Petition — White v. United States, 162 Ct. Cl. 876 (1963) (No. 77-60)
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IN THE JUL 12 «1977
: Supreme Court of the United
REDBAK, JR. CLERK
hi OCTOBER TERM, 1977 -
-T7-60
NATIONAL RatLroaD PassENGER CORPORATION, )
Petitioner,
Vv.
Rosert W. Buancuette, RicsarpC. Bonn}
and Jonn H. McArruvur,
Trustees of the Property of Penn
Central Transportation Company,
Respondents. |
PETITION FOR WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS
FOR THE SEVENTH CIRCUIT
Kar J. ScrPHER
Cuarwes T. RICHARDSON
Baker & DANIELS
810 Fletcher Trust Building
Indianapolis, IN 46204
(317) 636-4535
F. HastineGs GriFFin, JR.
DecHeErT Price & RHoaDs
3400 Centre Square West
1500 Market Street
Philadelphia, PA 19102
(215) 972-3400
NATHANIEL H. Goopricx
E.yse G. WANDER
) Antuony L. MonDELLO
NATIONAL RAILROAD PASSENGER
CORPORATION
955 L’Enfant Plaza North, S.W.
Washington, D.C. 20024
(202) 484-7100
Counsel for the Petitioner
a
C. E. Pauley & Co., Inc., Indianapolis
Page
tN e Noe NTE NED LED (A Wc ea cutbindeieaecane 2
Questions Presented for Review ...............2..0...-.-...----0----+ 3
Statutes and Constitutional Provisions Involved .......... 5
NE EAR ES Soe a a DO a
Ia scasennsnnponiitinnnl 13
Fact 1. Background and the Contractual Relation-
ship Between Amtrak and Penn Central ...... 17
Fact 2. Penn Central Breached the Agreement ...... 20
Fact 3. The Arbitration Award of the National
ELLER ET CO 22
Fact 4. The Confirmation Judgment ......................... 23
Fact 5. The Rail Act and the April 1, 1976, Con-
ON soe 25
Fact 6. Amtrak’s Petition to the Reorganization
Court and Penn Central’s Answer ................ 27
Fact 7. The Declaratory Judgment Action .............. 28
Fact 8. The Decision of the Reorganization Court 30
Fact 9. The Decision of the Seventh Cireuit ............ 31
Reasons for Granting the Writ 2.200000. 32
Summary of Reasons for Granting the Writ —............ 32
1. The Indiana Court Had Jurisdiction Under the
Declaratory Judgment Act to Declare the Valid-
ity, Finality and Legal Significance of Its Own
Prior Confirmation Judgment ................................ 36
2. In Entering the Declaratory Judgment, the Indi-
ana Court Did Not Interfere with the Proper
Jurisdiction of the Reorganization Court. The
Reorganization Court Does Not Have the Power
to Go Behind the Confirmation Judgment and
Rehear All Defenses of Penn Central to the Arbi-
RE GRINDS NCSA SUE A ae ee 44
3. The Indiana Court’s Declaratory Judgment Cor-
rectly Decided that the Confirmation Judgment
Was Res Judicata on Penn Central’s Rail Act
eae ener en new eee leas Pa eect Pao CoO) IAG OED) Roe 58
NP IIEETE OOUD OTe PERG MIELE EN DENN Ore Oe) OTe 63
Page
Appendix A
2/15/77 Decision of the United States Court of
Appeals for the Seventh Circuit,
551 F.2d 127 (7th Cir. 1977) ............ 65
Appendix B
6/25/76 Judgment Entry, Memorandum Order,
Findings of Fact and Conclusions of
Law of the United States District
Court for the Southern District of
Indiana, Indianapolis Division (De-
claratory Judgment) ........................ 81
Appendix C
3/24/76 Order of Confirmation Concerning
NAP Case No. 11; In Re: Level of
Rail Utility Final Decision and
Award as to Penn Central of the
United States District Court for the
Southern District of Indiana, Indi-
anapolis Division (Confirmation
ID saceciikichnesbabiinideninegdienneiiedites 89
Arbitration Award ...................... 91
Appendix D
9/30/76 Memorandum and Order No. 2569 of
and the United States District Court for
10/1/76 the Eastern District of Pennsyl-
vania, 422 F.Supp. 67 (E.D. Pa.
TIA Gdn ae EERE Seen 109
Appendix E
3/4/77 Decision of the United States Court of
Appeals for the Seventh Circuit in
the Related Case Involving the
Chesapeake and Ohio Railway Com-
pany, 551 F.2d 136 (7th Cir. 1977) 123
ill
TABLE OF AUTHORITIES CITED
CasEs
Page
Aetna Life Ins. Co. v. Haworth, 300 U.S. 227, 57 S.Ct.
ee Ea A Aa teri oy agen ea ee ew 36, 37, 38
Aetna Life Ins. Co. v. Martin, 108 F.2d 824 (8th Cir.
a ainamsoions 41
Allstate Ins. Co. v. Employers Liability Assur. Corp.,
I PEE CUED CD, BCE sciiscccieccitccrcnecessstoncremninonie 42
Armstrong v. Alliance Trust Co., Ltd., 112 F.2d 114
SO es iccceaniiebcthemanamnaincenton 47
Avery Freight Lines, Inc. v. White, 245 Ala. 618, 18
So.2d 394 (1944) ........ a adalithadeetaleliadbedindpsiaieaimsedhoidnmediinneees 42
Baker v. Gold Seal Liquors, Inc., 417 U.S. 467, 94A
I a cslaneiceteinbaeesnniananill 45, 46
Barnes v. Pierce, 36 Tenn.App. 181, 253 S.W.2d 33
SIE Si detiasaisensschcaheiussaicieeieshcesdbomedineedananidinitcueblasa ements 42
Beach v. Beach, 57 Ohio App. 294, 13 N.E.2d 581 (1937) 42
Bengtson v. Setterberg, 227 Minn. 337, 35 N.W.2d 623
SUE “aadineseser oe REED RRR NO Roh I ne 42
Boman v. Belyeu, 255 Ala. 281, 51 So.2d 27 (1951) ........ 41
Boynton v. Ball, 121 U.S. 457, 7 S.Ct. 981 (1887) -........... 49
Brown v. Bridgeport Rolling Mills Co., 245 F.Supp. 41
I I i catia 62
Chicot County Drainage District v. Baxter State Bank,
fk Be eT te eg) Reena 49, 53
City of Tacoma v. Taxpayers of Tacoma, 357 U.S. 320,
Se I TI i inueste 43
Cohens v. Virginia, 6 Wheaton 264 (1821) —.....000......... 44
Commissioner of Internal Revenue v. Sunnen, 333 U.S.
SU alii 59
Connecticut Sav. Bank v. First Nat. Bank & Trust Co.,
133 Conn. 403, 51 A.2d 907 (1947) .............0......ccccccecseeeee 41
County of Lancaster v. Philadelphia Electric Co., 386
of BR ED EP 62
De Veau v. Braisted, 336 U.S. 144, 80A S.Ct. 1146
RR RIT EEG ESIC Fe SSS AA ee Ae A RT OR 43
Diners Club, Ine. v. Bumb, 421 F.2d 396 (9th Cir. 1970) 48
Donovan v. City of Dallas, 377 U.S. 408, 84A S.Ct.
ERNE SAI AIT ENE LET Stee STONe SONIA 43
Fischer v. Pauline Oil & Gas Co., 309 U.S. 294, 60 S.Ct.
ARREARS TET SPCR ESAS 2 Sy ONO Sa ESRC a 49
iv
Page
Flynn v. St. Bd. of Chiro. Exam., 418 F.2d 668 (9th
CBR. RGD) nnnennsesinssninssnsssiectn<setelssenisheaiatighenaliinciianiasiaamnnnn ann 62
Foust v. Munson S.S. Lines, 299 U.S. 77, 57 S.Ct. 90
CTE) cenecscssscnscessdonsontbianesbsdainnianalnasleuiesisasiasmiaaaannnan 47
Freeman v. Marine Midland Bank-New York, 419
7 ape. 460. (TD. WY. BOGGD men :sniissinissiaeenaae 42
Galt v. Libbey-Owens-Ford Glass Co., 376 F.2d 711
ti Bt Sf Nee me 59
Gunn v. University Committee to End War in Viet
Nam, 399 U.S. 383, 90A S.Ct. 2013 (1970) ...000000000000.... 43
Gutensohn v. Kansas City Southern Ry. Co., 140 F.2d
SOO (Gee Cav. BOGGD nccscccscicccsecsiecsoniessniveneaneieel 56
Hayburn’s Case, 2 Dallas 409 (1792) 2... 57
Hurley v. Atchison, Topeka & Sante Fe Ry. Co., 213
U.S. 126, 29 S.Ct. 466 (1909) onc. eeccecceceeecccecccsseesseecene 52
In Re Chicago & E. I. Ry. Co., 121 F.2d 785 (7th Cir.),
cert. denied, 314 U.S. 653, 62 S.Ct. 102 (1941) 000... 49
In Re New York, New Haven and Hartford Ry. Co., 457
F.2d 683 (2d Cir.), cert. denied sub nom. Smith v.
Baker, 409 U.S. 890, 93 S.Ct. 106 (1972) 00000... 45, 46
In Re Patterson-MacDonald Shipbuilding Co., 284 F.
277 (W.D. Wash. 1922), aff’d., 292 F. 700 (9th Cir.
1923), appeal dismissed sub nom. Commonwealth of
Australia v. McLean, 266 U.S. 638, 45 S.Ct. 10 (1924) 52
In Re Universal Display & Sign Co., 541 F.2d 142 (3d
ORR. TG) an neisiecsessmncsvrnshennedinncieieieasaiaaeian 49, 53, 62
In Re Wonderbowl, Inc., 456 F.2d 954 (9th Cir. 1972) 47
Kalb v. Feuerstein, 308 U, S. 433, 60 S.Ct. 343 (1940) 45, 46
Kerotest Mfg. Co. v. C-O-Two Fire Equipment Co., 342
USS. 160, T2 B.C. S29-(2GGB) haicereccccecerseccteieaeneie 56
Lehigh Coal & Nav. Co. v. Central R. of N.J., 33
F’ Supp. 362 (B.D. Pa. 1940) .....2......0...-.sccccscccceseceeececeeeee 43
Maryland Casualty Co. v. Pacific Coal & Oil Co., 312
US. ie kee Tt |) ee 38
McCulloch v. Sociedad Nacional de Marineros de Hon-
duras, 372 U.S. 10, 83 S.Ct. 671 (1963) oo. 43
Meeks v. Town of Hoover, 286 Ala. 373, 240 So.2d 125
0) a mn ee 42
Meyer v. Lavelle, 389 F.Supp. 972 (.D. Pa. 1975) ........ 62
Nashville, C. & St. L. Ry. v. W — 288 U.S. 249, 53
S.Ct. 345 (1933)
V
Page
National-Ben Franklin Fire Ins. Co. v. Camden Trust
Co., 21 N.J. 16, 120 A.2d 754 (1956) .............................. 41
National R.R. Passenger Corp. v. National Ass’n of
R.R. Passengers, 414 U.S. 453, 94 S.Ct. 690 (1974) .... 55
New Haven Inelusion Cases, 399 U.S. 392, 90A S.Ct.
ESET ER 45, 46
Novo Enzyme Corp. v. Baker, 361 F.Supp. 337 (S.D.
ENS en ee 48
Regional Rail Reorganization Act Cases, 419 U.S. 102,
RE 25
Schokbeton Industries, Ine. v. Schokbeton Products
Corp., 466 F.2d 171 (Sth Cir. 1972) ....................--..-0000+ 52
Sobel v. Hertz, Warner & Co., 469 F.2d 1211 (2d Cir.
i iertieccisensiiaeitiveedsnsnsoeterenteproreneeeee 60
Stavros v. Bradley, 313 Ky. 676, 232 S.W.2d 1004 (Ky.
ES EEE A ea on 41
Stoll v. Gottlieb, 305 U.S. 165, 59 S.Ct. 134 (1938) _...... 49, 53
Talcott v. Talcott, 54 Cal.App.2d 743, 129 P.2d 946
RES EY Oc 41
The Hartbridge, 57 F.2d 672 (2d Cir. 1932), cert.
denied sub nom. Munson §.S. Line v. North of Eng-
land S.S. Co., Ltd., 288 U.S. 601, 53 S.Ct. 320 (1933) 61, 62
Thompson v. Magnolia Petroleum Co., 309 U.S. 478,
60 S.Ct. 628 (1940) —........ «EE 47
Tobin v. Plein, 301 F.2d 378 (2d Cir. 1962) -................ 52
United States v. Louisiana, 394 U.S. 11, 89 S.Ct. 773
ONS 43
Wallace Clark & Co. v. Acheson Industries, Ine., 532
F.2d 846 (2d Cir.), cert. denied, — U.S. —, 96 S.Ct.
te nieninseesatntoveentpenacretlsconere 62
Wilko v. Swan, 346 U.S. 427, 74 8.Ct. 182 (1953) -....... 60
World Brilliance Corp. v. Bethlehem Steel Co., 342
i os ceeerrspsnepunisonebesenesnebegeseveres 59
vi
STATUTES
Page
Federal Arbitration Act
I ao slssceeeabine 2, 5, 49, 58
Fe RET ce Lee Sere Ahn 28
I a ial idiahscaiibidibemecnaie as 5, 23, 49
aS Ae MCE CR I SF 6, 49
4 4 ESRI Re rencermeneecmerrner ye ee SE 60
§ | te, A EOR ee rea ener ET 3, 6, 15, 16,
25, 35, 38,
50, 56
Section 77 of the Bankruptcy Act
le I aia) i es lassie adaelaail 6, 13
Se I TTIIIIIID ' sscscescschinbesntietasepeseipibameneninnioinideiianataediions 7, 47, 55
a 15, 23, 48, 55
TT ee BAN APTN ee =e ae 7
Se I Tr IETS. 0.1 siscs sdissadeulhocsisimesiaiesbntniibasgiotthiiniasiamaadl 3
5 FIRRESRCEN TN Vieni OOM eT 49, 58
Declaratory Judgment Act
EET ME AE TORE BT: 3, 28, 32
| ERE eee renee: ena 7, 37, 42, 56
I a ee 7
Rail Passenger Service Act
Oe a I i deaeieaied 7,17
re 18
Oe iy TRIED? ' viccicicanconstdhcctsetomenbasaaabeaibdedaiebacditiatitteiee ta 55
ee I 18, 51
OR ae ee 18
ie 40
i I id s
oe 18
Oe a alae 8,18
Regional Rail Reorganization Act of 1973
a 3,8
OO a i)
ae Oe GI CD ctecccierndepidicecnissnhisicisansintinsatiatomisadh 11
Vil
CONSTITUTIONAL PROVISIONS
Page
Constitution of the United States, Article I, § 8 .......... 11
Constitution of the United States, Article III, §$1
hy PRET ape arte TS Ra nonin Ren aa arr 11, 37, 58
MISCELLANEOUS
Borchard, Declaratory Judgments, p. 356 (2d ed. 1941) 42
1 Collier on Bankruptcy, 4 2.07, pp. 166-67 (14th ed.
ITI decikicicucleiidee escuela Diladtdleeciehaeaensiaichaitaioenibeeedibiadl 49
6 Collier on Bankruptcy, § 3.08[1] (14th ed. 1977) -....... 47
fF es 8 fC, ee een 42
SE ne Cae 42
1B J. Moore, Federal Practice § 0.405[4.-1] (2d ed.
UTE eis ninditciciascte tance iataitbaiAceiasiiueaaadmeaicanhadinssendianals 53
IN THE
Suprene Court of the United States
OCTOBER TERM, 1977
NationaL Rarcroap PassENGER CorPoraTION, |
Petitioner,
Vv.
Rosert W. Buancuetre, Ricnarp C. Bonp
and Jonn H. McArruvr,
Trustees of the Property of Penn
Central Transportation Company,
Respondents. |
PETITION FOR WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS
FOR THE SEVENTH CIRCUIT
The petitioner, National Railroad Passenger Corpora-
tion (‘‘Amtrak’’), respectfully petitions this Court to issue
a writ of certiorari to the United States Court of Appeals
for the Seventh Circuit (‘‘Seventh Cireuit’’) to review the
decision of that Court in Cause No. 76-1829. The decision of
the Seventh Circuit is reported at 551 F.2d 127, (7th Cir.
1977), and is Appendix A, page 65.* The Seventh Circuit
reversed the decision of the United States District Court
* References to the Appen ‘ices attached hereto will be made by “App.”
followed by the page number.
1
2
for the Southern District of Indiana, Indianapolis Division,
Chief Judge William E. Steckler, presiding (‘‘Indiana
court’’), in Cause No. IP 76-274-C in favor of Amtrak and
against the respondents, Robert W. Blanchette, Richard
C. Bond and John H. McArthur, Trustees of the Property
of Penn Central Transportation Company (‘‘Penn Cen-
tral’’ or ‘‘trustees’’). The decision of the Indiana court,
consisting of a Judgment Entry and a Memorandum Order,
Findings of Fact and Conclusions of Law, is Appendix B,
page 81. That decision is not reported.
JURISDICTION
On June 25, 1976, the Indiana court entered its decision
in favor of Amtrak and against Penn Central. That
decision was in the form of a declaratory judgment (‘‘de-
claratory judgment’’) interpreting an earlier, nonappealed
judgment by the same Indiana court confirming under
the Federal Arbitration Act, 9 U.S.C. §§1, et seq., an
arbitration award in favor of Amtrak and against Penn
Central (‘‘confirmation judgment’’). The confirmation
judgment was entered on March 24, 1976, and is Appendix
C, page 89. The arbitration award (App. 91) is attached
to the confirmation judgment.
On February 15, 1977, the Seventh Circuit rendered its
decision, reversing the declaratory judgment of the Indiana
court. The Seventh Circuit held that issues raised by Penn
Central in proceedings before the United States District
Court for the Eastern District of Pennsylvania (the
court presiding over the Penn Central reorganization pro-
ceeding in Cause No. 70-347, hereafter the ‘‘reorganization
court’’), as a defense to the enforcement of the confirmation
j ent, which issues could have been raised before the
confirmation court but were not so raised, were not res
judicata and not barred by the confirmation judgment and
could be considered by the reorganization court. On March
3, 1977, and again on March 29, 1977, the Seventh Circuit
3
stayed the issuance of the mandate for a total of 90 days
to permit Amtrak to file a petition for writ of certiorari.
