Opposition Brief — Huiskamp v. New York Connecting Railroad

>. Supreme Court, U.S,

No. 86-1677 ; “BILED

MAY 16 paT

IN THE

F. SPANIOL, JR,

Supreme Court of the United States ceex

OCTOBER TERM, 1986

>

ROBERT W. HUISKAMP,

Petitioner,

—vs.—

NEW YORK CONNECTING RAILROAD COMPANY,

—and—

HORIZON TRUST COMPANY,

i Respondents.

ON PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES |

COURT OF APPEALS FOR THE THIRD CIRCUIT |

RESPONDENTS’ BRIEF IN OPPOSITION TO

PETITION FOR WRIT OF CERTIORARI

Matthew J. Siembieda

(Counsel of Record )

Alexander D. Bono

BLANK, ROME, COMISKY & MCCAULEY

1200 Four Penn Center Plaza

Philadelphia, PA 19103

(215) 569-5500

and

Robert J. Siverd

THE PENN CENTRAL CORPORATION

1700 Market Street

IVB Building, 29th Floor

Philadelphia, PA 19103

)

|

Attorneys for Respondents,

New York Connecting Railroad

Company and Horizon Trust Company

|

COUNTER-STATEMENT OF

THE QUESTION PRESENTED

Did the District Court and Court of Appeals err in holding,

under state law, that the doctrine of res judicata barred

relitigation of a bondholder’s claims for interest over and

above the specified bond rate, which were previously asserted

by an indenture trustee on behalf of bondholders in litigation

that raised the same issues, involved the same parties, and

resulted in a final judgment after notice and an opportunity to

be heard?

eT

THE PARTIES

This statement is made pursuant to Rule 28.1 of this Court.

The Penn Central Corporation (“Penn Central”) is the succes-

sor by merger to the named Respondent, New York Connecting

Railroad Company (“New York Connecting”). Respondent,

Horizon Trust Company (“Horizon” or the “Trustee”), has no

parent company. Neither Penn Central, New York Connecting,

nor Horizon has any subsidiaries or affiliates which have any

publicly held securities.

iil

TABLE OF CONTENTS

Counter-Statement of The Question Presented.........

Ng ied aa

Reasons for Denying the Petition....................

I. The Petition Fails to Satisfy Rule 17.1(a)-(c) of

this Court Because it Presents No Special or

Important Reasons For Granting Review on a

ES Sos sce bad hewesedadyeee aes «

Il. The Courts Below Properly Stated and Applied

The Doctrine of Res Judicata in the Context of

. e

A. Identity of Claims Existed .................

B. Identity of Parties Existed .................

i. Pee Sees ERIN... oo cc ccc cccces

D. An Opportunity to be Heard Existed........

Nee ee en eo bc oc eOube ws

PAGE

13

13

14

16

18

20

20

22

iv

TABLE OF AUTHORITIES

Cases: PAGE

Aerojet-General Corp. v. Askew, 511 F.2d 710 (Sth Cir.),

, , ee Wc. SOO CIGIOD c ic case ncccceneces 19

Alexander & Alexander, Inc. v. Van Impe, 787 F.2d 163

eee d eke db bwdaddeneeatenaccdees 15

Belefonte Re Insurance Co. v. Argonaut Insurance Co.,

581 F. Supp. 241 (S.D.N.Y. 1984), aff’d on other

grounds, 757 F.2d 523 (2d Cir. 1985) ............... 20

Bostic Foundry v. Lindberg, 797 F.2d 280 (6th Cir. 1986) 20

Chicago R.I. & P RY. Co. v. Schendel, 270 U.S. 611

eee De ek a a aed re ek bk bs 19

Commissioner v. Sunnen, 333 U.S. 591 (1933) ........ 15

Cromwell v. County of Sac, 94 U.S. 195 (1877) ....... 15

Expert Electric, Inc. v. Levine, 554 F.2d 1227 (2d Cir.),

cert. denied, 434 U.S. 903 (1977) ..............20.- 15, 19

Harris v. Pernsley, 755 F.2d 338 (3d Cir. 1985), cert.

me, .... BB s.g BOD De. Ch, Fe CIPD ccccesacce 15

Hormel v. Helvering, 312 U.S. 352 61 S. Ct. 719 (1941) 20

In re: Teltronics Services, Inc., 762 F.2d 185 (2d Cir.

In the Matter of the Valuation Proceedings Under

§§ 303(c) and 306 of the Regional Rail Reorganization

SOGt: FED Fe GI GN 5 oc kbd beh itssesiaies 5

Montana v. United States, 440 U.S. 147 (1979). ....... 15

Mother’s Restaurant, Inc. v. Mamma’s Pizza, Inc., 723

a Se I a el se ae ek 6 We 15, 19 .

Rice v. Sioux City Memorial Park Cemetery, Inc., 349

is Wy Gp Se se YAR eye 14

a oT |

PAGE

Robinson vy. First National City Bank, 482 F. Supp. 92

GRSPTE. De SOVED vnackandcdcstisieetsisesiuneee 19

Singleton v. Wulff, 428 U.S. 106, 96 S. Ct. 2868 (1976) — 20

Sylvia Friedman, on behalf of all holders of New York

Connecting Company, First Mortgage, series B

2&7/8% Bonds due October 1, 1975 v. New York

Connecting R.R. Co., Index No. 1230/76 (Supreme

Cope OF Fa TURD ic kan sanctus Gs5nednee 5

United States v. ITT Continental Baking Co., 420 U.S.

aad, FS B. XR. SH Gas 5 cack bandckectsascaueee 14

United States v. Mendoza, 664 U.S. 154, 104 S. Ct. 568,

CRSOR a a a0 vantesdantsansacsseiieeee 15, 22

Rules:

Supreme Court of the United States

PE BIGE oe in kdkdiacubunkdciedernee take 13, 14

SR Nc nko bad seskosaedsacbabacnsaaelsee i

Federal Rules of Civil Procedure

SR MDs i vce hae ' bes bnkadlantaash saute 13

Statutes:

Reorganization of Railroads Engaged in Interstate

Commerce, Bankruptcy Act, Section 77, 11 U.S.C.

