Petition for Writ of Certiorari — Chicago, Milwaukee, St. Paul & Pacific Railroad v. United States
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/1N Supreme Court US |
3 7 9 4 FILED
6-1
leg JAN 20 1987
No.
ANIOL, JR,
eB CLERK
In THE
Supreme Court of the Anited States
Ocroser Term, 1986
———
-—
-—
—
CHICAGO, MILWAUKEE, ST. PAUL AND
PACIFIC RAILROAD COMPANY and
CHICAGO MILWAUKEE CORPORATION,
Petitioners,
We
UNITED STATES OF AMERICA and
INTERSTATE COMMERCE COMMISSION,
Respondents.
PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE SEVENTH CIRCUIT
JEROLD S. SoLovy
DantEL R. Murray*
Laura A. KAsTER
BarBara S. STEINER
Cyntuoia G. Bowman
JENNER & BLOCK
One IBM Plaza
Chicago, Illinois 60611
(312) 222-9350
Attorneys for Petitioners
* Counsel of Record
Midwest Law Printing Co., Chicago 60611, (312) 321-0220
i
QUESTION PRESENTED
Whether the Seventh Circuit erred in holding that the
shareholders of the Milwaukee Road are precluded from
seeking $210 million in the Claims Court for a taking of
their property without just compensation when: (a) this
Court expressly recognized in the Regional Rail Reorgan-
ization Act Cases that, under the Fifth Amendment, a
Tucker Act remedy must be available to compensate an
involuntary transfer of rail assets; (b) Congress explicitly
guaranteed a Tucker Act remedy in the Milwaukee Rail-
road Restructuring Act; and (c) the Seventh Circuit had
no authority to preempt relief under the Tucker Act.
ii
PARTIES TO THE PROCEEDING IN
THE COURT OF APPEALS
The parties to this case, Seventh Circuit No. 85-1683,
were Chicago, Milwaukee, St. Paul and Pacific Railroad
Company (Debtor),* and its parent corporation, Chicago
Milwaukee Corporation, as appellants, and the United
States of America and the Interstate Commerce Commis-
sion, as appellees.
RULE 28.1 LISTING
The following are subsidiaries or affiliates of the Chicago
Milwaukee Corporation:
CMC Real Estate Corporation
Hi-Way Paving, Inc.
CMC Investment Corporation
Vulcan-Hart Corporation
Hanson Porcelain Company, Inc.
Vulean-Hart Canada, Inc.
Foster Refrigerator of Canada, Ltd.
Foster Refrigerator (U.K.) Limited
Southern Boiler & Tank Works, Inc.
Milwaukee Land Company
Des Moines Union Railway Company
Minnesota Transfer Railway Company
The Compagnie de Banque et d’Investissements of Switzer-
land holds 9.38% of the common stock of the Chicago
Milwaukee Corporation.
* The former Debtor has been renamed CMC Real Estate Cor-
poration.
ili
TABLE OF CONTENTS
QUESTION PRESENTED ................... i
PARTIES TO THE PROCEEDING
IN THE COURT OF APPEALS ........... il
re =
TABLE OF AUTHORITIES ...............-.
EI cas vccessceeses
ES Eee
CONSTITUTIONAL PROVISIONS AND
pes ulpy i 32 6) O's) ) ES
STATEMENT OF THE CASE ...............
Statutory Background ....................
Proceedings in the Reorganization Court ..
The Decision of the Court of Appeals ....
REASONS FOR GRANTING THE WRIT ....
THE DEBTOR AND CMC ARE ENTITLED TO
SEEK JUST COMPENSATION IN THE CLAIMS
COURT FOR THE TAKING OF THEIR PROP-
PP Tee eee C ECT ATE CLEEEE ERT 9
A. Both The Fifth Amendment And The 3R
Act Cases"Require That There Be Tucker
RE ies gs é éucce EA paren 9
B. Congress Intended That The Milwaukee
Road’s Shareholders Have A Tucker Act
conn & WO DY
ahs ag Gia nda bo a #K De '0 00-5 i
C. The Seventh Circuit Lacked Jurisdiction
To Preempt Claims Court Relief ..... 12
ES ee ee eer 14
s or ~
iv
APPENDIX
Opinion of the United States Court of Appeals
for the Seventh Circuit, August 20, 1986 .
Order Denying Petition for Rehearing, October
De Be sc ov oa ruusecevakebheeedwaseuss
Reorganization Court Order No. 809, February
Ere rere rrr ere T rer
Transcript of Proceedings before Judge Thomas
McMillen, February 8, 1985 ............
Vv
TABLE OF AUTHORITIES
Cases
Almota Farmers Elevator & Warehouse Co. v.
United States, 409 U.S. 470 (1978) .........
Amalgamated Sugar Co. v. Bergland, 664 F.2d 818
oo gt Per porrerr Tre rer cr ere
Armstrong v. United States, 364 U.S. 40 (1960) .
Chas. T. Main International, Inc. v. Khuzestan
Water & Power Authority, 651 F.2d 800 (1st
Ch SE hn be a5 40540 o ne Oe ee
Chelsea Community Hospital v. Michigan Blue
Cross Association, 630 F.2d 1131 (6th Cir. 1980) .
Clark v. United States, 596 F.2d 252 (7th Cir.
eee er ere ee rey Tree rae S
Doe v. United States Department of Justice, 753
FOG 008 GOL. Cir. BORD wc ccc ccscscce
Duke Power Co. v. Carolina Environmental Study
Group, Inc., 4388 U.S. 59 (1978) ............
Estate of Watson v. Blumenthal, 586 F.2d 925 (2d
CARS. SE cS chwnkccnks ee sinedae eae
Hahn v. United States, 757 F.2d 581 (8d Cir. 1985) .
In re Chicago, Milwaukee, St. Paul & Pacific R.R.
Co., 701 F.2d 604 (7th Cir.), cert. dismissed, 463
Se ee III be crs co ora ea oe as
In re Penn Central Transportation Co., 520 F.2d
ee Se errr re er Fs
Kaiser Aetna v. United States, 444 U.S. 164 (1979) .
PAGE
vi
Keller v. Merit Systems Protection Board, 679 F.2d
ee Cee A PD bs 00 bose sdewnnes bagree 13
Kirby Forest Industries, Inc. v. United States, 467
Te ED 3 5 0.6 chav don veendbuntiarwnnses 9
Lomas & Nettleton Co. v. Pierce, 636 F.2d 971 (5th
Se MED (0's banvredes 4406s Wind en eae eenes 13
McKeel v. Islamic Republic of Iran, 722 F.2d 582
(9th Cir. 1983), cert. denied, 469 U.S. 880
RS rr rer ero re iin Torr 13
Penn Central Transportation Co. v. New York
Ca ee a Oe MOPS 6 ics ascceneseeess 9
Polos v. United States, 556 F.2d 903 (8th Cir.
RE rye eee rE ree ene be tee ee vere 13
Portsmouth Redevelopment & Housing Authority
v. Pierce, 706 F.2d 471 (4th Cir.), cert. denied, 3
— ef ee eerrerr rere err 12-13
Regional Rail Reorganization Act Cases, 419 U.S.
SP EE bc Vk Saad cae aee ce heer meee Thess passim
St. Joe Paper Co. v. Atlantic Coast Line R.R. Co.,
ee er RMI os vos hi okt Cee dese bees 5
Constitutional Provisions, Statutes, and Rules
US. Const. amend. V .....csscsescccvess 2,9, 10, 11
Bankruptcy Act of 1898, § 77,
Be ee Be ID bc icdacwndes sae’ 4,5,6
Bankruptcy Reform Act of 1978, § 403(a),
Pub. L. No. 95-598, 92 Stat. 2549, 2683 .... 4
Interstate Commerce Act, ;
ee, OD. ck x0 kG bk 4 eamRO RO WO 6
Vii
Milwaukee Railroad Restructuring Act,
45 UBC. GOOG ww. cncs.s ee passim
Regional Rail Reorganization Act,
CO RR re 8, 10
Staggers Rail Act of 1980, |
45 U.S.C. §1018(c) ....... Terre erereer. passim
Tucker Act,
ee ED cn nccsvcdeecerearees passim
Se I ois cede cba sw shapeoxaens 2
Ser SR hi on os ck ceeds nedneceees 12
Bankruptcy Rule 8-703(aX6) ................04. 7
Other Authorities
H.R. Rep. No. 588, 96th Cong., Ist Sess. 15, re-
printed in 1979 U.S. CopDE Conc. & AD. NEws
SOE Vea VEE VEEN ne ane 5, 11
H.R. Rep. No. 1430, 96th Cong., 2d Sess. 79, re-
printed in 1980 U.S. CoDE Conc. & Ap. NEws
PE ee rer aye Pee Caner Nem meeting: 5, 6, 11
In THE
Supreme Court of the Anited States
Octoser Term, 1986
CHICAGO, MILWAUKEE, ST. PAUL AND
PACIFIC RAILROAD COMPANY and
CHICAGO MILWAUKEE CORPORATION,
Petitioners,
v.
- UNITED STATES OF AMERICA and
INTERSTATE COMMERCE COMMISSION,
Respondents.
—
PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE SEVENTH CIRCUIT
Petitioners, the Chicago, Milwaukee, St. Paul and Pacific
Railroad Company (“Milwaukee Road” or “Debtor’’) and
its parent company, the Chicago Milwaukee Corporation
(“CMC”), respectfully petition for a Writ of Certiorari to
review the judgment of the United States Court of Ap-
peals for the Seventh Circuit in this case.
~ a
OPINIONS BELOW
The opinion of the court of appeals is reported at 799
F.2d 317 and appears at App. 1.1 The order of the court
of appeals denying the petition for rehearing with a sug-
gestion for rehearing in banc is not reported and appears
at App. 39. The decision and order of the district court
is not reported and appears at App. 41.
JURISDICTION
The judgment of the court of appeals was entered on
August 20, 1986. The petition for rehearing with sugges-
tion for rehearing in banc was denied on October 20, 1986.
The jurisdiction of this Court is invoked under 28 U.S.C.
§ 1254(1).
CONSTITUTIONAL PROVISIONS AND
STATUTES INVOLVED
Amendment V to the United States Constitution pro-
vides in relevant part:
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
compensation.
1 “App.” refers to the Appendix to this Petition, and “ICCR.”
refers to the record of the proceedings before the Interstate Com-
merce Commission.
N
indies
The Staggers Rail Act of 1980, 45 U.S.C. § 1018(c), pro-
vides in relevant, part:
Nothing in. . . the Milwaukee Railroad Restructur-
ing Act ... shall limit the right of any person to
commence an action in the United States Court of
Claims under . . . the Tucker Act.
The Tucker Act, 28 U.S.C. § 1491(aX1), provides in rele-
vant part:
The United States Claims Court shall have jurisdic-
tion to render judgment upon any claim against the
United States founded ... upon the Constitution. ...
STATEMENT OF THE CASE
This case arises out of the Milwaukee Road reorganiza-
tion proceedings and the court-ordered sale of the Milwau-
kee Road’s core rail assets to the Soo Line Railroad Com-
pany (‘‘the Soo’) for $210 million less than the Chicago
North Western Transportation Company (‘the CNW’’) of-
fered to pay for the same assets. (App. 2.) Although the
ICC found that the bids for those assets by both the Soo
and the CNW were consistent with the public interest,
and therefore approved both bids, the ICC and the re-
organization court each expressed a preference for the Soo
bid on the ground that the public interest would be better
served by a sale to the Soo. (App. 3-7.) The ICC and the
reorganization court believed that the sale to the Soo
would serve the ICC’s administrative convenience, pre-
serve more rail lines and jobs, and strengthen the national
defense. (App. 3-7, 65-76.) Based on these public interest
considerations, the reorganization court ordered that the
rail assets be sold to the Soo, the lower bidder. (App.
42-44.)
—
ae
The Milwaukee Railroad Restructuring Act (“MRRA’’),
45 U.S.C. §§ 901-922, empowered the reorganization court
to take the Debtor’s property in the public interest. How-
ever, as this Court held in the Regional Rail Reorganiza-
tion Act Cases (“3R Act Cases’), 419 U.S. 102 (1974), such
a taking is constitutional only if a Tucker Act remedy is
available to review the adequacy of the compensation paid.
The gravamen of this case is that the reorganization
court did more than order a forced transfer of rail assets.
Because the reorganization court also made a finding—
neither contemplated nor authorized by the MRRA—that
the Soo bid constituted just compensation, its decision pur-
ports to preclude the Milwaukee Road’s shareholders from
seeking Tucker Act relief in the Claims Court. The Seventh
Circuit clearly recognized that the reorganization court’s
finding was erroneous, but refused to vacate it. (App. 13,
20.) Thus, contrary both to the plain language of the
MRRA and to this Court’s holding in the 3R Act Cases,
the Milwaukee Road’s shareholders stand to suffer a $210
million taking of their property without any opportunity
to seek just compensation.
