction
issues, that court committed further error, we submit,
in its handling of the erosion contentions.
The court below decided that the erosion issue is “ripe
for adjudication”—meaning, apparently, that available
statistics indicate that Plaintiffs’ fears that the value of
their claims will decline between now and the effective
date of the Final System Plan (as early as 510 days
from enactment) cannot be dismissed as far-fetched. The
court then proceeded, however, to grant broad injunc-
tive relief without ever facing the questions that must
be decided to adjudicate the erosion issue. Should this
Court conclude that it is necessary to reach that issue,
we submit that there are two controlling reasons why
it was error for the court below to grant injunctive re-
lief on the ground that erosion pending implementation
of the Rail Act might exceed constitutional limits.
76
In the first place, the record in this case does not
establish that any injury at all will result to Plaintiffs
from the implementation of the Rail Act. In order to
determine whether the value of Plaintiffs’ claims will
in fact be eroded—that is, whether Plaintiffs will, on
balance, suffer economic injury—through the implementa-
tion of the Act, a court would have to make a comparison
between Plaintiffs’ present situation and the consequences
of implementing the Act. Only if Plaintiffs have avail-
able to them some currently feasible course of action
that would produce greater value for the estates than
can be realized through reorganization pursuant to the
Act will Plaintiffs be harmed by continued proceedings
under the Act.”
Plaintiffs have not established a record that permits
such a comparison to be made. It is not clear what
feasible course of action the Penn Central (or any other)
railroad estate would follow if it were permitted to
proceed on the premise that the Rail Act did not exist,
and it is wholly unclear what the dollar consequences
* The court below noted that Plaintiffs included secured creditors,
unsecured creditors, and shareholders. That fact, however, does not
—— — — —
77
of any such course of action would be. On the other hand,
it is obviously impossible to determine now the dollar
consequences of reorganization pursuant to the Act.
Plaintiffs seek to suggest, and the court below ap-
parently concluded, that the only facts of record—recent
income-statement losses, together with the continuing
increase in administration claims—-demonstrate that some
unspecified present alternative must necessarily be better
than proceeding under the Rail Act. The only alternative
that suggests itself is to begin liquidation of the Penn
Central estate for non-rail purposes, with its attendant
uncertainties, expenses, and delays. The facts of record
fail wholly to support the court's apparent conclusion
that such a course would yield greater value than re-
organization under the Act, for several reasons: First.
income-statement losses, computed in accordance with
ICC accounting procedures and including as expense items
(for example) track replacement costs that may even
increase the value of the Penn Central estate” and
depreciation, do not establish that the value of the assets
is declining; second, even if liquidation value were demon-
strably declining, the essential comparison is between the
value of the Penn Central now, in liquidation, and the
going-concern value of the Penn Central estate’s share
of a revitalized system that has received substantial fed-
eral support; and third, it is by no means clear that a
liquidation commenced today or any other alternative
action would stop the losses and solve the creditors’
problems more quickly than proceedings under the Act.
There is a second and more fundamental point. The
central premise of Plaintiffs’ erosion argument is their
contention that they have a constitutional right to termi-
nate rail service and liquidate the Penn Central es te
* This accounting treatment was criticized as unrealistic in
Coleman, Is Railroad Accounting Off the Track, 130 J. Account-
ancy 64, 66-68 (Oct. 1970).
78
now. They contend that consequently they are entitled
to a present assurance that they will ultimately receive
the current liquidation value of the estate plus the amount
of priority administration claims accruing between now
and the time they receive that value. We believe that
Plaintiffs’ central premise is wrong as a matter of law.
Plaintiffs do not have a right to liquidate or be com-
pensated for not doing so. As we have repeatedly stressed,
the Rail Act makes adequate provision for payment of
whatever “constitutional minimum” Plaintiffs are ulti-
mately adjudged entitled to receive. However, we reject
Plaintiffs’ views about the measure of that constitutional
minimum.
