Petition — Railway Labor Executives' Ass'n v. Gibbons
Supreme Court brief1981
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09-1899 FILED j
8 a MAY 18 88 |
RIEWERDER TE STEVAS. |
IN THE
Supreme Court of the United States
OCTOBER TERM, 1980
RAILWAY LABOR EXECUTIVES’ ASSOCIATION,
Petitioner,
wi
WILLIAM M. GiBBons, Trustee Of The Chicago, Rock
Island & Pacific Railroad Company; CONTINENTAL
ILLINOIS NATIONAL BANK AND TRUST COMPANY OF
CuHIcAGo, As Indenture Trustee; First NATIONAL BANK
Or Cuicaco, As Indenture Trustee; HENRY CROWN, ef
al; UNITED STATES OF AMERICA, And The
INTERSTATE COMMERCE COMMISSION,
Respondents.
PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE SEVENTH CIRCUIT
JOHN O’BRIEN CLARKE, JR.
HIGHSAW & MAHONEY, P.C.
Suite 210
1050 - 17th Street, NW
Washington, D.C. 20036
(202) 296-8500
Attorneys for Petitioner
Railway Labor Executives’
Association
Date: May 12, 1981
PRESS OF BYRON S. ADAMS PRINTING, INC., WASHINGTON, D.C.
QUESTIONS PRESENTED
In the opinion of petitioner Railway Labor Execu-
tives’ Association (RLEA),* the following questions are
presented by this petition:
1. Did the United States District Court, sitting as
a reorganization court for a railroad under Section
77 of the Bankruptcy Act, 11 U.S.C. §205, have the
discretion both to determine on its own that the
Trustee’s plan of reorganization was without merit,
and to refuse to transmit that plan to the Interstate
Commerce Commission as it was required to do by
Bankruptcy Rule 8-303?
2. Did the United States District Court, sitting as
a railroad reorganization court under 11 U.S.C.
§205, have the jurisdiction to order the liquidation
of the debtor?
* Petitioner RLEA is a voluntary, unincorporated association of
the Chief Executive Officers of virtually all of the standard labor
organizations which represent railroad employees. The member
organizations of RLEA are listed in Appendix G, hereto. While
many parties have appeared before the District Court in these pro-
ceedings, petitioner has named as respondents only those parties
who have appeared on brief in the Seventh Circuit proceedings in
this case, as well as both the United States of America and the In-
terstate Commerce Commission because of their involvement in the
reorganization proceedings and the issues presented herein.
TABLE OF CONTENTS
PAGE
SOETEONS POMMUNTED 6555. ccc ccccccccccceccesecees i
EE isc 66b%6eccssvevessopressetbecvess 2
EEN o ccescc'escccccet ect ovesesresecsiossoes 2
STATUTORY PROVISIONS INVOLVED ...........0000000ees 3
ICE CERNE e's cc cdovdccccccencsovoveseses 3
REASONS For GRANTING THE WRIT...........000000065 ll
1. This Petition Raises Important Issues As To
The Orderly Administration Of A Section 77
Reorganization Which Must Be Resolved By
This Court To Aid The Midwestern Region Of
This Country Pass Through Its Current Crisis
EE III 0 Vc Se coccssececsececse ll
2. The Decision Of The Court Of Appeals Con-
flicts With Decisions Of This Court Detailing
The Relationship Between The ICC And A Sec-
tion 77 Reorganization Court..............05 14
3. The Decision Of The Seventh Circuit Conflicts
With The Long Established View Of The
Limitations On The Jurisdiction Of A Section
77 Reorganization Court And With A Decision
Of Another Court Of Appeals................ 17
CLC c Ll. cag ced eeh sees es cece peceeoncercess 21
APPENDICES:
AppenpDIx A. Decision of the Court of Appeals,
PI Bla SUN 6 cdcse0sdbcesecessere la
APPENDIX B. Minute Order of the District Court,
Docketed January 28, 1980 ............. 17a
AppENDIX C. Partial Transcript of January 25, 1980... 19a
ApPENpDIx D. Minute Order of the District Court, dated
ves sy saa bebeees 00062 25a
APPENDIX E. Judgment, Court of Appeals............ 27a
APPENDIX F. Statutes and Rules Involved ............ 29a
APPENDIX G. List of RLEA Member Organizations .... 45a -
iv
TABLE OF AUTHORITIES
Cases RELIED UPON: PAGE
Chicago, RU. & P. R.—Abandonment, 363 1.C.C. 150
EEE voc ccdaeice ceeds vee PN eet se Uebeeheceseter 4,5
Continental Illinois National Bank v. Chicago, R.I. & P.
Ry... TOA UB. GOB (IGSS) . oc cc vccccsccccsccccccses
Directed Service Order No. 1398, 360 1.C.C. 289
SE ccc dtceris canes sanbsG ee aeeescoeaseekes
Ecker v. Western Pac. R., 318 U.S. 448 (1943). 9, 13, 15, 16, 17
In re Boston & Maine Corp., 484 ¥ .2d 369 (Ist Cir. 1973) .. 17
In re Lehigh Valley R., 558 F.2d 137 (3rd Cir. 1977)... 18, 19, 20
In re Penn Central Transp. Co. , 347 1.C.C. 45 (973) ..... 19
New Haven Inclusion Cases, 399 U.S. 392 (1970) ... 10, 13, 15,
16, 18, 20
Palmer v. Massachusetis, 308 U.S. 79 (1939)........ 15, 16, 17
RLEA vy. Gibbons, Sup. Ct. No. 80-1239 ..... 0... .5006 3,11
Van Schaick v. McCarthy, 116 F.2d 987 (10th Cir.
CONE eek verbenssedbeweecksees ae bednaua rahe ss 19
STATUTES RELIED UPON:
Bankruptcy Act, 11 U.S.C. §1, ef. seq.
NG, FE Chis HEA ob bike Care) ce cceebeadées 19
Section 74(1), 47 Stat. 1469 (1933) .............006. 19
SAE 75 80 igs GUE Wnensikn Sieve cevesss in passim
Bankruptcy Reform Act of 1978, Pub. L. No. 95-598, 92
Stat. 2549, Section 403, 92 Stat. 2683 .............. 3,19
Milwaukee Railroad Restructuring Act, Section 17(a), 45
RAs SUES sc achaasutecuse 65cck be sekaaecnekes
Railroad Revitalization and Regulatory Reform Act of
1976, Pub. L. No. 94-210, Section 618(b), 45 U.S.C.
SRLS vrnle Pon aues AOE C RG ERR CORES OLS EL eh RO? 19
Railway Labor Act, §10, 45 U.S.C. §160..........00000s 5
V
Table of Authorities Continued
STATUTES RELIED UPON: PAGE
Rock Island Transition & Employee Assistance Act, Pub.
L. No. 96-254, as amended, 45 U.S.C. §1001, ef. :
BE checkers vicar decvettes pens CreaNabereeees =
2B U.S.C. SIZED)... ccvcccccccccccvcccvvccvcveevees 2
CONGRESSIONAL AND OTHER MATERIALS RELIED UPON:
18 Attorney General’s Committee on Bankruptcy Ad-
REE Aer Pr ener Tr Pe rr re rs
Executive Order No. 12,159, 44 Fed. Reg. 54687
SE Bly AOTOE os dkGherentacastbeccbarccees 5
H. Rpt. No. 1897, 72nd Cong., 2d Sess. (1933)......... 18
Be FAS ee OE OO ET c ovine sccannboceressess 19
J. 1. Weinstein, The Bankruptcy Law of 1938 (Nat’l.
ASSO. GF GOOG: HOU, TSOED tec ccccevecccerescoses 19
BANKRUPTCY RULES:
rere Perea ee ee eee 6
CL ua ose as Weeds emi ey wane e hase 6, 15
IN THE
Supreme Court of the United States
OcTOBER TERM, 1980
No.
RAILWAY LABOR EXECUTIVES’ ASSOCIATION,
Petitioner,
Vv.
WILLIAM M. Gipsons, Trustee Of The Chicago, Rock
Island & Pacific Railroad Company; CONTINENTAL
ILLINOIS NATIONAL BANK AND TRUST COMPANY OF
CuIcaGco, As Indenture Trustee; First NATIONAL BANK
Or Cuicaco, As Indenture Trustee; HENRY CROWN, ef
al; UNiTED STaTeSs Or AMERICA, And The
INTERSTATE COMMERCE COMMISSION,
Respondents.
PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE SEVENTH CIRCUIT
Petitioner Railway Labor Executives’ Association
{hereinafter, ‘‘RLEA’’] respectfully requests that this
Court issue a writ of certiorari to the United States
Court of Appeals for the Seventh Circuit to review and
to reverse the decision of that court which was entered
on February 11, 1981, affirming orders of the United
States District Court for the Northern District of Illinois
{hereinafter, ‘‘reorganization court’’] refusing to trans-
mit a plan or reorganization to the Interstate Commerce
2
Commission [hereinafter, ‘‘ICC’’ or ‘‘Commission’’],
and ordering the liquidation of the Chicago, Rock Island
& Pacific Railroad Company [hereinafter, ‘‘CRI’’ or
**Rock Island’’], a railroad in reorganization under Sec-
tion 77 of the Bankruptcy Act, 11 U.S.C. §205.
OPINIONS BELOW
The twelve page per curiam order of the United
States Court of Appeals for the Seventh Circuit affirm-
ing the reorganization court rulings was not published; it
is reproduced herein as Appendix A. The rulings of the
reorganization court affirmed by the court of appeals are
also unpublished. The transcription of the oral ruling of
the reorganization court given on January 25, 1980, is
reproduced herein as Appendix C; the unpublished
minute order, entered on January 28, 1980, is reproduc-
ed herein as Appendix B; and the minute order of that
court, dated February 27, 1980, denying petitioner
RLEA’s motion to reconsider the ruling of January 25,
1980, is reproduced herein as Appendix D. Appendix E,
hereto, is the unpublished judgment of the court of ap-
peals affirming the rulings of the reorganization court.
JURISDICTION
The judgment of the United States Court of Ap-
peals for the Seventh Circuit was entered on February
11, 1981, and no petition for rehearing, or suggestion
for rehearing en banc has been filed. This petition for
the issuance of a writ of certiorari has been filed within
90 days of the date of the Court of Appeals ruling. Peti-
tioner RLEA seeks to invoke this Court’s jurisdiction
under 28 U.S.C. §1254(1).
3
STATUTORY PROVISIONS INVOLVED
This case involves the proper interpretation to be
given to a Section 77 railroad reorganization court’s
powers under Section 77(a), (b), (c), (d) and (g) of the
Bankruptcy Act, 11 U.S.C. §205(a), (b), (c), (d) and (g).'
Those provisions are set forth herein as part of Appen-
dix F to this petition. Bankruptcy Rules 8-301, 8-303 and
8-310 are also involved in this case, and are set forth in
Appendix F as well.
STATEMENT OF THE CASE
This petition brings before this Court the decision
of the reorganization court to liquidate the Rock Island,
and it involves a controversy which is related to the mat-
ter which is presently before this Court in RLEA v. Gib-
bons, Sup. Ct. No. 80-1239, an appeal in which prob-
able jurisdiction was noted on April 27, 1981. RLEA v.
Gibbons, supra, is an appeal by RLEA from an en banc
decision of the United States Court of Appeals for the
Seventh Circuit affirming by an equally divided court a
preliminary injunction issued by the CRI reorganization
court enjoining enforcement of the employee protective
provisions of the Rock Island Transition and Employee
Assistance Act, as amended by the Staggers Rail Act of
1980, 45 U.S.C. §1001, ef seg. One of the questions
posed by RLEA in its Jurisdictional Statement in that
case was whether the reorganization court was correct in
concluding that the public interest no longer remained an
integral part of its exercise of jurisdiction over the Rock
Island under Section 77. No. 80-1239, Jurisdictional
' Section 77 of the Bankruptcy Act has been repealed by the
Bankruptcy Code of 1978, Pub. L. No. 95-598, 92 Stat. 2549, but
that repeal is not effective for cases which were pending under that
section before its repeal. Section 403(a), Pub. L. No. 95-598, 92
Stat. 2683.
4
Statement at p.i., No. 4. The decision to liquidate that
carrier formed the basis for the reorganization court’s
conclusion that the public interest was subordinated to
the interests of the creditors and shareholders, and it is
that decision to liquidate which petitioner RLEA is now
asking this Court to review.
Originally chartered in 1847, the Rock Island and its
predecessor companies grew over the years so that by
1975 it was one of the largest railroads in this country
operating in thirteen states mainly in the midwestern part
of the country. By 1975, its system consisted of 8,139
miles of main line track, 2,329 miles of branch line, and
763.2 miles of trackage rights over other carriers. To
operate that system, the CRI employed approximately
10,000 employees in 1978. Unfortunately, the CRI’s
financial posture did not equal its size.
Twice before the Rock Island’s financial troubles
had caused it to be reorganized through the courts,’ and
on March 17, 1975, the railroad’s financial plight was so
grave that the carrier once again sought the aid of the
courts to restructure its financial base under Section 77
of the Bankruptcy Act. Thereafter, the CRI continued to
operate for more than four and a half (4 1/2) years, and
even though it operated under the protection of Section
77, the railroad continued to sustain both operating
losses and an errosion of its traffic base. Chicago, R.1.
