Brief for Appellant — Robert W. Blanchette et al., v. Connecticut General Insurance Corp.

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In THE

Supreme Court of the Anited

OCTOBER TERM, 1974

UNITED STATES OF AMERICA, ET AL, APPELLANTS.

CONNECTICUT GENERAL INSURANCE CORPORATION, ET AL., APPELLEES.

UNITED STATES RAILWAY ASSOCIATION, APPELLANT,

CONNECTICUT GENERAL INSURANCE CORPORATION, ET AL., APPELLEES.

ROBERT W._ BLANCHETTE, RICHARD C. BOND AND JOHN H. MCARTHUR.

AS TRUSTEFS OF THE PROPERTY OF PENN CENTRAL

TRANSPORTATION COMPANY, DEBTOR, APPELLANTS,

CONNECTICUT GENERAL INSURANCE CORPORATION, ET AL., APPELLEES

RICHARD JOYCE SMITH, AS TRUSTEE OF THE PROPERTY OF THE NEW YORK,

NEW HAVEN AND HARTFORD RAILWAY COMPANY, DEBTOR, APPELLANT,

UNITED STATES OF AMERICA, TAL. APPELLEES

ON APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF PENNSYLVANIA

BRIEF FOR APPELLANTS ROBERT W. BLANCHETTE,

RICHARD C. BOND and JOHN H. McARTHUR,

TRUSTEES OF THE PROPERTY OF PENN CENTRAL

TRANSPORTATION COMPANY, DEBTOR

CHARLES A. HORSKY

BRICE M CLAGETT

Covington & Burling

888 Sixteenth Street, NN

Washington, D.C. 20006

PAUL R._ DUKE

JOHN F. DePODESTA

Penn Central Transportation

Company

Six Penn Center Plaza

Philadelphia, Pa 19107

Attorneys for Appellants Per

August 23, 1974 Central Trustees

JURISDICTION .

OPINIONS BELOW

QUESTIONS PRESENTED

STATUTES INVOLVED .

STATEMENT

Regional Rail Reorganization Act

Penn Central Proceeding

Constitutional Litigation

SUMMARY OF ARGUMENT

ARGUMENT .

I. THE ACT DOES NOT EXCLUDE A TUCKER ACT

REMEDY FOR ANY TAKING OF PROPERTY

ACCOMPLISHED PURSUANT TO THE ACT .

I THE COURT BELOW WAS CORRECT IN CON.

CLUDING THAT NO COURT OF CLAIMS REMEDY

EXISTS, THEN ITS CONCLUSION THAT THE ACT

IS UNCONSTITUTIONAL WITH RESPECT TO

INTERIM EROSION IS ALSO CORRECT .

A. Deficit Rail Operations May Not Constitionally

Be Required Without, at Least, the Assurance

of Successful and Prompt Reorganization

B. The Act, While Requiring Continuance of Deficit

Rail Operations, Contains No Provisions Compen-

sating the Penn Central Estate for the Erosion

Incurred Thereby .

(ii)

Page

Ill. THE CONSTITUTIONAL ADEQUACY OF THE ACT'S

PROVISIONS FOR COMPENSATION FOR THE PER-

MANENT TAKING CONTEMPLATED IS RIPE FOR

(1) The 180-Day Decision. .......... 4

(2) Congressional “Approval” ......... Si

(3) The Mandatory Nature of the Conveyance... . 52

IV. THE ACT'S PROVISIONS REGARDING COMPENSA-

TION FAIL TO ASSURE THAT FIFTH AMENDMENT

STANDARDS WILL BESATISFIED .... 54

V. THE EXISTENCE OF AN ADEQUATE COURT OF

CLAIMS REMEDY SAVES THE CONSTITUTION-

r a ae ee

A. An Adequate Court of Claims Remedy Cures

the Fifth Amendment Problem ........ 63

B. With the Exception of One Readily Severable

Provision, the Act Is Not in Violation of the

“Uniformity” Requirement of Article |, Section

8, Clause 4 of the Constitution . ....... &

APPENDIX: Constitutional and Statutory Provisions 143

ANNEX A: Letter of John W. Ingram, Federal Railway

Administrator, to R.D. Timpany, May 10,1974 . . 3a

ANNEX B Letter of Brock Adams, MC. to John W. Barnum,

April 26,1974. MOW F

ANNEX C Extracts from Proposed Amendments to Senate

Commerce Committee Working Paper No. |

e 5

(ui)

TABLE OF CITATIONS

Page

Cases:

Albert Hanson Lumber Co. v. United States,

, Ff S&S fF re “SS i a

Amell vy. United States, 384 U S. 1 (1968) . E

Almota Farmers Elev. 4 Whse Co. vy. United States,

ee , ee

American Communications Association v. Douds,

CC sg .

Aris Gloves, Inc. vy. United States,

on ð „

Baltimore & Ohio R.R. ». United States,

298 US. 349(1936) ..... is

Barnidge v. United States, 108 n 295 Oh Ce. 2 N

Battaglia v. General Motors Corp.,

re te ee eS et a ae

eg oO v. Hill,

281 U.S. 673 (1930) . .. Sy a

—— — Oe United States,

302 F. Supp. 1O9S(EDN.Y.1969)......... 8

Sa 32,34

251 US. 396(1920) ... p „ „„ „ re

Bullock v — off Poste

254 US. $13(1921) .... eee

Campbell v. Alleghany Corp. , 75 * 1990,

cert. denied, 296 US. 581 (1935). .. ... on

Catlin vy. United States, 324 US.229(1945) ..... . 17,26

City of New York vy. United States,

337 F. Supp. ISO(EDNY.1972) 356. 55

City of Oakland v. United States, | 24 F.2d 959 (9th Cir.),

cert. denied, 316 US. 679(1942). .........@B

(iv)

Cases (Cont'd)

Commercial Station Post Office, Inc. v United States,

48 F.2d 183 (8th Cir. 1931). Goss

Continental Bank v. Chicago, RJ. 4 U Ry.

294 US. 648 (1935)

Cook . United States, \15 F. 24 463 (Sth Cu 1940) .

Coombs, Trustee, v. United States, 321 US. 770 (1944)

Cotton Land Co. United States,

75 F. Supp. 232 (Ct. Cl. 1948)

Crozier v. Krupp, 224 US. 290(1912)

DeSalvo v. Arkansas Louisiana Gas Co.,

239 F. Supp. 312 (ED. Ark. 1965)

Eastport Steamship Corp. v. United States,

372 F.2d 1002 (Ct. Cl. 1967)

Ex parte Cohen, 191 F.2d 300 (9th Cir. 1951),

cert. denied, 342 US. (1952)

Eyherabide v. United States,

345 F.2d 565 (Ct. Cl. 1965).

Fawcett v. CR. 149 F.2d 433 (2d Cu. 1945)

Federal Sugar Refining Co. v. United States,

30 F.2d 254 (2d Cir. 1929) (L. Hand, J). u.

Johnson v. r Wenn

Freight Corp. 280 US. 320 (1930)

Feldwin Realty Co. v. United States,

169 F. Supp. 73 (DN 1959) .

Fort Berthold Reservation » United States,

390 F.2d 686 (Ct. Cl. 1968)

Foster v. United States, 98 F Supp. 349 (Ct. Cl. 1951) .

FTC v. A.P.W. Paper co. 328 US. 193 (1946) .

Georgia v. Pennsylvania R. R. 324 US. 439 (1945)

Glidden v. Zdanok, 370 U.S. 530(1962) .

14-15

16-17

(v)

Cases (Cont'd)

Graham 4 Foster v. Goodcell, 282 US.409(1931) . . 21

Great Falls Mfg. Co. v. Attorney General,

124 U.S. 581 (1888) ;

Hanover National Bank v. Moyses, 186 US. 5 181 (1902) .

Hariem Valley Transportation Ass'n v. Stafford ,

No. 73-2496, 2d Cir. June 18, 1974

Hecht Co. v. Bowles, 321 US. 321(1944). . . . 52

Hele v. United States, 100 Ct. Cl. 289 (1943) 16

Hove v. United States, 218 U.S. 322 (1910) 2%

Hurley v Kincaid, 285 US. 95 (1932) 15

In re Baltimore & Ohio R.R., „ Supp. G00 0D. ts. 1 1939),

cert. denied, 309 US. 654 (1940) . 1 —

In re California P. R.R., 4 F. Cas. 1060

e Co. sg he ere oe ore ee

In re Central RR. of New Jersey,

In re New York, VH 4 H RR.

304 F. Supp. 793 (D. Conn 1969). . 35.55, 66

In re New York, VH. 4 H RR.

281 F. Supp. 65 (D. Conn. 1960) 356. 37

In re New York, VH 4H RR.

289 F. Supp. 451 (D. Conn. 1968) . . . . . 35,36,37,55

In re New York, VH & H. RR.

16 F. Supp. 504 (D. Conn. 1936). . ........ &

In re Penn Central Transportation CY.

372 F. Supp. 1123 (E.D.Pa.1974) .... . > ee?

In re Penn Central Transportation Co. (Columbus oun

Appeals), 494 F.2d 270 (3d Cir. 1974), petition for

cert. field, 42 US. L. Week 3633 (U.S. May, 1974),

No. 73-1672 30, 36, 55

In re Penn Central Transportation Co.

— a. a G6 le 6 “ee bem ae

(vi)

Cases (Cont'd)

In re Port Authority Trans-Hudson Corp.,

20 N.Y.2d, 457, 285 N.Y. Supp.2d 24,

cert. denied sub nom. Port Authority

Trans-Hudson v. Hudson Rapid Tubes one

390 US. 1002 (1968) . ;

In re Spier Aircraft Cp. 137 F.2d 736 (34 Cir. 1949,

In re Third Ave. Transit Corp.

198 F.2d 703 (2d Cir. 1952)

Jacobs v. United States, 290 US. 13 (1933)

Jay Street Connecting R R. v. United States,

174 F. Supp. 609 (E.D.N.Y. 1959)

Johnson v. Emergency Fleet Corp. 280 US. 320 (1930) .

Joslin Mfg. Co. „ City of Providence,

262 U.S. 668 (1923)

Katzenbach v. McClung, 379 US. 294 (1964)

Lee v. United States, 58 F.2d 879 (D.C. Cir. 1932)

Leidigh Carriage Co. v. Stengel, 95 F. 637 (6th Cir. 1899)

Louisville Joint Stock Land Bank v. —

295 US. 555 (1935)

Maryland v. Wirtz, 392 US. 183 (1968) .

Mercantile Nat'l Bank V Longdean,

371 US. 555 (1963)

Miller v. United States, 57 F 2d 424 (Age. DC. 1932) .

Monongahela Navigation Co. » United States.

148 US. 312 (1893)

Nagano v. McGrath, 187 F.2d 759 (7th C Cir. 1980,

aff'd, 342 US. 916 (1952) :

New Haven Inclusion Cases,

399 US. 392 (1970).

New York, NH. AH XN. Bondholders’ Committee v.

United States, 289 F Supp. 418 (S DNV. 1968) .

10, 13, 36, 37, 38, 39,

40, 47, 55, 58, 59, 66, 70

. 35,55

(vii)

Cases (Cont'd)

New York, VII. & H RR. First Mortgage 4% Bondholders’

Committee . United States, — 1049

(S.D.N.Y. 1969) .

New York, VH & H RR. First Mortgage 4% Bondholders’

Committee v United States, 289 F. * 418

(S.D.N.Y. 1968) . '

Olsen v. United States, 292 US. 246 (1934)

Poe » Uliman, 367 U.S. 497 (1961)

Portsmouth Harbor Land & Hotel Co. United States,

260 U.S. 327 (1922)

Potomac Electric Power Co. v. United States,

85 F.2d 243 (D.C. Cir.), cert. denied,

299 US. 565 (1936)

Railroad Comm'n of Texas v. Eastern Texas R.R.,

264 US. 79 (1924) .

Reconstruction Finance Corp. v. — R.R.,

328 US. 495 (1946) J,

Richard v United States, 282 F 2d 901 ac Cl. 1960)

Rosenberg v. United States, 346 US. 273 (1953) .

Silesian-American Corp. v. Clark, 332 US. 469 (1947) .

Silesian-A merican Corp. v. Markham ,

156 F.2d 793 (2d Cu 1946)

Sioux Tribe of Indians vy. Unite States,

1 1962) 8

* ent Rico Sugar Co. v. uted Same,

2d 622 (Ct. Cl. 1964), cert. denied,

) US. 964 (1965)

3 United States, 471 F 2d 381 (Sth Cir. 1973)

Thomason v. United States, 184 F.2d 105 (9th Cir. 1050

United States v. Causby, 328 US. 256 (1946) .

United States v. a

335 U.S. 106 (1948) 1

35. 85

. 27,28

14. 15

(viii)

Cases (Cont'd)

United States v Delaware & Hudson Co.

213 US. 366 (1909) j

United States v Dow, 357 US. 1701998 .

United States vy. 40.75 Acres of Land,

76 F. Supp. 239 (ND. Il. 1948) .

United States v Klein. 80 US. 128 (1871).

United States v. New River Collieries,

262 US. 341 (1923)

United States v Pfitsch, 256 U S. $47(1921)

United States v Reynolds, 397 US. 14(1970) .

United States v. —

402 U.S. 363 (197)

United States Nat'l Bank v. Pamp,

83 F.2d 493 (8th Cu. 1936)

Vanhorne’s Lessee vy. Dorrance,

2 US. (2 Dall.) 304 (1795) .

Vanston Bondhoiders Protective Committee v. Green,

329 US. 156 (1946)

Wright v. Vinton Branch, 300 US. 440 (1937)

Yearsiey v. W.A. Ross Construction Co.

309 US. 18(1940). .. . . . .

Youngstown Sheet and Tube Co. v jin

343 US. 579 (1952) N

Statutes

Bankruptcy Act, Section 77, 11 USC.

4. 5, 8, 13, 18-19,

n 1.37.39, 45, $2, 62, 69, 70

The Foreign Assistance and Related Programs

Appropriation Act of 1974 (P. L. 93-240)

Indian Claims Commission Act

(ix)

Statutes (Cont'd)

Interstate Commerce Act, Section 1(18) .

42 USC. §4331.

Rail Services Act of 1973, Report No. 93-601 of

the Senate Committee on Commerce 130

(93d Cong. Ist Sess. 1973) .

45 USC. §§701-793 . j

2, 3,4, 15, 71

Section 102 (13) 70

202(a) . . .

202 (a) (10) „ ae

204 () . 4

D eal, ey —

r eR me ~

W6(ay(i). . . .. 3 587

D 57

Z 57

D Be ots Web ee al . $7

r 61

206 (d) (3) 18

ra 57

207 (b) 4,5, 7, 18, 48, 49, 80 69, 70, 71

208 ee 25,41

Z 51

208 (b) „

D 18. 19. 20

D 5, 19, 49, $2

1 „ wae

1 a ee ee 42, 43, 44, 45

215 43, 44,45

. · A wc ace wie to W 3, 7. 19. 20

303 (b)(1) . $2

(x)

Page

Statutes (Cont'd)

Section 303(b)(2). 18, 19, 53

Bt)... ae

303 (c) (1) (B). 20 24. 29, 54, 60

303 (c) (2) (B). . 9

323 20. 60

303 (a) 18. 19. 20

304(c) . —, *

304(f) . 3. 7, 18, 44, 45, 46

305 0 41

401 =

402... 58

402(f) . . 38

. 21

601 (a)(2) . 18, 20

601 (b) . 18, 21

601 ic) . 18, 21

604. 21, 70

Title V . 61

Title VI . 21

Section 3709, Revised Statutes, 41 USC. 8 18

Second Supplemental — 1974

(PL. 93-305) . f ö 43

3, 8. 9, 10, 12, 14. 15, 16, 18, 20, 21,

Tucker Act, 22, 24, 25, 27, 28, 29, 30, 34, 39, 46,

28 USC. $1491. . 48, 49, 50, 52, 54, 61, 62, 64, 67

28 USC. §§1252 and 1253 . 2

§ § 2282 and 2284 . 2

United States Constitution:

Art. I. Section 8, Clause 4 3.7. 13, 68, 71

Fifth Amendment

3, 6, 8, 14, 16, 23, 24, 25, 30, 31, 42,

. 48, 54, 63, 64, 65

(xi)

Legislative Materials:

Conference Report, H.R. Rep. No. 93-744, p. 56

(93d Cong. Ist Sess. 1973) . al

Conference Report, H.R. Rep. No. 93-1070

(93d Cong. 2d Sess. 1973) .

Congressional Record, May 14. 1974, 5. 8. 7958

H.R. Rep. No. 93-260 of the Committee on

Interstate and Foreign Commerce, p. 53

(93d Cong., Ist Sess. 1973) . :

Note, r

68 Harv. L. Rev. 527 (1956) .

41.60

UNITED STATES OF AMERICA, ET AL., APPELLANTS,

CONNECTICUT GENERAL INSURANCE CORPORATION, ET AL. APPELLEES.

UNITED STATES RAILWAY ASSOCIATION, APPELLANT,

CONNECTICUT GENERAL INSURANCE CORPORATION, ET AL., APPELLEES.