TORE OD A PTT Ce Neidio. <i ee :
Statutory Background
The United States District Court for the Northern Dis-
trict of Lllinois, sitting as the reorganization court, exer-
cised jurisdiction under both section 77 of the Bankruptcy
Act of 1898, 11 U.S.C. § 205, and the MRRA, 45 U.S.C.
§§ 901-922.2 Section 77 contains the statutory scheme
2 Because these reorganization proceedings were commenced in
1977, the proceedings continue to be governed by section 77 of
the old Bankruptcy Act, former 11 U.S.C. § 205, and Article 8 of
the old Bankruptcy Rules. In re Chicago, Milwaukee, St. Paul
& Pacific R.R. Co., 701 F.2d 604, 605 n.1 (7th Cir.), cert. dis-
missed, 463 U.S. 1233 (1983); Bankruptcy Reform Act of 1978,
§ 403(a), Pub. L. No. 95-598, 92 Stat. 2549, 2683.
|
a
which generally governs all aspects of railroad reorganiza-
tion proceedings filed before October 1, 1979, including
the sale of a debtor’s rail assets. Significantly, under sec-
tion 77, sales of rail assets must be in the best interests
of an estate and at fair market value; and the debtor
has the power to veto any forced sale. See, e.g., Sections
77(b), (d), and (0) of the Bankruptcy Act, 11 U.S.C. §§ 205(b),
(d), and (0); St. Joe Paper Co. v. Atlantic Coast Line R.R.
Co., 347 U.S. 298 (1954).
The MRRA was enacted in 1979 as special emergency
legislation to preserve rail service and jobs in the Mid-
west. (See 45 U.S.C. § 901; H.R. Rep. No. 583, 96th Cong,,
Ist Sess. 15, reprinted in 1979 U.S. CopDE Conc. & AD.
News 1747, 1747-49.) Among other things, the MRRA
provides a streamlined procedure to permit the expedited
transfer of the Milwaukee Road’s rail lines to serve public
interest goals. 45 U.S.C. § 904(b). Unlike section 77, the
MRRA does not require that sales be in the best interests
of an estate or at fair market value. Moreover, the MRRA
does not provide for the debtor’s veto of forced sales.
(App. 54-55.)
In place of the safeguards available under section 77, or
in any ordinary bankruptcy, the Staggers Rail Act of 1980
- amended the MRRA to make clear that nothing contained
in the MRRA “shall limit the right of any person to com-
mence an action in the United States Court of Claims
under ... the Tucker Act.” 45 U.S.C. § 1018(c). The
Tucker Act provides that claims against the United States
based upon the Constitution, including claims for the tak-
ing of property without just compensation, may be brought
in the Claims Court. 28 U.S.C. § 1491(a\1).
The Staggers Rail Act amendment was enacted to make
explicit that the MRRA conformed to the constitutional
principle articulated in the 3R Act Cases. (See H.R. REP.
willie.
No. 1430, 96th Cong., 2d Sess. 79, reprinted in 1980 U.S.
CopE Conc. & Ap. News 4110, 4169.) There, this Court
held that a similar statute, the Regional Rail Reorganiza-
tion Act (“3R Act”), 45 U.S.C. §§ 701 et seg., passed con-
stitutional muster only because an implied Tucker Act
remedy was available for any taking claim. 3R Act Cases,
419 U.S. at 125-36, 148-56.
Proceedings in the Reorganization Court
On December 19, 1977, following years of enormous
losses, the Milwaukee Road filed a petition for reorganiza-
tion under section 77. Despite repeated efforts to reorgan-
ize the Debtor as an operating railroad, which caused an
additional erosion of the shareholders’ equity in an amount
the trustee estimated to exceed $220 million, the trustee
eventually concluded that the Debtor’s rail assets should
be sold. (ICCR. 416, Verified Statement of Richard B.
Ogilvie, filed with Comments of Trustee, April 13, 1984,
at 9-10.)
There were three bidders for the Milwaukee Road’s rail
assets: the Grand Trunk Corporation (“GTC”), the Soo,
and the CNW. (App. 3.) The CNW’s bid was $210 million
higher than the next highest bid, which was made by the
Soo. (App. 2.) Pursuant to section 5(b) of the MRRA, 45
U.S.C. §904(b), the reorganization court submitted all
three bids to the ICC for its review and approval. (App.
3.) In addition, the reorganization court asked the ICC
to express its preference among these bids—although this
procedure is not authorized by the MRRA. (App. 4-5.)
The ICC declined to approve GTC’s bid, but it approved
both the Soo and the CNW bids, finding both to be con-
sistent with the public interest as required by the Inter-
state Commerce Act, 49 U.S.C. § 11344(b). (App. 3-5.) By
me F
a 4 to 3 vote, the ICC expressed its preference for the
Soo proposal on public interest grounds. (App. 5.)
On February 19, 1985, relying upon the record before
the ICC, and over the strenuous objections of the Trustee,
Debtor, creditors, and shareholders, the reorganization
court ordered that the Milwaukee Road’s rail assets be
sold to the Soo. (App. 42-44.) Although the reorganiza-
tion court based its decision solely on the public interest
considerations set forth above, it made a gratuitous find-
ing that the Soo bid was “just compensation,” and it char-
acterized the significantly higher CNW bid as a “wind-
fall.” (App. 3-7, 56, 65-76.) Late that evening, the sale
closed and the assets were conveyed to the Soo. (App. 8.)
The Decision of the Court of Appeals
Under the statutory scheme established by Congress in
the MRRA, the Debtor and CMC were to obtain just com-
pensation for the rail lines sold in the public interest by
filing a Tucker Act suit in the Claims Court.* To avoid
any argument of waiver, collateral estoppel, or res judicata
which might be based upon the reorganization court’s un-
authorized finding as to just compensation, the Debtor and
CMC appealed to the Seventh Circuit and asked it to vacate
that finding. (App. 2.)
The Seventh Circuit assumed that the reorganization
court’s finding of just compensation was erroneous because
the fair market value of the railroad’s property was estab-
lished by the CNW’s $210 million higher bid. (App. 13.)
Moreover, the Seventh Circuit found it “unsettling to con-
. Bankruptcy Rule 8-703(aX6) provides that a sale to a good faith
petaapsavsd may not be overturned on appeal. The Debtor and CMC
ave never questioned the Soo’s status as a good faith purchaser.
-
template the prospect of $210 million gone without re-
dress—without even full appellate review of the decision
to sell to the Soo.” (App. 20.) Nonetheless, the Seventh
Circuit not only refused to vacate the finding of just com-
pensation, but it added its own gratuitous gloss. It held _
that no Tucker Act remedy was available, speculating
that any contrary result would require the United States
Treasury to guarantee the accuracy of all judicial deci-
sions. (App. 19-20.)
REASONS FOR GRANTING THE WRIT
By reading the Tucker Act remedy out of the MRRA,
the Seventh Circuit has attempted to foreclose relief for
a taking of historic proportions. The Constitution requires
that the Debtor and CMC be permitted to seek Tucker
Act relief in the Claims Court to review the adequacy
of the compensation paid for the taking. In the 3R Act
Cases, this Court held that the 3R Act would be uncon-
stitutional if no Tucker Act relief were available. In the
Staggers Rail Act, Congress affirmatively provided a
Tucker Act remedy under the MRRA to make that guar-
antee explicit. Yet the Seventh Circuit has held that no
Tucker Act remedy is available.
The Seventh Circuit decision so far departs from the
normal course of judicial proceedings that review by this
Court is warranted. The decision below directly conflicts
with a recent decision of this Court, a statute enacted
by Congress, and a decision of the Third Circuit Court of
Appeals. Its effect is to work a $210 million injustice upon
the shareholders of the Milwaukee Road. This Court should
grant certiorari and set down this case for plenary considera-
oitiion
tion or, in the alternative, summarily reverse with instruc-
tions that the just compensation finding be vacated.
‘ THE DEBTOR AND CMC ARE ENTITLED TO SEEK JUST
COMPENSATION IN THE CLAIMS COURT FOR THE
TAKING OF THEIR PROPERTY.
A. Both The Fifth Amendment And The 3R Act Cases Re-
quire That There Be Tucker Act Relief.
The Seventh Circuit’s attempt to preclude a Tucker Act
remedy squarely conflicts with the Fifth Amendment and
with this Court’s ruling in the 3R Act Cases, that a tak-
ing is permissible only if the adequacy of the compensa-
tion paid can be tested in a Claims Court suit. Here, the
reorganization court ordered an involuntary sale to the
lower bidder. This caused a $210 million taking because
private parties, the Milwaukee Road shareholders, were
required “to bear public burdens which, in all fairness and
justice, should be borne by the public as a whole.”” Arm-
strong v. United States, 364 U.S. 40, 49 (1960).4
As the Seventh Circuit’s opinion recognized, the Milwau-
kee Road’s shareholders did not receive just compensa-
tion for their property. (App. 13.) The court stated that
the $210 million higher CNW bid constituted the tair
market value of the rail assets and, therefore, their con-
stitutional minimum value. (App. 13.)5 However, instead
4 See also Kaiser Aetna v. United States, 444 U.S. 164, 175 (1979);
Penn a Transportation Co. v. New York City, 438 U.S. 104,
124 (1978).
5 See, e.g., Kirby Forest Industries, Inc. v. United States, 467
U.S. 1, 10 (1984); Almota Farmers Elevator & Warehouse Co. v.
United States, 409 U.S. 470, 474 (1973). As the Seventh Circuit
found, the heavily regulated nature of the railroad industry can-
not justify the $210 million diminution in value of the Milwaukee
Road’s assets, because the bids presented to the reorganization
court already reflected the cost of regulation. (App. 15-16.)
=
of requiring a sale for no less than the constitutional mini-
mum, the MRRA authorized the reorganization court to dis-
regard the best interests of the estate and to subordinate
its interests to the public interest.
The Seventh Circuit’s decision squarely conflicts with
this Court’s decision in the 3R Act Cases, 419 U.S. 102
(1974), in which this Court specifically addressed the con-
stitutionality of a court-ordered taking of rail assets under
the 3R Act. The 3R Act authorized the expedited transfer
of rail lines to Conrail and was silent as to whether a
Tucker Act remedy existed to review the adequacy of the
compensation to be paid pursuant to the statute. 45 U.S.C.
§§ 701 et seg. This Court ruled that the 3R Act survived
constitutional scrutiny only because Congress had not pre-
cluded an injured party from bringing a Tucker Act suit
against the United States for civil money damages. 419
U.S. at 125-36, 148-56. Thus, the Seventh Circuit’s pur-
ported foreclosure of Tucker Act relief renders the MRRA
as applied unconstitutional under the Fifth Amendment.
The Seventh Circuit justified its decision by express-
ing a fear that if relief for a taking were available in
this case, the floodgates would be opened to suits against
the United States whenever judges err. (App. 19.) This
fear is unfounded. The Seventh Circuit erroneously focused
on the reorganization court’s mistaken finding that the Soo
bid constituted just compensation. However, the reorgan-
ization court’s critical error was to address the issue of just
compensation when it had no authority to do so. Like the
3R Act, the MRRA contemplates a two-pronged procedure
whereby the reorganization court may order the expedi-
tious sale of rail assets, while any claim for just compensa-
tion must be pursued in a subsequent Claims Court suit.
Thus, any principle granting redress here would apply
only to claims arising under legislation having these
TF
specific features, and only Congress could increase the
number of Tucker Act claims by enacting comparable legis-
lation.
Moreover, under the Seventh Circuit’s analysis, acts which
would constitute a taking if committed by any agency are
not a taking if committed by a judge. This distinction has
no foundation in any principled interpretation of the Fifth
Amendment and will eviscerate the constitutional protec-
tion afforded private property. Congress should not be
able to avoid paying just compensation by_the simple ex-
pedient of delegating quick-take authority to a federal dis-
trict judge rather than to an administrative agency or ex-
ecutive officer. In light of the direct conflict with this Court’s
decision in the 3R Act Cases, this Court should grant cer-
tiorari and reverse the decision of the Seventh Circuit.
B. Congress Intended That The Milwaukee Road’s Share-
holders Have A Tucker Act Remedy.
The Seventh Circuit ignored the Congressional guaran-
tee of a Tucker Act remedy under the MRRA. 45 U.S.C.
§ 1018(c). Instead, the Seventh Circuit made two errone-
ous rulings: (1) that the MRRA required the reorganiza-
tion court to find that compensation was just before it
could order a sale of rail assets; and (2) that Tucker Act
relief was unavailable. (App. 20.)