& P. R.—Abandonment, 363 1.C.C. 150, 156-57 (1980).
The Rock Island’s rapidly deteriorating financial posi-
? The Rock Island was one of the first carriers to use Section 77
of the Bankruptcy Act, and it was in that proceeding, /.e., the
reorganization of the Chicago, Rock Island and Pacific Railway
Company, that this Court upheld the constitutionality of that
statute, Continental Illinois Nat'l Bank v. Chicago, RJ. & P. Ry.,
294 U.S. 648 (1935).
5
tion was exacerbated by the severe winter of 1978, which
not only dramatically increased its losses, but also
damaged its physical plant. /d. Consequently, by the
summer of 1979, the future of the Rock Island was not
bright; moreover, its creditors and shareholders were
demanding an end to deficit operations and the liquida-
tion of that carrier.
After several unsuccessful attempts to resolve cer-
tain contract negotiating disputes, one of the largest
labor organizations representing Rock Island employees
struck that railroad on August 28, 1979, and one day
later, a second labor organization also struck that car-
rier. Once the railroad was struck by the two labor
organizations, the Trustee ‘‘locked-out’’ the striking
employees and abolished the positions of its other
Organized employees; the Trustee then attempted to
Operate a truncated system with non-union personnel.
On September 20, 1979, however, the President of the
United States created an Emergency Board to investigate
those disputes pursuant to Section 10 of the Railway
Labor Act, 45 U.S.C. §160. Executive Order No. 12,159,
44 Fed. Reg. 54687 (Sept. 21, 1979).
Several days after the Emergency Board was
created, the ICC concluded that the Trustee could not
commence operations because the CRI was cashless, and
using its emergency powers under 49 U.S.C. §11125, the
ICC directed the Kansas City Terminal Railway Com-
pany [hereinafter, ‘‘KCT’’] to operate ‘‘virtually all’’ of
the Rock Island’s lines. Directed Service Order No.
1398, 360 I.C.C. 289, 290-92 (1979). On September 27,
1979, the CRI reorganization court denied the Trustee’s
oral application for authority to continue operating the
system, and on October 5, 1979, directed service opera-
tions began over most of the CRI by the KCT. Those
6
operations basically ended in late March 1980, and since
that time portions of the Rock Island are being operated
by other carriers under provisions of the Rock Island
Transition and Employee Assistance Act, Pub. L. No.
96-254, 45 U.S.C. §1001, ef seg., and some of the other
portions of the system have been sold. To this date, the
Rock Island has not resumed operations, and in light of
events since early 1980, the chances of that carrier ever
resuming operations as they previously existed are vir-
tually non-existent.
Section 77(d) of the Bankruptcy Act provides that
the ‘‘debtor, after a petition is filed ..., shall file a
plan of reorganization within six months of the entry of
the order by the judge approving the petition as properly
filed ....’’ 11 U.S.C. §205(d). On September 8, 1975,
the CRI reorganization court extended the time in which
the debtor’ could file the plan of reorganization, and
thereafter, that time period was extended seven (7) more
times until October 10, 1979, when the court gave the
Trustee to December 1979 to file a plan. The Trustee
filed a plan of reorganization on December 28, 1979,
and sent a copy of that plan to the ICC.‘
At a status conference on January 2, 1980, the
reorganization court noted that Bankruptcy Rule 8-303
required that it transmit the Trustee’s pian to the ICC
not less than thirty (30) days after it was filed with the
’ On April 26, 1976, special procedural rules for the handling of
Section 77 cases were adopted, effective August 1, 1976. Bankruptcy
Rule 8-301(a)(1) modified Section 77(d) of the Act by placing the
responsibility for formulating a plan upon the Trustee.
“The Trustee’a plan called for a ‘‘core’’ type of operation by
which the reorganized system would operate much less than one-half
of the CRI system, basically in the northeastern portion of its
system.
7
court. However, the court believed that the rule gave the
court some discretion to review the plan and to refuse to
transmit it to the ICC if it concluded that the plan was
completely without merit. See, Appendix A at 10a. On
January 9, 1980, the reorganization court issued Order
No. 221 in which it stated that it would ‘‘formally
transmit’ the plan of reorganization, and any modifica-
tions, comments or alternative plans to the ICC for its
consideration; parties to the proceeding were directed to
file by January 28, 1980, whatever comments they
wished to make on the plan. Order No. 221 concluded
by noting: ‘‘To aid in its scheduling, the Commission
may rely upon receiving this Court’s official submission
of the Plan on or before February 5, 1980.”’
Before the date for filing comments had passed, the
reorganization court conducted a status hearing on
January 23, 1980, and then again on January 25, 1980,
at which the major creditors, shareholders and the
Federal Railroad Administration argued that in light of
the January 21, 1980 report of Peat, Marwick, Mitchell
& Company, the court should refuse to send the
Trustee’s plan to the ICC. Peat, Marwick, Mitchell &
Company had been appointed as an independent consult-
ant to the CRI reorganization court on July 26, 1979,
and after the Trustee had filed his plan on December 28,
1979, that consultant was asked to review the feasibility
of the plan. When the consultant filed its report with the
Court on January 21, 1980, it concluded that the
Trustee’s proposal was not viable. Responding to that
report, the opponents of the plan argued that the court
would simply be wasting everyone’s time by transmitting
that plan, or indeed any plan of reorganization, to the
ICC. Petitioner RLEA, and most of the other parties to
the reorganization proceeding, had not been notified that
the court would be considering motions to reject the
plan and liquidate the debtor.
After listening to the arguments of counsel who
were present at that status conference,’ the court con-
cluded that the consultant’s report ‘‘is a good study and
I am compelled to accept its conclusions.’’ Appendix C
at 2la.° And as the court continued:
This being so | am compelled also, if logic prevails,
to accept the conclusion that the plan of reorganiza-
tion proposed by the Trustee has no hope of suc-
cess.
The Trustee is therefore instructed not to forward
the plan of reorganization to the Commission. The
Trustee is instructed to continue his present plans
for cessation of operations by the time of the an-
ticipated termination of the directed service order
with the hope that that might be extended, and the
Trustee is instructed to prepare and file with the
Court a preliminary plan of liquidation ....
Appendix C at 2la-22a.
In its minute order entered January 28, 1980, the
court stated that creditors were given leave to forward
comments and suggestions as to such a plan of liquida-
tion, and on February 19, 1980, appellant RLEA filed
such comments, which the court on that same date ruled
would be considered as a motion for reconsideration.
RLEA argued that the court did not have authority to
* The ICC was not represented at that hearing, and counsel for
the Federal Railroad Administration informed the Court that the
ICC, according to his information, would not appeal a refusal to
transmit the plan. Appendix A at 5a n. 5.
ms Counsel for the Trustee attempted to file a rebuttal to the study
which had been filed only two days before, but it was objected to
and not received. See, Appendix C at 22a-23a.
9
refuse to transmit the plan to the ICC and that the court
lacked the jurisdiction to determine the merits of such a
plan. Moreover, RLEA asserted that the court, as a
reorganization court under Section 77, did not have the
power to order the total liquidation of the debtor. On
February 27, 1980, the court issued a minute order
which read: ‘‘Motion of Railway Labor Executives’
Association to reconsider the order of January 28, 1980,
is denied.’’ Appendix D. That was the court’s sole ruling
on the motion. Thereafter, RLEA filed a notice of ap-
peal on March 13, 1980, to the United States Court of
Appeals for the Seventh Circuit.
On February 11, 1981, the Seventh Circuit rejected
RLEA’s appeal and affirmed the decisions of the CRI
‘eorganization court refusing to transmit the Plan of
Reorganization to the ICC, and directing the Trustee to
liquidate the estate. The appellate court, however,
directed that the order not be published, and noted on
its order that Rule 35 of the Local Rules of that Court
provided that its ruling could not be cited as precedent.
See, 7th Cir. Rule 35(b)(2)(iv).
Petitioner RLEA had argued to the appellate court
that the role of a railroad reorganization court under
Bankruptcy Rule 8-303 was purely ministerial and that
the court did not have the discretion to decline to
transmit a filed plan to the Commission. Moreover, rely-
ing upon this Court’s conclusion in Ecker v. Western
Pacific R., 318 U.S. 448, 468 (1943), that Section 77
placed ‘‘reorganization under the leadership of the Com-
mission, subject to a degree of participation by the
court[,]’”” RLEA had argued that the reorganization
court did not have the jurisdiction to conclude in-
dependently of the ICC that an insolvent railroad was
not reorganizable. Those arguments were rejected by the
10
Seventh Circuit which relied upon this Court’s decision
in New Haven Inclusion Cases, 399 U.S. 392 (1970), to
conclude ‘“‘that the balance of power between the
reorganization court and the ICC in Section 77(d) pro-
ceedings does not require the reorganization court to
seek ICC consideration of a proposed reorganization
plan when the court has found that the plan has no
chance of success.”’ Appendix A at 9a-10a. Building
upon that conclusion, the appellate court found that a
Section 77 reorganization court had the discretion under
Bankruptcy Rule 8-303 to refuse to transmit a plan
which the court concluded was without merit. Appendix
A at 10a-Ila. As the Seventh Circuit stated:
The court’s action did not circumvent ICC in-
volvement in either the reorganization or liquidation
process. The court did not simply withhold the Plan
from the ICC and commence reorganization without
ICC input. Rather, the court ordered the Trustee to
prepare a new plan aimed at liquidation.
Appendix A at Ila.
Petitioner RLEA had also asserted before the court
of appeals that a Section 77 reorganization court does
not have the jurisdiction to order and to control the li-
quidation of a railroad. Noting that Section 77(b)(5) of
the Bankruptcy Act provides that a plan of reorganiza-
tion may include provisions for the ‘‘sale of all or any
part of the property of the debtor[,]’’ and relying upon
this Court’s ruling in the New Haven Inclusion Cases
upholding the sale of that debtor’s assets to another
railroad as a viable plan of reorganization, the court of
appeals concluded that ‘‘each railroad in reorganization
under Section 77 must be handled according to the uni-
que circumstances of that debtor, and liquidation may
be an appropriate option.’’ Appendix A at 14a. Liquida-
tion, the court then held, was an appropriate result in
the Rock Island case. Appendix A at 15a.
Much has occurred to the Rock Island estate during
the period that RLEA’s appeal was pending before the
Seventh Circuit. Pursuant to the reorganization court’s
directive, the Trustee has been proceeding to liquidate
the estate by selling portions of the lines, rejecting leases,
selling locomotives and repair facilities, and, finally, ob-
taining approval under Section 17(a) of the Milwaukee
Railroad Restructuring Act, 45 U.S.C. §915(a), to aban-
don the entire CRI system.’ In June 1980, petitioner
RLEA sought a stay of ar~ further liquidation steps, but
on November 21, 1980, the Seventh Circuit ordered that
RLEA’s stay motion would be taken with the case. In
December 1980, RLEA renewed its motion for a stay,
but on December 24, 1980, the appellate court denied
that request stating that petitioner’s motion of June 1980
‘seeking a general stay pending appeal in this case, shall
be resolved at a later date by the merits panel.’’ Appen-
dix A at 8a.
REASONS FOR GRANTING THE WRIT
1. This Petition Raises Important Issues As To The Orderly
Administration Of A Section 77 Reorganization Which
Must Be Resolved By This Court To Aid The Midwestern
Region Of This Country Pass Through Its Current Crisis
In Rail Transportation
Rail freight transportation is clearly an integral and
vital part of our nation’s total transportation system, but
’ That abandonment was authorized on June 2, 1980, and on
June 9, 1980, RLEA noted an appeal of that order to the Seventh
Circuit (No. 80-1788). RLEA and the appellees have filed their in-
itial brief in that appeal; RLEA’s reply brief is due on May 15,
1981, and it is anticipated that the case will be argued during the
summer of 1981. On August 4, 1981, the United States also noted
an appeal to the Seventh Circuit from the abandonment order (No.
80-2075); that appeal, however, is being held in abeyance pending a
ruling by this Court in RLEA v. Gibbons, Sup. Ct. No. 80-1239.
12
at the present time that service is severely threatened in
the midwestern region of our country. Rail transporta-
tion to thirteen (13) states has been severely interrupted
by the demise of the Rock Island, and the present finan-
cial plight of the Chicago, Milwaukee, St. Paul and
Pacific Railroad Company [hereinafter, ‘‘Milwaukee’’]
threatens even further reductions in rail service to the
northern portion of that region. Since both the Rock
Island and the Milwaukee are railroads in reorganization
under Section 77 of the Bankruptcy Act, 11 U.S.C.
§205,* the powers, duties and limitations of the Rock
Island reorganization court apply equally as well to those
of the Milwaukee reorganization court. If the Rock
Island reorganization court has the authority to conclude
on its own that the debtor cannot be reorganized and
that it should be liquidated without preserving essential
rail services, so too could the Milwaukee Section 77
court reach a similar conclusion. Petitioner RLEA
respectfully submits that the two reorganizations are in-
tertwined, and unless the court of appeals’ ruling in this
case is reviewed, that decision may well lead to the sud-
den cessation of Milwaukee service in the near future.
