# Amicus Brief — Robert W. Blanchette et al., v. Connecticut General Insurance Corp. > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385003_0165%3A14 ## Record - **Collection:** Supreme Court brief - **Document type:** Amicus Brief - **Published:** January 1, 1974 - **Citation:** 419 U.S. 102 ## Text 74-165 1 . and Aus 23 WM In The T4~= 1 6 Repreme Court of the United States Fa-.0T | Octoser Team, 1974 74 _ 16 UNITED STATES OF AMERICA, ET AL., APPELLANTS. _ CONNECTICUT GENERAL INSURANCE CORPORATION, ET AL.. APPELLEES. UNITED STATES RAILWAY ASSOCIATION, APPELLANT, v 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, v. UNITED STATES OF AMERICA, ET AL.. APPELLEES. ON APPEAL FROM THE UNITED STATES DISTRICT COURT POR THE EASTERN DISTRICT OF PENNSYLVANIA MOTION FOR LEAVE TO FILE BRIEF AMICUS CURIAE AND BRIEF AMICUS CURIAE JOHN F. DONELAN JOHN K. MASER III ROGER K. DAVIS 914 Washington Building Washington, D.C. 20005 Counsel for Amicus Curiae, DONELAN, CLEARY The Nationa! Industrial Traffic AND CALDWELL League 914 Washington Building Washington, D.C. 20005 THE CASILLAS PRESS, INC.—1717 K Street. N. W.—Weshington, 0. C.-223-1220 In THE Supreme Court of the United States Octoser Team, 1974 UNITED STATES OF AMERICA, ET AL., APPELLANTS, v. 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, : r. 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, v. UNITED STATES OF AMERICA, ET AL., APPELLEES. ON APPEAL FROM THE UNITED STATES DISTRICT COURT POR THE EASTERN DISTRICT OF PENNSYLVANIA MOTION FOR LEAVE TO FILE BRIEF AMICUS CURIAE The National Industrial Traffic League hereby respect- fully moves for leave to file the attached brief amicus curiae in the four related cases set forth above. The consent of attorneys for the appellees was requested but unanimous consent has been refused. 2 The interest of the League arises from the fact that it is the largest diversified shipper organization in the United States. The members of the League operate industrial and/or commercial enterprises — large, medium, and small — and are substantial users of the various modes of for- hire transportation, including transportation by railroad. Members of the League have extensively used, and are ex- tensively using, the transportation services of the rail car- riers subject to possible reorganization under the Regional Rail Reorganization Act of 1973. Thus, the League and its members have a direct and substantial interest in the disposition of the instant case One of the key factors bearing upon the determination of the Fifth Amendment issues in these cases is the public interest underlying the challenged Act. Having reviewed the treatment of this subject in the District Court, the League believes that it can provide more complete and helpful argument to the Court on the relevancy of this factor to the ultimate decision. Unless the League is per- mitted to file a brief as amicus curiae, the vitally interest- ed shipping public, as represented by the League, will have no opportunity to express its views on the proper resolu- tion of this issue. Respectfully submitted, JOHN F. DONELAN JOHN K. MASER Ill ROGER K. DAVIS 914 Washington Building Of Counsel: Washington, D.C. 20005 DONELAN, CLEARY AND Counsel for Amicus Curiae, CALDWELL The National Industrial Traffic Washington, D.C. 20005 August 23, 1974 (i) TABLE OF CONTENTS STATEMENT OF INTEREST ARGUMENT: The court below did not give sufficient consideration to the well-established principle that the rights of ee and therefore are not absolute dane The public interest in rail reorganization clearly justifies interim erosion ./ the assets of creditors and owners . CONCLUSION TABLE OF AUTHORITIES Cases: Brooks-Scanion Company v. Railroad Commission, 251 U.S. 396 (1920) . Bullock v. Railroad Commission, 254 US. 513 (1921) Continental Illinois Bank & Trust Co. v. Chicago, Rock Island & Pacific Ry. Co., 294 US. 648 (1935) Hanover National Bank v. Moyses, 186 US. 181 (1902) In Re Litigation Under the Regional Rail Reorganization Act of 1973, Docket No. 166 (J. P.M.L. March 1, 1974) In Re Penn Central Transportation Co., (Bky No. 70-347, E.D. Pa.) ~ i 12 4,5 (ii) New Haven Inclusion Cases, 399 U.S. 392 (1970) Penn Central Merger Cases, 389 US. 486 (1968) Railroad Commission v. Eastern Texas R.R., 264 US. 79 (1924) . Reconstruction Finance Corporation v. Denver & Rio Grande Western R.R., 328 U.S. 495 (1946) . West Coast Hotel v. Parrish, 300 U.S. 379 (1937) Constitutional Provisions and Statutes: US. Constitution: Amendment V Bankruptcy Act: Section 77, 11 U.S.C.