Congress specifically recognized that the urgent public
need to preserve the Milwaukee Road’s rail lines required
a quick transfer without just compensation. (See 45 U.S.C.
§ 901; H.R. Rep. No. 1430, 96th Cong., 2d Sess. 79,
reprinted in 1980 U.S. CoDE Conc. & Ap. NEws 4110,
4169; H.R. Rep. No. 583, 96th Cong., Ist Sess. 15, re-
printed in 1979 U.S. CopE Conc. & Ap. NEws 1747,
1748.) Indeed, that recognition lay at the very heart of
the MRRA. For that reason, and because of the constitu-
=—
tional rule articulated by this Court in the 3R Act Cases,
Congress enacted the Staggers Act amendment, which ex-
pressly guarantees Tucker Act relief:
Nothing . . . in the Milwaukee Railroad Restructur-
ing Act . .. shall limit the right of any person to
commence an action in the United States Court of
Claims under . . . the Tucker Act.
45 U.S.C. § 1018(c).
The Seventh’s Circuit’s holding—that a finding of just
compensation is a prerequisite for a court-ordered sale of
the Milwaukee Road’s rail assets—reads the Staggers Act
amendment out of the MRRA. By definition, if a reorgan-
ization court has to find just compensation before order-
ing a rail transfer, there can never be a taking requiring
Tucker Act relief. Thus, this Court should grant certiorari
because the decision below squarely conflicts with the
Congressional directive contained in the very statute that
authorized this taking.
C. The Seventh Circuit Lacked Jurisdiction To Preempt
Claims Court Relief.
The Seventh Circuit lacked jurisdiction to usurp the sub-
ject matter jurisdiction of the Claims Court. The Claims
Court has exclusive jurisdiction over all claims against
the United States in excess of $10,000, and also has ex-
clusive jurisdiction to determine whether there has been
a taking without just compensation. 28 U.S.C. §§ 1491,
1346(aX2).6 The MRRA authorizes the reorganization court
6 The courts of appeals are in agreement on this issue. See, e.g.,
Chas T. Main Int'l, Inc. v. Khuzestan Water & Power Authority,
651 F.2d 800, 815 (1st Cir. 1981); Estate of Watson v. Blumen-
thal, 586 F.2d 925, 929 (2d Cir. 1978); Hahn v. United States, 757
F.2d 581, 585-86 (3d Cir. 1985); Portsmouth Redevelopment &
(Footnote continued on following page)
= =
to order a sale of rail assets in an expedited manner if
the public interest so requires, but does not authorize any
inquiry into the constitutional adequacy of the compen-
sation. 45 U.S.C. §§ 901; 904(b). The statute leaves the
issue of compensation to the Tucker Act and the Claims
Court. (App. 56.)
In In re Penn Central Transportation Co., 520 F.2d
1388 (3d Cir. 1975), also a rail reorganization case, the
Third Circuit held that the Penn Central reorganization
court lacked authority to enjoin the Penn Central Com-
pany from proceeding with a taking claim in the Claims
Court. In a ruling directly contrary to that of the Seventh
Circuit here, the Third Circuit held that the taking issue
was exclusively for the Claims Court:
There is . . . no jurisdiction in the reorganization
court to adjudicate the Tucker Act claim which Penn
Central Company asserts, since jurisdiction over that
claim rests exclusively in the Court of Claims.
In re Penn Central Transportation Co., 520 F.2d at 1392.
The government has contended that the reorganization
court’s finding will preclude the Debtor and CMC from
seeking a Tucker Act remedy in the Claims Court. (App.
8 continued
Housing Authority v. Pierce, 706 F.2d 471, 473 (4th Cir.), cert.
denied, 464 U.S. 960 (1983); Lomas & Nettleton Co. v. Pierce, 636
F.2d 971, 974 (5th Cir. 1981); Chelsea Community Hospital v.
Michigan Blue Cross Ass’n, 630 F.2d 1131, 1136 (6th Cir. 1980);
Clark v. United States, 596 F.2d 252, 253 (7th Cir. 1979); Polos
v. United States, 556 F.2d 908, 905 (8th Cir. 1977); McKeel v.
Islamic Republic of Iran, 722 F.2d 582, 590 (9th Cir. 1983), cert.
denied, 469 U.S. 880 (1984); Amalgamated Sugar Co. v. Bergland,
664 F.2d 818, 823 (10th Cir. 1981); Keller v. Merit Systems Pro-
tection Board, 679 F.2d 220, 222 (11th Cir. 1982); Doe v. United
States Dep’t of Justice, 753 F.2d 1092, 1101 (D.C. Cir. 1985). See
also Duke Power Co. v. Carolina Environmental Study Group,
Inc., 438 U.S. 59, 71 n.15 (1978).
ih.
8.) The Seventh Circuit agreed that its compensation rul-
ing ‘“will conclude the outcome of the Tucker Act litiga-
tion.” (App. 13.) This Court should grant certiorari to cor-
rect the unauthorized action of the Seventh Circuit and
to resolve the direct conflict with the Third Circuit’s deci-
sion in Penn Central.
CONCLUSION
The Seventh Circuit decision conflicts with the Constitu-
tion, this Court’s decision in the 3R Act Cases, the MRRA,
and the Third Circuit’s decision in Penn Central. Accord-
ingly, the petition for a writ of certiorari should be granted
and the case set down for plenary consideration. In the
alternative, because the decision below squarely conflicts
with this Court’s decision in the 3R Act Cases, the Court
may wish to consider summary reversal and remand with
instructions to vacate the finding on just compensation.
Respectfully submitted,
JEROLD S. SoLovy
DaniEL R. Murray*
Laura A. KASTER
BARBARA S. STEINER
CyntHia G. BowMAN
JENNER & BLOCK
One IBM Plaza
Chicago, Illinois 60611
(812) 222-9350 .
Attorneys for Petitioners
Dated: January 20, 1987 * Counsel of Record
APPENDIX
TABLE OF CONTENTS
TO APPENDIX
Opinion of the United States Court of Appeals
for the Seventh Circuit, August 20, 1986 .. App. 1
Order Denying Petition for Rehearing, October
RG OOS a App. 39
Reorganization Court Order No. 809, February
RR Se na App. 41
Transcript of Proceedings before Judge Thomas
McMillen, February 8, 1985 ............ App. 52
App. 1
IN THE
UNITED STATES COURT OF APPEALS
FOR THE SEVENTH CIRCUIT
Nos. 85-1554, 85-1683, 85-2121,
85-2122, and 85-2123
In the Matter of:
CHICAGO, MILWAUKEE, ST. PAUL AND
PAcIFIC RAILROAD COMPANY,
Debtor,
Appeals of:
RAILWAY LABOR EXECUTIVES’ ASSOCIATION
CMC REAL EsTATE CORPORATION
CHICAGO, MILWAUKEE, ST. PAUL AND
Paciric RAILROAD COMPANY
SEABOARD SYSTEM RAILROAD, INC.
Appeals from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 77 B 8999--Thomas R. McMillen, Judge.
Nos. 85-1573 and 85-1953
SEABOARD SYSTEM RAILROAD, INC., and
RaAILwAy LABOR EXECUTIVES’ ASSOCIATION,
Petitioners,
v.
UNITED STATES OF AMERICA and
INTERSTATE COMMERCE COMMISSION,
Respondents.
Petitions for Review of Decisions of the
Interstate Commerce Commission
ARGUED FEBRUARY 28, 1986—DECIDED AUGUST 20, 1986
App. 2
Before Woop, JR., and EASTERBROOK, Circuit Judges,
and BARKER, District Judge.*
EASTERBROOK, Circuit Judge. The Soo Line R.R.
bought the railroad operations of the bankrupt Chicago,
Milwaukee, St. Paul & Pacific R.R. in February 1985 for
$150 million plus the assumption of liabilities estimated
at $420 million. The district court approved the Soo’s bid
even though the Chicago & North Western Transporta-
tion Co. (CNW) bid $360 million plus assumption of essen-
tially the same liabilities, and even though the Interstate
Commerce Commission had found both proposed acquisi-
tions to be consistent with the public interest. The district
court thought the Soo’s bid preferable because the Soo
planned to abandon less of the Milwaukee’s track—abandon-
ments that the district court thought might impair the
country’s military security.
The investors in the Milwaukee, not understanding why
they should be required to contribute $210 million to the
national defense, contend that the district court’s approval
of the sale “took” their property. They have asked the
Claims Court, which under 28 U.S.C. §1491 has exclusive
jurisdiction of money claims against the United States
arising out of takings, for relief. They ask us to set aside
a paragraph in the district court’s order that approved
a finding of the ICC that the Soo’s bid was constitutional-
ly adequate, a paragraph that will impair if not preclude
their suit in the Claims Court.
The Railway Labor Executives’ Association (RLEA)
challenges the sale, too, but on different grounds: it says
that the district court did not impose sufficient conditions
for the preservation of employment of the Milwaukee’s
employees. The RLEA also asks us to set aside an order
of the ICC declining to review the Milwaukee’s final plan
of reorganization. Finally, the Seaboard Line wants us to
* The Honorable Sarah Evans Barker, of the United States Dis-
trict Court for the Southern District of Indiana, is sitting by
designation.
cecil alliances ler eliatatin
App. 3
set aside the district court’s decision (and an order of the
ICC) to the extent they allow the Soo to operate trains
over the Seaboard’s line between Bedford and New Albany,
Indiana. These trackage rights enable the Soo to haul
traffic from Chicago to Louisville, traffic the Seaboard
otherwise might move.
Because the challenges to the sale are so disparate, we
treat the facts pertinent to each challenge separately. Part
I addresses the investors’ constitutional argument, Part
II the RLEA’s arguments about protective conditions, and
Part III the Seaboard’s request to reclaim control of its
track.
I
A
The Trustee of the Milwaukee managed its business for
several years, paring unprofitable operations and refurbish-
ing deteriorating track. The ICC and the reorganization
court decided that the Milwaukee would not be a suc-
cessful line if operated alone, so the Trustee put its
railroad lines and related rail assets up for bids. Three
bidders remained at the end: the Soo Line, the Grand
Trunk, and the CNW. The ICC, whose approval was re-
quired under §5(b) of the Milwaukee Railroad Restructur-
ing Act, 45 U.S.C. §904(b), and the Interstate Commerce
Act, 49 U.S.C. §11344, rejected the Grand Trunk’s pro-
posal. Chicago, Milwaukee, St. Puul & Pacific R.R.—
Reorganization, Fin. Dkt. No. 28640, __. I.C.C.2d __
(Sept. 26, 1984). In the same decision the ICC expressed
concern that the CNW’s proposal would eliminate some
competition (the Milwaukee competed\with the CNW in
many markets), while acquisition by the Soo would have
a smaller competitive effect. It therefore proposed condi-
tions that would have required the CNW to grant track-
age rights, allowing other railroads to operate over its
lines to furnish competing service. Chairman Taylor and
Vice Chairman Andre approved the Soo’s proposal but
did not state their reasons (except to the extent they may
App. 4
be inferred from the ICC’s exceedingly lengthy analysis
of all the proposals). Commissioner Gradison favored the
Soo’s proposal only because it required fewer conditions;
she thought the public benefits of the two proposals were
otherwise equal. Commissioner Sterrett favored the CNW’s
proposal. The ICC “approved” only the Soo’s proposal but
noted that its failure to disapprove the CNW’s left the
reorganization court with the discretion to choose either.
One of the issues before the ICC was the adequacy of
the consideration offered by the bidders. Both Soo and
CNW offered some $150 million in addition to the assump-
tion of debts. Chicago Milwaukee Corporation (since re-
named CMC Real Estate Corp.), the entity that was to
emerge with the Milwaukee’s non-rail assets and the net
payment from the winning bidder (and thus the represent-
ative of the Milwaukee’s equity investors), objected that
$150 million was too little. The net value of the railroad
assets was at least $360 million, according to CMC. The
ICC rejected the CMC’s position for two reasons: first,
the $360 million valuation was the result of discounting
to present value an assumed flow of future earnings, a
methodology the Commission thought unreliable; second,
the value did not represent any actual bid that CMC was
willing to accept. The ICC instead decided to value the
Milwaukee’s rail assets by looking for a multiple of cur-
rent earnings. A bid of $150 million represented a multi-
ple of 16.9 times the Milwaukee’s current earnings and
eight times its projected earnings for 1984. The multiple
of 16.9 was almost twice the average of five large car-
riers reflected in stock market valuations in 1983. CMC’s
asking price of $360 million, more than 40 times current
earnings, struck the ICC as unrealistic.