Although RLEA is well aware that the passage of
time and the unstayed liquidation process most likely
means that the Rock Island will never resume its own
Operations, a resolution of the issues posed by this peti-
tion is still vital to the orderly administration of the
Rock Island, and, petitioner submits, to the Milwaukee
reorganization’s administration as well. If petitioner is
correct in its interpretation of the interplay of the roles
"The Milwaukee, since December 19, 1977, has been in
reorganization under Section 77 before the United States District
Court for the Northern District of Illinois (No. 77 B 8999), the
same court before which the CRI is being reorganized.
13
of the ICC and the reorganization court in a Section 77
proceeding, and if petitioner is correct in asserting that
the liquidation of a railroad is not permitted under Sec-
tion 77, then the ICC will once again be required to
assume jurisdiction over the Rock Island estate to devise,
if possible, with the aid of the Trustee and interested
parties an overall plan which preserves as much rail ser-
vice to the midwest while at the same time conserving
the debtor’s estate for the benefit of creditors and
shareholders. This will mean that an administrative agen-
cy with an expertise in rail transportation will supervise
the orderly sale of the Rock Island in such a manner
that together with the reorganization court, the dual ob-
jectives of a Section 77 case can still be maintained. See,
New Haven Inclusion Cases, 399 U.S. 392, 431 (1970).
Such a result, petitioner submits, was intended by Con-
gress to be the rule under Section 77. As this Court ex-
plained in Ecker v. Western Pacific R., 318 U.S. 443
(1943):
These reorganizations [under §77] require
something more than contests between adversary in-
teresis to produce plans which are fair and in the
public interest. When the public interest, as
distinguished from private, bulks large in the prob-
lem, the solution is largely a function of the
legislative and administrative agencies of govern-
ment with their facilities and experience in in-
vestigating all aspects of the problem and appraising
the general interest. Congress outlined the course
reorganization is to follow. It established standards
for administration and placed in the hands of the
Commission the primary responsibility for the
development of a suitable plan. When examined to
learn the purpose of its enactment, §77 manifests
the intention of Congress to place reorganization
under the leadership of the Commission, subject to
a degree of participation by the court.
318 U.S. 468. (footnote omitted)
14
At the present time, the CRI reorganization court
has ruled that as a result of its liquidation order and the
cessation of CRI operations, the ‘‘continuing activities
toward the end of liquidating and distributing its [CRI]
assets to creditors are no longer of significant concern to
the Interstate Commerce Commission.’’ /n re Chicago,
RI. & P.R., N.D. Ill. No. 75 B 2697, order entered
December 19, 1980, slip op. at 3-4. As the court further
explained its present posture:
Upon the order of liquidation, this case became a
pure bankruptcy case. The mandate of Congress for
the protection of the public interest in a viable na-
tional transportation system continues to be the con-
cern of the Interstate Commerce Commission but
has become a matter extraneous to the bankruptcy
proceeding.
Id. at 4. Unless this liquidation order is set aside, that
subordination of the public interest will continue, and,
as the Trustee has urged in recent proceedings before the
CRI reorganization court, track may be scraped rather
than sold to willing purchasers for continued rail usage
if its scrap value will give a higher return to the estate
than a sale as operating property. Transcript of February
10, 1981 at 19, 88-89, but see, Tr. at 74-75.
2. The Decision Of The Court Of Appeals Conflicts With
Decisions Of This Court Detailing The Relationship Be-
tween The ICC And A Section 77 Reorganization Court
Petitioner RLEA argued to both the CRI
reorganization court and the court of appeals that a Sec-
tion 77 reorganization court did not have the authority
to conclude, without first obtaining a ruling from the
ICC, that a railroad was not reorganizable since Cong-
ress has given the Commission the primary responsibility
15
for formulating a plan of reorganization under Section
77. Moreover, petitioner RLEA argued that Bankruptcy
Rule 8-303, by its use of the word ‘‘shall,’’ did not give
the CRI reorganization court the discretion to refuse to
transmit to the ICC a properly filed plan of reorganiza-
tion. The Seventh Circuit disagreed with RLEA because
it read this Court’s decision in the New Haven Inclusion
Cases, supra, 399 U.S. at 431-34, as emphasizing ‘‘the
important, indeed dominant role of the reorganization
court in Section 77 proceedings.’? Appendix A at 9a.
And because of its view that the paramount role played
in the reorganization of a debtor, the appellate court
concluded that the court could examine and conclude in-
dependently of the ICC that a proposed plan of
reorganization was so without merit that it should not
even be sent to the ICC for the ICC to begin its role
under Section 77(d) to formuate the shape of the
carrier’s reorganization. Appendix A at 9a-lla. Peti-
tioner RLEA respectfully submits that such an expanded
view of the powers of a Section 77 reorganization court
conflicts with prior decisions of this Court defining the
roles of the courts and the ICC under Section 77. Ecker
v. Western Pacific R., supra; Palmer v. Massachusetts,
308 U.S. 79 (1939).
Section 77 is a unique bankruptcy statute for it in-
jects the public interest factor into proceedings involving
an insolvent entity. Because of that unique feature, any
reorganization under Section 77 has twin objectives —
i.e., to conserve the debtor’s assets for the benefit of all
creditors, and to preserve the ongoing railroad in the in-
terest of the public. E.g., New Haven Inclusion Cases,
supra, 399 U.S. at 431. Moreover, the addition of the
public interest to traditional bankruptcy proceedings lead
Congress to declare that the ICC was to play a major
role in any restructuring of a debtor under Section 77.
16
As this Court explained in Palmer v. Massachusetts,
supra, a case in which the Court was delineating the role
of the reorganization court vis-a-vis that of a state ad-
ministrative agency:
[A]n insolvent railroad, it was realized, required the
oversight of agencies specially charged with the
public interest represented by the transportation
system. Indeed, when, in the depth of the depres-
sion, legislation was deemed urgent to meet the
grave crisis confronting the railroads, there was a
strong sentiment in Congress to withdraw from the
courts control over insolvent railroads and lodge it
with the Interstate Commerce Commission. Cong-
ress stopped short of this remedy. But the whole
scheme of §77 leaves no doubt that Congress did
not mean to grant to the district courts the same
scope as to bankrupt roads that they may have in
dealing with other bankrupt estates.
The judicial process in bankruptcy proceedings
under 877 is, as it were, brigaded with the ad-
ministrative process of the Commission. From the
requirement of ratification by the Commission of
the trustees appointed by the Court to the Commis-
sion’s approval of the Court’s plan of reorganiza-
tion the authority of the Court is intertwined with
that of the Commission.
308 U.S. at 86-87 (footnotes omitted). This Court fur-
ther explained the relationship between the two roles and
observed that in Ecker v. Western Pacific R., supra,
since the public interest ‘‘bulks large’ in the problem of
reorganizing a railroad, the solution of that problem is
‘largely a function of the legislative and administrative
agencies of government ... .’’ 318 U.S. at 468. Conse-
quently, Ecker continued, ‘‘§77 manifests the intention
of Congress to place reorganization under the leadership
of the Commission, subject to a degree of participation
by the court.’’ /d. (emphasis added). As the Court
noted, the ICC has the ‘‘primary responsibility’’ to for-
mulate a suitable plan. /d.
17
Relying upon those cases, the First Circuit Court of
Appeals has stated that: ‘‘Section 77 does not con-
template that a court will make, as a matter of course,
an unaided judgment on reorganizability before the ICC
has considered the matter ....’’ Jn re Boston & Maine
Corp., 484 F.2d 369, 372 (ist Cir. 1973). But yet, that is
exactly what the Seventh Circuit has allowed the CRI
reorganization court to do in this case under the guise of
determining whether the plan as proposed by the Trustee
was with or without merit. The case at bar does not pre-
sent a situation where the reorganization court has found
that the plan was deficient on its face (i.e., manifestly
frivolous; see, In re Boston & Maine Corp., supra at
372), for the court based its conclusion as to the non-
reorganizability of the Rock Island upon the report of its
independent expert. The court balanced the merits of the
study and the plan and then, petitioner submits,
substituted its judgment (albeit based on its experience
with the debtor) for the judgment of the ICC under Sec-
tion 77(d).
Petitioner RLEA respectfully submits that if Ecker
and Palmer are still good law today, the court of appeals
decision improperly expands the powers of a Sction 77
reorganization court beyond that given to them by Con-
gress. Moreover, the appellate court has permitted the
CRI reorganization court to devise and implement a plan
which liquidates the railroad without the ICC having
first formulated that plan.
3. The Decision Of The Seventh Circuit Conflicts With The
Long Established View Of The Limitations On The
Jurisdiction Of A Section 77 Reorganization Court And
With A Decision Of Another Court Of Appeals
Noting that Section 77 specifically provides in Sec-
tion 77(b) that a plan of reorganization can involve the
sale of all of the railroad’s property, the court of ap-
18
peals concluded in this case that Section 77 gives the re-
organization court the power to liquidate the debtor—
i.e., to turn a Section 77 reorganization into a straight
bankruptcy. To reach that result, the appellate court
relied upon the result approved by this Court in the New
Haven Inclusion Cases, supra, but in doing so it ignored
the long established view as to the limitations of Section
77’s grant of jurisdiction to a reorganization court.
Moreover, by upholding a liquidation order which was
entered without first providing for the preservation of
rail service, the appellate court’s decision in this case is
in conflict with the decision of the Third Circuit in Jn re
Lehigh Valley R., 558 F.2d 137 (3rd Cir. 1977).
Section 77 was first added to the Bankruptcy Act in
1933 (47 Stat. 1467, 1474), and it was amended in 1935
(49 Stat. 911); a review of both the 1933 and 1935
statutes clearly shows that Congress did not intend to
give railroad reorganization courts the power to liquidate
the estate of the debtor. Prior to 1933, railroads were
‘excluded from operation of the bankruptcy laws’’ (H.
Rpt. No. 1897, 72nd Cong., 2d Sess. at 5 (1933)), and
when Congress brought those carriers under the protec-
tion of the bankruptcy laws, it did so in a limited way.
Section 77 was intended in 1933 to provide ‘‘the oppor-
tunities for amicable adjustment between debtor and
creditor, for rehabilitation and reorganization. ’’ Jd. at
8. Congress achieved that purpose in Section 77 by
utilizing the reorganization and rehabilitation features of
its bankruptcy powers, rather than by providing for the
use of the traditional liquidation aspects of bankruptcy.
See, 18 Attorney General’s Committee on Bankruptcy
Administration, Preface at 5. That Congress did not in-
tend to extend the liquidation powers of bankruptcy
courts to railroad reorganizations is apparent from the
fact that it expressly provided for the liquidation of
19
debtor estates in a companion section of the Act in
which Section 77 was first enacted, but omitted such ex-
press powers in Section 77. See, Section 74(1), 47 Stat.
1469 (Individual debtors). In fact, railroads were ex-
pressly excluded from the bankruptcy sections of the
Act, and that exclusion continued to the time of the
repeal of Section 77 in 1978. Section 4 of the Bankrupt-
cy Act, 11 U.S.C. §22.
In the years since the enactment of Section 77, it
has been recognized by commentators,’ by the courts,'°
by Congress,'' and by the ICC"? that Section 77 does not
give a railroad reorganization court the power to li-
quidate an estate. When Congress, in carrying out some
other statutory scheme, wanted to give certain railroad
reorganization courts that authority, it did so by specific
enactments. E.g., Section 618(b), Railroad Revitalization
and Regulatory Reform Act of 1976, Pub. L. No.
94-210, 45 U.S.C. §791(b); 11 U.S.C. §1174. Congress
has not given the Rock Island Reorganization Court that
authority, and indeed specifically withheld it when it
enacted the Bankruptcy Reform Act of 1978 and refused
to make the provisions of that Act dealing with liquida-
tions applicable to pending Section 77 cases. Pub. L.
No. 95-598, Section 403, 92 Stat. 2683 (1978).
In this case the Court of Appeals attempts to sup-
port its view that Section 77 has amended itself to give
now the power to liquidate, by relying upon the decision
° E.g., J. 1. Weinstein, The Bankruptcy Law of 1938, at 175
(Nat’l Assoc. of Credit Men, 1938): ‘‘{RJailroads have been brought
under the jurisdiction of the Bankruptcy court. However, a railroad
corporation is still not subject to an adjudication or liquidation in
bankruptcy.’’
'© Van Schaick v. McCarthy, 116 F.2d 987 (10th Cir. 1941),
''S. Rpt. No. 95-989 at 12 (1978).
'? E.g., In re Penn Central Transp. Co., 347 1.C.C. 45, 84-85
(1973).
20
of this Court in which a liquidation of the estate was the
end result of a Section 77 reorganization. Appendix A at
13a-14a. However, the error or relying upon the New
Haven Inclusion Cases, supra, is that in that case the
reorganization court had first taken steps to assure that
the bulk of the rail properties will continue to be
operated as a railroad by someone. In the Lehigh Valley
case, the Third Circuit reviewed the powers of Section 77
courts to order and to control the liquidation of a debtor
railroad, and it concluded in one portion of its decision
after an exhaustive analysis of this area that if a railroad
is not reorganizable on an income basis:
§77 can be used to reorganize the enterprise to pro-
duce a permanent withdrawal of the debtor from
common carrier operations. The only limitation
which the [Supreme] Court seems to impose is that
the reorganization ‘‘plan contemplates that the bulk
of the rail properties will continue to be operated as
a railroad by someone.”’