S Pie bk :4- 005s ddd eb SCRE ek ee eee y

The Regional Rail Reorganization Act of 1973, 45

Rp ss Be PATE sd cwaccsca ons REG SO RAwR ERE aR eee 5

GS PRE ‘owéwuled aes acebanet andes ede eee 5

Texts:

5 Collier on Bankruptcy, € 77.11 (1978 and 1986 Supp.) 2

I

COUNTER-STATEMENT OF THE CASE

This petition arises out of the affirmance by the Court of

Appeals of the dismissal of diversity claims by Robert W.

Huiskamp (“Huiskamp” or “Petitioner”), a former New York

Connecting bondholder. It involves the application of estab-

lished common law doctrine of res judicata to Huiskamp’s

claims concerning his former ownership of forty-three New

York Connecting $1000 face amount, 2 7/8% Series B bonds.

These bonds were originally issued to finance railroad con-

struction under a First Mortgage dated October 1, 1940 (the

“Trust Indenture” or “First Mortgage”). A lawsuit in 1976 by

the Indenture Trustee on behalf of all the bondholders resulted

in a consent judgment liquidating the amounts owed to the

bondholders under the Trust Indenture. The obligation to the

bondholders was later satisfied by means of a tender offer for

the bonds which implemented a 1979 court approved settle-

ment, after notice and a hearing in the Penn Central Reorgani-

zation Proceedings, No. 70-347 (E.D. Pa.).

Huiskamp claimed in the district court that New York

Connecting defaulted on the bonds’ principal payments due on

October 1, 1975, and interest payments due after June, 1970.'

He redeemed all of his bonds after filing suit on March 20,

1985. He was paid the full principal amount plus accrued

interest and interest on interest at 2 7/8%. Thus, Huiskamp

was paid all that was due him under the terms of the First

Mortgage, but he still continued this case in the hope of

obtaining a recovery involving a higher rate of interest than the

Trust Indenture provided. The district court granted respon-

dents’ motion for summary judgment, and the Court of

Appeals affirmed.

! The complaint also charged that Horizon breached a fiduciary duty

to bondholders by, among other things, failing to keep bondholders apprised

of their rights and to protect bondholder rights.

2

Petitioner's statement of facts makes almost no teference to

the opinions of the courts below, and in numerous instances

omits material facts of record. The facts as found and recited

in the lower court opinions are virtually undisputed.’ More-

over, the lower courts had before them all of the facts obtained

in discovery that bore on Huiskamp’s claims.

1. Penn Central's Reorganization and the Default By New

York Connecting On The 2 7/8% Series B Bonds.

Huiskamp formerly owned forty-three New York Connect-

ing 2 7/8% Series B Bonds. The rate of interest borne by these

bonds was 2 7/8%. (A-1 and 2; 260a).° The Trust Indenture

specified in Article Seven that the amount of interest to be paid

in the event of default is fixed at the same rates of interest

borne by the bonds. (A-13 and 14; 132a-35a; 135a-36a; 140a-

41a; 142a).

The bonds were guaranteed by a Penn Central predecessor,

to which New York Connecting had leased its rail lines for a

long term, at rentals calculated to enable the amortization of

bonds and payment of dividends. Such long-term railroad

leases were frequently used to finance the necessary construc-

tion and to consolidate operations, while avoiding the legal and

practical obstacles to railroad mergers. (A-2 and 3).

On June 21, 1970, Penn Central filed for reorganization.

The Honorable John P. Fullam, Chief Judge of the United

States District Court of the Eastern Distfict of Pennsylvania

(and the district court below in this case) presided over the

reorganization.”

tw

Where disputed, the lower courts viewed the facts, on this motion

for summary judgment, in a light most favorable to Huiskamp.

3 Citations designated as “A-” refer to the Appendix attached to

Huiskamp’s Petition for Writ of Certiorari. Citations designated with an “a”

refer to the Appendix in the Court of Appeals.

4 Huiskamp inaccurately refers to actions of a “bankruptcy court”

throughout his petition. Penn Central's reorganization was before a United

States District Court, sitting as a Reorganization Court under Section 77,

Reorganization of Railroads Engazed in Interstate Commerce, of the Bank-

ruptcy Act. 11 U.S.C. § 205. See, § Collier on Bankruptcy, € 77.11 (1978 and

1986 Supp.).

3

As a result of Penn Central’s bankruptcy, fourteen railroad

lessors similar to New York Connecting also entered reorgani-

zation. (A-4 and 5). Although New York Connecting did not

reorganize, it was clear that the only assets available to satisfy

its obligations were from the Penn Central estate. ( /d.; 289a-

92a; 308a; 293a, 30la; 36S5a-79a). This was so because the

Reorganization Court in Order No. | enjoined all parties from

enforcing liens on property owned or in the possession of Penn

Central. Accordingly, no action could be taken by the Trustee

to enforce the bonds or the mortgage under the Trust Inden-

ture. (185a-89a). If such action were taken, it would have

precipitated New York Connecting’s bankruptcy and forced it

to join other secondary debtors. (A-12 and 13). Furthermore,

Penn Central had claims against New York Connecting for

operating the leased property at a deficit. Given the reorgani-

zation proceedings, neither Penn Central nor New York Con-

necting paid the principal when the 2 7/8% Series B Bonds

matured on Cctober 1, 1974, or the coupon interest payments

that became due after June, 1970 (210a).

2. The 1976 Lawsuit and Consent Judgment For

$21,247,989.00 On Behalf of Bondholders Like

Huiskamp.

On June 25, 1976, while the Penn Central reorganization

was still pending, Horizon (as the Bank of New Jersey) sued

New York Connecting on behalf of bondholders, including

Huiskamp, in the United States District Court for Southern

District of New York, 76 Civ. 2804. (The “Trustee’s Suit”).

