Petition — Chicago, Milwaukee, St. Paul & Pacific Railroad v. Ogilvie

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7 fe 59 EL Eg 5 U.S,

MAY 17

No. 82- | 1983

IN THE — CLERK 7

Supreme Court of the United States

OCTOBER TERM, 1982

CHICAGO, MILWAUKEE, ST. PAUL AND

PACIFIC RAILROAD COMPANY,

AND CHICAGO MILWAUKEE CORPORATION,

Petitioners,

vs.

RICHARD B. OGILVIE, «S TRUSTEE OF THE

PROPERTY OF CHICAGO, MILWAUKEE, ST. PAUL

AND PACIFIC RAILROAD COMPANY,

THE UNITED STATES OF AMERICA, AND

HARRIS TRUST AND SAVINGS BANK,

Respondents.

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF

APPEALS FOR THE SEVENTH CIRCUIT

JOSEPH A. MAUN

JEROME B. SIMON*

M. MICHAEL MONAHAN

MAUN, GREEN, HAYES,

SIMON, JOHANNESON & BREHL

332 Hamm Building

St. Paul, Minnesota 55102

612-224-7300

Attorneys for Petitioners

*Counsel of Record

224-7631 — Review Publishing Co., 287 E. 6th St., St. Paul, Minn. 55101 — 224-7681

QUESTIONS PRESENTED

1. Is the question of the validity of Sections 7 and 22 of

the Milwaukee Railroad Restructuring Act! (the MRRA)

under article I, section 8, clause 4 of the Constitution of the

United States ripe for review?

2. Do Sections 7 and 22 of the MRRA, which require that

one specifically named bankrupted railroad continue to

operate concededly unreorgarizable rail lines and which im-

pose the cost of such operations on the bankrupted railroad’s

shareholders through forced loans from the United States,

violate the uniformity requirement of article I, section 8,

clause 4 of the Constitution of the United States?

3. Do Sections 7 and 22 of the MRRA violate the Just Com-

pensation clause, the Due Process clause, and the Equal Pro-

tection Provisions of the Fifth Amendment of the Constitution

of the United States by requiring the continued operations of

the Debtor’s entire system at the expense of its shareholders?

i MRRA §§ 7 & 22, 45 U.S.C. §§ 906 & 920 (Supp. IV 1980).

LIST OF PARTIES*

The parties before the United States Court of Appeals for

the Seventh Circuit were: Chicago, Milwaukee, St. Paul and

Pacific Railroad Company (the Debtor) and Chicago

Milwaukee Corporation (CMC), as Appellants; and Richard

B. Ogilvie, as Trustee of the Property of Chicago, Milwaukee,

St. Paul and Pacific Railroad Company (the Trustee) ; the

United States of America; and Harris Trust and Savings

Bank, as Appellees.

* Pursuant to Rule 28.1 of the Rules of this Court, petitioner CMC

reports that it is a parent company and that its only subsidiary

(except wholly owned subsidaries) or affiliate is Chicago, Mil-

waukee, St. Paul and Pacific Railroad Company. The following

is a list of companies which are not wholly-owned subsidiaries

of Chicago, Milwaukee, St. Paul and Pacific Railroad Company,

but which may be deemed affiliates:

Chicago Union Station Company,

Chicago, Terra Haute & S.E. Ry. Co.,

Davenport, Rock Island & N.W. Ry. Co.,

Indiana Harbor Belt R.R. Co.,

Kansas City Terminal Ry. Co.,

The Minnesota Transfer Ry. Co.,

Trailer Train Company, and

National Railroad Passenger Corporation

ii

TABLE OF CONTENTS

Page

T. : . et 8 i

eee On PT ee ea ii

ee On CONG es ⁵ↄ . ei ak, iii

ee ee ORIN kL ͤ v

%%%%%%%%I dpd 2

Relevant Constitutional And Statutory Provisions .... 2

epee 8 SU A OG GS re 3

Stages At Which The Federal Questions Were

c 2... css. os i 7

mneie Tor Federal Jurisdiction... AA 8 8

Reasons for. Granting the kk. 8

A. Impact of Decision Below and Reasons for

J WRT 8

B. The Question of the Constitutionality of

Sections 7 and 22 is Ripe for Decision 11

1. The Bankruptcy Clause Question Is Fit For

Decision and Passage of Time Will Not Aid

J 8 12

2. Failure to Decide Merits Is Causing Serious

Current Harm To All Parties. 13

3. The Court of Appeals Failed to Distinguish

Between the Constitutional Challenges Made

%% VJ . 88 15

C. Sections 7 and 22 Are Non- uniform Laws on

the Subject of Bankrupteſy . 16

JJ ee sas 18

Page

Appendices

Appendix A—Relevant Constitutional and Statutory

JJ a ee es Se A-l

Appendix B—District Court's Decision Regarding

Constitutionality of MRRA .................... A-4

Appendix C—District Court’s Decision Regarding

Further Borrowing Under MRRA .............. A-17

Appendix D—Court of Appeals’ Decision As To

Which Certiorari Is Sought .................... A-18

Appendix E—Court of Appeals’ Order Permitting

filing of Petition for Rehearing En Banc

Pit!!! eee rs ee A-33

Appendix F—Court of Appeals’ Order Denying

„„ ec ere ee. A-34

TABLE OF AUTHORITIES

Page

Cases:

Abbott Laboratories v. Gardner,

Mer Wt. BO CLOT). a ee ks 11

Brooks Scanlon Co. v. Railroad Commission

% VA. eee — Ä 9

Buckley v. Valeo, 424 U.S. 1 (197) 11

Carroll v. President & Comm’ers of Princess Anne,

„„ Se he eee ee 10

Dames & Moore v. Regan, 453 U.S. 654 ( it i} Se 16

Duke Power Co. v. Carolina Environmental Study

Group, Inc., 488 U.S. 59 (1976) 13

Group of Institutional Investors v. Chicago,

Milwaukee, St. P. & Pac. R. Co.,

Bae aes Oe ⅛˙vůtit m m/dßem..m. 3

Hodel v. Indiana, 452 U.S. 314 (1981777 16

Hodel v. Virginia Surface Mining & Reclumation

ne,, 5 16

In re Chicago, Milwaukee, St. P. & Pac. R. Co.,

611 F.2d 662 (7th Cir. 1979) (the Embargo Case) 4

In re Chicago, Milwaukee, St. P. & Pac. R. Co.,

701 F.2d 604 (7th Cir. 1988) (the MRRA Case) 2,7

In re Sink, 27 F.2d 361 (W.D. Va. 1928) appeal

dismissed 30 F.2d 1019 (4th Cir. 192999 18

Laird v. Tatum, 408 U.S. 1 (1972) ........... Ore Oe

Pacific Gas & Elec. Co. v. State Energy 8

Conservation & Dev. Comm'n, 51 U.S. L. W. 4449

(U.S. Apr. 20, 1983) (No. 81-1945) ............ 11

_ Railway Labor Executives’ Ass’n. v. Gibbons,

/ eRe Bek ce. Gs passim

| Regional Rail Reorganization Cases,

419 U.S. 102 (1974) (the 8-R Cases? passim

St. Paul Fire & Marine Ins. Co. v. Barry,

%% 3¼mpñm ꝛ Cr eee ss 10

Southern Pacific Terminal Co. v. I. C. C.,

—.. CRED occ ow . ͤ vies 10

United States v. W.T. Grant Co,

. Cee Seok ! 10

Village of Belle Terre v. Boraas,

ee ee SOO i mm ¼ le keen tn 15

Constitutional and Statutory Material:

TE, Ce i eis os oe ee a BS passim

U.S. Const., Fifth Amendment ................... 9

11 U.S.C. § 205 (repealed 1979) ũůͤůͤũůhũůů 2... 206. 3, 8

Act of Nov. 6, 1978, Pub. L. No. 95-598,

§§ 401-403, 92 Stat. 2549, 2682-83 ........... e

e a ee cc 2

Emergency Rail Service Act of 1970,

%%% ˙ -- h 5

Regional Rail Reorganization Act of 1978,

eben een, nse wa ve oe 9,11,12

Milwaukee Railroad Restructuring Act,

45 U.S.C. §. 00108 000. 55.0 eee hee ee ees passim

Rock Island Railroad Transaction niga Employees

Assistance Act, 45 U.S.C. § 1001 et gg. 9

Staggers Rail Act of 1980, Pub. L. No. 96-448,

/// ek Oe et oe passim

PUBS Pont ek) ROR a ARRIGO: Monee ieee ny. 4

IN THE

Supreme Court of the United States

; OCTOBER TERM, 1982

NO. 82-

CHICAGO, MILWAUKEE, ST. PAUL AND

PACIFIC RAILROAD COMPANY,

AND CHICAGO MILWAUKEE CORPORATION,

Petitioners,

vs.

RICHARD B. OGILVIE, AS TRUSTEE OF THE

PROPERTY OF CHICAGO, MILWAUKEE, ST. PAUL

AND PACIFIC RAILROAD COMPANY,

THE UNITED STATES OF AMERICA, AND

HARRIS TRUST AND SAVINGS BANK,

Respondents.

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF

APPEALS FOR THE SEVENTH CIRCUIT

Petitioners Chicago, Milwaukee, St. Paul and Pacific Rail-

road Company? (the Debtor) and Chicago Milwaukee Cor-

poration (CMC) pray that a writ of certiorari be issued to

review the judgment of the United States Court of Appeals

for the Seventh Circuit which declined to pass upon the con-

stitutionality of Sections 7 and 22 of the Milwaukee Railroad

Restructuring Act, 45 U.S.C. §§ 906 & 920 (Supp. IV 1980)

(the MRRA).

2 The term Milwaukee Road” is used here to describe the railroad

operating system as distinguished from the “Debtor” in its cor-

porate capacity and the “Estate” as the fiscal entity created upon

the filing of a Section 77 petition for reorganization.

OPINIONS BELOW

The Memorandum decisions and orders of the Reoganiza-

tion Court® are unreported, but appear as Appendices B and

C. App. A-4-A-17. The decision of the United States Court of

Appeals for the Seventh Circuit, as to which certiorari is

sought, is reported at 701 F.2d 604 and appears as Appendix

D. App, A-18-A-32. The orders of the Court of Appeals (a)

allowing the filing of the Petition for Rehearing En Banc

Instanter, and (b) denying the Petition for Rehearing En

Banc are unreported but appear as Appendices E and F. App.

A-33-A-35.

JURISDICTION

The Court of Appeals’ decision was rendered on 16 Feb-

ruary 1983. 701 F.2d 604, infra at App. A-18. A Petition

for Rehearing En Banc was filed on 3 March 1983 by leave

of Court and denied on 21 April 1983. App. A-33-A-35. The

jurisdiction of the Court is invoked under 28 U.S.C. 8 1254(1).

RELEVANT CONSTITUTIONAL

AND STATUTORY PROVISIONS

This case involves article I, section 8, clause 4 of, and the

Fifth Amendment to, the Constitution of the United States. It

also involves 45 U.S.C. § 901 et seq. The relevant constitutional

and statutory provisions are set forth as Appendix A. App.

A-1-A-3.

The United States District Court for the Northern District of

Illinois, Eastern Division, The Honorable Thomas R. McMillen

presiding in No. 77 B 8999.