ROBERT W._ BLANCHETTE. RICHARD C. BOND AND JOHN H. MC ARTHUR,

AS TRUSTEFS OF THE PROPERTY OF PENN CENTRAL

TRANSPORTATION COMPANY, DEBTOR, APPELLANTS,

CONNECTICUT GENERAL INSURANCE CORPORATION, ET AL. APPELLEES.

RICHARD JOYCE SMITH, AS TRUSTEE OF THE PROPERTY OF THE NEW YORK,

NEW HAVEN AND HARTFORD RAILWAY COMPANY, DEBTOR, APPELLANT,

UNITED STATES OF AMERICA, ET AL. APPELLEES.

ON APPEAL FROM THE UNITED STATES DISTRICT COURT

POR THE EASTERN DISTRICT OF PENNSYLVANIA

BRIEF FOR APPELLANTS ROBERT W. BLANCHETTE.

RICHARD C. BOND and JOHN H. McARTHUR,

TRUSTEES OF THE PROPERTY OF PENN CENTRAL

TRANSPORTATION COMPANY, DEBTOR

These cases are before the Court on appeal from a

judgment of a three-judge district court sitting in the

Eastern District of Pennsylvania entered on June 25, 1974.

That court held unconstitutional certain provisions of the

Regional Rail Reorganization Act of 1973, Public Law 93-

236, 45 U.S.C. §§ 701-793 (the Act).

JURISDICTION

The judgment of the three-judge court in the Eastern

District of Pennsylvania, convened pursuant to 28 U.S.C.

§§ 2282 and 2284, was entered on June 25, 1974 (Joint Ap-

pendix (J.A.), pp. 82-83). On July 2, 1974, the Penn Central

Trustees filed in the District Court a notice of appeal to this

Court (J.A. p. 384). Timely notices of appeal were also filed

by the other appellants (J.A. pp. 385-90). The jurisdiction of

this Court is invoked under 28 U.S.C. §§ 1252 and 1253.

Probable jurisdiction has not yet been noted; appellants’

briefs are being lodged with the clerk prior to the noting of

probable jurisdiction pursuant to a motion by all parties to

advance causes for argument, filed in this Court on August

23, 1974.

OPINIONS BELOW

The opinion of Circuit Judge Aldisert for the three-judge

court is printed at J.A. pp. 9-54, and a separate opinion of

District Judge Fullam is printed at J.A. pp. 55-81; the order

of the three-judge court is printed at J.A. pp. 82-83. These

opinions and order have not yet been reported.

QUESTIONS PRESENTED

1. Did the court below properly conclude that appellant

Trustees could not maintain an action in the Court of

Claims to recover any amount due the estate for fair and

just compensation for (a) the rail properties the estate

would be required to convey to Consolidated Rail Cor-

poration, and (b) any erosion of the Penn Central estate

beyond constitutional limits?

2. Did the court below properly conclude that, because

the Act does not provide just compensation for erosion of

the Penn Central estate beyond constitutional limits, Sec-

tion 303 of the Act, relating to the valuation of the Penn

Central rail properties; Section 304f) of the Act, requiring

continued rail operation by Penn Central; and Section

20%c), authorizing the certification of the final system plan

to the Special Court, offend the Fifth Amendment and are

unconstitutional absent a remedy against the United States

in the Court of Claims?

3. Did the majority of the court below properly decline to

decide whether the Act is unconstitutional, absent a Court

of Claims remedy, in that it requires transfer of Penn Cen-

tral's rail properties to Consolidated Rail Corporation

without the assurance of compensation which would satisfy

the requirements of the Fifth Amendment?

4. If the court below was in error in declining to reach

that question, or if the issue is otherwise now ripe for

decision, is there adequate assurance that the consideration

specified in the Act to be paid to the Penn Central estate for

such rail properties will satisfy Fifth Amendment

requirements?

5. If a Court of Claims remedy exists, does it save the

constitutionality of the Act?

STATUTES INVOLVED

Article I, Section 8, Clause 4 of the Constitution, the Fifth

Amendment to the Constitution, and the Tucker Act (28

U.S.C. § 1491) are set forth in the Appendix to this brief.

The Regional Rail Reorganization Act of 1973, P.L. 93-236,

45 U.S.C. §§ 701-793, is printed at J.A. pp. 391 et seq.

STATEMENT

These actions challenge the constitutional validity of

various provisions of the Regional Rail Reorganization Act

of 1973 (45 U.S.C. §§ 701-793) (the Act), which was signed

by the President on January 2, 1974.

Regional Rail Reorganization Act

The Act represents an attempt by the Congress to deal

with the problems presented by the fact that a number of

major railroads in the Northeast and Midwest are in

reorganization pursuant to Section 77 of the Bankruptcy

Act. In general, tie Act creates a new Government cor-

poration, the United States Railway Association (USRA);

charges it with responsibility, subject to Congressional ap-

proval, to design a ſinal system plan” for restructured rail

freight service in the Northeast and Midwest regions;

creates a new private corporation, Consolidated Rail Cor-

poration (Conrail), to acquire, own and operate the rail

properties desi ated in the final system plan; and, subject

to certain preliminary findings required by Section 207(b)

of the Act, requires the railroads in reorganꝭ · ation to con

vey to Conrail such of their rail properties as are designated

in the final system plan in return for certain securities and

other consideration specified in the statute.

Section 207(b) of the Act requires each reorganization

court to make certain decisions which ultimately deter-

mine whether the railroad in reorganization under its

jurisdiction will be made subject to the compulsory-

conveyance provisions of the Act. First, each reorganization

court is directed to determine, within 120 days of January 2,

1974 (the 120-day hearing), whether the raiiroad in

reorganization can be reorganized on an income basis

within a reasonable time under Section 77 of the Bankrupt-

cy Act and whether the public interest would be better ser-

ved by such reorganization than by reorganization under

the Act. If both determinations are affirmative, that

railroad ceases to be a railroad in reorganization within the

meaning of the Act, is no longer subject to the compulsory-

conveyance and other mandatory provisions of the Act, and

continues its reorganization efforts under Section 77.

Second, if the railroad has not been excluded from the

Act as a result of the 120-day hearing, each reorganization

court is required by Section 207(b) to find, within 180 days

of January 2, 1974 (the 180-day hearing), whether the Act

provides a process which would be fair and equitable to

the estate of the railroad in reorganization.” If the court

finds that it would not, again the railroad ceases to be a

railroad in reorganization within the meaning of the Act

and is no longer subject to the compulsory-conveyance and

other mandatory provisions of the Act. In that event, Sec-

tion 207(b) directs the reorganization court to dismiss

the reorganization proceedings. The decisions of the reor-

ganization courts are reviewable, under Section 207(b),

in the Special Court — a district court of three judges

created pursuant to Section 20%b) of the Act. Section

207(b) provides that there shall be no review of such

decisions of the Special Court.

Penn Central Proceeding

These actions relate to the application of the Act to the

estate of Penn Central Transportation Company, Debtor,

in reorganization under Section 77 of the Bankruptcy Act

(Penn Central). The 120-day decision by the Reorganization

Court on May 2, 1974 found that Penn Central was not

reorganizable on an income basis within a reasonable time.

The opinion and order of the Reorganization Court appear

at J.A. pp. 84-103.

The 18C day hearing held with respect to Penn Central

resulted in a finding by the Reorganization Court that the

of the Act was not fair and equitable to the Penn

Central estate. The opinion and order of the Reorgani-

zation Court on this issue appear at J.A. pp. 124-52. That

decision has been appealed by the Government parties and

others to the Special Court. The appeals will be argued

before the Special Court on August 27 and 28, 1974. Under

Section 207(b) of the Act, the Special Court is required to

announce its decision by September 29, 1974.

The issues argued before the Reorganization Court, and

now before the Special Court, are essentially the same con-

stitutional questions which these actions present to this

Court for decision.

Constitutional Litigation

Shortly after the Act became law, the first of these ac-

tions was filed G. A. p. 161). The complaint alleged, inter

alia, that the Act worked a permanent taking of the proper-

ty of the Penn Central estate without assurance that the

payment of just compensation required by the Fifth Amend-

ment would be made; that the Act contravened the Fifth

Amendment in failing to provide compensation for the

erosion of the Debtor’s estate during the interval between

the enactment of the Act and the ultimate conveyance of

rail properties to Conrail, during which period the Act

required the railroad to continue operations; and that the

‘Jurisdiction of the Reorganization Court to male the 120-day and

180-day decisions has been challenged by the Trustee of the New Haven

Railroad, a creditor and stockholder of Penn Central. Appeals by the

New Haven Trustee from both decisions are now pending before both

the Special Court and the Court of Appeals fr the Third Circuit.

Act violated the uniformity requirement of Article I. Sec-

tion 8, Clause 4 of the Constitution. Similar allegations

were made in the other two complaints (I A. pp. 261, 341).

Appellant Trustees intervened as parties defendant in each

of the three actions (J. A. pp. 191, 309, 358).

On June 3, 1974, the cases were submitted to the court

below on cross-motions for summary judgment. The de-

fendants, including appellant Trustees, asserted that there

could be no deficiencies in just compensation as plaintiffs

alleged, because the estate in reorganization would in any

event be made whole by way of suit in the Court of Claims,

both for any deficiency in the compensation received from

Conrail for rail properties and for any claims they might

have if it were determined that an unconstitutional erosion

of the estate had taken place or would take place prior to

the date of the mandatory conveyance. Defendants also

denied that the act violated the uniformity requirement of

Article I. Section 8, Clause 4 of the Constitution.

On June 25, 1974, the court below filed an opinion and

entered an order enjoining and holding null and void three

provisions of the Act (J A. pp. 9-83). All of the judges

agreed that the Act was unconstitutional in failing to

provide compensation for interim erosion which would be

suffered by the Penn Central estate during the planning

period, and that an action against the United States in the

Court of Claims was not available to remedy this deficiency.

On that basis the court enjoined enforcement of, and

declared null and void, Section 304f) of the Act, which

requires continued rail operations during the planning

period, and declared Section 303 of the Act null and void

insofar as it fails to provide compensation for interim

erosion. Because of these conclusions, the court enjoined

USRA from certifying a final system plan to the Special

Court pursuant to Section 20%c) (J.A. p. 82). A majority of

the court also held Section 207(b) of the Act null and void

so far as it mandated dismissal of the Section 77 proceeding

if reorganization under the Act is foreclosed.

The court also concluded that the questions whether the

mandatory conveyance of rail properties to Conrail pur-

suant to the Act would violate Fifth Amendment rig Ats.

and whether a suit in the Court of Claims would be

available to remedy any deficiency in this respect, were

premature, since the 180-day decision as to Penn Central

had not yet been made, the final system plan had not yet

been approved by Congress, and the conveyance would

have to be ordered by the Special Court (J.A. pp. 23-25).

Judge Fullam, in his concurring opinion, believed that

these issues were ripe for decision.

SUMMARY OF ARGUMENT

If the consideration paid pursuant to the Act for the

mandatory conveyance of Penn Central’s properties proves

constitutionally inadequate, or if interim erosion passes the

point of constitutional permissibility and therefore involves

a taking of property even apart from the ultimate man-

datory conveyance, then the Trustees would have a remedy

in the Court of Claims for just compensation. The Tucker

Act, which provides that remedy, clearly applies. The text

of the present Act — although containing thirteen

provisions repealing various types of federal-court jurisdic-

tion and excluding application of other federal laws — con-

tains nothing which repealed the Court of Claims’ jurisdic-

tion under the Tucker Act for a taking or otherwise

precluded a remedy there.

Nor can any implied repeal of the Tucker Act be found in

the Act — especially when to find such an implied repeal

would require holding the Act unconstitutional. The Court

will, of course, make every effort to construe an act of

Congress in a way that makes it constitutional rather than

unconstitutional.

The legislative history shows no intent to exclude a

Tucker Act remedy in the event that the Act resulted in a

taking of property. Congress indeed attempted to structure

the Act so that it would be held not to involve any taking,

and at least some Congressmen thought that it had suc-

ceeded in that attempt. But on that question the intent of

Congress is irrelevant: it is for the courts, not Congress, to

determine whether or not governmental actions expressly

directed by Congress amount to a taking of property for

which just compensation is due. Congress specifically

recognized that the consideration for Penn Central's

properties would be subject to a constitutional

minimum. And the fact that Congress has not yet ap-

propriated funds to pay a Court of Claims judgment is no

ground for holding that the Act excluded Tucker Act

jurisdiction; the same situation habitually applies with

respect to Court of Claims litigation.

The court below was correct in its holding that, absent a

Tucker Act remedy, the Act is unconstitutional in requiring

continuing erosion of the Penn Central estate, for an in-

definite period, without any provision for compensating

Penn Central’s owners for the taking of property suffered

thereby. Such erosion has already been massive — in the

hundreds of millions of dollars — and no one can guaran-

tee that, if Penn Central is irrevocably subjected to

reorganization under the Act, erosion has not already

passed or will pass the point at which it becomes un-

constitutional. Indeed there is a distinct likelihood that that

point has already been passed.

The applicable case law, including the recent precedents

established in the New Haven reorganization, establishes

that deficit rail operations may not constitutionally be

required without, at least, the assurance of successful and

prompt reorganization. Since a decision to make Penn Cen-

tral subject to the Act is irrevocable, the process of the Act

cannot be allowed to go forward without an assurance that,

if erosion passes the point of unconstitutionality, the estate

will be compensated therefor. The Act itself provides no

assurance either of a successful and prompt reorganization

or of any compensation for erosion. Hence, if there is no

Tucker Act remedy, the Act cannot be sustained.

The majority of the court below erred in its holding that

it is premature to decide whether the Act is constitutionally

defective, absent a Tucker Act remedy, in failing to assure

just compensation for the taking of property caused by a

mandatory conveyance of Penn Central property to Conrail

pursuant to a final system plan. The majority believed that

issue was premature because a mandatory conveyance was

subject to three contingencies: (1) a “180-day”’ decision

making Penn Central subject to the process of the Act; (2)

Congressional approval of a final system plan; and (3) an

order of the Special Court directing the mandatory con-

veyance. None of these “‘contingencies’’ affects the reality

that, unless the Act is at this stage found defective, the

mandatory conveyance will in fact take place, and there will

be no future opportunity to challenge either its con-

stitutionality or its fairness and equity.

——

(1) The 180-day decision has now been made. While the

Reorganization Court refused to subject Penn Central to

the process of the Act, it did so essentially by deciding the

same constitutional questions now before this Court,

holding, inter alia, that the Act fails to assure just com-

pensation for the mandatory conveyance of Penn Central

property to Conrail. These questions are now before the

Special Court, which like the Reorganization Court will

doubtless base its holding on essentially constitutional

grounds, and which will presumably structure its order to

permit modification in the light of what this Court decides.

Since there is no appeal from the Special Court's decision,

the present cases are the only opportunity for an

authoritative decision of these important constitutional

questions. All the parties are faced with imminent harm,

whichever way the Special Court decides, if that decision

should be constitutionally incorrect. And an erroneous ex-

clusion of Penn Central from reorganization under the Act

would do violence to the public interest, which plainly dic-

tates such reorganization if the Act is not inconsistent with

the preservation of adequate constitutional remedies.

(2) The lower court was in error; the Act contains no

requirement that Congress approve the final system plan.

The plan becomes effective automatically unless either

House of Congress disapproves it within 60 days. And even

if Congress should disapprove the first plan, further plans

must be submitted until one of them is not disapproved.

Since that plan will necessarily provide for a mandatory

conveyance of Penn Central property to Conrail there is no

possibility, other than through a change in the statute, that

the constitutiona! question before this Court will be mooted

or its essential contours altered.

(3) The Special Court shall“ order the conveyance

within ten days of the submission of the final system plan to

it. Its order is a ministerial act, and is noi subject to appeal.

The Act plainly was structured to exclude any exercise of

discretion by the Special Court at the mandatory-

conveyance stage. Thus the Special Court's order is not a

“contingency” which makes decision by this Court

premature. Indeed, since the Special Court will then have

no choice, this action presents the last opportunity for any

court to decide whether a mandatory conveyance can be

allowed to go forward, on the basis of a Tucker Act remedy,

in spite of the limitations in the Act on the form and

amount of the consideration to be paid therefor. The

Special Court cannot authoritatively decide that question in

the cases presently before it, since a decision by it with

respect to Court of Claims jurisdiction would have no bin-

ding effect.

IV.

The Act cannot be sustained, absent a Tucker Act

remedy, unless it assures that the consideration to be paid

for Penn Central's properties is equal to the “constitutional

minimum” which the estate must receive. However the con-

stitutional minim um be defined, there can be no assurance

that the consideration paid under the Act will equal it. That

consideration is required to be, for the most part, securities

of Conrail. But at the present time there can be no assuran-

ce that Conrail securities will have any value at all, let alone

a value equal to the minimum constitutionally required.

Nor can there be any assurance that the other consideration

permitted by the Act will make up any inadequacy.

If the availability of an adequate Tucker Act remedy is

established by this Court's decision, the constitutionality of

the Act can be sustained. For the remedy to be adequate, it

must be clear that Penn Central will be entitled to a Court

of Claims judgment for any deficiency in the compensation

paid for the properties mandatorily conveyed, and also for

any loss caused by erosion if such erosion has passed, or

passes, the point at which continued loss operations

become unconstitutional if for the account of the estate.