558 F.2d at 145. While the court of appeals in the CRI
case relied upon both the New Haven and the Lehigh
cases to support its affirmance of the CRI reorganization
court’s liquidation orders, those decisions actually con-
flict with the Seventh Circuit’s ruling because in this case
the CRI reorganization court did not take any steps to
assure the continuation of rail services before it ordered
the Trustee to begin to liquidate the estate.
Petitioner RLEA respectfully submits that even
though Section 77 has been repealed, it is still important
to both this case and to the Milwaukee reorganization
proceedings that this Court review this issue, and deter-
mine if a Section 77 reorganization court can order a
railroad liquidated where neither it nor the ICC has first
provided for the continuation of essential rail services.
21
CONCLUSION
For the reasons set forth above, petitioner RLEA
respectfully requests that this Court issue a writ of cer-
tiorari to review and to reverse the decision of the
United States Court of Appeals for the Seventh Circuit
affirming the orders of the CRI reorganization court
refusing to transmit the plan of reorganization to the
ICC, and authorizing the liquidation of the debtor
without first providing for the preservation of rail ser-
vices.
Respectfully submitted,
JOHN O’BRIEN CLARKE, JR.
HiIGHsSAW & MAHONEY, P.C.
Suite 210
1050 - 17th Street, NW
Washington, D.C. 20036
(202) 296-8500
Attorneys for Petitioner
Railway Labor Executives’
Association
Date: May 12, 1981
APPENDIX
APPENDIX A
UNITED STATE® COURT OF APPEALS
FOR THE SEVENTH CIRCUIT
CHICAGO, ILLINOIS 60604
Unpublished Order
Not To Be Cited
Per Circuit Rule 35
ArGuED: December 8, 1980
February 11, 1981
Before
Hon. Ropert A. Sprecuer, Circuit Judge
Hon. HARLINGTON Woop, Jr., Circuit Judge
Hon. Westey E. Brown, Senior District Judge*
No. 80-1353
In THe Matter Or: Cuicaco, Rock IsLanp & PAciric
RAILROAD Company, Debtor.
APPEAL Or: RAILWAY LaBor EXECUTIVES’
ASSOCIATION, /ntervenor.
Appeal from the United States District Court for the
Northern District of Illinois Eastern Division.
No. 75 B 2697
Frank J. McGarr, Judge.
* Honorable Wesley E. Brown, Senior District Judge for the
District of Kansas, is sitting by designation.
2a
ORDER
This case presents one aspect of the continuing saga of
the decline of the Chicago, Rock Island and Pacific Railroad
Company (‘Rock Island’’). There are two questions before us
in this appeal:
(1) Did the district court, sitting as railroad reorganiza-
tion court under Section 77 of the Bankruptcy Act, 11 U.S.C.
§205, have the discretion to determine that the Trustee’s plan
of reorganization was unworkable and to refuse to transmit
that plan to the Interstate Commerce Commission (‘‘ICC’’)?
(2) Did the district court, sitting as a railroad reorganiza-
tion court, have the authority to order the Trustee to com-
mence liquidation of the railroad?
The Railway Labor Executives’ Association (‘‘RLEA’’)
argues that we should reverse the district court’s order direct-
ing the Trustee to liquidate the Rock Island estate and that we
should order the district court to transmit to the ICC the plan
of reorganization filed by the Trustee on December 28, 1979.
The Trustee of the Rock Island, William M. Gibbons, and
various creditors of the Rock Island (‘‘Creditors’’)' ask us to
dismiss this appeal as moot or to affirm the actions of the
district court.
On March 17, 1975, the Rock Island filed a petition for
reorganization in the United States District Court for the Nor-
thern District of Illinois under Section 77 of the Bankruptcy
'The parties referred to collectively as ‘‘Creditors’’ are as
follows: First National Bank of Chicago and Continental Illinois
National Bank and Trust Company of Chicago, in their capacities
as indenture trustees, and Henry Crown, et al., holders of first
morigage bonds, income debentures and common stock of the Rock
Island.
The Trustee joined in the Creditors’ Brief solely on the ground
that the liquidation is not reversible and is so far advanced that any
delay would be physically and economically impossible.
3a
Act, 11 U.S.C. §205.? Judge McGarr was assigned to act as
the reorganization court. On March 28, 1975, William M.
Gibbons was appointed Trustee of the Rock Island and was
instructed to manage and operate the debtor’s railroad
system.
Section 77(d) provides that ‘‘[t]he debtor, after a petition
is filed ..., shall file a plan of reorganization within six
months of the entry of the order by the judge approving the
petition as properly filed....’’ 11 U.S.C. §205(d). The
reorganization court several times extended the deadline for
the Trustee to file a plan of reorganization. The Trustee filed
his Plan of Reorganization (‘‘Plan’’) on December 28, 1979.’
* The Bankruptcy Reform Act of 1978, Pub. L. No. 95-598, 92
Stat. 2549 (1978), enacted November 6, 1978, codified and changed
the prior Bankruptcy Act, including former Section 77. Section
403(a) of the Bankruptcy Reform Act, 92 Stat. 2683, however, pro-
vides that pending reorganizations, such as the one at bar, were to
be governed by the previous law except for a few exceptions set
forth in Section 403(b).
’ Throughout the five years of reorganization prior to the filing
of the Plan, the Rock Island suffered significant financial losses.
The ICC found the Rock Island to be cashless on September 26,
1979, and ordered the Kansas City Terminal Railway Company
(““KCT’’) to provide directed service over the Rock Island routes.
Directed Service Order No. 1398, Kansas City Terminal Ry. —
Directed to Operate Over — Chicago, R. I. & P., 360 1.C.C. 289
(1979). This directed service was in effect at the time of the order
appealed in the case at bar.
KCT’s directed service ended on March 23, 1980. Following
KCT’s directed service operations, other rail carriers provided rail
service over the Rock Island’s lines through May 31, 1980, pursuant
to ICC directed service orders. On May 30, 1980, the President
signed the Rock Island Railroad Transition and Employee
Assistance Act (the ‘‘Rock Island Act’’), P.L. 96-254, 94 Stat. 339
(1980). The Rock Island Act provides for the continuation of
directed service pending sales of the Rock Island’s freight lines to
other interested rail carriers and its Chicago-Joliet commuter line to
the Regional Transportation Authority.
4a
An informational copy was furnished to the ICC in accord-
ance with Bankruptcy Rule 8-301(c).
On January 8, 1980, the court entered Order No. 221. In
that order the court found: it had jurisdiction pursuant to
Bankruptcy Rule 8-303‘ to retain the Plan for not less than
thirty days; during that time the court would review the plan
in the context of a study by Peat, Marwick & Mitchell, a
court appointed independent consultant, and would consider
modifications, alternative plans, and comments; the informa-
tional copy of the plan filed with the ICC did not constitute
an official filing with the ICC; and the court would ‘‘formally
transmit the Plan of Reorganization, modifications to it, and
alternative plans, in accordance with Bankruptcy Rule 8-303,
with whatever comments it may have to the Commission for
their action, pursuant to Bankruptcy Rule 8-303, with instruc-
tions to the Commission that the Commission should consider
the Plan at that time.’’
On January 21, 1980, Peat, Marwick, Mitchell & Co. fil-
ed its report, in which it concluded that the core operation
proposed by the Trustee in the Plan was not viable. At a
status hearing on January 25, 1980, the Creditors and the
Federal P.ailroad Administration argued that since the in-
dependent consultant had concluded that the Trustee’s Plan
was not feasible, the court should direct the Trustee to
withdraw the Plan and to file a new plan which would pro-
vide for the total liquidation of the estate. The Creditors
argued that the court would simply be wasting everyone’s time
in transmitting the Plan, or any reorganization plan, to the
ICC. At that time, the Trustee argued that the Plan should be
forwarded to the ICC for evaluation of the reorganizability of
the core.
* Bankruptcy Rule 8-303 provides:
Not less than 30 days after the first filing of a plan under
Rule 8-301, the court shall transmit all plans and modifications
which have been filed with it to the Interstate Commerce Com-
mission for filing with and consideration by the Commission.
5a
After listening to the arguments of counsel who were pre-
sent at that status conference,’ the court concluded that the
consultant’s report ‘‘is a good study and I am compelled to
accept its conclusions.’’ Tr. 97. The court continued:
This being so I am compelled also, if logic prevails, to
accept the conclusion that the plan of reorganization pro-
posed by the Trustee has no hope of success.
The Trustee is therefore instructed not to forward the
plan of reorganization to the Commission. The Trustee is
instructed to continue his present plans for cessation of
operations by the time of the anticipated termination of
the directed service order with the hope that that might
be extended, and the Trustee is instructed to prepare and
file with the Court a preliminary plan of liquida-
re
Tr. at 97. The court’s minute order of January 25, 1980
granted the Creditors’ motion that the court decline to for-
ward the Plan to the ICC and directed the Trustee to begin
preparation of a plan of liquidation.
* The ICC did not appear at the hearing of January 25, 1980,
although the ICC had been active in the proceedings to that date.
At the January 25 hearing, John Broadley of the United States
Department of Justice, representing the Federal Railroad Ad-
ministration, stated:
In connection with preparing a nig eg order I had a discus-
sion with Mr. Rush yesterday about the position the Commis-
sion would likely take if your Honor entered an order directing
the Trustee to withdraw this plan. Mr. Rush indicated that if
your Honor entered such an order the Commission, in all
likelihood, would not find it expedient, necessary or proper to
appeal that decision on jurisdictional grounds. And the Com-
mission has frequently expressed concern about the exercise of
its primary jurisdiction. Mr. Rush’s indication to me was that
if your Honor finds that the plan has no merit and decides that
you should order the Trustee to withdraw it, that the Commis-
sion would acquiesce in that decision.
Tr. at 56-57. Mr. Broadley joined the creditors in seeking to have
the plan of reorganization withdrawn.
6a
On February 19, 1980, the RLEA filed comments on the
court’s January 25 order. The court ordered that it would
treat the comments as a motion for reconsideration. On
Febraury 27, 1980, the court denied the RLEA’s motion to
reconsider. The RLEA appeals from both the order of
January 25, 1980 and the denial of reconsideration.
Before proceeding to the legal arguments, we briefly re-
count the history of the Rock Island since February, 1980. On
March 19, 1980, the court entered Order No. 229, which re-
quired the Trustee to file a plan of reorganization by July 17,
1980, encompassing the liquidation of the assets of the debt-
or. On April 14, 1980, the court entered Order No. 232,
which directed the Trustee to file an application with the ICC
“for its report confirming the abandonment of the Rock
Island’s total railroad system subject to sale of portions of
such system to other entities for their operation thereof.’’*
The ICC filed its report in response to the Trustee’s ap-
plication for system-wide abandonment on May 23, 1980.
Docket No. AB-46 (Sub.-No. 22). The ICC concluded that
“abandonment of the Rock Island and its dissolution as an
operating railroad is required by the public convenience and
necessity.”’ Docket No. AB-46 (Sub.-No. 22) at 3. The ICC
denied the RLEA’s motion to reject the abandonment applica-
tion. Id. at 5-6.
On June 2, 1980, the reorganization court held hearings
concerning the proposed abandonment and ordered total
system-wide abandonment of the Rock Island’s lines and
discontinuance of its service.
The Trustee already has taken various steps toward
liquidating the Rock Island. On June 16, 1980, the RLEA
* Section 17(a) of the Milwaukee Road [sic] Restructuring Act
(“MRRA”’), Pub. L. No. 96-101, 93 Stat. 736 (1979), transferred
ultimate jurisdiction over abandonments from the ICC to the
reorganization court for cases pending under Section 77 of the
Bankruptcy Act. Section 17(a) of the MRRA provides that the
court may authorize abandonments pursuant to 11 U.S.C. §1170.
7a
moved for a stay of liquidation, detailing the progress of the
liquidation as follows:
Rolling stock leases have been assigned or terminated
while other operating equipment has been sold. On May
5, 1980, the District Court entered Order No. 234 grant-
ing the Trustee blanket authority to liquidate real and
personal assets and accounts under $100,000.00 in value.
Real property, such as track rights of ways, has been
sold. See, Docket Sheet Page 194-95. Also, an indepen-
dent consultant has been retained by the estate to ex-
peditiously liquidate the real property of the estate. Order
dated May 28, 1980.
RLEA Motion to Stay at 5. On November 21, 1980, this court
ordered that the RLEA’s motion to stay further acts of liquid-
ation pending appeal would be taken with the case at the time
of its dispostion.
On December 20, 1980 the RLEA filed with this court its
‘Emergency Renewal of Motion by Railway Labor Ex-
ecutives’ Association to Stay All Further Acts of Liquidation
Pending Appeal.’’ The ‘‘Renewed Motion’’ was prompted by
the Trustee’s announcement of his intention to sell the Silvis,
Illinois, facility and 214 locomotives to the Varlen Corpora-
tion. The RLEA argued that:
[t}his single sale will surely decrease the already slim
chances for reorganizing the Rock Island, for any
resumption of rail operations over the core structure
would encounter severe difficulties in resuming operations
without sufficient engines and a major repair facility.
RLEA Renewed Motion at 4.
On December 24, 1980 we entered the following order:
It Is OrDERED that the renewed motion is DENIED to
the extent that it seeks a stay of the sale of the properties
mentioned in the intervenor-appellant’s renewed motion.