By Orders dated April 28, 1977, Justice Stevens extended
Amtrak’s time to file the petition to and including July
15, 1977, and stayed the mandate of the Seventh Circuit
pending the timely filing by Amtrak of the petition. This
Court has jurisdiction to review the decision of the Seventh
Circuit pursuant to 28 U.S.C. § 1254(1).
QUESTIONS PRESENTED FOR REVIEW
The basic issues here are ones of judicial power and com-
petence and the authority and finality of judgments entered
by one federal court under the Federal Arbitration Act and
under the Declaratory Judgment Act as opposed to the
asserted bankruptcy power of another federal court to
entertain a direct attack upon the judgments of the first
court. In addressing those basic issues, the Court will need
to consider:
1. Did the Indiana court have jurisdiction under the
Declaratory Judgment Act, 28 U.S.C. §§ 2201-2202, to
declare the validity, finality and legal significance of its
own prior confirmation judgment entered upon an arbi-
tration award under the Federal Arbitration Act, 9 U.S.C.
§ 13, when Penn Central asserted that the confirmation
judgment was invalid because of the Regional Rai! Reor-
ganization Act of 1973, 45 U.S.C. §§ 701, et seq. (‘‘Rail
Act’’) and sought an injunction against the execution or
enforcement ~* that judgment?
2. By ente .~ the declaratory judgment declaring the
legal significa:. of tr confirmation judgment, did the
Indiana court interfere wit» the jurisdiction of the reorgan-
ization court? More specifically, can the reorganization
court restrict by its prior order the scope and meaning
given by Congress to a confirmation judgment under 9
U.S.C. §13 by reserving to itself the authority to review
+
the validity and the effect of all proceedings before the
Indiana court adjudicating the underlying liability of the
trustees of the bankrupt estate? Would such reservation
of authority permit Penn Central to elect not to raise
issues (such as the Rail Act defense) before the Indiana
court as to the validity and effect of the arbitration award,
but to wait and raise such issues in proceedings before the
reorganization court to enforce the confirmation judgment?
Can the reorganization court refuse to honor, and in effect
overrule, the decision of the Indiana court that issues
which were not raised before the Indiana court, but which
could have been raised, were res judicata as to the parties?
3. Assuming the Indiana court had the jurisdiction to
enter a judgment under the Declaratory Judgment Act
declaring the meaning of and legal rights arising out of its
own prior confirmation judgment, was the declaration of
the Indiana court legally correct that the confirmation
judgment barred Penn Central’s Rail Act defense? Can
Amtrak be made to litigate the validity of the arbitration
award in two forums—the confirming Indiana court and
the reorganization court?
5)
STATUTES AND CONSTITUTIONAL
PROVISIONS INVOLVED
The following statutes and constitutional provisions
are involved in this case:
Federal Arbitration Act, 9 U.S.C. §§ 1-14, and particu-
larly:
‘If the parties in their agreement have agreed
that a judgment of the court shall be entered upon
the award made pursuant to the arbitration, and
shall specify the court, then at any time within one
year after the award is made any party to the
arbitration may apply to the court so specified for
an order confirming the award, and thereupon the
court must grant such an order unless the award is
vacated, modified, or corrected as prescribed in
sections 10 and 11 of this title. * * *° 9 U.S.C. § 9.
‘‘In either of the following cases the United
States court in and for the district wherein the
award was made may make an order vacating the
award upon the application of any party to the
arbitration—
‘*(a) Where the award was procured by cor-
ruption, fraud, or undue means.
‘*(b) Where there was evident partiality or
corruption in the arbitrators, or either of them.
‘*(e) Where the arbitrators were guilty of mis-
conduct in refusing to postpone the hearing, upon
sufficient cause shown, or in refusing to hear evi-
dence pertinent and material to the controversy; or
of any other misbehavior by which the rights of any
party have been prejudiced.
‘“(d) Where the arbitrators exceeded their
powers, or so imperfectly executed them that a
mutual, final, and definite award upon the subject
matter submitted was not made.
‘*(e) Where an award is vacated and the time
within which the agreement required the award to
be made has not expired the court may, in its
6
discretion, direct a rehearing by the arbitrators.’’
9 U.S.C. § 10.
‘‘The party moving for an order confirming, modi-
fying, or correcting an award shall, at the time such
order is filed with the clerk for the entry of judg-
ment thereon, also file the following papers with
the clerk:
‘‘(a) The agreement; the selection or appoint-
ment, if any, of an additional arbitrator or umpire;
and each written extension of the time, if any, within
which to make the award.
‘“(b) The award.
‘*(e) Each notice, affidavit, or other paper used
upon an application to confirm, modify, or correct
the award, and a copy of each order of the court
upon such an application.
‘““The judgment shall be docketed as if it was
rendered in an action.
‘‘The judgment so entered shall have the same
force and effect, in all respects as, and be subject
to all the provisions of law relating to, a judgment
in an action; and it may be enforced as if it had
been rendered in an action in the court in which it
is entered.’’9 U.S.C. § 18.
Section 77 of the Bankruptcy Act, 11 U.S.C. § 205, and
particularly :
‘*(j) In addition to the provisions of section 29
of this title for the staying of pending suits against
the debtor, the judge may enjoin or stay the com-
mencement or continuation of suits against the
debtor until after final decree; and may, upon notice
and for cause showf, enjoin or stay the commence-
ment or continuance of any judicial proceeding to
enforce any lien upon the estate until after final
decree: Provided, That suits or claims for damages
caused by the operation of trains, busses, or other
means of transportation may be filed and prosecuted
to judgment in any court of competent jurisdiction
*
“4
7
and any order staying the prosecution of any such
cause of action or appeal shall be vacated. * * *’’
11 U.S.C. § 205(j).
28 U.S.C. § 959(a):
‘Trustees, receivers or managers of any prop-
erty, including debtors in possession, may be sued,
without leave of the court appointing them, with
respect to any of their acts or transactions in carry-
ing on business connected with such property. Such
actions shall be subject to the general equity power
of such court so far as the same may be necessary to
the ends of justice, but this shall not deprive a
litigant of his right to trial by jury.”’
Federal Declaratory Judgment Act:
‘In a case of actual controversy within its juris-
diction, except with respect to Federal taxes, any
court of the United States, upon the filing of an
appropriate pleading, may declare the rights and
other legal relations of any interested party seeking
such declaration, whether or not further relief is or
could be sought. Any such declaration shall have the
force and effect of a final judgment or decree and
shall be reviewable as such.’’ 28 U.S.C. § 2201.
‘‘Further necessary or proper relief based on a
declaratory judgment or decree may be granted,
after reasonable notice and hearing, against any
adverse party whose rights have been determined
by such judgment.’’ 28 U.S.C. § 2202.
Rail Passenger Service Act, 45 U.S.C. §§ 501-645 (‘*Am-
trak Act’’), and particularly:
**(a)(1) On or before May 1, 1971, the Corpora-
tion [Amtrak] is authorized to contract and, upon
written request therefor from a railroad, shall
tender a contract to relieve the railroad, from and
after May 1, 1971, of its entire responsibility for
the provision of intercity rail passenger service.
On or after March 1, 1973, but before January 1,
8
1975, the Corporation is authorized to contract, and
upon written request therefor, shall tender a con-
tract to relieve the railroad of its entire responsi-
bility for the provision of intercity rail passenger
service and such relief shall become effective upon
the date on which such contract is entered into.
Contracts may be entered into on or before May 1,
1971, notwithstanding the fact that the decision of
the Commission under section 502(6) of this title
with respect to avoidable loss has not become final.
Any contract entered into before such decision of
the Commission has become final shall be subject
to adjustment to assure that the contract is con-
sistent with such final decision of the Commission.
The contract may be made upon such terms and
conditions as necessary to permit the Corporation
to undertake passenger service on a timely basis.
Upon its entering into a valid contract (including
protective arrangements for employees), the rail-
road shall be relieved of all its responsibilities as a
common carrier of passengers by rail in intercity
rail passenger service under part I of the Interstate
Commerce Act or any State or other law relating
to the provision of intercity passenger service:
Provided, That any railroad discontinuing a train
hereunder must give notice in accordance with the
notice procedures contained in section 13a(1) of
Title 49.’’ 45 U.S.C. § 561(a)(1).
‘‘(a) The Corporation may contract with rail-
roads or with regional transportation agencies for
the use of tracks and other facilities and the provi-
sion of services on such terms and conditions as
the parties may agree. * * *’’ 45 U.S.C. §562(a).
Regional Rail Reorganization Act of 1973 (‘‘Rail Act’’),
45 U.S.C. §§ 701-794, and particularly :
‘‘The Corporation [ConRail] shall have all of the
powers and is subject to all of the duties vested in
it under this chapter, in addition to the powers
conferred upon it under the laws of the State or
States in which it is incorporated and the powers
9
of a railroad in any State in which it operates. The
Corporation is authorized and directed to—
‘*(a) acquire rail properties designated in
the final system plan to be transferred or con-
veyed to it;
‘‘(b) operate rail service over such rail prop-
erties except is provided under sections 744(e)
and 791(d)(2) of this title;
‘*(c) rehabilitate, improve, and modernize
such rail properties; and
‘“(d) maintain adequate and efficient rail
services.
‘*So long as 50 per centum or more, as determined
by the Secretary of the Treasury, of the outstanding
indebtedness of the Corporation consists of obliga-
tions of the Association or other debts owing to or
guaranteed by the United States, the Corporation
shall not engage in activities which are not related
to transportation.’’ 45 U.S.C. § 742.
‘*(a) Deposit with court.—Within 10 days after
delivery of a certified copy of a final system plan
pursuant to section 719(c¢) of this title—
**(1) the Corporation, in exchange for the rail
properties of the railroads in reorganization in the
region and of railroads leased, operated, or con-
trolled by railroads in reorganization in the region
to be transferred to the Corporation, shall deposit
with the special court all of the stock and other
securities of the Corporation and obligations of the
Association designated in the final system plan to
be exchanged for such rail properties;
**(2) each profitable railroad operating in the
region purchasing rail properties from a railroad
in reorganization in the region, or from a railroad
leased, operated, or controlled by a railroad in re-
organization in the region, as provided i in the final
system plan shall deposit with the special court the
compensation to be paid for such rail properties.
““(bh) Conveyance of rail properties.—(1) The
special court shall, within 10 days after deposit
10
under subsection (a) of this section of the securities
of the Corporation, obligations of the Association,
and compensation from the profitable railroads
operating in the region, order the trustee or trustees
of each railroad in reorganization in the region to
convey forthwith to the Corporation and the respec-
tive profitable railroads operating in the region, all
right, title, and interest in the rail properties of such
railroad in reorganization and shall itself order the
conveyance of all right, title, and interect in the rail
properties of any railroad leased, operated, or con-
trolled by such railroad in reorganization that are
to be conveyed to them under the final system plan
as certified to such court under section 719(d) of
this title.
‘*(2) All rail properties conveyed to the Corpo-
ration and the respective profitable railroads oper-
ating in the region under this section shall be
conveyed free and clear of any liens or encum-
brances, but subject to such leases and agreements
as shall have previously burdened such properties
or bound the owner or operator thereof in pursu-
ance of an arrangement with any State, or local or
regional transportation authority under which finan-
cial support from such State, or local or regional
transportation authority was being provided on
January 2, 1974, for the continuance of rail passen-
ger service or any lien or encumbrance of no greater
than 5 years’ duration which is necessary for the
contractual performance by any person of duties
related to public health or sanitation. Such convey-
ances shall not be restrained or enjoined by any
court.
‘*(3) Notwithstanding anything to the contrary
contained in this Act, if railroad rolling stock is
included in the rail properties to be conveyed, such
conveyance may only be effected if the profitable
railroad operating in the region or the Corporation
to whom the conveyance is made assumes all of the
obligations under any conditional sale agreement,
equipment trust agreement, or lease in respect to
such rolling stock and such conveyance is made
>
11
subject thereto; and the provisions of this chapter
shall not affect the title and interests of any lessor,
equipment trust trustee, or conditional sale vendee
or assignee under such conditional sale agreement,
equipment trust agreement or lease under section
205(j) of Title 11.’’ 45 U.S.C. § 743(a) and (b).
United States Constitution, Art. I, §8:
‘*Section 8. The congress shall have power * * *
‘.* * @
‘*To establish an uniform rule of naturalization,
and uniform laws on the subject of bankruptcies
throughout the United States ;
‘<* * ©
‘*To make all laws which shall be necessary and
proper for carrying into execution the foregoing
powers, and all other powers vested by this consti-
tution in the government of the United States, or in
any department or officer thereof.’’
United States Constitution, Art. III, §§ 1 and 2:
‘*Section 1. The judicial power of the United
States, shall be vested in one Supreme Court, and
in such inferior courts as the congress may from
time to time ordain and establish. The judges, both
of the Supreme Court and inferior courts, shall hold
their offices during good behavior, and shall, at
stated times, receive for their services, a compen-
sation, which shall not be diminished during their
continuance in office.
‘*Section 2. The judicial power shall extend to
all cases, in law and equity, arising under this con-
stitution, the laws of the United Staies, and treaties
made, or which shall be made, under their authority ;
—to all cases affecting ambassadors, other public
ministers and consuls ;—to all cases of admiralty
and maritime jurisdiction;—to controversies to
which the United States shall be a party ;—to con-
troversies between two or more states ;—between a
state and citizens of another state ;—between citi-
12
zens of different states;—between citizens of the
same state claiming lands under grants of different
states, and between a state, or the citizens thereof,
and foreign states, citizens or subjects.
‘<Tn all cases affecting ambassadors, other public
ministers and consuls, and those in which a state
shall be party, the Supreme Court shall have origi-
nal jurisdiction. In all the other cases before men-
tioned, the Supreme Court shall have appellate
jurisdiction, both as to law and fact, with such
exceptions, and under such regulations as the
congress shall make.
‘‘The trial of all crimes, except in cases of im-
peachment, shall be by jury; and such trial shall
be held in the state where the said crimes shall
have been committed; but when not committed
within any state, the trial shall be at such place or
places as the congress may by law have directed.’’
STATEMENT OF THE CASE
This case involves legal issues having significant impli-
cations for the future of Amtrak and the operation of
intercity rail passenger service in the United States and
for the proper interpretation of the Declaratory Judgment
Act, the Federal Arbitration Act, the Bankruptcy Act
and the Rail Act. At the heart of the controversy between
Amtrak and Penn Central lie the critical issues of (1)
what the proper role of a federal bankruptcy reorganiza-
tion court is after allowing its bankruptcy trustees to enter
into an agreement having a broad arbitration clause, after
allowing its trustees to participate in arbitration proceed-
ings leading to an award conclusively establishing that the
trustees breached their agreement, after allowing its
trustees to participate in confirmation proceedings and to
consent to the confirmation of the arbitration award
against the trustees by a judgment of a coordinate federal
district court, and after allowing its trustees to participate
in (and lose) a declaratory judgment action in a coordinate
13
federal district court concerning the final confirmation
judgment ; and (2) how far a reorganization court can go in
reviewing, vacating and setting aside final judgments of a
coordinate federal district court entered in proceedings
under the Federal Arbitration Act. This is a case in which
the Seventh Circuit has in effect sanctioned a significant
intrusion of one federal court into the statutory and con-
stitutional powers of another federal court. Amtrak asks
this Court to grant the petition for writ of certiorari so
that the line between the powers of sister federal courts
can be made clear.
Summary of Facts. The procedures in this case and
related cases are somewhat complex, but have become so
solely because of the refusal of Penn Central, the reorgani-
zation court, and to some extent the Seventh Circuit to
honor a final, unappealed judgment entered by Chief Judge
Steckler of the Indiana court. Much has happened since
1971, when the federal district court in Philadelphia then
having railroad reorganization responsibility for the af-
fairs of Penn Central under section 77 of the Bankruptcy
Act, 11 U.S.C. § 205, authorized Penn Central to enter
into two contracts with Amtrak; namely, The National
Railroad Passenger Corporation Agreement (‘Basic
Agreement’’) and The National Railroad Passenger Corpo-
ration Arbitration Agreement (‘‘ Arbitration Agreement’’).
For the Court to understand fully the legal significance
of the decision of the Seventh Cireuit which Amtrak asks
this Court to review, Amtrak in the following pages will
describe in chronological order what has transpired in the
four federal courts which have dealt with the controversy.
At the outset, however, it may be helpful for the Court
to keep several key facts in mind about which there is no
dispute—facts that hopefully will serve as signposts along
the treacherous path mapped by Penn Central which Am-
trak believes led the Seventh Circuit into error.
14
Fact 1. The federal reorganization court in Phila-
delphia permitted Penn Central, in order to be relieved
of its obligations to operate intercity rail passenger
service and to escape the large financial losses involved
in continuing to operate such service, to execute the
statutory Basic Agreement with Amtrak, dated as of
April 16, 1971, and effective May 1, 1971. The Basic
Agreement, under which each railroad contracting with
Amtrak agreed to furnish the necessary services to
run Amtrak trains on schedule over the railroad’s
tracks, provided that Penn Central and all of the other
railroads entering into similar Basic Agreements with
Amtrak would also enter into an Arbitration Agreement
under which the parties agreed to submit their disputes
under the Basic Agreement to binding arbitration.
Fact 2. Penn Central breached the statutory Basic
Agreement by failing to maintain approximately 360
miles of tracks between Chicago and Louisville and
Chicago and Cincinnati at the heart of the Amtrak sys-
tem in the Midwest at the level of utility required by
the Basic Agreement. As a result of this breach by
Penn Central of its obligation, Amtrak has not been
able to use the tracks since August 2, 1974, and since
that date, the Midwest has been deprived of the rail
passenger service which Congress in the Amtrak Act
directed Amtrak to provide.
Fact 3. The National Arbitration Panel issued its
award in favor of Amtrak on February 3, 1976, requir-
ing Penn Central to ‘‘institute, or cause to be instituted’’
a program to restore the tracks at no cost to Amtrak
and thus to return the required rail passenger service
to the Midwest.