§ 205 Interstate Commerce Act: Section 1(18), 49 US.C.61(18). Regional Rail Reorganization Act of 1973: 87 Stat. 985 Sk oe ae Legislative Materials: S. Rep. No. 601, 93rd Congress, Ist Sess. (1973). 5,6 5,10 In THE Supreme Court of the Anited States Octoser Term, 1974 UNITED STATES OF AMERICA, ET AL., APPELLANTS, v. CONNECTICUT GENERAL INSURANCE CORPORATION, ET AL.. APPELLEES. UNITED STATES RAILWAY ASSOCIATION, APPELLANT, v 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, r 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, v. UNITED STATES OF AMERICA. ET AL. APPELLEES. ON APPEAL FROM THE UNITED STATES DISTRICT COURT POR THE EASTERN DISTRICT OF PENNSYLVANIA BRIEF AMICUS CURIAE STATEMENT OF INTEREST The National Industrial Traffic League (hereinafter re- ferred to as “the League”) is the largest organization of shippers in the United States. Its members operate in- dustrial and/or commercial enterprises — large, medium, 2 and small — and are substantial users of the various modes of for-hire transportation, including transportation by rail- road. The League has been in continuous, active existence for more than sixty-five years. Neither carriers nor their representatives are eligible for membership in the League. The interest of the League in these cases arises from the fact that its members have used, are using, and are plan- ning to use the services of the Penn Central and the seven other railroads in the Northeast and Midwest currently sub- ject to possible reorganization under the Regional Rail Re- organization Act of 1973.' The League actively participated in the Congressional hearings which preceded enactment of the latter statute. In providing basic transportation services to the industrial and commercial shippers of the nation, the subject railroads act as originating and delivering carriers and as participating carriers in joint hauls with other railroads. The Regional Rail Reorganization Act of 1973 (herein- after referred to as “the Act”) was designed to meet the threat of cessation or significant curtailment of essential rail service that developed with the financial decline and entry into bankruptcy proceedings of eight major railroads of the Northeast and Midwest. It appears to the League that a decision sustaining the unconstitutionality of major provisions of the Act will insure the termination of some reorganization proceedings, and the placement of those railroads in equity receivership for the purposes of liquida- tion. For instance, among others, the Penn Central has been determined to be so financially debilitated that reor- ganization could only be accomplished under the Act. /n | Public Law 93-236, 87 Stat. 985, 45 U.S.C. $9701, ef seq., ap- proved January 2, 1974. 3 Re Penn Central Transportation Company, (E.D. Pa., 1974), Slip Opinion, p. 19. Although the approval of the Inter- state Commerce Commission would be required under Sec- tion 1(18) of the Interstate Commerce Act, 49 U.S.C. §1- (18), before rail lines and operations could be abandoned, the Commission would likely be constitutionally compelled to authorize large-scale abandonments. Brooks-Scanion Company v. Railroad Commission, 251 U.S. 396 (1920); Bullock v. Railroad Commission of Florida, 254 US. 513 (1921); Railroad Commission v. Eastern Texas R.R.. 264 U.S. 79 (1924). If such disruption or discontinuation of vital rail services comes about, members of the League will suffer an economic catastrophe of substantial and incalculable proportions. Many of these member companies of the League have de- veloped facilities and planned operations in reliance upon the availability of public rail service. In many cases the very survival of their enterprises will depend upon continued common carrier rail service. In others, substantial curtail- ment of rail service will resuit in drastic and adverse altera- tion of the structure and strength of their businesses. The fact is that alternate modes of transportation are often non-existent or are simply too uneconomic or im- practical. Thus, the industrial and commercial shippers of the nation, represented by the League, have a direct and substantial interest in the revitalization and continued via- bility of the subject railroads under the Regional Rail Re- organization Act of 1973. 