The Court of Claims judgment need only be for a deficiency

— for the amount still owing after taking account of the

non-cash consideration paid under the Act — so long as

that consideration is valued only at its cash value on the

date of its receipt. Otherwise the Act would offend the con-

stitutional requirement that compensation for a taking be

paid in cash or cash equivalent. Valuing speculative

railroad securities at an intrinsic value in excess of their

value when received — the device which proved so

disastrous in the New Haven reorganization — must be ex-

cluded.

With one exception, the Act does not violate the

“uniform rules of bankruptcy” clause of the Constitution.

The Act is, as the Court below held, based on the commerce

clause as well as on the bankruptcy clause, and in addition

makes a reasonable classification of debtors based on the

unique current railroad crisis in the Northeast. The ex-

ception is the provision which would deny to Northeastern

railroads excluded from the Act, but to no others, the op-

portunity to reorganize under Section 77 on an other-than-

income basis. That is an indefensible geographical

discrimination and must be stricken, but it is readily

severable.

ARGUMENT

THE ACT DOES NOT EXCLUDE A TUCKER

ACT REMEDY FOR ANY TAKING OF

PROPERTY ACCOMPLISHED PURSUANT

TO THE ACT.

The Tucker Act provides (28 U.S.C. § 1491):

“The Court of Claims shall have jurisdic-

tion 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 implied

contract with the United States, or for

liquidated er unliquidated damages in cases

not sounding in tort.”

An action by the Trustees for just compensation for the

ies taken pursuant to the Act would be founded

upon the Fifth Amendment to the Constitution. Successful

actions pursuant to the Tucker Act based on takings of

property are, of course, legion. While in a few early cases

the courts took the view that an action for a taking could be

maintained only if a contract to pay could be implied in

fact, the weight of authority has been, and recent cases have

consistently held, that the Fifth Amendment itself creates a

right to just compensation for any taking and the Tucker

Act provides the necessary waiver of immunity which con-

fers jurisdiction. See United States v. Causby, 328 U.S. 250

(1946); Jacobs v. United States, 290 U.S. 13 (1933); Feldwin

Realty Co. v. United States, 169 F. Supp. 73, 76 (D.N.J.

1959): Aris Gloves, Inc., v. United States, 420 F.2d 1386,

1391 (Ct. Cl. 1970); Eyherabide v. United Stutes, 345 F.2d

565 (Ct. Cl. 1965). It is not a necessary element of an action

under the Tucker Act that the Government intended to pay

for or even that it intended to take the property involved; so

long as a taking in fact occurred the Court of Claims has

jurisdiction and the payment of just compensation will be

required. United States v. Causby, supra; Yearsley v. W. A.

Ross Construction Co., 309 U.S. 18, 21 (1940); Hurley v.

Kincaid, 285 U.S. 95, 104 (1932); Portsmouth Harbor Land

& Hotel Co. v. United States, 260 U.S. 327 (1922); Sioux

Tribe of Indians v. United States, 31S F.2d 378 (Ct. Cl.

1963); Richard v. United States, 282 F.2d 901 (Ct. Cl.

1960); Foster v. United States, 98 F. Supp. 349 (Ct. Cl.

1951); Cotton and Co. v. United States, 75 F. Supp. 232

(Ct. Cl. 1948).

The fact that the Rail Act provides a means of securing

some consideration for the properties to be taken does not

eliminate the Court of Claims’ jurisdiction to award a

judgment against the United States to fill any gap between

the value of the consideration awarded pursuant to the Act

and the just compensation required to be paid for the

properties taken. Where a statutory provision for deter-

mining compensation is constitutionally inadequate, par-

ties are not precluded from availing themselves of other

statutory rights such as those under the Tucker Act. C/.

DeSalvo v. Arkansas Louisiana Gas Co., 239 F. Supp. 312

(E. D. Ark. 1965). Fort Berthold Reservation v. United

States, 390 F.2d 686 (Ct. Cl. 1968), was brought under a

provision of the Indian Claims Commission Act creating in

the Commission jurisdiction of claims in law or equity

arising under the Constitution — a provision substantially

identical, of course, to the Tucker Act provision at issue

here. 390 F.2d at 690, n. 1. The act of Congress authorizing

the taking in question had expressly provided for com-

pensation at a stated dollar amount per acre. The Court of

Claims had no difficulty in finding that a taking had oc-

curred within the meaning of the Fifth Amendment to the

Constitution, and that the jurisdictional provision quoted

above authorized an action against the United States to

recover the difference between the value of the land thus

taken and the amount received by the owners pursuant to

the Congressional directive. The case is virtually on all

fours with the present situation.

The general jurisdiction conferred upon the Court of

Claims by the Tucker Act has been held precluded only in

those instances where it has been very clearly withdrawn,

such as where another court or agency has expressly been

given exclusive jurisdiction to award the same relief as the

Court of Claims could otherwise provide. See Johnson v.

Emergency Fleet Corp., 280 U.S. 320 (1930); United States

v. Pfitsch, 256 U.S. 547 (1921); Thomason v. United

States, 184 F.2d 105 (9th Cir. 1950); Cook v. United States,

115 F.2d 463 (Sth Cir. 1940); Eastport Steamship Corp. v.

United States, 372 F.2d 1002, 1007-08 (Ct. Cl. 1967); South

Puerto Rico Sugar Co. v. United States, 334 F.2d 622, 626

(Ct. Cl. 1964), cert. denied, 379 U.S. 964 (1965); Hele v.

United States, 100 Ct. Cl. 289, 294 (1943).

But all that Congress has provided in the Act is a means

for determining the value of the properties taken and the

value of the securities to be issued as compensation. The

Special Court is not empowered by the Act to render a

judgment against the United States should the value of the

securities prove inadequate to compensate the railroad

estates for the properties taken; thus, the Special Court has

not been empowered to determine or to award the just com-

pensation which the Constitution requires. Such a judg-

ment can only be rendered by the Court of Claims.

Repeals by implication of the jurisdiction of federal

courts are not lightly to be implied, and will be held to have

occurred only on a clear and convincing showing. Federal

Sugar Refining Co. v. United States, 30 F.2d 254, 255 (2d

Cir. 1929) (L. Hand, J.), aff'd, Johnson v. United States

Shipping Board Emergency Freight Corp., 280 U.S. 320

(4930). Especially is this the case where a holding that

jurisdiction has been repealed by implication would neces-

sarily result, as the court below correctly held it would

result, in a holding that the Act is in whole or in part un-

constitutional. See, e. g.. Catlin v. United States, 324 U.S.

229, 241 (1945). The Court should of course make every ef.

fort to construe an act of Congress in a way that makes it

constitutional rather than unconstitutional. Eg. United

States v. Thirty-seven Photographs, 402 U.S. 363, 369

(1971); American Communications Association v. Douds.

339 U.S. 382, 407 (1950); United States v. Congress of In-

dustrial Organizations, 335 U.S. 106, 120-121 (1948);

United States v. Delaware & Hudson Co., 213 U.S. 366,

407-08 (1909).

If Congress in enacting the present Act had withdrawn a

Court of Claims remedy, then, as the Court below recog-

nized, the Act would be at least in part unconstitutional,

since neither title nor possession to property sought to be

taken may be given in the absence of a reasonable, certain

and adequate provision for obtained just compensation.

*Repeals of statutes by implication are never favored; the party urging

such a repeal has a strong burden ot persuasion; a law is not to be held

repealed by implication unless no other reasonable construction can be

found, and unless the new statute is so repugnant to the old one that

they cannot be reconciled. E.g.. Amel. United States, 384 U.S. 158

(1966); Mercantile Nat'l Bank v. Longdean. 371 U.S. 5585 (1963):

Rosenberg v. United States, 346 U.S. 273 (1953); FTC v. A.P.W. Paper

Co., 328 U.S. 193 (1946); Georgia v. Pennsylvania NR. R., 324 U.S. 439

(1945); Ex parte Cohen, 191 F.2d 300 (9th Cir. 1951), cert. denied, 342

U.S. 947 (1952); Nagano v. McGrath, 187 F.2d 759 (7th Cir. 1951),

aff'd, 342 U.S. 916 (1952); Fawcett v. CI. K. 149 F.2d 433 (2d Cir.

1945).

United States v. Dow, 357 U.S. 17, 21 (1958); Joslin Mfg.

Co. v. City of Providence, 262 U.S. 668, 677 (1923); Miller v.

United States, 57 F.2d 424 (App. D.C. 1932); Stringer v.

United States, 471 F.2d 381, 384 (Sth Cir. 1973).

But in the present case, there is no difficulty — no

straining of either the text or the legislative history of the

Act — involved in holding that it did not unconstitutionally

attempt to exclude a Tucker Act remedy for a taking. If

Congress had so intended, it would have been easy to ex-

clude such a remedy by a simple and express provision. In

fact, as the court below conceded (J.A. p. 45), the Act con-

tains no fewer than thirtcen provisions repealing or making

inapplicable the provision of various laws or excluding the

jurisdiction of federal courts on various subjects. Since

none of these thirteen provisions excludes a Tucker Act

remedy — although Congress was made aware of the

possibility of such a remedy — Congress must be deemed to

have deliberately rejected the readily available option of in-

cluding such an exclusionary provision in the Act.

The thirteen repealing or jurisdiction-excluding

provisions in the Act are found in Sections 202(a), 20XcX2),

206(dX3), 207(b), 20%a), 20%b), 3OHbK2), 3OH%d), IOKc),

304(f), 601(aX2), 601(b) and 601(c).

Sections 202(aX10) and 20ScX2) exempt United States

Railroad Association (USRA) and the Rail Services Plan-

ning Office, respectively, from the provisions of Section

3709 of the Revised Statutes, 41 U.S.C. Section 5. Section

2000) provides that certain determinations by USRA

and the ICC shall not be reviewable in any court. Section

207(b) provides that appeals from orders made under that

subsection may be taken only to the Special Court, whose

decisions are not subject to further review. Section 207(b)

also in effect repeals part of the jurisdiction created by Sec-

tion 77 of the Bankrupty Act by requiring dismissal of Sec-

tion 77 proceedings in certain circumstances.

Section 20%a) provides that the final system plan shall

become effective after review by Congress “notwithstanding

any other provision of lad and is not subject to review by

any court except in accordance with this section. Here

Congress provides that no court may review the contents of

the final system plan — the document which establishes

what railroad properties shall be taken — and that the plan

is to become effective notwithstanding any other provisions

of law. Obviously nothing here i urports or attempts to ex-

clude a Tucker Act remedy for just compensation for the

properties so taken.

Section 20%b) authorizes the Judicial Panel on Multi-

District Litigation to create a Special Court and to con-

solidate therein all judicial proceedings with respect to the

final system plan, and to issue rules for the conduct of the

Panel's functions. The section goes on to provide that no

determination by the panel [on Multi-District Litigation]

under this subsection may be reviewed in any court. Here

again Congress demonstrated that it well knew how to ex-

clude jurisdiction of federal courts when it wished to do so.

Section 30XbX2) provides that mandatory conveyances

ordered pursuant to the Act by the Special Court shall not

be restrained or enjoined by any court.” Section 303d)

provides that, after the Special Court enters its orders with

respect to compensation which are authorized by prior sub-

sections of Section 303, an appeal may be taken to the

Supreme Court and that such appeal is exclusive. This

makes a single appeal to the Supreme Court the only means

by which interested parties may question whether the

Special Court has properly performed the functions

allocated to it by Section 303. Since those functions do not

include consideration of any question whether the com-

pulsory conveyance pursuant to the Act constitutes a taking

of property or the amount of just compensation due

therefor,’ Section 303d) in no way attempts to exclude a

Tucker Act remedy for such a taking. To the contrary, Sec-

tion 30Xd) yet again demonstrates that Congress was fully

aware of the necessity of excluding various types of jurisdic-

tion and did so expressly when it wished to do so.

Section 304c) provides that railroad abandonments per-

mitted under the section may be made “notwithstanding

any provision of the Interstate Commerce Act or of other

laws. Section 304(f) provides that the inhibition on interim

abandonments imposed by that subsection prevails not-

withstanding any provision of any other Federal law, the

constitution or law of any State, or decision or order of, or

the pendency of any proceeding before any Federal or State

court, agency, or authority.”

Section 601(aX2) provides that the antitrust laws are

inapplicable with respect to any action taken to formulate

or implement the final system plan where such action was

The Special Court is charged by Section 30McK2NC) with entering a

judgment against Conrail if a lack of fairness and equity cannot be

completely cured by the other means made available to the court. What

is conspicuously absent is any authorization for the Special Court to

decide whether a judgment against Conrail does completely ensure fair-

ness and equity. ie. whether it meets the “constitutional minimum

standard (Section N,, for just compensation. Since that fun-

damental question is carefully and deliberately excluded from the

Special Court's jurisdiction, the provisions of Section 303d), creating a

single appeal to the Supreme Coir. fro... the Special Court's decision of

the matters it is authorized to ec is | 1 no way inconsistent with the

preservation of remedies for at. gin de Court of Claims pursuant to

the Tucker Act. If the court below meant to intimate otherwise by its

observation (J. A. p. 51) that “judicial review is delineated with

specificity in Sections 20%a) and 303 with no mention of the Court of

Claims. its reasoning is plainly unsound.

in compliance with the requirements of such plan. Section

601%) similarly makes inapplicable the provisions of the

Interstate Commerce Act whenever a provision of any

such act is inconsistent with this Act. And Section 601(c)

provides that certain provisions of the National En-

vironmental Policy Act of 1969 shall not apply with

respect to any action taken under authority of this Act

before the effective date of the final system plan.” These

provisions are contained in Title VI of the Act, in a sub-title

headed “Relationship to Other Laws. If Congress had

wished also to exclude the application of the Tucker Act, it

obviously would have added such an exclusion to the very

explicit provisions of Section 601 excluding the ap-

plicability of various other laws.

Given the absence of any explicit provision excluding the

Tucker Act remedy, plus the necessary implication from

the provisions discussed above that the Tucker Act was not

rendered inapplicable, plus the strong reluctance which the

Court must feel in finding a repeal by implication when

that would render the Act in whole or in part un-

constitutional.“ the legislative history would, at least, have

“If the Act were construed to repeal Tucker Act jurisdiction without

substituting (as of course it does not substitute) a fully equivalent and

adequate remedy ensuring just compensation, the repeal of jurisdiction

should be held unconstitutional. ‘|W hile Congress has the undoubted

power to give, withhold and restrict the jurisdiction of courts other than

the Supreme Court, it must not so exercise that power as to deprive any

person of life, liberty, or property without due process of law or to take

private property without just compensation. Battaglia v. General

Motors Corp., 169 F.2d 254, 257 (2d Cir. 1948); see also Graham &

Foster v. Goodcell, 282 U.S. 409, 431 (1931); Brinkerhoff-Faris Trust &

Savings Co. v. Hill, 281 U.S. 673, 682 (1930); United States v. Klein, 80

U.S. 128, 144-45 (1871). Thus even if the Court should determine that

some provision of the Act repeals Tucker Act jurisdiction, it should

strike down that provision alone pursuant to the separability clause of

the Act, Section 604.

to show clearly and conclusively that Congress intended to

exclude a Tucker Act remedy to warrant this Court in so

holding.

The legislative history shows no intent whatever to ex-

clude a Tucker Act remedy in the event that the Act was

held to effect a taking of property. Congress did indeed at-

tempt to structure the Act so that no taking would occur.

But Congress’ intent on that point is wholly irrelevant, since

the law is clear that the determination of whether a taking

has occurred is a purely judicial function, and that no in-

tent of Congress to effect a taking or to pay therefor is

necessary, but only that Congress intend that the acts occur

which in law constitute a taking. See cases cited at p. 15,

supra.

What is entirely absent from the legislative history is any

intent to preclude the jurisdiction of the Court of Claims in

the event that it should be judicially determined that

Congress had been unsuccessful in its desire to avoid a

taking. Senator Hartke, one of the managers of the bill,

specifically adverted to the possibility of a successful Court

of Claims suit if the bill was not structured to avoid a

taking. 119 Cong. Rec. S. 23783-84 (1973), quoted in part

by the court below, J.A. p. 49. The remarks by Con-

gressman Adams relied on by the court below (J.A. pp. 49-

50) amount to, at most, (I) a correct declaration that the

Act itself contained no provision for a remedy against the

United States, and (2) an erroneous legal judgment that

Congress had been successful in structuring the Act so that

there would be no taking, and hence no recovery in a Court

of Claims action.

Congress had, in addition, been warned by Claude S.

Brinegar, Secretary of Transportation, that the provisions

of the Act would not succeed in avoiding a taking and that

further amendments were necessary to accomplish that

result. On November 14, 1973 Secretary Brinegar wrote the

Senate Committee on Commerce warning that the draft bill

then before the committee would be held to effect a com-

pulsory taking of railroad property under the Fifth Amend-

ment to the Constitution. Rail Services Act of 1973, Report

No. 93-601 of the Senate Committee on Commerce, 130

(93d Cong., Ist Sess. 1973), J.A. pp. 214-20. Secretary

Brinegar assumed as axiomatic (and as we have shown his

assumptions were correct) that Congress could be held to

have effected a taking without intending it, and that if a

taking did occur, a remedy for the constitutionally required

compensation would be available. The Secretary declared

that the only way to avoid a taking would be to provide an

option by which a conveyance under the Act could be

avoided by the courts; that such an option would have to be

one other than an “illusory” option; and that for an option

to be other than illusory it would have to be an option to be

exercised at a time when all aspects of the final system plan

were known and could be assessed, including, in particular,

the compensation to be received and the factors bearing on

the value thereof.