CNW then met CMC’s “unrealistic”? demand, offering
$360 million (in addition to the assumption of more than
$420 million in liabilities) for the Milwaukee’s rail opera-
tions. CMC and the Trustee declared they were satisfied.
The ICC considered this revised bid, reopened the former
decision (which had suspended judgment on the CNW’s
proposal) and formally approved CNW’s bid. _____ I.C..C..2d
App. 5
____ (Jan. 8, 1985). It concluded that CNW could realize
operational savings of $123 million without abandoning any
lines. But by a vote of 4-3 the ICC again favored the ac-
quisition by the Soo. The majority (Chairman Taylor and
Commissioners Simmons, Lamboley, and Strenio) con-
cluded that the Soo’s bid, though $210 million less than
the CNW’s, remained fair and constitutionally adequate
because it exceeded the net liquidation value of the Mil-
waukee’s rail properties and the average price-earnings
multiple of other railroads. The majority was divided, with
Chairman Taylor and Commissioner Simmons voting to
disapprove the CNW’s bid, largely on the ground that ac-
quisition by the Soo would create new competition while
acquisition by CNW would not and, without the use of
conditions and trackage rights, would reduce competition.
Commissioner Strenio, on the other hand, thought the
matter ‘‘extremely close” and explained that he favored
the acquisition by Soo because it “calls for more head-
to-head competition between rail carriers”. Commissioner
Gradison favored the CNW’s proposal because of its
higher price, raising doubts that the Soo’s could be called
“fair” to CMC. Vice Chairman Andre and Commissioner
Sterrett, although favoring CNW’s bid, did not explain
their positions.
The reorganization court spoke next, approving the
Soo’s bid despite the request by the Trustee and CMC
that it sell to the CNW. The judge did not write an opin-
ion explaining why. His oral remarks state that he was
concerned that CNW planned to file with the ICC an ap-
plication to abandon as much as 1,100 miles of track if
they should prove unprofitable. (CNW had not asked for
permission to abandon any particular track, and any con-
crete proposals would have triggered their own proceed-
ings.) The district court objected to the potential abandon-
ment on several grounds.
Now, what is the matter with abandonment? Well,
for one thing it costs jobs. People are going to be
out of work that were working on the abandoned
transportation system or routes. Another considera-
App. 6
tion that hasn’t been, really, considered very much
but was mentioned by one of the Commissioners. . .
is the matter of national security.
. .. | would say once a railroad is abandoned once
a piece of trackage is pulled up and the land sold it
isn’t going to be replaced. It is almost irresponsible
under the international situation that we are faced
with today to tear up pieces of a railroad system, which
is probably the best in the world, for no better rea-
son than a few million dollars in the bidding price.
I must say that I think that national security is
a very important consideration for keeping an exten-
sive and more viable system of transportation... .
A few hundred million here and a few hundred million
there, and we may be talking real money. (Apologies to
Everett Dirksen.) But the Department of Defense had not
expressed the view that abandonment of track is contrary
to interests of national security, and Congress recently
made it easier to abandon unprofitable track. See Hay-
field Northern R.R. v. Chicago & North Western Trans-
portation Co., 467 U.S. 622, 628-31 (1984) (describing the
evolution of statutes concerning abandonment); cf. Chicago
& North Western Transportation Co. v. Kalo Brick & Tile
Co., 450 U.S. 311, 319-23 (1981).
The court gave two other reasons for preferring Soo’s
bid. One is that the trackage rights that the ICC had
recommended to counteract competitive problems in ac-
quisition by the CNW would require administrative and
judicial supervision; the court thought that the less super-
vision the better. The other is that the Soo’s parent cor-
poration is the Canadian Pacific Railway. The court stated:
Let’s face it. The United States needs foreign trade
and needs friends. We are no longer an unsinkable
battleship, as they called the British Isles in World
War II. If there is going to be another World War,
the United States and our transportation system and
our cities are going to be targets for the enemy to
App. 7
hit. If we have friends in Canada, we have access
to Canada, we have one more way of defending our-
selves. But aside from that because I’m not an alarm-
ist about international affairs, it certainly does pro-
wy international trade and we certainly are in need
of that.
Having established its foreign policy, the court considered
whether the Soo’s bid was constitutionally adequate. The
court relied on what it characterized as the ICC’s finding
that each bid was ‘“‘well above the fair market value” of
the railroad properties of the Milwaukee. This created a
problem, because the CNW had made the higher bid, and
actual bids usually establish the “fair market value’’ of
the property; the ICC’s initial decision had relied on the
absence of a bid higher than the Soo’s to show that
CMC’s valuation was unrealistic. The district judge dis-
missed the extra $210 million as a “windfall” that was
“not the property of the CMC” and “not by any means
a controlling factor in which railroads should prevail in
this particular contest.” Although the ICC had held that
an acquisition by the CNW would not violate the antitrust
laws, a position that the Antitrust Division, representing
the United States in this litigation, does not contest, a
position the district court apparently accepted, the judge
also offered the view that the $210 million difference
reflected only the price at which the CNW could “buy
out some of its competition’.
The court then entered an order directing that the
Milwaukee’s rail assets be sold to the Soo. Paragraph 4
of this order states that the court has considered all of
the objections to the ICC’s findings and recommendations
and that:
the Commission’s findings and decisions should be
and are approved by this Court, since the findings
and decisions were in accordance with law and were
not arbitrary, capricious, an abuse of discretion, con-
trary to constitutional right, power, privilege or im-
munity, in excess of statutory jurisdiction, authority
App. 8
or limitations, short of statutory right, or without ob-
servance of procedure required by law.
The court apparently meant this paragraph to adopt the
ICC’s conclusion that the Soo’s price was constitutional-
ly sufficient and thus dispose of CMC’s argument about
the inadequacy of the price, because no other part of the
order approving the sale deals with the subject of price.
B
After several parties asked for (and did not get) a stay
from this court, Milwaukee and the Soo closed the sale
on February 20, 1985. CNW has withdrawn its bid, and
CMC does not want to upset the sale to the Soo. The
United States and the ICC say that this makes the case
moot. Paragraph 4 of the court’s order does not affect
anything any more, and a court ought not to offer ad-
visory opinions on what would have been. Paragraph 4
is not without moment, however. CMC believes that this
paragraph, the equivalent of a declaratory judgment that
the Soo’s bid satisfied all constitutional requirements,
would block its effort to collect under the Tucker Act in
the Claims Court. See United States v. Munsingwear,
Inc., 340 U.S. 36, 37-38 (1950) (preclusion applies even if
review of the earlier judgment was prevented by moot-
ness). CMC wants an obstacle out of the way.
Because the government took the view that paragraph
4 is meaningless, we asked at oral argument whether it
would accept an order under Munsingwear, 340 U.S. at
39-41, vacating paragraph 4 as moot. See also Department
of the Treasury v. Galioto, 106 S. Ct. 2683 (1986). The
United States objected, for it apparently wants to use
paragraph 4 to obtain issue preclusion (collateral estop-
pel) in the Tucker Act litigation. The continuing dispute
means, however, that the case is not moot. The parties
are embroiled in controversy about whether the Soo’s
price was adequate. If they put the question before the
Claims Court, that court would not find the matter moot.
Because the underlying dispute, the ‘‘case or controver-
App. 9
sy,” determines whether a case is moot, this case is not.
Suppose Congress had authorized CMC to proceed in two
stages: first, to obtain a declaratory judgment in Illinois
that the price was inadequate; second, to ask the Claims
Court to order the payment of money if the inadequacy
is a “taking’’. No one would say that an appeal from the
judgment that the price is adequate is “moot” because
the court in Illinois could not order any additional relief.
We have that case. More than $210 million hangs in the
balance. The accident that divides the issues in the Tucker
Act litigation between the Northern District of Illinois and
the Claims Court does not make this issue moot. Para-
graph 4 resolved a point of contention in an ongoing
dispute. It is no different from a declaratory judgment
entered by the district court.
Nonetheless there is a substantial question whether we
should review paragraph 4. It is one of comity between
courts. The Claims Court has exclusive jurisdiction over
Tucker Act cases, as the Northern District of Illinois has
exclusive jurisdiction over this, the only case under the
Milwaukee Railroad Restructuring Act, 45 U.S.C. §§901-22.
One issue, whether the Soo’s price was adequate, is com-
mon to both cases. The district court had to address the
question to decide who got the Milwaukee’s rail proper-
ties and at what price; the Claims Court may need to
resolve it (if principles of preclusion do not bar the way)
to decide whether to order the United States to compen-
sate CMC for the difference between the Soo’s bid and
the CNW’s. Each court is authorized to decide. But the
reason the district court was authorized to do so has
disappeared. The sale to the Soo may not be undone. Its
price is fixed. The question of comity is whether, now that
the district court’s objective in answering the question
has been realized, further litigation that would affect the
takings claim should be in the Claims Court and the Fed-
eral Circuit.
It is not clear, however, how we might bring that about.
The statute authorizing transfers of appeals, 28 U.S.C.
§1631, is limited to appeals that do not invoke the jurisdic-
App. 10
tion of the court in which they were filed. An appeal from
paragraph 4 is within our jurisdiction and may not be
transferred to the Federal Circuit. We have explained
why it is inappropriate to vacate paragraph 4 as moot.
Still a third possibility is to dismiss CMC’s appeal because
paragraph 4 is no longer relevant to the disposition of
any issue concerning Soo’s right to own and operate the
rail properties. But under Munsingwear an order that left
paragraph 4 standing would preclude any collateral chal-
lenge in the Claims Court. See 340 U.S. at 37-38; see also
Becher v. Contoure Laboratories, Inc., 279 U.S. 388, 391
(1929) (a decision by a state court precludes relitigation
of issues that affect a federal case even though the federal
court has exclusive jurisdiction of patent issues); Murphy
v. Gallagher, 761 F.2d 878, 885-86 (2d Cir. 1985) (same
in securities law); Restatement (Second) of Judgments
§28(3), comment d at 279, and reporter’s note at 287-88
(when the first court has afforded a full litigation of an
issue, and the parties had the incentive to present their
claims fully, the decision binds in litigation before a
specialized court of exclusive jurisdiction). Cf. Marrese v.
American Academy of Orthopaedic Surgeons, 726 F.2d
1150, 1152-54 (7th Cir. 1984) (en banc) (as a matter of
federal law of claim preclusion, a court of exclusive juris-
diction is bound by an earlier judgment of another court
on the same claim for relief), reversed, 105 S. Ct. 1327
(1985) (holding that state law of preclusion applies when
the first judgment is rendered by a state court). The
Federal Circuit, as successor to the Court of Claims, gen
this view of preclusion. E.g., General Dynamics Corp
United States, 558 F.2d 985, 993-94 (Ct. Cl. 1977); Gary
Aircraft Corp., 226 Ct. Cl. 568, 573 (1981) (dictum); ef.
McDonnell Douglas Corp. v. United States, 754 F.2d 365,
368 (Fed. Cir. 1985).
Still another possibility is to vacate paragraph 4 as a
matter of comity between courts, leaving all issues to the
~ Claims Court. There. is some support for this approach
in cases involving state-federal relations. E.g., Colorado
River Water Conservation District v. United States, 424
App. 11
U.S. 800 (1976) (federal court should abstain when a state
court has broad jurisdiction over water rights issues and
should consider all claims to water in a single case);
Samuels v. Mackell, 401 U.S. 66 (1971) (federal court
should not issue a declaratory judgment that will conclude
central issues in ongoing state criminal prosecution). See
also David L. Shapiro, Jurisdiction and Discretion, 60
N.Y.U. L. Rev. 548 (1985) (discussing the extent to which
courts have discretion not to resolve cases within their
jurisdiction). But these abstention cases all involved
federal litigation that would interfere with ongoing state
litigation; the Supreme Court has never suggested that
a federal court ought to vacate an existing judgment in
order to permit relitigation of a settled claim elsewhere.
It has held, instead, that a federal court may issue a de-
claratory judgment whose principal if not sole purpose is
to preclude later state litigation. See Steffel v. Thomp-
son, 415 U.S. 452 (1974). (The case did not decide, how-
ever, whether state courts were bound to respect the fed-
eral judgment, and the Justices took divergent views in
separate opinions.) More recently the Court held it ap-
propriate to issue a declaratory judgment designed to
preempt issues of law that will come before what would
otherwise be a tribunal of exclusive jurisdiction. See
United Auto Workers v. Brock, 106 S. Ct. 2528, 2529-31
(1986). Unless the second tribunal has immunity from such
interference, as in Green v. Mansour, 106 S. Ct. 423
(1986), it is appropriate for the first court properly seized
of jurisdiction to decide the complete question.