That case raised the same basic claim presented by Huiskamp

in this case: liability on the bonds arising from the default on

payments of principal and interest due on the 2 7/8% Series B

bonds. The complaint sought judgment of $20,808,737 and

interest thereon at 2 7/8% from October 1, 1975, the date of

the default on principal payments. (256a-58a). The action was

brought as a protective measure to preserve bondholders’

rights against a claim that the statute of limitations against

bondholders had or would run out. (271a-72a; 274a-75).

4

The Trustee and New York Connecting resolved the litigation

via a consent judgment subject to a stipulation consenting to

the entry of a judgment in the Trustee’s Suit, on June 25, 1976.

The stipulation was based on two conditions: (1) the judgment

would not be enforced against New York Connecting without

approval of Judge Fullam, as the Penn Central Reorganization

Court, or a decree from the Reorganization Court that ap-

proval was not required; and (2) the consent judgment was not

a waiver of the right of Penn Central to contend that neither

the interest in default nor the interest on interest should be

paid by New York Connecting or Penn Central. (A-7; 181la-

82a; 286a).

A consent judgment in the amount of $21,247,989 was

entered on June 29, 1976, in the Trustee’s Suit. The interest

rate on the overdue amounts under this judgment was 2 7/8%.

The consent judgment specifically incorporated the June 25,

1976 stipulation. (21S5a-18a; 195a-98; 204a-05a; 289a).

Huiskamp’s petition does not anywhere refer to the stipulation

in the Trustee’s Suit and only makes passing reference to the

consent judgment. (Petition at 3 and 4). Yet these two uncon-

troverted facts—particularly the condition that the consent

judgment would not be enforced against New York Connecting

without approval of Judge Fullam as the Penn Central Reor-

ganization Court—are central to the holdings of the courts

below. (A-12 to A-14).

The Trustee sent notice of the Trustee’s Suit and the judg-

ment for $21,247,989 to the bondholders on August 27, 1976.

(289a-92a).

The district court found that “[t]here can be no contention

that it was improper for the indenture trustee to agree to the

terms of this consent judgment”. (A-12).° The court concluded

further that all of the assets which would have been used to

collect the judgment were “within the control of the Penn

Central bankruptcy proceeding and about to be conveyed to

ConRail under the aegis of the Special Court”; and, moreover,

5 This is supported by the uncontroverted record. Article Seven,

Section 3 of the Trust Indenture authorized the Trustee to act on behalf of

bondholders in the event of default. (137a).

“any attempt to enforce the judgment would undoubtedly have

precipitated the bankruptcy of New York Connecting”. (A-12).

3. Summary Judgment Was Granted In Favor of New York

Connecting In A Class Action By Bondholders.

Similar issues to those raised in this case were also presented

in a class action in 1976 by bondholders in Sylvia Friedman, on

behalf of all holders of New York Connecting Company), First

Mortgage, series B 2&7/8% Bonds due October 1, 1975 v. New

York Connecting R.R. Co., Index No. 1230/76 (Supreme

Court of New York). There, the court granted summary

judgment for New York Connecting and against the bondhold-

ers on the grounds that the Trustee had already obtained the

consent judgment in the Trustee’s Suit. (624a-26a).

4. Conveyance of Rail Properties to ConRail and Consum-

mation of the Penn Central Reorganization.

During the Penn Central Reorganization, effective April 1,

1976, New York Connecting along with Penn Central and other

transferors conveyed substantially all of their rail properties to

Consolidated Rail Corporation (“ConRail”), pursuant to the

Regional Rail Reorganization Act of 1973 (“The Rail Act”), 45

U.S.C. §§ 701-797. (190a-91a).° The Rail Act mandated that

payment for the conveyed rail property was to be in the form

of certificates of value bearing interest at 8% per year from

and after April 1, 1976. (A-6; 45 U.S.C. §§ 743, 746). After

this transfer, New York Connecting had no real property or rail

lines. Its principal asset was a claim in the Valuation Case, a

proceeding before a Special Court established under the Rail

Act for compensation for the properties conveyed to ConRail

pursuant to the Rail Act. 45 U.S.C. § 743(c); In the Matter of

6 The purpose of the Rail Act was to effect a restructuring of

Northeastern U,S. railroads. The Rail Act amended Section 77 of the

Bankruptcy Act (formerly 11 U.S.C. § 205) particularly with respect to the

role of the Interstate Commerce Commission, and left to the Reorganization

Court the task of reorganizing Penn Central’s retained non-railroad assets.

6

the Valuation Proceedings Under §§ 303(c) and 306 of the

Regional Rail Reorganization Act, No. 76-1 (Special Court).

Bondholders were notified of these developments in a letter to

bondholders dated, August 27, 1976, and in tender offer

documents dated December 10, 1979. (289a-92a; 365a-79a).

On March 17, 1978, the Reorganization Court approved the

Amended Plan of Reorganization for Penn Central Transpor-

tation Company (A-6).’ During the same time, Penn Central

had extensive discussions and negotiations with representatives

of non-bankrupt lessors, such as New York Connecting, to

achieve acceptable resolutions of outstanding claims. (A-6 and

7). And of course, by this time a consent judgment had been

entered in the Trustee’s Suit under which New York Connecting

and the Trustee, on behalf of the bondholders, agreed to seek

enforcement of the consent judgment in the Reorganization

Court.

5. The 1979 Court Approved Settlement Provided For

Satisfaction of Bondholder Claims Through A Tender

Offer, Or That Those Electing Not To Tender Would Be

Satisfied Under The Terms Of The-Trust Indenture.