Plaintiffs assert that their right to liquidate is es-
tablished by three cases decided in the early 1920’s hold-
ing that owners could not be compelled to continue to
operate tiny, hopelessly unprofitable railroads when it
was clear that there was no way of restoring them to
profitability.” Since the enactment of Section 77, how-
ever, it has been clear (and has been established by
repeated decisions of this Court) that if a railroad is
important and reorganizable, the rights of its creditors
and owners are inherently subject to the right of the
public to keep it running while reasonably prompt efforts
are made to reorganize it on a self-sustaining basis.
When this Court upheld the constitutionality of See-
tion 77, it held that such a deferral of remedies was
justified in view of Congress’ determination that the
continuous, uninterrupted operation [of railroads] is
"* Brooks-Scanion Co. „ Railroad Commission, 251 U.S. 396
(1920), involved a narrow gauge railroad between Kentwood and
Hackley, Louisiana, which was “primarily a logging road” but which
the Court “assumed” to have done business as a common carrier.
Bullock v. Railroad Commission, 254 U.S. 613 (1921), involved a
“logging road” for which one suggested total purchase price
$200,000. Railroad Commission v. Eastern Teras R. R., 264 U.S.
79 (1924), involved a railroad 30.3 miles long which had been
to carry timber, whose supply had been exhausted.
79
necessary in the public interest. Continental Bank v.
Chicago, Rock Island & P. Ry., 294 U.S. 648, 671 (1935).
As the Court observed, “without the maintenance of the
or a reasonable length of time no satisfactory
be worked out.” Id. at 679. Consequently,
the contention of Plaintiffs here that they have a right
red of full compensation for their cooperation
the effort to save Penn Central is without legal
A. Plaintiffs Have Not Shown that Any Erosion Will
Occur
This Court discussed the erosion issue in the New
Haven Inclusion Cases, 399 U.S. 392, 489-93 1970
The Court made clear that the essence of erosion is a
net reduction in the amount available to satisfy pre-
bankruptcy claimants. The Court stressed that there are
two factors that may reduce the size of the “pot” avail-
able to pay pre-bankruptcy claims: a decline in the
total value of the assets of the estate, and an accumula-
tion of priority administration claims. Consistent with
this Court’s analysis in that case, other courts have
pointed out that market appreciation in asset values dur-
ing reorganization tends to increase the amount realized
by pre-bankruptcy claimants, offsetting other factors, such
as operating losses, which tend to reduce the realizable
value. See In re Boston & Maine Corp, 484 F.2d 369,
373 n.5 (Ist Cir. 1973). In fact, in the Reading Railroad
“180-day” proceedings, where the Court held in favor
„A] proceeding under §77 is not an ordinary proceeding in
bankruptcy. It is a special proceeding which seeks only to
bring about a reorganization, if a satisfactory plan to that end
can be devised. And to prevent the attainment of that object
is to defeat the very end the accomplishment of which was the
sole aim of the section, and thereby to render its provisions
futile.” Id. at 676.
As we have previously noted, the court below recited
the stipulated fact that the Penn Central income state-
ments for the reorganization iod show
in losses, concluded that this
1
2
l
i
of the Penn Central estate on any basis ‘except book)”
ability of the Penn Central estate to pay its debts (what-
ever that ability may now be). Income statements, how-
ever, do not necessarily show even that. For one thing,
as noted above, they leave out of account changes in
asset values, which are essential to any comparison of
In the Matter of Reading Co., Bky. No. 71-828 (E.D. Pa., July
1, 1974), appeal pending, No. 74-7 (Spec. Ct. R.R.R.A., filed Aug.
liquidation values at different times. For another,
they reflect items having no direct relation to value.
