Opposition — Schafer v. Penn Central Corp.

INTHE

J

SUPREME COURT of the UNITED STATES :

OCTOBER TERM, 1978

No. 78-1775

No. 78-1776

JOSEPH A. SCHAFER, et al...

DR. ROBIN S. KEY,

Petitioners

vr

THE PENN CENTRAL CORPORATION,

PENN CENTRAL COMPANY, et al.,

Respondents

On Petitions for Writs of Certiorari to the

United States Court of Appeals

for the Third Circuit

BRIEF IN OPPOSITION FOR

THE PENN CENTRAL CORPORATION

AND PENN CENTRAL COMPANY

CHARLES A. HORSKY

of Counsel: SX 16th St, NW

WASHINGTON DC Yoon

COVINGTON & BURLING

R&S ith St.. NW JAMES E. HOWARD

WASHINGTON, D.C. 20006 JOHN J. EHLINGER, JR.

3100 IVB BUILDING

CARL HELMETAG, JR. 1700 MARKET ST

1700 MARKET ST PHILADELPHIA. PA. 1010

PHILADELPHIA, PA. 19108

JAMES D. CRAWFORD

SCHNADER, HARRISON, SEGAL & 1719 PACKARD BUILDING

LEWIS PHILADELPHIA, PA, 19102

1719 PACKARD BUILDING

PHILADELPHIA, PA. 19102 Attorneys for Respondents

TABLE OF CONTENTS

Page

CE RONNE acaca gee ER iN carat aus ]

SDUSOEE TF PIII 65 3 oa eh a eee es ws 2

Counterstatement of the Case .................. 3

Reasons for Denying the Writ .................. i)

CIE fe caw ace eerie et Sue gees oan 17

TABLE OF AUTHORITIES

CASES:

Bank of Commerce v. Board of Governors of

Federal Reserve System, 513 F.2d 164 (10t

CO SBOE cas wad cs hiss cee ee are!

Carey v. Piphus, 435 U.S. 247 (1978) ............

Ecker v. Western Pac. R.R., 318 U.S. 448 (1948) ..

In re Penn Central Transportation Co., 454 F.2d

710 (8d Cir.), cert. denied, 406 U.S. 944 (1972)

In re Penn Central Transportation Co., 455 F.2d

811 (8d Cir.), cert. denied, 407 U.S. 915 (1972)

In re Penn Central Transportation Co., 328 F.

Supp. 1278 (E.D. Pa. 1971), aff'd per curiam,

465 F 20 S76 (Ga CAP. TOTES vce chicdns wise

In re Penn Central Transportation Co. (Approv-

Pana 458 F. Supp. 12384 (eb. Pa.

€

In re Penn Central che gp taaalagey Co. (Confir-

— Opinion), 458 F. Supp. 1364 (E.D. Pa.

Mullane v. Central Hanover Bank & Trust Co.,

BO 02 NO LEOE i. bok sea eaes ck kde ews

New Haven Inclusion Cases, 399 U.S. 392 (1970) .

Peckham v. Casalduc, 261 F.2d 120 (1st Cir.

1958), cert. dented, 359 U.S. 958 (1959) ......

Protective Committee for Independent Stock-

holders of TMT Trailer Ferry, Inc. v. Ander-

Oa, BOO UB. SiG CIO bs bs 8 ilaedie site

United States v. Nixon, 418 U.S. 683 (1974) ......

14

15, 16

1]

10, 11

1]

4 et passim

4,7,8

11, 12, 18, 14

2

11

il

Table of Contents Continued

STATUTES:

Bankruptey Act

Section 77, 11 U.S.C. SR... ee

Sections 301-399, 11. U.S.C. §8709-799 ........

Regional Rail Reorganization Act of 19738, 45

U.S.C. $8701-784 . ... cia ee

Pennsylvania Business Corporation Act, 15 P.S.

$31320(1), 1401... .caccseanuewe eee

MISCELLANEOUS:

Rule 19(b) of the Supreme Court of the

United States .......: 20s unt eee

Rule 20 of the Supreme Court of the United

States .