Fact 4. On February 4, 1976, Amtrak invoked the
jurisdiction of the federal Indiana court to confirm the
award under 9 U.S.C. § 9, section 4.3 of the Arbitration
15
Agreement and 28 U.S.C. § 959, and asked the Indiana
court to enter its judgment upon the award under 9
U.S.C. §13. Penn Central asked the reorganization
court in Philadelphia to enjoin the confirmation proceed-
ings before the Indiana court. After holding a hearing,
the reorganization court declined to enter any such
injunction and the confirmation proceedings continued.
On March 24, 1976, the Indiana court entered judgment
against Penn Central confirming the arbitration award
under 9 U.S.C. §13. Penn Central did not object; in
fact, Penn Central consented to the entry of judgment
by the Indiana court under 9 U.S.C. § 13 without condi-
tion. Moreover, Penn Central did not appeal.
Fact 5. On April 1, 1976, the 360 miles of tracks
were conveyed by Penn Central to Consolidated Rail
Corporation (‘‘ConRail’’) pursuant to the Rail Act, a
conveyance that had been contemplated and understood
for some time by the parties, by the National Arbitra-
tion Panel, by the Indiana court and by the reorgani-
zation court. On that date (after the confirmation
judgment, but prior to the declaratory judgment), the
constructive possession of the reorganization court over
the conveyed properties was removed.
Fact 6. On April 9, 1976, Amtrak asked the reor-
ganization court to direct, instruct and authorize Penn
Central to comply with the Indiana court’s confirmation
judgment. Penn Central responded with the defense
that the conveyance of the 360 miles of tracks to ConRail
pursuant to the Rail Act excused any obligation of Penn
Central to comply with the Indiana court’s confirma-
tion judgment. Indeed, Penn Central asked the reorgan-
ization court to enjoin Amtrak from seeking execution
or enforcement of its rights under the confirmation
judgment.
Fact 7. Amtrak believed that the Rail Act issue,
like all other legal defenses to the validity of the arbi-
16
tration award and Penn Central’s underlying liability,
had already been resolved by the confirmation judgment
of the Indiana court, and that Penn Central’s response
in the reorganization court was a direct attack upon the
confirmation judgment and the power of the Indiana
court under 9 U.S.C. §13. Therefore, on May 5, 1976,
Amtrak filed its declaratory judgment complaint in the
Indiana court, the court that had issued the confirma-
tion judgment in the first place, asking the court to
declare the legal effect and validity of that prior judg-
ment—specifically, whether Penn Central was foreclosed
from raising the Rail Act defense after the confirma-
tion judgn#@nt was entered rather than before. On June
25, 1976, after the parties were fully heard, the Indiana
court entered its declaratory judgment in favor of
Amtrak and against Penn Central. Penn Central ap-
pealed to the Seventh Circuit and also obtained an
injunction from the reorganization court against Amtrak
from proceeding anywhere.
Fact 8. On September 30, 1976, in a related develop-
ment, the reorganization court denied Amtrak’s peti-
tion to direct, instruct and authorize Penn Central to
comply with the confirmation judgment, saying that
the Rail Act and the conveyance of the tracks to ConRail,
in effect, relieved Penn Central of all responsibility
for its defaults under the Basic Agreement, even though
the defaults occurred before the conveyance to ConRail.
The reorganization court’s decision, Order No. 2569,
is reported at 422 F.Supp. 67 (E.D. Pa. 1976) and is
Appendix D, page 109. That decision is now pending
on appeal to the United States Court of Appeals for
the Third Circuit, where oral arguments were heard
on April 1, 1977.
Fact 9. On February 15, 1977, the Seventh Circuit
below vacated the decision of the Indiana court, saying
17
that that court had exceeded its powers in entering the
declaratory judgment.
The effect of the decision of the Seventh Circuit is that
it was for the reorganization court to decide the issue of
whether the Rail Act was a bar to the enforcement of the
arbitration award, notwithstanding the fact that this issue
could have been raised before the Indiana court in the
confirmation proceedings and determined by that court.
The question here is whether the declaratory judgment of
the Indiana court is to be given effect, a judgment making
it crystal clear that the Indiana court’s confirmation judg-
ment had already adjudicated against Penn Central its
‘*defense’’ raised in the reorganization court that because
of the Rail Act, the arbitrators lacked power to compel
Penn Central to pay for the track restoration. Does the
reorganization court have the right to reconsider the under-
lving merits of the confirmation judgment? When all is
said and done, can Amtrak’s rights under a final judgment
of a United States district court mean nothing? Did Con-
gress intend for the power of one district court to enter
a judgment to be circumscribed by the power of another
district court? Is that consistent with Article III of the
United States Constitution?
Fact1. Background and the Contractual
Relationship Between Amtrak and Penn Central
Amtrak is a for-profit corporation created by the Rail
Passenger Service Act of 1970, 45 U.S.C. §§$ 501, et seq.
(‘‘Amtrak Act’’). The Act is Congress’s effort to save
the nation’s rail passenger transportation system from
demise. The declared purpose of Amtrak is set out in
section 101 of the Amtrak Act, 45 U.S.C. $501; namely,
‘*providing modern, efficient, intercity rail passenger serv-
ice.’’ Amtrak was granted the right initially to operate
intercity rail passenger service throughout the United
States within a ‘‘basic system’’ designed by the Secretary
18
of Transportation in accordance with the mandates of
section 201 of the Amtrak Act, 45 U.S.C. § 521. Under the
Amtrak Act, Penn Central and any other railroad that
wished to be relieved of the responsibility for the provision
of unprofitable intercity rail passenger service was required
to enter into a contract with Amtrak or in the alternative
to continue to operate its own passenger trains within the
basie system. 45 U.S.C. §561. Congress had directed Am-
trak to commence services on May 1, 1971, 45 U.S.C.
§ 561(b), and, to do that, had authorized Amtrak to ‘‘con-
tract with railroads * * * fer the use of tracks and other
facilities and the provision of services on such terms and
conditions as the parties may agree.’’ 45 U.S.C. §562(a).
For those who elected to contract with Amtrak, Congress
said in section 306(e) of the Amtrak Act, 45 U.S.C. § 546
(e):
‘‘(e) Persons contracting with the Corporation
for the joint use or operation of such facilities and
equipment as may be necessary for the provision of
efficient and expeditious passenger service shall be
and are hereby relieved from all prohibitions of ex-
isting law, including the antitrust laws of the United
States, with respect to such contracts, agreements, or
leases insofar as may be necessary to enable them
to enter into such contracts and to perform their ob-
ligations thereunder.’’
Penn Central elected to contract with Amtrak. The fed-
eral reorganization court in Philadelphia, by Order No. 238,
dated April 27, 1971, authorized Penn Central to execute
the statutory Basic Agreement’ and Arbitration Agreement
and to comply with all provisions thereof, with the uni-
lateral caveat, not agreed to by Amtrack, ‘‘that whenever
any matter is resolved by arbitration pursuant to the Main
[Basic] Agreement or the Arbitration Agreement, the
1 The reorganization court found that the Amtrak contract would have
a positive cash flow to the Penn Central estate of at least $267 million
over a seven-year period and that “the alternatives to approval of the
proposed contract are quite bleak.”
19
decision shall be submitted to this Court for review and
approval before becoming finally binding upon the Trustees
or the Debtor, during the pendency of these reorganization
proceedings.’ The Basic Agreement and the Arbitration
Agreement between Amtrak and Penn Central dated as of
April 16, 1971, and effective May 1, 1971, are identical to
contracts entered into by Amtrak with nineteen other rail-
roads to accomplish the goal of a national network of
interconnecting rail lines providing an alternative mode
of intercity passenger transportation. The terms of the
two agreements were the outcome of negotiations between
Amtrak and a committee of the Association of American
Railroads, chaired by a representative of the Penn Central
trustees. Under the Basic Agreement and the Arbitration
Agreement, Amtrak undertook to assume the intercity rail
passenger responsibilities of Penn Central and the other
contracting railroads, and in return, Penn Central and
the other railroads undertook to render certain services to
Amtrak and, among other things, to maintain the rail lines
‘‘at not less than the level of utility’’ existing on May 1,
1971. Section 4.2 of the Basic Agreement.
* As explained in part 2 of the Reasons for Granting the Writ below,
Amtrak believes that the reservation by the reorganization court of the
right of “review and approval” merely expressed the inherent power of
that court to fit into the overall administration of the bankrupt estate
obligations of the trustees adjudicated elsewhere. It was not a reservation
of the right t- re-adjudicate causes of action against the trustees litigated
to final judgment elsewhere. A bankruptey court does not have power to
do that. In other words, a bankruptey court can decide how and when
a judgment against the trustees is to be paid; it may not re-adjudicate
the question whether the trustees were liable in the first place. Amtrak’s
attorneys had put the reorganization court on notice in 1971, after Penn
Central had executed the contracts and Amtrak was first informed of
Order No. 238, that any blanket assertion that Order No. 238 wiped out
the meaning and effect of binding arbitration would be contested. Be-
tween 1974 and 1975, five arbitration cases were brought before the
reorganization court and never before this case has that court asserted
that it had an exclusive right to review the merits of arbitration awards.
The reorganization court has withheld decision on the earlier cases, and
Order No. 2569, discussed below, is the first time the reorganization court
has invoked Order No. 238 to invalidate an admittedly valid award and
confirmation judgment of a sister federal court.
20
Of critical importance to the accomplishment of Con-
gress’s goal of saving rail passenger service and of provid-
ing a restructured rail passenger system was the settlement
of all disputes by binding arbitration. Article Six of the
Basic Agreement states in relevant part as follows:
‘c* * * [A |ny claim or controversy between NRPC
[Amtrak] and Railroad [Penn Central] concerning
the interpretation, application, or implementation of
this Agreement shall be submitted to binding arbi-
tration in accordance with the provisions of the
Arbitration Agreement dated the date hereof among
NRPC, Railroad, and certain other railroads * * *.’’
(Emphosis added).
Section 4.2 of tue Arbitration Agreement provides:
‘c# * * [Ajny arbitration award hereunder made
by a majority of the members of any Arbitration
Panel shall be Linding upon the parties thereto. Any
arbitration award hereunder shall declare the rights
of the parties thereto and may make awards of
money or, enjoin or otherwise operate in such a way
as to require specific performance by a party of any
act or obligation.’’ (Emphasis added).
And section 4.3 of the Arbitration Agreement provides:
‘*‘ Judgment may be entered upon an arbitration
award hereunder * * * in any United States District
Court.’’ (Emphasis added).
Fact 2. Penn Central Breached The Agreement
Among the rail lines which Penn Central agreed to
maintain at the May 1, 1971, level of utility were approxi-
mately 360 miles of tracks traversing the State of Indiana
and connecting Chicago with Cincinnati and Louisville via
Indianapolis.* By late summer of 1972, when Amtrak first
% These are key lines in the Congressional program under the Amtrak
Act. Two routes are involved, both part of the basie system of inter-
connecting jassenger routes designed by the Secretary of Transportation
and enacted into law. One route connected Chicago and Washington via
21
began arbitration proceedings against Penn Central,‘ it
was clear that Penn Central was starting to abandon the
rail lines through neglect, making them unfit for passenger
train usage in violation of the Basic Agreement. On August
2, 1974, the Federal Railroad Administration condemned
the rail lines as unsafe, and all passenger service over the
lines ceased. While as a result of protracted litigation,
Amtrak was able to use as a substitute the freight tracks
of The Chesapeake and Ohio Railway Company (‘C &
O’’),° connecting Chicago with Cincinnati, the C & O tracks
do not serve the capital of Indiana, Indianapolis, do not
go to Louisville and are largely unsuitable for the efficient,
rapid rail passenger service contemplated by Congress.
Indianapolis and Cincinnati and was used by Amtrak’s eastbound train
“The George Washington” and by Amtrak’s westbound train “The James
Whiteomb Riley.” The other route connected Chicago with St. Petersburg
via Indianapolis and Louisville and was used by Amtrak’s northbound
and southbound trains both known as “The Floridian.” By August 1,
1974, the tracks owned by Penn Central along the two routes had been
allowed to deteriorate to a point where they could not be used for passen-
ger trains. The end result—compounded by Penn Central’s delays in
failing to maintain and restore the rails as promised and as ordered to
do—has substantially interfered with the Congressional plan for rapid,
safe intercity rail passenger service.
* The arbitration proceedings were initiated by Amtrak before the Na-
tional Arbitration Panel, not before the reorganization court as stated at
one place in the decision of the Seventh Cireuit (App. 67). The arbitra-
tion proceedings between Amtrak and Penn Central were consolidated
with like proceedings brought by Amtrak against Illinois Central Gulf
Railroad (“ICG”). An award was rendered against ICG requiring it to
restore over 1,000 miles of tracks, which ICG is now in the process of
doing.
* The status of the C & O litigation is best described by the decision
of the Seventh Circuit in Amtrak’s favor in Cause No. 76-1472 issued on
March 4, 1977, which is reported at 551 F.2d 136 (7th Cir. 1977) and
which is Appendix E, page 123. The C & O arbitration confirmation pro-
ceedings and the Penn Central arbitration confirmation proceedings were
consolidated by the Indiana court and the two confirmation judgments,
one against Penn Central and one against C & O, were issned in Amtrak’s
favor at the same time by the Indiana court. C & O's appeal of the
confirmation judgment against C & O and Penn Central’s appeal of the
later declaratory judgment interpreting the confirmation judgment against
Penn Centra) were considered together by the Seventh Circuit. The
Seventh Circuit affirmed the C & O confirmation judgment and reversed
the Penn Central declaratory judgment.
22
Everyone—Amtrak, Penn Central, the National Arbi-
tration Panel, the Indiana court, the reorganization court
and the Seventh Cireuit—agrees that between 1971 and
1976, Penn Central breached the Basic Agreement with
Amtrak and that the Midwest has been deprived of certain
rail passenger service since August 2, 1974.
Fact 3. The Arbitration Award of the
National Arbitration Panel
After extensive arbitration proceedings between Amtrak
and Penn Central spanning well over three years and cost-
ing hundreds of thousands of dollars, the National Arbi-
tration Panel, the body designated in the Arbitration Agree-
ment to hear and determine all disputes between Amtrak
and the 20 contracting railroads, issued its award on [eb-
ruary 3, 1976. That arbitration award is attached to the
Indiana court’s confirmation judgment and is reproduced
in Appendix C (App. 91).
The arbitration award declared that Amtrak had a con-
tract right to have the delapidated Penn Central tracks
kept at the May 1, 1971, level of utility under section 4.2
of the Basic Agreement. It held that Penn Central had
breached that duty by failing to keep the lines in the agreed-
upon state of repair and has consciously permitted the
tracks to so deteriorate through neglect that passenger
trains could no longer safely use them. The arbitration
award directed Penn Central, without cost to Amtrak, ‘‘to
institute, or cause to be instituted’’ (App. 97-98) the resto-
ration work on the tracks delineated in the detailed Panel
Program attached to the arbitration award. The Panel
Program also provided for a work schedule to be submitted
to Amtrak within 90 days of the issuance of the arbitration
award. The estimates of the cost of the repairs ranged
from $22,000,000, based upon independent evaluation, to
$11,000,000, estimated by Penn Central using its own em-
plovees.
23
Fact 4. The Confirmation Judgment
On February 4, 1976, Amtrak filed in the Indiana court
a petition to confirm the arbitration award pursuant to
9 U.S.C. § 9, section 4.3 of the Arbitration Agreement, and
28 U.S.C. § 959. However, on February 17, 1976, Penn
Central petitioned the reorganization court to stop the
confirmation proceedings. A show-cause hearing on Penn
Central’s petition was held before the reorganization court
on March 18, 1976. At that hearing, Amtrak made clear
that it recognized the jurisdiction of the reorganization
court to determine how and when payments from the assets
of the Penn Central estate would be made to enforce, satis-
fy, and execute the arbitration award, if confirmed by
judgment of the Indiana court. What Amtrak also made
clear was its position that the Indiana court, not the reor-
ganization court, had the power to decide any defenses Penn
Central had to the validity of the arbitration award under
the Rail Act. The following record was made at the March
18, 1976, hearing before the reorganization court, a copy
of which record was submitted to the Indiana court by
Amtrak as an exhibit in the later declaratory judgment
action:
‘*THE COURT: Let’s assume the decision [of the
arbitrators] is affirmed. As a decision ordering spe-
cific performance, I assume that is under equitable
jurisdiction, and the failure to comply with the de-
cree would give rise to contempt proceedings. Is that
your position?
“MR. VALENTINE [Counsel for Amtrak] : Your
Honor, our position would be this: That the judge
in Indiana is well aware of your Order 238, that
after we received the confirmation, which is to say
the finding that this is a valid award and that it is
res judicata insofar as the interpretation of the con-
tract, the fact that the panel did have the right to
issue the specific performance award, the fact that
there are no grounds under Section 10 of the Arbi-
tration Act to vacate the award, that all is res judi-
cata.
24
‘*We would then bring this case back to this [reor-
ganization] court for surely no other court but your-
self will be able to assign the assets of the estate to
accomplish the specific performance award, and we
think that that is very proper that we should bring
it back here.’’
o @ eo
‘*THE COURT: You miss the point.
‘*As I understand it, your arbitration award does
not award damages for past breaches. It orders
specific performance for future correction. It obvi-
ously can’t take effect until after conveyance date
[of the rail lines to ConRail under the Rail Act],
and at that point the whole ballgame has changed.
‘*Now what is your response to that?
“MR. VALENTINE: My response to that is that
is a proper question for the judge in Indiana, and
he is equally able to decide that question as this
oust: °° *;
eo 8 _
‘*‘Now, Your Honor, the point is that this is a past
breach that we are trying to rectify, not a future
obligation. The future obligation is quite different.
‘*The condition of the tracks now in this particular
State of Indiana are depriving the state and its
citizens of Indianapolis of railroad service that they
are intended to have under the Amtrak Act. My
point is that these people have been deprived of
this now for some two or three years.
‘*Now that is because the trustees through a caleu-
lated policy neglected to perform the necessary
maintenance to maintain these lines. That is a past
breach.