8

STATEMENT OF THE CASE

This case involves a consolidated appeal“ from two orders

of the Reorganization Court, App. A-4-A-17, upholding the

constitutionality of Sections 7 and 22 of the MRRA and ap-

proving the issuance of up to $60 million in trustee’s certifi-

cates of indebtedness to finance the deficit operation of the

entire Milwaukee Road system during a congressionally man-

dated period.

The Debtor is a Wisconsin railroad corporation organized

in 1847. During the intervening 136 years, it has been in re-

ceivership or reorganization on two prior occasions—from

1925 to 1928 and from 1935 to 1945. Group of Institutional

Investors v. Chicago, Milwaukee, St. P. & Pac. R. Co., 318 U.S.

523 (1943). It filed its third petition for protection from its

creditors on 19 December 1977 pursuant to Section 77.“ At

that time, the Milwaukee Road was a Class I transcontinental

railroad operating over some 10,000 route miles in the Mid-

west and across the northern tier of states from Chicago to

the Pacific Northwest.

In the three years preceding the filing of the e ee

petition, the Debtor lost approximately 8105 million. During

the approximately 22 months of reorganization, ending Octo-

ber 1979, which immediately preceded the events underlying

this petition, the Estate suffered reorganization operating

losses in excess of $175 million. By the end of February 1980,

these reorganization losses grew to $238 million.“

4 Nos. 79-2444 and 80-1425 (7th Cir.).

‘Chapter VIII of the Bankruptcy Act of 1898, as amended, 11 U.S.C.

§ 205 (repealed effective 1979). These proceedings continue to be

governed by Section 77. Act of Nov. 6, 1978, Pub. L. No. 95-598,

$§401-403, 92 Stat. 2549, 2683 (1978).

o The Estate has suffered total reorganization operating losses of

$413.6 million during the years 1978-1982, inclusive.

4

As a result of these deficit operations, in April 1979, the

Trustee petitioned the Reorganization Court for permission

to embargo all lines outside a 3,900 mile midwest “Core” sys-

tem which he had identified as having the best potential for

successful reorganization. On 1 June 1979, the Reorganization

Court denied the Trustee’s request but, on appeal, the Court

of Appeals for the Seventh Circuit reversed. In re Chicago,

Milwaukee, St. P. & Pac. R. Co., 611 F.2d 662, 668-70 (7th

Cir. 1979).

In August 1979, the Trustee filed a Plan of Reorganization

and again sought to embargo all lines outside the Core. On 27

September 1979, the Reorganization Court granted this em-

bargo request, effective 1 November 1979. During the course

of the hearings before the Reorganization Court, virtually all

the principal parties, including the United States, conceded

that the entire Milwaukee system was not reorganizable.“ The

embargo of the non-Core lines went into effect 1 November

1979 but service was interrupted for only a few days.

On 4 November 1979, the Congress intervened directly by

enacting the MRRA. Section 22 required the Trustee to main-

tain service over the entire Milwaukee system at the level

existing on 15 October 1979. MRRA § 22(a), 45 U.S.C. § 920

(a), infra App. A-3. Further, it precluded any embargo, aban-

donment, or discontinuation of service until the occurrence

of one of several trigger events. MRRA § 22(b), 45 U.S.C.

§ 920 (b), infra App. A-3. Congress also prohibited the use of

“directed service“ under 49 U.S.C. § 11125 on any of the Mil-

waukee Road’s lines until 1 April 1981. MRRA § 18, 45 U.S.C.

7 This view was not held by the parties representing the Milwaukee

Road’s employees, the interests of the states outside and those

representing the Core system. While the United States conceded

that the entire system was not reorganizable, it opposed the re-

quested embargo,

5

§ 916, infra App. A-3. To provide funds to operate the entire

Milwaukee system during this period, Section 7 directed the

Secretary of Transportation to grant the Estate $10 million

and to guarantee the Trustee’s certificates of indebtedness

in an amount equal to the difference between the Estate’s total

expenses in providing entire system services, as required by

Section 22, and its revenues during the period of such opera-

tion. MRRA § 7, 45 U.S.C. § 906, infra App. A-1-A-2. These

certificates were granted a statutory priority junior to all

creditors, but senior to the Debtor’s equity holders. MRRA

§ 7(f), 45 U.S.C. § 906(c), infra App. A-2.

With the passage of the MRRA, the Trustee sought au-

thority to continue system-wide operations and to borrow $30

million pursuant to its provisions. On 23 November 1979, the

Reorganization Court granted the Trustee’s request for au-

thority to borrow pursuant to the MRRA or, alternatively,

pursuant to the Emergency Rail Service Act of 1970, 45 U.S.C.

§ 661 et seq., infra App. A-16-A-17. Ultimately, funds were made

available to the Trustee under the MRRA. After the occur-

rence of the Section 22 (b) (2) trigger event on 31 December

1980, the Trustee requested authority to borrow an additional

$45 million under the MRRA to finance the continued system-

wide operation of the Milwaukee Road for an additional 60

days. On 25 February 1980, he was authorized to borrow up

to an additional $30 million. App. A-17. As a result of

Orders 246 and 246-C, App. A-4-A-17, the Trustee was

authorized to issue $60 million in MRRA guaranteed trustee’s

e-vtificates having a priority junior to creditors, but senior

to the common and preferred shareholders, in order to finance

the system-wide operation of the Milwaukee during the period

1 November 1979 through 29 February 1980.

6

Pursuant to the authority granted to him by the Reorganiza-

tion Court, the Trustee issued certificates of indebtedness

totaling approximately $55 million. The Secretary of Trans-

portation guaranteed those certificates pursuant to the man-

date of Section 7(e). The Federal Financing Bank advanced

funds against the certificates. When the Trustee defaulted,

the Secretary honored his guarantee and succeeded to the

interest of the Federal Financing Bank. The MRRA debt is

accruing interest at a compound rate of 14.687 percent and

will approximate $104 million by 31 December 1984, the target

date for consummating the Trustee’s Amended Plan of Re-

organization.

In October 1980, Congress amended the MRRA. Section 701

(c)(1) of the Staggers Rail Act of 1980, 45 U.S.C. § 906(e)

(Supp. IV 1980), provides that the Estate’s MRRA indebted-

ness will be forgiven if the Debtor is reorganized as an operat-

ing rail carrier, or if substantially all of its rail assets are pur-

chased for continued rail use and 50 percent or more of its

employees are retained in railroad employment. Id., infra App.

A-3.

On 17 August 1982, the Trustee executed a Stock Acquisi-

tion Agreement with Grand Trunk Corporation® (GTC). Pur-

suant to this agreement, GTC will gain control of the Estate’s

remaining operating rail assets (the Core System), subject

to certain liabilities not to exceed $255 million. The Trustee

projects that the assets have the ability to produce pre-tax net

income after the service of debt and that they have a liquida-

tion value of $820.2 million. The reorganized Debtor, which

® GTC is a Delaware corporation which is a wholly-owned subsid-

iary of Canadian National Railway Company, a Canadian Crown

corporation, all of whose capital stock is owned by Her Majesty

the Queen in right of Canada.

7

will own these assets, will have $104 million in common share-

holder’s equity. The Estate receives no direct compensation

from this transaction. Rather, the Trustee points to the Stag-

gers Act’s conditional forgiveness as one of the major benefits

justifying the transaction. Thus, the existence of the MRRA

debt is eroding the Estate at a compound rate of 14.687 per-

cent per annum, and it is directly influencing the Trustee’s

actions.

On 16 February 1983, the United States Court of Appeals

dismissed Petitioners’ appeals from Orders 246 and 246-C.

701 F.2d 604, infra App. A-18. The Court concluded that, be-

cause important facts will not be known until there are further

proceedings below, the action is not ripe for review.” 701 F.2d

at 605, infra App. A-19. The Court of Appeals identified two

primary unknown facts: (1) the possibility that the Estate

is, or will become, insolvent, and (2) the possibility of a Stag-

gers Act forgiveness of the MRRA debt. 701 F.2d at 607-608,

infra App. A-25-A-26. In reaching its conclusion that the ap-

peals were not ripe for decision, the Court of Appeals states

that it followed this Court’s reasoning in Regional Rail Re-

organization Act Cases, 419 U.S. 102 (1974) (8-R Cases). 701

F.2d at 609, infra App. A-28.

Petitioners’ Petition for Rehearing En Bane was denied on

21 April 1983. App. A-34, A-35.

STAGES AT WHICH THE

FEDERAL QUESTIONS WERE

RAISED AND PRESERVED

Petitioners raised and argued the issues relating to the

constitutionality of Sections 7 and 22 of the MRRA before the

Reorganization Court and the Court of Appeals. See, e.g., App.

A-4-A-17. The Reorganization Court passed upon the merits of

the issues, but the Court of Appeals refused to reach the

merits. App. A-7-A-17; A-18-A-32.

BASIS FOR FEDERAL JURISDICTION

The basis for federal jurisdiction in the Reorganization

Court is 11 U.S.C. § 205 (1976) (repealed effective 1979)

which continues to govern the proceedings. Act of November

6, 1978, Pub. L. No. 95-598, §§ 401 & 408, 92 Stat. 2549, 2682-

8. This Court has jurisdiction under 28 U.S.C. § 1254(1).

REASONS FOR GRANTING THE WRIT

A. Impact of Decision Below and Reasons for Granting Writ.

We submit that the implications of the MRRA threaten the

survival of the effectiveness of the limitations on congres-

sional power contained in the Bankruptcy Clause. This Court’s

decision in Railroad Labor Executives Ass’n v. Gibbons, 455

U.S. 457 (1982), made clear that this limitation is fundamental

to a proper congressional exercise of the bankruptcy power.

The Court of Appeals’ refusal to reach the merits of these ap-

peals threatens to permit Congress to interfere in the re-

organization process on a selective basis and to avoid Gibbons

by conditionally postponing the adverse impact of its enact-

ment or by conditionally mitigating that impact. Such a result

effectively reads the uniformity limitation out of the Constitu-

tion. Id. at 478.

The factual and legislative context of this case is virtually

identical to that present in Gibbons. Here, as in Gibbons, Con-

gress reached into a pending bankruptcy proceeding to re-

direct its course by means of legislation applicable to only one,

9

specifically named, bankrupted railroad. Faced with both ju-

dicial and executive analyses which concluded that the entire

Milwaukee Road system could not be reorganized, Congress

ordered the continued operation of the entire system. To im-

pose such an obligation upon a single, specifically named,

bankrupted railroad during the pendency of a reorganization

proceeding, is manifestly a law on the subject of bankruptcy

which violates the uniformity requirement of article I, section

8, clause 4 of the Constitution of the United States (the Bank-

ruptcy Clause). Gibbons, 455 U.S. at 473.

The burden of this congressional abuse of its bankruptey

power falls, by congressional decree, only upon the Debtor's

shareholders. The MRRA is a congressional attempt to ad-

vance a tailor-make reorganization plan. As such, it trans-

gresses the limits of bankruptcy relief permissible under the

Bankruptcy Clause. The two most recent congressional ef-

forts'® to reorganize railroads by legislation have injected

a serious element of uncertainty into the administration of

the bankruptcy laws, into the relationship between debtors

® The continued loss operation of unreorganizable rail lines violates

the Fifth Amendment. Brooks-Scanion Co. v. Railroad Commis-

sion, 251 U.S. 396 (1920) (and its progeny). Thus, even if the

MRRA is a valid bankruptcy law, it violates the Just Compensa-

tion, Due Process and Equal Protection clauses of the Fifth

Amendment.