Although Steffel and UAW v. Brock show that one court
may issue declaratory relief that binds a second tribunal
of exclusive jurisdiction, they do not hold that it must.
Each court must decide whether the potential interfer-
ence with the business of another is prudent. Kerotest
Manufacturing Co. v. C-O-Two Fire Equipment Co., 342
U.S. 180 (1952); Brillhart v. Excess Insurance Co., 316
U.S. 491 (1942). It is prudent here. The Claims Court does
not possess unique expertise in valuing property or resolv-
ing takings claims. The ICC also values railroads (as it
App. 12
did here), and district courts regularly value property for
takings purposes in condemnation suits by the government
under 28 U.S.C. §1358 and 40 U.S.C. §§257-258f. The ex-
clusivity of the Claims Court is designed to put in one
forum all suits seeking money when the United States
maintains that it owes nothing; the purposes of that ex-
clusivity would not be undercut by a decision that para-
graph 4 of the district court’s judgment prevents recovery
against the United States.
Several things counsel immediate resolution of the
dispute. One is that the valuation was fully litigated
before the ICC, which issued mountainous valuation
studies and two full opinions, and the district court. The
parties invested their all; with $210 million on the table,
no one held back. The parties are entitled to the benefit
of the judgment for which they fought, not least because
the transaction would not have occurred if the district
court had found the Soo’s bid insufficient. The disputed
finding was an essential ingredient of the transaction; had
the district court made a different finding, the CNW
would own the rail assets and there would be no claim
of taking. The reliance interests of the parties—including
the United States, which through the ICC could have
blocked this deal if it thought the decision exposed the
Treasury to a $210 million award—are substantial. Only
the gravest reasons would lead us to vacate the district
court’s judgment and send the parties onward to a fresh
litigation. There may be reasons on the merits why the
judgment must be vacated (though we hold otherwise
below), but it is on the merits that the judgment should
stand or fall.
The parties have briefed two issues: whether the district
judge was right in declaring the Soo’s bid sufficient, and
whether the accuracy of the decision matters. Either
ground supplies a sufficient reason to leave paragraph 4
undisturbed. It is tempting to address the merits and
leave the rest to the Claims Court. If the Soo’s bid is
adequate, the case is over; if not, the Claims Court may
decide whether compensation is due. Yet a resolution of
App. 13
this issue would prove to be advisory if the accuracy of
the district court’s decision does not matter. Courts should
address issues in a sequence that avoids the resolution
of surplus issues. Cf. Adams v. Indiana, No. 85-3212 (7th
Cir. July 3, 1986), slip op. 5. The first issue as a logical
matter is whether an error in paragraph 4 could be a tak-
ing. The parties have briefed this issue fully. We recognize
that consideration of this issue may seem to trench even
more directly on the Claims Court’s jurisdiction than
would consideration of the accuracy of the district court’s
decision. But the Claims Court has exclusive jurisdiction
of cases, not of issues (as the district court’s jurisdiction
of condemnation cases shows), and under the rationale of
Steffel and UAW v. Brock we are free to dispose of this
issue even though it will conclude the outcome of the
Tucker Act litigation. It is best to bring this controversy
to a conclusion, if that is within our power. It is.
C
We shall assume that the district judge erred in believ-
ing that $570 million would have been ‘just compensa-
tion”, had the United States condemned the Milwaukee’s
rail properties. See United States v. 50 Acres of Land,
105 S. Ct. 451 (1984) (the price that a willing buyer would
pay a willing seller is the constitutional measure of just
compensation); Chicago & North Western Transportation
Co. v. United States, 678 F.2d 665 (7th Cir. 1982) (the
fair market value of a line of railroad is the line’s scrap
value when there is no higher bid); In re Valuation Pro-
ceeding, 445 F. Supp. 994, 1008-29 (Spec. Rail Ct. 1977)
(Friendly, J.) (rejecting the argument that valuation should
be at scrap value when a saie at a higher price for a rail
use is possible); cf. In re Chicago, Rock Island & Pacific
R.R., No. 85-2505 (7th Cir. June 24, 1986), siip op. 5 (ac-
tual bids, not hypothetical calculations, are the best in-
dicia of value). CMC thinks that error is the same as a
taking.
There are two preliminary obstacles. The government
contends that judges do not “take” property; a “taking”’
App. 14
is a deliberate act by the political branches, and judges
have no authority to act for the political branches. The
government also insists that owners of railroads accept
the risk that the value of their property will be reduced
by regulation, which is all that happened here. Neither
of these arguments is complete.
It is a matter of indifference to CMC whether a judge
or the ICC determines that the Soo rather than the CNW
prevails. The Takings Clause of the fifth amendment,
which states “nor shall private property be taken for
public use, without just compensation”, addresses the
United States as an entity. If the United States adopts
a policy that takes property, it should not matter that
a judge is the instrument of the policy. The ICC in the
first instance found $570 million sufficient, and had the
ICC been authorized to sell the line this would have ex-
posed the United States to a claim; the court’s approval
of the ICC’s decision did not make the sale any the less
a transfer at the behest of the United States at a price
it found sufficient. The role of the agency is not indis-
pensable, either. Suppose the Milwaukee Railroad Restruc-
turing Act, 45 U.S.C. §§ 901-22, under which the court
acted, had authorized the judge to donate the property
of the Milwaukee to a charity of his choice. The United
States could not use the judge’s role to escape paying
compensation. Cf. Regional Rail Reorganization Act
Cases, 419 U.S. 102, 122-25, 137-39, 154-56 (1974) (diminu-
tion of value of a railroad while a court reorganizes and
values it could be a taking).
The Restructuring Act does not authorize a judge to
give the railroad away, but it does grant the judge con-
trol over sales of the Milwaukee’s lines, 45 U.S.C. §904;
instead of holding an auction, as in an ordinary bankruptcy
case, the judge may choose the buyer. See Jn re Chicago,
Milwaukee, St. Paul & Pacific R.R., 756 F.2d 508 (7th
Cir. 1985). There is no big difference between giving away
half of the Milwaukee’s property for nothing and selling
all of it for half of its value. More, former Bankruptcy
Rule 8-703(aX6), which applies to this reorganization, pro-
App. 15
vides that once a sale to a good faith purchaser has taken
place it may not be undone on appeai. See In re Chicago,
Milwaukee, St. Paul & Pacific R.R., 641 F.2d 482, 484-86
(7th Cir. 1981). See also 11 U.S.C. §363(m). This rule in-
creases the chance of error in the process as a whole by
making it harder for an appellate court to review the
district court’s decisions; sometimes the appellate court
will act quickly (without adequate information and contem-
plation), and sometimes, as here, it will not act at all. The
political branches therefore share with the judicial branch
responsibility for what may have been a mistake that dim-
inished the value of the Milwaukee’s estate. If an incor-
rect valuation and final approval by the ICC would be
a taking by the United States, the same mistake by a
court exercising administrative powers is no less a taking.
The argument that because railroads are heavily regu-
lated their owners must put up with diminutions in value
fares no better. Regulation may diminish the value of
property without “taking” it. Ruckelshaus v. Monsanto
Co., 467 U.S. 986 (1984); Penn Central Transportation Co.
v. New York City, 4388 U.S. 104 (1978); ef. McDonald,
Sommer & Frates v. Yolo County, 106 S. Ct. 2561, 2566-
67 (1986). Railroads have long been subject to regulation
that diminishes their profitability. But it does not follow
that diminution by all means is permitted. If Congress
condemned a railroad station to serve as a post office,
this would be a taking notwithstanding the web of regula-
tion surrounding the railroad, notwithstanding that Con-
gress could have diminished the value of the entire rail-
road in some other way by an amount equal to the value
of the station. Cf. Loretto v. Teleprompter Manhattan
CATV Corp., 458 U.S. 419 (1982) (although rent control
may diminish the value of rental property, a rule requir-
ing lessors to dedicate part of their property to a par-
ticular use is still a taking).
Whether a diminution in value is a taking depends at
least in part on whether the government’s regulatory ob-
jectives entail that diminution. We assume that if the ICC
had found CNW’s bid unacceptable because CNW’s owner-
App. 16
ship of the lines would disrupt transportation or create
excessive market power, this decision, although very cost-
ly to CMC, would not have “taken” its property. But the
ICC did not disqualify CNW. The court’s decision there-
fore was not compelled by the regulatory system. Con-
sider the point from a different angle. The system of
regulation governing the railroads may explain why Soo
bid only $570 million (and CNW only $780 million) rather
than some higher figure such as $1 billion. The difference
between $780 million and $1 billion—the value the Milwau-
kee’s rail assets might have if free from regulation—is not
a taking. See In re Valuation Proceeding, 445 F. Supp.
at 1022 & n.35. The bids that were before the district
court already reflected the cost to CMC of federal and
state regulation. The diminution in the bids did not im-
munize a further reduction in the name of national
defense, trade with Canada, or other objectives of the
court’s choosing.
So when does error “take” property? Suppose agents
of the FBI, while chasing a kidnapper, demolish someone’s
car, Or suppose a postal van runs over a child’s tricycle.
Do these accidents ‘“‘take” the car and tricycle? Certain-
ly they are casualties of the operation of government. Yet
despite the contention that all torts by the government
are takings, see Richard A. Epstein, Takings: Private
Property and the Power of Eminent Domain 35-56 (1985),
the Supreme Court has distinguished the two. E.g.,
Keokuk & Hamilton Bridge Co. v. United States, 260 U.S.
125 (1922) (damage to a bridge caused by the govern-
ment’s blasting is not a taking); YMCA v. United States,
395 U.S. 85 (1969) (damage to a building caused by using
it as a military command post during an insurrection in
Panama is not a taking). Accidental, unintended injuries
inflicted by governmental actors are treated as torts, not
takings. And torts are compensable only to the extent the
Federal Tort Claims Act permits. The Court has never
treated limitations on liability in tort as mere pleading
obstacles, to be surmounted by shifting ground to the
Tucker Act. See United States v. James, 106 S. Ct. 3116
App. 17
(1986); Kosak v. United States, 465 U.S. 848 (1984); Laird
v. Nelms, 406 U.S. 797 (1972).
The question is whether the program, properly carried
out, would be permissible. For example, if planes owned
by the government regularly overfly a farm, causing the
chickens to kill themselves in fright, this planned opera-
tion may “take” an easement across the farm. United
States v. Causby, 328 U.S. 256 (1946). But if a stray
military plane crashes into a chicken coop, killing an equal
number of fowl, this is a tort rather than a taking, and
compensation depends on the extent to which the Tort
Claims Act provides relief. Similarly, if in order to go into
the dairy business the government condemns a herd of
cattle, that is a compensable taking; if the government
condemns the herd to stamp out an infectious disease, that
is not a taking (both because the disease is the principal
cause of the loss and because there are reciprocal benefits
in the program of disease control), see Miller v. Schoene,
276 U.S. 272 (1928); and if the government kills a given
animal mistakenly thinking it diseased, that is a tort
rather than a taking. Had the government carried out the
program accurately and distinguished the healthy from the
diseased, there would have been no taking; a foul-up in
the implementation of the program does not require com-
pensation outside the scope of the Federal Tort Claims
Act. See Langford v. United States,-101 U.S. 341, 344-45
(1879), holding thet when agents of the United States
wrongly believe tha. the government owns some land, and
occupy it under a claim of right, the occupation is a non-
compensable tort rather than a taking. Authorized acts
of the government may be takings, the Court concluded,
but unauthorized or mistaken ones are torts for which the
officer alone is answerable (unless immune). Compare
United States v. Great Falls Manufacturing Co., 112 U.S.
645, 656-58 (1884).
So too with unnecessary searches and seizures (those
supported by probable cause but that turn up no evi-
dence), YMCA, 395 U.S. at 92 (dictum), cf. Baker v.
McCollan, 443 U.S. 187 (1979) (arresting the wrong per-
a
me ye
App. 18
son, though with probable cause, does not violate the Con-
stitution), with unfortunate criminal prosecutions (those
in which the charge was warranted but the jury acquits
or a conviction-is-reyersed), and with the long list of other
governmental acts that can cause deep injury if committed
in error: None of-these costly errors is a taking, and by
parallel reasoning a judicial error in the implementation
of a program is not-a taking, if a correct implementation
of the program nee not be a taking.
A parallel line of cases dealing with the Due Process
Clause comes to the same conclusion. The Takings Clause
does not apply directly to the states, see Barron v.
Baltimore, 32 U.S. (7 Pet.) 243 (1833), but the Supreme
Court has used the Due Process Clause of the fourteenth
amendment to supply a similar set of rules, see Chicago,
Burlington & Quincy R.R. v. Chicago, 166 U.S. 226,
233-41 (1897); Pennsylvania Coal Co. v. Mahon, 260 U.S.