®*ee eee ecteeeoeete ses 6 6 6 O22. 2 6.8. 8 2 ee eee ee

3et passim

13

IN THE

SUPREME COURT of the UNITED STATES

OCTOBER TERM, 1978

No. 78-1775

No. 78-1776

JOSEPH A. SCHAFER, et al.,

DR. ROBIN S. KEY,

Petitioners

v,

THE PENN CENTRAL CORPORATION,

PENN CENTRAL COMPANY, et al.,

Respondents

On Petitions for Writs of Certiorari to the

United States Court of Appeals

for the Third Circuit

BRIEF IN OPPOSITION FOR

THE PENN CENTRAL CORPORATION

AND PENN CENTRAL COMPANY

OPINIONS BELOW

The judgments and opinion of the Court of Ap-

peals are found in Petitioners’ Appendix at pages A.1-

36. The opinion of the Court of Appeals is not yet

reported. The opinion of the Reorganization Court ap-

proving the Plan of Reorganization for Penn Central

2

Brief of Respondents in Opposition

Transportation Company (PCTC Plan) is reported at

458 F. Supp. 1284 and is found, in part, in the Appendix

at pages A. 134-216. The Reorganization Court’s opin-

ion accompanying its order confirming the PCTC Plan

is reported at 458 F.Supp. 1864 and is found, in part, in

the Appendix at pages A. 107-130.

The order of the PCC Chapter XI Court confirming

the PCC Plan of Arrangement is found in the Appendix

at pages A. 46-48. The District Court’s order affirming

the confirmation of the PCC Plan of Arrangement is

reproduced in the Appendix at page A. 44. The Court of

Appeals has before it, but has not yet decided, Petitioner

Key's appeal (C-A. No. 79-1573) from an order of the

Chapter XI Court dismissing Key’s complaint. !

QUESTIONS PRESENTED

1. Do Petitioners, who were stockholders of Penn

Central Company, the sole stockholder of Penn Central

Transportation Company, and whose appeals from or-

ders relating to the PCTC Plan were dismissed for lack

of standing, have standing to seek a review of the deci-

sions below?

2. Assuming arguendo that Petitioners have

standing, is there any basis for reviewing the decision

1. Dr. Key’s Petition, insofar as it asks this Court to consider

an appeal prior to judgment in the Court of Appeals, can be dis-

missed summarily. His case, which simply renews and embellishes

the arguments made by Schafer, et al. in the PCC proceedings,

clearly is not a case of imperative public importance that requires

immediate resolution in this Court pursuant to Rule 20. C£ New

Haven Inclusion Cases, 899 U.S. 392 (1970); United States v. Nix-

on, 418 U.S. 6838 (1974).

3

Brief of Respondents in Opposition

of the Court of Appeals that the PCTC Plan, which was

approved and confirmed and which has been success-

fully consummated, made adequate provisions for

Penn Central Company?

3. Did the court below properly determine that

nothing in the United States Constitution, the Bank-

ruptey Act, or the Pennsylvania Business Corporation

Law prohibited the duly elected directors of Penn Cen-

tral Company from consenting to the PCTC Plan or

from negotiating Penn Central Company’s own plan of

arrangement without vote of or individual written no-

tice to its shareholders?

COUNTERSTATEMENT OF THE CASE

Petitioners, Joseph A. Schafer, et al. and Dr. Robin

Key, are nine of approximately 150,000 former stock-

holders of Respondent, Penn Central Company (PCC),

which, prior to the consummation on October 24, 1978

of the PCTC Plan under section 77 of the Bankruptcy

Act, was the sole stockholder of Penn Central Trans-

portation Company (PCTC or Debtor). PCC has itself

been in reorganization under Chapter XI of the Bank-

ruptey Act. Respondent, The Penn Central Corporation

(Penn Central), is the reorganized PCTC and succes-

sor to the Trustees of the property of PCTC (Trust-

ees).

The PCC stockholders’ petitions for writs of certio-

rari ask this Court to review the decisions of the United

States Court of Appeals for the Third Circuit (A. 8-10,

13-36") which: (1) dismissed for lack of standing the

2. References made herein to “A. are to the Appendix

to the stockholders’ Petitions.