10 Rock Island Railroad Transition and Employee Assistance Act,

45 U.S.C. §§ 1001 et seg. (Supp. IV 1980) and Milwaukee Railroad

Restructuring Act, 45 U.S.C. §§ 901 et seg. (Supp. IV 1980), each

involve only a single bankrupted railroad both of which were

operating in the same geographic areas and subject to reorganiza-

tion in the same judicial district, while the Regional Rail Reor-

ganization Act of 1973, 45 U.S.C. §§ 701 et seg. (1976) involved all

the brankrupted railroads in a defined geographic area which, it

turned out, were all the bankrupted railroads operating in the

United States. 3-R Cases, 419 U.S. at 160.

10

and their creditors, shareholders, and trustees, and into the

formulation of reorganization plans involving politically sensi-

tive industries. These circumstances underlie the reasons why

this Petition should be granted. 11

The Court of Appeals' refusal to reach the constitutional

merits in this case is tantamount to a decision that the chal-

lenged sections are constitutional. The decision undermines

the orderly progress of this reorganization proceeding by leav-

ing open constitutional questions of fundamental importance

to all of the parties and to the administrative and judicial

bodies involved. The Trustee's Amended Plan demonstrates

that he is proceeding upon the assumption that the MRRA

debt is constitutionally valid. The Interstate Commerce Com-

mission is being asked to judge the fairness and equity of a

reorganization plan which is premised upon obtaining the for-

giveness of the $104 million congressionally imposed MRRA

liability. The Reorganization Court is being asked to evaluate

the propriety of the transfer of control of the Core system to

GTC—a proposal advanced by the Trustee in order to trigger

the Staggers Act forgiveness of the MRRA debt. Creditors

are being paid, property sold, and a complex financial and cor-

porate restructuring advanced, all upon the assumption that

one of the largest pending obligations has a valid constitu-

tional basis. It will be too late to make that determination, as

11 Given Congress’ repeated enactment of special railroad bank-

ruptcy legislation, it is not speculation to conclude that Congress

is willing to continue to intervene in this troubled industry. Such

a possibility, in itself, requires reaching the merits here. See,

Southern Pacific Terminal Co. v. I. C. C., 219 US. 498, 515 (1911);

United States v. W.T. Grant Co., 345 U.S. 629, 632-33 (1953); Car-

roll v. President & Comm’ers of Princess Anne, 393 U.S. 175, 178-

79 (1968); St. Paul Fire & Marine Ins. Co. v. Barry, 438 U.S. 531,

537-38 (1978).

11

the Court of Appeals suggests, once the implementation of a

reorganization plan has begun. 701 F.2d et 609-10, infra App.

A-29-A-30. As this Court recognized in the 3-R Cases, consti-

tutional questions get short-surfeit in the collective effort to

lay to rest complex railroad reorganizations. 419 U.S. at 145.

B. The Question of the Constitut onality of Sections 7 and

22 is Ripe for Decision. |

The Court of Appeals’ decision dismissing Petitioners’ ap-

peals is based upon an application of the ripeness doctrine

which varies significantly from that which this Court used

in Abbott Laboratories v. Gardner, 387 U.S. 186, 148-149

(1967) and, more recently, in Pacific Gas & Elec. Co. v. State

Energy Resources Conservation & Dev. Comm’n, 51 U.S.L.W.

4449, 4451-52 (U.S. Apr. 20, 1983) (No. 81-1945). It also

varies from the conclusions reached in the 3-R Cases, where

this Court reached the merits of a constitutional challenge to

the Regional Rail Reorganization Act of 1973, 45 U.S.C. § 701

et seg. (1976), in a factural context which is essentially the

same as that presented by this Petition. 419 U.S. at 140-47.

The ripeness doctrine comprises an uncertain mixture of

prudential and constitutional restraints on a court’s willingness

to consider otheriwse justiciable controversies. See Buckley

v. Valeo, 424 U.S. 1, 114 (1976); 3-R Cases, 419 U.S, 102, 140,

143-45 (1974); Laird v. Tatum, 408 U.S. 1, 38-40 (1972)

(Brennan, J., dissenting). In Abbott Laboratories, this Court

stated that the question of ripeness turns on “the fitness of

[the] issue for judicial decision” and the hardship to the par-

ties of withholding court consideration. 347 U.S. at 149.

12

1. The Bankruptcy Clause Question Is Fit For Decision

and Passage of Time Will Not Aid Court.

In the 3-R Cases, the Court conducted a pragmatic analysis

of the issue’s fitness for decision. That analysis persuaded

this Court to reach the merits. The question there, as here, was

purely legal and needed little factual development. Indeed, here

the challenged provisions have been fully implemented, while

in the 3-R Cases implementation was merely pending. There,

as here, the statutory provisions were mandatory in their ap-

plication against the shareholders of a railroad. There, as here,

the substantive right involved was essentially a property right,

among the most basic of constitutional rights. There, as here,

the uncertainty caused by a refusal to reach the merits was

likely to affect the parties in their daily activities. Under such

circumstances, review on the merits is required. 3-R Cases,

419 US. at 148; see also Buckley v. Valeo, 424 U.S. at 116-17.

The possibility of future relief under the Tucker Act did not

diminish the ripeness of the questions presented in the 3-R

Cases. For the same reasons set forth there, the possibility

of a future Staggers Act conditional forgiveness, or the possi-

bility of future insolvency, ought not affect the ripeness of

the Bankruptcy Clause question presented here. 3-R Cases,

419 U.S. at 142.

The MRRA bears a similarity of purpose to the Regional

Rail Reorganization Act of 1973. Compare 45 U.S.C. § 901 and

§ 701. Both are congressional attempts to effectuate a railroad

reorganization by direct legislation. As in the 3-R Cases, deci-

sions are being made at this moment by the Trustee, and are

to be made shortly by the Trustee, the Interstate Commerce

Commission, and the Reorganization Court, which will be in-

fluenced by whether the MRRA debt is valid. The future of

13

this reorganization will be complex and subject to intense pres-

sure for <esolution. The potential $104 million MRRA debt

is a major element in this process. The complexity of the Trus-

tee’s proposals and the relatively brief time involved will

render actions taken now virtually irreversible. As Justice

Brennan pointed out in the 3-R cases: “delay in decision will

create the serious risk that consideration of the validity of

those provisions may either be too hasty to afford protection

of rights or too late to.. . assure compensation if the [Acts]

were found unconstitutional.” 419 U.S. at 145.

The occurrence of future events will not advance this Court’s

ability to deal with the Bankruptcy Clause question. As in

Duke Power Co. v. Carolina Environmental Study Group, Inc.,

488 U.S. 59, 81-82 (1978), the prudential considerations of

the ripeness doctrine require a decision on the Bankruptcy

Clause issue because future events will be of no substantial

aid to the Court, because all parties will be adversely affected

by further delay, and because there will be no better time for

decision.

2. Failure To Decide Merits Is Causing Serious Current

Harm To All Parties.

The Court of Appeals’ refusal to reach the constitutional ques-

tion was primarily based upon its conclusion that Petitioners

were not suffering any current concrete harm and that future

events might foreclose injury altogether. Both conclusions are

demonstrably incorrect. The harm which Petitioners are suf-

fering is current, it is concrete, and it is not speculative or

hypothetical. The accrual of compound interest at 14.687 per-

cent per annum is a significant financial burden upon the

Estate and, thus, upon Petitioners. By December 1984, the

14

MRRA debt will have almost doubled, by reason of interest

alone, to approximately $104 million. Additionally, the role

of the MRRA debt in the formulation of the Trustee’s plan

of reorganization is now clear. It is not, as the Court of Ap-

peals suggests, a mere cloud over negotiation. 701 F.2d at 610,

infra App. A-80. Rather, it is a fundamental factor in the

Trustee’s consideration of the alternatives open to the Estate.

It will loom even larger as the Interstate Commerce Commis-

sion and the Reorganization Court consider the various re-

organization alternatives.

The impact of the MRRA debt is reflected in the provisions

of the Trustee’s Amended Pian. Although the Estate is solvent,

the Trustee proposes to cancel all of the Debtor’s currently

outstanding common and preferred stock and issue new com-

mon stock to GTC, to the end that the Debtor will become a

wholiy-owned, subsidiary of GTC. GTC will gain control of

approximately $498.3 million in assets subject to approxi-

mately $310.7 million in long and short term liabilities and

a projected ability to produce net pre-tax income after the ser-

vice of debt. 12 The Estate is to receive no direct compensation

from GTC. Rather, the Trustee points to the Staggers Act con-

ditional forgiveness as a “benefit” to the Estate which justi-

fies the proposed transaction. Thus, even with the Staggers

Act amendment, the MRRA is currently and directly influenc-

ing the course of this one reorganization proceeding, and ad-

versely affecting Petitioners’ rights, in violation of the Bank-

ruptcy Clause.

12 All statements herein regarding the financial condition of the

Estate and the effects of the Amended Plan are based upon the

financial statements contained in the Trustee’s Amended Plan of

Reorganization, Appendix I to that plan, and on the Trustee’s

1982 Annual Report on Form 10-K.

15

The occurrence of future events will not completely

ameliorate Petitioners’ injuries. The Estate is solvent. There

does not appear to be any real likelihood that it will become

insolvent in the foreseeable future. The occurrence of the Stag-

gers Act conditional forgiveness does not mean that “there

will be no injury to the shareholders and they will have no case

or controversy to press.“ 701 F. ad at 609, infra App. A-28. Such

a forgiveness will not compensate the Estate for the expense

incurred by the Estate and Petitioners in opposing the ill-con-

ceived employee-shipper ownership plan, for the lost oppor-

tunity costs inflicted by continuing full system operations, for

the delays in formulating and presenting a realistic plan of

reorganization, or for the costs incident to the reduced flexi-

bility which the pursuit of the Staggers Act conditional

forgiveness has imposed upon the Estate. While the exact

measure of the economic impact of the MRRA may not be

definitely known at this moment, it is clear that there is such

an impact and that it is sufficient to meet the requirements of

the ripeness doctrine. See Village of Belle Terre v. Boraas,

416 U.S. 1, 9-10 (1974).

3. The Court of Appoals Failed to Distinguish Between

The Constitutional Challenges Made By Petitioners.

The Court of Appeals failed to distinguish, as this Court

did in the 3-R Cases, between the types of challenges being

made. On the one hand, Petitioners challenged the MRRA’s

validity as a matter of constitutional authority—the Bank-

ruptcy Clause issue. Alternatively, Petitioners advanced a

Fifth Amendment taking“ challenge. In its sweeping refusal

to reach the merits of either challenge, the Court of Appeals

failed to make the close analysis of the nature of the challenges

16

exemplifed in the $-R Cases, There, this Court considered and

decided the constitutional questions presented by the “erosion

taking” issue and by “the basic ‘conveyance taking’ issues.“

8-R Cases, 419 U.S. at 123 & 145. The Court refused to consider

“the controversy over the proper valuation theory to be ap-

plied.” Id. at 146-47. In this case, the Court of Appeals failed

to recognize the distinction which this Court drew between

issues involving the limits of congressional power and those

merely involving appropriate forms of relief, or compensation,

required by an exercise of a congressional power. The 8-R

Cases teaches that fundamental issues regarding the very

existence of a challenged congressional power should be

reached and decided on the merits in situations such as

those presented by this case.