393 (1922). The Due Process Clause forbids the state to
“deprive” a person of “property” save with certain process.
Process sometimes misfires. The state may err in the ad-
ministration of its programs, misunderstand the facts or
misconstrue the law. Do these errors violate principles
of due process? ‘{AJn erroneous decision of a state court
does not deprive the unsuccessful party of his property
without due process of law”. Central Land Co. v. Laidley,
159 U.S. 103, 112 (1895) (collecting cases). See also, e.g.,
Bishop v. Wood, 426 U.S. 341, 349-50 (1976); Davidson v.
New Orleans, 96 U.S. 97, 104-05 (1877); Lynk v. LaPorte
Superior Court No. 2, 789 F.2d 554, 563-64 (7th Cir. 1986);
Toney-El v. Franzen, 777 F.2d 1224, 1227-28 (7th Cir.
1985), cert. denied, 106 S. Ct. 2909 (1986). Mistaken appli-
cations of the law are inevitable, but no principle of con-
stitutional law requires compensation for every mistake.
Daniels v. Williams, 106 S. Ct. 662, 665 (1986); see also
Carson v. Block, 790 F.2d 562, 565 (7th Cir. 1986) (collect-
ing cases holding that the Constitution does not require
states to follow their own laws).
There are other illustrations, but the point has been
made. The government is not absolutely liable for mis-
taken implementation of a law that does not otherwise
App. 19
take property. Were it otherwise, the Treasury would
guarantee the accuracy of all administrative and judicial
decisions. That was certainly not the understanding in
1791, when the Takings Clause was added to the Consti-
tution; to the contrary, there was consensus that the
sovereign could not be sued for errors save with its
consent. We do not think that the Takings Clause, un-
beknownst to all, established a principle of governmental
liability for mistakes in the implementation of federal pro-
grams. The principle would have substantial effects, too
large to escape notice in 1791 (and since). Many decisions
are effectively unreviewable or cause damage before they
may be reviewed. When the FTC announces its opposi-
tion to a merger, this may lead the merging parties to
abandon their plans; they may not turn around and col-
lect damages on the ground that the FTC holds mistaken
views about the antitrust laws. If the Antitrust Division
should get a preliminary injunction that blocks the
merger, the interim order may doom the plans even if
the court of appeals later reverses; here the judge’s error
is established, but the error does not expose the United
States to a suit under the Tucker Act, because the anti-
trust laws, when properly carried out, do not take prop-
erty. (No one has a legitimate claim of entitlement to mo-
nopoly profits.) Pretrial detention, the grant of a motion
to compel extensive discovery in a securities case, these
and many more may inflict great injury, and erroneous
decisions by district judges may escape effective review.
A rule requiring the Nation to bear the costs would not
reduce the number of errors or the incidence of their
costs. It would, however, produce much litigation as peo-
ple tried to tap the Treasury by showing judicial error.
A rule of cost shifting via the Takings Clause might even
increase the number of judicial errors. People would fear
judicial error less and so would do less to prevent it.
Knowing that they could turn to the Treasury for relief,
people would be tempted to skimp on developing the rec-
ord and briefing the case to get it right the first time.
One reason for res judicata and other rules of preclusion
App. 20
is to induce parties to concentrate their energies on a
single full and fair contest in which error will be held to
a minimum. So, too, a rule foreclosing resort to takings
litigation may improve the quality of the initial litigation.
A principle that the adequacy of the rule of decision, and
not its implementation in a given case, controls the consti-
tutional question, will do the trick.
The Milwaukee Railroad Restructuring Act neither re-
quires nor authorizes a judge to transfer property for com-
pensation that is less than the constitutional minimum.
The Restructuring Act is thus unlike the statute at issue
in the Regional Rail Reorganization Act Cases, which not
only required a transfer without a prior finding of ade-
quate value, see 419 U.S. at 155, but also could have
caused a taking by the erosion of value during the judicial
proceedings, id. at 122-25. The Restructuring Act makes
adequate compensation a condition of any sale. The ICC
believed that it should not approve any bid less than the
fair market value of the Milwaukee’s rail assets. It found
that a bid of $570 million was fair market value. The dis-
trict court, too, proceeded as if the rule of decision were:
“Choose from among the bidders that have offered at
least the fair market value of the Milwaukee’s rail assets.”
The court determined that the Soo’s bid matched the fair
market value. If the court was right, then the sale to the
Soo did not take CMC’s property. For the reasons we
have given, a judicial error in answering a constitutionally
appropriate question does not subject the United States
to a claim of taking. We therefore have no reason to
vacate paragraph 4 of the district court’s order.
It is unsettling to contemplate the prospect of $210
million gone without redress—without even full appellate
review of the decision to sell to the Soo. But we cannot
undo the sale now, and to treat judicial error as a “‘tak-
ing” has no support in the history of the Constitution or
the first 200 years of its interpretation. The size of an
error (if there was one) does not justify constitutional in-
novation; modern exigency does not authorize courts to
change the rules established at the beginning. The $210
App. 21
million in one case is not different in principle from 210
cases, each of which entails $1 million worth of useless
discovery under a court’s directive, or a million bicycles
crushed by postal trucks.
We can imagine cases that test the limits of our ap-
proach. Suppose the disparity between market value and
the price approved by a judge were so great that the pur-
chaser would not even count as a “good faith purchaser
for value” under the Uniform Commercial Code (for ex-
ample, the person who buys a gold watch for $20 from
a seller displaying an ample supply on the inside of a
trench coat). Then a court might say that the sale could
be undone under §363(m), or that the disparity of value
is so great that the court must have been dissembling
in saying that it was trying to apply the constitutional
standard. None of these hard cases is before us. The ICC
found the value sufficient, and $570 million—a price earn-
ings multiple exceeding that of other operating railroads—
is not so shockingly deficient to call a limiting rule into
play. This was a real sale, not a purchase from a fence
or disguised judicial charity.
II
A
The purchaser of a line of railroad usually finds it en-
cumbered with conditions designed to protect the jobs (or
at least the income) of the line’s employees. The ICC
recommended that the sale of the Milwaukee’s rail prop-
erties be accompanied by rules referred to as the New
York Dock conditions, after New York Dock Ry.—Control,
360 1.C.C. 60 (1979), aff'd under the name New York Dock
Ry. v. United States, 609 F.2d 83 (2d Cir. 1979). It is not
important to recount just what these are. See Simmons
v. ICC, 760 F.2d 126, 128-29 (7th Cir. 1985), cert. denied,
106 S. Ct. 791 (1986), for a compact description. The Soo,
which projected eliminating 670 jobs entirely by attrition
and early retirement, agreed to be bound by them, and
the ICC said that they were enough, rejecting the argu-
App. 22
ment of the Railway Labor Executives’ Association (RLEA).
The RLEA maintained that not only the Soo’s new em-
ployees but also employees of other railroads affected by
new competition from the Soo should be protected; the
ICC disagreed. The RLEA also wanted protection for em-
ployees on furlough at the time of the transfer; the ICC
decided that only employees active at the time of the sale
or recalled to work thereafter should be protected.
The district court was authorized by the Restructuring
Act, 45 U.S.C. §904(bX1), to decide for itself what labor
protective conditions should be imposed. The statute pro-
vides: “In authorizing any sale or transfer, the court shall
provide a fair arrangement at least as protective of the
interests of employees as that required under section
11347 of title 49 of the United States Code.” The CNW
proposed that the district court use its authority to im-
plement a different set of conditions, called the ‘“Appen-
dix B” conditions. The Trustee supported these conditions
for CNW’s bid. Although the district court did not ap-
prove CNW’s bid, it chose the “Appendix B”’ conditions,
while lawyers for the Soo looked on in silence. The prin-
cipal difference between the “Appendix B” conditions and
the New York Dock conditions is that although New York
Dock requires the railroad to notify employees of impend-
ing changes 90 days in advance, and to negotiate with
the unions concerning their consequences until agreement
is reached, “Appendix B” shortens the time to ten days
and allows the railroad to make the changes whether or
not the unions consent. “Appendix B” also requires that
any employee injured by this accelerated schedule be
made whole. See Jn re Chicago, Milwaukee, Si. Paul &
Pacific R.R., 658 F.2d 1149, 1151-52 (7th Cir. 1981) (Pro-
tective Conditions), cert. denied, 455 U.S. 1000 (1982), for
a description of the difference. (The Soo represents that
this is the only difference between “Appendix B’”’ and
New York Dock conditions, a position to which we expect
the Soo to adhere.) The order of February 1985 trans-
ferring the rail operations to the Soo contained a freeze
of at least 90 days on all operational changes, so the full
App. 23
set of protective conditions is ‘Appendix B” plus the in-
itial freeze.
The RLEA protests that the district court moved in the
wrong direction; it should have made the conditions more
rather than less favorable to labor. The “Appendix B”
conditions, the RLEA insists, are illegal because less “pro-
tective of the interests of employees” than the minimum
under 49 U.S.C. §11347. The RLEA also challenges two
related decisions. After the Soo bought the line, the
RLEA asked the ICC to disapprove the Milwaukee’s final
plan of reorganization, on the ground that the Milwaukee
had not adequately provided for workers who agreed to
defer increased wages during the reorganization. The
RLEA wants the Milwaukee to renay the workers 130%
of these deferrals. The ICC dismissed the petition, con-
cluding that once the Milwaukee had transferred its rail
operations to the Soo, the Milwaukee was no longer a rail-
road subject to the ICC’s jurisdiction. The RLEA also
asked the district court to disapprove the plan of reorgan-
ization, but the court confirmed the plan. The “Appen-
dix B’’ conditions and the ICC’s dismissai of the petition
are before us for decision; the objections to the confir-
mation of the plan are not.
B
The RLEA’s request that we order the Soo to assume
the New York Dock conditions is moot. Former Bank-
ruptcy Rule 8-703(aX6), which applies to the last stages
of this reorganization under §77 of the Bankruptcy Act
of 1898, 11 U.S.C. §205 (1976), provided:
Unless an order approving a sale of property. . .
is stayed pending appeal, the sale to a good faith pur-
chaser . . . shall not be affected by the reversal or
modification of such order on appeal, whether or not
the purchaser . . .. knows of the pendency of the ap-
peal.
The Bankruptcy Code of 1978 codifies this rule in 11
U.S.C. §363(m), which uses similar language. Several par-
App. 24
ties, including the RLEA, asked us to stay the sale to
the Soo; the request was refused, and the sale was closed
on February 20, 1985. The imposition of the New York
Dock conditions would “‘affect’’ the sale just as surely as
a sudden increase in the price would affect it, and former
Rule 8-703(aX6) therefore forbids us to grant the relief
the RLEA proposes. See also In re Chicago, Milwaukee,
St. Paul & Pacific R.R., 641 F.2d 482, 484-86 (7th Cir.
1981) (rejecting on the basis of Rule 8-703(aX6) a challenge
to the sale of some of the Milwaukee’s property).
RLEA tries to escape the operation of the Rule by con-
tending that the Soo is not a “‘good faith purchaser”, but
this will not wash. Only fraud, collusion, or knowledge of
the illegality of the sale defeat “good faith’. In re
Magwood, 785 F.2d 1077, 1081 n.6 (D.C. Cir. 1986); In
re Rock Indus. Machinery Corp., 572 F.2d 1195, 1198 (7th
Cir. 1978). See also In re Sax, No. 85-2925 (7th Cir. July
22, 1986), slip op. 6-7 (sale need not be “‘proper” to be
Sheltered; it need only be ‘‘authorized”’). The Rule and
§363(m) enable the bankruptcy court to promise the pur-
chaser that it will get a good title and thus reduce the
risk the purchaser must assume. Once the bidders know
what they will get, they can bid its full market value;
if the sale were subject to subsequent amendments, the
bidders would reduce their valuations by the anticipated
cost of accommodating these changes. Saz, slip op. 6. A
reduction in the risk leads to higher bids, to the benefit
of the bankrupt estate.
That there may be a fair debate about the order of sale
does not undercut good faith. The statute and the rule
are concerned only with incorrect orders, those reversed
in fact. (Correct orders will be affirmed, so there will be
no change in the conditions of the sale with or without
the Rule and §363(m).) Orders that are reversed surely
were subject to fair debate. Yet both Rule and statute
specify that knowledge of the pending appeal does not
prevent the sale from being final. This means that the
buyer’s knowledge that the court has resolved a debatable
issue—even resolved it incorrectly—does not prevent the
App. 25
buyer from taking the property in good faith. Our deci-
sion in In re EDC Holding Co., 676 F.2d 945 (7th Cir.