For example, the $851 million in ineome-statement
losses of Penn Central reflect “expenses” of $313 million
in depreciation; $358 million in track replacement re-
quired by the ICC to be charged to current income;
$100 million in deferred leased-line rentals; and $250
million in deferred interest on debt. Depreciation, how-
ever, is an arbitrary charge not involving the expenditure
of cash and not necessarily reflecting any decline in
recoverable value. Track replacement, while an “ex-
pense” according to ICC conventions, presumably does
not reduce liquidation value and may actually increase
it. It is stipulated that Penn Central's actual liability on
leased-line rentals is unkrown. Finally, less than half
of the deferred interest is on debt that purports to be
secured, and unsecured debt is not entitled to receive
post-bankruptcy interest as an allowable claim in re-
For example, the trade publication Iron Age indicates that the
market value of heavy melting scrap (such as scrapped steel rails)
has dramatically increased since June 21, 1970:
MARKET PRICES FOR NO. 1 HEAVY MELTING SCRAP
AT SELECTED LOCATIONS ($/TON)
Prices On Prices On
June 22, 1970° July 15, 1974**
Chicago $43-44 $137-138
Pitsburgh 42-43 129-130
Philadelphia 43-44 118-120
* Iron Age, June 25, 1970, at 94.
** Iron Age, July 22, 1974, at 64.
Stipulation of Facts, {13 (JA 203 at 208). The point is that
the figure charged to Penn Central's income is the total stated
lease obligations, but if any leases are disaffirmed, the Trustees will
an offset in the amount of any losses incurred for the account
the lessor. See Section 77(c)(6) of the Bankruptcy Act, 11
205 (e
~
organization. These four items alone thus raise more
than $1 billion worth of doubt about the impact of an
$851 million loss.
be injured by actions taken
under the Rail Act would not be between liquidation
values now and in the future but between liquidation
value now and the going concern value of the Penn
Central estate’s share of the reorganized rail system,
represented by Conrail securities and USRA obligations,
plus other benefits provided by the Rail Act and the
i
t
*
258
21
75
dg
41
175
Plaintiffs have contended, and the court below may
have assumed, that the claimants against the Penn Cen-
tral estate are constitutionally entitled to receive at
least the present liquidation value of the estate’s assets.
Therefore, they reason, any erosion caused by implementa-
tion of the Rail Act entitles Plaintiffs to compensation.
That reasoning is based on the premise that the Brooks-
Scanlon line of cases, supra, gives railroad investors a
constitutional right to cease operations and realize net
liquidation value if the railroad has no reasonable pros-
pect of future profitability. Since the Penn Central can-
not be separately reorganized on an income basis, Plain-
in re New York, VH. 4 H.R. R., 304 F.Supp. 1121, 1129-34
(D. Conn. 1969). Cf. 3A Collier on Bankruptcy © 63.16, at 1858
(14th ed. rev. J. Moore); 5 id. , 77.20, at 562-63 n.6.
tiffs characterize it as “hopelessly losing” within the
meaning of Brooks-Scanlon and invoke the protection
of that decision.
We submit that Brooks-Scanion has no applicability
to the situation of the Penn Central or the other estates
Court has confirmed beyond doubt that investors who
have dedicated their property to railroad use in the
public interest have no right to withdraw that dedication
as long as a reasonable prospect exists that the railroad's
operations can be made self-sustaining. Whether the
prospect of future profitability arises internally—as in
a traditional Section 77 reorganization—or externally—
as in the case of the Rail Act—it justifies requiring con-
tinued rail operations without compensation for a period
reasonably necessary to complete efforts to save the rail-
road’s operations.
To subject railroad investors to some economic burden
in such circumstances does not involve a deprivation of
their “property” richts. It involves merely a recogni-
16° Tt is far too late in our constitutional history to suggest that
any — aes action that impairs property rights or reduces
property values creates a right in the owner to compensation. Fed-
eral, state, and local governments daily undertake myriad actions
that affect the use or value of private property.