This approach is not unique to the 3-R Cases. In Hodel v.

Virginia Surface Mining & Reclamation Ass’n, 452 U.S. 264

(1981), this Court reached the merits of a Tenth Amendment

challenge to the Surface Mining Control and Reclamation Act

of 1977 but refused to reach the merits of the Fifth Amend-

ment “taking” challenge. A similar analytic approach was fol-

lowed, and a similar result reached, in Hodel v. Indiana, 452

U.S. 814 (1981) and in Dames & Moore v. Regan, 453 U.S. 654

(1981) (with respect to the International Emergency Eco-

nomic Power Act).

C. Sections 7 and 22 Are Non-uniform Laws On The Subject

of Bankruptcy.

The Reorganization Court’s decision upholding the constitu-

tionality of Sections 7 and 22 squarely conflicts with this

Court’s decision in Gibbons. Compare App. A-6-A-12 and

455 U.S. at 469-71. While the Reorganization Court did not

17

have the benefit of Gibbons, it did have before it the 8-R Cases,

where this Court used a practical effect—geographic. scope

test in determining that the uniformity requirement of the

Bankruptcy Clause was met. 419 U.S. at 159-160 (1974). Here,

either Gibbons or the 3-R Cases leads to the same conclusion.

Those MRRA sections which are applicable only to this Debt-

or’s Estate are laws on the subject of bankruptcy which are

not uniform.

One of the principal aims of the MRRA was to cause the re-

organization of the Milwaukee Road along the lines Congress

thought appropriate. See MRRA § 2, 45 U.S.C. § 901(b). The

Staggers Rail Act amendment to the MRRA is a further

demonstration of this underlying purpose. 45 U.S.C. § 906(e)

(Supp. IV 1980), infra App. A-2. With Sections 7 and 22, Con-

gress reached into a pending reorganization and mandated

specific relief in aid of one reorganization proposal—an em-

ployee-shipper ownership scheme. MRRA §§ 7 & 22, 45 U.S.C.

§§ 906 & 920 (Supp. IV 1980), infra App. A-1-A-3.

The MRRA’s nature as such is evident, not only from its

effects upon the Milwaukee Road and the Debtor, but also

from the events and the legislative history surrounding its

passage. See H.R. Rep. No. 225, 96th Cong., Ist Sess., re-

printed in 1979 U.S. Code Cong. & Ad. News 1742. The MRRA

was the congressional response to the embargo of 6,900 miles

of unreorganizable non-Core lines. It was passed after the Re-

organization Court had concluded that continued operations of

those lines with priority borrowed funds was improper. 701 F.2d

at 606, infra App. A-22-A-23, It mandates operations. It imposes

additional debt. It re-orders claim priority. It expropriates the

Debtor’s assets in pursuit of a congressional purpose. By their

terms, Sections 7 and 22 apply only to the Milwaukee Road

ignoring the several other bankrupted railroads. Gibbons,

18

455 U.S. at 471 n. 11. No other reorganizing or bankrupted

railroad is affected by its preference for an employee-ship-

per ownership based reorganization. No other reorganizing

or bankrupted railroad is ordered to maintain full operation

while such a reorganization plan is specially considered by

the Interstate Commerce Commission and Reorganization

Court. No other reorganizing or bankrupted railroad’s share-

holders are required to bear the burden of the cost of such a

congressional experiment. As it uniquely touched only the Mil-

waukee Road, the MRRA is a classic example of custom

tailored legislative bankruptcy relief having application in

only one case. Such legislation cannot be sustained. Id., 455

U.S. 457; In re Sink, 27 F.2d 361 (W.D. Va. 1928) appeal

dismissed, 30 F.2d 1019 (4th Cir. 1929).

CONCLUSION

We respectfully urge this Court to issue a writ of certiorari

to reverse the decision of the Court below for each of the

reasons stated above.

Dated: 16 May 1983

Respectfully submitted,

JOSEPH A. MAUN

JEROME B. SIMON*

M. MICHAEL MONAHAN

MAUN, GREEN, HAYES,

SIMON, JOHANNESON &

BREHL

332 Hamm Building

St. Paul, Minnesota 55102

612-224-7800

Attorneys for Petitioners

*Counsel of Record

A-1

APPENDIX -

APPENDIX A

RELEVANT CONSTITUTIONAL AND STATUTORY Y

| | PROVISIONS |

Article I, §8, cl. 4 provides:

The Congress shall have Power * To establish * * *

Uniform Laws on the Subject of Bankruptcies throughout

the United States; a

The Fifth Amendment to the Constitution of the United

States provides: :

No person shall * * * be deprived of life, liberty, or

property, without due process of law; nor shall private

property be taken for public use, without just compen-

sation. : „„

Section 7 of the MRRA reads as follows:

Sec. 7. (a) Subsection (a) of section 3 of the Emer-

gency Rail Services Act of 1970 (45 U.S.C: 662(a)) is

amended by striking out “upon a finding” in the fifth sen-

‘tence and all that follows in that subsection and ‘inserting

in lieu thereof a period. seen? ee

(b) Section 3 of the Emergency Rail Services Act of

1970 (45 U.S.C. 662) is amended by inserting after sub-

section (b) the following new subsection:

“(c) The Secretary shall not guarantee any certificate

under this section unless such certificate is treated as an

expense of administration and receives the highest lien

‘on the railroad’s property and priority in payment under

the Bankruptcy Act, except that this subsection shall not

apply to certificates guaranteed for a railroad that is

actively engaged in restructing, as defined by the Secre-

tary. For purposes of this subsection, the term “restruct-

ing” includes an employee ownership plan or an employee-

shipper ownership plan.“.

(c) Section 3(e) of the Emergency Rail Services Act

of 1970 (45 U.S.C. 662(e)) is amended—

(1) by striking out “$125,000,000” and inserting in

lieu thereof $200,000,000; and

(2) by striking out the last sentence thereof, as added

by Public Law 96-86.

A-2

(d) The Secretary of Transportation shall, under the

authority of the Emergency Rail Services Act of 1970,

i guarantee trustee certificates of the Milwau-

kee Railroad, on the “sis of an estimate of the amount

required to be provided nder subsection (e) of this sec-

tion, for purposes of alle ing the Milwaukee Railroad,

commencing November 1, 1979, to maintain its entire rail-

road system in accordance with section 22 of this Act, and

as required to finance 2 which the Milwaukee

i continues for 60-day period beginning on

the date of the occurrence of an event described in section

22(b) of this Act or on April 1, 1980, whichever first oc-

curs. Such guarantee shall be made without regard to the

findings set forth in section 3(a) of the Emergency Rail

Services Act of 1970, and the provisions of section 3 b)

(3) and the last two sentences of section 3(d) of such Act

shall not apply to such guarantee.

(e) The Secretary shall guarantee trustee certificates

of the Milwaukee Railroad pursuant to this section in an

amount equal to the difference between (1) the total ex-

penses incurred by such railroad attributable to the main-

tenance and the continuation of service in accordance

with subsection (d) of this section, and (2) the revenues

of such rai , | 1

(f) Notwithstanding the provisions of section 38 (e

of the Emergency Rail Services Act of 1970, certificates

guaranteed under this Act shall be subordinated to the

claims of any creditors of the Milwaukee Railroad as of

the date of enactment of this Act.

(g) The Commission shall immediately make avail-

able to the Secretary of Transportation the sum of $10,-

000,000, out of funds available for directed ser vice under

title 49 of the United States Code. The Secretary of

Transportation shall immediately make such funds avail-

able to the trustee of the Milwaukee Railroad for 133

of financing the operations of the Milwaukee lroad,

beginning November 1, 1979, in accordance with section

22 of this Act.

Section 18 of the MRRA reads as follows:

Sec. 18. Until April 1, 1981, the provisions of this Act

shall be in lieu of any directed service on any line of the

Milwaukee Railroad under section 11125 of title 49 of the

United States Code.

A-3

Section 22 of the MRRA reads as follows:

Sec. 22. (a) Until the occurrence of an event de-

scribed in subsection (b) of this section, the Milwaukee

Railroad (1) shall maintain its entire railroad system

as it existed on October 15, 1979, (2) shall continue no

less than the regular level of service provided by it as

of that date, and (3) shall not embargo traffic (other than

when necessitated by act of God or safety requirements)

or abandon or discontinue service over any part of its rail-

N the Milwaukee Rail hall :

e waukee Railroad shall comply wit

requirements of subsection (a) of this ptr ae ——

(1) an employee or employee-shipper ownership plan

is not submitted to the Interstate Commerce Commission

paar 71 time period prescribed under section 6(a) of

s Act;

(2) the proposed plan is found by the Commissi

1 a be feasible or the Commission does not aor within

ays;

(3) The proposed plan is found by the bankru

court not to be fair and equitable to the estate of the Mil.

W 1 5 a

e plan not implemented within the ti

period prescribed under section 6 (e) of this Act. oe

Section 701(c)(1) of the Staggers Rail Act of 1980 reads

as follows:

(c)(1) Section 7 of the Milwaukee Railroad Restruc-

turing Act (45 U.S.C. 906) is amended by addin

end thereof the following new e : dries

„ö h) (i) All obligations to the United States or any

agency or instrumentality of the United States incurred

pursuant to this section by the Milwaukee Railroad or

the trustee of the property of the Milwaukee Railroad

shall be waived and canceled when—

“(A) The Milwaukee Railroad is reorganized as an

operating rail carrier; or

“(B) substantially all of the Milwaukee Railroad is

purchased. ;

“(2) For purposes of this subsection, substantially

all of the Milwaukee Railroad shall be considered as hav-

ing been purchased when (A) more than 50 percent of

the rail system operated by the Milwaukee Railroad on

the date of enactment of the Staggers Rail Act of 1980

has been purchased, and (B) more than 50 percent of the

employees employed by the Milwaukee Railroad on such

date of a have obtained employment with other

A-4

APPENDIX B

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

Name of Presiding Judge, Honorable Thomas R. McMillen,

Case No. 77 B 8999 Date Nov. 23, 1979

Title of Cause

Brief Statement of Motion.

In the Matter of CHICAGO, MILWAUKEE, ST. PAUL &

PACIFIC R. CO.

ORDER NO. 246

Trustee’s motion to borrow $30,000,000 as set forth in his

application dated Nov. 18, 1979 is granted. In the alternative,

his motion to borrow $30,000,000 as set forth in his applica-

tion dated Oct. 10, 1979 is also granted. (Decision attached)

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

In the Matter of

CHICAGO, MILWAUKEE

ST. PAUL AND PACIFIC

RAILROAD COMPANY

Debtor.

In Proceedings For

The Reorganization Of

A Railroad

77 B 8999

A-5

DECISION

The Trustee has filed two petitions for authority to issue

government guaranted certificates for a loan of $30,000,000.