“THE COURT: That is ridiculous; to accuse
them of a ealeculated policy of not having enough
money to do everything that had to be done is just
idiotic. The fact is they were operating at a tremen-
dous loss during an extensive period, as mandated
by the federal government in order to permit reor-
ganization under the RRRA [the Rail Act].
25
‘Obviously, they would have been out of the rail-
road business years before had it not been for the
RRRA, and to say you can just proceed with this
litigation in Indiana as if there had not been a
RRRA is just to —
“MR. VALENTINE: No, Your Honor, we don’t
take that position at all, sir. We say we are pro-
ceeding in Indiana in the face of the RRRA, and
we say this is an Act which should be properly
brought to the attention of the court of Indiana,
which is proceeding with the original jurisdiction in
this case. He has the original jurisdiction, in our
view, and he has the right to proceed.”’
The reorganization court never enjoined the confirmation
proceedings before the Indiana court. Moreover, Penn
Central subsequently consented to the entry of the con-
firmation judgment on the arbitration award in favor of
Amtrak, and, for whatever reason, Penn Central did not
press the Rail Act defense, even though Penn Central had
argued at every step of the arbitration proceedings and
even to the Indiana court at a preliminary hearing on
February 10, 1976, that the award was possibly invalid
because of the Rail Act. On March 24, 1976, the Indiana
court entered the confirmation judgment against Penn
Central and in favor of Amtrak under 9 U.S.C. $13. That
judgment was not appealed by Penn Central and ++ is now
final.
Fact 5. The Rail Act and the
April 1, 1976, Conveyance to ConRail
While the arbitration proceedings between Amtrak and
Penn Central were going on, Congress supplemented sec-
tion 77 of the Bankruptcy Act with the Rail Act of 1973.°
Under the Rail Act, there was to be a reduction in the
number of freight routes serving the public according to
* For a description of the Rail Act and its relevance to Penn Central's
bankruptey, see the Regional Rail Reorganization Act Cases, 419 U.S. 102,
95 S.Ct. 335 (1974).
26
a Final System Plan designed by a federal agency, the
United States Railway Association. On July 26, 1975, the
Final System Plan was promulgated and the rail lines at
issue here were designated for transfer to ConRail, the
new corporation to take over the rail lines of seven major
railroads, including Penn Central.
The arbitrators of the National Arbitration Panel were
fully aware of the Rail Act. However, the majority of the
arbitrators did not consider the Panel the proper body
‘‘to decide whether, or to what extent the [Rail Act] or
the Final System Plan thereunder may affect the carrying
out of this award.’’ (App. 99). The dissenting arbitrator
strongly disagreed and wrote a lengthy dissent which ob-
viously made a complete record of his disagreement for
the Indiana court faced with Amtrak’s petition to confirm
the award.’
On April 1, 1976, the conveyance to ConRail occurred and
the section 77 jurisdiction of the reorganization court to
administer the operation of Penn Central’s property was
removed. However, the reorganization court retains juris-
diction over the remaining assets and nonrailroad proper-
ties of Penn Central, as well as over the substantial
proceeds to be received by the estate pursuant to the
reorganization under the Rail Act. The Rail Act and the
transfer to ConRail were the result of the realization by
Penn Central, by the reorganization court and finally by
7 The dissenting arbitrator thought it was a “dereliction in the discharge
of [the Panel’s] arbitration duties” to refrain from passing upon the im-
pact of the Rail Act, thus leaving the matter to the courts (App. 107).
The dissent says that “the majority appears to have adopted the contention
of Amtrak counsel: ‘On the other hand, if the Penn Central is lawfully
entitled to relief from their contract obligations freely undertaken on April
16, 1971, then it ean surely find adequate relief in the courts from any
award this Panel might grant. Thus, if the Panel has no power to issue the
specifie performance herein requested, an adequate remedy is available to
the Penn Central to protect itself from injury. The Award can be appro-
priately attacked under the provisions of the Federal Arbitration Act
for vacating an improper award.’ (Amtrak letter Dee. 23, 1975, to Panel
Chairman).” (App. 101-102).
27
Congress that Penn Central could not be reorganized on
an income basis under section 77.
Fact 6. Amtrak’s Petition to the
Reorganization Court and Penn Central’s Answer
When Penn Central did not take immediate steps to
comply with the confirmation judgment by instituting
proper procedures for review and approval by the reorgani-
zation court in compliance with Order No. 238, Amtrak
itself petitioned the reorganization court for an order to
‘‘direct, instruct, and authorize’? Penn Central to comply
with the confirmation judgment. Instead of joining with
Amtrak to carry out the mandate of a federal court, Penn
Central responded with an answer that the conveyance of
the rail lines to ConRail pursuant to the Rail Act had made
the confirmation judgment nonenforceable and asked the
reorganization court to enjoin Amtrak from seekine ‘‘exe-
cution or enforcement’? of the arbitration award in light
of that ‘‘new matter.”’
At this point a new controversy arose between the
parties over the ambiguity in and meaning of the con-
firmation judgment. Amtrak claimed the validity of the
award, even in the face of the Rail Act and the property
transfer to ConRail, had already been litigated in the
recently completed confirmation proceedings before the
Indiana court. Penn Central claimed it had not been, since
the effect of the Rail Act on the arbitration award was not
an issue there. Amtrak claimed that by these assertions
Penn Central was directly attacking the original juris-
diction of the Indiana court to enter its judgment upon the
award as prescribed by the Federal Arbitration Act and
was treating the judgment of the Indiana court as if it
were a nullity and not a final judgment on the merits.
28
Fact 7. The Declaratory Judgment Action
To settle the new controversy and dispute between Penn
Central and Amtrak over the ambiguity in and the mean-
ing of the confirmation judgment under the Federal Arbi-
tration Act, the Bankruptcy Act and the Rail Act, Amtrak
‘returned to Indiana. Amtrak’s feeling then was and now
is that there is no court better able to say what a judgment
means than the court that rendered the judgment in the
first place. On May 5, 1976, Amtrak filed a complaint for
a declaratory judgment in order to determine the nature
and scope of the legal rights which flowed from the con-
firmation judgment in the context of the judicial powers
and jurisdiction of the Indiana court to hear and decide
the legal validity of the arbitration award under sections
9 and 10 of the Federal Arbitration Act, 9 U.S.C. §§ 9-10.
Jurisdiction was based upon 28 U.S.C. §$§ 2201-2202, alleg-
ing both diversity of citizenship and federal question
jurisdiction. Penn Central contested the jurisdiction of the
Indiana court to enter a declaratory judgment and claimed
that the Indiana court never had any judicial power in the
confirmation proceedings to pass upon the consequences
of the Kail Act or the lawfulness of the arbitration award.
A motion for summary judgment was made by Amtrak
since there were no genuine issues of material fact. Penn
Central moved to dismiss, asserting numerous legal argu-
ments, and later moved for summary judgment, agreeing
with Amtrak that there were no genuine issues of material
fact. Briefs were submitted, and both parties were fully
heard on the merits in oral argument. Penn Central liti-
gated and lost, without interference by the reorganization
court, Judgment was entered on June 25, 1976, in favor of
Amtrak and against Penn Central. The Indiana court held
it had jurisdiction to hear and decide the case before it
and that the Rail Act defense which had been raised by
Penn Central in its answer in the reorganization court
raised issues which had already been, or ought to have
29
been, litigated in Indiana. The declaratory judgment pro-
vided (App. 86-87) that the earlier confirmation judgment
upon the arbitration award was:
““* * * a conclusive bar against any further legal
claims which may be made by the Trustees that:
(a) the award of the National Arbitration Panel
and the judgment of this court is invalid or nonen-
forceable because of the Regional Rail Reorganiza-
tion Act of 1973 * * *.”
Within five days after the declaratory judgment had been
entered against it, Penn Central made an ex parte motion
to the reorganization court asking that court to enjoin
Amtrak from further appearing in the Indiana court and
to set down for immediate disposition Amtrak’s earlier
petition that Penn Central be directed to comply with the
confirmation judgment and Penn Central’s defense thereto
that the Rail Act made the award nonenforceable. The
injunction was granted,* and Amtrak was compelled to
® Order No. 2419 of the reorganization court, dated June 30, 1976, en-
joined Amtrak from appearing in any other court to defend the validity and
enforceability of the arbitration award pending “hearing of and decision
of” this question by the reorganization court. On July 2, 1976, Penn Cen-
tral filed post-judgment motions in the Indiana court for a stay of the en-
forcement of the declaratory judgment pending appeal and for an amend-
ment to the declaratory judgment. On July 6, 1976, Amtrak was served
with a copy of Order No. 2419, and thus was advised for the first time
to appear before the reorganization court on July 15, 1976 (later con-
tinued to July 30, 1976), or be forever enjoined from enforcing the
judgment of the Indiana court or the arbitration award. This led in turn
to a number of procedures. Under Order No. 2419 Amtrak’s attorneys
were forbidden to defend against the post-judgment motions of Penn
Central or to file briefs supporting the validity of the confirmation judg-
ment against Penn Central which, apparently mistakenly, had been ap-
pealed by C & O to the Seventh Circuit. Believing Order No. 2419 was
an unlawful exercise of section 77 reorganization court power and was
an attempt by the reorganization court to seize the jurisdiction of the
Indiana court, Amtrak asked the reorganization court for a stay of the
scheduled proceedings in the reorganization court pending an appeal of
Order No. 2419, an appeal which was filed with the Third Cirenit on
July 9, 1976. When no action was taken on this request, Amtrak made
an emergency motion to the Third Circuit for a stay and an expedited
hearing on the appeal of Order No. 2419. The reorganization court then
issued Order No. 2458 explaining it had no intention to interfere with
30
appear before the reorganization court upon questions
which Amtrak believes were finally decided in the Indiana
court by the entry of the confirmation judgment; namely,
whether Penn Central was liable for its past contract
defaults and whether the rail line restoration order of the
arbitrators was a valid arbitration award, notwithstanding
the operation of the Rail Act.
Fact 8. The Decision of the Reorganization Court
After a hearing, the reorganization court on September
30, 1976, found itself ‘‘unable to agree’’ with the declara-
tory judgment of the Indiana court, believing the Indiana
court had resolved the Rail Act defense of Penn Central
by ‘*procedural sleight-of-hand.’’ (App. 118-19) The reor-
ganization court concluded in Order No. 2569 that the Rail
Act excused Penn Central from any obligation to comply
with the confirmed arbitration award. It denied Amtrak’s
petition for satisfaction of its rights under the Indiana
court’s judgments. In short, the confirmation judgment and
the declaratory judgment of the Indiana court were re-
viewed by the reorganization court and declared nullities.
An appeal to the Third Circuit, Cause No. 76-2542, was per-
fected by Amtrak. The issues are fully briefed and oral
argument was heard on April 1, 1977. There has been no
decision.
the appeal in the Seventh Circuit. However, the blanket injunction re-
mained in effect pending hearing in the reorganization court on the
merits of the Rail Act defense to the validity of the arbitration award.
When on the day preceding the scheduled hearing in the reorganization
court no decision had been made by the Third Cireuit on the emergency
motion, Justice Brennan of this Court in No. A-80 did grant a stay on
July 29, 1976, which he later vacated. However, in the interim the post-
judgment motions of Penn Central in the Indiana court had been denied
sua sponte and C & O’s appeal of the confirmation judgment in the
Seventh Cireuit was dismissed. The reorganization court then reset the
hearing for September 8, 1976, continuing the injunction against Amtrak
“until decision.” On September 30, 1976, the reorganization court issued
its decision against Amtrak (App. 109).
31
Fact 9. The Decision of the Seventh Circuit
On February 15, 1977, the Seventh Circuit issued its
decision in favor of Penn Central and against Amtrak,
thus reversing and vacating the Indiana court’s declaratory
judgment and holding it was appropriate only for the
reorganization court (not the Indiana court) to determine
the effect of the Rail Act on the enforceability of the
confirmation judgment.
The Seventh Circuit said first that the Indiana court
was ‘‘without jurisdiction by declaratory judgment, or
other judicial means, to circumscribe the jurisdiction of
the [reorganization court] as to the enforcement of an
arbitration award which was subsequently confirmed by
the Indiana Court, and we now so hold.’’ (App. 77). The
Court went on to say that the reorganization court, not
the Indiana court, had the responsibility to decide whether
the issues before the reorganization court were barred by
the prior confirmation judgment of the Indiana court. The
Court said the confirmation proceeding ‘‘had only the
limited purpose to review the arbitration proceedings to
‘see that the award was a proper award and that the
arbitrators acted honestly, and did not exceed their
powers.’ ’” (Court’s emphasis) (App. 78). The Seventh
Circuit assumed there was a justiciable ‘‘controversy’’
between Amtrak and Penn Central and did not directly
discuss the contention of Penn Central that there was no
such controversy. The Seventh Circuit concluded its deci-
sion as follows:
‘*In view of the foregoing, we hold that the De-
claratory Judgment of the Indiana Court was an
improper exercise of its limited jurisdiction and
® As explained in part 3 of the Reasons for Granting the Writ below,
a confirming court also has the obligation to see that the arbitration
award is lawful and does not interfere with the statutory laws of the land,
e.g., the Rail Act.
32
was wrong on the merits.’® According, the judgment
of the Indiana Court is reversed. This case is re-
manded to the Indiana Court with directions to
vacate its declaratory judgment.
‘‘The issues hereinabove discussed are within the
exclusive jurisdiction of the Pennsylvania Reorgan-
ization Court and it may now proceed therewith.’’
(App. 79).
REASONS FOR GRANTING THE WRIT
Summary of Reasons for Granting the Writ. There are
three basic reasons why Amtrak believes the Seventh Cir-
cuit’s decision is dead wrong and should be reviewed by this
Court, either (1) because the decision calls for the exercise
of this Court’s power of supervision, or (2) because the
Seventh Circuit’s decision decides important questions of
federal law which have not been, but should be settled by
this Court, or (3) has decided federal questions in ways
that conflict with the applicable decisions of this Court and
with the decisions of other Circuits.
The first reason discussed below is that the Seventh
Circuit is wrong in holding that the Indiana court had no
jurisdiction under 28 U.S.C. §§ 2201-2202 to enter the
declaratory judgment. The Indiana court had the power
that every federal court has to declare what the law is and
10 Tf the Seventh Cireuit’s decision does hold that the Indiana court was
“wrong on the merits” in the sense that the Indiana court should have
held that the Rail Act does excuse Penn Central from its obligations
under the confirmation judgment, then the Seventh Circuit is doing pre-
cisely what it apparently said the Indiana court lacked the jurisdiction
to do: decide the Rail Act defense! Of course, no one has explained why
Congress could conceivably have meant by the Rail Act to take a valuable
asset from Amtrak obtained by final judgment for the sole purpose of
increasing the dollars in the Penn Central estate. But that question of
statutory interpretation—if it can be called that—is presently under
advisement in the Third Circuit. On the other hand, the Seventh Circuit’s
decision can more appropriately be read to say that the Indiana court
was “wrong on the merits” in the sense that the Indiana court should
have held that the confirmation judgment was not res judicata on the
question of whether the Rail Act does or does not excuse Penn Central.
33
what a judgment means, particularly where, as here, the
judgment is one rendered by that court in the first instance.
The second reason is that the reorganization court does
not have the power to go behind the final confirmation
judgment and rehear all defenses which Penn Central could
have and should have raised in the confirmation proceed-
ings as grounds to vacate the award. The reorganization
court cannot invalidate and set aside a valid judgment of a
sister federal court, for that is a result contrary to the
Basic Agreement, to the intention of Congress in enacting
the Federal Arbitration Act and the Declaratory Judgment
Act, and to Article III of the United States Constitution.
The declaratory judgment did not in any way interfere
with the legitimate powers of the reorganization court.
The third reason is that the Indiana court, vested
with the jurisdiction to hear the declaratory judgment
action and after hearing all the parties’ contentions,
decided the action correctly under the law. Penn Central
did have an obligation to raise the Rail Act defense in the
confirmation proceedings and, since it did not do so, it can-
not raise it later in the reorganization court.
Because the question of what the declaratory judgment
did vis-a-vis the reorganization court’s prerogatives was
obviously pivotal for the Seventh Circuit, Amtrak would
like to state at the outset and in the most unequivocal terms
what Amtrak was not trying to do in the declaratory
judgment action. Amtrak was not trying to ‘‘enforce’’ the
arbitration award as that word is used by Penn Central to
indicate interference with the jurisdiction of the reorgani-
zation court. Throughout the Seventh Circuit’s opinion are
the words ‘‘enforce’’ and ‘‘enforcement”’ in referring to
the arbitration award. Yet, those words do not accurately
describe what the declaratory judgment action was meant
to do. As shown below, the Seventh Circuit simply mis-
understood the function of the Indiana court vis-a-vis the
ot
reorganization court, which at that point in time had had
much of its powers removed by the Rail Act.
A reorganization court under section 77 of the Bank-
ruptey Act may have exclusive jurisdiction over the
property of the debtor and have plenary powers to carry
out the administration and reorganization of properties.
But that does not mean that the liability of the trustees of
the debtor’s property arising out of their operation of the
debtor’s business must always be determined in the reor-
ganization court. Other courts may be required by law to
fix this liability even though payment upon the liability
may still have to be administered by the reorganization
court. Stated briefly: liability of the trustees, under certain
circumstances, can be finally determined and fixed in a
nonbankruptcy court, even though the bankruptcy court
has the exclusive authority to say when and how payments
from the estate are to be made to satisfy that liability.
It is abundantly clear that when the Indiana court
entered the confirmation judgment on the award of the
arbitrators, the court was exercising a judicial power to
finally determine the liability of Penn Central and the
validity of the award. There was a line to be drawn between
the functions of the confirming Indiana court and the
reorganization court, both of which are enforcing arms
of the United States Government in applying the laws of
the land, including the application of the Rail Act. Because
of judicial comity, this line was shadowy and wavering
during the confirmation proceedings and the show-cause
hearing of the reorganization court, but it ultimately had
to be drawn by the Indiana court or its functions as a con-
firming court given up. The Indiana court did intend to
exercise its fullest judicial powers in deciding whether or
not Penn Central was liable to comply with the arbitration
award, even though satisfaction of the award from the
assets of the Penn Central estate would have to be admin-
istered by the reorganization court.