4

Brief of Respondents in Opposition

stockholders’ appeals from orders of the United States

District.€ourt for the Eastern District of Pennsylvania

(Reorganization Court) approving (Approval Order) ,*

confirming’ and directing the consummation of the

PCTC Plan; and (2) affirmed decisions of the United

States District Court for the Eastern District of Penn-

sylvania supervising PCC’s reorganization proceedings

under Chapter XI which confirmed PCC’s Plan of Ar-

rangement and dismissed an adversary complaint filed

by Petitioners against PCC,

The Court of Appeals dismissed each of Petition-

ers’ appeals relating to the PCTC Plan on the grounds

that, as stockholders of PCC, the sole stockholder of

PCTC, they lacked standing (a) to be heard in the Re-

organization Court under Section 77(c)(13) of the

Bankruptey Act and (b) to appeal orders of the Reor-

ganization Court. (A. 9-10, 13-36) Notwithstanding the

dismissal of Petitioners’ appeals for lack of standing,

the Court of Appeals considered and rejected the mer-

its of Petitioners’ objection that the provisions of the

PCTC Plan for the participation of PCC, as stockhold-

er, were not fair and equitable. (A. 23-30) The Court

also concluded that the PCC Plan of Arrangement did

not require stockholder approval and did not overcom-

pensate PCC’s creditors. (A. 31-36)

The Reorganization Court’s comprehensive opin-

ions approving and confirming the PCTC Plan (A. 137-

216, 99-130) and the opinion of the Court of Appeals

3. In re Penn Central Transportation Co., 458 F. ‘Supp. 1234

(B.D. Pa. 1978).

4. The opinion of the Reorganization Court accompanying the

confirmation and consummation orders is reported in: In re Penn

Central Transportation Co., 458 F. Supp. 1364 (E.D. Pa. 1978).

—

5

Brief of Respondents in Opposition

(A. 13-36) thoroughly considered the basis of PCC’s

participation under the PCTC Plan in the context of the

massive administration, secured and unsecured claims

against PCTC and the overriding uncertainties con-

cerning the value and availability of the Debtor’s as-

sets to satisfy such claims. Rather than to attempt to

repeat all of those facts here, Penn Central and PCC

respectfully refer the Court to the opinions below and

will review only the salient features of the PCTC Plan

and the PCC Plan of Arrangement affecting the treat-

ment of PCC and its stockholders.

Under the PCTC Plan, PCC, as stockholder of

PCTC, received 10% of the common stock of the reor-

ganized PCTC. Pursuant to PCC’s Plan of Arrange-

ment, its stockhoiders received 40% of the stock of

Penn Central distributed to PCC, or 4% of the common

stock of Penn Central. The remaining 60% of the Penn

Central stock received by PCC, or 6% of the total

amount of common stock, was distributed to holders of

Swiss france notes issued by PCC who asserted a claim

against PCC in excess of $150 million. That claim was

secured by a pledge of 35% of PCC’s stock holdings in

PCTC.

As the Court of Appeals noted, PCC C’s participation

in the PCTC Plan resulted from a basic assumption

that the PCTC estate was solvent. (A. 17) This as-

sumption, in turn, was necessarily based on the proba-

bility that the eventual outcome of the proceedings in

the Special Court established under the Regional Rail

Reorganization Act of 1973, 45 U.S.C. 88701-794 (Rail

Act), to determine the value of the PCTC rail assets

conveyed under the Rail Act (Valuation Case) would

6

Brief of Respondents in Opposition

yield a recovery sufficient to satisfy the claims of all

the creditors and claimants of PCTC whose interests

were superior to that of the stockholder. The Court of

Appeals recognized, however, as the Reorganization

Court stated in its Approval Opinion, that “if the Valu-

ation Case should produce a very small recovery, the

assumption of solvency would be incorrect.” 458 F.

Supp. at 1255. (A. 165)

The PCTC Plan resolved, through a series of com-

promises, the pervasive uncertainties concerning the

value of PCTC’s principal asset—its properties con-

veyed under the Rail Act—by according, to all but the

very senior administration claimants, securities and

stock whose value will ultimately be determined in

whole or in part by the Valuation Case recovery. Thus,

nearly all claimants, including PCC and its stockhold-

ers, stand to recover more or less than they might have

otherwise if all of the assets of the Debtor could have

been easily valued and made readily available fer dis-

tribution. On the other hand, by offering an opportuni-

ty to participate in the reorganized PCTC prior to the

expected conclusion of the Valuation Case in 1987, the

PCTC Plan assured for all classes of participants, in-

cluding PCC and its stockholders, some recovery realiz-

able before the conclusion of the Valuation Case.