The first petition was filed pursuant to the Emergency Rail

Services Act of 1970, and the second one was filed later under

that Act as modified by the Milwaukee Railroad Restruc-

turing Act (P. L. 96-101) which was signed into law on Sun-

day, November 4, 1979. Proper notice was given on the hear-

ing on the first application, and the court allowed that notice

to stand for hearing on the second application without further

publication.

Hearings were held on November 14 and 15, 1979 before

the undersigned Judge and Specia! Master Milton Gray, but a

written report was not requested from the Master because of

the Trustee’s immediate need for a loan. The following deci-

sion is made, however, after consultation with the Special

Master and the receipt of a careful memorandum from him

on the principal issues involved. We are in substantial agree-

ment on the merits. .

The Financial Facts Require The Loan

The evidence in the record and found previously in our De-

cision of September 27, 1979 leave no doubt that the Milwau-

kee Railroad is once again in the precarious condition of

imminent cashlessness. According to the testimony of the

Trustee’s vice president-finance, Richard V. Nugent, Jr., at

the hearing on November 14, 1979, the railroad expects to

operate at a loss of $34,000,000 during November and Decem-

ber 1979 if full service is maintained. It had a book cash bal-

ance of $5.8 million on November 1, 1979, a balance which was

achieved only by drawing down $6.3 million of the escrowed

proceeds of property sales on October 31, 1979. Operations

were made possible during the month of November by a

A-6

$10,000,000 grant received under P.L. 96-101, but the book

cash deficit at the end of November is estimated to be $5,300,-

000 if the escrow account is reimbursed. The cash drain for

December is estimated at $12.3 million. Therefore, without the

$30,000,000 loan now being requested, the Trustee would have

a deficit cash position of $17.6 million by December 1979.

With a loan of $30,000,000 for operating and maintenance ex-

pense, the Trustee would end the year with a balance of 512.1

million book cash if the escrow account is repaid. The Trustee

concurred in the statement of his financial vice president, and

no evidence was offered to the contrary.

The prospects for the early part of 1980 are equally bleak.

There can be no doubt that substantial deficit financing will

then be needed, but the amount cannot be estimated because of

various contingencies written into P.L. 96-101. Under §7(e) of

P.L. 96-101, the government will pay for the deficit up to a max-

imum of 60 days after April 1, 1980. If a plan under P.L. 96-101

is not approved or cannot be implemented, the loans will be

needed for transitional and operating expenses well before

April 1, 1980. We find that the $30,000,000 of guaranteed

trustee’s certificates are necessary for any continued opera-

tion of the Milwaukee’s rail services.

The Constitutional Issues

The unexpected arrival of P.L. 96-101 on the scene drasti-

cally changed the focus of the hearing. The bondholders and

stockholders objected to the loan under P.L. 96-101 on the

grounds that the enabling portions of that statute are un-

constitutional. The statute’s constitutionality was supported

by the Attorney General of the United States, by the Railroad

Labor Executives Association, and hy the states of Washing-

ton and Montana, among others. The Trustee took no position

on this issue. Many helpful briefs have been filed on the con-

A-7

stitutional issues, all of which have been carefully considered.

Since copies of this rather unusual statute are not yet readily

available, we are attaching a copy of this Decision.*

We have concluded that §§6, 7, and 22 of P.L. 96-101, to

the extent that they implement the Trustee’s application to

berrow $30,000,000, are not fatally defective and that his

petition should be granted. Alternatively, his petition to

borrow $30,000,000 under the unmodified E.R.S.A. should also

be granted.

The Issue Of Uniformity

The attorney for the stockholders immediately contended

that P.L. 96-101 failed to comply with Article I, §8 of the

United States Constitution requiring uniformity of bank-

ruptcy laws. Most of the other objectors have joined in his

contention. Article I, §8 provides in pertinent part that;

The Congress shall have the Power...

To establish an uniform Rule of Naturalization, and uni-

form Laws on the subject of Bankruptcies throughout the

United States...

This provision has received little scrutiny by the courts or

Congress, but whenever it has been involved in litigation, the

word “uniform” has been diluted from its facial simplicity.

The understanding of the early commentators was that credi-

tors and debtors of a bankrupt estate should be treated uni-

formly throughout the nation, not that each bankruptcy law

would be uniformly applied to all types of bankruptcies. The

author of Federalist No. 42 stated that Congress’ power to

establish uniform laws of bankruptcy “will prevent .. many

frauds where the parties or their property may lie or be

* Some legislative history is published in the Congressional Record

(House) of Nov. 2, 1979, and a letter from Senator Max Baucus

of Montana (Debtor’s Ex. 2) adds to the published history.

A-8

removed into different states. Story’s Commentaries on

the Constitution (1838), §1109, also stated that the power was

useful “as a check upon undue state legislation.”

Even geographical uniformity is no longer required by

Article I, §8. In Regional Rail Reorganization Act Cases, 419

U.S. 102 (1974) the court said at p. 159:

The uniformity provision does not deny Congress power

to take into account differences that exist between different

parts of the country, and to fashion legislation to resolve

geographically isolated problem

We therefore agree with the Special Court that the uni-

formity clause was not intended “to hobble Congress by forc-

ing it into nationwide enactments to deal with conditions call-

ing for remedy only in certain regions.” In re Penn Central

Transportation Co., 384 F.Supp. 895, 915 (Special Ct. 1974).

Congress found in §2 (a) (2) of P.L. 96-101 that “cessation

of operations by the Milwaukee Railroad would have serious

repercussions on the economies of the states in which such

railroad principally operates,” naming the states of the Mid-

West and Far West. P.L. 96-101 treats stockholders and credi-

tors, as well as the debtor, uniformly throughout the region

served by the railroad. The fact that no other railroad hap-

pens to be affected by this statute does not prevent it from

being uniform within the meaning of Article I, §8. Section

77 itself is a special bankruptcy law.

Special legislation is not necessarily non-uniform, as Jus-

tice Frankfurter pointed out in concurring in Vanston Bond-

holders Protective Committee v. Green, 329 U.S. 156 at 172

(1946) :

The Constitutional requirement of uniformity is a require-

ment of geographic uniformity. It is wholly satisfied when

existing obligations of a debtor are treated alike by the

A-9

bankruptcy administrations throughout the country, re-

gardless of the State in which the bankruptcy court sits.

See also Hanover National Bank v. Moyses, 186 U.S. 181, 190

(1902) Thus if P.L. 96-101 is an amendment to the Bank-

ruptcy Act, it is a uniform, constitutional statute for the des-

ignated region.

There can be no doubt that P.L. 96-101 amends the Bank-

ruptcy Act by suspension or elimination of some provisions of

877. This does not make 886, 7, and 22 a “bankruptcy law,”

subject to the uniformity requirement of the Constitution,

however.

Section 6 gives priority to an employee-shipper ownership

plan as an alternative to any plan of reorganization. The pri-

ority plan (hereinafter referred to as E. S. O. P.) is subject to

scrutiny by the Interstate Commerce Commission and the

court but is not the equivalent of a bankruptcy reorganization

plan. Only if an E. S. O. P. fails do the reorganization plans now

on file regain any vitality.

During the E. S. O. P. period, §7 of P.L. 96-101 requires the

railroad to maintain its entire system as it existed on Octo-

ber 15, 1979, the government guaranteeing certificates for

the deficit between revenues and total expenses attributable

to “maintenance and continuation” of full service. These cer-

tificates are subordinated to the claims of all creditors but not

to stockholders. It is not clear that an E. S. O. P. may properly

attempt to realign or reduce debts, but it will at least super-

sede any plan of reorganization if it is implemented on or

before April 1, 1980 as required.

Furthermore, in order for the Interstate Commerce Com-

mission and this court to determine whether or not an

E.S.O.P. is “fair and equitable” to the estate, as is required

by §6, a comparison must be made with any plans of reorgani-

A-10

zation to determine whether the purchase contemplated by an

E. S. O. P. is at least as beneficial to the stockholders and credi-

tors of the estate as any other plans which can be proposed.

But an E.S.O.P. itself will presumably resemble a purchase

plan, replacing the corpus of the estate with cash or the equiv-

alent.

This court and the Seventh Circuit Court of Appeals have

previously found that the operation of the railroad in its

elongated form will erode the interest of the creditors. For

this reason, when the estate became substantially cashless,

we authorized an embargo over a major portion of the system

in order to minimize erosion and facilitate a §77 reorganiza-

tion. P.L. 96-101 has alleviated the cashlessness by a grant of

$10,000,000 and by a guarantee of trustee’s certificates for an

indeterminate time and amount. Thus, although the new

statute unquestionably amends the reorganization procedure,

§§6, 7, and 22 do not replace §77 with another “bankruptcy

act.“

The statute contains other provisions which amend 877 but

which are not involved in the pending application for a loan.

For example, abandonment of railroad property is transferred

from the Interstate Commerce Commission to the bankruptey

court by 885 and 17 of the Act, greatly expediting reorgan-

izability. Section 9 provides for “Employee Protection Agree-

ments,” the payment of which will be treated as administrative

expenses of the estate. Pursuant to §13 of the Act, any em-

ployee who accepts such a payment or other benefits under

8810 or 12 of the Act waives any benefits otherwise avail-

able under the Bankruptcy Act or 49 U.S.C. §11347. We

do not pass on these provisions.

A-11

The Due Process Objections

The stockholders and two of the indenture trustees contend

that the new statute deprives them of their interest in the

railroad without due process. The indenture trustees assert

that by requiring the full system to be operated until possibly

April 1, 1980 the physical facilities will be depreciated and

the bondholders will thereby be deprived of this value with-

out compensation if the railroad is ultimately reorganized or

liquidated.

There is no hard evidence to support this contention, how-

ever. P.L. 96-101 provides for guaranteed trustee certificates

to compensate the railroad for “maintenance” as well as ser-

vice (§7(e)), and these certificates are subordinated to the

bonds. If the physical property of the railroad is not main-

tained up to its current value because Congress has mandated

full service, then presumably the bondholders would have a

claim under the Tucker Act (28 U.S.C. §1491) for any loss

caused by P.L. 96-101. See Regional Rail Reorganization Act

Cases, 419 U.S. 102, 148 (1974).

Furthermore, there is no present basis to find that the

E. S. O. P. which is due to be filed December 1, 1979 will not

compensate the secured creditors as fully as the trustee’s

reorganization plan, since the railroad is operating its full

system to accommodate the proponents of an E.S.O.P. which

must be found “fair and equitable” to the estate. |

The potential erosion of the stockholders’ equity is more

serious and less speculative than that of the secured creditors.

The stockholders may have an equity of value. The Ford,

Bacon and Davis appraisal arrived at a liquidation value of

$882,000,000 as of December 31, 1977, and the latest report

filed with the I.C.C. shows assets of $823,626,234, and share-

holders’ equity of $132,302,553 after all liabilities and de-

A-12

ferred credits. The Trustee’s reorganization plan provides that

the preferred stockholders will become the common stock-

holders, a meaningless gesture if they have no value. We do

not find evidence in the record that the stockholders have no

property interest or that their interest cannot be eroded in

value by the certificates now under consideration.

The trustee’s certificates for operation of the entire rail-

road system, possibly for 60 days after April 1, 1980, are sub-

ordinated only to claims of creditors, not to stockholders.