Intervenor-appellant has failed to satisfy all of the re-
quirements for a grant of stay pending appeal. We can-
not conclude at this point in our deliberations that the
intervenor-appellant shall prevail on the merits of this
appeal.
The intervenor-appellant’s motion of June 16, 1980,
seeking a general stay pending appeal in this case, shall
be resolved at a later date by the merits panel.
We now reach the merits and conclude that the district
court acted within its authority in refusing to transmit the
Trustee’s plan of reorganization to the ICC and in ordering
the Trustee to commence liquidation of the Rock Island.
Section 77(d) of the Bankruptcy Act, 11 U.S.C. §205(d),
deals with the filing of a plan of reorganization in a railroad
reorganization. The RLEA argues that the ICC is to play the
major role in reorganizing a debtor under Section 77, and that
Bankruptcy Rule 8-303 cannot enlarge the jurisdiction of the
court to examine the merits of a plan prior to transmittal to
the ICC pursuant to Rule 8-303.
First, the RLEA argues that the ICC has the primary
responsibility for formulating a reorganization plan and that,
therefore, the reorganization court should not have rejected
the Plan before the ICC had a chance to consider it. The
RLEA finds support for its argument in Ecker v. Western
Pac. RR. Corp., 318 U.S 448 (1943), where the Supreme
Court stated:
When examined to learn the purpose of its enactment,
§77 manifests the intention of Congress to place
reorganization under the leadership of the Commission,
subject to a degree of participation by the court.
318 U.S. at 468. But, while recognizing the importance of the
expertise of the ICC, the Supreme Court also recognized the
power of the reorganization court to find that a debtor is
unreorganizable. The Supreme Court acknowledged that the
reorganization court can veto a reorganization plan in its en-
tirety after certification of the plan by the ICC, 318 |).S at
474. See Section 77(e), 11 U.S.C. §205(e).
9a
The RLEA’s reliance on Ecker to establish that the
reorganization court should defer to ICC findings is mis-
placed. In Ecker, the Court affirmed the district court’s ap-
proval, pursuant to Section 77(e), of a plan of reorganization
certified by the ICC. The Court reversed the Ninth Circuit’s
finding that the district court should have exercised its in-
dependent judgment with respect to subjects such as valua-
tion. A reorganization court’s acceptance of ICC findings in
proceedings pursuant to Section 77(e) simply is not relevant to
the question of whether the reorganization court can order the
Trustee to withdraw a propsed plan before submission to the
ICC. Ecker dealt with the reorganization court’s scope of
review of a plan after certification by the ICC, not with a
proposed plan submitted to the court by the Trustee.
Furthermore, in the more recent New Haven Inclusion
Cases, 399 U.S. 392, 431-34 (1970), the Supreme Court em-
phasized the important, indeed dominant, role of the
reorganization court in Section 77 proceedings. In that case,
as in Ecker, the issue was the reorganization court’s scope of
review of ICC findings pursuant to Section 77(e). The Court
stated:
The statutory authority to appoint special masters and
hold evidentiary hearings reflects the unique powers
possessed by the reorganization court in passing upon the
Commission’s proposed plan of reorganization.
In the reorganization court reposes ultimate responsibility
for determining that the plan presented to it by the Com-
mission satisfies the ‘‘fair and equitable’ requirement of
§77.
399 U.S. at 434. Without deciding to what degree New Haven
Inclusion Cases erodes Ecker’s deference to ICC expertise in
Section 77(e) proceedings,’ we find that the balance of power
’ In his dissent, Justice Black complained of the majority’s depar-
ture from Ecker. 399 U.S. at 499.
10a
between the reorganization court and the ICC in Section 77(d)
proceedings does not require the reorganization court to seek
ICC consideration of a proposed reorganization plan when
the court has found that the plan has no chance of success.
Next, the RLEA argues that the structure of Section
77(d) and Rule 8-303 show that the court’s role with respect
to the Trustee’s plan is purely ministerial. The RLEA claims
that the purpose of allowing the court to retain a plan for not
less than 30 days is only for the sake of achieving efficiency
by assuring that ‘‘all proponents of plans have filed their
plans prior to transmission of the first filed plan to the Com-
mission.’”’ Rule 8-303, Advisory Committee Note. We
disagree. The ordinary outcome under Rule 8-303 will be that
the court will transmit a plan to the ICC. But we cannot say
that the court has no discretion whatsoever to aid in the effi-
cient management contemplated by Rule 8-303 by refusing to
transmit a manifestly unfeasible plan to the ICC,
Shortly after the Trustee’s Plan was submitted, but
before it was evaluated in light of the Peat, Marwick study,
the reorganization court reflected on the purposes of Rule
8-303:
Those purposes are obviously a preliminary review by the
Court, of the proposal of alternative plans, and in the
particular instances of this case an opportunity for the
Court and the creditors and the Railroad, and the
Government, to view this plan in the context of the Peat,
Marwick evaluation of it. And under any ordinary cir-
cumstance that would not only be the ordinary course of
the case but the wise course of the case. I think the thirty
days is therefore a purpose. I recognize that the Court
had very little discretion in this matter in terms of what it
might co with the plan. It is conceivable to me, although
I doubt that it will be applicable in this case, that the
plan presented be one either by reading on its face or in
the light of the Peat, Marwick evaluation, be one so com-
pletely without merit that the Court will not forward it to
the Commission and order the preparation of another
one, something more sensible.
lla
Tr. of January 2, 1980 at 31-32. The court recognized that its
discretion not to submit the plan to the ICC was limited to a
situation that the court doubted would occur — that the plan
was without merit in light of the Peat, Marwick, study. But
that situation did occur, and the court properly exercised its
discretion not to transmit the plan.
The court’s action did not circumvent ICC involvement
in either the reorganization or liquidation process. The court
did not simply withhold the Plan from the ICC and com-
mence reorganization without ICC input. Rather, the court
ordered the Trustee to prepare a new plan aimed at liquida-
tion. In fact, the court stated that the January 25, 1980 deci-
sion not to transmit the plan to the ICC ‘'starts now rather
than later the process of private sale and Commerce Commis-
sion reorganization of railroad service... .’’ Tr. of January
25, 1980 at 98.
The ICC has not challenged the reorganization court’s ac-
tions. At the hearing before the January 25 ruling, the
government representative present informed the court that
“{1CC counsel's} indication to me was that if your Honor
finds that the plan has no merit and decides that you should
order the Trustee to withdraw it, that the Commission would
acquiesce in that decision.’’ Tr. of January 25, 1980 at 56-57.
In addition, the ICC’s May 23, 1980 report recommending
abandonment supports the court’s view. The ICC states that
[w]e have reviewed the carrier’s present financial position
and future prospects and conclude that it has no realistic
hope for reorganization or continued service in its present
form. The extremely deteriorated condition of its plant
and severe erosion of its traffic base (through interrupted
and uncertain operations) make it clear that the Rock
Island will not be able to recover. Consequently, fairness
to its creditors and stockholders dictates that the carrier
be liquidated.
Docket No. AB-46 (Sub.-No. 22) at 3-4.
In light of the ICC’s deference to the reorganization
court’s view of the Trustee’s plan, as well as that court’s great
12a
familiarity with the Rock Island through five years of
reorganization proceedings, it is inaccurate for the RLEA to
argue that the court simply ‘‘substituted its judgment for that
of the Commission.’’ Reply Br. at 7. The court’s decision
must be viewed in the context of the entire history of the
Rock Island. Judge McGarr stated in his January 25, 1980,
ruling:
I have listened to the Trustee for years through his
counsel argue that I authorize and continue to be patient
with the attempts to bring about a cash-based reorganiza-
tion, based upon my finding of reorganizability. Mr.
Manos argues in an abundance of emotion today that I
should not decide that issue in four hours. I have in fact
thought of very little else for four years. It has been the
basic issue that I have confronted and the issue which I
have had to decide over and over again as circumstances
changed.
Tr. of January 25, 1980 at 95. Therefore, we hold that Judge
McGarr’s decision not to transmit the Trustee’s plan to the
ICC violated neither Section 77(d) of the Bankruptcy Act nor
Bankruptcy Rule 8-303.
The RLEA argues that, in addition to not having
jurisdiction to decide that the Trustee’s plan was without
merit, the reorganization court did not have the jurisdiction to
order the Trustee to liquidate the Rock Island. The RLEA
claims that Section 1174 of the Bankruptcy Reform Act of
1978, 11 U.S.C. §1174, for the first time permitted railroad
reorganization courts to direct and control liquidations, and
that Section 77 of the Bankruptcy Act, which applies to this
case,’ contains no authority for liquidation. Thus, the RLEA
* According to §403 of the Bankruptcy Reform Act, some provi-
sions of the new Bankruptcy Code are applicable to Section 77
cases pending before its enactment. But, Section 1174 is not one of
those sections which applies to cases commenced under the
Bankruptcy Act. Pub. L. No. 95-598, 92 Stat. 2683 (1978).
13a
argues that the court may dismiss the petition for undue delay
in reorganization, pursuant to Section 77(g) and Bankruptcy
Rule 8-310, but it may not unilaterally determine that the
debtor is unreorganizable and order liquidation.
According to the RLEA’s interpretation Section 77, the
reorganization court must either dismiss the petition for
reorganization or continue reorganization. The RLEA does
not acknowledge the possibility that liquidation may be the
end result of a Section 77 reorganization. But the RLEA’s
view ignores the fact that it is difficult to mark the point at
which an attempt to reorganize becomes a liquidation. It
would be absurd to hold that the reorganization court may
supervise liquidation of all but a small core railroad, yet can-
not supervise the liquidation of much of the same property
once the concept of a viable core has been rejected.
Section 77 does to set any limit on what portion, if any,
of the debtor must be preserved pursuant to Section 77 pro-
ceedings. Section 77(b), 11 U.S.C. §205(b) states:
(b) A plan of reorganization within the meaning of this
section . . . (5) shall provide adequate means for the ex-
ecution of the plan, which may include . . . the sale of all
or any part of the property of the debtor....
(emphasis added). In New Haven Inclusion Cases, the
Supreme Court discussed the reorganization court’s power to
sell the assets of the New York, New Haven & Hartford
Railroad (‘‘New Haven’’) pursuant to §77(b) (5). After noting
that the reorganization court and trustees were ‘‘charged with
the dual responsibility of conserving the debtor’s estate for
the benefit of creditors and preserving an ongoing railroad in
the public interest,’ 399 U.S. at 420, the Court stated:
The provisions of §77 ‘‘doubtless suffice[d] to confer
upon the [reorganization court] power appropriate for
adjusting property rights in the railroad debtor’s estate
and, as to such rights, beyond that in ordinary bankrupt-
cy proceedings.”” /d., at 85-86; cf. 5 Collier, supra,
q 77.11, at 498-499. Together, the court and the Com-
l4a
mission ‘‘unquestionably”’ had ‘‘full and complete power
not only over the debtor and its property, but also, as a
corollary, over any rights that [might] be asserted against
it.” Callaway v. Benton, 336 U.S. 132, 147. One such
power was precisely that which the Commission was
about to propose that the reorganization court exercise —
the power to confirm a plan of reorganization providing
for ‘the sale of all ... of the property of the debt-
or....’” Bankruptcy Act, §77(b) (5), 11 U.S.C. §205(b)
(5).
399. U.S. at 421 (footnote omitted). See also Matter of
Lehigh Valley R.R. Co., 558 F.2d 137, 141-47 (3rd Cir. 1977)
and cases cited therein.’ These cases indicate that each
railroad in reorganization under Section 77 must be handled
according to the unique circumstances of that debtor, and li-
quidation may be an appropriate option.
* In Lehigh Valley, the Third Circuit stated that ‘‘these cases pro-
vide persuasive support for the proposition that the reorganization
of a railroad may properly continue under Section 77 despite the
fact that the enterprise is no longer capable of being reorganized in-
to a working railroad.’’ 558 F.2d at 146. The court concluded that
the reorganization court had jurisdiction ‘‘to reorganize or liquidate
the enterprise pursuant to §77, or pursuant to any other provisions
of the Bankruptcy Act, if the court finds that such action would be
in the best interests of the debtor’s estate.’’ 558 F.2d at 146-47.
The RLEA argues that the Lehigh Valley reorganization court’s
authority to liquidate under Section 77 comes from §618(b) of the
Railroad Revitalization and Regulatory Reform Act of 1976, which
added §601(b)(4), 45 U.S.C. §791, to the Regional Rail Reorganiza-
tion Act of 1973 (‘‘Rail Act’’), Pub. L. 93-236, 45 U.S.C. §§743,
744. But Lehigh and the cases discussed therein actually stand for
the opposite result: the amendment authorized the continuation of
Section 77 proceedings despite the special provisions in the Rail Act
which transferred working railroad property to Conrail. 558 F.2d at
141-42.
15a
The RLEA does not seriously urge dismissal of this ac-
tion and resort to equity receiverships for liquidation,'® but it
does argue that an equity receivership is the only way that the
creditors of the Rock Island may withdraw their assets from
public use at this time. The RLEA claims that since the
creditors have enjoyed the benefits of having a single resolu-
tion of all claims, rather than many receiverships, they should
bear the burden of serving the public interest by keeping their
property invested in rail service. But the history of this case
indicates that the reorganization court has duly considered the
public interest throughout the reorganization prodeedings and
has determined that continued operation of the Rock Island
no longer serves the public interest. Thus, the liquidation
order does not violate the public interest considerations re-
quired by Section 77.