The Secretary concluded that “in order to avoid con-

demnation, it is necessary to give the special court the right

to turn the final system plan down with respect to each of

the railroads in reorgantzation. Senate Report, supra. at

133, J.A. p. 220. Again, “if this is to be deemed a

reorganization [as opposed to a condemnation], the court

must have the opportunity to say no to the final system plan

at a time when all the relevant facts can be presented to

it. /bid. Accordingly, the Secretary transmitted amend-

ments which would have provided for a hearing before the

special court, after presentation to it of the final system

plan, after which the court would determine whether the

plan was fair and equitable with respect to each estate and,

if not, would remand each case to its reorganization court.

with the result that the compulsory conveyance to Conrail

would be avoided. See Proposed Amendments, Annex C

hereto, pp. 10a-12a, infra.

Congress, placed fully on notice by the Secretary of what

would be necessary to avoid a taking, (1) chose not to accept

the amendments he proposed, and (2) having been made in-

tensely aware that, if the Secretary were right, a Tucker Act

remedy would exist, nonetheless deliberately refrained from

adding to the many other repealing and jurisdiction-

excluding provisions of the Act any provision making the

Tucker Act inapplicable. Thus, while under the relevant

case law it is not at all necessary that Congress realize that

it is effecting a taking for a taking to be held to have oc-

curred as a result of its actions, in this instance Congress

knew exactly what it was doing and must be deemed to have

opened the way for the one remedy which would make its

action constitutional: i.e., a remedy for just compensation

under the Tucker Act.

Congress’ attempt to structure the procedures estab-

lished by the Act as a “reorganization,” while doubtless

related to its desire to avoid a taking if at all possible

consistently with its other objectives, indicates no intent to

exclude a Tucker Act remedy. Indeed, by its reference in

Section 30XcKX1XB) to the constitutional minimum of

compensation required, Congress rec ognized that there is

such a constitutional minimum which must be met; and, of

course, it was well aware that the Tucker Act creates

jurisdiction of claims against the United States in all ac-

tions founded upon the Constitution.

Congress was obviously further aware that the plentiful

case law establishing a “constitutional minimum” in

railroad reorganization rests upon the doctrine that, if the

constitutional minimum is not met, there is a taking of

property for which the Fifth Amendment to the Con-

stitution requires that just compensation be paid. See pp.

54-S6, infra. The bankruptcy power, like the other great

substantive powers of Congress, is subject to the Fifth

Amendment.” Louisville Joint Stock Land Bank v. Rad-

ford, 295 U.S. 555, 589 (1935).

For the above reasons, we think it plain that the Act can-

not and should not be construed to repeal the Tucker Act

pro tanto or to exclude the undoubted jurisdiction of the

Court of Claims to entertain actions against the United

States, founded upon the Constitution, for takings of

property without just compensation. We would in addition

point out, however, that if the Court entertains any doubt

as to Congress’ intention on this score, it will not, by

holding in favor of the existence of the Tucker Act remedy,

compel the expenditure of any public funds contrary to the

desire of Congress. If, after such a holding, Congress

believes that its intent has been frustrated or that the price

for continuation of rail service in the Northeast is too high if

it must meet constitutional standards, Congress will have

more than adequate time, prior to any compulsory con-

veyance under the Act, to repeal the Act or to amend it so

as to avoid a taking of property. The earliest time at which

compulsory conveyances under the Act could be made is

September 1975. This gives Congress ample time to con-

sider whether it still wishes such conveyances to proceed af-

ter it is fully on notice of the legal consequences thereof.

Moreover, under Section 208 of the Act, Congress must

review the final system plan in any event, and will have the

opportunity to disapprove or to amend the final system

plan, or to amend the Act, if it is unwilling to pay the cost of

the taking. There is no risk whatever that unintended or

undesired obligations will be incurred.

In this sense the present situation is closely analogous to

cases where a condemnation proceeding is instituted either

without a Congressional appropriation of funds or where

Congress has imposed limitations on expenditures for the

project in question which would or might be exceeded by a

judgment in the condemnation action. In such situations

the courts have uniformly held that the condemnation

proceeding should go forward to judgment, and if Congress

proved unwilling to appropriate the necessary funds the

condemnation might be abandoned at any time prior to the

actual taking. E.g., Barnidge v. United States, 101 F.2d

295, 298 (8th Cir. 1939); Commercial Station Post Office.

Inc., v. United States, 48 F.2d 183, 185 (8th Cir. 1931);

United States v. 40.75 Acres of Land, 76 F. Supp. 239, 245

(N. D. III. 1948). In Catlin v. United State, 324 U.S. 229, 241

(1945), the Court went further and, in order to save a

taking statute from possible unconstitutionality, con-

strued it as giving the Government, upon transfer of title,

“only a defeasible title in cases where an issue concerning

the validity of the taking arises. ... The alternative con-

struction, that title passes irrevocably, leaving the owner no

opportunity to question the taking’s validity ..., would

raise serious question concerning the statute's validity.

Youngstown Sheet and Tube Co. v. Sawyer, 343 U.S. 579

(1952), and Hooe v. United States, 218 U.S. 322 (1910), fur-

nish no support for the conclusion of the court below.

Youngstown involved a seizure of property carried out by

the President without any Congressional authority; the

Court simply held that such a seizure was not a taking by

the United States for which just compensation would lie,

but merely an illegal individual act which could be en-

joined. Similarly, in Hooe, the Civil Service Commission had

occupied the basement of a privately owned building even

though Congress had repeatedly refused to appropriate

money to pay the rent therefor, and a statute in force

provided that ‘hereafter no contract shall be made for the

rent of any building ... until an appropriation therefor

shall have been made in terms by Congress, and that this

clause be regarded as notice to all contractors or lessors of

any such building or any part of building. 218 U.S. at

331. The Court naturally held that there had been no

taking by the United States, but merely an unauthorized

trespass by officials, which could not create a claim against

the United States. 218 U.S. at 335-36. “The taking of

private property by an officer of the United States for

public use, without being authorized, expressly or by

necessary implication, to do so by some act of Congress, is

not the act of the Government.” 218 U.S. at 336. Here, to

the contrary, there is no dispute that Congress has fully and

expressly authorized the acts which in law constitute a

taking, and under established and unquestioned doctrine

that is enough to constitute a taking by the United States

for which just compensation is required. See p. 15, supra,

and authorities there cited.

Far more similar to the present situation is Silesian-

American Corp. v. Clark, 332 U.S. 469 (1947), where the

taking statute at issue (the Trading with the Enemy Act)

contained no provision for compensation, but where the

Court declined to hold it unconstitutional on that ground,

We must assume that the United States will meet its

obligations under the Constitution. Consequently, friendly

aliens will be compensated for any property taken

332 U.S. at 480. See also the circuit court opinion, Silesian-

American Corp. v. Markham, 156 F.2d 793, 796-97 (2d Cir.

1946) L. Hand, J.).

A Tucker Act remedy adequate to save the con-

stitutionality of the Act cannot be excluded on the ground

that no appropriation has yet been enacted to pay a

judgment of the Court of Claims. The court below may have

feared (cf. I. A. pp. SO-S2) that Congress could either simply

ignore such a judgment or that, once this Court has held a

Tucker Act remedy available, Congress could withdraw the

jurisdiction of the Court of Claims to hear any claim arising

from implementation of the Act. That Congress could con-

stitutionally so legislate is at best highly questionable in

view of the authorities cited at p. 21, supra, n. 4. Be that as

it may, if such possibilities were enough to render takings

unconstitutional, then every taking would be invalid and

would have to be enjoined except those in which full

payment was made, or at least an appropriation voted,

prior to the taking itself. That is not the law; the contention

that it is has been repeatedly and unanimously rejected by

the courts. See cases cited at p. 26, supra; see also, e. g. Glid-

den v. Zdanok, 370 U.S. 530, 569-72 (1962); Silesian-

American Corp. v. Clark, 332 U.S. 469 (1947); Albert Han-

son Lumber Co. v. United States, 261 U.S. 581, 586-87

(1923); Crozier v. Krupp, 224 U.S. 290, 306 (1912); Great

Falls Mfg. Co. v. Attorney General, 124 U.S. 581 (1888); Jn

re Spier Aircraft Corp., 137 F.2d 736 (3d Cir. 1943), cert.

denied sub nom. Coombs, Trustee, v. United States, 321

U.S. 770 (1944); City of Oakland v. United States, 124

F2d 959 (9th Cir.), cert. denied, 316 U.S. 679 (1942); Poto-

mac Electric Power Co. v. United States, 85 F.2d 243

(D.C. Cir.), cert. denied, 299 U.S. 565 (1936); Lee ».

United States, 58 F.2d 879 (D.C. Cir. 1932); Commercial

Station Post Office, Inc., v. United States, 48 F.2d 183, 185

(8th Cir. 1931); Note, The Constitutional Status of the

Court of Claims, 68 Harv. L. Rev. 527, 531 & n. 33 (1950).

We fail to understand the court below's characterization

of Court of Claims jurisdiction as “an implied remedy”

(J.A. p. 41), its apparent belief that the jurisdiction was

somehow repealed unless Congress indicated an affirmative

intent to preserve it, or its view that simple recognition of a

statutory remedy available for over a century would

somehow amount to judicial legislation (J. A. p. 53). The

cases previously cited demonstrate that it is not necessary

that the Act specifically mention a Tucker Act remedy in

order for such a remedy to exist. Clearly the remedy does

exist absent a Congressional withdrawal of jurisdiction from

the Court of Claims. The court below did not find, nor

could it have found, that Congress withdrew jurisdiction

from the Court of Claims. It based its decision, rather, on

the absence of any reference in the Act to the availability of

a remedy in that court. But no such reference was required.

Moreover, the court did not give proper weight to Section

JO eki) of the Act, which plainly recognizes that the

compensation to be received for properties conveyed must

satisfy the constitutional minimum. To hold the Act un-

constitutional rather than affirming the availability of a

Court of Claims action is to conclude that the intention of

Congress to provide constitutionally acceptable com-

pensation should be ignored merely because Congress omit-

ted specifically to refer to the only means by which that in-

tention can be carried out: the Tucker Act. That conclusion

is erroneous.

Doubtless the court below would never have been led to

such a view of the law were it not for its concern that a

Court of Claims recovery in this case might be substantial.

If the dollar amount possibily involved were less, the Court

of Claims’ obvious jurisdiction would hardly be a matter of

controversy. But to ignore both Congressional enactments

and every pertinent legal principle because of such a con-

cern is judicial legislation” if anything is.

For the reasons stated, the Act does not exclude a Tucker

Act remedy for just compensation for any and all takings of

property effected by the Act, including both the permanent

taking resulting from compulsory conveyances of rail

properties to Conrail and any temporary taking resulting

from the compelled continuation of losing rail operations

past the point where erosion becomes unconstitutional if

for the account of the estate.

IF THE COURT BELOW WAS CORRECT IN CONCLUDING

THAT NO COURT OF CLAIMS REMEDY EXISTS, THEN ITS

CONCLUSION THAT THE ACT IS UNCONSTITUTIONAL WITH

RESPECT TO INTERIM EROSION IS ALSO CORRECT.

The court below held that the failure of the Act to

provide any compensation to the Penn Central estate for

interim erosion, during the lengthy, indeed unlimited.“

planning period while continuance of rail operations

is required, is unconstitutional as a taking of property

without adequate provision for the just compensation re-

quired by the Fifth Amendment. We believe that, if the

court below was correct in also concluding that the Act

precludes any remedy in the Court of Claims under the

Tucker Act by which compensation for such erosion could

be obtained, its conclusion as to the unconstitutionality of

the Act with respect to erosion is plainly correct.

The Penn Central Reorganization Court reached a

similar conclusion in its 180-day decision, holding the Act

not fair and equitable” with respect to the Penn Central

(J.A. pp. 124-51) because of, inter alia, its failure to provide

compensation for interim erosion. Similar views have also

been suggested by the Court of Appeals for the Third Cir-

cuit in Jn re Penn Central Transportation Co. (Columbus

Option Appeals), 494 F.2d 270, 283 (1974), petition for cert.

filed, 42 U.S.L. Week 3633 (U.S. May 8, 1974), No. 73-

See p. 41, infra, n. 13.

1672: and were foreshadowed in early 1973 by the Penn

Central Reorganization Court. In re Penn Central Tran-

sportation Co. 55 F. Supp. 1343, 1344, 1346 (1973).’

The court below correctly held that it was not necessary

to decide when the point of unconstitutionality had been or

would be reached in order to hold that the Act's failure to

provide for interim erosion contravenes the Fifth Amend-

ment. Likewise, no findings were necessary as to the

amount of erosion which has taken place up to the present

time. That it has been massive is indisputable. The Govern-

ment conceded * in the Reorganization Court that since the

Section 77 petition was filed in June 1970 the financial

erosion alone — new obligations which prime all pre-

bankruptcy claims — consists of Trustees’ certificates

($100 million), accrued and deferred state and local taxes

(8195 million, which will increase by the end of 1975 by

another $118 million), and an increase in current liabilities

of 5185 million — a total of between $457 and $480 million,

with $118 million more inevitable. So far as unsecured

creditors — and equity holders — are concerned, one must

The court said: “If, as some of the reports filed by the Trustees

suggest, it is already clear that such a reorganization is not feasible,

then this reorganization is already at the point where the erosion of the

estate in deficit operations must cease and a liquidation alternative

must be considered if the secured creditors or other interested parties

insist upon such consideration. Since that statement was made, the

Penn Central has been found, in the “120-day” decision, to be not

reorganizable on an income basis within a reasonable time. J.A. p. 103.

The court said: Under any view of the matter, it seems clear that

the point of unconstitutionality is fast approaching, if it has not already

arrived . . . On the basis of the record to date, it appears highly doubt-

ful that the Debtor could properly be permitted to continue to operate

on its present basis beyond October 1, 1973."

* Argument of May 6, 1974, on Motion of New Haven Trustee to

Dismiss Section 77 Petition, Tr. 12, 284-12, 288.

add as much as $104 million in deferred mortgage and

collateral bond interest, subject to the possibility that not

all of these obligations are fully secured. And added to all

that is the continuing — indeed escalating — physical

erosion of the Penn Central rail plant.’ The court below, af-

ter analysis of the evidence before it, concluded that the

Penn Central estate between June 21, 1970 and the end of

1973 had sustained ordinary net losses in the amount of

$851 million (J.A. p. 36). While there may be some offsets,

as, for example, possible increases in Penn Central’s net

equity in equipment as payments are made on certain

equipment obligations, offsets are minor in comparison.

The Government is in error in asserting that an alleged

— and unquantified — appreciation in the value of non-

rail assets can be considered in the offset category. This

Court has made it clear that the public interest cannot com-

pel the continuation of deficit rail operations even though

non - carrier operations of the enterprise in question

generated a profit that more than offset the carrier losses.

Brooks-Scanlon Co. v. Railroad Comm'n of Louisiana, 251

U.S. 396 (1920).

Moreover, using possible gains in the value of some

assets to offset the erosion from rail losses would be unfair

in Penn Central’s situation. The numerous classes of

claimants to the Penn Central estate hold claims represen-

ting quite different interests in different assets. For exam-

ple, some of the secured creditors have liens primarily on

rail assets while others have liens primarily on non-rail

assets. Continued railroad losses take the property of

claimants primarily entitled to payment from the rail assets

See Report of Trustees dated April 3, 1974, Item 10, Joint

Documentary Submission (J.D.S ). Ten copies of the Joint Documen-

tary Submission, which supplements the Joint Appendix, have been

lodged with the Clerk

while preventing claimants primarily entitled to payment

from non-rail assets from collecting their debt. While each

class of claimants is affected differently by a required con-

tinuance of rail operations, the result is unfair to all

claimants.

The Government’s arguments based on appreciation of

assets, both rail and non-rail, essentially amount to the con-

tention that the creditors can be made to suffer the entire

burden of inflation by being endlessly delayed from any

satisfaction of their claims while the face amount thereof

steadily declines in real value. If the creditors’ claims had

been satisfied when due, or were satisfied today, they of

course would be free to invest the proceeds in short-term or

non-fixed-dollar-amount securities so as to avoid inflation

losses, and also to obtain the higher rates of interest

prevailing in an inflationary period. If the Government is

correct that inflationary paper increases in asset value

can cancel out erosion from income-statement losses (even

though, on its theory, there is n> way the creditors can

realize any asset value), then — if inflation is great and

rapid enough — there is no erosion at all, and on the

Government's theory the creditors can be forced to wait in-

definitely, receiving nothing, while the value of their claims

is effectively confiscated. We submit that no court could ac-

cept so unconscionable a theory.

Finally, all the Government's contentions as to methods

com puting erosion, which we dispute, are beside the point.

The Government has conceded in its brief to the Special

Court there has been very substantial erosion, and nowhere

denies that it will continue. And the Government stops

short of contending that such erosion necessarily fails and

will continue to fail to reach constitutional proportions.