After the $10,000,000 grant has been used (which will happen

before an E. S. O. P. can be acted upon), the deficit of operating

and maintaining the full rail system must be borne by the

government. An additional $75,000,000 may accrue as an ex-

pense of administration for the employee protection features

of the Act, but to the extent claims of furloughed or severed

employees can be reduced from their present estimate of a

$350,000,000 preferred claim, the stockholders would be bene-

fitted, not prejudiced. Also, if an E.S.O.P. is not implemented,

reorganization or liquidation is greatly expedited by §§ 4, 5,

9, and 15 of the Act, inter alia.

Thus any substantial erosion of the stockholders’ equity is

speculative, at least unless an E. S. O. P. is filed on or before

December 1, 1979. The legal answer to their complaint, how-

ever, is again the availability of the Tucker Act. The Supreme

Court has recently made it clear that this remedy remains

unless it is withdrawn by the statute upon which the claim-

ants base their claim. Regional Rail Reorganizaticn Act Cases,

supra, p. 5, involved the acquisition of eight eastern railroads

to create Conrail and the court stated at 419 U.S. p. 148:

If . . the consideration exchanged for the rail properties

should prove to be less than the constitutional minimum, the

Tucker Act will be available as the jurisdictional bases for

A-13

suit in the Court of Claims for a cash award to cover any con-

stitutional shortfall.

See also Duke Power Co. v. Carolina 8 Study

Group, Inc., 438 U.S. 59, fn. 39 (1978). No party has con-

tended that P.L. 96-101 indicates any intention of Congress

to withdraw from the stockholders the Tucker Act’s remedy.

Indeed, Senator Baucus has affirmed Congress’ intent to pre-

serve this remedy (Debtor’s Ex. 2).

A due process problem which does concern the court and

the Special Master is presented by §6(b) of the Act. This

Section requires the court to determine between January 1

and January 10, 1980 whether the E. S. O. P. received from the

I. C. C. is “fair and equitable to the estate.” This scetion is

apparently intended to produce a de novo finding by the court

after a “hearing,” although the Commission’s determination

on the issue can be rebutted only by “clear and convincing

evidence”. The Commission can make its findings on a paper

record, but we are completely unable to conceive how any

parties who might oppose an E. S. O. P. can be granted a due

process hearing on fairness and equity during the ten days

after the I. C. C. submits its findings to this court. The Fifth

Amendment requires not only a “meaningful” opportunity to

be heard but also a fair opportunity for preparation. Ma-

thews v. Eldridge, 424 U.S. 819 (1976) ; Armstrong v. Manzo,

880 U. S. 545 (1965).

The Equal Protection Objections

It is also contended, particularly by the First National

Bank as an indenture trustee, that this new statute deprives

bondholders of equal protection under the Fifth Amendment

to the United States Constitution. It is contended that, by

giving priority to an E.S.O.P. acquisition of all or substan-

tially all of the railroad’s property, Congress has discrimi-

A-14

nated against the creditors by depriving them of a railroad

reorganized under §77 of the Bankruptcy Act. Of course, one

cannot raise this objection to a statute unless he will be

harmed by it. Poe v. Ullman, 367 U.S. 497 ( 1961).

We have already adverted to the fact that an E. S. O. P. can-

not be evaluated in the abstract under this new statute. It

must be found to be “fair and equitable” to the estate. This

means to us that it must be at least as favorable to the credi-

tors as any other plan which is brought to the attention

of the I.C.C. or the court. Thus the creditors are not being

deprived of the economic benefits of a §77 reorganization

plan. They are being accorded an alternative which must be

substantially as favorable to them as any other plan. Bearing

in mind that one attacking the constitutionality of a statute

has the burden of showing that the legislature acted in an

arbitrary or invidiously discriminatory manner, and that the

Congress has the power and duty to adopt public policy, we

find and conclude that the indenture trustees and stock-

holders have failed to sustain their burden. See Usery v.

Turner Elkhorn Mining Co., 428 U.S. 1, 15 (1976).

We also fail to see how the conditions attached to the

proposed $30,000,000, or the additional loans which may be

needed to carry the railroad up to 60 days after April 1, 1980

deprive any party of equal protection. Section 77 is a creature

of Congress which can be taken away, as can directed service.

All creditors are treated the same under the new Act. We have

found that their interests are not unconstitutionally eroded

and that the amendments to the Bankruptcy Act do not con-

flict with the requirement of uniformity. We know of no

constitutional prohibition against preferring one class of per-

sons above others. Since we find a “rational basis” for classi-

fying employees differently.from creditors, the equal protec-

A-15

tion clause is not violated. Trafelet v. Thompson, 594 F.2d 623

(7th Cir. 1979), cert. denied, U.S. ——,.48 U.S. L. W. 3239

(Oct. 9, 1979); United States v. Neary, 552 F.2d 1184 (7th

Cir. 1977), cert. denied, 434 U.S. 864 (1977). :

Separation Of Powers

Some parties have contended that the enactment of P.L.

96-101 unconstitutionally invades the exclusive prerogative of

the judiciary to decide cases under Article III, §1 of the Con-

stitution. For example, the statute requires the railroad to

provide full service over the entire system for a period which

may extend 60 days beyond April 1, 1980, despite decisions

by this court and the Court of Appeals that such an unprofit-

able operation should not continue. Senator Baucus has

stated :

The Court of Appeals’ decision held that §77(c) (3) con-

stituted a grant of statutory discretion empowering the

reorganization court to [embargo service outside the

Miles City Subcore]. The Milwaukee Railroad Restructur-

ing Act reverses the Seventh Circuit’s opinion in this

regard. (Debtor’s Ex. 2.)

Section 18 of the new statutes also prohibits the Inter-

state Commerce Commission from directing service on any

portion of the Milwaukee Road before April 1, 1981 (49

U.S.C. §11125). We had relied upon directed service to some

extent in authorizing an embargo. These provisions of the

statute therefore do interfere with this court’s efforts to

protect creditors and to reorganize the railroad. They change

the law of the case but do not necessarily deprive this court of

its decision-making power prospectively.

The leading case on the Constitutional requirement that the

executive branch can not make decisions for the judicial

branch is United States v. Klein, 13 Wall. (80 U.S.) 128

A-16

(1872). That case was really an ex post facto attempt by

Congress to interfere in pending litigation and to control the

outcome by adopting a rule of evidence. The effect of the

statute was to preclude claimants from recovering property

which had been seized or abandoned during the Civil War. The

Supreme Court found that this was an attempt by Congress

to preempt the power of the judiciary and declared the statute

unconstitutional in violation of Article III.

We find and conclude that Congress has the power to amend

statutes prospectively and that it may do so with the intent

and effect of overcoming judicial decisions, so long as its

statute does not violate some other provision of the Con-

stitution. Cf. Pope v. United States, 323 U.S. 1 (1944). The

duty of the judiciary is to uphold the Constitution and laws

of the United States, so long as Congress enacts a law which

is not shown to be unconstitutional. We cannot be offended by

the fact that Congress is changing a decision which was based

on a statute which has now been amended.

We have limited the foregoing discussion to those provi-

sions of P.L. 96-101 which are more or less directly involved

with the Trustee’s petition to borrow $30,000,000 by means

of guaranteed certificates. We do not intend to express an

opinion on the constitutionality of any provisions of the new

act which are not put in issue by his petition. Some provisions

of the statute have not yet come into play, may never do so,

and are separable from those reviewed herein. Buckley v.

Valeo, 424 U.S. 1, 108-9 (1976). We reserve judgment on any

such provision but find and conclude that §§ 6, 7, and 22 of

P.L. 96-101 are constitutionally valid.

IT IS THEREFORE ORDERED, ADJUDGED AND DE-

CREED that the Trustee’s motion to borrow $30,000,000 on

the terms set forth in his application to the Secretary of

A-17

Transportation dated November 13, 1979 is granted. In the

alternative, his motion to borrow $30,000,000 on the terms

set forth in his application to the Secretary of Transportation

dated October 10, 1979 is also granted.

ENTER:

Thomas R. McMillen

JUDGE, U.S. DISTRICT COURT

DATED: Nov. 28, 1979

APPENDIX C

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

Name of Presiding Judge, Honorable Thomas R. McMillen,

Case No. 77 B 8999 Date Feb. 25, 1978

Title of Cause

In Re: Chicago, Milwaukee, St. Paul & Pacific Railroad

Enter order No. 246C; that order No. 246 is amended and

the Trustee is authorized to borrow up to an additional $30

million in accordance with ERS A.. (DRAFT)

A-18

APPENDIX D

IN THE

UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

Nos. 79-2444, 80-1425

In Re: CHICAGO, MILWAUKEE, ST. PAUL AND

PACIFIC RAILROAD COMPANY,

Debtor.

Consolidated joint appeals of:

CHICAGO MILWAUKEE CORPORATION, as Shareholder.

PACIFIC RAILROAD COMPANY, as Debtor, and

CHICAGO MILWAUKEE CORPORATION, as Shareholder.

Apeals from the United States District Court for the

Northern District of Illinois, Eastern Division.

No. 77 B 8999—Thomas R. McMillen, Judge.

ARGUED DECEMBER 3, 1982—Decided

FEBRUARY 16, 1983

Before WOOD and ESCHBACH, Circuit Judges, and

SWYGERT, Senior Circuit Judge.

SWYGERT, Senior Circuit Judge. This appeal represents

yet another installment in the saga of the Chicago, Milwaukee,

St. Paul and Pacific Railroad’s (“Milwaukee Road”) reorgani-

A-19

zation proceedings.’ The shareholders seek a declaration that

nearly sixty million dollars in certificates of indebtedness held

by the Milwaukee Road are invalid. According to the share-

holders, these certificates are invalid because they were issued

pursuant to a federal statute which violates the constitutional

requirement of uniform bankruptcy laws, art. I, §8, cl. 4, and

due process, equal protection, and separation-of-power princi-

ples. Because important facts will not be known until there

are further proceedings below, we dismiss this appeal because

the action is not ripe for review.

I

The facts pertinent to the shareholders’ claims begin in the

spring of 1979 when the Special Master concluded that the en-

tire Milwaukee Road system would never be reorganized as

a single system. The Special Master determined that some

parts could be reorganized as a viable rail carrier and other

segments could be sold for continued rail operation to. third

parties. In August 1979 the court-appointed Trustee

(“Trustee”), aided by the Special Master’s report, concluded

that a midwestern “core” system consisting of three thousand

miles of rail track (approximately one-third of the entire Mil-

1The Milwaukee Road filed a petition for reorganization in the

United States District Court for the Northern District of Illinois

on December 19, 1977, pursuant to section 77 of the Bankruptcy

Act, 11 U.S.C. § 205 (1976) (repealed effective 1979). These pro-

- ceedings continue to be governed by section 77. Pub. L. No. 95-598,

§ 403, 92 Stat. 2683. This court has previously reviewed other as-

pects of the reorganization proceedings. See, e.g., Matter of Chi-

cago, Milwaukee, St. Paul and Pacific Railroad, 673 F.2d 169

(1982); 658 F.2d 1149, cert. denied. eas , 102 S.Ct. 1632

(1982); 654 F.2d 1218 (1981); 648 F.2d 1261 (1981); 641 F.2d 482

(1981); 632 F.2d 45 (1980); 624 F.2d 1105 (1980) (Nos. 80-1426,

80-1473, 80-1474) (unpublished order), aft, 471 F. Supp. 964 (N. D.