Following discussions and negotiations with vari-

ous claimants in the PCTC proceedings concerning the

interest, if any, to be accorded PCC under the PCTC

Plan, PCC concluded that the PCTC Plan was fair and

sought and obtained authorization from its Chapter XI

7

Brief of Respondents in Opposition

Court to support and vote to accept the PCTC Plan.°

Notwithstanding PCC’s vote in favor of the PCTC

Plan, Petitioner Schafer and a few other individual

stockholders of PCC objected to the approval of the

PCTC Plan on the grounds that it was not fair and

equitable to PCC. After a thorough analysis of the

PCTC Plan and of the very extensive record before it,

the Reerganization Court concluded that

“(tjhe Trustees’ proposal to permit equity interests

to participate is reasonable and should be ap-

proved. Conversely, however, I am also persuaded

that no greater participation than the Plan pro-

vides can be justified on the present record.” 458 F.

Supp. at 13438. (A. 213)

Petitioners later objected to the confirmation and

consummation of the PCTC Plan, again on the grounds

that it was not fair and equitable to PCC, and asserted

that the vote of PCC in favor of the PCTC Plan was

invalid. The Reorganization Court held that the objec-

tion must be denied for the reasons that “he [was] not

a shareholder of the Debtor as required by

877(c) (18).”” (A. 116) The Reorganization Court con-

cluded that “the Plan’s treatment of the Debtor’s stock

interest is fair and equitable.” 458 F. Supp. 1871. (A.

121) In confirming the PCTC Plan, the Reorganization

5. PCC’s motion for summary judgment on the stockholders’

adversary complaint (which Petitioners omitted from their Appen-

dix) showed by uncontested affidavits that the trustee for PCC’s

principa! creditors—the holders of notes payable in Swiss francs

in amounts in excess of $150 million—would have withheld the

essential consent of those noteholders to PCC’s Plan of Arrange-

ment if PCC had risked the loss of the distribution of 10% of the

new stock of the reorganized PCTC by failing to approve the

PCTC Plan.

8

Brief of Respondents in Opposition

Court accepted as valid PCC’s vote, but stated that,

even if the vote could not have been considered valid, it

would have exercised its ‘““cramdown” power under sec-

tion 77(e) of the Bankruptcy Act to confirm the PCTC

Plan notwithstanding the absence of a valid acceptance

by the stockholder. 458 F. Supp. at 1873. (A. 122)

Petitioners requested the Reorganization Court to

stay the consummation of the PCTC Plan pending their

appeal from the Approval Order and the conclusion of

the Valuation Case. The Reorganization Court denied

the request, stating:

“Their standing in these proceedings is so dubious,

and the merits of their arguments so tenuous, that

the pendency of their appeal plainly does not justi-

fy delaying consummation.” 458 F. Supp. at 1376.

(A. 127)

Petitioners then sought a stay of the consumma-

tion in the Court of Appeals, which denied the request

on October 17, 1978. (A. 42-48) On October 23, 1978,

on the eve of the scheduled consummation of the PCTC

Plan, Petitioners sought a stay from Mr. Justice Bren-

nan, who denied the request the same day. (A. 41) Peti-

tioners’ second request for a stay, addressed to the

Chief Justice and referred to the Court, was denied on

November 138, 1978. (A. 40)

In its opinion of January 11, 1979, the Court

of Appeals, after concluding that Petitioners lacked

standing to appeal, rejected their assertions that the

PCTC Plan did not provide fair and equitable consider-

ation for the interest of PCC. The court below held that

“the reorganization court exercised sound judgment in

i)

Brief of Respondents in Opposition

concluding that the Plan provides fair treatment and

compensation to the PCC.” (A. 30) In addition, the

Court of Appeals rejected Petitioners’ argument that

the combination of the PCTC Plan and the PCC Plan of

Arrangement resulted in a deprivation of the

stockholders’ property rights under the Fifth

Amendment. It held that ‘“if...both — the

reorganization plan and the arrangement meet the

requirements of Section 77 and Chapter XI

respectively, no constitutional violation would exist.”

(A. 30-31)

Finally, the Court of Appeals analyzed the impact

of the PCC arrangement proceedings on PCC share-

holders and concluded that the satisfaction of the

Swiss france debt of over $150 million for 60% of PCC’s

shares in the reorganized PCTC did not over-compen-

sate the noteholders. (A. 35) Accordingly, it affirmed

the order confirming PCC’s Plan of Arrangement.

Petitioners filed a motion for rehearing en bane.