In summary, the reorganization court had the jurisdiction
under Section 77 to decline to accept the Trustee’s Plan and
to order the Trustee to formulate a plan of liquidation. Fur-
thermore, the reorganization court properly exercised its
discretion in exercising that jurisdiction. Because of our
holding on the meri**, it is unnecessary to reach the Creditors’
argument that this case is moot.
The order appealed from is
AFFIRMED.
'° One of the reasons for enactment of Section 77 was to avoid
equity receiverships for railroads. As stated in New Haven Inclusion
Cases:
Congress enacted [Section 77] in part ‘‘to prevent the notorious
evils and abuses of consent receiverships,"’ New England Coal
& Coke Co. v. Rutland R. Co., 143 F.2d at 184, of which one
of the more egregious was the requirement of an ancillary fil-
ing and order of appointment in the federal cour for every
district in which the debtor had property.
399 U.S. at 426-27.
17a
APPENDIX B
UNITED STATES DISTRICT COURT, NORTHERN DISTRICT
OF ILLINOIS EASTERN DIVISION
Name of Presiding Judge, Honorable _ Frank J. MCGarR
Cause No. __75 B 2697 Date January 25, 1980
Title of Cause In the Matter of Chicago, Rock Island and
Pacific Railroad Company, Debtor.
Brief Status hearing
Statement of
Motion
The rules of this court require counsel to
furnish the names of all parties entitled to
notice of the entry of an order and the names
and addresses of their attorneys. Please do
this immediately below (separate lists may be
appended).
Names and
Addresses of
moving
counsel
Representing
Names and
Addresses of
other counsel
entitled to
notice and
names of
parties they
represent.
Docketed Jan. 28 1980
Reserve space below for notations by minute clerk
Status hearing held. Arguments are
heard, Motion of creditors that the Court
decline to forward proposed Plan of
Reorganization to Interstate Commerce
Commission is granted. The proposed
plan, filed with the Court, is deemed
without merit ana the Court declines to
forward such plan to the Commission as
provided in Bankruptcy Rule 8-303.
Trustee directed to commence preparation
of preliminary plan for liquidation, and
creditors given leave forward comments
and suggestions as to such plan to Trustee
with copies to the Court. Status hearing
continued on Feb. 19 1980 at 2:00 p.m.
Hand this memorandum to the Clerk.
Counsel will not rise to address the Court until motion
has been called.
19a
APPENDIX C
IN THE UNITED STATES DISTRICT DOURT
NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
No. 75 B 2697
In THE MATTER OF:
Cuicaco, Rock IsLanp &
PaciFic RAILROAD Company, Debtor
Partial Transcript Of Proceedings
had in the above-entitled matter before the HONORABLE
FRANK J. Mc Garr, one of the Judges of said Court, in his
courtroom in the United States Courthouse, Chicago, Illinois
on Friday the 25th day of January, 1980, at the hour of 2:00
o’clock.
THe Court: I think I have heard enough of what has
probably been the best oral arguments I have had the pleasure
of listening to from the various attorneys involved in this
case. I think I have heard enough, in addition to having
studied enough of the proposed plan of reorganization and
the viable core and the Peat-Marwick study to reach a conclu-
sion which I intend to announce concerning the matters that
have been debated here today.
Preliminarily, though I find it disappointing in this focus
on whether I should substitute my judgment for the Interstate
Commerce Commission, and decline to forward a plan to
them that the Commerce Commission is not represented here.
I regret that fact and candidly don’t quite understand it. They
have been here on other occasions when their presence was
much less helpful than it would be now.
Let me indulge in a little bit of reminiscence and history
about the Rock Island since the fateful St. Patrick’s Day
when it first came to my attention.
20a
I appointed as Trustee and attorney for the Trustee two
gentlemen in whom I had a great deal of confidence and my
confidence in them has never diminished, and I have over the
years indulged their sincere hope and expectation of an in-
come based reorganization of the Rock Island. I have admired
the Trustee’s resourceful efforts to achieve this, and I think
with the creditors I shared his frustration, when an extremely
difficult winter, and rising fuel cost, and disappointing traffic
statistics intervened to really doom those efforts and to bring
us to a state of cashiessness which we faced some several
weeks ago. I have always indulged the hope of what I think is
probably the gist of what I expressed before the Senate Com-
mittee that hongress [sic] would see its obligation if the public
interest were really to served here, to address its attention to
the Rock Island as it did to the Eastern Railroads which were
the result of Con-Rail to the passenger service, with the result
of Amtrak, and to the recent action to the Milwaukee, with
sufficient help to bring about what I think was what Mr. Gib-
bons once described as Farm-Rail, which I thought was an ex-
cellent term to describe what I hoped we could achieve here. I
watched the attempts of the Trustee and his counsel to sell off
segments of the Rock Island, and have been disappointed,
with one happy exception, there have been no tangible results
from that activity, despite strenuous efforts.
I pushed Mr. Manos, in terms of timetable, in the filing
of a plan of reorganization to the point where when I saw
him on the street and noted his declining weight I had a
severe attack of conscience because I was afraid I was driving
him into bad health. I have listened to the Trustee for years
through his counsel argue that I authorize and continue to be
patient with the attempts to bring about a cash-based
reorganization, based upon my finding of reorganizability.
Mr. Manos argues in an abundance of emotion today that I
should not decide that issue in four hours. I have in fact
thought of very little else for four years. It has been the basic
issue that I have confronted and the issue which I have had to
decide over and over again as circumstances changed.
2la
The concept of liquidation of a railroad means tremen-
dous hardship, economic dislocation, the public interest has
always been on the side of my hope of continued operation, if
not in whole or at least in part of the Railroad. I have until
now balanced the equities of the rights of the creditors against
the public interest in favor of continuing operations. I have
watched the Trustee do what I regard as a masterful job but it
has not succeeded because success was not possible as
somebody argued today, except under a set of perfect
economic and social circumstances, and life being what it is
that perfect set of circumstances never came to pass.
I have had an opportunity to go over the plan of
reorganization. It is not a liquidation plan. It is a plan for
reorganization of a proposed viable core. Liquidation is there
only as an alternative possibility, as the creditors have argued,
and the details of a plan of liquidation might be quite dif-
ferent than the details of a plan of reorganization, particularly
in the area of priority and creditor’s rights. So we have a
basic reorganization plan which acknowledges the possibility
of liquidation but is not a liquidation plan.
We went through a lot of travail, all of us, spent a lot of
hours, missed a lot of dinner dates in constructing the
framework for the final appointment of a Court’s witness to
determine the possibility of reorganizability. And we wound it
up in the unusual position of having, because of the interven-
tion of cashlessness, having to force the filing of a plan of
reorganization at about the same time as we were completing
a study as to the potential of reorganizability so that the plan
and the Court’s witness study reached me at approximately
the same time.
I have studied the plan of reorganization, as I said, and I
have studied the Peat-Marwick report, my own witness. I am
satisfied that the witness that the parties recommended to me
and whom I chose has done a fine job. It is a good study and
I am compelled to accept its conclusions. This being so I am
compelled also, if logic prevails, to accept the conclusion that
the plan of reorganization proposed by the Trustee has no
hope of success.
22a
The Trustee is therefore instructed not to forward the
plan of reorganization to the Commission. The Trustee is in-
structed to continue his present plans for cessation of opera-
tions by the time of the anticipated termination of the
directed service order with the hope that that might be extend-
ed, and the Trustee is instructed to prepare and file with the
Court a preliminary plan of liquidation by a date which I will
let him pick since only he can tell me how much time he
thinks is necessary for him to do that.
Before I finalize that order I would like to say that this
ruling, in my judgment, means only that the final and in-
evitable decision that I have just made will have little effect
on the public interest. It does now what would inevitably be
done in a matter of a few months and it starts now rather
than later the process of private sale and Commerce Commis-
sion reorganization of railroad service in order to patch
together the best possible compromise between the public in-
terests and the creditors’ interests. And I guess it finalizes
what will be the last chapter in the long and regrettably sad
history of the Rock Island.
That will be the order based on the motion made today,
and I would ask Mr. Manos, if you care to comment now or
wish to reflect on it how much time you think it would take
to prepare a liquidation plan which will be a modification I
would guess of your reorganization.
Mr. Manos: Your Honor has not commented on the
rebuttal to the PMM study that I placed —
Tue Court: I have not accepted your filing of the rebut-
tal of the PMM study. I decline to do so for the reason that I
have read the PMM study. I have listened to comments on it
today. I have indicated that in the main I accept it. I would
expect that there might be some rebuttal of some aspects of it.
I do not contemplate that in the main my conclusions based
upon it and its conclusions would be changed. So that would
be my ruling on that. I see no point to go into any extended
debate on the PMM study.
23a
Mr. Manos: Your Honor, I realize that in the Court’s
ruling that there be no extended debate, but may this be
received then as an exhibit for today’s hearing?
Tue Court: It may be received if you care to file it. I
have no objection.
Mr. Jenner: Your Honor, that is doing indirectly what
he is not permitted to do directly.
THE Court: Well the record reflects that I have made the
decision, I haven’t looked at it, it is an offer of proof, I
guess. The decision has been made. Let’s regard it as an offer
of proof, it is something he would like me to consider. You
may file it on that basis.
Mr. Manos: Your Honor, I do so only in placing before
this Court what I consider to be the Trustee’s discharge of its
obligation to the Court to comment on the PMM study. I
have not done so exclusively or with any degree of com-
prehension. The rebuttal is contained in the short statement
which is paged, only nine pages.
Now, your Honor, you have already stated that without
reading it you would not alter your decision and I accept your
Honor’s decision.
Tue Court: Let me explain why I say that. I don’t want
to appear unreasonable.
There comes a time in any course of events when the end
in inevitable. The creditors would insist that I am long over-
due in recognizing that fact. Be that true or not I do
recognize it now. I think the possibility of a continuation of
the Rock Island on an income producing basis, whether in
core or in whole or in part, I must inevitably conclude is just
not possible and that is the basis of my decision. I must say
that that decision was finally reached, or I was forced to it by
a combination of the PMM study, my own witness, and I
think a good one, and the arguments that I listened to today.
Mr. Manos: Your Honor, for that reason it would be a
useless act and I withdraw this offer of proof.
Tue Court: Whatever you wish, counsel... .
25a
APPENDIX D
UNITED STATES DISTRICT COURT, NORTHERN DISTRICT
OF ILLINOIS EASTERN DIVISION
Name of Presiding Judge, Honorable | FRANK J. MCGARR
Cause No.
75_B 2697 Date _ February 27, 1980
Title of Cause In the Matter of Chicago, Rock Island and
Names and
Addresses of
moving
counsel
Representing
Names and
Addresses of
other counsel
entitled to
notice and
names of
parties they
represent.
Pacific Railroad Company, Debtor.
The rules of this court require counsel to
furnish the names of all parties entitled to
notice of the entry of an order and the names
and addresses of their attorneys. Please do
this immediately below (separate lists may be
appended).
26a
Reserve space below for notations by minute clerk
Motion of Railway Labor Executives’
Association to reconsider the order of
January 28, 1980, is denied.
Hand this memorandum to the Clerk.
Counsel will not rise to address the Court until motion
has been called.
27a
APPENDIX E
UNITED STATES COURT OF APPEALS
FOR THE SEVENTH CIRCUIT
CHICAGO, ILLINOIS 60604
February 11, 1981
Before
Hon. Ropert A. Sprecuer, Circuit Judge
Hon. HARLINGTON Woop, Jr., Circuit Judge
Hon. Wesiey E. Brown, Senior District Judge*
In THe Matter OF: Cuicaco, Rock ISLAND & PACIFIC
RAILROAD Company, Debtor.
No. 80-1353
APPEAL Or: RAILWAY LABOR EXECUTIVES’
ASSOCIATION, /ntervenor.
Appeal from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 75-B-2697 Frank J. McGarr, Judge
Unpublished Per Curiam Order
JUDGMENT — ORAL ARGUMENT
This cause was heard on the record from the United
States District Court for the Northern District of Illinois,
Eastern Division, and was argued by counsel.
On consideration whereof, It 1s OnpeERED AND ApsuDG-
ED by this Court that the judgment of the said District Court
in this cause appealed from be, and the same is hereby Ar-
FIRMED, with costs, in accordance with the order of this court
entered this date.
* The Honorable Wesley E. Brown, Senior District Judge for the
District of Kansas, is sitting by designation.
29a
APPENDIX F
Statutes And Rules Involved
1. BANKRUPTCY ACT
Section 77, Reorganization of Railroad Engaged in Interstate
Commerce, 11 U.S.C. §205
(a) Any railroad corporation may file a petition stating
that it is insolvent or unable to meet its debts as they mature
and that it desires to effect a plan of reorganization.
The petition shall be filed with the court in whose ter-
ritorial jurisdiction the corporation, during the preceding six
months or the greater portion thereof, has had its principal
executive or operating office, and a copy of the petition shall
at the same time be filed with the Interstate Commerce Com-
mission (hereinafter called the ‘‘Commission’’.)