Shortly after the consummation of the Penn Central Reor-

ganization Plan, Penn Central, New York Connecting and the

Trustee on June 19, 1979, petitioned the Reorganization Court

for approval of an independently negotiated settlement agree-

ment governing bondholders’ claims. This provided for Penn

Central to make a tender offer to acquire the 2 7/8% Series B

bonds, and that those failing to tender would have their claims

satisfied, as provided by the Trust Indenture, from proceeds

7 The terms of the Plan, among other things, provided for the

satisfaction of claims of Penn Central’s secured creditors, such as bondhold-

ers. Such creditors, including bondholders, received a “10-triple-30” form of

distribution: 10% cash and 30% in each of three types of securities—

mortgage bonds, preferred stock and common stock. (A-6).

oneeee in the Valuation Case. (A-8 to A-10; 308a; 293a-

327a).°

The Reorganization Court ordered a hearing date of July 17,

1979, and required that each bondholder be mailed written

notice of the Petition for Approval of the Settlement Agree-

ment, the terms of the settlement agreement and the court’s

Order. (308a). This was done on June 20, 1979 when copies

were mailed to the bondholders—including Huiskamp,

Huiskamp’s father and Huiskamp’s brother/lawyer of record

in this case, John S. Huiskamp, Esquire. (A-14; unnumbered

page between 327a and 328a; 336a-37a; 261a-62a).

On June 26, 1979, John S. Huiskamp, Esquire, acknowl-

edged receipt of the proposed settlement. (356a).

A hearing on the Petition for Approval of the Settlement

Agreement was held on July 17, 1979. Bondholders had the

opportunity to present any objections to the Petition and, in

fact, some appeared and were heard. But, Huiskamp (and the

other members of his family including his lawyer) failed to

assert any objections. (A-14 to A-17; 263a-64).

By letter dated September 21, 1979, Huiskamp through his

lawyer inquired about the court’s disposition of the Petition

for a Settlement Agreement. (362a). He was notified that no

action had been taken. (363a).

8 Section 8 of the settlement agreement governs non-tendering bond-

holders and provides in pertinent part (301a):

8. Treatment of Bonds Not Acquired by Penn Central. In the event

that Penn Central acquires some but not all of the New York Connect-

ing Bonds pursuant to the tender offer, the amounts which may be due

holders of New York Connecting Bonds that are not so acquired shall

be satisfied, as provided in the First Mortgage and subject to the

provisions of paragraph 6 of this Agreement, out of the proceeds of

the the recovery of New York Connecting and the Valuation Case and

any other assets of New York Connecting available for that purpose.

(Emphasis added throughout unless indicated to the contrary).

On October i, 1979, in Order No. 4003 of the Penn Central

Reorganization, the court approved the Petition and the Settle-

ment Agreement after notice to the bondholders and other

interested parties and the hearing. (A-8; 364a).

Pursuant to the October 1, 1979 Order, Penn Central imple-

mented a tender offer dated December 10, 1979. (365a-79a;

223a; 199a-200a; 206a). Under the court approved tender offer,

holders of New York Connecting 2 7/8% Series B bonds, such

as Huiskamp, were given the opportunity to have their claims

satisfied under essentially the same “10-triple-30” package

which the reorganization plans of Penn Central and the sec-

ondary debtors gave to other secured creditors. (365a-79a, A-

8). Every other member of Huiskamp’s family that held bonds

tendered them and accepted this “10-triple-30” package which,

with the passage of time, became more valuable. The settle-

ment agreement and tender offer specified, however, that those

choosing not to tender their bonds would be entitled to have

their claims satisfied “as provided in the First Mortgage [the

Trust Indenture]” from a pro rata share of any assets of New

York Connecting available for that purpose, including any

recovery of New York Connecting in the Valuation Case (A-8

and 9; 295a-307a; 365a-79a), which at that time was New York

Connecting’s only asset.

Huiskamp admits that, between 1972 and the time of the

tender offer in 1979, he actively read everything that was sent

to him regarding the New York Connecting 2 7/8% Series B

bonds, but that he did “nothing”. He neither made any

demands nor asked the Trustee to act on his behalf. (263a-64a).

He chose not to tender his bonds even though his father and

his lawyer tendered their bonds. (A-8; 631a; 261-62a).

On November 16, 1980, the Valuation Case settled. On

December 4, 1980, the Special Valuation Court approved a

settlement agreement among Penn Central and its subsidiaries,

the United States Railway Association and the United States of

America concerning the amount to be paid under the April 1,

1976 conveyance to ConRail. Thus, a fund was created from

which claims of bondholders who failed to tender could be

9

satisfied. On January 28, 1981, New York Connecting notified

remaining shareholders of the 2 7/8% Series B bonds of the

availability of funds to pay obligations to them. (380a-83a;

225a-28a).

6. Huiskamp “Was Kept Fully Informed Of Developments”

Concerning His Rights As A Bondholder From April

1975 Onward.

Huiskamp and his brother/counsel were continuously ad-

vised and assisted by the Trustee and Penn Central regarding

their rights as bondholders. As the district court found: “The

record makes clear that [Huiskamp] was in fairly frequent

contact with the indenture trustee and its counsel, and was kept

fully informed of developments.” (A-14). This finding is amply

supported by the undisputed record:

(a) As early as March and April of 1975, Huiskamp’s lawyer

advised counsel for New York Connecting and the Bank that he

and other members of his family held a substantial amount of

New York Connecting bonds. On behalf of his family mem-

bers, he requested information about action taken to protect

their interest as bondholders. (384a-86a).

(b) By letter dated April 9, 1975, the Trustee’s counsel

notified Huiskamp’s lawyer that the Reorganization Court had

enjoined the Trustee from instituting foreclosure proceedings

authorized by virtue of the default on the mortgage. (387a).

(c) By letter dated August 27, 1976, the Trustee notified

bondholders like Huiskamp of the Trustee’s Suit and judgment

of $21,247,989. It also invited bondholders to provide notice of

whether they desired a meeting to “discuss the issues and

determine if concerted action on their behalf is appropriate

and the means of pursuing such action”. (289a-92a). Notice of

the meeting was sent on February 9, 1977. (388a). The

Huiskamps were aware of this meeting which was held in New

York on February 23, 1977, but were unrepresented because

their “attorney in New York was unable to attend the meeting

at Morgan Guaranty Trust due to a conflict in his schedule”.