Having taken the jurisdiction to hear and decide the
case in the first instance, the Indiana court could not ignore
the opinion of the dissenting arbitrator who claimed the
award was invalid because of the Rail Act. The Indiana
court could not pass the eup of problems raised by the
Rail Act to the reorganization court and still remain re-
sponsible for confirming the legality of the award and for
merging it into a judgment. Chief Judge Steckler settled
the issue of the Rail Act’s application to the legitimacy
of the restoration award when he entered judgment upon
the award pursuant to 9 U.S.C. § 13.
In filing the declaratory judgment action, Amtrak was
not trying to interfere with the administration of the bank-
rupt estate by the reorganization court. The declaratory
judgment entered by the Indiana court certainly did not
do that. It only declared what the earlier confirmation
judgment meant and what the Indiana court believed the
applicable law to be concerning the contractual dispute
over past breaches by Penn Central and the corresponding
liability of Penn Central for those breaches. No assets of
the estate were affected by the declaratory judgment. No
determination was made as to how and when the confirma-
tion judgment was to be satisfied in dollars. The reorgani-
zation court’s grip on the purse strings of the estate was
not loosened. Suffice it to say that the reorganization
court’s jurisdiction was properly recognized by the Indiana
court. Unfortunately, the Indiana court’s jurisdiction was
not properly recognized by the seventh Circuit.
This Court should issue a writ of certiorari so that fed-
eral courts faced with the problem of marking properly the
jurisdictional line between bankruptcy and nonbankruptey
courts will not rely upon the erroneous decision of the
Seventh Circuit herein. This is a case having significant
questions of judicial power, questions which are also very
important to the future of Amtrak.
36
1. The Indiana Court Had Jurisdiction Under the Declara-
tory Judgment Act to Declare the Validity, Finality and
Legal Significance of Its Own Prior Confirmation Judg-
ment.
Amtrak would like to point out two things about the
conceptual framework within which the declaratory judg-
ment was rendered. First, Amtrak believes the Indiana
court had a legal right to declare what the law was and
what the confirmation judgment meant in light of the law.
On that point, the Seventh Cireuit said that it was ‘‘unable
to find any precedent * * * for referring back to the court
of first adjudication [the Indiana court] the question of
whether its judgment is res judicata in another court [the
reorganization court].’’ (App. 78). This is a question of
first impression in this Court which should now be decided
by the Court. Second, there was clearly a ‘‘controversy’’
between Amtrak and Penn Central sufficient to give the
Indiana court jurisdiction under the Declaratory Judgment
Act, after the confirmation judgment was entered and Penn
Central for the first time in a court raised the Rail Act as
a complete defense to Amtrak’s right to have Penn Central
live up to the obligations memorialized in the confirmation
judgment. The Seventh Circuit did not discuss this issue,
but merely assumed there was a ‘‘controversy’’ (App. 77).
This Court should grant the petition for writ of certiorari
because the Seventh Circuit’s decision, if allowed to stand,
could threaten to diminish the utility of the Declaratory
Judgment Act to courts and litigants alike.
The Declaratory Judgment Act has now been law for
more than forty years and debates over whether or not
decisions declaring legal rights and relationships are ‘‘ad-
visory opinions’’ (as alleged by Penn Central) should have
long since passed away, set to rest by the words of the
statute itself and by Aetna Life Ins. Co. v. Haworth, 300
U.S. 227, 57 S.Ct. 461 (1937). The Declaratory Act pro-
vides:
37
‘*In a case of actual controversy within its juris-
diction, except with respect to Federal taxes, any
court of the United States, upon the filing of an
appropriate pleading, may declare the rights and
other legal relations of any interested party seeking
such declaration, whether or not further relief is or
could be sought. Any such declaration shall have the
force and effect of a final judgment or decree and
shall be reviewable as such.’’ 28 U.S.C. § 2201.
The words ‘‘actual controversy’’ of this statute were
intended to bring the Act within the Constitution, nothing
more. Article III, section 2, of the Constitution limits
federal justiciability to ‘‘cases’’ and ‘‘controversies,’’ and
the Congress could not enlarge the jurisdiction of federal
courts to declare legal rights beyond this constitutional
limitation. Chief Justice Hughes in Aetna Life defined an
actual controversy as contemplated by 28 U.S.C. § 2201 in
this manner:
‘*A ‘controversy’ in this sense must be one that
is appropriate for judicial determination. * * * A
justiciable controversy is thus distinguished from a
difference or dispute of a hypothetical or abstract
character; from one that is academic or moot. * * *
The controversy must be definite and concrete,
touching the legal relations of parties having ad-
verse legal interests. * * * It must be a real and
substantial controversy admitting of specific relief
through a decree of a conclusive character, as dis-
tinguished from an opinion advising what the law
would be upon a hypothetical state of facts. * * *
Where there is such a concrete case admitting of an
immediate and definitive determination of the legal
rights of the parties in an adversary proceeding
upon the facts alleged, the judicial function may be
appropriately exercised although the adjudication
of the rights of the litigants may not require the
award of process or the payment of damages. * * *’’
300 U.S. at 240-41, 57 S.Ct. at 464.
And these broad concepts were later reduced to more
JS
concrete terms in Maryland Casualty Co. v. Pacific Coal
& Oil Co., 312 U.S. 270, 61 S.Ct. 510 (1941). Speaking for
the Court, Justice Murphy stated:
‘‘The difference between an abstract question and
a ‘controversy’ contemplated by the Declaratory
Judgment Act is necessarily one of degree, and it
would be difficult, if it would be possible, to fashion
a precise test for determining in every case whether
there is such a controversy. Basically, the question
in each case is whether the facts alleged, under all
the circumstances, that that there is a substantial
controversy, between parties having adverse legal
interests, of sufficient immediacy and reality to
warrant the issuance of a declaratory judgment.
°° °° 312 US. at 273, 61 S.Ct. at 512.
In light of Aetna Life and Maryland Casualty, there was
clearly a new controversy between Amtrak and Penn
Central on May 5, 1976, when Amtrak filed its complaint
for a declaratory judgment.
The controversy was over the scope, meaning, effect
and validity of the Indiana court’s confirmation judgment
of March 26, 1976, and the ambiguity surrounding that
judgment. As stated above, Penn Central consented to the
entry of the confirmation judgment under the mandates of
the Federal Arbitration Act, including 9 U.S.C. §13,
which says in relevant part:
oo. ee
‘‘The judgmenc so entered shall have the same
force and effect, in all respects, as, and be subject
to all the provisions of law relating to, a judgment
in an action; and it may be enforced as if it had been
rendered in an action in the court in which it is
entered.”’
Yet, once the confirmation judgment was entered and
Amtrak’s hopes for restoring rail passenger service to
the Midwest were on the upswing, Penn Central cast
shadows upon these hopes for the future by refusing to
39
take steps to comply with the confirmation judgment and
stating in the reorganization court that all of Penn Cen-
tral’s obligations had vanished because of the Rail Act and
the transfer of the tracks to ConRail. Penn Central re-
sponded to Amtrak’s request in the reorganization court for
the issuance of an order to ‘‘direct, instruct, and authorize’’
Penn Central to comply with the confirmation judgment
by saying bluntly that the confirmation judgment was a
nullity so far as Penn Central was concerned. Penn Central
even went so far as to ask the reorganization court to
enjoin Amtrak from ‘‘seeking execution or enforcement.’’
When that response was filed, it was clear that neither the
end of the arbitration proceedings nor the confirmation
judgment on the arbitration award had set the rail line dis-
pute to rest. The parties remained in hopeless disagree-
ment as to the legal effect and validity of the confirmation
judgment.
On the one hand, Amtrak contended that the validity and
legality of the arbitration award under the Rail Act and
under all other laws of the United States had already been
adjudicated in the confirmation proceedings and could not
be relitigated elsewhere. The majority of the National
Arbitration Panel who fashioned the arbitration award
obviously believed Penn Central could cause the restoration
plan for the tracks to be carried out or they would not have
made an award, but they concluded their award by noting
their uncertainty as to the law and their belief that the
effect, if any, of the Rail Act upon the award was a matter
for the confirming court and not the arbitrators. Under
these circumstances it would make little sense to have the
Indiana court enter its judgment upon the arbitration
award if that court was not the proper tribunal to consider
the legality of the award under the laws of the United
States. Amtrak believed that Penn Central’s attempt to
relitigate the same issues that were settled by the con-
40)
firmation judgment was nothing more than vexatious
duplicative litigation.
Common sense or not, Penn Central contended on the
other hand that the Indiana court did not have the duty or
the power in the recently completed confirmation proceed-
ings to look beyond the contents of the award itself to
determine whether or not the restoration plan could be
lawfully carried out. Penn Central rationalized that since
the assets of the estate from which the cost of the restora-
tion would ultimately have to come™ were in the exclusive
custody of the reorganization court, only that court could
‘‘enforce’’ the arbitration award and hence only that court
could judge whether or not the restoration was or was not
compatible with the Rail Act or other statutes. This argu-
ment was summarized most simply during the declaratory
judgment proceedings when Penn Central said that:
‘‘Whether Amtrak * * * merely has an arbitration award
or a confirmed arbitration award, is immaterial.”’
To bolster its position that there was no justiciable dis-
pute between the parties after the confirmation judgment
was entered, Penn Central kept focusing attention upon
contractual obligations under the Basic Agreement, saying
that any contract dispute had been settled by the arbitra-
tion award. It is true that the contract dispute was settled
in Amtrak’s favor once there was a finding that Penn
Central had breached the Basic Agreement contemplated
by section 401(a) of the Amtrak Act, 45 U.S.C. § 561(a),
and was required under the Arbitration Agreement to make
reparation by causing the Indiana tracks to be restored in
accordance with the Panel Program. There was no dis-
agreement there. The disagreement is whether this program
11 Because the tracks at issue here were no longer in the constructive
possession of the reorganization court, gone was the underlying justifica-
tion for the broad injunctive powers of section 77 reorganization courts
in trying to prevent interference with the operation of bankrupt railroads
under court supervision.
41
is legally entitled to be enforced” in light of the judgment
entered upon it or whether the confirmation judgment was
a nullity and could be collaterally attacked. The declaratory
judgment complaint did not seek relief based upon the
contract dispute, but upon the confirmation judgment itself.
What was really in controversy was not the contract
default of Penn Central, but was the judicial power of the
Indiana court to fully decide the validity of the arbitration
award under the Federal Arbitration Act.
Thus, the problem for Amtrak was not one of enforce-
ment. The problem was only one of seeking and fostering
an authoritative, comprehensive and controlling under-
standing of the March 24, 1976, mandate of the Indiana
court’s confirmation judgment. In such a circumstance the
declaratory procedure used by Amtrak presented an ideal
method for resolving the conflict, and in past years nu-
merous courts have given declarations under both state and
federal declaratory judgment statutes to clarify an ambigu-
ous judgment or to determine its legal effect. See Connecti-
cut Sav. Bank vy. First Nat. Bank & Trust Co., 133 Conn.
403, 51 A.2d 907 (1947) (whether prior judgment was
collateral estoppel on an issue between the parties); Aetna
Life Ins. Co. v. Martin, 108 F.2d 824 (8th Cir. 1940) (clari-
fication of prior state court judgment under an insurance
contract) ; Boman v. Belyeu, 255 Ala. 281, 51 So.2d 27 (1951)
(determination of whether prior judgment was a personal
judgment) ; National-Ben Franklin Fire Ins. Co. y. Camden
Trust Co., 21 N.J. 16, 120 A.2d 754, 757 (1956) (resolution
of controversy over prior judgment); Talcott vy. Talcott,
54 Cal.App.2d 7438, 129 P.2d 946, 948 (1942) (determination
of rights under prior probate decree) ; Stavros v. Bradley,
313 Ky. 676, 232 S.W.2d 1004, 1006 (Ky.App. 1950) (det
12 When and how the award will be enforced is another question. Both
the time and manner of providing estate funds for enforcement are
matters for the reorganization court since the property of the debtor is
in its custody. See the next section of this petition.
42
mination of effect of prior judgment on parties’ rights) ;
Beach vy. Beach, 57 Ohio App. 294, 13 N.E.2d 581, 582 (1937)
(clarification of settlement agreement terms contained in
prior divorce decree) ; Barnes v. Pierce, 36 Tenn.App. 181,
253 S.W.2d 33, 36 (1952) (interpretation of prior consent
decree) ; Bengtson v. Setterberg, 227 Minn. 337, 35 N.W.2d
623, 626 (1949) (power of courts to declare rights based on
prior judgments) ; Avery Freight Lines, Inc, v. White, 245
Ala. 618, 18 So.2d 394, 398 (1944) (consideration of the
validity and legal effect of a former judgment); Weeks v.
Town of Hoover, 286 Ala. 373, 240 So.2d 125, 127 (1970)
(declaratory judgment was appropriate as to issues that
court had decided in a previous case). See generally,
Borchard, Declaratory Judgments, p. 356 (2d ed. 1941), 60
Harv. L. Rev. 979 (1947), and 62 Harv. L. Rev. 787, 841
(1949). The Declaratory Judgment Act by its express
words gives federal courts broad authority to declare
‘‘rights, status and other legal relations.’’ 28 U.S.C. § 2201.
Such declarations do not derogate from the binding force of
a prior decision, but rather they make its determination
more certain.
The ‘‘foree and will’? of federal courts’ judgments
seldom have to depend upon the sword. It is the high
degree of credit which society accords to legal decrees
which gives them their mystical power to influence and
shape behavior of men. The Declaratory Judgment Act
should therefore be liberally construed to obtain an under-
standing of ambiguous or challenged judgments by the de-
claratory remedy. The complaint for a declaratory judg-
ment by Amtrak was a lawful means for presenting a case
or controversy otherwise cognizable by federal courts. See,
Nashville, C. d St. L. Ry. v. Wallace, 288 U.S. 249, 264, 53
S.Ct. 345, 348 (1933) (declaratory procedure was within
appellate judicial power); Allstate Ins. Co. v. Employers
Liability Assur. Corp., 445 F.2d 1278, 1280 (Sth Cir. 1971),
Freeman v. Marine Midland Bank-New York, 419 F.Supp.
«*
43
440, 450 (E.D. N.Y. 1976), and Lehigh Coal & Nav. Co. v.
Central R. of N.J., 33 F.Supp. 362, 365 (E.D. Pa. 1940)
(granting a declaratory judgment rests in the sound dis-
cretion of the trial court, which discretion should be liber-
ally exercised in the public interest); City of Tacoma v.
Taxpayers of Tacoma, 357 U.S. 320, 78 S.Ct. 1209 (1958)
(prior decision upholding city’s right to condemn state
property for power project declared res judicata and city’s
bonds declared valid under federal law); De Veau v.
Braisted, 336 U.S. 144, 80A S.Ct. 1146 (1960) (plaintiff’s
suspension from waterfront union because of conviction of
felony, as required by New York law, declared valid) ;
McCulloch vy. Sociedad Nacional de Marineros de Honduras,
372 U.S. 10, 83 S.Ct. 671 (1963) (declaration regarding
coverage of NLRA); United States vy. Louisiana, 394 U.S.
11, 89 S.Ct. 773 (1969) (rights of parties in submerged
coastal lands declared); Gunn v. University Committee to
End War in Viet Nam, 399 U.S. 383, 90A S.Ct. 2013 (1970)
(declaratory judgment concerning a state disturbing-the-
peace statute).
The only case which the Seventh Cireuit cites to the
contrary is Donovan vy. City of Dallas, 377 U.S. 408, 84A
S.Ct. 1579 (1964), a case in which the Court was concerned
only with a state court’s lack of power to restrain a party’s
access to the federal courts. The Seventh Cireuit’s reliance
on Donovan is misplaced for at least two reasons." First,
the present case involves the jurisdiction of two federal
courts and the effect of the Indiana court’s judgments upon
the jurisdiction of the reorganization court. There is no
state court involvement here. Amtrak had a right given by
Congress to invoke the jurisdiction of the Indiana court
and, correspondingly, the Indiana court had a duty to
13 By issuing the declaratory judgment, the Indiana court was also
fostering a definitive understanding of the confirmation judgment and
helping to prevent the type of duplicative litigation discussed by Justice
Harlan’s dissent in Donovan, 377 U.S. at 415, S4A S.Ct. at 1583.
44
exercise that jurisdiction. Cohens v. Virginia, 6 Wheaton
264, 404 (1821). Second, the Indiana court’s declaratory
judgment determined that the prior confirmation judgment
was res judicata on certain issues between Amtrak and
Penn Central. The Indiana court did not enjoin Penn
Central from proceeding in the reorganization court or in
any other way to attempt to prevent Penn Central’s access
to another arm of the federal system.
The Indiana court had the right given by Congress to
every federal court to declare what the law was and what
the confirmation judgment meant, 7.e., to declare the scope
and nature of the confirmation judgment entered under the
mandate of the Federal Arbitration Act. The Seventh
Cireuit’s contrary holding presents an issue that is ripe for
consideration by this Court.
2. In Entering the Declaratory Judgment, the Indiana
Court Did Not Interfere with the Proper Jurisdiction of
the Reorganization Court. The Reorganization Court
Does Not Have the Power To Go Behind the Confirma-
tion Judgment And Rehear All Defenses of Penn
Central to the Arbitration Award.
The threshold question in this litigation when it began-
on February 4, 1976, the day Amtrak filed its petition to
confirm the arbitration award in the Indiana court, was
who would decide the liability of Penn Central—the Indi-
ana court or the reorganization court. After the Indiana
court entered the confirmatics judgment with the consent
of Penn Central and without intervention by the reorgani-
zation court, Amtrak would have thought that that thres-
hold question had been answered once and for all with the
unanimous response: the Indiana court. Amtrak still be-
lieves that that answer is the correct one, although part II
of the Seventh Cireuit’s decision (App. 74-77) means that
there is now something less than unanimity on the question.
As Amtrak will show below, the Seventh Circuit’s conclu-
-
«7
45
sion that the Indiana court’s declaratory judgment was an
improper interference with the jurisdiction of the reorgani-
zation court is simply not legally supportable. The Supreme
Court should grant certiorari so that Amtrak ean bring
to this Court a decision that Amtrak believes improperly
marks the boundary between the power of one federal
court to enter a judgment under the Federal Arbitration
Act and under the Declaratory Judgment Act, and the
power of another federal court under the Bankruptcy Act
to review and refuse to honor a final judgment of the first
federal court.