4 ARGUMENT It is the League's position that the court below erred in restraining enforcement of certain provisions of the Act and declaring Sections 303 and 304(f) null and void as contravening the Fifth Amendment of the United States Constitution. Section 304(f) was held violative of the Fifth Amendment to the extent that it would require con- tinued operation of rail services at a loss in violation of the constitutional rights of the owners and creditors of a railroad. Section 303 was held unconstitutional insofar as it fails to provide compensation for interim erosion pending final implementation of the Final System Plan pursuant to the statute. The League contends that the Act provides a mechanism for reorganization of railroads that is consistent with the interests of the public and with the constitutional rights of owners and creditors. A. The Court below did not give sufficient con- sideration to the well-established principle that the rights of creditors are limited by the interests of the public, and therefore are not absolute. In the court below too little consideration was given to the long-standing principle that the “property” rights of creditors are subject to the right of the public to make reasonable efforts to reorganize essential common carrier rail operations on a profitable basis. The bankruptcy power directly provides for the adjustment of the respec- tive rights of embarrassed debtors and their creditors and it clearly permits impairment of the obligation of contracts. Continental Illinois Bank & Trust Co. v. Chicago, Rock Island & Pacific Ry. Co., 294 U.S. 648 (1935); Hanover National Bank v. Moyses, 186 U.S. 181 (1902). Yet the 5 Regional Rail Reorganization Act is treated by the Court below as if the rights of creditors are absolute. It is plainly erroneous to argue that rail creditors may not be forced to accept substantial erosion of their invest- ment during the pendency of reorganization proceedings. In Continental Bank yv. Chicago, Rock Island & Pacific Ry.. 294 U.S. 648 (1935), this Court held that holders of “col- lateral notes” of the debtor could constitutionally be com- pelled to accept a decline in their investment while an ef- fort was made to reorganize the debtor under Section 77 of the Bankruptcy Act, 11 U.S.C. 9205. That this principle relates to substantial as well as minor losses was made even clearer a decade later in Reconstruc- tion Finance Corp. v. Denver & Rio Grande Western R.R., 328 U.S. 495 (1946). In that case this Court upheld a plan of reorganization despite the fact that junior bond- holders (1) had lost 90 percent of the value of their claims during the ten years of reorganization and (2) had over- whelmingly voted to reject the plan of reorganization. In unequivocal language this Court declared: These respondents cannot be called upon to sac- rifice their property so that a depression-proof railroad system might be created. But they invest- ed their capital in a public utility that does owe an obligation to the public. The Insurance Group Committee, with fiduciary responsibility to the myriad holders of policies, and the other investors or speculators in senior bonds as well as the hold- ers of General bonds or other investors or specu- lators in junior security issues, by their entry into a railroad enterprise assumed the risk that in any depression or any reorganization the interests of the public would be considered as well as theirs. {328 U.S. 535, 536] 6 In the Penn Central Merger Cases, 389 U.S. 486 (1968), and the New Haven Inclusion Cases, 399 U.S. 392 (1970), this Court reaffirmed the relevancy of the public interest to consideration of the rights of rail creditors. Confronted in the Penn Central Merger Cases with an argument concern- ing the progressive erosion of bondholders’ security, this Court said: While the rights of the bondholders are entitled to respect, they do not command Procrustean measures. They certainly do not dictate that rail operations vital to the Nation be jettisoned despite the availability of a feasible alternative. The public interest is not merely a pawn to be sacrificed for the strategic purposes or protec- tion of a class of security holders whose interests may or may not be served by the destructive move. [389 U.S. at 510-511] More recently, in the New Haven Inclusion Cases, this Court responded to the pleas of bondholders by repeating an earlier statement that those who enter into a railroad enterprise assume the special risk that interests of the public will be considered along with those of investors in the event of any depression or reorganization.” Although prior to this Court’s review of the New Haven reorganization, the reorganization court had reached the point where it had decided that operations could not con- tinue without immediate inclusion in the Penn Central Sys- tem, 289 F. Supp. 451, at 459, that reorganization court 2 399 US. 392, 492. quoting, Reconstruction Finance Corp. v. Denver & Rio Grande Western R.R., 328 U.S. 495, 535-36. 