(389a-90a; A-14).

10

(d) The Trustee’s counsel responded to a request from

Huiskamp’s lawyer for a status report on the bonds (389a-

90a), and explained in part that (404a):

No foreclosure action against the property of New York

Connecting was possible, inasmuch as such action was

specifically enjoined by the Reorganization Court. By

virtue of the compelled conveyance under the Rail Act,

substantially all of the property of New York Connecting

was transferred to ConRail free and clear of all liens. We

have filed and been granted leave to intervene in the

proceedings before the Special Court which is required

under the provisions of the Rail Act to determine whether

the designated value of the property conveyed to ConRail

is adequate.

It was further explained that:

No action was taken for use and occupancy: of the

property of New York Connecting for multiple reasons,

among which is the fact that the line was operated by

Penn Central at a loss and that operational losses are to

be paid prior to payment of the mortgage obligation.

(e) Huiskamp’s lawyer thereafter requested additional infor-

mation regarding the bonds and the Penn Central reorganiza-

tion. (389a-90a). Counsel for the Trustee responded by letter

dated March 2, 1977. (417a).

(f) Penn Central’s Plan of Reorganization was sent to bond-

holders by the Trustee on March 7, 1977. (391a).

(g) By letter dated March 16, 1977, Huiskamp’s counsel in

this case notified the Trustee’s lawyers that (392a-93a):

We are currently in the process of identifying the bonds

which are held by our family for the court so that we may

be in a position to vote on the New York Plan of

Reorganization—we hold a block of $359,000 par value

bonds. We contemplate filing a statement of position in

addition to voting. We understand that these statements

of positions must be filed by March 31, 1977. With this in

mind, we would appreciate knowing what position you

intend to take on behalf of New York Connecting Rail-

road Company, and the form in which you intend to

assert the position of the company. We do not wish to take

any position which would be contrary to those taken by

you, to the extent we believe your position to be correct.

Moreover, he specifically inquired about the precise issues

raised in this case (393a):

The claim for interest due resulting from nonpayment

of the New York Connecting Railroad bonds when due

(prior to October 1975 the rate of interest was 2 7/8%; on

default, however, the bonds are payable at a higher rate;

at what rate are you claiming interest due after default).

(h) Counsel for the Trustee responded on March 22, 1977,

by explaining the Trustee’s Suit and its judgment, and that

under the Trust Indenture the unpaid amounts were subject to

the same rate as that borne by the bonds. (395a-96a):

The Bank of New Jersey, as Indenture Trustee, on

behalf of all bondholders brought a proceeding in the

United States District Court, Southern District of New

York, against New York Connecting for a judgment on

the bonds and mortgage. A judgment in the sum of

$21,247,989.00 with interest was obtained representing

unpaid interest to June 25, 1976 and matured principal.

The Trustees of Penn Central agreed to a consent judg-

ment so that we would preserve our lien. The indenture

provides, however, that interest on overdue payments

shall be at the same rate borne by the bonds which are

overdue.

Huiskamp and his lawyer neither objected to this, disputed it,

nor claimed that this constituted a breach of any duty by the

Trustee.

(i) By letter dated April 11, 1978, the Trustee notified

holders of 2 7/8% Series B bonds about the approval of the

Penn Central Plan of Reorganization, and that provision for

12

their claims was not included in the Plan but that notice and

the opportunity to accept any settlkement proposal would be

sent. (397a-99a).

(j) By letter dated February 6, 1979, Huiskamp’s lawye1

made further inquiry regarding the status of the New York

Connecting Bonds. (400a). He was advised by letter dated

February 13, 1979 that treatment of the claims of the bond-

holders was still under discussion and that all bondholders

would be advised of developments affecting the status of the

bonds. (401a).

(k) In June 1979, the Trustee sent Huiskamp and his lawyer

notice of the petition for approval of the settlement agreement,

the July 17 hearing on that petition and the tender offer.

(unnumbered page between 327a and. 328a; 336a-37a).

*Huiskamp failed to present any objections at the hearing. But,

before the hearing Huiskamp’s lawyer acknowledged receipt

and inquired about the Trustee’s position on the value of the

assets in the Valuation Case “[iJn order to evaluate the pro-

posal”. (356a). This and other inquiries were answered by letter

dated July 3, 1979. (359a-60a).

(1) After declining to accept the tender offer, from 198]

through 1984, Huiskamp continued to request and to receive

advise from the Trustee and Penn Central regarding his rights.

(406a- 16a).

7. Huiskamp Redeemed His Bonds For The Full Principal

Amount Plus Accrued And Past Due Interest At

2 7/8%.

- After filing this suit, Huiskamp redeemed his New York

Connecting 2 7/8% Series B bonds. On July 25, 1985, he was

paid $58,704.46. This sum represents the amount of unpaid

9 Notice was not only mailed to each bondholder, pursuant to court

order it was also published in The Wall Street Journal, New York Times,

Washington Post and newspapers of general circulation in each state in which

bondholders were known to reside. (308a).

13

principal and coupon interest, as well as interest at 2 7/8% on

those amounts. (632a; 440a, 241a-42a, 249a-5Sa).

Based on the foregoing, the district court found that there

was an absence of any genuine issue of material fact and that

Penn Central and Horizon were entitled to judgment as a

matter of law pursuant to Rule 56. More specifically, the

district court held that Huiskamp’s claims were barred by res

judicata and alternatively, undue delay in asserting his claim.’°

The Third Circuit agreed and affirmed.

REASONS FOR DENYING THE PETITION

I. THE PETITION FAILS TO SATISFY RULE 17.1(a) -

(c) OF THIS COURT BECAUSE IT PRESENTS NO

SPECIAL OR IMPORTANT REASONS FOR GRANT-

ING REVIEW ON A WRIT OF CERTIORARI.