These concessions require, we submit, that the Court can-

not find the Act constitutional unless it holds that, if

erosion has reached or reaches constitutional proportions, a

Tucker Act remedy is available. The court below

unanimously held 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 un-

constitutional taking by continued loss operations is ripe

for adjudication” (J. A. p. 40). That holding is plainly

correct and requires that the statute be held un-

constitutional unless a remedy for suci: erosion is provided.

Since the Act requires continuation of losing rail operations

wholly without regard to whether erosion has passed the

point of unconstitutionality, it is necessarily unconstitu-

tional (absent a Court of Claims remedy) whether the point

of unconstitutionality has been passed already or whether

that point will be reached in the future.

A. Deficit Rail Operations May Not Con-

stitutionally Be Required Without, at Least,

the Assurance of Successful and Prompt

Reorganization.

The present situation in regard to the Penn Central is un-

precedented only in terms of scale and public importance;

it is by no means unprecedented in principle. In the words

of Mr. Justice Holmes. II the [railroad] be taken to have

granted to the public an interest in the use of the railroad, it

may withdraw its grant by discontinuing the use when that

use can be kept up only at a loss. Brooks-Scanlon Co. v.

Railroad Comm'n of Louisiana, 251 U.S. 396, 399 (1920),

cited with approval in Bullock v. Railroad Comm'n of

Florida, 254 U.S. 513 (1921).

In Railroad Comm'n of Texas v. Eastern Texas

R.R., 264 U.S. 79 (1924), the Supreme Court again empha-

sized the right to cease an operation which can only be

conducted at a loss: And if at any time it develops with

reasonable certainty that future operation must be at a loss,

the company may discontinue operation and get what it can

out of the property by dismantling the road. To compel it to

go on at a loss, or to give up the salvage value, would be to

take its property without the just compensation which is a

part of due process of law. 264 U.S. at 85.

The doctrine of these cases was reaffirmed several times

in the New Haven reorganization proceedings, wherein the

courts concluded that the Constitution gave the New Haven

the right to cease operation and to liquidate. See New York,

N.H. & H.R.R. Bondholders’ Committee v. United States,

289 F. Supp. 418, 440-41 (S. D. N. V. 1968); In re New York,

N.H. & H.R. R., 289 F. Supp. 451, 454, 459-60 (D. Conn.

1968). On remand the Interstate Commerce Commission

argued that there was no constitutional right to compel

liquidation of a railroad operating at a loss and that the

Commission could require continued operation for as long

as the public interest demanded. 334 I. C. C. 25 (1968). On

further review both the reorganization court and the three-

judge court rejected that argument and again recognized

the constitutional rights of the New Haven creditors.

See New York, N. H. & H.R.R. First Mortgage 4% Bond-

holders’ Committee v. United States, 30S F. Supp. 1049,

1055 (S.D.N.Y. 1969); In re New York, N.H. & H.R.R., 304

F. Supp. 793, 801-04 (D. Conn. 1969). Judge Anderson's

opinion was particularly emphatic:

“This Court, therefore, concludes that

Brooks-Scanion and subsequent cases, reaf-

firming the validity of its holding, are still ap-

plicable and determinative. The Commission

is unable through a groundless construction

of statutes, as noted above, to eliminate the

constitutional guarantees applicable to this

case. And it may not arrogate to itself a vast

expansion of power through a strained in-

terpretation of Supreme Court decisions.”

304 F. Supp. at 804.

This Court affirmed Judge Anderson's conclusions and or-

der. New Haven Inclusion Cases, 399 U.S. 392, 489-95

(1970).

Other cases have also acknowledge that Brooks-Scanion set

forth the basic constitutional standard. See, e.g., In re Penn

Central Transportation Co. (Columbus Option Appeals), 494

F.2d 270, 278-82 (3d Cir. 1974), petition for cert. filed, 42

U.S.L. Week 3633 (U.S. May 8, 1974), No. 73-1672; In re Cen-

tral R.R. of New Jersey, 485 F.2d 208 (3d Cir. 1973); City of

New York v. United States, 337 F. Supp. 150, 160 (E.D.N.Y.

1972); Brooklyn Eastern District Terminal v. United

States, 302 F. Supp. 1095, 1099 (E.D.N.Y. 1969); Jay

Street Connecting R.R. v. United States, 174 F. Supp. 609,

615(E.D.N.Y. 1959).

Even when there may be some hope for a reorganization

of the railroad which will restore it to viability, the

prohibition against the taking of property without payment

of just compensation limits the time during which

operations at a loss may be required in the public interest.

The rights of creditors may be invaded only for a

reasonable time, New Haven Inciusion Cases, supra, 399

U.S. at 484-93; In re New York, N.H. & H.R.R., supra, 289

F. Supp. at 459, and even then only if there is solid prospect

that within a reasonable time a reorganization will be ef-

fected. In re Third Ave. Transit Corp., 198 F.2d 703 (2d

Cir. 1952); In re New York, N.H. & H.R. R., 281 F. Supp.

65 (D. Conn. 1968).

A “reasonable time, in such circumstances, must be

determined in light of the particular facts of each

reorganization. See New Haven Inclusion Cases, supra, 399

U.S. at 490-93. In this connection, a review of the facts in

the New Haven proceeding is instructive. Early in that

proceeding, it became clear that the New Haven could not

survive as an independent railroad, and that the only alter-

native to liquidation was its inclusion in a larger rail

system. In 1962 the New Haven petitioned for inclusion in

the proposed merger of the New York Central and Penn-

sylvania Railroads. The Trustees’ decision to seek inclu-

sion was supported by the New Haven's creditors. The

Commission authorized the merger of Penn and Central in

1966, but conditioned its order upon the inclusion of New

Haven in the merged system.

Inclusion did not, however, promptly occur. Extensive

litigation over the price to be paid for New Haven's assets

ensued. In 1967, after the New Haven's petition for in-

clusion had been approved, two of the several active bond-

holder groups filed a motion to dismiss the Section 77

proceeding. This motion the reorganization court denied in

February, 1968, relying primarily on its hope that final ap-

proval and implementation of the first step of the New

Haven plan was near at hand. In re New York, N.H. 4

H.R. R.. 281 F. Supp. 65, 69 (D. Conn. 1968). The court's

hope, however, was not realized. Both the reorganization

court and the three-judge court reviewing the Commission's

action approving inclusion found grounds for reversal. The

result was that, only six months after it had denied the

motion to dismiss, the reorganization court on its own

motion ruled that if inclusion were not effected by year's

end it would no longer permit the New Haven to continue

its operations at a loss and would entertain a motion to

dismiss the proceeding. In re New York VH. & H.R. R.

289 F. Supp. 451 (D. Conn. 1968):

This court finds that the continued erosion

of the Debtor's estate from operational losses

after the end of 1968 will clearly constitute a

taking of the Debtor's property and con-

sequently the interests of the bondholders,

without just compensation. It is therefore

constitutionally impermissible, and obviously

no reorganization plan which calls for such a

taking can be approved. Id. at 459.

The reorganization court thus ruled that it must call a

halt even though an ultimate solution was assured. The

court’s drastic action produced results — the inclusion of

New Haven in the Penn Central on December 31, 1968 —

and subsequently was specifically approved by the Supreme

Court in the New Haven Inclusion Cases, supra, 399 U.S. at

415.

The New Haven precedent therefore establishes that

railroad owners and creditors may be compelled to suffer

erosion only if there is a feasible, assured means for

reorganizing the railroad, and even then only if that

reorganization is effected within a reasonable period. It is

plain that the courts would never have tolerated erosion to

the extent or for the length of time they did in New Haven if

the inclusion remedy had not been available, and if the

course pursued by the New Haven Trustees in seeking in-

clusion had not had the consent and support of the New

Haven’s creditors in the early years of the proceeding.

In the present situation, the Government has relied in the

Special Court on such cases as Continental Bank v.

Chicago, RJ. 4 P. Ry. 294 U.S. 648 (1935), and Recon-

struction Finance Corp. v. Denver & R.G.W.R.R., 328 U.S.

495 (1946), in arguing that the Act's failure to provide for

erosion is constitutional. That reliance is wholly

misplaced In those cases it was unquestioned that the

respective railroads were viable; indeed they had been

earning net operating income during the reorganization

proceedings, and no one contended that the fair market

value of the properties was greater than their going-

concern value, nor did anyone propose liquidation as in the

best interests of the estate or even of any particular

creditor. The problem in those early reorganizations, as is

well known, was the scaling down of debt so that the level of

fixed charges would be manageable in terms of the level of

earnings; none of them presented problems or issues

remotely comparable to those involved here.

And, as we have seen, the New Haven litigation clearly

establishes that, while some erosion is tolerable in certain

circumstances, there is a point beyond which continued loss

operations become unconstitutional if for the account of

the estate. Whether that point has yet been reached with

respect to the Penn Central, or when it will be reached, is

not necessary to determine in this proceeding. But since no

one can deny the possibility of unconstitutional erosion, a

determination that any such erosion is not for the account

of the estate but is compensable under the Tucker Act is

essential to make it possible to hold the Act — which

requires continuing erosion — constitutional.

The Government will presumably argue, as it has argued

in the Special Court, that the Act provides sufficient

he issue in Continental Bank. which involved the customary Sec-

tion 77 injunction against sales of collateral, arose at the very outset of

the reorganization proceedin, and the injunction could at any time be

dissolved upon application and proper notice and showing. 294 U.S.

at 685. In Denver. the issue was whether erosion that had already oc-

curred, apparently without objection, should be borne by senior or

See pp. 54-SS, infra.

assurance of an ultimately successful reorganization,

through the Conrail device, as to justify some continued

erosion at the expense of the estate and its creditors. There

are at least three answers. First, we think that, once the

owners of the railroad’s estate squarely raise the issue and

seek to exercise their rights, it is highly questionable

whether continued loss operations may be required solely in

the public interest without some form of compensation for

the consequent erosion of their property. See New Haven

Inclusion Cases, 399 U.S. at 402-93.“ Second, the Act

provides no assurance of any successful reorganization at

all, let alone within any definite time limit. (See p. 41, in-

fra, n. 13.) Third, an analysis of the provisions and ob-

jectives of the Act with respect to Conrail (pp. 57-61, infra)

makes it dubious in the extreme that Conrail will ever

produce income, let alone that it will be sufficiently

profitable to pay dividends giving its stockholders — chiefly

the present Penn Central creditors — any return remotely

comparable to the fair value of the properties they would be

forced to surrender. For these reasons, there is no con-

stitutional basis on which loss operations can be required

indefinitely at the expense of the estate.

In New Haven, moreover, the estate was guaranteed the value of its

properties as of December 31, 1966, a date prior to the first objection by

any creditor. New Haven Inclusion Cases, 399 U.S. at 492. Thus the

estate was wholly protected from any physical erosion caused by de-

terioration of its properties.

Absent a remedy in the Court of Claims, the Act fatally

infringes the constitutional rules discussed above in re-

quiring continued rail operations for an indefinite time

without any provision compensating the estates in reor-

ganization for the resulting erosion.

The Government has argued in the Special Court that

nothing in the Act precludes that court, in determining the

compensation to be paid the bankrupt estates under Sec-

tion 30Xc) of the Act, from making an allowance for any

unconstitutional erosion that may have been suffered. That

the Special Court could make such an award is by no means

clear from the text of Section 30Xc), which is at least

equally compatible with the construction that the court

may allow only compensation for the value of the properties

at the time of their conveyance. But even if the Govern-

While time limits are specified in the Act for the steps up to and

including the mandatory transfer of properties if either House of

Congress does not disapprove the final system plan, there are no

limitations whatever on how many plans Congress may disapprove, and

no time limitation on USRA in preparing plans subsequent to disap-

proval of the first such plan. Section 208. Thus, if either House disap-

proves any aspect of the first plan submitted, the purportedly tight time

schedule established by the Act collapses altogether, and the period for

which Section 30S%f) requires loss operations to continue is without

limit.

Ihe legislative history is clear: the value of the consideration must

equal the fair and equitable value of the rail properties as of the date of

the conveyance,” and the court is required to return any excess in the

amount of the consideration Regional Rail Reorganization Act of

1973, H.R. Rep. No. 93-260 of the Committee on Interstate and Foreign

Commerce, p. 53(93d Cong. Ist Sess. 1973).

ment is right, the Special Court would be powerless to grant

effective and adequate compensation for erosion, just as it

would be powerless to award effective compensation for the

value of the properties. As shown at pp. 56-61, infra, the

Special Court is severely limited in the types and amount of

compensation it can award, including, as a last resort, a

judgment against Conrail which may well be worthless.

Since the Special Court will have no power to enter a judg-

ment against the United States, it is apparent that it will be

powerless to award just compensation under the Fifth

Amendment for any taking of property that may occur by

virtue of the Act, whether with respect to interim erosion or

otherwise.

The Act affords no prospect for compensating the estate

for the erosion which it has already suffered, and only con-

jecturally can it mitigate even the continuing physical

erosion of those properties inclusion of which in the final

system plan can reasonably be anticipated. Section 213 of

the Act provides authorization of $85 million to be made

available to the Secretary of the Department of Tran-

sportation for payment to trustees of railroads in

reorganization of such sums as are necessary for the con-

tinued provision of essential transportation services by such

railroads. These funds, supplied to the Penn Central

Trustees thus far in the amount of $20.6 million (J.D.S.

Items 22, 31),'* represented emergency assistance to keep

Penn Central in operation on a day-to-day basis, not to stem

erosion.“ In any event, the amount authorized is obviously

The second grant, approved April 30, 1974 C. D. S. Item 31), was in

effect a drawing account for $18 million. The Trustees actually drew

down $9.8 million.

The Federal Railroad Administrator, to whom authority to make

grants under Section 213 has been delegated by the Secretary of Tran-

sportation (39 F.R. 8919), in response to a request for a Section 213

(continued)

inadequate, even if the full amount had been appropriated,

which it has not.

Section 215 authorizes the Secretary, with the approval

of USRA, to enter into agreements with railroads in

reorganization for the acquisition, improvement or main-

tenance of property which will be included in the final

system plan, to be financed by obligations of USRA in a

maximum amount of $150 million, which must be assumed

by Conrail when it comes into existence. Any values which

are created by the use of these funds are to be deducted

from the purchase price when the properties are conveyed

to Conrail. These funds, depending on how they were used,

could possibly arrest some of the physical erosion of the

estate. However, they clearly are not available to com-

pensate the estate for the interim financial erosion which

has occurred and which is continuing.“ It should be added

that, although the final grant agreement under Section 213

'* (continued)

grant from the trustee of the Central Railroad of New Jersey to protect

against further erosion of the estate. advised the trustee on May 10,

1974: In our opinion, the granting of financial assistance to protect

against further erosion of the estate, is not in accordance with the pur-

pose for which funds under Section 213 of the Act have been ap-

propriated. (A copy of the letter is attached to this brief as Annex A.)

Also, the conference report on the appropriation under Section 213 (H.

Rep. No. 93-1070, 93d Cong., 2d Sess. p. 20) stated: The purpose of

the cash assistance is to keep the bankrupt lines running until the final

plan of the new system is drawn up and implemented.

Ine Foreign Assistance and Related Programs Appropriation Act

of 1974 (P.L. 93-240) appropriated $35 million. The Second Sup-

plemental Appropriation Act of 1974 (P. L. 93-305) appropriated an ad-

ditional $39.8 million, for a total which is $10.2 million less than the

amount authorized.

Capital improvements can ultimately affect losses by reducing ex-

penses, but the lead time in making such improvements is such that any

benefits would be of little or no immediate significance.

required Penn Central to submit proposals for the use of

Section 215 funds by May 15, 1974 (Par. Ich), Item 15,

J.D.S.), which was done, no Section 215 funds have yet been

made available (by issuance and sale of USRA obligations),

and no proposals under Section 215 for Penn Central

properties have been approved.

The Act, moreover, forbids, for all practical purposes,

any mitigation of the interim erosion by way of terminating

unprofitable operations. Congress made clear its intention in

effect to freeze the level of operations existing on January 2,

1974, in order to give USRA the maximum amount of

choice as to what would be in the final system plan. When it

made grant funds available by Section 213 to keep the

bankrupt railroads running during the planning period, it

decreed that “recipients must agree to maintain and

provide service at a level no less than that in effect on the

date of enactment of this Act.“ Again, in Section 304(f), it

provided that after January 2, 1974,

no railroad in reorganization may discon-

tinue service or abandon any line of railroad

other than in accordance with the provisions

of this Act, unless it is authorized to do so by

the Association [USRA] and unless no af-

fected State or local or regional transpor-

tation authority reasonably opposes such ac-

tion.

The Association has, thus far at least, not authorized any

abandonments, and indeed does not appear to have

established any policies to guide disposition of aban-

donment requests. Items 64 and 65 of the Joint Documen-

tary Submission are, respectively, the requests for ap-

provals of abandonments which the Penn Central Trustees

have submitted to USRA, aad the USRA response that it

was, in effect, not yet ready to deal with them.

There are, moreover, questions of interpretation of the

Act which have not yet been resolved. The apparent grant

of authority to USRA to authorize abandonments under

Section 304(f) may supersede the authority of the Interstate

Commerce Commission under Section 1(18) of the In-

terstate Commerce Act, or it may require that both the In-

terstate Commerce Act and Section 3049 be complied

with. Since USRA has not acted on any applications, the

issue has not yet been litigated, as no doubt it will be.