7 also squarely acknowledged the inherent public interest limitations on the rights of the bondholders: Both the Commission and the courts, however, have reiterated in this and in related proceedings that as bondholders of a railroad their interests are subject to such invasion as may be essertial to continue the operation of the railroad for a reasonable period of time to provide an opportu- nity to work out a permanent plan or means of continuing the operation, if possible, to the ex- tent that it is required by the public interest. {/d. at 455] Clearly, the New Haven reorganization court engaged in the balancing of interests appropriate to such cases. It should be noted that substantial losses were imposed upon New Haven creditors before the court, after seven years of reorganization, concluded that operations would have to cease unless the merger was consummated shortly there- after. That reorganization court described the necessary process as follows: The extent to which the constitutional minimum of value of property rights to which the bond- holders are entitled . . . may properly be invaded in the public interest to keep railroad operations going pending a solution of the problem of re- organization, is hardly a matter which can be de- termined with mathematical precision. It involves a consideration of the amount and nature of the Railroad’s obligations, the seriousness of adverse consequences to the public if service were termi- nated, the rate of losses and the feasibility of possible solutions. [/d at 459] In the instant cases the court below did not engage in the appropriate balancing of interests The only discussion of the public interest underlying Congress’ action appears in a brief summary of the Act presented “before considera- tion” of the constitutional claims.’ Although the amount of erosion and the prospects of ultimate profitability are proper factors in resolving the question of an unconstitu- tional taking, the public interest should also enter into any determination of the extent to which erosion is permitted. Thus, the court below erred in failing duly to examine the Act in light of both the public interest and the interim financial interests of rail creditors and owners. B. The public interest in rail reorganizaton clearly justifies interim erosion of the assets of creditors and owners. The Regional Rail Reorganization Act represents “an heroic attempt’ to salvage the rail services of the insolvent railroads of the Midwest and Northeast. It is designed to reorganize the railroads in this region into an economically viable system capable of providing adequate and efficient rail service to the region and the national rail transporta- tion system. Congress developed this new expression of the bankruptcy power because of the compelling public need for continued rail service. Among the official findings presented in the Act are the following: 3 Typed Slip Opinion, p. 5. 4 In Re Litigation Under the Regional Rail Reorganization Act of 1973, Docket No. 166, Opinion and Order dated March 1, 1974, at 3. (Judicial Panel on Multidistrict Litigation). 9 (3) The public convenience and necessity re- quire adequate and efficient rail service in this region and throughout the Nation to meet the needs of commerce, the national defense, the environment, and the service requirements of passengers, United States mail, shippers, States (4) Continuation and improvement of essential rail service in this region is also necessary to preserve and maintain adequate national rail serv- ices and an efficient national rail transportation system. (5) Rail service and rail transportation offer economic and environmental advantages with respect to land use, air pollution, noise levels, energy efficiency and conservation, resource allocation, safety, and cost per ton-mile of move- ment to such extent that the preservation and maintenance of adequate and efficient rail serv- ice is in the national interest. (6) These needs cannot be met without sub- stantial action by the Federal Government. [Sec- tion 101(a))}. The Senate Commerce Committee's report portrays even more graphically the enormous public interest in the pend- ing reorganizations. The Committee noted that a shut- down of the Penn Central alone could “produce a decrease in the rate of economic activity in the region of 5.2%, a decrease in the entire nation of 4%, and a decrease in the 5 Senate Report No. 93-601, December 3, 1973. 10 GNP for the Nation as a whole of 2.7% after the cighth week of such a shutdown.” fd at 7. The Committee also reported that a study by the Indiana Department of Commerce predicted that a shut