Rule 17.1 of this Court provides that review on writ of

certiorari is a matter of discretion that “will be granted only

when there are special and important reasons therefor”. It lists

three categories of reasons, including (a) conflict between

federal circuit courts of appeals; (b) conflict between the

decision of a state court of last resort on a federal question and

that of another state court of last resort or a federal court of

appeals; and (c) when a state court or federal court of appeals

has “decided a federal question in a way in conflict with

applicable decisions of this Court”.

None of the foregoing reasons are present here. Instead,

Petitioner urges that the collective decision of the lower courts

“transports the doctrine of res judicata far beyond the limits

which the Supreme Court has imposed”. (Petition at 7-8). He

then explains further that “[i]n applying the doctrine of res

judicata to the present facts, the opinions below have come

10° Summary judgment was also granted for the Trustee against

Huiskamp’s claims for breach of fiduciary duty in the district court, and this

too was affirmed by the Third Circuit.

14

into conflict with well-established Supreme Court rules and

decisions”. ( /d. at 10).

Thus, Huiskamp does not contend that there has been a

decision or ruling involving a “federal question” applied in a

way that conflicts with Supreme Court decisions as required by

Rule 17.1(c). This case, which has its federal jurisdiction based

on diversity, only involves an analysis of the uncontroverted

facts under the applicable state common law doctrine of res

judicata.'' The petition thus presents no special or important

reasons for granting review—indeed it raises no federal ques-

tion at all—and it should be denied. See, e.g., United States v.

ITT Continental Baking Co., 420 U.S. 223, 226-27 n.2, 95 S.

Ct. 926, 929 n.2 (1975); Rice v. Sioux City Memorial Park

Cemetery, Inc., 349 U.S. 70, 74, 75 S. Ct. 614 (1955).

Il. THE COURTS BELOW PROPERLY STATED AND

APPLIED THE DOCTRINE OF RES JUDICATA IN

THE CONTEXT OF UNDISPUTED RECORD FACTS.

The courts below fully considered Huiskamp’s contention

that res judicata is not a bar to his claims. The district court

rejected that contention and properly held that “plaintiff's

claims in this action are precluded by the res judicata effect of

Order No. 4003 in the Penn Central reorganization proceeding,

approving the settlement agreement”. (A-13).

The Third Circuit affirmed, holding that (A-22-23):

The district court held that Order No. 400[3] is a final

judgment binding on Huiskamp, and that his claim is

barred by res judicata. We agree that there was identity of

claims, identity of parties, and opportunity to be heard,

and a final judgment. Thus we agree that Order No.

400[3] binds Huiskamp.

1 The choice of law in this diversity action is between the common law

of Pennsylvania, which is the forum state, and New York, which under the

Trust Indenture governs disputes concerning the New York Connecting

2 7/8% Series B bonds. (Article 11 § 1(0),.161a). No real conflict exists,

however, because the common law of res judicata is the same in each

jurisdiction.

15

Res judicata bars relitigation. See, e.g., Commissioner v.

Sunnen, 333 U.S. 591, 597 (1933); Mother’s Restaurant, Inc. v.

Mamma’s Pizza, Inc., 723 F.2d 1566, 1569 (Fed. Cir. 1983);

Alexander & Alexander, Inc. vy. Van Impe, 787 F.2d 163, 165-66

(3d Cir. 1986); Expert Electric, Inc. v. Levin, 554 F.2d 1227,

1232 (2d Cir.), cert. denied, 434 U.S. 903 (1977).

This doctrine embodies the fundamental common law pre-

cept that a “right, question or fact distinctly put in issue and

directly determined by a court of competent jurisdiction . . .

cannot be disputed in subsequent suit between the same parties

or their privies”. Montana v. United States, 440 U.S. 147, 153

(1979), quoting, Southern Pacific R.R. Co. v. U.S., 168 U.S.

1, 48-49 (1897). Accord, United States v. Mendoza, 664 U.S.

154, 158n.3, 104 S. Ct. 568, 571n.3 (1984).

As this Court explained in Commissioner v. Sunnen, supra,

333 U.S. at 597:

The rule provides that when a court of competent juris-

diction has entered a final judgment on the merits of a

cause of action, the parties to the suit and their privies are

thereby bound “not only to every matter which was

offered and received to sustain or defeat the claim or

demand, but as to any other admissible matter which

might have been offered for that purpose.” Cromwell v.

County of Sac, 94 U.S. 351, 352. The judgment puts an

end to the cause of action, which cannot again be brought

into litigation between the parties upon any ground what-

ever, absent fraud or some other factor invalidating the

judgment.

Accord, In re: Teltronics Services, Inc., 762 F.2d 185, 190 (2d

Cir. 1985) (claims barred by settlement between trustee in

bankruptcy and principal creditor, which was approved by the

court); Harris v. Pernsley, 755 F.2d 338, 342 (3d Cir. 1985),

cert. denied, __._ U.S. __., 106 S. Ct. 331 (1986).

Huiskamp does not take issue with the foregoing standards.

Instead, Petitioner argues that the application of the doctrine

of res judicata to the facts of this case did not warrant

16

dismissal. Such a determination, however, is best left for the

lower courts. Also, all of the points raised in Huiskamp’s

Petition were fully and correctly resolved under the foregoing

standards.

A. Identity of Claims Existed.

All of the claims in this case were raised or could have been

raised in the Trustee’s Suit (for defaulting on payments of

principal and interest under the Trust Indenture), or at the 1979

hearing on the court approved settlement agreement which

resulted in a tender offer that satisfied all bondholder claims.

Huiskamp makes two arguments: (1) that there was no

identity of issues because the “purpose of the bankruptcy

petition was to authorize Penn Central’s tender offer”; and (2)

that “jt}here was no reason for the bankruptcy court to

determine or change the judgment creditors status of the [New

York Connecting] bondholders” and the “issue in the second

suit (whether the bondholders are judgment creditors) was

never discussed in the bankruptcy order”. (Petition at 13).

Thus, Huiskamp does not claim that an impropér legal stand-

ard for res judicata was applied. Rather, he disagrees with the

factual determinations made by the district court, and af-

firmed by the third circuit, when applying the law to the

unique facts of this case.