By order dated February 28, 1979, the Court of Appeals

denied the motion. (A. 3-4) The stockholders then filed

their Petitions for writs of certiorari on May 29, 1979.

REASONS FOR DENYING THE WRIT

I. Petitioners Lack Standing To Seek a Review of The Deci-

sions Below as They Apply to the PCTC Reorganization.

Petitioners do not challenge the decision of the

court below that they lacked standing to appeal under

Section 77(c)(13) and Bankruptcy Rule 8-210. In the

absence of any challenge to the decision on standing,

10

Brief of Respondents in Opposition

their Petitions may be denied without further consider-

ation.

The Court of Appeals’ concluded that, since Peti-

tioners were stockholders of PCC, not of PCTC, they

lacked standing to appeal orders of the Reorganization

Court. This decision reaffirmed its earlier holding in Jn

re Penn Central Transportation Co., 455 F.2d 811 (3d

Cir.), cert. denied, 407 U.S. 915 (1972). There, it was

held that “the standing of a participant to a railroad

reorganization to appeal from an order of the reorgani-

zation court turns on whether section 77(c) (13) of the

Bankruptey Act, 11 U.S.C. §205(¢) (13) (1964), grants

him a right to be heard.” 455 F.2d at 815. The stock-

holders of PCC clearly did not fall within the class of

persons having the right to be heard under section

77(c) (13), which provides that

“the debtor, any creditor or stockholder, or the duly

authorized committee, attorney or agent of either

or the trustees or trustees of any mortgage, deed

of trust or indenture pursuant to which securities

of the debtor are outstanding shall have the right

to be heard on all questions in the proceedings.” 11

U.S.C. §205(¢) (13).

Bankruptcy Rule 8-210 contains similar provisions:

(a) Standing to be Heard.

(1) The debtor, the indenture trustees, and

any creditor or stockholder of the debtor shall

have the right to be heard on all matters aris-

ing in a Chapter VIII case.

1]

Brief of Respondents in Opposition

Petitioners’ interests in the PCTC reorganization

proceedings were merely derivative of the interest of

PCC, as stockholder of the Debtor, and were fully and

adequately protected by PCC. For this reason, the

courts below had earlier denied attempts by stockhold-

ers of PCC to intervene in the PCTC proceedings. /n re

Penn Central Transportation Co., 454 F.2d 710 (38d

Cir.), cert. denied, 406 U.S. 944 (1972); In re Penn

Central Transportation Co., 328 F. Supp. 1278 (B.D.

Pa. 1971), aff'd per curiam, 455 F.2d 976 (3d Cir.

1972).

The fact that some of the Petitioners and other

individual stockholders of PCC were permitted by the

Reorganization Court to appear and fiic objections to

the PCTC Plan did not confer upon them the status of

parties or accord the stockholders of PCC the right to

be heard in the PCTC proceedings. /n re Penn Central

Transportation Co., 455 F.2d at 815, n.11; Peckham v.

Casalduc, 261 F.2d 120 (1st Cir. 1958), cert. denied,

359 U.S. 958 (1959).

Although Petitioners blithely ignore their lack of

standing below, they suggest that the decision in Mul-

lane v. Central Hanover Bank & Trust Co., 339 U.S.

306 (1970), mandates that, under the peculiar circum-

stances of this case, they should be accorded appellate

rights. The argument reveals that the issue is unique

to this proceeding, but in any event Mullane has no

relevance to the question of standing. That case dealt

with the adequacy of notice to parties to a judicial set-

tlement of a common trust fund and held that notice by

publication in a local paper was inadequate for benefi-

ciaries of the fund whose addresses were known and

for whom notice by mail was not impracticable. It in no

12

Brief of Respondents in Opposition

way suggests that appellate rights must be given to

the stockholders of the stockholder of the Debtor,

where the stockholder itself, PCC, was a party which

could have appealed and has adequately represented

their interests. (A. 19-20)

Il. Petitioners Had No Right to Individual Notice of Hearings

In the Reorganization Court or Chapter XI Court.

Petitioners argue that Mullane suggests that the

failure to give notice by mail of the hearings in the

PCTC reorganization proceedings and hearings relat-

ing to the PCC Plan of Arrangement to each of the

150,000 stockholders of PCC was a violation of due

process.