1982), one of the few cases ever to find “bad faith” under
a statute similar to Rule 8-703(aX6), relied not only on the
party’s knowledge of illegality but also on an appearance
that the party seeking shelter from the rule had used it
to improve its position compared with other creditors.
Nothing of the sort took place here. A party does not
“know” to be illegal whatever turns out to be so. The
knowledge component of this test is more like the sort
of knowledge that leads to criminal liability (people
“know” that wages are taxable even if they have deceived
themselves into thinking they are not) or the sort of
specious position that leads to the imposition of sanctions
in litigation.
The Soo is a third party that made a bona fide bid, and
the Soo did not know that the “Appendix B” conditions
were illegal. To the contrary, Protective Conditions held
that the district court possessed the discretion to use the
‘“‘Appendix B” conditions in connection with the sale of
one line of the Milwaukee’s track, and In re Chicago,
Milwaukee, St. Paul & Pacific R.R., 756 F.2d 508, 515-16
(7th Cir. 1985) (Soo Intervention), held that the portions
of the Restructuring Act allowing the sale of any line of
track also allow the sale of the whole rail system of the
Milwaukee. Protective Conditions and Soo Intervention
together give the Soo a strong argument that the “Ap-
pendix B” conditions may be applied to the sale of the
whole railroad. Whether this argument is strong enough
we need not say; ail we decide is that it precludes a con-
clusion that the Soo is not a “good faith purchaser’”’ under
the Rule.
Although it might be said that the Soo and the Trustee
closed the sale in great haste, just hours after this court
denied the RLEA’s application for a stay, that does not
subtract from the Soo’s good faith. That term of art has
nothing to do with the speed at which a transaction pro-
ceeds—at least not if the parties wait long enough to allow
the court of appeals to act on the application for a stay.
App. 26
Once this court had refused to stay the sale, it made no
difference whether the deal closed the next hour or the
next month. And although RLEA also argues that the
district court’s order was so erroneous that the court lost
its “jurisdiction,” Sax disposes of this position. The dis-
trict court had jurisdiction to determine its authority to
do what it did, which shelters the purchaser at the sale.
There has been some debate among the parties about
whether labor conditions imposed on the Milwaukee in
1936 survived the sale to the Soo. This question was not
decided by the district court and is not properly before
us. The motion to supplement the record is denied.
C
In March 1985 the Trustee petitioned the ICC under
§77(d) of the old Bankruptcy Act to clarify its role in
reviewing the Milwaukee’s final plan of reorganization into
a real estate corporation (CMC). The Trustee argued that
approval was unnecessary because the Commission’s earlier
decisions had approved every significant feature of the
plan of reorganization. The RLEA opposed the petition.
In April 1985 the ICC dismissed the Trustee’s petition
on the ground that because the Milwaukee had sold its
rail operations to the Soo, it was no longer a railroad and
was not within the Commission’s jurisdiction. Fin. Dkt.
No. 28640 (Sub-No. 9), __._ I.C.C.2d ______ (1985).
The RLEA does not maintain that by April 1985 the
Milwaukee was still a railroad, and §77, with its approval
provision, is limited to railroads. RLEA insists, however,
that the Milwaukee had to be treated as if it were a
railroad because the sale of the rail assets in February
was illegal. This is so, RLEA says, because rail assets
of a bankrupt railroad may be sold only as part of the
plan of reorganization under §77 of the 1898 Bankruptcy
Act. The Soo took under the Milwaukee Restructuring
Act, not the Bankruptcy Act, so according to the RLEA
the ICC still needed to approve a reorganization under
the 1898 Act. This requirement of approval becomes the
App. 27
hook that the RLEA proposes to use to require CMC to
pay additional sums to its former workers to make up
for what they deferred or lost during the reorganization
and sale of the railroad, perhaps even to get the New
York Dock conditions.
To the extent the RLEA wants to use the process of
approving and confirming the plan to change the condi-
tions under which the Soo took the rail assets, the claim
is moot for reasons we discussed above. To the extent
the RLEA wants the ICC to impose conditions on CMC
as a condition of approval of the plan, it loses because
we held in Soo Intervention, 756 F.2d at 515-16, that the
provisions of the Restructuring Act could be used to sell
the whole railroad. We are not disposed to reexamine Soo
Intervention. See also In re Chicago, Milwaukee, St. Paul
& Pacific R.R., 701 F.2d 604, 607 (7th Cir.) (emphasizing
that a purpose of the Restructuring Act was to allow the
court to sell the Milwaukee’s rail assets quickly), cert.
dismissed, 463 U.S. 1233 (1983). The Restructuring Act
required the district court to get the ICC’s views, just
as §77(d) the Bankruptcy Act called for the ICC’s views
on a plan of reorganization. The Restructuring Act changed
the rules, however, by allowing the district court to make
its own decision in the end. Here the district court took
the ICC’s advice and sold the lines to the Soo. The dis-
trict court had the authority to turn the Milwaukee into
a real estate company on its own. The RLEA treats the
Restructuring Act as a second hoop through which every-
one had to jump, but Congress meant it to streamline the
§77 procedures. Compliance with the Restructuring Act
is sufficient to transfer the rail properties; the parties
need not obtain a redundant clearance under §77.
There is no doubt that by April 1985 the Milwaukee
was not operating a railroad. Section 77(d) refers to “the
debtor’, and this might be the basis of a contention that
the Milwaukee remained subject to §77(d) even though it
was no longer a railroad, needing the ICC’s permission
to get out of bankruptcy. The ICC reads the statute
otherwise, however, and its interpretation is entitled to
App. 28
respect. Chemical Manufacturers Ass’n v. Natural Re-
sources Defense Council, Inc., 105 S. Ct. 1102, 1108 (1985);
Watkins v. Blinzinger, 789 F.2d 474, 478 (7th Cir. 1986).
The ICC has said its piece on this reorganization. Sec-
tion 77(d) of the Bankruptcy Act was designed to ensure
that the ICC could control railroad reorganizations. The
ICC dominated this one, prevailing on every issue except
the New York Dock conditions. It had nothing more to
say, and an interpretation that would apply §77(d) to firms
that are not railroads any longer, despite the ICC’s pro-
testation that it does not want to review anything, would
not have any plausible function.
D
The district court confirmed the Milwaukee’s plan of
reorganization on July 12, 1985. The RLEA and several
other parties have filed appeals from the order confirm-
ing the plan. Although many of the RLEA’s arguments
about the order of sale and the ICC’s refusal to review
the plan go to the merits of that plan, the RLEA’s ap-
peal from the confirmation is not before us. It and all
other appeals have been consolidated for separate disposi-
tion. We have disposed of RLEA’s arguments on jurisdic-
tional grounds. Nothing we say here bears on the merits
of any appeal from the order confirming the plan, and we
mean to leave no clues about what our views might be.
II]
A
The rail assets of the Milwaukee included rights to run
trains between Bedford and New Albany, Indiana, over
the track of the Seaboard System. These trackage rights
enabled the Milwaukee to serve Louisville, Kentucky, and
in the hands of the Soo (and the Canadian Pacific) ap-
parently will offer formidable competition to the Seaboard,
which otherwise might pick up the traffic in Chicago. The
district court transferred these trackage rights to the Soo
over the Seaboard’s opposition, and the Seaboard asks us
App. 29
to annul the transfer on the ground that the trackage
rights agreement contains a clause allowing assignment
only if the Seaboard concurs—which it certainly does not.
The trackage rights arose out of the acquisition of the
Monon R.R. by the Louisville & Nashville R.R., one of
the Seaboard’s predecessors. The acquisition would have
given the L&N, which operated a single-line route be-
tween Chicago and Louisville, another. The ICC feared
that this would reduce competition, and it ordered a pro-
testing L&N to grant the Milwaukee trackage rights from
Bedford to New Albany (which is across the Ohio River
from Louisville). Louisville & Nashville R.R.—Merger—
Monon R.R., 338 1.C.C. 134, 145-56, 168-69, 185 (1970).
The Milwaukee had a line from Chicago to Bedford; with
the trackage rights, it could offer single-line service from
Chicago to Louisville in competition with the L&N. The
ICC stated that it would not approve the acquisition
unless the L&N granted trackage rights; the L&N con-
sented aid completed the acquisition.
The L&N and the Milwaukee had trouble agreeing on
the terms of the trackage rights, so in 1973 the ICC dic-
tated them. Chicago, Milwaukee, St. Paul & Pacific
R.R.—Trackage Rights, 342 1.C.C. 578, aff'd under the
name Louisville & Nashville R.R. v. United States, 369
F. Supp. 621 (W.D. Ky.) (three-judge court), aff'd mem.,
414 U.S. 1105 (1973). The L&N wanted a time limit on
the trackage rights, a prohibition against their sale or
assignment by the Milwaukee, and automatic termination
in the event of the Milwaukee’s merger, consolidation, or
bankruptcy. The ICC declined to accept these proposals.
It explained in part, 342 I.C.C. at 595, 600-01:
[I]t is difficult to perceive how any change may come
about in Milwaukee’s status which would have such
adverse effect on L&N and its interest to require
summary termination of trackage rights operations.
. . . [T]he Commission’s authorization must first be
obtained before Milwaukee may merge or consolidate,
or fall under common control, with any other carrier,
App. 30
and L&N would have ample opportunity in appropri-
ate proceedings before the Commission to oppose ac-
quisition of control by competing railroads over the
Milwaukee trackage rights.
Milwaukee is here the instrument of the Commis-
sion’s policy, in the public interest, to foster competi-
tion among railroads in a particular situation, and the
trackage rights operations authorized should be per-
mitted, and indeed required, to continue just so long
as that policy is valid and serves the public interest.
On petition of the parties, or either party to the
agreement, . . . the public interest may be recon-
sidered or reexamined at any time, and the appropri-
ate action taken to modify the terms of the agree-
ment or to require termination thereof.
L&N and the Milwaukee then signed a trackage rights
agreement. Paragraph 14 reserves the ICC’s jurisdiction
to alter or terminate the agreement. Paragraph 15, which
was added to the agreement after the ICC’s opinion, pro-
vides:
This agreement and all rights granted hereunder
to Milwaukee Company may not be transferred or
assigned, in whole or in part, unless Louisville Com-
pany, its successors or assigns, shall consent in
writing thereto. Any such attempted transfer or
assignment, in whole or in part, shall be void and
of no effect.
Paragraph 13 contains a clause providing for arbitration
of “any difference or dispute” concerning the terms of
the agreement or operations using the trackage rights.
Before the ICC considered the three proposals to ac-
quire all of the Milwaukee’s rail operations, it published
a notice in the Federal Register, 49 Fed. Reg. 12333 (Mar.
29, 1984), that invited interested persons to comment. The
Seaboard did not, although it does not deny that it had
actual notice of the proceedings before the ICC. The
ICC’s orders of September 1984 (approving a sale to the
App. 31
Soo) and January 1985 (approving both the Soo and the
CNW) are crammed with descriptions of trackage rights
and conditions on transfers. Although they mention the
Milwaukee’s trackage rights to New Albany, the orders
do not discuss their transfer to the Soo or the CNW. This
is no surprise, because no one asked the ICC to consider
the propriety of the transfer.
The Seaboard, which was not a party to the reorganiza-
tion, then asked the court to forbid a transfer of the track-
age rights to the Soo or the CNW. There followed some
confusing exchanges. At the oral argument held on Feb-
ruary 7 to discuss the terms of the transfer, the court
recognized that the ICC had not addressed the Bedford-
New Albany trackage rights and asked the Trustee whether
the Asset Purchase Agreement (the complex document es-
tablishing the terms of the sale) would extinguish the
Seaboard’s claims. The judge asked: “‘Wouldn’t the Trustee
makes [sic] his conveyance without warranties, simply
convey whatever rights he has and let the purchaser
worry about that?” Counsel for the Trustee answered:
‘{T]hat is exactly the type of conveyance that is being
considered. But the Seaboard is asking this Court to
decide the issue.”
The matter was dropped until the next day, when the
court read findings and conclusions from the bench. The
court stated that the ‘Trustee is, of course, only going
to convey what rights in interest he has’, that the dispute
vith the Seaboard “will have to be resolved by the ac-
quiring carrier’’, and that “‘ilf the Seaboard believes they
are not transferable, they will have to litigate that or
make some kind of arrangement with the Soo.” The full
statement, including some exchanges with counsel, appears
in Seaboard System R.R. v. Soo Line R.R., No.
C-85-1569-A (N.D. Ga. May 28, 1986), slip op. 20-24 n.8.
After hearing this, Seaboard doubtless thought it had won,
and on February 14 it intervened to secure the spoils.