When any railroad, although engaged in interstate com-
merce, lies wholly within one State, the proceedings shall be
brought in the United States district court for the district in
which its principal operating office has been located during
the preceding six months or the greater portion thereof.
The petition shall be accompanied by payment to the
clerk of a filing fee of $150.
Upon the filing of such a petition, the judge shall enter
an order either approving it as properly filed under this sec-
tion, if satisfied that it complies with this section and has
been filed in good faith, or dismissing it, if he is not so
satisfied.
If the petition is so approved, the court_in which the
order is entered shall, during the pendency of the proceedings
under this section and for the purposes therof, have exclusive
jurisdiction of the debtor and its property wherever located,
and shall have and may exercise in addition to the powers
conferred by this section all the powers, not inconsistent with
this section, which a court of the United States would have
had if it had appointed a receiver in equity of the property of
the debtor for any purpose.
30a
Process of the court shall extend to and be valid when
served in any judicial district.
The Supreme Court of the United States shall promulgate
rules relating to the service of process outside of the district in
which the proceeding is pending, and any other rules which it
may deem advisable in order to aid district courts and courts
of appeal in exercising the jurisdiction herein conferred upon
them.
The railroad corporation shall be referred to in the pro-
ceedings as a ‘‘debtor.’’
Any railroad corporation the majority of the capital
stock of which having power to vote for the election of direc-
tors is owned, either directly or indirectly through an interven-
ing medium, by any railroad corporation filing a petition as a
debtor may file, with the court in which the other debtor has
filed such a petition, and in the same proceeding, a petition, a
copy of which shall also be filed at the same time with the
Commission, stating that it is insolvent or unable to meet its
debts as they mature, and that it desires to effect a
reorganization in connection with, or as a part of the plan of
reorganization of the other debtor; and upon the filing of the
petition, the judge shall enter an order either approving it as
properly filed under this section, if satisfied that it complies
with this section and has been filed in good faith, or dismiss-
ing it if not so satisfied, and thereupon the court, if it ap-
proves the petition, shall have the same jurisdiction with
respect to such debtor, its property and its creditors and
stockholders, as the court has with respect to the other
debtor.
Creditors of any railroad corporation, having claims ag-
gregating not less than 5 percentum of all the indebtedness of
the corporation as shown in the latest annual report which it
has filed with the Commission at the time when the petition is
filed, may, if the corporation has not filed a petition under
this section, file with the court in which the corporation might
file a petition under this section, a petition stating that the
3la
corporation is insolvent or unable to meet its debts as they
mature and that the creditors have claims aggregating not less
than 5 percentum of all such indebtedness of the corporation
and propose that it shall effect a reorganization; copies of the
petition shall be filed at the same time with the Commission
and served upon the corporation.
The corporation shall, within ten days after such service,
answer the petition.
If the answer admits the jurisdiction of the court and the
material allegations of the petition, the judge shall enter an
order approving the petition as properly filed if satisfied that
it complies with this section and has been filed in good faith,
or dismissing it, if not so satisfied. If the answer denies either
the jurisdiction of the court or any material allegation of the
petition, the judge shall summarily determine the issues
presented by the pleadings without the intervention of a jury,
and if he finds that the material allegations are sustained by
the proofs and that the petition complies with this section and
has been filed in good faith, the judge shall enter an order ap-
proving the petition; otherwise, he shall dismss the petition.
If such a petition is so approved, the proceedings thereon
shall continue with like effect as if the railroad corporation
had itself filed a petition under this section.
If a petition is dismissed, neither the petition nor the
answer of a debtor constitute an act of bankruptcy or an ad-
mission of insolvency or of inability to meet maturing obliga-
tions or be admissible in evidence, without the debtor’s con-
sent, in any proceedings then or thereafter pending or com-
menced under this Act or in any State or United States court.
If, in any case in which the issues have not already been
tried under the provisions of this subdivision, any of the
creditors, prior to the hearing provided for in paragraph (1)
of subsection (c) of this section, appear and controvert the
facts alleged in the petition, the judge shall determine, as soon
as may be, the issues presented by the pleadings, without the
intervention of a jury, and, unless the material allegations of
32a
the petition are sustained by the proofs, shall dismiss the
petition.
(b) A plan of reorganization within the meaning of this
section (1) shall include provisions modifying or altering the
rights of creditors generally, or of any class of them, secured
or unsecured, either through the issuance of new securities of
any character or otherwise; (2) may include provisions modi-
fying or altering the rights of stockholders generally, or of
any class of them, either through the issuance of new
securities of any character, or otherwise; (3) may include, for
the purpose of preserving such interest of creditors and
stockholders as are not otherwise provided for, provisions for
the issuance to any such creditor or stockholder of options or
warrants to receive, or to subscribe for, securities of the
reorganized company in such amounts and upon such terms
and conditions as may be set forth in the plan; (4) shall pro-
vide for fixed charges (including fixed interest on funded
debt, interest on unfunded debt, amortization of discount on
funded debt, and rent for leased railroads) in such an amount
that, after due consideration of the probable prospective earn-
ings of the property in light of its earnings experience and all
other relevant facts, there shall be adequate coverage of such
fixed charges by the probable earnings available for the pay-
ment thereof; (5) shall provide adequate means for the execu-
tion of the plan, which may include the transfer of any in-
terest in or control of all or any part of the property of the
debtor to another corporation or corporations, the merger or
consolidation of the debtor with another corporation or cor-
porations, the retention of all or any part of the property by
the debtor, the sale of all or any part of the property of the
debtor either subject to or free from any lien at not less than
a fair upset price, the distribution of all or any assets, or the
proceeds derived from the sale thereof, among those having
an interest therein, the satisfaction or modification of any
liens, indentures, or other similar interests, the curing or
waiver of defaults, the extension of maturity dates of outstan-
ding securities, the reduction in principal and/or rate of in-
33a
terest and alteration of other terms of such securities, the
amendment of the charter of the debtor and/or the issuance
of securities of either the debtor or any such other corpora-
tion or corporations for cash, or in exchange for existing
securities, or in satisfaction of claims or rights or for other
appropriate purposes; and may deal with all or any part of
the property of the debtor; may reject contracts of the debtor
which are executory in whole or in part, including unexpired
leases; and may include any other appropriate provisions not
inconsistent with this section.
The adoption of an executory contract or unexpired lease
by the trustee or trustees of a debtor shall not preclude a re-
jection of such contract or lease in a plan of reorganization
approved hereunder, and any claim resulting from such rejec-
tion shall not have priority over any other claims against the
debtor because such contract or lease had been previously
adopted. The term “‘securities’’ shall include evidences of in-
debtedness either secured or unsecured, bonds, stock, cer-
tificates of beneficial interest therein, certificates of beneficial
interest in property, options, and warrants to receive, or to
subscribe for, securities. The term ‘‘stockholders’’ shall in-
clude the holders of voting-trust certificates. The term
**creditors’’ shall include, for all purposes of this section all
holders of claims of whatever character against the debtor or
its property, whether or not such claims would otherwise con-
stitute provable claims under this Act, including the holder of
a claim under a contract executory in whole or in part in-
cluding an unexpired lease.
The term ‘‘claims’’ includes debts, whether liquidated or
unliquidated, securities (other than stock and option warrants
to subscribe to stock), liens, or other interests of whatever
character. For all purposes of this section unsecured claims,
which would have been entitled to priority if a receiver in
equity of the property of the debtor had been appointed by a
Federal court on the day of the approval of the petition, shall
be entitled to such priority and the holders of such claims
shall be treated as a class or classes of creditors. In case an
34a
executory contract or unexpired lease of property shall be re-
jected, or shall not have been adopted by a trustee appointed
under this section, or shall have been rejected by a receiver in
equity in a proceeding pending prior to the institution of a
proceeding under this section, or shall be rejected by any
plan, any person injured by such nonadoption or rejection
shall for all purposes of this section be deemed to be a
creditor of the debtor to the extent of the actual damage or
injury determined in accordance with principles obtaining in
equity proceedings. The provisions of section 60 of this Act
shall apply to a proceeding under this section. For all pur-
poses of the section any creditor or stockholder may act in
person or by an attorney at law or by a duly authorized agent
or committee subject to the provisions of subsection (p)
hereof. The running of all statutes of limitation shall be
suspended during the pendency of a proceeding under this
section.
(c) After approving the petition:
(1) The judge shall forthwith (and in pending proceedings
immediately upon the effective date of this amendatory sec-
tion) require the debtor to give such notice as the order may
direct to the mortgage trustees, creditors and stockholders,
and to cause publication thereof for such period and in such
newspapers as the judge may direct, of a hearing to be held
not later than thirty days after the date of such order, at
which hearing or any adjournment thereof the judge shall ap-
point one or more trustees of the debtor’s property. Such ap-
pointments shall become effective upon ratification thereof by
the Commission without a hearing, unless the Commission
shall deem a hearing necessary. Where a trustee is appointed
who within one year prior thereto has been an officer, direc-
tor, or employee of the debtor corporation, any subsidiary
corporation, or any holding company connected therewith,
the judge, subject to ratification by the Commission as herein
provided, shall appoint another trustee or trustees who shall
not have had any such affiliations: Provided, That the ap-
pointment of such additional trustee or trustees shall not be
35a
required for a debtor the annual operating revenues of which
were less than $1,000,000 for the previous calendar year.
(2) The judge shall fix the amount of the bond of every
trustee. He may thereafter terminate any such appointments
on cause shown, and may in that event and in the event of a
vacancy from any other cause, in the manner and within the
qualifications herein provided for the appointment of trustees,
appoint a substitute trustee or trustees, and in the same man-
ner and within the same qualifications may appoint an addi-
tional trustee, and shall fix the amount of the bond of every
such substitute or additional trustee or trustees. The judge
shall in his discretion confirm the appointment of such legal
counsel for the trustees as they shall select, with power of
removal. The trustee or trustees and their counsel shall receive
only such compensation from the estate of the debtor as the
judge may from to time allow within such maximum limits as
may be approved by the Commission as reasonable. The
trustee or trustees so appointed, upon filing such bond, shall
have all the title and shall exercise, subject to the control of
the judge and consistently with the provisions of this section,
all of the powers of a trustee appointed pursuant to section 44
of this Act or any other section of this Act, and, to the extent
not inconsistent with this section, if authorized by the judge,
the powers of a receiver in an equity proceeding, and, subject
to the control of the judge and the jurisdiction of the Com-
mission as provided by the Interstate Commerce Act as now
or hereafter amended, the power to operate the business of
the debtor. In operating the business of the debtor with
respect to safety, location of tracts, and terminal facilities, the
trustee or trustees shall be subject to lawful orders of State
regulatory bodies of statewide jurisdiction to the same extent
as would the debtor if a petition respecting it had not been
filed under subsection (a) of this section except that (A) any
such order which would require the expenditure, or the incurr-
ing of an obligation for the expenditure, of money from the
debtor’s estate shall not become effective (a) unless the trustee
or trustees, with the approval of the court, shall consent
36a
thereto, or (b) unless the Commission, upon appropriate ap-
plication or applications by an interested party or interested
parties, shall find that compliance with the order will not im-
pair the ability of the trustee or trustees to perform his or
their duties to the public, will not constitute an undue burden
upon interstate commerce, will be compatible with the public
interest, and will not interfere with the formulation and ap-
proval of a satisfactory plan of reorganization for the debtor,
and (B) compliance shall be made with any applicable provi-
sion of the Interstate Commerce Act. Prior to the appoint-
ment of a trustee, the debtor on behalf of the court shall con-
tinue in the possession of the property and shall operate the
business thereof during such period, and shall have all the ti-
tle to the property and shall exercise all power consistent with
the provisions of this section, subject at all times to the con-
trol of the judge, and to such limitations, restrictions, terms
and conditions as he may from time to time impose and
prescribe.
(3) The judge may, upon not less than fifteen days’
notice published in such manner and in such newspapers as
the judge may in his discretion determine, which notice so
determined shall be sufficient, for cause shown, and with the
approval of the Commission, in accordance with section 20(a)
of the Interstate Commerce Act, as now or hereafter amend-
ed, authorize the trustee or trustees to issue certificates for
cash, property, or other consideration approved by the judge,
for such lawful purposes and upon such terms and conditions
and with such security and such priority in payments over ex-
isting obligations, secured or unsecured, or receivership
charges, as might in an equity receivership be lawful. Where
such certificates are authorized to provide funds to pay for
the acquisition, assembly or installation of safety equipment
or materials related thereto, or for the purpose of reimbursing
the trustee or trustees for funds so expended, the judge may
direct (without limitation of his power to make such direction
in the absence of this provision) that the certificates shall have
such lien on the property of the debtor and shall be entitled to
37a
such priority in payments over existing obligations, secured or
unsecured, and receivership charges and present or future
duties, debts, or taxes or other obligations in favor of or
payable to any State or any subdivision, agency or instrumen-
tality thereof and interest or penalities, and to such parity
with all or any portion of the other costs or expenses of ad-
ministration or operation as in the particular case the judge
may find equitable at the time of authorizing the issuance of
such certificates, regardless of whether such obligations,
charges, costs or expenses, duties, debts, or taxes constitute or
are secured by liens on real or personal property or shall have
become payable before or after the issuance of such
certificates.