Huiskamp’s first argument, however, amounts to revisionist

history. The purpose of the July 17, 1979 hearing was to

approve the settlement agreement among New York Connect-

ing, Penn Central and the Trustee (on behalf of the bondhold-

ers) resolving bondholder claims on the default. This

settlement was to be implemented by a tender offer, or by

payment from the Valuation Case for those electing not to

tender their bonds. But, contrary to Huiskamp’s argument,

there is no evidence that the 1979 proceeding was narrowly

confined to the tender offer. Ail of Huiskamp’s issues could

have been addressed had he chosen to raise them.

17

Furthermore, Huiskamp’s inaccurate presentation of the

undisputed facts ignores the entry of the June 29, 1976 consent

judgment and the fact that Huiskamp received notice of the

settlement agreement, its purpose and the hearing scheduled on

it. If he disputed what he now claims was a change in status,

his remedy was to object at the hearing.

Based on the uncontroverted record, the district court found

that there was an identity of claims because “[t]he indenture

trustee did file suit, in a New York court, when the principal

default occurred in 1975” (A-12) and that “[t}he litigants then

negotiated a consent decree, under which the entry of judg-

ment for the balance then due on the bonds was conditioned

upon the agreement that leave of this court would be required

before any attempt was made to enforce the judgment.” (A-12;

see also, 286a-87a; 215a, 218a; 195a-98a; 203a-0Sa). The dis-

trict court then concluded that (A-12):

There can be no contention that it was improper for the

indenture trustee to agree to the terms of this consent

judgment. Not only were ali of the assets which might

have been looked to for collection of the judgment within

the control of the Penn Central bankruptcy proceedings

and about to be conveyed to ConRail under the aegis of

the Special Court, but any attempt to enforce the judg-

ment would undoubtedly have precipitated the bank-

ruptcy of New York Connecting (/.e., it would have joined

the other secondary debtors).'”

12 Huiskamp erroneously challenges the Reorganization Court's juris-

diction over the parties and subject matter. (Petition at 11). The record,

however, conclusively establishes that jurisdiction existed. First, New York

Connecting and the Trustee agreed to have bondholder claims approved

before the Reorganization Court by the June 29, 1976 consent judgment.

(202a-03a). Such bondholder claims were in fact approved by court order,

after notice and a hearing, in a representative proceeding before the Reor-

ganization Court, which served as a forum for hearing and approving the

voluntary proposals to satisfy bondholder claims. (A-6 to 9). Second, all of

the assets of New York Connecting, as well as Penn Central's claims against

New York Connecting for operating the leased property at a deficit, were

18

As to Huiskamp’s second argument, there was no modifica-

tion of the rights of the non-tendering bondholders. They

continued to be entitled to precisely the rights under Section 13

of the Trust Indenture, no more, no less: accrued and past due

interest at 2 7/8%.'? In fact, the consent judgment fixed

interest from the time of default until the date of the judgment

at a rate of 2 7/8% per year—the same rate as the contract

rate. The judgment also was expressly conditioned on its not

being a waiver of the right to contend that neither the interest

in default nor the interest on interest should be paid. (286a-

87a; 18la-82a; A-12). Given the foregoing, bondholders simply

did not have typical “judgment creditors rights” concerning

interest.

Further, though the record is devoid of any evidence of a

modification of bondholder rights, it is plain that Huiskamp

and the other bondholders were “kept fully informed of

developments” concerning bondholder rights and that his rem-

edy was to object at the hearing approving the settlement. (A-

14; see pp. 9 to 12 supra).

B. Identity of Parties Existed.

There is an identity of parties between this case, the Trust-

ee’s Suit and the settlement proceedings. “Generally speaking,

one whose interests were adequately represented by another

vested with the authority of representation is bound by the

judgment, although not formally a party to the litigation.”

within the control of the Reorganization Court. (A-3 to 5). Third,

Huiskamp’s belated efforts to collaterally attack the jurisdiction of the

Reorganization Court are improper. If he contested that court’s jurisdiction,

he should have done so at the hearing on the settlement. Moreover, approval

of the settlement agreement was not “incidental” as Huiskamp suggests.

(Petition at 11). Rather, that was the very core of the petition to the

reorganization court to approve the settlement.

13 The issue of whether the settlement agreement somehow modified

the rights of the bondholders or was improper under Article Seven, § 15 of

the Trust Indenture was never raised in the district court and should not be

considered now. See discussion at page 20 infra.

19

Expert Electric Inc. v. Levine, supra, 554 F.2d at 1233. Ac-

cord, Chicago R.I. & PR RY. Co. v. Schendel, 270 U.S. 611, 618

(1927); Mother’s Restaurant, Inc. v. Mamma’s Pizza, Inc.,

supra, 723 F.2d at 1572; Aerojet-Generai Corp. v. Askew, 511

F.2d 710, 719 (Sth Cir.), cert. denied, 423 U.S. 908 (1975).

Huiskamp was in privity with the Trustee in the Trustee’s Suit

because it was brought on behalf of all the bondholders.

Huiskamp contends that he “was clearly not present, there-

fore he would be bound only if the Trustee was a party entitled

to represent him in [the proceedings before the Reorganization

Court]”. (Petition at 13). However, the Trustee was specifically

authorized by Article Seven, Section 3 of the Trust Indenture

to act on behalf of bondholders, such as Petitioner, in the event

of default. (137a). Indeed, the Trustee’s Suit was brought to

protect bondholders by tolling the running of the applicable

Statute of limitations on the default. Huiskamp was well aware

of the Trustee’s Suit and the Trustee’s actions on his behalf,

but he never sought to intervene personally or to object to the

Trustee’s action.'*

Huiskamp alternatively argues that there was a “conflict” in

the Trusvee’s representation of tendering and non-tendering

bondholders, because the settlement agreement protected those

who tendered but eliminated “judgment creditor rights” of

those who did not. (Petition at 14 and 15). No conflict existed.