As is apparent from what has already been said, USRA

has given no indication of the standards or policies it will

apply in exercising its authority under Section 304(f). State,

local and congressional sources have been adamant in the

view that USRA should seldom, if ever, authorize any in-

terim abandonments. When the second grant agreement

under Section 213 between the Trustees and the Federal

Railroad Administrator was shown to contain a provision

requiring the Trustees to apply to USRA for permission to

abandon a line whenever requested to do so by the

Secretary of Transportation, it was vigorously criticized by

Congressman Adams, who had been an active sponsor of

the Act, as completely contrary to the intent of Congress

in adopting Sections 213, 215 and 304(f) of the Act. He ad-

ded: “*... our intention was to preserve the status quo or

rail service in the Northeast during this critical time and to

allow full public comment on abandonment procedures.

A similar criticism of the provision in the grant agreement

was made by Public Counsel of the Interstate Commerce

Commission (Cong. Rec., May 14, 1974, p. S 7958).

Prior to the Act, but subsequent to the filing of the

petition under Section 77, the Penn Central Trustees had

actively pursued a program of abandonments of un-

A copy of Mr. Adams letter is attached to this brief as Annex B.

profitable lines, which they regarded as one of the four

essential requisites of a successful reorganization. See

e. g.. Trustees’ Report of July 1, 1972 C. D. S. Item 6). From

June 21, 1970, to the end of 1973, the Interstate Commerce

Commission had approved the abandonment of 1,511 miles

of line.“ On January 3, 1974 — the date of enactment of

the Act — applications to abandon 2,222 additional miles

were pending before the Commission. There has been no

action on any application since that date.“

The most serious erosion problem created by the Act is

not the complete standstill it has imposed, at least so far, on

applications for abandonment of particular rail lines whose

unprofitability is undoubted. No one contends that Penn

Central could be made profitable solely by abandonment of

lightly used (in many cases unused) branch lines. The

problem of viability is, rather, a problem of the Penn Cen-

tral system as a whole; and the infirmity of the Act, absent

a Tucker Act remedy, is that it requires continuation of

that system’s operations during a lengthy, indeterminate

planning process without a y assurance either of ultimate

viability or of compensation to the estate for the erosion

suffered in the meantime. If such compensation is not

assured by a Tucker Act remedy, continuation of rail

operations on the present basis cannot be sustained.

Application to abandon some 90 miles were pending at the In-

terstate Commerce Commission on June 20, 1970.

It would be inaccurate to attribute the lack of ICC activity during

the past seven months entirely to Section 304f). Since 1973 the Com-

mission has been engaged in litigation concerning the procedures it

must follow under the National Environmental Policy Act (42 U.S.C. §

4331). See Harlem Valley Transportation Ass'n v. Stafford. No. 73-

249%, 2d Cir. June 18, 1974. That problem has recently been resolved,

and the Commission must now confront the question of what authority

it has in the light of Section 304f).

The Government will doubtless argue that the Act

provides sufficient prospects for a successful reorganization

of Penn Central through conveyance of rail properties to

Conrail, within a sufficiently short period of time, as to

warrant a requirement that the Penn Central estate bear

the burden of continuing erosion until the process can be

completed. For the reasons already indicated, this

argument represents a misinterpretation of the New Haven

litigation and other applicable law. An additional defect in

the argument is that, for the reasons set forth at pp. 57-61,

infra, it is impossible to conclude at the present time that

reorganization through the Conrail device has any

reasonable prospects of success or viability. Conrail cannot

presently be said to provide any prospect of a successful

reorganization even remotely comparable to the assured in-

clusion in the Penn Central system which was held to

warrant, for a time, continued New Haven loss operations.

Congress may never permit a Conrail system to come into

existence at all; if it does permit it, the system may be

hopelessly unviable from the outset; even if it is

operationally viable, there is no assurance that the estates

will be adequately compensated for the properties they

would convey to it. Such shadowy, tentative and amorphous

prospects can furnish no justification whatever for an in-

definite compelled continuation of Penn Central rail ser-

vice, which will result in the simple confiscation of the

property of Penn Central and its creditors.

THE CONSTITUTIONAL ADEQUACY OF THE

ACT’S PROVISIONS FOR COMPENSATION FOR

THE PERMANENT TAKING CONTEMPLATED

THEREBY IS RIPE FOR DECISION.

The majority of the court below declined, on the ground

of prematurity, to decide the question whether the Act in-

fringes the Fifth Amendment on the ground that, absent a

Tucker Act remedy, the Act does not assure to the Penn

Central estate the just compensation which the Con-

stitution requires for the ultimate mandatory conveyance of

its property to Conrail. The majority held that a decision on

this issue was premature because three contingencies

would have to be satisfied before the conveyance could take

place: (I) the ““180-day”’ decision with respect to Penn Cen-

tral; (2) approval of the final system plan by Congress, and

(3) an order by the Special Court directing that the con-

veyance take place (J.A. p. 24). We think it clear, as did

Judge Fullam (JA. pp. 57-60), that none of these con-

tingencies makes decision of the issue presently

premature.

(1) The 180-Day Decision

The 180-day decision has been made since the decision of

the court below was entered. On July 1, 1974, the Penn Cen-

tral Reorganization Court, after hearing pursuant to Sec-

tion 207(b), found that the process of the Act was not fair

and equitable to the Penn Central estate (J.A. p. 152).

Essentially, the decision rested on the same constitutional

objections to the adequacy of the compensation provided by

the Act which are presented by the present cases before this

Court. The issues dealt with in the Reorganization Court’s

opinion — erosion, assurance that ultimate compensation

will be adequate, and the Tucker Act remedy — are all

squarely before this Court in the present litigation.

— —

— he

The Reorganization Court’s 180-day decision is now on

appeal to the Special Court. The same issues are all pre-

sented there. The Special Court’s decision, which is not

appealable (Section 20%b)), will either irrevocably commit

Penn Central to reorganizing under the Act or will ir-

revocably withdraw Penn Central from operation of the

Act. For this Court to decline decision of the ultimate-

compensation issue would mean that the Special Court's

crucial decision as to whether or not Penn Central will

reorganize under the Act will necessarily be made without

any authoritative decision by this Court of some of the

critical constitutional questions which all parties agree

must determine the Special Court’s disposition.

For example, if the Special Court agrees with the

Reorganization Court that the Act fails to provide the

assurance of just compensation, and that no Tucker Act

remedy is available, then the Penn Central will irrevocably

be denied reorganization under the Act, even though the

Special Court may be wrong. Unquestionabl there is a

vital public interest in Penn Central’s reorganizing under

the Act if that is constitutionally permissible. The Act itself

affirms (Section 207(b)) the strong public interest in the

continuance of rail transportation in the region pursuant to

a system plan devised under the provisions of this Act. For

this Court now to defer decision would mean that this vital

public interest might be wholly frustrated because of an

erroneous determination by a lower court that a remedy

which saves the constitutionality of the Act does not exist.

Conversely, if the Special Court holds that a Tucker Act

remedy is available and that it saves the constitutionality of

the Act, and therefore irrevocably commits the Penn Cen-

tral to reorganization under the Act, it is possible that years

later the Court of Claims or this Court — which of course

would not be bound by a Special Court decision concerning

Court of Claims jurisdiction — might determine that the

Special Court was wrong on that point and that no Tucker

Act remedy is available. It would then be discovered that

the Penn Central estate had been unconstitutionally

deprived of its property — but the deed would have been

irrevocably done long previously.

Thus there is fully satisfied here the requirement that

federal judicial power is to be exercised to strike down

legislation . . . only at the instance of one who is himself im-

mediately harmed, or immediately threatened with harm,

by the challenged action.” Poe v. Ullman, 367 U.S. 497,

503-04 (1961). The Penn Central Trustees, whose interest is

to reorganize under the Act if an adequate Tucker Act

remedy exists, are threatened with a Special Court decision

irrevocably excluding Penn Central from the Act on a

ground which we believe erroneous: i. e., that there is no

Tucker Act remedy to assure just compensation for a man-

datory conveyance of property under the Act. And both the

Trustees and the Penn Central creditor parties are faced

with an unconstitutional confiscation of their property if

the Special Court erroneously determines that the Act is

fair and equitable even without a Tucker Act remedy, or if

it holds that a Tucker Act remedy exists and on that basis

irrevocably orders Penn Central reorganization under the

Act, but it is later authoritatively held in other proceedings

that a Tucker Act remedy does not exist.

Under Section 207(b) of the Act, the Special Court must

announce its decision by September 29, 1974, before these

cases can be submitted to this Court. Of course, in the

unlikely event that the Special Court were to exclude Penn

Central from the Act without regard to the constitutional

questions before this Court, or without allowing for ad-

justments in its decision in the light of this Court’s sub-

sequent action, the cases here could be mooted. No party in

the Special Court is urging such a course of action. The

Penn Central Trustees are urging the Special Court to af-

firm the Reorganization Court's 180-day decision, with a

condition that if this Court subsequently affirms an

adequate Tucker Act remedy it will amend its decision ac-

cordingly. It surely is to be expected that, whatever the

Special Court decides, its order will leave room for

modification in the light of this Court's decision. We shall

of course promptly inform this Court of the Special Court's

action when that occurs.

(2) Congressional “Approval”

The majority below was apparently under the erroneous

impression that the Act makes Congressional approval a

prerequisite to effec veness of the final system plan (J.A.

pp. 24, 2S), and such Congressional approval was one of the

three contingencies which the majority held to make con-

sideration of the mandatory-conveyance issue premature.

In fact no Congressional approval is required by the Act. As

Judge Fullam's opinion pointed out (J A. p. 57), under Sec-

tion 20&a) the plan takes effect unless either House of

Congress affirmatively acts to express disapproval. If

Congress takes no action within 60 days, the plan becomes

effective. No case that we know of has ever held that

decision of a legal question is premature because that

question might be mooted by some subsequent action of

Congress.

Moreover, as Judge Fullam also pointed out (J.A. pp. 57-

58), even if Congress disapproves a final system plan,

USRA is subject to a continuing duty to present revised

plans until one becomes effective through the absence of

Congressional «ction to veto it. Thus the clear mandate of

the Act is that a final system plan will become effective;

and, since no one disputes that any final system plan under

the Act must provide for the mandatory conveyance of

Penn Central properties to Conrail, the adequacy-of-

compensation issue is not premature, regardless of whether

it is the first plan or a subsequent one which becomes ef-

fective.

The majority below might have had a point if the con-

stitutional issue here presented depended in some way on

the content of the final system plan which eventually

becomes effective. But there is no such dependence.

Because of the provisions of the Act limiting com-

pensation, any final system plan must necessarily fail to

provide the assurance of just compensation which is essen-

tial, absent a Tucker Act remedy, to make the Act con-

stitutional.

(3) The Mandatory Nature of the Conveyance

The third “contingency” offered by the majority below to

avoid decision is the order of the Special Court under Sec-

tion 30XbX1) requiring conveyance of Penn Central proper-

ty to Conrail. The majority may have believed, though it

nowhere stated, that the Special Court would have

discretion to refuse to order the conveyance if it believed

there was some problem with the adequacy of the con-

sideration. We think it quite clear, as did Judge Fullam

J. A. p. 58), that the Special Court’s action under Section

Jbl) is mandatory and ministerial, and thus cannot be

regarded as a contingency.

While the Special Court is granted, by Section 20%b), the

powers of a district judge in Section 77 proceedings — in-

cluding those of a reorganization court, which would ap-

pear to afford it general equity powers — the Act expressly

states that the special court shall . . order the transfer.

Although such words are not always given a mandatory

meaning when adressed to a court of equity, Hecht Co. v.

Bowles, 321 U.S. 321 (1944), there are other strong in-

dications in the Act that Congress intended that the Special

—— —— ö¶ 6—J—ᷓ—ꝓ—ũ—i — —

Court would be performing, at that stage, no more than a

ministerial act. The Act sets up specific, tight time

schedules obviously designed to bring Conrail to operating

status as quickly as possible. This purpose is emphasized by

the last sentence of Section 30XbX2): Such conveyance [by

the Special Court] shall not be restrained or enjoined by any

court. A decision by the Special Court to accomplish what

all other courts are forbidden to do by refusing to order the

transfer, once the process of the Act had reached that

point, would not only cause delay, but would leave the

whole process up in the air. There is no provision in the Act

for appellate review, by this Court or a Court of Appeals, of

such a decision of the Special Court; this strongly indicates

that ordering the transfer was intended as a ministerial act,

since all other initial decisions by the Special Court were

made subject to judicial review. Nor is there any provision

in the Act by which to revise the final system plan at that

stage, as there is if it is initially rejected by Congress (Sec-

tion 20&b)). Moreover, because the time is so short (10

days), the Special Court would have to act on its own

motion or have, at most, a summary proceeding prior to

taking any such action.

(If the Special Court could refuse to order the transfer,

the erosion problem would become even more aggravated,

since the erosion would be incurred without any assurance

of light at the end of the tunnel in the form of a man-

datory transfer for which at least some compensation would

be due.)

Even if the Special Court had some discretion in ordering

the conveyance — which under the Act it plainly does not

have — it is undisputed that its action is not subject to

review in this or any other court. If, therefore, the Special

Court is to have any guidance from this Court on the con-

stitutional issues which would be before it in the highly

unlikely event it determined that it had discretion, that

guidance must come in a decision of the present cases. If

that guidance is not given, the same dilemma, desired by no

one, would exist as will exist if the Special Court must act

now in the absence of a decision here: it would have to in-

clude Penn Central under the Act, or alternatively to ex-

clude it, on constitutional grounds on which its opinion

might well be wrong, with no opportunity for anyone to find

out whether it was wrong or not. Such a result would

irretrievably injure the parties, and would do violence to the

public interest as well.

IV.

THE ACT'S PROVISIONS REGARDING COMPENSA-

TION FAIL TO ASSURE THAT FIFTH AMENDMENT

STANDARDS WILL BE SATISFIED.

The provisions of the Act dealing with the consideration

which would be received by the Penn Central estate — ab-

sent a Tucker Act remedy — for the rail properties it would

be required to transfer to Conrail must be assessed against

the body of law which establishes that when properties of a

railroad in reorganization are transferred by Government

decree to a new owner, free and clear of liens and claims of

the former owner, the Fifth Amendment fixes a minimum

to the amount of consideration the owners must receive. In-

deed, Section 30XcK1XB) recognizes that the Constitution

sets a minimum in such circumstances. No one denies that

a constitutional minimum exists, though there are

disagreements as to its definition. But however the con-

stitutional minimum is defined (with one exception, see p.

60, infra), it is clear that the Act fails to assure that it will be

met.

We believe that the constitutional minimum is the fair

market value” of the properties in question, free of any

“This term is more satisfactory than the often-used liquidation

value. because the latter is sometimes improperly read as recognizing

(continued)

— on

obligation of continued railroad use. See New Haven In-

clusion Cases, 399 U.S. 392, 489-495 (1970); In re Penn

Central Transportation Co., 372 F. Supp. 1123 (E.D. Pa.

1974); New York, N.H. & H.R.R. First Mortgage 4% Bond-

holders’ Committee v. United States, 305 F. Supp. 1049

(S.D.N.Y. 1969); In re New York, NH. 4 H.R. R. 304 F.

Supp. 793, 798-804 (D. Conn. 1969); In re New York, N.H.

& H.R.R., 289 F. Supp. 451, 454-455, 459-460 (D. Conn.

1968); New York, N.H. & H.R.R. First Mortgage 4% Bond-

holders’ Committee v. United States, 289 F. Supp. 418,

440-441 (S.D.N.Y. 1968).

Fair market value is the constitutional minimum be-

cause, as these and other cases have established, if a rail-

road has neither earnings nor the reasonable prospect of

earnings, its owners have a constitutional right to withdraw

their property from operation by them as a railroad and to

realize the value obtainable from its sale. See also Railroad

Comm'n of Texas v. Eastern Texas R.R., 264 U.S. 79

(1924); Bullock v. Railroad Comm'n of Florida, 254 U.S. 513

(1921); Brooks-Scanion Co. v. Railroad Comm'n of

Louisiana, 251 U.S. 396 (1920); In re Penn Central Trans-

portation Co. (Columbus Option Appeals), 494 F.2d 270

(3d Cir. 1974), petition for cert. filed, 42 U.S.L. Week 3633

(U.S. May 8, 1974), No. 73-1672; In re Central R. R. of New

Jersey, 485 F.2d 208 (3d Cir. 1973); City of New York, v.

* (continued)

only values for non-rail uses. To the extent that the highest and best

values of particular rail properties of the estate may be for continued

rail use in the hands of others, the estate is plainly entitled to those

values in the event of a per-parcel sale (“liquidation”) or a con-

stitutional substitute therefor. This is true whether the value is created

by prospective profitability of those properties in the hands of others or

by a demand for reasons other than profitability, such as a public-

interest need determining offers by public bodies.