III. 1979), 611 F.2d G62 (1979) (per curiam); 585 F.2d 254 (1978).

A-20

waukee Road system) could be reorganized into a viable rail

carrier. The balance of the Milwaukee Road’s tracks was

dubbed the “non-core” lines.

In the fall of 1979 the district court (“Reorganization

Court“) - found that the Milwaukee Road was approaching a

condition of cashlessness—a condition which exists if a rail-

road has insufficient funds to pay its employees and suppliers,

thus preventing an orderly liquidation. If such funds are not

available under terms fair to the estate, the railroad simply

cannot operate. Matter of Chicago, Milwaukee, St. Paul and

Pacific Railroad, 611 F.2d 662, 669 (7th Cir. 1979) (per

curiam) (“Embargo Decision”) ; In re Valuation Proceedings,

439 F. Supp. 1351, 1875-77 (Sp. Ct. 1977). Because of the Mil-

waukee Road’s impending cashlessness, the Reorganization

Court, on September 27, 1979, ordered that operations on the

Milwaukee Road’s non-core lines be embargoed as of Novem-

ber 1, 1979.

The partial embargo order authorized the Trustee to borrow

funds to support continued operations on the core lines. On

October 10, 1979 the Trustee sought guarantees from the

federal government of $30 million in loans, pursuant to the

Emergency Rail Services Act of 1970 (“ERSA”), 45 U.S.C.

58 661 et seq.

Here we must present a brief legislative history of the oft-

amended ERSA which authorizes the Secretary of Transporta-

tion (“Secretary”) to issue guarantee of loans necessary for

continued operations of railroads. As originally enacted ERSA

provided that the Secretary could not guarantee the loans un-

less he found, inter alia, “that the probable value of the assets

of the railroad in the event of liquidation provides reasonable

protection to the United Sta ” 45 U.S.C. § 662 (a) (6)

(1976). ERSA also required that repayment of these loans

A-21

“must be treated as an expense of administration of the re-

organization and receive the highest lien on the railroad’s

property and priority in payment under the Bankruptcy Act.”

45 U.S.C. § 662(c) (1976). The high priority requirement, sec-

tion 662 (e), was repealed as part of the Bankruptcy Act of 1978.

Pub. L. 95-598, Title III, § 333, Nov. 6, 1978, 92 Stat. 2679, 45

U.S.C. § 662 (Supp. II 1978). The repeal “permit Is] the United

States to finance an insolvent railroad on less than a first lien

position. [It] is not intended to mean that the U.S. Govern-

ment should bail out ‘nsolvent railroads. Rather, in the event

the Secretary desires to finance an insolvent railroad in a case

in which a first lien would be disasterous [sic] to efforts to

reorganize the railroad, the Secretary is given discretion to

accommodate the public interest.” Statements by the Hon. Don

Edwards, Chairman of the Subcommittee on Civil and Consti-

tutional Rights of the House Committee on the J udiciary, and

the Hon. Deccis DeConcini, Chairman of the Subcommittee

on Improvements in Federal Machinery of the Senate Com-

mittee on the Judiciary, upon introducing the [final version

of the Bankruptcy Act of 1978], 124 Cong. Rec. 32411, 34011

[1978], reprinted in 1978 U.S. Code Cong. & Ad. News 6486,

6555-56. A month later, on November 8, 1978, Congress

further eased ERSA restrictions by permitting the Secretary

to waive the finding that the probable value of the assets

would provide reasonable assurance of repayment. Pub. L.

95-611 63 (b), 92 Stat. 3089, 45 U.S.C. §662 (Supp. II 1978).

This was how the law stood on October 10, 1979 when the

Trustee sought ERSA guarantees for loans for core lines’

operations after November 1. It is unclear from this record

whether the Secretary would have issued these ERSA guaran-

tees at a priority below a first lien. It is reasonably clear, how-

A-22

ever, that the ERSA guarantees (for core lines’ operations)

would have had a priority senior to the shareholders’ interests.

One consequence of the partial embargo was that it pre-

maturely curtailed the opportunity of two bidders (an associa-

tion of Milwaukee Road employees and a coalition of em-

ployees, shippers, and states) for the railroad’s non-core as-

sets. Once a portion of the Milwaukee Road was embargoed,

it could not be revived. The embargo meant, therefore, that

there was insufficient time for completion of the lengthy

Interstate Commerce Commission (“ICC”) proceedings con-

sidering the bidders’ proposals.

On October 12, 1979 the President approved H.J. Res. 412,

Pub. L. No. 96-86, 93 Stat. 656 (1979), which required the

Secretary to provide ERSA funds to support the operations

of both the core and non-core lines. Section 115(a) permitted

the Secretary to waive many of the ERSA restrictions and

to issue certificates with such priority in payment as the

Secretary deems appropriate to secure repayment[.]” The

Trustee immediately commenced negotiations with the Secre-

tary concerning the priority of the debt necessary to operate

the entire railroad. The Secretary, however, refused to issue

the guarantees unless they had a priority senior to the in-

terests of secured and unsecured creditors because in his judg-

ment a lower priority would not assure repayment. On October

26, 1979 the Reorganization Court concluded that guarantees

at this high priority would injure the interests of the creditors

and, therefore, could not be authorized.

The Reorganization Court’s order specifically discussed

what congressional action would permit authorization of loans

to operate the non-core lines. The court indicated that such

debt must be subordinate to the interests of secured and un-

secured creditors. Unpublished Order No. 220E at 2 (Oct. 26,

1979). Additionally, the court expressed its concern for the

A-28

shareholders’ interests, indicating that government grants

were more appropriate than federally-guaranteed loans. Id.

at 5. The embargo of the non-core lines began on November

1, 1979.

Responding directly to the crisis of the embargo, to the pre-

mature curtailment of the two bidders’ opportunity to acquire

the non-core lines (a possibility seemingly beneficial to the

Milwaukee Road estate), and to the Reorganization Court’s

concerns for the creditors and shareholders, Congress enacted

the Milwaukee Road Restructuring Act (“MRRA”), 45 U.S.C.

§§ 901-22 (Supp. IV 1980), on November 4, 1979. MRRA, inter

alia:

(1) required the Trustee to maintain service on the

core and non-core lines as it existed on October 15, 1979

until certain events occurred, § 920(a).

(2) required the Secretary to provide a ten million

dollar grant to the Trustee for the purpose of financing

operations on the Milwaukee Road, § 906 (d);

(3) required the Secretary to guarantee certificates

pursuant to ERSA to cover the Milwaukee Road’s ex-

penses in excess of revenue incurred during the MRRA-

mandated period of service, §§ 906(a), (b);

(4) provided that ERSA-guaranteed certificates be

subordinate to the claims of all creditors of the Milwaukee

Road, § 906 (e);

(5) provided for expedited ICC consideration of em-

ployee or employer-shipper ownership plans, § 905;

(6) provided the Trustee with a less costly means of

settling the potential liabilities associated with traditional

labor protection benefits for employees terminated as a

result of restructuring or reductions in service, § 908;

A-24

(7) allowed the Trustee to more quickly convert un-

needed assets to cash which could be invested at high rates

of return, §§ 903, 904.

To summarize, in return for continued service on the non-

core lines, the Milwaukee Road estate and the shareholders

received at least the following benefits. First, debt related to

both the operations of the core and non-core lines was sub-

ordinated to the interests of secured and unsecured creditors.

Second, the estate received a ten million dollar grant. Third,

the estate received a substantial reduetion in its labor protec-

tion liabilities. See Matter of Chicago, Milwaukee, St. Paul

& Pacific Railroad, 658 F.2d 1149, 1157-60 (7th Cir. 1981),

cert. denied, —— U.S. ——, 102 S.Ct. 1682 (1982) (MRRA

legislative history indicates that the Ac: was designed to pro-

vide affordable method of employee protection which would

not totally erode assets of estate. 658 F.2d at 1158); Embargo

Decision, supra, 611 F.2d at 665 (labor protection claims

might amount to hundreds of millions of dollars). Fourth, the

estate could liquidate assets much more quickly than under

prior law, and the estate received expedited ICC consideration

of restructing proposals. See Matter of Chicago, Milwaukee,

St. Paul and Pacific Railroad Company, 641 F.2d 482, 487 (7th

Cir. 1981).

Following passage of the MRRA the Milwaukee Road’s non-

core lines operated from November 4, 1979 through March

1, 1980. Operations continue on the core lines. No bidder re-

ceived ICC approval for acquisition of the non-core lines, and

MRRA low priority funds were no longer available.

Finally, on October 14, 1980, Congress amended the MRRA.

Section 701(c)(1) of the Staggers Rail Act of 1980, Pub. L.

No. 96-448, 94 Stat. 1961, 45 U.S.C. 8906 (e) (Supp. IV 1980),

provides that the MRRA-related indebtedness associated with

A-25

the core and non-core lines service will be forgiven if the Mik

waukee Road is reorganized as an operating rail carrier, or

if substantially all of its rail assets are purchased as operating

properties.? Thus the estate received the potential benefit of

complete forgiveness of debt related to the opcration of the

core and non-core lines during the MRRA-mandated period.

Two additional facts are important. Neither MRRA-related

certificates’ principal nor interest is payable until the assets

of the Milwaukee Road are distributed under an approved plan

of reorganization. The Trustee is currently negotiating a re-

organization plan which would satisfy the Staggers Rail Act

forgiveness provisions.

. II

The shareholders and the Trustee have not discussed in any

detail the propriety of the relief sought by the shareholders.

2 Section 701(c)(1) of the Staggers Rail Act of 1980 provides in

pertinent part:

Section 7 of the Milwaukee Railroad Restructuring Act

(45 U.S.C. § 906) is amended by adding at the end thereof the

following new subsection:

(h)(1) All obligations to the United States or any agency

or instrumentality of the United States incurred pursuant to

this section by the Milwaukee Railroad or the trustee of the

property of the Milwaukee Railroad shall be waived and can-

celed when—

(A) The Milwaukee Railroad is reorganized as an oper-

ating rail carrier; or

(B) substantially all of the Milwaukee Railroad is pur-

chased.

(2) For purposes of this subsection, substantially all of

the Milwaukee Railroad shall be considered as having been

purchased when (A) more than 50 percent of the rail system

operated by the Milwaukee Railroad on the date of enactment

_ Of the Staggers Rail Act of 1980 [October 14, 1980] has been

purchased, and (B) more than 50 percent of the employees

employed by the Milwaukee Railroad on such date of enact-

ment have obtained employment with other rail carriers.

A-26

The United States does address this question, albeit with in-

sufficient analysis. This omission, as the following discussion

indicates, cannot be ignored. Because we hold that this appeal

is not ripe we do not decide to what relief the shareholders

would be entitled if they ultimately prevail. Nevertheless, be-

cause the parties seem totally unaware of the ramifications

of this issue and because the MRRA is unique, we take this

opportunity to discuss our concerns.