Mullane differs from the present case in two ecru-

cial aspects. First, it involved a judicial proceeding to

settle the accounts of a trust fund which would have

the effect of absolving the trustee of any liability for

negligent or illegal impairments of the trust. Second,

the property interest involved was the vested interest

of the beneficiaries in the specific identifiable property

which constituted the trust corpus. By contrast, in the

present case the directors of PCC and the PCTC Trust-

ees both were subject to court supervision and court

orders and no question of impairment of any asset is

present. More importantly, the dispute in this case does

not concern specific identifiable property in which the

stockholders of PCC had a vested interest; rather, Peti-

tioners allege an interest in the unpredictable recovery

from the Valuation Case. Indeed, as the record shows

and the courts below found, there is a serious question

whether the stockholders of PCC would recover any-

13

Brief of Respondents in Opposition

thing after the payment of creditors if they awaited the

outcome of the Valuation Case.

Equally important, the board of directors of PCC,

unlike the guardian in Mullane, was elected by the

stockholders themselves (except for one elected ac-

cording to law as a replacement by the remaining direc-

tors). In fact, the stockholders could have called a

meeting and removed the directors had they felt that

the directors did not adequately represent the stock-

holders interests. Thus, the stockholders had not only

picked their representatives in this case, but had a

working control] over them.

The provisions of Chapter XI of the Bankruptcy

Act, 11 U.S.C. 88701-799, confirm the lack of merit in

Petitioners’ arguments. Chapter XI provides for a ne-

gotiation between a debtor (which may be a corpora-

tion) and its creditors of a plan for division of its assets

in a way that will achieve the consent of a majority in

number and amount of its classes of creditors to the

modification or cancellation of their original claims. A

plan may be filed only by the debtor, and a vote of its

stockholders is accordingly not required by Chapter

XI.

For appropriate action to formulate such a plan,

one must look to the law governing the debtor corpora-

tion, here the Pennsylvania Bu.iness Corporation Law

(BCL). Section 401 of the BCL, 15 Pa. Stat. Ann. 81401,

provides that “the business and affairs of every busi-

ness corporation shall be managed by a board of direc-

tors ...” There is no provision in the BCL for submis-

sion of a proposed plan or plans to the stockholders.

Moreover, once a plan is negotiated by the board with

14

Brief of Respondents in Opposition

creditors, filed by the board, properly accepted by the

creditors and confirmed by the court, Section 320 of the

BCL, 15 Pa. Stat. Ann. §1820(1) (A. 33), expressly per-

mits a reorganization or arrangement under the Bank-

ruptey Act so confirmed by a court of competent juris-

diction to be put into effect without further action by

the corporation's directors or stockholders.

Petitioners carefully omit to claim that they lacked

actual notice of the proceedings. In fact, any claim by

Petitioners that they lacked actual notice would be in-

credible. The highly publicized PCTC reorganization

proceedings have been ongoing since 1970. Rather,

they make the abstract assertion that they had a due

process right to individual mailed notice, regardless of

actual notice. A similar argument, based on Mu/lane,

was rejected in Bank of Commerce v. Board of Gover-

nors of Federal Reserve System, 5i8 F.2d 164, 167

(10th Cir. 1975).

Moreover, each of the courts below, despite deter-

mining that the stockholders of PCC lacked standing,

heard such stockholders as chose to participate and

ruled on their contentions on the merits, finding in each

case that the actions of the PCC directors were proper.

Where the charge of an erroneous deprivation of Peti-

tioners’ property interest was actually heard and deter-

mined not to exist, no due process violation can be es-

tablished. See Carey v. Piphus, 485 U.S. 247, 259

(1978). It was only after considering the stockholders’

arguments that the Reorganization Court found that

the PCTC Plan was fair and equitable to PCC under

Section 77(e) of the Bankruptcy Act and that the Court

of Appeals found that the PCC stockholders were not

15

Brief of Respondents in Opposition

prejudiced by the PCC Plan of Arrangement. (A. 30-

31)

Ill. Petitioners’ Challenge to the PCTC Plan Is, in Any Event,

Without Substance.

Although the PCTC and PCC reorganization pro-

ceedings were large and complex, the case presented

by Petitioners is simply not one that falls within the

scope of this Court’s Rule 19(b). There is no conflict

between the decision of the court below and decisions

of this Court or other courts of appeals. The statutes

involved and the principles applied by the courts below

are clear and unambiguous. Moreover, the provisions

of the Bankruptcy Act in question have been repealed.