« without ng that the courts have never construed
ha ices ncmmemation’ cause of @ Sederal or ctate constitution as
requiring payment for all injuries imposed upon persons or property
by acts of government. Any such requirement would make govern-
ment itself impossible. No legislature can enact an important
statute which does not directly or indirectly impose a material loss
on some property owners.” L. Orgel, Valuation Under the Law of
Eminent Domain § 1, at 5 (2d ed. 1953).
See, , Hadacheck v. Sebastian, 239 U.S. 394 (1915) (zoning
ordinance preventing continuation of an existing commercial use
of real property did not constitute a taking); Jackson v United
tion that the property rights of railroad investors are
inherently subject to the public’s right to make reason-
able efforts to save the common carrier rail operations
to which the owners dedicated their properties. So long
as reasonable efforts are being made to preserve an
important rail transportation system, the rights of
creditors command neither “Procrustean measures” nor
compensation for failure to take them.
1. The Earliest Decisions Under Section 77 Estab-
lished that Some Erosion Is Permissible Pending
Reorganization
In contending that they have a constitutional right to
be compensated for any erosion of their interests during
the period necessary to reorganize their railroad, Plain-
tiffs seek to overturn an unbroken line of Supreme Court
decisions under Section 77. The question whether claim-
ants against a debtor railroad may constitutionally be
required, without compensation, to suffer a decline in
their positions during the period reasonably needed to
reorganize the railroad was answered when Section 77
first reached this Court in the Rock Island case.“ In
that case, holders of “collateral notes” issued by the
debtor challenged an order of the reorganization court
which barred them from foreclosing on their collateral.
The Court responded as follows:
States, 230 U.S. 1 (1913) (flood control improvements which in-
jured private property by overflow or erosion did not constitute a
taking) ; Gibson v. United States, 166 U.S. 269 (1897 (Government
actions to improve navigation which impaired riparian rights of
waterfront owner did not constitute a taking); Steel Hill Develop-
ment, Inc. v. Sanborton, 469 F.2d 956 (Ist Cir. 1972) (three-acre
and six-acre minimum lot requirements imposed to preserve en-
vironmental! values did not constitute a taking).
™ Penn-Central Merger Cases, 389 U.S. 486, 511 (1968).
Continental Bank v. Chicago, Rock Island & P Ry. 294 U.S.
648 (1935).
“It ma as , that during the period of
ane A meg h- decline in value; but
the same may be said in respect of an injunction
against the sale of real = 4 2 „
mortgage; and such an injunction may iss
ordinary proceeding in bankruptcy. ... A claim that
injurious consequences will result to the pledgee
or the mortgagee may not, of course, be disregarded
by the district court; but it presents a question ad-
dressed not to the power of the court but to its dis-
cretion—a matter not subject to the interference of
an appellate court unless such discretion be improvi-
dently exercised.” 294 U.S. at 677 (emphasis add-
ed) 108
106 sometimes been suggested that the Rock Island case
can haf Been on the ground that the holders of the collateral
notes had ample security. E.g., Note, Takings and the Public
Interest in Railroad Reorganization, 82 Yale L.J. 1004, 1112 (1973).
See also In re Penn Central Transp. Co., 494 F.2d 270 (3d Cir.),
petition for cert. filed, 42 U.S.L.W. 3633 (U.S. May 8, 1974) (No.
73-1672) (“Columbus Option Appeals”).
rted distinction evidences a clear misreading of the
ecb Iona opinion. The notes involved were secured by mortgage
bonds of the debtor and its affiliates, which were in turn secured
by rail properties. It is true that the face amount of the 11 *
bonds exceeded the face amount of the collateral notes and that
debtor alleged that the value of the bonds exceeded the face amount
of the notes. However, no court either found, assumed, or even in-
quired whether the notes were in fact adequately secured.
clear from the opinion that the statement quoted in the
1
The extent to which creditors’ interests may constitu-
tionally be eroded during the reorganization of a salvage-
able railroad was vividly demonstrated a decade later in
Reconstruction Finance Corp. v. Denver & Rio Grande
W.R.R., 328 U.S. 495 (1946). In that case
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