The shareholders ask this court to “declar le] that the trus-

tee’s certificates of indebtedness issued. pursuant to Section

7 of the MRRA are null and void and direc [t] their cancel-

lation.” The shareholders, of course, do not maintain that the

other provisions of the MRRA, provisions which benefitted

the shareholders, are invalid. In effect they seek a severance

of section 7 from the MRRA.

A well-settled principle of constitutional law and statutory

construction is that

the unconstitutionality of a part of an Act does not neces-

sarily defeat or affect the validity of its remaining provi-

sions. Unless it is evident that the legislature would not

have enacted those provisions within its power, indepen-

dently of that which is not, the invalid part may be

dropped if what is left is fully operative as a law.

Champlin Refining Co. v. Corporation Commission of Okla-

koma, 286 U.S. 210, 234 (1932) (citations omitted). See United

States v. Jackson, 390 U.S. 570, 585 (1968). See also Schein-

berg v. Smith, 659 F.2d 476, rehearing denied, 667 F. ad 98

(5th Cir. 1981) (“The controlling inquiry in matters of sever-

ance is whether the legislature intended the offensive statu-

tory provision to be an integral part of the statutory enact-

ment. . [t]he question is whether the legislature would

have enacted the valid portions of the statute with the un-

A-27

constitutional portions stricken therefrom.” 659 F.2d at 481

(citations omitted).). ne

Our review of the legislative history and statutory language

of the MRRA indicates that it is not possible to sever section

7 of the MRRA and conclude that Congress would have en-

acted the remaining provisions. The MRRA can only be viewed

as a quid pro quo in which, in exchange for continued opera-

tions of the non-core lines for a four-month period, Congress

gave the estate and the shareholders benefits to which they

were not otherwise entitled. Our conclusion is buttressed by

the fact that the relief the shareholders seek would result in

a substantial and unforeseen windfall to the shareholders at

the taxpayers’ expense.

If our view of the legislation is correct, the proper relief

would be the restoration of the estate to the position it would

occupy if the MRRA had not been passed. This position would

‘reflect the ERSA-guaranteed loans (presumably at a higher

priority) for operation of the core lines from November 4,

1979 to March 1, 1980, less the $10 million grant, and less the

benefits of increa: 2d asset liquidity, reduced labor protection

liability, and waiver of the entire MRRA-related debt for the

core lines during the relevant period if the Staggers Rail Act

forgiveness provisions apply.* The record does not contain

sufficient information to hazard a guess about this position.

It is clear, however, that the injury to the shareholders caused

by the passage of the MRRA is considerably less than $60 mil-

lion.

3 The United States argues that all of the MRRA debt, whether

related to core or non-core operations, should be converted to

high-priority ERSA loans, and the $10 million grant should be

“returned” to the federal government in the event the share-

holders prevail. The shareholders completely ignored this argu-

ment.

A-28

III

In deciding that this appeal is not ripe we follow the Su-

preme Court’s reasoning in Regional Rail Reorganization Act

Cases, 419 U.S. 102 (1974) (-NR). There the Court reviewed

the ripeness of each of the challenges to a federal statute which,

like the statute at issue here, concerned railroad reorganiza-

tion proceedings.

Noting that “ripeness is peculiarly a question of timing,”

419 U.S. at 140, the Court found that any delay in determining

some of the challenges to the constitutionality of the statute

would frustrate the very purpose of the statute. Jd. at 140,

n.25. There are no such concerns raised by this appeal. The

MRRA’s purpose to maintain rail service on the non-core lines

while the ICC considered third-party proposals has already

been served.

One of the challenges in 3-R found ripe for review concerned

an event which was virtually certain. The 8-R appellants

argued that the provision requiring a conveyance of private

rail properties to Conrail violated the due process clause of

the fifth amendment. The conveyance was “in no way hypo-

thetical or speculative.” Id. at 143.

Here, however, the shareholders’ claims are speculative and

hypothetical. The shareholders are not currently suffering

any concrete harm because neither the principal nor interest

is being paid. There is a possibility that there will be insuf-

ficient assets remaining in the estate to satisfy the Milwaukee

Road’s creditors with priority senior to MRRA-related claims.

There is, moreover, an excellent possibility that the entire

MRRA-related debt will be forgiven as a result of the Staggers

Rail Act. If either of these events occur, there will be no injury

to the shareholders and they will have no case or controversy

to press.

A-29

The 3-R Court declined to review a fifth amendment chal-

lenge to the statute’s valuation method because

[without evidence of actual figures... , a court is not

able to discern ‘what legal issues it is deciding,’ ‘what ef-

fect its decision will have on the adversaries, lor] some

useful purpose to be achieved in deciding them.’ Public

Service Commission v. Wycoff Co., 344 U.S. 287, 244

(1952). Clearly the record on these issues does not yet

provide the ‘confining circumstances of particular situa-

tions,’ Communist Party v. SACB, 1367 U.S. 1] at 72

(1961) J, which best inform constitutional adjudication.

419 U.S. at 146. See also ElPaso Building & Construction

Trades Council v. ElPaso Associated General Contractors, 376

F.2d 797, 800 (5th Cir. 1967); Danville Tobacco Association

v. Freeman, 351 F.2d 832, 833-34 (D.C. Cir. 1965) ; Cha-Toine

Hotel Apartment Building Corp. v. Shogren, 204 F.2d 257,

258-59 (7th Cir. 1953). As discussed in Part II, supra, the rec-

ord concerning the harm to the shareholders is inadequate.

We cannot determine what effect a decision would have on

the adversaries. Additionally, the actual magnitude of the al-

leged taking is relevant to our consideration of the share-

holders’ due process claim. See Embargo Decision, supra, 611

F.2d at 666-67 (railroad’s due process claim requires a balanc-

ing of interests).

In declining to decide the valuation claim, the 3-R Court

noted that “there will be ample opportunity to litigate. [the]

controversies after the factual record has matured.” 419 U.S.

at 147. Here, too, there will be ample opportunity to challenge

the MRRA once a reorganization plan has been approved and

the factual record indicates precisely what, if any, harm the

shareholders suffered as a result of the MRRA. We have little

A-30

doubt that the shareholders will avail themselves of the oppor-

tunity.

The shareholders maintain that they are suffering a current

harm because the MRRA-related certificates “cloud” the Trust-

ee’s reorganization effort. They offer no evidence that this

is true, and the Trustee does not join them in this contention.

Rail track assets are peculiarly illiquid. It is logical, therefore,

that the estate—and the shareholders—would receive a great-

er benefit, even without the Staggers Rail Act forgiveness pro-

vision, in the reorganization and/or sale of the Milwaukee

Road’s assets for ongoing rail service. This assumption may

not be correct. Certainly the shareholders may martial proof

that but for the MRRA a reorganization plan more beneficial

to the shareholders would have been negotiated.

As Justice Frankfurter observed:

Justiciability is of course not a legal concept with a

fixed content of susceptible of scientific verification, Its

utilization is the resultant of many subtle pressures, in-

cluding the appropriatness of the issues for decision

. . and the actual hardship to the litigants of denying

them the relief sought.

Poe v. Uliman, 367 U.S. 497, 508-09 (1961) (opinion of Frank-

furter, J.). Our analysis indicates that the issues on appeal

are currently unsuitable for judicial review. Future events

may well render the shareholders’ claims moot. Balanced

against these factors is the shareholders’ unsubstantiated

claim that the negotiations are hampered by the cloud of the

$60 million certificates. As discussed in Part II, supra, this

cloud is probably considerably less than $60 million. Absent

some showing other than these unsubstantiated assertions,

we find that the alleged hardship to the shareholders does not

A-31

outweigh the inappropriatness of deciding important constitu-

tional questions on such an incomplete factual record.

The appeal is dismissed.

A true Copy:

Teste:

Clerk of the United States Court

of Appeals for the Seventh

Circuit

Opinion by Judge Swygert

JUDGMENT—ORAL ARGUMENT

UNITED STATES COURT OF APPEALS

for the Seventh Circuit

Chicago, Illinois 60604

February 16, 1983.

Before

Hon. HARLINGTON WOOD, JR., Circuit Judge

Hon. JESSE E. ESCHBACH, Circuit Judge

Hon. LUTHER M. SWYGERT, Senior Circuit Judge

Nos. 79-2444 and 80-1425

IN THE MATTER OF:

CHICAGO, MILWAUKEE, ST. PAUL AND

PACIFIC RAILROAD COMPANY, Debtor.

APPEALS OF:

CHICAGO, MILWAUKEE, ST. PAUL AND

PACIFIC RAILROAD COMPANY, Debtor and CHICAGO

MILWAUKEE CORPORATION, a corporation,

principal stockholder.

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Appeals from the United States District Court for the

Northern District of Illinois, Eastern Division.

No. 77-B-8999

Judge Thomas R. McMillen

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 IS ORDERED AND AD-

JUDGED by this Court that this appeal be, and the same is

hereby, DISMISSED, with costs, in accordance with the opin-

ion of this Court filed this date.

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APPENDIX. E

UNITED STATES COURT OF APPEALS

For the Seventh Circuit

Chicago, Illinois 60604

March 4, 1983

Before

Hon. LUTHER M. SWYGERT, Senior Circuit Judge

IN THE MATTER OF:

CHICAGO, MILWAUKEE, ST. PAUL AND

PACIFIC RAILROAD COMPANY, Debtor:

Nos. 79-2444 and 80-1425

APPEAL OF:

CHICAGO, MILWAUKEE, ST. PAUL AND PACIFIC

RAILROAD COMPANY AND CHICAGO MILWAUKEE

CORPORATION

Appeals from the United States District Court for the

Northern District of Illinois Eastern Division.

77 B 8999

Judge Thomas R. McMillen

On consideration of the “MOTION TO FILE PETITION

FOR REHEARING INSTANTER“ filed herein on March 3,

1983, by counsel for the appellants,

IT IS ORDERED that said-motion is hereby GRANTED

and the clerk of this court is hereby directed to file herein in-

stanter the 25 tendered copies of appellants’ “Petition for Re-

hearing En Bane.”

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APPENDIX F

UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

Chicago, Illinois 60604

April 21, 1983

Before

Hon. HARLINGTON WOOD, JR., Circuit Judge

Hon. JESSE E. ESCHBACH, Circuit Judge

Hon. LUTHER M. SWYGERT, Senior Circuit Judge

IN THE MATTER OF:

CHICAGO, MILWAUKEE, ST. PAUL AND

PACIFIC RAILROAD, Debtor.

Nos. 79-2444, 80-1425

APPEALS OF:

CHICAGO, MILWAUKEE, ST. PAUL AND PACIFIC

RAILROAD COMPANY, Debtor; and CHICAGO

MILWAUKEE CORPORATION, principal stockholder.

Appeals from the United States District Court for the

Northern District of Illinois, Eastern Division.

No. 79-B-8444

Thomas R. McMillen, Judge.

A-35

ORDER

On consideration of the petition for rehearing en banc filed

in the above matter, no active member of the court has re-

quested a vote on the en banc rehearing,* and all members of

the panel have voted to deny said petition,

IT IS ORDERED that said petition for rehearing be, and

the same is hereby DENIED.

*Chief Judge Cummings and Circuit Judge Cudahy did not par-

ticipate in any consideration of the petition for rehearing en banc.