United States, 337 F. Supp. 150, 160 (E.D.N.Y. 1972); Jay

Street Connecting R.R. v. United States, 174 F. Supp. 609,

615 (E.D.N.Y. 1959); In re Port Authority Trans-Hudson

Corp., 20 N.Y.2d 457, 285 N.Y. Supp. 2d 24, cert. denied

sub nom. Port Authority Trans-Hudson v. Hudson Rapid

Tubes Corp., 390 U.S. 1002 (1968)

The provisions of the Act fail to assure that the owners

of the Penn Central estate will receive the constitutional

minimum value of the rail properties which it would be

required to convey to Conrail.”” The Penn Central estate

would receive stock and perhaps other securities of Conrail

and possibly, if the final system plan so provided, some

share of the $500 million of Government-guaranteed

obligations of USRA which Conrail can acquire, pre-

sumably by mortgaging its properties as security. (It is

possible, however, that little or none of the $500 million

may be available, since it may be allocated towards com-

pensating non-bankrupt lesssor railroads which are not

subject to the Act and whose property may concededly not

„Such tentative information as to the value of the Penn Central

estate as is presently available is referred to in Items 4 (pp. 11-13), 40

and 58, Joint Documentary Submission (J.D.S.). The studies there

treated are in the process of further analysis and refinement. No

estimate of the value of the estate is relevant to disposition of the

present litigation, because (1) no one knows how much of that estate

would be taken by Conrail; (2) no one knows the amount, nature or

value of the consideration that will be made available; therefore there is

nothing against which to measure the value of whatever properties

would be taken. Neither is any such estimate relevant to the erosion

question: even if the value of the estate should be found to exceed the

sum of all claims against it, the stockholders’ equity would be suffering

erosion, and their rights with respect to erosion are no less than those of

creditors. See, g Brooks-Scanion Co. v. Railroad Comm'n of

Louisiana, supra.

be taken pursuant to the eminent-domain power without

payment in cash or cash equivalent.“

It is a fair inference that the Act contemplates, and that

the final system plan will provide, that most of the con-

sideration is to be in the form of Conrail common stock.

Section 206(i) instructs USRA to “minimize any actual or

potential debt burden” on Conrail. But there can be no

assurance that any substantial value can be ascribed to

Conrail common. Its worth will depend entirely on the

earning power prospects of Conrail, which will, in turn,

depend on a wide variety of factors, including the many

decisions which must be made by USRA in constructing the

final system plan and the extent to which those decisions

will be acceptable to Congress.

Indeed, the goals which are to be achieved in the final

system plan are not easily made compatible. By Section

206(aX1) the system is to be “financially self-sustaining,”

yet by Section 206(aX2) it is also to be adequate to meet

the rail transportation needs and service requirements of

the region. By Section 206(aXS5) it is to provide for reten-

tion and promotion of competition in the provision of rail

and other ion services in the region. and by

Section 206(aX8) it is to minimize job losses and associated

increases in unemployment and community benefit costs in

areas of the region presently served by rail service. The

inherent conflict between the goal of financial self-

sufficiency and the other goals is well illustrated by the

divergent approaches taken by the Department of Tran-

sportation in its Report pursuant to Section 204a) (J. D. S.

At a pre-trial hearing in the Special Court, counsel for the Govern-

ment conceded that, in requiring conveyances from non-vankrupt

lessor railroads to Conrail, the Government would be exercising

Item 62) and by the ICC’s Rail Services Planning Office in

its Report pursuant to Section 20SaX1) (J.D.S. Item 63).

The latter reflects the same public pressure for retention of

even unprofitable rail services that will be felt in Congress

when that body considers a USRA plan.

In any event, given these disparate criteria, the political

bodies which must make the final decisions on Conrail may

design a rail system with some prospects for viability —

though predictions as to earning power of a to-be-created

system are fraught with difficulty ** — or they may go far in

the direction of rendering the system unviable as a profit-

making entity in order to meet the demands of com-

munities and industries for continued rail service.“ Depen-

ding on the totality of the choices made by political bodies

influenced by non-financial considerations, the equity

securities of Conrail may be worth little or nothing.

No one knows, or can even make a responsible guess,

as to the size or configuration of the final system which

Conrail will acquire. No one knows the extent to which

USRA will be required, by the pressures which are so

evident in the hearings held by the Rail Planning Office of

the ICC,”’ to enlarge the system to a point where its viability

vill be precarious and its common stock virtually or entirely

**When the Pennsylvania and New York Central railroads were

merged in 1968, the courts believed that the merger would produce

benefits of more than $80,000,000 annually. New Haven Inclusion

Cases, 399 U.S. at 400. A little over two years later, Penn Central was in

bankruptcy.

That some unprofitable branch lines may be continued by way of

the subsidy provisions of Sections 401 and 402 will reduce only slightly

the pressure to include them in the Conrail system. The subsidies

require local funds, and the Federal support is assured for only two

years. Section 402(f).

ee the Report of the Office (J. D. S. Item 63), passim.

—

worthless. While there are strong indications that Conrail

will not be viable, the assumptions as to the size and con-

firguration of the final system on which that estimate rests

may or may not be accurate; no one can tell. Moreover, as

the Reorganization Court pointed out (J.A. pp. 137-39), no

one knows what standard of valuation will be applied to the

rail properties to be acquired by Conrail, which may be

decided by the Supreme Court sometime in the future to

have been so wide of the mark as (because of the resulting

judgment against Conrail) to destroy the assumed viability

of Conrail entirely.“ Similarly, no one knows how USRA

will value Conrail’s stock, and other securities, or indeed

what securities it will authorize. USRA's decision as to

what Conrail and USRA securities should be authorized is

apparently not subject to any judicial review, since Section

30HXcX2KXB) provides that the Special Court is limited, in its

allocation of such securities among the estates in

reorganization, to securities designated in the final system

plan.”

The Reorganization Court’s opinion points up another

major uncertainty as to the value of Conrail stock. Both the

legislative history of the Act and arguments before that

court by Government counsel suggest that USRA may

proceed on the assumption that the value of the Conrail

common stock — i.e., the capitalized value of its prospec-

tive earnings — necessarily and automatically establishes

the value of the rail assets conveyed to Conrail. If that is in

error, as we believe it is“ and this Court ultimately so

Ihe heart of ... a determination jof the validity of a plan of

reorganization] is a finding of fact . . as to the value of the debtor's

property. New Haven Inclusion Cases, 399 U.S. 992, 428 (1970).

If this position were right, the Special Court would be obliged to

award the estate only common stock even if the final system plan had

(continued)

holds, the capital structure and viability prospects assumed

in the USRA plan would be no longer appropriate. This

view that the constitutional minimum is automatically

satisfied by Conrail stock is the only basis on which it can

be argued that the Act assures satisfaction of the con-

stitutional minimum. For the reasons stated at pp. 34-40

and pp. 54-56, supra, we think that view is plainly in error.

Nor is there assurance of adequate consideration to the

Penn Central estate in the only remedy available to the

Special Court in the event Conrail common stock is sub-

stantially or wholly worthless — a judgment against

Conrail under Section 303%cX2XC). There is no basis upon

which to conclude that Conrail could pay the judgment, or

even service the debt which it would create. As the

Reorganization Court observed (A. p. 137): “... ob-

viously, such a judgment would be relatively pointless, ser-

ving merely as a further reduction in the value of the com-

mon stock.

Similarly an “underwriting plan“ to guarantee the value

of Conrail stock would add no value whatever to the con-

sideration so long as Conrail itself was the guarantor. No

provision of the Act permits a guarantee by USRA or by the

credit of the United States, and such a device is explicitly

ruled out by the legislative history: the arrangements

shall not include any form of Federal guarantee of the value

of the [Conrail] stock.

** (continued)

provided for other consideration as well. The Special Court is required

by Section 30XcK1XB) to make sure that no estate receives more than

the constitutional minimum, and it is required to return any excess in

the amount of the consideration. Regional Rail Reorganization Act of

1973, H.R. Report No. 93-620 of the Committee on Interstate and

Foreign Commerce, p. 53 (93d Cong. Ist Sess. 1973).

“Regional Rail Reorganization Act of 1973, Conference Report.

H.R. Rep. No. 93-744, p. 50 (93d Cong. Ist Sess. 1973).

et ee ee ee ee

For all these reasons, the conclusion is inescapable that

there is nothing within the four corners of the Act which

assures the Penn Central estate of the just compensation

required by the Constitution for the taking of its properties.

If no Tucker Act remedy is available, the Act must fall.

A word is appropriate as to the provision in Section

206(dX1) that the consideration to be received for the rail

properties transferred to Conrail shall also include “‘the

other benefits accruing to such railroad by reason of such

transfer. The words other benefits must, of course, be

construed to be consistent with the rules which determine

the extent to which, in a condemnation action, the con-

demnee may constitutionally be charged with benefits or

enhancement of values accruing to him as a direct result of

the taking in question. If the words were not so construed,

the deduction of other benefits from the consideration to

be received would violate the principle that it is the courts,

not the Congress, which in all cases must determine the

measure of just compensation for the taking of property.

Baltimore & Ohio R.R. v. United States, 298 U.S. 349, 364-

369 (1936); United States v. New River Collieries, 262 U.S.

341, 344 (1923); Monongahela Navigation Co. v. United

States, 148 U.S. 312, 327 (1893).”'

The Trustees by no means concede that, as the Government parties

have heretofore assumed, the payment to labor provided by Title V of

the Act will be an other benefit. That question, of course, need not be

decided now. Suffice it that the uncertainty of what “other benefits”

may be, and the lack of any record on which a court could estimate

either their dollar equivalent or the extent to which they would affect

the amount or value of Conrail stock which the Penn Central estate

would receive, only add to the uncertainty — the lack of assurance —

with which the Courts is confronted.

The Government has contended in the Special Court that

the Act is similar to Section 77 in requiring railroad

creditors to accept securities, not necessarily of the same

type and priority as their previous interests, in an ongoing

railroad enterprise, and that such Section 77 plans have

frequently been upheld by the courts. But all of the prior

cases involved judicial approval of fully worked-out plans

for the reorganization of railroads that the record showed

were viable, in the sense that they produced and would con-

tinue to produce net operating income. None of them in-

volved the courts in irrevocably approving reorganization

pursuant to a plan not yet devised and offering no demon-

strable prospects, let alone assurance, of viability. Thus in

none of the cases on which the Government relies was the

Brooks-Scanion doctrine mentioned; it had no application

to those situations. Here, by contrast, it is controlling. The

Government itself has conceded in its brief to the Special

Court (p. 32): Of course, since the amount of rail property

[to be] conveyed cannot be foreseen at this time, it is im-

possible to make any final judgment as to the adequacy of

consideration for that property. In these circumstances,

the Court must, before allowing the irrevocable process of

the statute to proceed, confront the distinct possibility that

the consideration will in fact prove inadequate. And there is

nothing in the Act that wo: i cure such an inadequacy if it

develops; only a Tucker Act remedy in the Court of Claims

can do that.

THE EXISTENCE OF AN ADEQUATE COURT

OF CLAIMS REMEDY SAVES THE CONSTITU-

TIONALITY OF THE ACT.

A. An Adequate Court of Claims Remedy

Cures the Fifth Amendment Problem.

We believe that the constitutionality of the Act can be

sustained (and its fairness and equity to the Penn Central

estate sustained by the Special Court) if the decision of this

Court establishes:

(a) If the market value of the con-

sideration provided under the Act, deter-

mined as of the date of payment of that con-

sideration, falls below the just compensation

to which the Penn Central estate is con-

stitutionally entitled, the Court of Claims will

have jurisdiction over an action for a taking,

and must enter a judgment against the

United States for any remaining amount

owing; the only defense open to the United

States in that court will be that the value of

the consideration paid under the Act is suf-

ficient in amount to constitute the full just

compensation necessary to satisfy the Fifth

Amendment; and

(b) If it is determined that, by reason of

the Act, Penn Central loss operations for the

account of the estate were prolonged past the

point of unconstitutionality, the Court of

Claims will have jurisdiction to award just

compensation to the estate for the taking of

property occasioned thereby; the only de-

fense open to the United States in that court

will be that the erosion caused by Penn Cen-

tral loss operations did not become uncon-

stitutional in amount before the date of con-

veyance, or that the Special Court has taken

account of such erosion and awarded consid-

eration to the estate of sufficient value to sat-

isfy the Fifth Amendment.

In other words, a bare holding that the jurisdiction of the

Court of Claims was not repealed by the Act would be in-

sufficient if the United States were to retain defenses which,

if successful, could frustrate a Tucker Act remedy as en-

suring just compensation to the estate. Merely as one exam-

ple, we think it clear that the Government must be

precluded from arguing in a Court of Claims action that

erosion is not compensable on the ground that the Trustees

or the Reorganization Court somehow consented to the

continuation of rail operations for the account of the estate,

and that no taking occurred for that reason. Surely the

estate may not thus be penalized because its custodians are

making every reasonable effort to accommodate themselves

to the statute rather than, for example, seeking immediate

liquidation.

Since it would be hazardous, if not impossible, to try to

imagine every onceivable defense to a Court of Claims ac-

tion which ingenious Government counsel might formulate,

the only way to ensure that the estate will receive just com-

pensation is to preclude all defenses other than those

outlined above. The following remarks by counsel for all

the Government parties to the court below (J.D.S. Item 64,

pp. 143-44) indicate that the Government agrees with this

position:

Now. Mr. Horsky [counsel for the Penn

Central Trustees] also said, I think, that he

felt that as to a permanent taking or any

taking he thought the only question that

should be before the Court of Claims is

whether the values that had been paid over

were constitutionally inadequate and that if

they were, it was simply a matter of money to

be awarded then.

We would agree to that as to the per-

manent taking, but as to any claim for an in-

terim taking, we would say the court would

then have two problems before it, the first of

which would be whether the time all the

creditors and stockholders were required to

wait exceeded the permissible limits of

erosion, whether there was any taking at all,

in other words, and in the New Haven case

when Judge Anderson finally set an erosion

limit, the only one I think we are familiar

with to date, it was as of a date seven years

after the New Haven reorganization had

begun, and this reorganization I think is just

becoming — Judge Fullam will know exactly

— four years old.

So there would be two questions for the

Court of Claims to decide there. First, has

the interim erosion passed the point of im-

permissibility under the Constitution at all,

and, second, if so, what was the amount?

If a fully adequate Court of Claims remedy is thus es-

tablished, the question remains whether the Act none-

theless infringes the Fifth Amendment because the par-

tial consideration there provided for is to be paid in forms

(e.g., Conrail securites) other than cash. Even if a Court

of Claims remedy is available for the deficiency, which of

course will be owed in cash, arguably the form of com-

pensation specified in the Act is constitutionally inadequate

because of the rule that when property is taken for a public

purpose the Constitution requires payment in cash or cash

equivalent. E.g., Almota Farmers Elev. & Whse. Co. v.

United States, 409 U.S. 470 (1973); United States v.

Reynolds, 397 U.S. 14 (1970); Olsen v. United States, 292

U.S. 246 (1934); Vanhorne's Lessee v. Dorrance, 2 U.S. (2

Dall.) 304 (1795). This problem concerned the

Reorganization Court (J.S. pp. 146-47).

We think that concern would be fully justified if the

Conrail securities and other consideration tendered under

the Act were valued on the basis of some alleged intrinsic

value unrelated to their market value on the date of their

receipt by the estates in reorganization. The estates would

then be receiving, as partial compensation for a taking of

property, nothing resembling cash or cash equivalent, but

merely speculative securities the alleged value of which

could be realized only after many years and only if the

Special Court’s prognosis of the viability of Conrail proved

accurate. It was a similar problem in the New Haven

reorganization which led Judge Anderson to devise an un-

derwriting plan” to ensure that the New Haven estate in

fact received the cash equivalent of the “intrinsic” value at-

tributed to the Penn Central stock it was acquiring. /n re

New York, N.H. & H.R. R., 304 F. Supp. 793, 808-10, 304

F. Supp. 1136 (D. Conn. 1969). That device was specifically

approved by this Court, but for the unforeseen Penn Cen-

tral bankruptcy, in New Haven Inclusion Cases, 399 U.S.

392, 483-89 (1970): and the Court rejected the lower court's

findings as to “intrinsic value,” since “the fairness and

equity that are the essence of a § 77 proceeding forbid our

approval of a payment for the transferred New Haven

properties that may be worth only a fraction of its pur-

ported value. 399 U.S. at 488.

No effective underwriting plan is permissible under the

1973 Act as presently written.“ We believe it follows that,

pursuant to the constitutional rule with respect to cash or

cash equivalent, the Special Court will be obliged to ignore

any alleged intrinsic value and, instead, to value the

securities tendered to the estates in reorganization at no

more than their cash market value on the date they are

received by those estates.

Even if the Act were held to preclude such a method of

valuation by the Special Court — and we know of no reason

why that should be held — then a Tucker Act remedy is

adequate if the Court of Claims will be able to ensure con-

stitutionally adequate treatment to the Penn Central estate.

We believe it will be so able. If and when the Court of

Claims is asked to award a deficiency judgment against the

United States, on the ground that the maximum con-

sideration which the Special Court could award was con-

Stitutionally inadequate, the Court of Claims could and

must, consistently with the Constitution, enter judgment

for that amount which remains constitutionally owing. We

think that this Court can meet the argument that the Act is

unconstitutional because it fails to ensure the cash or cash

equivalent which the Constitution requires only by holding

that the partial consideration to be received under the Act

must be valued at no more than its cash value on the date of

its receipt.

See p. 60, supra.

B. pe ain — One Readily

Severable Provision, the Act Is Not in

— — Require

ment of Article I, Section 8, Clause 4 of

the Constitution.