As Amtrak emphasized above, part II of the Seventh
Cireuit’s opinion discussing the purpose of the declaratory
judgment is couched largely in terms of ‘‘enforcement’’ of
the confirmation judgment and relies upon the exclusive
jurisdiction of a reorganization court to determine the
status of claims made in the bankruptcy estate. Amtrak
has never disputed the authority of the reorganization
court to carry out the administration and reorganization of
the debtor’s properties, including deciding how and when
payments out of estate assets are to be made and in what
priority. That has never been the issue, as the Seventh
Cireuit should have realized in quoting a paragraph from
one of Amtrak’s early briefs which acknowledged that
execution by Amtrak of the confirmation judgment would
need to be done in the reorganization court (App. 71).
Thus, by citing and relying upon cases like Baker y. Gold
Seal Liquors, Inc., 417 U.S. 467, 94A S.Ct. 2504 (1974),
the New Haven Inclusion Cases, 399 U.S. 392, 90A S.Ct. 2054
(1970), Kalb v. Feuerstein, 308 U.S. 433, 60 S.Ct. 343
(1940), and In Re New York, New Haven and Hartford Ry.
Co., 457 F.2d 683 (2d Cir.), cert. denied sub nom. Smith v.
Baker, 409 U.S. 890, 93 S.Ct. 106 (1972), the Seventh Cir-
cuit was merely stating the obvious—that the reorganiza-
tion court had exclusive jurisdiction over the assets of the
debtor and those assets cannot be appropriated for lia-
46
bilities of the estate until the reorganization court has a
chance to fit payment into the overall administration of
the estate.’* The issue here is whether or not a nonbank-
ruptey court can, with the consent of the bankruptcy
court, finally determine the liability of the trustees on
certain claims, even though that determination will eventu-
ally need to be taken back to the reorganization court by
the prevailing party for payment with all the other claims
against the estate. And, if it can, does some stretch of the
bankruptcy power permit the reorganization court to
readjudicate the question whether the trustees are liable
in the first place?
The reorganization court did permit claims between
Penn Central and Amtrak to be arbitrated and litigated
outside the confines of the reorganization court. Specifical-
ly, the reorganization court permitted its trustees to con-
tract with Amtrak and consented to the settlement by
binding arbitration before the National Arbitration Panel
14 Also, the facts and holdings in Baker, New Haren Inclusion, Kalb
and New York do not support the Seventh Circuit’s conclusion that the
declaratory judgment was an interference with the appropriate jurisdic-
tion of the reorganization court. Those four cases cannot be stretched as
far as the Seventh Circuit would need to stretch them to make the reor-
ganization court a ezar over other federal courts, the concept implicit
in the Seventh Circuit's opinion. For example, Baker held that the non-
bankruptcy court’s set-off of the creditor’s claim against the trustees for
damage to shipments, against the trustees’ claims against the creditor
for freight charges, resulted in a “preference to the claim of one creditor
over the others by the happenstance that it owes freight charges that-
the others do not.” 417 U.S. at 474, 94A S.Ct. at 2508-09. In New Haven,
the Court held that the value of a section 77 debtor’s estate should be
decided by the reorganization court, not the nonreorganization court.
Kalb involved a situation where-a state court had entered a foreclosure
decree after a section 75 bankruptey petition had been filed. This Court
held that the bankruptey proceedings had divested the state court of its
jurisdiction. That decision was based upon federal supremacy, an issue
not involved here. New York, like Kalb, involved one court’s attempt to
place a lien and constructive trust upon the bankrupt’s property which
was already within the constructive possession of the bankruptcy court.
In short, none of the cases cited by the Seventh Circuit addresses the
question of the permissible scope of a nonbankruptcy court’s ability to
determine the underlying liability of the debtor on claims which the
bankruptey court has permitted to be decided elsewhere.
47
of all disputes under the Basic Agreement and the Arbi-
tration Agreement (Article Six of the Basie Agreement and
section 4.2 of the Arbitration Agreement), and to the entry
of a confirmation judgment upon an arbitration award
entered by the Panel by any United States district court
(section 4.3 of the Arbitration Agreement). Order No. 238
of the reorganization court authorized Penn Central to
comply with the Basic Agreement ‘‘without further order
or action’’ by the reorganization court but said a ‘‘deci-
sion’’ resolving a dispute in accordance with the Basic
Agreement or the Arbitration Agreement should be sub-
mitted to the reorganization court ‘‘for review and ap-
proval before becoming finally binding upon the Trustees
or the Debtor.’’ From the outset, Amtrak construed Order
No. 238 to mean that no execution could be had against the
estate’s assets, and that the trustees could not authorize
the expenditure of estate funds to comply with an award
until a review was made by the reorganization court as to
how and when the award should be satisfied. There was a
sound legal basis for this construction.
It is well established that a section 77 reorganization
court need not draw to itself all questions or rights of
action affecting the estate. Jurisdiction can be relinquished
and the trustees sent to be sued in another court as long as
the reorganizat‘on court’s authority to administer and
reorganize the railroad was not impaired and the property
of the debtor remained in the reorganization court’s exclu-
sive custody until released. See Thompson v. Magnolia
Petroleum Co., 309 U.S. 478, 60 S.Ct. 628 (1940); Foust v.
Munson S.S. Lines, 299 U.S. 77, 57 S.Ct. 90 (1936); Arm-
strong v. Alliance Trust Co., Ltd., 112 F.2d 114 (Sth Cir.
1940); and 6 Collier On Bankruptcy ©3.08[1] (14th ed.
1977). Accord, In Re Wonderhowl, Inc., 456 F.2d 954 (9th
Cir. 1972). In some instances, the Bankruptcy Act itself ex-
pressly permits suits against trustees to be brought in other
courts, e.g., 11 U.S.C. § 205()). Amtrak, therefore, consid-
48
ered it was quite free to bring an arbitration award to any
United States district court for confirmation, and later to
seek the declaratory judgment interpreting the confirma-
tion judgment outside the reorganization court.” The Arbi-
tration Agreement expressly provided for confirmation
outside the reorganization court, and since the Basie Agree-
ment clearly fell within the provisions of 28 U.S.C. § 959,
the leave of the reorganization court to carry out the
Arbitration Agreement was not required. See Novo En-
zyme Corp. v. Baker, 361 F.Supp. 337 (S.D. N.Y. 1973)
(a case involving Penn Central); and Diners Club, Inc. v.
Bumb, 421 F.2d 396 (9th Cir. 1970).
These are the general principles and they provide no
support for the Seventh Circuit’s adoption of Penn Cen-
tral’s position that some inherent bankruptcy power per-
mits the reorganization court to reserve to itself the power
to relitigate issues determined elsewhere. The same is true
of the Seventh Cireuit’s apparent reliance, at least in part,
upon Order No. 238 of the reorganization court as a ground
for vacation of the declaratory judgment. In the first place,
the trustees were authorized to enter into the Basic Agree-
ment and the Arbitration Agreement with Amtrak, con-
tracts which contained the ‘‘level of utility’’ basis for Penn
Central’s obligation and the arbitration provisions as well.
Second, the jurisdiction of other federal courts to fix the
liability of Penn Central upon an arbitration award is
determined by statute, not by Order No. 238. The Bank-
ruptey Act may or may not have authorized the reorgani-
zation court to stay the confirmation or the later declara-
tory judgment proceedings in Indiana or to order they
be heard only in the reorganization court notwithstanding
15 Amtrak felt very strongly about its right to have the arbitration
award confirmed by the Indiana court, not only because of the importance
of the whole concept of binding arbitration and confirmation in any
federal court to the rail passenger system required by the Amtrak Act,
but also because the situs of the tracks, as well as the related C & O case,
were both in Indiana.
49
the Arbitration Agreement or the Amtrak Act. But this
is not the question here, since the reorganization court
took none of these actions. The Bankruptcy Act gives a
bankruptey court the discr tion to permit litigation against
trustees to proceed in another court, either state or federal,
and Penn Central appeared in Indiana with the approval
of the reorganization court. When this is done, the judg-
ment of the other court resolves the liability issue and
liability may not be relitigated in the bankruptey court.
Fischer v. Pauline Oil & Gas Co., 309 U.S. 294, 60 S.Ct. 535
(1940); and Boynton vy. Ball, 121 U.S. 457, 7 S.Ct. 981
(1887). A judgment validly entered by another court of
competent jurisdiction against the trustees is binding upon
the bankruptey court when a claim based upon such judg-
ment is presented. In re Chicago & E. 1. Ry. Co., 121 F.2d
785, 789 (7th Cir.). cert. denied, 314 U.S. 653, 62 S.Ct. 102
(1941). The doctrine is well stated in 1 Collier On Bank-
ruptcy 4 2.07, pp. 166-67 (14th ed. 1974), as follows:
‘** * * But, once the controversy is properly sub-
mitted to a non-bankruptey court, that court has
jurisdiction of all the incidents of the litigation,
and the judgment thereon is binding on the trustee
or receiver as the case may be.”’
What might have been done by the reorganization court by
injunction or otherwise, prior to the entry of the con-
firmation judgment or the declaratory judgment in Indiana,
is immaterial. Chief Judge Steckler heard and decided the
Amtrak petition for confirmation’® without interference
16 The jurisdiction of the Indiana court to enter its judgment upon the
award was, of course, anchored in 28 U.S.C. § 1332 and 9 U.S.C. §$1, 9
and 10. There is no controversy about that. The parties are agreed on
this. point. Furthermore, the Indiana court itself had jurisdiction to
determine the question of its own jurisdiction and, having done so, this
determination is res judicata and not subject to collateral attack. Chicot
County Drainage District v. Baxter State Bank, 308 U.S. 371, 60 S.Ct.
317 (1940); Stoll v. Gottlieb, 305 U.S. 165, 59 S.Ct. 134 (1938); and
In Re Universal Display & Sign Co., 541 F.2d 142, 144, 146 (3d Cir.
1976). If the trustees had any doubts about the authoritative competence
of the Indiana court to enter a final judgment upon the arbitration award,
20
and in fact with the consent of Penn Central and the reor-
ganization court, and having found no grounds for vacating
the award, he entered his jndgment upon it in aecordance
with the statutory mandates of the Federal Arbitration Act.
Sections 9 and 13 of this Act provide in relevant part as
follows:
‘‘If the parties in their agreement have agreed
that a judgment of the court shall be entered upon
the award * * * any party to the arbitration may
apply * * * for an order confirming the award, and
thereupon the court must grant such an order un-
less the award is vacated, modified, or corrected as
prescribed in sections 10 and 11 of this title. * * *”’
$9 (Emphasis added).
and
‘tt? 662 6
‘*The judgment shall be docketed as if it was ren-
dered in an action.
‘*The judgment so entered shall have the same
force and effect, in all respects, as, and be subject
to all the provisions of law relating to, a judgment
in an action; and it may be enforced as if it had
been rendered in an action in the court in which it
is entered.’’ 9 U.S.C. § 13.
Order No. 238 cannot serve to change this statutory lan-
guage, nor can it sap from the Indiana court its authority
to rule upon the cases that were before the court. In con-
firming the award and later declaring its meaning, the
Indiana court was exercising the judicial powers of the
United States, and its powers to finally settle the contro-
versy as to the legal liability of Penn Central did not
depend upon the consent of the reorganization court, but
only upon Article III of the United States Constitution.
The second problem with the Seventh Circuit’s reliance
upon Order No. 238 is that the order was conceived out
the trustees could have appealed the confirmation judgment. But they
obviously did not have any doubts and no appeal was taken.
a1
of an erroneous concept. In 1971, the reorganization court
had a notion that the Arbitration Agreement might in
some way have contravened the requirements of the Bank-
ruptcy Act, and the court was not sure it could authorize
the submission of controversies affecting the estate to final
and binding arbitrations Therefore, when objection was
voiced by a single creditor to court approval of the Agree-
ment, the reorganization court now says that Order No.
238 was fashioned to meet this objection (App. 114-15)."* If
that was the purpose of the order, it was wholly unneces-
sary. Even had there been a prohibition in the Bank-
ruptey Act against such a submission (which there is not),
section 306(e) of the Amtrak Act relieved Penn Central’s
trustees ‘‘from all prohibitions of existing law’’ as was
necessary to enable them to enter into the Agreement ‘‘and
to perform their obligations thereunder.’’ 45 U.S.C. § 546
(e).
Lastly, if the underlying purpose of Order No. 238 was
to protect the estate from unforeseeable erosions growing
out of the obligations of Penn Central under the Basic
Agreement, as the reorganization court now says it was,
1 The reasons given for the “review and approval” notion in Order
No. 238 are clouded and hence do not supply any insight into the scope
of the review that was intended. Indeed, the standards of this review are
not described, but the judicial review of arbitration awards prescribed
by the Federal Arbitration Act apparently is not in the reorganization
court’s mind a “meaningful judicial review.” (App. 114). In Order No.
2569, the reorganization court states Order No. 238 was in response to
a “heavy attack” made agsiast the Arbitration Agreement by the credi-
tors at an April 23, 1971 \-aring to decide whether the Amtrak contracts
should be approved (App. 116). But in its opinion written in 1971 in
support of Order No. 238, the reorganization court stated: “The only
opposition to the proposed contract has been expressed by the United
States Trust Company of New York. * * * These objections are with-
out merit.” The changed view concerning the weight of the opposition
may have been due to hindsight. Compliance with the rail line obliga-
tions of the Basie Agreement became more burdensome in 1976 than
was contemplated in 1971 when there was every expectation that Penn
Central's rail lines would be properly maintained in the normal opera-
tion of the railroad under section 77 of the Bankruptey Act. However,
this cannot be a legal standard for voiding awards.
52
then the order was not properly designed from the very
first. There is no doubt that whenever administrative costs
were incurred by Penn Central under the Basie Agree-
ment, there was bound te be at least some injury to the
pocketbook interests of all creditors of the same or lesser
priority. However, it does not follow that for this reason
all arbitration awards arising out of the Agreement are
therefore legally vulnerable if their impact upon these
creditors is too great. To contend that there must be such
a remedy for these creditors whenever Amtrak claims
serious injury to itself because of Penn Central’s defaults
is to contend that Amtrak is ‘‘fair game’’ when Penn
Central must hunt for the monies to finance the proper
railroad operations of the debtor. This cannot be so. Am-
trak should not be singled out from all other creditors and
penalized to save some of the administration expenses of
the estate.
The only injury to the estate from valid arbitration
awards arising out of the Basic Agreement is that Penn
Central must do what the Basie Agreement requires.
Trustees cannot accept the benefits of an executory con-
tract without accepting the burdens as well. Schokbeton
Industries, Inc. v. Schokbeton Products Corp., 466 F.2d
171, 175 (Sth Cir. 1972) ; and Hurley v. Atchison, Topeka &
Sante Fe Ry. Co., 213 U.S. 126, 29 S.Ct. 466 (1909). Penn
Central could not be permitted to speculate on the outcome
of an arbitration proceeding, accepting the agreed upon
process only if the award was favorable and rejecting it if
it was not. See Tobin v. Plein, 301 F.2d 378, 381 (2d Cir.
1962); and In Re Patterson-MacDonald Shipbuilding Co.,
284 F. 277, 281 (W.D. Wash. 1922), aff’d., 292 F. 700 (9th
Cir. 1923), appeal dismissed sub nom. Commonwealth of
Australia v. McLean, 266 U.S. 638, 45 S.Ct. 10 (1924).
Order No. 238 gives the reorganization court no legal basis
for a de novo review of arbitration awards or any power
to say a valid arbitration award confirmed by another
a3
federal court shall have no impact. Had the reorganization
court wished to do this, the court ought to have disapproved
acceptance of the tendered Amtrak contracts; but then
matters would have been ‘‘quite bleak’’ for the creditors,
and Amtrak would have saved the hundreds of millions of
dollars which it has spent in the past five years by assum-
ing the common carrier obligations of Penn Central to
operate intercity rail passenger service in the Northeast
and Midwest.
From all of the above, it is abundantly obvious that the
question of who should decide all issues surrounding the
liability of Penn Central—Judge Fullam or Chief Judge
Steckler—was answered when the reorganization court
took no action to enjoin or stay the confirmation or decla-
tory judgment proceedings in Indiana. Penn Central ap-
peared before Chief Judge Steckler, presented their cases,
responded to Amtrak’s pleadings with reorganization court
approval, and judgments were entered against Penn Cen-
tral as prescribed by the Arbitration Act and the Declara-
tory Judgment Act.’* As to the confirmation judgment,
the reorganization court recognized this when it said in
Order No. 2569:
‘‘The judgment confirming the award is a final
judgment, and is entitled to be given res judicata
effect in these proceedings. No one has ever con-
tended otherwise. In short, it is now finally settled
that the Trustees had not fully complied with their
obligation to maintain the trackage involved, and
that Amtrak was entitled to have the situation speed-
ily remedied. * * *’’ (App. 118).
18 The confirmation judgment is now a final one and valid even if
erroneous. See Stoll v. Gottlieb, 305 U.S. 165, 59 S.Ct. 134 (1938);
Chicot County Drainage District v. Barter State Bank, 308 U.S. 371,
60 S.Ct. 317 (1940) ; In Re Universal Display and Sign Co., 541 F.2d 142,
144 (3d Cir. 1976); and 1B J. Moore, Federal Practice § 0.405 [4.-1 J
(2d ed. 1974).
54
Unfortunately, the reorganization court and now the Sev-
enth Circuit fail to realize that the same principles make
the declaratory judgment equally valid.
These, then, are some of the important legal reasons
why Amtrak believes that part II of the Seventh Circuit’s
opinion is patently incorrect. In addition, there are con-
stitutional considerations here, as well as questions of
judicial propriety which compel Amtrak to seek review
of the Seventh Cireuit’s decision in this Court.