(4) The judge shall require the officers of the debtor or
the trustee or trustees at such time or times as the judge may
direct, and in lieu of the schedules required by section 7 of
this Act, to file with the court such schedules and submit such
other information as may be necessary to disclose the conduct
of the debtor’s affairs and the fairness of any proposed plan;
and shall direct the officers of the debtor, or the trustee or
trustees, within such time as the judge shall set, to prepare
and file with the court a list of all known bondholders and
creditors of the debtor, and the amounts and character of
their debts, claims, and securities, and the last known post-
office address or place of business of each bondholder and
creditor, and a list of all known stockholders of the debtor,
with the last known post-office address or place of business of
each, which lists the judge may require to be brought down to
date at any time. The contents of such lists shall not con-
stitute admissions by the debtor or the trustees in a pro-
ceeding under this section or otherwise.
(5) It shall be the duty of anyone having information as
to the names and addresses of the holders of any securities of
the debtor to divulge such information to the trustee or
trustees, upon written request therefor and, upon petition by
any party in interest, and after hearing, the judge may order
the production of any such information by anyone having and
38a
refusing to divulge it to any trustee, upon written request
therefor. The judge may direct that the cost of preparing such
information shall be borne by the debtor’s estate.
(6) If a lease of a line of railroad is rejected, and if the
lessee, with the approval of the judge, shall elect no longer to
operate the leased line, it shall be the duty of the lessor at the
end of a period to be fixed by the judge to begin the opera-
tion of such line, unless the judge, upon the petition of the
lessor, shall decree after hearing that it would be imprac-
ticable and contrary to the public interest for the lessor to
operate the said line, in which event it shall be the duty of the
lessee to continue operation on or for the account of the
lessor until the abandonment of such line is authorized in ac-
cordance with the provisions of section 1 of the Interstate
Commerce Act as amended, or until such operation pursuant
to this paragraph is otherwise lawfully terminated. During any
such operation, the lessor shall be deemed to be a carrier sub-
ject to all applicable provisions of the Interstate Commerce
Act, as amended, and shall be entitled to receive just,
reasonable, and equitable divisions of rates, fares, or charges
applicable to the transportation of persons or property over
its line or lines of railroad and the lines of the lessee or other
carriers, and the provisions of section 15(6) of the Interstate
Commerce Act, as now or hereafter amended, shall apply to
said divisions whether or not joint rates covering such
transportation have been established.
(7) The judge shall promptly determine and fix a
reasonable time within which the claims of creditors may be
filed or evidenced and after which no claim not so filed or
evidenced may participate except on order for cause shown,
the manner in which such claims may be filed or evidenced
and allowed, and for the purposes of the plan and its accep-
tance, after notice and hearing, the division of creditors and
stockholders into classes according to the nature of their
respective claims and interests. Such division shall not provide
for separate classification unless there be substantial dif-
ferences in priorities, claims, or interests. The trustee or
39a
trustees under any mortgage, deed of trust, or indenture
outstanding against the property may, within the time
prescribed, file a verified claim in behalf of all bonds or
securities outstanding under such mortgage, deed of trust, or
indenture, in which event it shall be unnecessary for the
holders of such bonds or securities to file claims in their own
behalf, but nothing herein shall constitute such trustee or
trustees the representative or representatives of such holders
for the purpose of accepting or rejecting any plan or
reorganization.
(8) The judge shall cause reasonable notice of the period
in which claims may be filed, of hearings on application for
the dismissal of the proceedings, or for the final allowance of
fees or expenses to be given creditors and stockholders by
publication or otherwise.
(9) The judge shall direct the trustee or trustees, and may
request the Commission through such of its agencies as it may
designate, to report to him any facts pertaining to ir-
regularities, fraud, misconduct, or mismanagement, as a con-
sequence of which the debtor may have a cause of action aris-
ing therefrom against any person or corporation.
(10) The judge may direct the debtor or the trustee or
trustees to keep records and accounts, in addition to the ac-
counts prescribed by the Commission, as will permit of such a
segregation and allocation, as the necessities of the case may
require, of the earnings and expenses between and to the divi-
sions and parts of the railroad or other property of the debtor
which are separately subject to the liens of the various mor-
tgages or deeds of trust, or are separately subject to lease, and
may refer to the Commission for its recommendations after
hearings thereon if the parties shall so request and/or the
Commission determine necessary or desirable, as to the
method or formula by which such segregation and allocation
shall be made; and therea‘ier such segregation and allocation
may be made at the expense of the debtor’s estate.
(11) The Commission may direct such of its agencies as it
may designate to file in the proceedings before the Commis-
40a
sion a report, and additional or supplemental reports at such
time or times as the Commission shall designate, of such data
with reference to the property, business, earnings, and cor-
porate organization of the debtor and such other facts as the
Commission, after hearing if it deems necessary, shall deter-
mine to be necessary or helpful information for the purposes
of the preparation of reorganizing plans, and for the purpose
of aiding in determining the method or formula of allocating
earnings permitted by subdivision (10) of this subsection (c).
Such report or reports shall be prima facie evidence of the
facts therein stated in any proceeding under this section. The
actual cost of preparing said report or reports shall be cer-
tified by the Commission and shall be borne by the debtor’s
estate.
(12) Within such maximum limits as are fixed by the
Commission, the judge may make an allowance, to be paid
out of the debtor’s estate, for the actual and reasonable ex-
penses (including reasonable attorney’s fees) incurred in con-
nection with the proceedings and plan by parties in interest
and by reorganization managers and committees or other
representatives of creditors and stockholders and within such
limits may make an allowance to be paid out of the debtor’s
estate for the actual and reasonable expenses incurred in con-
nection with the proceedings and plan and reasonable com-
pensation for services in connection therewith by trustees
under indentures, depositaries and such assistants as the Com-
mission with the approval of the judge may especially employ.
Appeals from orders of the court fixing such allowances may
be taken to the circuit court of appeals independently of other
appeals in the proceeding and shall be heard summarily. The
Commission shall, at such time or times as it may deem ap-
propriate, after hearing, fix the maximum allowances which
may be allowed by the court pursuant to the provisions of
paragraph (12) of this subsection (c) and, after hearing if the
Commission shall deem it necessary, the maximum compensa-
tion which may be allowed by the court pursuant to the provi-
sions of paragraph (2) of this subsection (c).
4la
(13) The judge may on his own motion or at the request
of the Commission refer any matters for consideration and
report, either generally or upon specified issues, to one of
several special masters who shall have been previously
designated to act as special masters in any proceedings under
this section by order of any circuit court of appeals and may
allow such master a reasonable compensation for his services
and actual and reasonable expenses. The circuit court of ap-
peals of each circuit shall designate three or more members of
the bar as such special masters whom they deem qualified for
such services, and shall from time to time revise such designa-
tions by changing the persons designated or their number, as
the public interest may require: Provided, however, That there
shall always be three of such special masters qualified for ap-
pointment in each circuit who shall hear any matter referred
to them under this section by a judge of any district court.
The debtor, any creditor or stockholder, or the duly author-
ized committee, attorney or agent of either or the trustee 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 arising in the pro-
ceedings, and, upon petition therefor and cause shown, any
such person or any other interested parity may be permitted to
intervene. The judge may, after hearing, make reasonable
rules defining the matters upon which notice shall be given to
other than interveners and the manner of giving such notice.
(d) The debtor, after a petition is filed as provided in
subsection (a), shall file a plan of reorganization within six
months of the entry of the order by the judge approving the
petition as properly filed, or if heretofore approved, then
within six months of the effective date of this Act, and not
thereafter unless such time is extended by the judge from time
to time for cause shown, no single extension at any one time
to be for more than six months. Such plan shall also be filed
with the Commission at the same time. Such plans may
likewise be filed at any time before, or with the consent of the
Commission during, the hearings hereinafter provided for, by
42a
the trustee or trustees, or by or on behalf of the creditors be-
ing not less than 10 per centum in amount of any class of
creditors, or by or on behalf of any class of stockholders be-
ing not less than 10 per centum in amount of any such class,
or with the consent of the Commission by any party in in-
terest. After the filing of such a plan, the Commission, unless
such plan shall be considered by it to be prima facie imprac-
ticable, shall, after due notice to all stockholders and creditors
given in such manner as it shall determine, hold public hear-
ings, at which opportunity shall be given to any interested
party to be heard, and following which the Commission shall
render a report and order in which it shall approve a plan,
which may be different from any which has been proposed,
that will in its opinion meet with the requirements of subsec-
tions (b) and (e) of this section, and will be compatible with
the public interest; or it shall render a report and order in
which it shall refuse to approve any plan. In such report the
Commission shall state fully the reasons for its conclusions.
The Commission may thereafter, upon petition for good
cause shown filed within sixty days of the date of its order,
and upon further hearings if the Commission shall deem
necessary, in a supplemental report and order modify any
plan which it has approved, stating the reasons for such
modification. The Commission, if it approves a plan, shall
thereupon certify the plan to the court together with a
transcript of the proceedings before it and a copy of the
report and order approving the plan. No plan shall be approv-
ed or confirmed by the judge in any proceeding under this
section unless the plan shall first have been approved by the
Commission and certified to the court.
(g) If in the light of all the existing circumstances there is
undue delay in a reasonably expeditious reorganization of the
debtor, the judge, in his discretion, shall, on motion of any
party in interest or on his own motion, after hearing and after
consideration of the recommendation of the Commission,
dismiss the proceedings. Upon the filing of such an order of
43a
dismissal, all right, title, or interest of the trustee or trustees
shall vest by operation of law in the debtor unless otherwise
provided by such order.
2. CHAPTER 8 BANKRUPTCY RULES
Rule 8-301. Formulation and Filing of Plan
(a) First Filing of Plan.
(1) By trustee. Within one year of approval of the peti-
tion or within any lesser period fixed by the court, the
trustee shall file a plan with the court unless the court,
after hearing on notice to such persons as the court may
direct and for cause shown, extends the time within
which a plan is to be filed. An application for an exten-
sion of time shall contain (A) the reasons why a plan can-
not be formulated at that time, (B) a statement of the ac-
tions taken and intended to be taken in managing the
debtor’s estate, and (C) a summary of the debtor’s opera-
tions and financial results. An extension shall not exceed
one year.
(2) By others. If the trustee does not file a plan within
the one-year period specified in paragraph (1) of this sub-
division or within any lesser period fixed by the court, the
court may, on application after hearing on notice to such
persons as the court, may direct, grant to other parties in
interest leave to file a plan.
(b) Filing of Additional Plans or Modifications. After the
first filing of a plan but before transmission of the plan to the
Interstate Commerce Commission under Rule 8-303, a party
in interest may file another plan or a modification of a plan.
(c) Copies to Interstate Commerce Commission. A person
filing a plan or modification of a plan shall furnish a copy
thereof to the Interstate Commerce Commission.
(d) Form of Plan. Every proposed plan and any
modification thereof shall be dated and identified with the
name of the person or persons submitting or filing it.
44a
Rule 8-303. Transmission of Plan to Interstate Commerce
Commission
Not less than 30 days after the first filing of a plan under
Rule 8-301, the court shall transmit all plans and modifica-
tions which have been filed with it to the Interstate Commerce
Commission for filing with and consideration by the Commis-
sion.
Rule 8-310. Dismissal of Case
(a) Dismissal. The court may, after hearing on at least 20
days’ notice to the debtor, creditors, stockholders, and inden-
ture trustees as provided in Rule 8-209, dismiss the case if (1)
a plan certified by the Interstate Commerce Commission is
not approved pursuant to Rule 8-304 or not confirmed pur-
suant to Rule 8-307 and there is no remand of the proceeding
to the Commission; (2) in light of all existing circumstances
there is undue delay in the accomplishment of a reasonably
expeditious reorganization; or (3) the Commission certifies
that no plan can be formulated within a reasonable time.
Before dismissing a Chapter 8 case for undue delay the court
shall request the Commission to submit to the court a report
and recommendation concerning dismissal of the case.
(b) Notice of Dismissal to Creditors. Promptly after entry
of an order of dismissal under this rule, notice there *f shall
be published and given to creditors, stockholders, and inden-
ture trustees in the manner provided in Rule 8-209.
(c) Revesting of Title. A certified copy of the order of
dismissal under this rule shall constitute conclusive evidence of
the revesting of the debtor’s title to its property unless the
order provides otherwise.
45a
APPENDIX G
List of RLEA Member Organizations
American Railway Supervisors Association, Division of BRAC
American Train Dispatchers Associaion
Brotherhood of Locomotive Engineers
Brotherhood of Maintenance of Way Employes
Brotherhood of Railroad Signalmen
Brotherhood of Railway, Airline and Steamship Clerks
Brotherhood of Railway Carmen of the United States and
Canada
Hotel & Restaurant Employees & Bartenders International
Union
International Association of Machinists and Aerospace
Workers
International Brotherhood of Boilermakers and Blacksmiths
International Brotherhood of Electrical Workers
International Brotherhood of Firemen & Oilers
International Longshoremen’s Association
International Organizations of Masters, Mates and Pilots
National: Marine Engineers Beneficial Association
Railroad Yardmasters of America
Railway Employes Department, AFL-CIO
Sheet Metal Workers’ International Association
Seafarers International Union of North America
Transport Workers Union of America
United Transportation Union
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.