The court below correctly held that, with one exception,

the provisions of the Act do not infringe the constitutional

requirement that laws on bankruptcy must be uniform

throughout the United States. Article I, Section 8, Clause 4.

The argument to the contrary rests on the statement in

Hanover National Bank v. Moyses, 186 U.S. 181, 188 (1902)

that the uniformity requirement is geographic and not

personal.” There are two answers.

One is the answer given by the majority of the court

below (J.A. 27, 61-64): that since the principal provisions of

the Act which depend on the bankruptcy power for their

validity are repetitive of similar provisions in existing, valid

laws — albeit that some of those powers are to be exercised

by the Special Court rather than the Reorganization Court

— the Act as a whole can be upheld as an exercise of the

broad powers of Congress under the Commerce Clause.

See, e.g., Katzenbach v. McClung, 379 U.S. 294, 303-304

(1964); Maryland v. Wirtz, 392 U.S. 183, 190 (1968). That

the legislation emerged from the Commerce committees in

both the House and the Senate reflects the fact that the un-

derlying concern of the Act, as reflected in its title, is the

regulation of interstate commerce.

The second answer is that the Act, even viewed as no

more than an exercise of the bankruptcy power, is a

legitimate classification of debtors. No decision by this

Court has ever held that an act of Congress violated the

uniformity requirement and many attacks made upon

earlier bankruptcy laws have been rejected in cir-

cumstances similar to those here involved. See, e.g., In re

Baltimore & Ohio R.R., 29 F. Supp. 608 (D. Md. 1939),

cert. denied, 309 U.S. 654 (1940); Campbell v. Alleghany

Corp., 75 F.2d 947, 951 (4th Cir. 1934), cert. denied, 29%

U.S. 581 (1935S); Leidigh Carriage Co. v. Stengel, 95 F. 637,

646-48 (6th Cir. 1899); In re New York, VH. 4 H.R. R.

16 F. Supp. 504, 512-13 (D. Conn. 1936); In re California P.

R.R., 4 F. Cas. 1060 (No. 2,315) (D. Cal. 1874). Indeed,

as Justice Frankfurter stated in his concurring opinion in

Vanston Bondholders Protective Committee v. Green, 329

U.S. 156, 172 (1946), the uniformity requirement is satisfied

“when existing obligations of a debtor are treated alike by

the bankruptcy administration throughout the country,

regardless of the state in which the bankruptcy court sits.

No one asserts here that that standard is not met by the

Act.

While these answers suffice to dispose of the general non-

uniformity challenge, there is one provision of the Act

which was properly held invalid on this ground by the court

below (J.A. pp. 27, 64-65) — the requirement of Section

207(b) that, if the process of the Act is found to be not fair

and equitable, the reorganization court shall dismiss the

reorganization proceeding.”

This provision is in no sense an exercise of the commerce

power. It effects a partial repeal of Section 77, since it

would prevent continued use of that section to effect an ap-

propriate reorganization of a railroad to which it applied.

The issue is not rendered moot because Penn Central is not

The only such decision in a lower court — United States Nat | Bank

„ Pamp, 83 F.2d 493 (8th Cir. 1936) — was expressly rejected in Wright

v. Vinton Branch, 300 U.S. 440, 463 and n. 7 (1937).

reorganizable on an income basis within a reasonable time,

as determined in the 120-day decision. Reorganization on

an income basis is by no means the only type of

reorganization which can be effected under Section 77. C.

New Haven Inclusion Cases, 399 U.S. 392 (1970). The par-

tial repeal of Section 77, however, applies only to railroads

in one part of the United States, defined in Section 102(13)

of the Act.

Nor can this provision be sustained on the ground

suggested by Judge Aldisert (J.A. 27-29) for rejection of the

“uniformity” attack on the statute generally: that the

plaintiffs in these actions are Penn Central creditors, and

that the Act is geographically uniform with respect to

creditors’ claims. The dismissal of the Section 77

proceeding required by Section 207(b) would substantially

affect all Penn Central creditors by making their rights and

remedies quite different from those of creditors of railroads

identically situated except for their geographic location. In

any event, Judge Aldisert recognizes that a railroad inside

or outside the region would have standing to challenge this

provision; and the Penn Central Trustees — representing

the railroad and all interests in its estate — do challenge it.

The invalidity of this section, however, does not effect the

validity of the Act as a whole. Indeed, it is difficult to un-

derstand why the provision was included, except perhaps

for an in terrorem effect. The separability provision of the

Act (Section 604) applies.

CONCLUSION

For the reasons stated, the judgment of the court below

should be reversed and the Regional Rail Reorganization

Act held constitutional in all respects except for the last

nine words of the third sentence of Section 207(b), which

should be held void as repugnant to Article I, Section 8,

Clause 4 of the Constitution.

CHARLES A. HORSKY

BRICE M. CLAGETT

Covington & Burling

888 Sixteenth Street, N.W.

Washington, D.C. 20006

PAUL R. DUKE

JOHN F. DePODESTA

Penn Central Transportation

Company

Six Penn Center Plaza

Philadelphia, Pa. 19107

Attorneys for Appellants Penn

Central Trustees

August 23, 1974

APPENDIX

Constitutional and Statutory Provisions

Constitution of the United States, Article I, Section 8,

Clause 4:

“The Congress shall have Power ... To

establish . . uniform Laws on the subject of

Bankruptcies throughout the United

States:

Constitution of the United States, Amendment V:

No person shall be held to answer for a

capital, or otherwise infamous crime, unless

on a presentment or indictment of a Grand

Jury, except in cases arising in the land or

naval forces, or in the Militia, when in actual

service in time of War or public danger; nor

shall any person be subject for the same of-

fence to be twice put in jeopardy of life or

limb; nor shall be compelled in any criminal

case to be a witness against himself. nor be

deprived of life, liberty, or property, without

due process of law; nor shall private property

be taken for public use, without just com-

pensation.”

The Tucker Act, 28 U.S.C. § 1491 (1970):

“The Court of Claims shall have jurisdic-

tion 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 implied

contract with the United States, or for

liquidated or unliquidated damages in cases

not sounding in tort. For the purpose of this

paragraph, an express or implied contract

with the Army and Air Force Exchange Serv-

ice, Navy Exchanges, Marine Corps Ex-

changes, Coast Guard Exchanges, or Ex-

change Councils of the National Aeronautics

and Space Administration shall be consid-

ered an express or implied contract with the

United States.

Nothing herein shall be construed to give

the Court of Claims jurisdiction in suits

against, or founded on actions of, the Ten-

nessee Valley Authority, nor to amend or

modify the provisions of the Tennessee

Valley Authority Act of 1933, as amended,

with respect to suits by or against the

Authority.”

ANNEX A

(Seal) DEPARTMENT OF TRANSPORTATION

FEDERAL RAILROAD ADMINISTRATION

WASHINGTON, D.C. 20590

OFFICE OF

W May 10. 1974

Mr. R. D. Timpany

Trustee, The Central Railroad

Company of Ne Jersey

1100 Raymond Boulevard

Newark, New Jersey 07102

Dear Mr. Timpany:

This is in response to your application dated April 18, 1974,

for emergency assistance pursuant to Section 213 of the

Regional Rail Reorganization Act of 1973 and Part 253 of

Title 49 of the Code of Federal Regulations.

You have requested $10,357,000 in assistance, to be made

available as follows:

April 30, 1974 $1,778,000

July 1, 1974 1,659,000

October 1, 1974 1,759,000

January 1, 1975 2,730,000

April 1, 1975 2,431,000

$10,357,000

You contend that the amount requested in your application

is necessary to protect against further erosion of the estate

and is intended on this basis to cover estimated net income

losses for the period April 1974 - June 1975. In your letter

of April 30, 1974, you further advise that as a result of your

continuing review of operations, the previously forecast net

income loss of $1,778,000 for the second quarter of 1974

should be increased to $1,981,000 to reflect an updating of

cost and revenue components. You also advise in that letter

that previously forecast month-end cash balances should be

reduced, in part due to a change in practice by the State of

New Jersey, resulting in slower payment of monthly sup-

plemental subsidy bills rendered to the State.

Based on our review of your application, and , ursuant to

the purposes and intent of the Act, I am prepared to enter

into a definitive agreement for a total of $2.0 million in

emergency assistance in accordance with the draft grant

agreement and terms and conditions which are attached.

As the draft agreement and terms and conditions more ex-

plicitly provide, the assistance would be furnished to meet

specific payments for (a) wages and salaries, (b) fuel costs,

and (c) utilities expenses which are necessary for the

continued provision of essential services by the Central

Railroad Company of New Jersey. Funds to meet such

payments would be deposited in a separate account from

time to time, based on a certification by you that grant

funds in a specified amount are essential to avoid an immi-

nent risk of termination of rail services.

The draft terms and conditions also include a provision for

a program of assistance under Section 215. Based on the

preliminary discussions we have had with respect to a

program for the rehabilitation of the terminal area under

Section 215, it would appear that the chances of realizing

an acceptable return on investment in the terminal area,

plus some possible early cash generation, would be

favorable. It would thus be useful to have your specific

proposal for the rehabilitation of the terminal area for

review as soon as possible.

In reviewing your application and subsequent revision, we

have taken three major exceptions:

In our opinion, the granting of financial assistance to

protect against further erosion of the estate, is not in ac-

cordance with the purpose for which the funds under §

213 of the Act have been appropriated. Accordingly,

your application for assistance specifically on this basis

is denied. However, the information supplied in your

application indicates that you will imminently require

emergency cash assistance to keep essential services

going, and it is on this basis that the assistance is being

made available pursuant to the Act.

Further, it is our opinion that in the absence of a Court

order, the payment of retroactive wages, or the payment

of any retroactive debt, would not be a proper item to be

covered by assistance under Section 213. Therefore, we

will not include in any assistance provided, amounts to

cover retroactive payment, as you propose, of the 4 per-

cent wage increase which became effective nationally on

January 1, 1974. It is our understanding that you have

made no commitment, nor entered into any agreement

to make these retroactive payments.

With respect to the payment of supplemental subsidy

bills by the State, we have advised the Office of the

Commissioner of Transportation that, in our opinion,

Section 213 does not contemplate the granting of

emergency assistance to cover slowed payment of such

bills by the State. Indeed, in the formulation and adop-

tion of emergency assistance provisions, it was assumed

that then-existing financial assistance would be main-

tained. We trust that a way will be found by the State

and yourself to promptly settle this issue. In any event,

we suggest that the negotiations with the responsible

State authorities proceed on the basis that the ap-

propriations under the Act to assure continuation of

essential services did not contemplate the underwriting

of such portions of cash shortfalls as result from slowed

payments of amounts owed under otherwise binding

agreements.

It is our understanding that your cash situation may be ex-

tremely critical as early as May 22, 1974. We are prepared

to proceed expeditiously to execute a definitive agreement

upon receipt of advice from you with respect to this offer.

Sincerely,

/s/ John W. Ingram

JOHN W. INGRAM

Administrator

APPENDIX B

Rec d. April 30, 1974

April 26, 1974

Honorable John W. Barnum

Under Secretary

Department of Transportation

Washington, D.C. 20590

Dear John:

I was very concerned to read in the Washington Star of

April 2Sth an article which indicated that both you and

John Ingram would condition operating grants to the Penn

Central on a requirement that applications be made to the

United States Railway Association (USRA) for aban-

donment of lines which you deemed to be “hopelessly

uneconomic.”

The purpose of this letter is to emphasize to you that

such an endeavor by DOT and the Trustees of the Penn

Central would be completely contrary to the intent of

Congress in adopting sections 213, 215 and sections 304f)

of the Regional Rail Reorganization Act.

In an earlier letter to you dated March 15. 1974, regard-

ing the proposed abandonment by the Erie-Lackawanna

of a commuter service to Cleveland, | outlined my un-

derstanding of Congressional intent regarding aban-

donments of rail lines or services during the planning

period created by the Regional Rail Reorganization Act.

In summary, what I said then, and repeat to you now, is

that our intention was to preserve the status quo of rail ser-

vice in the Northeast during that critical time and to allow

full public comment on abandonment proposals. The pur-

pose of this procedure was twofold: first, to allow careful

study of the structure of rail service in the Northeast and,

secondarily, to allay public fears regarding wholesale aban-

donments of rail service. It seems to me that piecemeal

abandonments of rail service, such as the Star article

suggests that you wish, will only arouse public concern.

More significantly, they will undermine the very careful

process of study and public review of rail service which the

Congress created in the Regional Rail Reorganization Act.

The carrying out of the purpose of the Rail Reorgani-

zation Act will require the closest cooperation between

the Executive and the Legislative branches of govern-

ment. Ultimately, both House of Congress must approve

the final system plan for rail service designed by USRA. In

the interim, the Congress must approve the appropriations

necessary to carry out the purposes of the Act. Therefore, it

seems to me that DOT should give the strictest adherence

to Congressional intent in administering the first stages of

the lengthy planning process which the Act sets forth. To

encourage USRA to allow a series of rail abandonments

during the planning period would be both harmful to

cooperation between Congress and the DOT, and contrary

to the intention of the Act.

I would appreciate receiving from the Department a

prompt answer, in writing, as to how you intend to ad-

minister the operating grant provisions of section 213 of the

Act and how you intend to advise USRA on its policy to-

wards abandonment applications, which it may permit un-

der section 304(f).

Yours very truly,

BROCK ADAMS, M.C.

BA:we

10a

ANNEX C

Extracts from Proposed Amendments To

Senate Commerce Committee Working Paper No. 1.

(transmitted with Secretary Brinegar’s

letter of Nov. 14, 1973)

P. 46, delete everything on line 12 down through the end of

line 10 on p. SO and substitute the following:

“PROCEEDINGS BEFORE THE SPECIAL COURT

“SEC. 303.(a) APPROVAL OF TRANSFERS UN-

DER PLAN — As soon as is possible after submission of

the final system plan to it, the special court, after hearings,

shall decide whether or not to approve the transfers of rail

properties and the compensation therefor provided for in

the final system plan. In making that decision with respect

to each railroad in reorganization, the court shall con-

sider—

(1) whether the transfers are fair and equi-

table to the debtor s estate; and

(2) the interest of the public in the contin-

uation of rail service over the rail proper-

ties proposed for transfer under the final

system plan.

If the court finds that it cannot approve any of the transfers

provided for in the final system plan because the common

stock of the Corporation has not been fairly allocated

among the railroads in reorganization transferring rail

properties to the Corporation, it shall reallocate the stock in

a manner which is fair and equitable. If the court finds that

a transfer of rail properties of a railroad in reorganization

for common stock of the Corporation would not be fair and

equitable to the estate of a railroad in reorganization even

with the stock fairly allocated, it shall amend the final

system plan to provide for the transfer to that railroad in

reorganization, in addition to its allocated amount of the

common stock of the Corporation, obligations of the

Association in an amount which, together with the stock,

make the transaction fair and equitable to the estate of that

railroad. If the court finds that a transfer of rail properties

of a railroad in reorganization to a profitable railroad

would not be fair and equitable compensation, it shall

determine what fair and equitable compensation would be

and order that such compensation be paid. If there is no

way that the court can make a finding that the proposed

transfers of rail properties from a railroad in reorganization

to the Corporation are fair and equitable to the estate of a

railroad in reorganization, then the court shall disapprove

the final system plan with respect to that railroad and

remand the case to its reorganization court for further

proceedings under section 77 of the Bankruptcy Act. If the

court approves the final system plan with respect to a

railroad in reorganization, it shall order the parties to make

the conveyances as provided for in the final system plan, as

it may have been amended by the court. Proceedings under

this section shall take precedence over all other matters

assigned to the judges of the special court, shall be assigned

for hearings at the earliest practicable date and shall be ex-

pedited in every way possible.

(b) APPEALS— a finding or determination entered

pursuant to subsection (a) of this section may be appealed

directly to the Supreme Court of the United States in the

same manner that an injunction order may be appealed un-

der section 1253 of title 28, United States Code: Provided,

that such appeal is exclusive and shall be filed in the

Supreme Court not more than 5S days after such finding or

determination is entered by the special court. The Supreme

Court shall grant the highest priority to the determination

l2a

of any such appeals. Notwithstanding the filing of an ap-

peal under this subsection, the special court may refuse to

stay the execution of its orders issued under subsection (a)

of this section.

„e) COURT REVIEW OF ACTIONS— Except as

provided in section 20%a) of this Act and in this section, ac-

tion or inaction under this Act of the Secretary, the Com-

mission, the Association or any director, member, officer,

committee, or subordinate unit of any of them, shall not be

reviewable in any court.

132

CERTIFICATE OF SERVICE

I hereby certify that I have this 23d day of August, 1974,

caused three (3) copies of the foregoing Brief to be mailed

first-class, postage prepaid to:

The Honorable Robert H. Bork Joseph Auerbach, Esquire

Solicitor General Sullivan & Worcester

Department of Justice 225 Franklin Street

Washington, D.C. 20530 Boston, Mass. 02110

Lloyd N. Cutler, Esquire David Berger uire

Wilmer, Cutler & Pickering 1622 Locust —

1666 K Street, N. W. Philadelphia. Pa. 10103

Washington, D. C. 20006

Louis A. Craco. Esquire

Willkie, Farr & Gallagher

1 Chase Manhattan Plaza

New York, N.Y. 10005

Brice M. Clagett

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.