Inasmuch as the Constitution does not require bank-
ruptey to be administered by the judiciary, the mischief
implicit in the idea that the Bankruptcy Act grants an all
inclusive kind of revisory power over the judgments of
our constitutional courts is apparent. As in a” »atters,
federal courts sitting in bankruptcy, though |. ¢ very
broad and far-reaching powers, are courts of lim...ed juris-
diction. Their authority over other federal courts exists
only to the extent that it is granted by the Bankruptcy Act
and the Federal Judicial Code. Amtrak contends the Bank-
ruptey Act does not grant a reorganization court by an
Order No. 238 the power to modify section 13 of the Federal
Arbitration Act or the power to change the nature of a
confirmation judgment from a final judgment to one which
merely certifies the legitimacy of the arbitration process.
Nor does the Federal Judicial Code give reorganize ‘tion
courts appellate review over awards held to be valid in
confirmation proceedings. Order No. 238 could not possibly
have prohibited the Indiana court from applying the laws
of the land to the arbitration award when judgment was
entered upon the award since the Bankruptcy Act does
not grant section 77 reorganization courts general veto or
supervisory power over district court judgments.
The judicial expressions that the Bankruptcy Act is
paramount law and a section 77 reorganization court is
armed with extensive powers to avoid judicial liens, prefer-
ences or fraudulent transfers and can stay proceedings of
DD
other courts do not go as far as to make reorganization
courts the ezars over our judicial system. The notion that
the Bankruptcy Act can impose such limitations upon the
judicial powers of an Article III court to apply the laws of
the United States in deciding cases or controversies arising
between opposing parties is quite different from the legal
principle that the exclusive and paramount authority of a
reorganization court over the debtor gives it inherent
powers to stay proceedings in other courts to protect its
ability to administer the estate and reorganize the railroad
debtor. The notions of Penn Central as to the exclusive
competency of the reorganization court to resolve all
disputes concerning the Penn Central estate is a serious
oversimplification of what is involved. As in the whole
field of federal jurisdiction, there is a delicate task in
bankruptcy jurisdiction of balancing political expediency
and procedural efficiency. The simplest procedure might
have been to require a reorganization court to adjudicate
all litigation arising out of the operation of the debtor
railroad, but the Congress did not pursue this course of
action. Quite the opposite is true. Congress decided differ-
ently and enacted 28 U.S.C. § 959 and 11 U.S.C. § 205(j),
which permit suits outside the reorganization court.
Moreover, Congress, not reorganization courts, decide not
only which of the various federal courts is appropriate to
take jurisdiction over suits falling within the definitions of
28 U.S.C. § 959, but also whether the special rules of see-
tion 306(e) of the Amtrak Act, 45 U.S.C. §546(a), are
appropriate for the statutory scheme for preserving and
restoring rail passenger service. See National R.R. Pas-
senger Corp. v. National Ass’n of R.R. Passengers, 414
U.S. 453, 94 S.Ct. 690 (1974).
Penn Central and the Seventh Circuit invoke no statutes
which make arbitration awards under the statutory Basic
Agreement and Arbitration Agreement reviewable by the
reorganization court or which make exceptions to the
provisions of the Declaratory Judgment Act so questions of
06
law concerning the bankruptey estate must be decided ex-
clusively by the reorganization court. There are none, and
Gutensohn vy. Kansas City Southern Ry. Co., 140 F.2d 950,
953 (Sth Cir. 1944), teaches us that in a suit against a trus-
tee, a declaration of rights on a question of law, without
ordering anything done, will not ipso facto be considered an
interference with the jurisdiction of a reorganization court.
There is no interference with the administration and reor-
ganization of the debtor’s estate and the reorganization
court’s custody over the debtor’s property is not disturbed.
There is no statutory or other legal basis for stripping the
Indiana court of declaratory judgment jurisdiction simply
because of the pendency of the Penn Central reorganization
proceeding. It goes without saying that the Indiana court
is an experienced and disciplined one and would not abuse
its 28 U.S.C. § 2201 powers by interfering with the juris-
diction of a section 77 reorganization court. See generaliy,
Kerotest Mfg. Co. v. C-O-Two Fire Equipment Co., 342
U.S. 180, 72 S.Ct. 219 (1952). Hence, there is no basis for
saying the declaratory judgment jurisdiction of the Indiana
court or any other jurisdiction granted to it by the Con-
gress is automatically vitiated because it merely threatens
the reorganization and administration of Penn Central’s
estate.
There are constitutional as well as legislative objections
to the views of Penn Central, accepted by the Seventh
Circuit, as to the reach of Order No. 238 and the powers
which Penn Central asserts are in the reorganization court
to limit the scope of the judgments of the Indiana court
or to oust it from jurisdiction to hear a declaratory judg-
ment proceeding. The Indiana court is a constitutional
court vested with the judicial powers of the United States,
and as such its jurisdiction to decide upon the validity of
the arbitration award had to amount to more than examin-
ing the arbitration proceedings and certifying their in-
tegrity to another decision maker. Section 13 of the Federal
o7
Arbitration Act, 9 U.S.C. §13, makes clear that district
court judgments upon arbitration awards are to be fully
equated with ‘‘judgments in an action.’’ Hence, the con-
stitutional authority of the Indiana court to enter judg-
ment upon the legality of the restoration award is not open
to question. Like any judgment in an action, the confirma-
tion judgment is a final judicial decision. As such, it has
complete dominion over all questions concerning the merits
and legal validity of the award to the broadest reach
allowed the federal judiciary by Article III of the United
States Constitution in the settlement of any case or con-
troversy. Were this not so, the aspect of the ‘‘case’’ con-
cept emphasized in Hayburn’s Case, 2 Dallas 409 (1792),
would be turned upon its head.
From the earliest days of our Republic, our constitu-
tional courts have refused to enter judgments which are
subject to revision elsewhere, and this concept merges
with the prohibition against ‘‘advisory opinions’’ since
such a situation was thought of as a rendering of advice
to the revising authority. This concept is further supported
by the doctrines of Marbury v. Madison, that courts were
not empowered full blown by the Constitution to sit in
judgment over the actions of the other branches of gov-
ernment but only upon the compulsion of a ‘‘case or con-
troversy’’ which no one else will decide, invoking the
judicial power of Article III only as a last resort, and
reluctantly.
The Indiana court did not become seized with the con-
troversies over the validity of the arbitration award and
Penn Central’s liability to Amtrak simply to advise the
reorganization court about the arbitration process. The
court had to dispose of the controversies—first the con-
firmation proceedings and then the declaratory judgment
proceedings—and to do so, had to apply the laws of the
United States. As has been seen, no statute authorized
or required the Indiana court to limit its function to
something less than a judicial one required by the con-
38
stitutional dimensions of Article II]. Likewise, Order No.
238 did not impair the judicial power of the Indiana court
granted to it by 28 U.S.C. $1332, 9 U.S.C. §$ 1-14, and
Article Lil of the Constitution.
Suffice it to say that the Indiana court did not in any
way ‘‘circumscribe’’ the appropriate jurisdiction of the
reorganization court ‘‘as to the enforcement of an arbi-
tration award whiich was subsequently confirmed by the
Indiana Court’ as concluded by the Seventh Circuit (App.
77). The reorganization court had a function and the
Indiana court had a function. The Seventh Cireuit’s de-
cision to the contrary :s wrong.
3. The Indiana Court’s Declaratory Judgment Correctly
Decided That the Confirmation Judgment Was Res
Judicata on Penn Central’s Rail Act Defense.
Any claim by Penn Central that the arbitration award
was invalid or nonenforceable under the provisions of the
Rail Act ought to have been made to the Indiana court in
the confirmation proceedings which had the exclusive juris-
diction to decide the question of the liability of Penn
Central under the laws of the land. All legal defenses to
the validity of the award had to be raised in the con-
firmation proceedings in Indiana. Defenses not raised were
waived. Therefore, the confirmation judgment upon the
award was res judicata between the parties and estopped
Penn Central from raising the Rail Act defense to its
liability for rail line restoration under the award when
the matter was presented by Amtrak to the reorganiza-
tion court for satisfaction. That is Amtrak’s position,
pure and simple, and that position leads ineseapably to
the conclusion that the declaratory judgment was _ per-
fectly correct. The Seventh Circuit cited no authority
to the contrary in part IV of its decision, except to em-
phasize the ‘‘limited purpose’’ of the confirmation pro-
ceedings to see that the arbitration award was a ‘‘proper
a9
award and that the arbitrators acted honestly and did not
exceed their powers.’’ (App. 78). Amtrak respectfully dis-
agrees.
The confirmation judgment should have -put an end to
Penn Central’s Rail Act defense. The federal policy be-
hind the Arbitration Act was to promote arbitration of
disputes and to eliminate the need for litigation on the
merits, thereby easing court congestion and effectuating
the parties’ intention to avoid expensive and time-consum-
ing litigation. World Brilliance Corp. v. Bethlehem Steel
Co., 342 F.2d 362, 365-66 (2d Cir. 1965) ; and Galt v. Libbey-
Owens-Ford Glass Co., 376 F.2d 711, 714 (7th Cir. 1967).
By clarifying the legal effect of its confirmation judgment
upon the arbitration award, the Indiana court by the
declaratory judgment made its determinations more cer-
tain and reduced the risk of renewed and prolonged litiga-
tion on the question of the validity and appropriateness
of the arbitration award—a question which should have
been put to rest aad settled in Indianapolis and ought not
again have been raised in Philadelphia.
The doctrine of res judicata was explained by this Court
in Commissioner of Internal Revenue v. Sunnen, 333 U.S.
091, 597, 68 S.Ct. 715, 719 (1948) :
‘ss * * The general rule of res judicata applies to
repetitious suits involving the same cause of action.
It rests upon considerations of economy of judicial
time and public policy favoring the establishment of
certainty in legal relations. The rule provides that
when a court of competent jurisdiction has entered
a final judgment on the merits of a cause of action,
the parties to the suit and their privies are there-
after bound ‘not only as to every matter which was
offered and received to sustain or defeat the claim
or demand, but as to any other admissible matter
which might have been offered for that purpose.’
Cromwell v. County of Sac, 94 U.S. 351, 352, 24 L.Ed.
195. The judgment puts an end to the cause of action,
which cannot again be brought into litigation be-
60
tween the parties upon any ground whatever, absent
fraud or some other factor invalidating the judg-
ment. * * *’’ (Emphasis added).
The fact is that both Penn Central and the reorganiza-
tion court knew full well that the place for raising the
Rail Act defense to the arbitration award was before the
confirming Indiana court under the Federal Arbitration
Act. There is no conflicting law on that. That is the law.
Under the Act, the confirming judge may vacate an cward
under 9 U.S.C. §10(d) ‘‘[w]here the arbitrators exceeded
their powers.’”* If the Rail Act prevents Penn Central
from causing the restoration of the tracks which Penn
Central abandoned to weeds and weather or relieves Penn
Central from past contract defaults, that is a legal ground
for vacating the award. As such it had to be raised in the
confirmation proceedings. The dissenting arbitrator noted
that fact. Counsel for Amtrak told the reorganization court
precisely that when counsel argued that the reorganization
court had no right to interfere with the confirmation pro-
ceedings in Indiana:
‘THE COURT: * * * It [the restoration ordered
by the arbitrators] obviously can’t take effect until
after conveyance date [of the rail lines to ConRail
under the Rail Act], and at that point the whole
ball game has changed.
‘*Now what is your response to that?
19In Wilko v. Swan, 346 U.S. 427, 436-37, 74 S.Ct. 182, 187 (1953),
the Court implied that an award by an arbitrator disregarding the ap-
plicable securities law would constitute a ground for vacation under § 10
(d). Justice Frankfurter’s dissent emphasized that “[a)rbitrators may
not disregard the law.” 346 U.S. at 440, 74 S.Ct. at 189. While it is
now clear that an arbitration award will not be vacated for a mistaken
interpretation of law, to ignore the applicable law is another matter. To
“manifestly disregard” the law may compel vacation. See Sobel v. Hertz,
Warner & Co., 469 F.2d 1211, 1214 (2d Cir. 1972). In short, awards in
violation ot the law are not enforceable and Penn Central had to concede
the award was perfectly valid under the Rail Act and all other laws of
the land when Penn Central agreed to the entry of the confirmation
judgment.
61
_ “MR. VALENTINE: My response to that is that
is a proper question for the judge in Indiana, and
he is equally able to decide that question as this
oun.” * *"
‘ce * * We say we are proceeding in Indiana in
the face of the RRRA [Rail Act], and we say this
is an Act which should be brought to the attention
of the court [in] Indiana, which is proceeding with
the original jurisdiction in this case. * * *”’
The reorganization court never stopped the confirmation
proceedings or the declaratory judgment proceedings be-
fore the Indiana court.
It is well established that a petition to confirm an
arbitration award requires the opposing party to bring
forward his objections and grounds for vacating the award
in the confirmation proceedings. He cannot interpose a ‘‘no
objection’’ and then later seek a vacation of the award in
another proceeding. In The Hartbridge, 57 F.2d 672, 673
(2d Cir. 1932), cert. denied sub nom. Munson S.S. Line v.
North of England S.S. Co., Ltd., 288 U.S. 601, 53 S.Ct.
320 (1933), the Second Circuit stated:
‘e* * * Upon a motion to confirm the party op-
posing confirmation may apparently object upon any
ground which constitutes a sufficient cause under
the statute to vacate, modify, or correct, although
no such formal motion has been made. * * * As we
understand the statute a motion to confirm puts the
other party to his objections. He cannot idly stand
by, allow the award to be confirmed and judgment
thereon entered, and then move to vacate the award
just as though no judgment existed. * * *’’ 57 F.2d
at 673.
2°The Seventh Circuit attempts to distinguish The Hartbridge (App.
76) by saying that Penn Central was not trying to vacate the award when
it raised the Rail Act in the reorganization court as a complete defense
to the validity of the award and the confirmation judgment. Regardless
of what word is used to describe Penn Central’s pleadings, the effort was
unmistakably to vacate the award, erase all liability of Penn Central and
nullify the confirmation judgment.
62
More recently, in Brown v. Bridgeport Rolling Mills Co.,
245 F.Supp. 41 (D. Conn. 1965), the district court relied
upon and quoted The Hartbridge in concluding that:
> - a
in a proceeding to confirm an award not
only may an opposing party object upon grounds
which might be urged in support of a proceeding to
vacate an award; he must do so, or he waives his
right to do so.’’? 245 F.Supp. at 45. (Court’s em-
phasis).
Penn Central was required to raise its Rail Act conten-
tions in Indiana before the entry of judgment or it waived
its right to do so. See Flynn vy. St. Bd. of Chiro. Exvam..,
418 F.2d 668 (9th Cir. 1969) ; Meyer v. Lavelle, 389 F.Supp.
972, 976 (E.D. Pa. 1975); and County of Lancaster v.
Philadelphia Electric Co., 386 F.Supp. 934, 937-38 (1.D.
Pa. 1975). In accord, In Re Universal Display & Sign Co.,
541 F.2d 142, 144 (3d Cir. 1976). Even a consent judgment
is entitled to res judicata effect. See Wallace Clark & Co.
v. Acheson Industries, Inc., 532 F.2d 846, 848 (2d Cir.),
cert. denied, — U.S, —, 96 S.Ct. 2177 (1976) and the cases
cited therein.
Thus, Penn Central cannot under the law have a chance
for a second bite at the apple, when it gave ‘up its oppor-
tunity to take the first bite. The confirmation judgment
is res judicata on the Rail Act defense and the Indiana
court’s declaratory judgment is correct. This Court should
grant a writ of certiorari and reverse the Seventh Circuit’s
decision, with the direction to reinstate the Indiana court’s
declaratory judgment. If that occurs, the proper boundary
between the duties of the Indiana court and the reorgani-
zation court will have been marked and the reorganization
court can proceed with its job of fitting Amtrak’s con-
firmation judgment into the administration of the estate
and deciding how and when Amtrak’s legal rights under a
judgment of a United States district court will be
recognized.
63
CONCLUSION
The legal issues here are novel and deserve the attention
of the Supreme Court, not only because those issues touch
the life blood of Amtrak, but also because of the jurisdic-
tional questions implicit in the Seventh Cireuit’s decision.
This case is of utmost importance to the future of Amtrak
in the Midwest which has been deprived of the intercity
rail passenger service contemplated by Congress in the
Amtrak Act, and also in other parts of the nation where
Penn Central operated.
Amtrak believes the Seventh Circuit erred for three basic
reasons: (1) the Indiana court did have declaratory judg-
ment jurisdiction; (2) the Indiana court’s entry of the
declaratory judgment did not interfere with the proper
jurisdiction of the reorganization court; and (3) the de-
claratory judgment correctly decided that the confirmation
judgment barred Penn Central’s Rail Act defense. The
Seventh Cireuit’s contrary decision sanctions such a
departure from the accepted and usual course of judicial
proceedings that this case calls for an exercise of the
Court’s power of supervision. Accordingly, a writ of cer-
tiorari should issue to review the decision of the Seventh
Circuit.
Respectfully submitted,
KARL J. STIPHER
CHARLES T. RICHARDSON
Baker & DANIELS
810 Fletcher Trust Building
Indianapolis, IN 46204
(317) 636-4535
F. Hastines Grirrin, Jr.
Decuert Price & Ruoaps
3400 Centre Square West
1500 Market Street
Philadelphia, PA 19102
(215) 972-3400
NATHANIEL H. Goopricu
E.yse G. WANDER
AntTuony L. MONDELLO
NATIONAL RAILROAD PASSENGER
CORPORATION ;
955 L’Enfant Plaza North, S.W.
Washington, D.C. 20024
(202) 484-7100
Counsel for the Petitioner
Appendix A
IN THE
UNITED STATES COURT OF APPEALS
FOR THE SEVENTH CIRCUIT
No. 76-1829
NaTionaL RarLroap PassENGER CORPORATION,
Plaintiff-A ppellee,
v.
Rosert W. BuLancHette, Rionarp C. Bonp and Joun H. Mc-
ArtuurR, Trustees Or THe Property Or Penn CENTRAL
TRANSPORTATION Company, Destor,
Defendants-Appellants.
Appeal from the United States District Court for the
Southern District of Indiana, Indianapolis Division
No. IP 76-274-C — William E. Steckler, Chief Judge.