First, as seen above, the non-tendering bondholders lost no

judgment creditor rights. Second, the Trustee protected non-

tendering bondholders by giving them the option to recover

from New York Connecting’s claim in the Valuation Case.

14 Huiskamp relies on Robinson vy. First National City Bank, 482 F.

Supp. 92 (S.D.N.Y. 1979), to argue that res judicata is inapplicable, but that

case is inapposite. Unlike this case, the plaintiffs in Robinson were not

authorized representatives and had no authority to bind a class of sharehold-

ers who were not present at the prior Penn Central reorganization proceed-

ings. No class had been ceritified, so the absent class members received no

notice of prior Penn Central reorganization proceedings in which the plain-

tiffs had individually asserted their claims. That is substantially different

from this case in which the Trustee was authorized to act for bondholders by

the Trust Indenture, and the bondholders received repeated notices and had

opportunities to be heard.

20

Huiskamp consciously elected to risk this option, while the

other members of his family who tendered did not. Third, his

purported conflict issue lacks support: he had full notice of the

terms of the settlement agreement and the tender offer and the

option of not tendering to obtain a claim in the proceeds from

the Valuation Case, but that he never objected or raised an

issue of this newly claimed conflict.

Further, Huiskamp never raised these claims : either the

district court or the court of appeals. They should not be

entertained now. Singleton v. Wulff, 428 U.S. 106, 120, 96

S. Ct. 2868, 2877 (1976); Hormel v. Helvering, 312 U.S. 352,

556, 61 S. Ct. 719, 721 (1941). Huiskamp had every opportu-

nity to raise issues in his pleadings and summary judgment

submissions before the district court which had the entire

record before it.

C. A Final Judgment Existed.

There unquestionably was a final judgment on the merits

given the consent judgment and the district court’s approval of

the settlement agreement in Order No. 4003 into which the

consent judgment was merged. (364a; see pp. 3-5, 6-9, 14,

supra). It is well established that settkement agreements ap-

proved by the court have the same force and affect as final

judgment on the merits and bar suits seeking to relitigate

similar claims. /n re: Teltronics Services Inc., supra 762 F.2d at

190; Belefonte Re Insurance Co. v. Argonaut Insurance Co.,

581 F. Supp. 241, 243 (S.D.N.Y. 1984), aff,d on other grounds,

757 F.2d 523 (2d Cir. 1985); Bostic Foundry v. Lindberg, 797

F.2d 280, 283 (6th Cir. 1986).

D. An Opportunity to be Heard Existed.

Huiskamp had a full and fair opportunity to litigate the

claims and question the prior action. For instance, on August

27, 1977, the Trustee invited bondholders to meet and discuss

whether “concerted action” should be taken by the bondhold-

ers. (289a-92a; A-14). After describing the Trustee’s Suit and

the judgment of $21,274,989, the Trustee stated:

21

There are many factual and legal uncertainties that exist

in the Special Court and Bankruptcy Court proceedings.

The amount to be received ultimately for the property

taken by ConRail is wholly uncertain and may not be

known for many years. The status of the lease between

Connecting and Penn Central and the agreement by which

Penn Central has guaranteed payment of the Bonds has

yet to be determined. The status of Connecting bondhold-

ers under the Proposed Plan of Reorganization is unclear.

If the holders of twenty five percent (25%) in original

principal amount of Bonds so request, the Trustee will call

a bondholders meeting so that the bondholders may

discuss the issues and determine if concerted action on

their behalf is appropriate and the means of pursuing

such action. If you desire such a meeting, please sign and

return the enclosed form.

Huiskamp failed to attend or to be represented because his

New York lawyer had a conflict in his schedule. (389a-90a;

635a).

Similarly, Huiskamp and his lawyer received notice of the

hearing on the proposed settlement and failed to raise any

objection. As the district court noted, “Plaintiff, whose attor-

ney is his brother, was notified of the hearing on the proposed

settlement agreement, and should have registered his objec-

tions, if any, at the time.” (A-14).

Furthermore, Huiskamp received a copy of the tender offer

but took no action. (263a-64a). Indeed, as the district court

found “[a]t no time until after approval of the settlement

agreement and implementation of the tender offer, did

{[Huiskamp] ever complain of the conduct of the indenture

trustee or lodge any objection with this court.” (A-14 and 15).

Finaily, the district court held that: “{i]f some other alterna-

tive were deemed more equitable, that objection should have

been raised at that time. After approval of the settlement

agreement, and reliance thereon by so may parties, it would

plainly be inappropriate to attempt to restructure the transac-

tion”. (A-16).

22

Huiskamp was properly precluded from raising the same

claims in this case \hat were or could have been previously

decided. “ ‘[NJo significant harm flows from enforcing the

rule that affords a litigant only one full and fair opportunity to

litigate an issue, and ... there is no sound reason for

burdening the courts with repetitive litigation.’ ” United States

v. Mendoza, supra, 464 U.S. at 159, 104S. Ct. at 572, quoting,

Standefer v. United States, 447 U.S. 10, 24 (1980).

CONCLUSION

Huiskamp’s petition for a writ of certiorari to review the

judgment of the United States Court of Appeals for the Third

Circuit should be denied.

1. He fails to raise any important or significant federal

issues as required by Rule 17.1.

2. The district court and court of appeals correctly applied

the established common law standards for res judicata.

Huiskamp’s petition simply raises factual disputes with the

23

district court’s findings, which were reached on the uncon-

troverted record.

Dated May 13, 1987

Respectfully submitted,

Matthew J. Siembieda

(Counsel of Record)

Alexander D. Bono

BLANK, ROME, COMISKY & MCCAULEY

1200 Four Penn Center Plaza

Philadelphia, PA 19103

(215) 569-5500

and

Robert J. Siverd

THE PENN CENTRAL CORPORATION

1700 Market Street

IVB Building, 29th Floor

Philadelphia, PA 19103

Attorneys for Respondents, New

York Connecting Railroad Company

and Horizon Trust Company