Petitioners’ complaint on the merits is that the pro-

vision of the PCTC Plan which accorded to PCC, as the

stockholder of the Debtor, 10% of the common stock of

the reorganized company is unfair and inequitable. The

issue was carefully canvassed by the Reorganization

Court, 458 F. Supp. at 1843 (A. 212-13), and was accept-

ed by the court below. The participation by PCC in the

PCTC Plan was based on the assumption that the es-

tate was solvent. The possibility of an enormous recov-

ery in the Valuation Case, to which Petitioners allude,

is tempered by the possibility that the recovery would

not be large enough to render the estate solvent, in

which case PCC would have been entitled to nothing.

Ecker v. Western Pac. R.R., 318 U.S. 448 (1943). The

compromise of the issue by according PCC 10% of the

common stock was agreeable to PCC and was accepted

by the court below. Similarly, as the Court of Appeals

16

Brief of Respondents in Opposition

noted, the distribution to the PCC stockholders of the

stock received by PCC was, by any reasonable mea-

sure, eminently reasonable. The suggestion (Schafer

Pet. at pp. 17-18) that this Court should again review

this issue in order to satisfy the PCC stockholders that

justice had been done misconceives the function of this

Court and plainly ignores the fact that the nine Peti-

tioners appear to be the only PCC stockholders who

reject the PCTC Plan and the PCC Plan of Arrange-

ment,

Petitioners’ further assertion that the court below

should have provided the PCC stockholders with a con-

tingent interest in the Valuation Case (Schafer Pet. at

p. 19) also fails to establish a basis for granting their

Petitions. The question before the Court of Appeals

was whether the PCTC Plan was fair and equitable, not

whether some vaguely defined alternative, which

would have repercussions with respect to the treat-

ment of all classes of creditors, should have been incor-

porated. Ecker v. Western Pac. R.R., supra, at 475-76.

A greater or different participation by the stock-

holder would have involved the compromise of the in-

terest of the secured and unsecured creditors whose

claims could not be satisfied by PCTC’s retained assets

alone. The Reorganization Court properly approved the

Trustees’ judgment, which was concurred in by PCC,

that PCC’s 10% equity participation in the reorganized

PCTC was not only a reasonable compromise of the

issue, but also fair and equitable. Those judgments

were correctly endorsed by the Court of Appeals be-

low. Protective Committee for Independent Stock-

17

Brief of Respondents in Opposition

holders of TMT Trailer Ferry, Inc. v. Anderson, 390

U.S. 414 (1968).

Finally, it may be appropriate to respond to Peti-

tioners’ contentior (Schafer Pet. at p. 19) that the

PCTC Plan puts the creditors in control of a possible

settlement of the Valuation Case, with the possibility

that there will be no proceeds in excess of the credi-

tors’ claims. The creditors, of course, hold 90% of the

common stock of Penn Central, and it is obviously in

their interest to obtain the greatest possible Valuation

Case recovery, which will equally benefit the 10% of

the common stock allocated to PCC. The interests of

the creditors and of the former stockholders are com-

mon, not conflicting.

CONCLUSION

With respect to the PCTC reorganization, Petition-

ers lack standing to ask the Court to review these mat-

ters. Even if Petitioners had the requisite standing,

however, they raise no issue of general importance and

no basis is shown for this Court to re-examine the

PCTC Plan, which has been approved by the courts be-

lew and successfully consummated.

Similarly, the challenge to the PCC Plan of Ar-

rangement raises no issue of general importance and

shows no reason to disturb the completed arrangement

approved by the courts below.

18

Brief of Respondents in Opposition

The Petitions should be denied.

Respectfully submitted,

CHARLES A. HORSKY

Washington, D.C. 20006

COVINGTON & BURLING

SAS 16th St.. NW JAMES EF. HOWARD

Washington, D.C. 20006 JOUN J. EHLINGER, JR.

SLOOTVB Building

CARL HELMETAG, JR. straps isc :

1700 Market St Philadelphia, PA. 19103

Philadelphia, PA. 19108

JAMES D. CRAWFORD

SCHNADER, HARRISON, SEGAL & Tt) Feckere Danni

LEWIS Philadelphia, PA. 19102

1719 Packard Building :

Philadelphia, PA. 19102 Attorneys for Respondents