ArcuEep OctToser 29, 1976—Decipep Frsruary 15, 1977
Before Hastines, Senior Circuit Judge, Moorr, Senior
Circuit Judge*, and Sprecuer, Circuit Judge.
Hastines, Senior Circuit Judge.** We are concerned
here with various issues arising out of an order by the
district court,’ entered on March 24, 1976, confirming an
arbitration award compelling the restoration of certain
* The Honorable Leonard P. Moore, Senior United States Cireuit Judge
of the United States Court of Appeals for the Second Circuit, is sitting
by designation.
** This opinion was written and approved by the panel and sent to Mid-
west Law Printing Co., Inc., for printing prior to Judge Hastings’
death on February 7, 1977.
1 United States District Court for the Southern District of Indiana,
Indianapolis Division, the Honorable William E. Steckler, Chief Judge,
presiding.
65
66
tracks by Penn Central Transportation Company (Penn
Central); and also with the judgment entry and memoran-
dum order by the district court entered on June 25, 1976,
granting the motion of the National Railroad Passenger
Corporation (Amtrak) for summary judgment in a declara-
tory judgment action, thereby enforcing the district court’s
previous order of confirmation. Penn Central has appealed.
I
For purposes of clarity we first mention three relevant
substantive legislative enactments of the Congress:
1. The Bankruptey Act of 1898, which was amended
in 1933 by adding Section 77 thereto, which provided for
the reorganization of railroads. Section 77 furnished the
structural framework by which Penn Central commenced
its reorganization proceedings before the United States
District Court for the Eastern District of Pennsylvania
(Reorganization Court). Bankruptey Act of 1898, as
amended, 11 U.S.C. § 205, Reorganization of Railroads.
2. The Rail Passenger Service Act of 1970, 45 U.S.C.
§ 501, et seg., which created the National Railroad Passen-
ger Corporation, a for-profit corporation, pursuant to the
District of Columbia Business Corporation Act, to provide
intercity rail passenger service over a designated basic
national rail passenger system, as a private enterprise,
but with federal financial assistance. The need for such a
corporation arose from the specifie Congressional finding
that a modern, efficient, intercity railroad passenger service
was a necessary part of a balanced transportation system
and was in the national interest. The National Railroad
Passenger Corporation (Amtrak) was authorized to con-
tract with each railroad operating passenger trains in a
basic system, for use by Amtrak of railroad tracks, facili-
ties and services ‘‘on such terms and conditions as the
parties may agree.’’ See 45 U.S.C. §562(a). Subsequent
amendments to 45 U.S.C. § 501, et seq., have merely sup-
plemented the basic legislation. See Amtrak Improvement
Act of 1974 (Public Law 93-496, October 28, 1974, 88
Stat. 1527). The Amtrak Improvement Act of 1974, supra,
amended the name of the Railroad Passenger Service Act
of 1970 to become the Rail Passenger Service Act. See Sec-
67
tion 12 of the 1974 amendment. The Act is referred to by
the parties and will herein be referred to simply as the
‘*Amtrak Act.”’
3. The Regional Rail Reorganization Act of 1973, 45
U.S.C. § 701, et seq. (Public Law 93-236, January 2, 1974,
87 Stat. 986), referred to by the parties and by our court
as the ‘‘Rail Act,’’ provided for the establishment of the
United States Railway Association and the Consolidated
Rail Corporation (ConRail), both with enumerated powers
and duties. The United States Railway Association was
created as a Government corporation, incorporated under
the District of Columbia Nonprofit Corporation Act, and
was empowered to prepare and implement a Final System
Plan. ConRail was created as a for-profit corporation, in-
corporated under the laws of a state, with its principal
office in Philadelphia, Pennsylvania. Pursuant to Section
742, ConRail was to acquire, operate, rehabilitate and main-
tain efficient rail service over the rail lines designated in
the Final System Plan.
Amtrak brought the instant declaratory judgment action
on May 5, 1976, pursuant to 28 U.S.C. §§ 2201 and 2202,
alleging both diversity of citizenship and federal question
jurisdicton. The relief sought was an order to show cause
upon Penn Central why a quarterly work schedule for the
restoration of 360 miles of Penn Central tracks had not
been submitted to Amtrak on May 3, 1976, as required by
the order of confirmation and the arbitration award re-
ferred to earlier. This declaratory action was brought in
the United States District Court for the Southern District
of Indiana, Indianapolis Division.
Amtrak initiated arbitration proceedings on August 18,
1972, in the Reorganization Court, pursuant to a broad
arbitration clause entered into by the parties in The Na-
tional Railroad Passenger Corporation Agreement of April
16, 1971. This agreement is referred to by the parties as
the ‘‘Basic Agreemert,’’ and was mandated by Section
061(a) of the Amtrak Act, 45 U.S.C. § 501, et seq., whereby
Amtrak was directed to contract with the railroad ‘to
relieve the railroad of its entire responsibility for the
provision of intercity rail passenger service’’ under ‘‘such
terms and conditions as necessary to permit the Corpora-
68
tion [Amtrak] to undertake passenger service on a timely
basis.’’
Under the terms of the Basic Agreement, Amtrak under-
took to assume the intercity rail passenger responsibilities
of the Trustees of Penn Central and all other contracting
railroads, and Penn Central undertook to render certain
services to Amtrak and to maintain its rail lines used by
Amtrak at an agreed upon ‘‘level of utility.”’
Under Article Six of the Basic Agreement any ‘‘claim
or controversy’? between Amtrak and Penn Central was
to be resolved by binding arbitration in accordance with
the provisions of The National Railroad Passenger Corpo-
ration Arbitration Agreement separately contracted to by
the parties on April 16, 1971. Referred to by the parties as
the ‘‘Arbitration Agreement,’’ Section 4.2 provides:
««* * * [A]ny arbitration award hereunder made
by a majority of the members of any Arbitration
Panel shall be binding upon the parties thereto.
Any arbitration award hereunder shall declare the
rights of the parties thereto and may make awards
of money, or enjoin or otherwise operate in such a
way as to require specific performance by a party of
any act or obligation.’’ (Emphasis added.)
Section 4.3 of the Arbitration Agreement further provides:
‘‘ Judgment may be entered upon any arbitration
award hereunder * * * in any United States District
Court.’’
A dispute arose between Amtrak and Penn Central con-
cerning the ‘‘level of utility’’ of about 360 miles of certain
rail lines of Penn Central connecting Kankakee, Illinois,
with Louisville, Kentucky, and Cincinnati, Ohio, via Indi-
anapolis, Indiana, under the Basic Agreement of 1971.
Amtrak’s claim that Penn Central had defaulted in its
obligation to maintain the track was duly submitted to the
National Arbitration Panel.?
2 The National Arbitration Panel is a special arbitration panel created in
Article One of the Arbitration Agreement of April 16, 1971. The panel
is composed of three arbitrators representing both railroad and Amtrak
interests, and convenes in Washington, D. C. The jurisdiction of the
panel is limited to “claims or controversies” that may arise under the
Basic Agreement.
69
After the parties submitted extensive written memoranda
and oral testimony was heard, the arbitration was in-
terrupted by an ‘‘Emergency Order’’ of the Federal Rail-
road Administration on August 1, 1974. This emergency
order terminated Aiatrak’s service on the above-mentioned
Penn Central line because the track had been found to
7 “in an — gp eel creating ‘‘an emergency situ-
ation involving a hazard of death inj
affected by the use thereof.’’ ied rate cae
Without objection from Penn Central and in accordance
with its rules, the Panel began additional hearings, ac-
cepted a revised request for an award from Amtrak, and
received additional evidence on September 11, September
24, September 29 and December 16, 1975, and J anuary 20
1976. Thereafter, on February 3, 1976, the National Ar.
bitration Panel issued a written award in NAP Case No.
11, In Re: Level of Utility, with the following declarations
and awards:
_First, the Panel declared that Amtrak had a contract
right to have the Penn Central rail lines connecting Kanka-
ae mr sg and with Louisville via Indianapolis
ept ‘‘at no less than the level of utility’’ which exi
Mek On. y existed on
Second, the Trustees of Penn Central had defaulted in
keeping this bargain.
Third, the Trustees were ordered to ‘‘cause’’ the restora-
tion of these lines to their proper condition by January 1
1978, in accordance with a ‘‘Panel Program,’’ which pro-
vided, inter alia, for a detailed work schedule to be sub-
mitted to Amtrak within ninety days of this award.
The estimates of the cost of these repairs ranged from
22 million dollars, based upon independent evaluation, to
11 million dollars, estimated by Penn Central using its
own employees. Costs were estimated in terms of October
1975. The Panel’s award further provided that Penn Cen-
tral would bear the entire financial burden of the repairs.
A dissenting opinion was handed down by Panel Mem-
ber Johnson, recommending the denial of Amtrak’s claim
for specific performance. He noted that in 1971 the rail
lines were already in a state of deterioration and that the
70
present award would upgrade the lines beyond the May 1,
1971, level at the total expense of Penn Central. Although
conceding that Penn Central had in fact defaulted by per-
mitting the lines to deteriorate generally since 1971, Ar-
bitrator Johnson stated that, upon the record, the issue of
what constituted maintenance on the one had and rehabili-
tation on the other, had not been answered. Johnson, there-
fore, concluded that the inequity of ordering Penn Central
to pay the entire cost of the ‘‘Panel Program’’ was an
arbitrary interpretation of Section 4.2, supra, and suggested
that the expense of the program be shared equally.
On February 4, 1976, pursuant to 9 U.S.C. §9, United
States Arbitration Act, and Section 4.3 of the Arbitration
Agreement, supra, Amtrak petitioned the United States
District Court for the Southern District of Indiana, Indi-
anapolis Division, tor confirmation of the arbitration award.
However, on February 17, 1976, Penn Central petitioned
the Reorganization court in ihe Eastern District of Penn-
sylvania for an order requiring Amtrak to show cause ‘‘why
it should not be required * * * to comply with the provisions
of Order No. 238 and, pending the filing of said petition,
why it should not be enjoined from proceeding further in
the [Confirmation Proceeding].’’
In authorizing the Trustees of Penn Central to enter
into the Basie Agreement with Amt.ak, the Reorganization
Court in Order No. 238, in pertinent parts, stated:
‘$1. The Trustees are authorized to execute a con-
tract with Amtrak in substantially the form sub-
mitted to the Court at the hearing, PROVIDED,
however, * * * (b) that whenever any matter 1s
resolved by arbitration pursuant to the Main Agree-
ment or the Arbitration Agreement, the decision
shall be submitted to this court for review and ap-
proval before becoming finally binding upon the
Trustees or the Debtor, during the pendency of these
reorganization proceedings.
a. 2. oe
‘‘4. The Court reserves jurisdiction over said
contract for the purpose of directing such actions
and granting such iurther relief as may be necessary
to protect the interests of the Debtor’s Estete.’’
71
The Reorganization Court, however, never ruled on
Penn Central’s February 17, 1976, petition to show cause
because the Trustees of Penn Central subsequently con-
sented to the entry of a judgment in the Indiana Court
The consent of the Trustees, and by implication that of
the Reorganization Court, was induced by the assurances
of counsel for Amtrak that it was only attempting to
liquidate its claim in the Indiana court, and that Amtrak
was well aware of and, in fact, accepted the primary
jurisdiction of the Reorganization Court.
Language from Amtrak’s memorandum, as it appears
in the record in the Reorganization Court, reads:
‘‘any judgment entered by the Indianapolis District
Court upon Amtrak’s Petition to Confirm will not
serve to make the award of the National Arbjtra-
tion Panel finally binding upon the Trustees. To
become finally binding, execution on the judgment
would be necessary. Yet execution in any court other
than this Reorganization Court would so manifestly
interfere with the Court’s exclusive jurisdiction to
control the administration of the estate that it would
be impossible to support in law or fact. Therefore
in order for Amtrak to make the award finally bind-
ing upon the Trustees, the entire matter will eventu-
ally have to be submitted in the bankruptey proceed-
ings * * * The mere fact that the arbitration claim
has been reduced to a judgment will not prevent this
Court from making an inquiry since the merger of
a claim into a judgment does not change its nature
as far as provability is concerned.’’
Thereafter, the Trustees consented to the entry of jude-
ment in the Confirmation Proceedings in Indiana based
upon the above assertions in the Reorganization Court
that the Indiana Court would review the arbitration pro-
ceedings ‘‘to see that the award was a proper award and
that the arbitrators acted honestly and did not exceed their
powers.’’ Thereafter, the Indiana Court entered
of Confirmation on March 24, 1976. an Order
On April 9, 1976, Amtrak petitioned the Reorganiza-
tion Court for enforcement of the now confirmed Arbitra-
72
tion Award. Penn Central, thereafter, filed an answer to
the petition for enforcement, asserting that the award
could not be enforced against Penn Central because the
rail tracks in question had been conveyed to ConRail pur-
suant to the Rail Act, and, therefore, Penn Central’s ob-
ligation to restore the tracks was terminated. Amtrak
secured an indefinite postponement of its petition in the
Reorganization Court, returned to the Indiana Court and
filed its instant declaratory judgment action in Indiana.
During the arbitration proceedings between the litigants,
Congress supplemented Section 77 of the Bankruptcy Act
with the Rail Act, as herein earlier set out.* The Rail Act,
like the Amtrak Act, was designed to revitalize the nation’s
rail system, and the rail lines in issue here were designated
for transfer to ConRail. Penn Central contends that such
a transfer to ConRail relieved it of the responsibility to
restore the 360 miles of track, and that, in any event, the
issue was One in the exclusive jurisdiction of the Reorgani-
zation Court pursuant to its Order 238, supra.
At the center of this controversy is the Indiana Court’s
conclusion of law that:
**5. The judgment upon the arbitration award of
the National Arbitration Panel entered by this Court
on March 24, 1976, is res judicata concerning and is a
conclusive bar against any further legal claims
which may be made by the Trustees that:
(a) the award of the National Arbitration
Panel and judgment of this Court entered thereon
is invalid and nonenforceable because of the pro-
visions of the Regional Rail Reorganization Act
of 1973; or
(b) the rehabilitation of the rail lines which
are the subject of this controversy at the sole
3 As the Supreme Court recognized in the Regional Rail Reorganization
Act Cases, 419 U.S. 102, 153 (1974) :
“Congress, in enacting these provisions, clearly intended to legislate
pursuant to the bankruptcy power. The Rail Act, like §77 of the
Bankruptcy Act, which the Rail Act supplements, merely ‘advances
73
cost of the Trustee is unreasonable or inequitable
in view of the April 1, 1976, transfer of these lines
to ConRail; or
(c) the judgment should not be carried out
because of any facts, circumstances or legal de-
fenses which could have been or ought to have
been asserted during the confirmation proceedings
as a ground for vacating the award under the pro-
visions of Section 10 of the Federal Arbitration
Act or for modifying or correcting this award un-
der Section 11 of the Federal Arbitration Act, 9
U.S.C. §§ 10 and 11.”’
It is quite clear to us that the Indiana Court intended
to and did set up its judgment upon the arbitration award
as a final and conclusive judgment, holding that it was res
judicata concerning the arbitration award and a complete
bar to further consideration of the claims set out in sub-
paragraphs (a), (b) and (c) above.
At this point it appears relevant to report a late hap-
pening. On September 30, 1976, Judge Fullam of the Re-
organization Court entered Order No. 2569 which denied
Amtrak’s petition for an order authorizing, instructing and
directing the Trustees of Penn Central to carry out the
judgment of the Indiana District Court to restore or cause
to be restored certain rail lines in Indiana. Judge Fullam
further enjoined Amtrak, pursuant to Order 238, supra, as
follows:
‘The Petitioner, National Rail Passenger Corpo-
ration (‘Amtrak’), is enjoined from instituting or
furthering any legal proceeding for the assertion
or enforcement against the Trustees or the estate of
the Debtor of any alleged obligation or liability for
track maintenance or improvement, in any jurisdic-
tion or before any tribunal except this Court, (or, if
appropriate, in the Special Court), or as otherwise
ordered by this Court. Nothing in this order shall be
deemed to apply to the appeal now pending in the
Circuit Court of Appeals of the Seventh Circuit, nor
another step in the direction of liberalizing the law on the subject of
bankruptcies,’ .. . .” (Citations omitted.)
74
to any appeal from this or any other Order of this
Court.’’ (Emphasis added).*
On October 1, 1976, Judge Fullam handed down a Memo-
randum and Order with respect to his Order No. 2569. This
appears in Appendix F of Amtrak’s brief filed here in
the instant appeal. Judge Fullam, inter alia, gave an an-
alysis of the procedural history of this proceeding with
respect to the Indiana Court. He fully considered the effect
of the Rail Act as it related to ConRail. He paid his respects
to Amtrak’s intentions, absent the injunctive restrictions
hereinabove set out, to return to the Indiana Court, or
perhaps other courts in an attempt to obtain a further
expansion of the confirmed arbitrator’s award, or perhaps
in some other fashion to obtain ‘‘reparations.’’ Judge
Fullam, stating that he was unable to fully understand the
legal theory or basis for Amtrak’s attempts, held that the
injunction should remain in effect.
Il
We first consider whether the Indiana Court had juris-
diction by declaratory judgment or any other judicial means
to circumscribe the jurisdiction of the Pennsylvania Re-
organization Court, as to the enforcement of an arbitration
award which was subsequently confirmed by the Indiana
Court.
At the outset it seems quite clear to us that in a railroad
reorganization, the power to resolve all disputes involving
the estate and to determine the enforceability and status
of all claims is vested exclusively in the Reorganization
Court. See the injunctive powers in Section 77(j) of the
Bankruptey Act, 11 U.S.C. § 205(j). Baker v. Gold Seal
Liquors, 417 U.S. 467, 477 (1974), Mr. Justice Stewart con-
curring. Baker was a Penn Central reorganization case in
which the Seventh Circuit was reversed. In the New Haven
Inclusion Cases, 399 U.S. 392 (1970), a similar question
was presented concerning a railroad reorganization under
Section 77. Two groups of creditors sought relief in differ-
4 Amtrak has in fact appealed from Judge Fullam’s Order No. 2569, as
we were advised by counsel during oral argument. This appeal is now
pending before the Court of Appeals for the Third Cireuit.
79
ent tribunals. The two courts reached different decisions
as to the proper compensation.
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