It was sadly disappointed, because paragraph 9 of the
court’s formal order approving the sale (Order No. 809),
App. 32
entered on February 19, stated that “(t]he assignment and
assumption of the trackage agreements . . . pursuant to
the [Asset Purchase Agreement] will not effect a termina-
tion of the Trustee’s rights and interests . . . , and those
rights and interests are assignable to Soo and [its sub-
sidiary] in accordance with the terms of the [Asset Pur-
chase Agreement], and notwithstanding any provisions in
any such contracts, leases or agreements to the contrary.”
On-seeing this clause counsel for the Seaboard protested
that the court..was snatching back the permission it had
granted the Seaboard on February 8 to continue in
another forum its dispute with the Soo about the effect
of the transfer. The court eliminated from the draft of
paragraph 9 the word “fully” before ‘assignable’ but
otherwise rebuffed the Seaboard’s arguments. On the one
hand the judge said that Order No. 809 “‘leave[s] the mat-
ter open to subsequent litigation” and on the other re-
marked that the Order “means they are assignable. I
don’t see what prejudice the Seaboard sustains, particular-
ly having been silent when they had an opportunity to
raise the question before the ICC.” Then the judge sug-
gested a middle ground, that the Order tells the Seaboard
“{t]hey can go to the Commission or they can go to the
Soo”’ to seek relief. Understandably frustrated by all this
back-and-forth, the Seaboard requested relief from Order
No. 809. On March 25, without explanation, the court
entered a minute order denying the Seaboard’s request.
The Seaboard meanwhile filed suit in the Northern Dis-
trict of Georgia, asking for an order compelling the Soo
to arbitrate the transfer and for a declaratory judgment
that the transfer violates the clause requiring the Sea-
board’s consent. The court held, Seaboard v. Soo, supra,
that both requests are barred by claim preclusion. Either
the reorganization court resolved them adversely to the
Seaboard in Order No. 809 or the Seaboard, having inter-
vened, should have sought from the reorganization court
its declaratory judgment and order to compel arbitration.
Either way, the Georgia court concluded, the Seaboard
was not entitled to move its dispute to a new forum and
try again.
App. 33
B
What is before us for review? No. 85-1573 is Seaboard’s
petition to review the January 1985 decision of the ICC
to the extent it approved the transfer of the trackage
rights. The Commission, which did not mention the trans-
fer, contends that the Seaboard has not preserved a chal-
lenge yet insists that it indeed approved the transfer. The
ICC approved the transfer in the sense that it approved
the Soo’s proposal. But whether the Milwaukee had a
right to transfer the Bedford-New Albany rights without
the Seaboard’s approval was not raised, litigated, or de-
cided. The Commission’s silence does not construe or
modify its orders of 1970 or 1978, or the terms of the
contract between Milwaukee and the L&N. Yet the Sea-
board is not entitled to contest this non-decision. If it had
been a party, its challenge to the ICC’s order would be
precluded by the rule that a party seeking to raise an
issue in court must first raise it before the agency. E.g.,
United States v. L.A. Tucker Truck Lines, Inc., 344 U.S.
33, 37 (1952); Illinois Commerce Commission v. ICC, 776
F.2d 355, 362-63 (D.C. Cir. 1985) (Scalia, J.). The Seaboard
was not a party, however, and its challenge is barred by
the even more fundamental principle that only a party
before the Commission may seek judicial review of its
orders. See 28 U.S.C. §§ 2342(5) and 2344 (limiting review
to a “party aggrieved”’ by the order); see also Radiofone,
Inc. v. FCC, 759 F.2d 936 (D.C. Cir. 1985) (Scalia, J.);
Simmons v. ICC, 716 F.2d 40, 42-48 (D.C. Cir. 1983). No.
85-1573 must be dismissed for want of jurisdiction.
One court has suggested that despite §2344 a non-party
may obtain judicial review of “agency action [that] is ‘at-
tacked as exceeding the power of the [ICC].’ ” American
Trucking Associations, Inc. v. ICC, 673 F.2d 82, 85 n.4
(5th Cir. 1982), cert. denied, 460 U.S. 1022 (1983). This
decision cited only two cases before the Administrative
Procedure Act that had allowed a non-party to bring an
independent suit in district court seeking an injunction.
Edward Hines Yellow Pipe Trustees v. United States, 263
U.S. 148, 147-48 (1923); Skinner & Eddy Corp. v. United
App. 34
States, 249 U.S. 557, 562-63 (1919). We need not know the
health of these cases, see FCC v. ITT World Communica-
tions, Inc., 466 U.S. 463, 468-69 (1984), to be confident
that non-parties may not seek judicial review in the courts
of appeals under the Hobbs Act. A suggestion that non-
parties may obtain review of orders that “exceed the
power” of the agency is dubious for several reasons. One
is that “exceeding the power” of the agency may be a
synonym for “wrong,” so that the statute then precludes
review only when there is no reason for review anyway.
We doubt that this is what Congress meant. Another is
that §2344 is the source of the court’s jurisdiction, and
jurisdiction means power to decide. A court may not
decide a case just because that would be a good idea;
power must be granted, not assumed. In re Chicago, Rock
Island & Pacific R.R., No. 85-2505 (7th Cir. June 24,
1986), slip op. 10-11. If a non-party tried to appeal from
a judgment of a district court, we would dismiss the ap-
peal no matter how much in “excess of power” the deci-
sion might be; if a party tried to appeal after the time
for appeal had expired, the clarity of the district court’s
error would not supply the missing power to adjudicate
the appeal. Browder v. Director, Department of Correc-
tions, 434 U.S. 257 (1978). So it is with review of ad-
ministrative action. The statute limits review to petitions
filed by parties, and that is that. (The Administrative Pro-
cedure Act’s provision for judicial review, 5 U.S.C. §702,
on which Seaboard relies, does not supply jurisdiction in
any court, let alone authorize direct review in the court
of appeals. See Califano v. Sanders, 430 U.S. 99, 104-07
(1977). Only §2344 and the associated provisions of the Hobbs
Act authorize the type of review Seaboard requests.)
This does not mean that a non-party adversely affected
by an agency’s decision has no recourse. If the ICC should
purport to invalidate the Seaboard’s certificates of public
interest, convenience, and necessity in a footnote to a case
involving only the Burlington Northern—without notice to
the Seaboard that its interests could be affected—the Sea-
App. 35
board could take either of two approaches. One is to inter-
vene before the ICC as soon as it learns of the Commis-
sion’s action, file a petition for rehearing in the agency,
and then seek judicial review under §2344. The other is
simply to ignore the order. Then it could not petition for
review in the court of appeals, but if the ICC should try
to enforce its order, the Aehacel could resist during the
enforcement proceeding. This is the same principle that
allows a party to ignore a judicial proceeding when the
party believes the court lacks jurisdiction, and then to
resist enforcement of the court’s order. See Restatement
(Second) of Judgments §81 (1980) (an order entered with-
out notice or jurisdiction does not bind a subsequent
tribunal). But this is not a case in which the Commission
proceeded without notice to Seaboard; it had actual notice.
It is not a case in which the Commission lacked “jurisdic-
tion” to decide; it was authorized to act on the Soo’s
request.
C
We have jurisdiction of Seaboard’s appeal from Order
No. 809, but the Soo insists that the appeal is moot be-
cause we may not alter the terms of the sale. If the dis-
trict court had decided that the Soo has a clean title to
the trackage rights, free of any claims under the contract
between the Milwaukee and the L&N, the case would be
moot for the reasons given in Sax and Part II.B. of this
opinion. But we do not read Order No. 809, in conjunc-
tion with the district court’s varying explanations of it,
as precluding any claim arising under the contract. The
terms of the sale are fixed by the Asset Purchase Agree-
ment as well as Order No. 809, and in another case deal-
ing with the transfer of trackage rights to the Soo we
held that the Asset Purchase Agreement requires the Soo
to arbitrate differences arising out of clauses in trackage
rights agreements that restrict the Milwaukee’s ability to
transfer its rights. See In re Chicago, Milwaukee, St.
Paul & Pacific R.R., 784 F.2d 831 (7th Cir. 1986)
(Escanaba I); In re Chicago, Milwaukee, St. Paul &
Pacific R.R., 789 F.2d 1281 (7th Cir. 1986) (Escanaba II).
App. 36
Many of the Milwaukee’s assets had encumbrances. Prop-
_erty came with liens; some property had been leased to
others; the Milwaukee’s leaseholds came with time limits;
and trackage rights came with arbitration clauses and
restrictions on assignment. See Escanaba I and II. CMC
and the ICC agree that the Asset Purchase Agreement
and Order No. 809 do not obliterate the encumbrances
on the Milwaukee’s property. The Soo got no more than
the Milwaukee had.
Order No. 809 does not eliminate the Milwaukee’s
liabilities arising out of its raii operations; the Asset Pur-
chase Agreement transfers them to the Soo. A claim aris-
ing out of breach of the trackage rights agreement be-
tween the Milwaukee and the L&N is a liability trans-
ferred to the Soo. The principal effect of paragraph 9 of
Order No. 809 is to transfer the operating rights to the
Soo in the interim, not to foreclose any other claim.
D
Order No. 816 qualifies Order No. 809 with respect to
some trackage rights between Crivitz and Marinette, Wis-
consin. The district court ordered the Soo to arbitrate
with another railroad concerning the transfer of these
trackage rights. See Escanaba I and IJ. The Seaboard
wanted the trackage rights between Bedford and New
Albany carved out as well. We do not think the district
court was required to treat the Indiana trackage rights
the way it did the rights in Escanaba I and II.
The Seaboard, unlike the Escanaba, did not ask the re-
organization court for an order compelling the Soo to arbi-
trate the disputes growing out of the transfer. More, the
contract between the Milwaukee and the Escanaba was
a private undertaking. The ICC had expressed no con-
cern about whether the Soo or the Escanaba ran trains
over the Crivitz-Marinette line, and it approved the
transfer of rights to the Escanaba. The trackage rights
between Bedford and New Albany were crammed down
the throat of the L&N as a condition of its acquisition
App. 37
of the Monon, and the ICC then fixed the terms of the
rights. The Commission expressed the view that the Sea-
board should face competition between Chicago and Louis-
ville and that the trackage rights should continue as long
as the need for competition continues.
Because the Bedford-New Albany rights exist at the
insistence of the ICC, that agency may have primary
jurisdiction to construe the contract between the Mil-
waukee and the L&N. We do not decide whether primary
jurisdiction applies because the Commission has asked us
not to do so. Even though the district court may have
been authorized to construe the contract as an original
matter, it was required to do so with care, lest it under-
mine the purposes the ICC sought to achieve in 1970 and
1973. Any construction of the contract that would allow
the Seaboard to block a transfer as part of a reorganiza-
tion would cut at cross purposes with the ICC’s decision
not to allow the Milwaukee’s bankruptcy or reorganiza-
tion to end the trackage rights. By transferring operating
rights to the Soo without foreclosing all later disputes,
the district court allowed the competitive rail service to
continue pending an application by the Seaboard to the
ICC to terminate the rights. This was the appropriate course
of action, and it is how we interpret Order No. 809.
The Seaboard insists that the district court “exceeded
its jurisdiction” in approving the transfer, but there was
jurisdiction aplenty under the Restructuring Act and the
Bankruptcy Code. The Seaboard means only that the
district court erred. See also In re Sax, supra. And we
do not think the court erred. It would have been unrea-
sonable to construe the contract the way the Seaboard
does, as giving it the right to veto any assignment of the
rights in reorganization. The ICC refused it this right,
and the reasons for the competitive operations survive.
Clauses requiring approval for assignments do not apply
to mergers, see United States Shoe Corp. v. Hackett, 793
F.2d 161, 165 (7th Cir. 1986). The sale of the whole rail
operation in reorganization is closer to a merger than to
the sale of trackage rights standing alone—the paradigm
App. 38
for application of paragraph 15 of the contract. We need
not consider whether these arguments are dispositive;
they are enough to suggest the wisdom of passing oper-
ating rights to the Soo while leaving further problems of
interpretation to the ICC. Order No. 809 does not bar
an application to the ICC or any changes that agency may
wish to make. It does, however, bar any other form of
collateral attack on the transfer of the trackage rights.
The parties have disputed with some vigor the powers,
if any, the ICC possesses to construe or alter the con-
tract. We do not pass on these arguments, which will be
open on review of the ICC’s decision if it is called on to
make one.
IV
It all comes down to this: (1) The motion to supplement
the record in No. 85-2121 is denied. (2) The Seaboard’s
petition, No. 85-1578, for review of the ICC’s orders is
dismissed for want of jurisdiction because the Seaboard
was not a party to the ICC’s proceedings. (3) The RLEA’s
petition, No. 85-1953, for review of the ICC’s order dis-
missing the request to approve the Milwaukee’s plan of
reorganization is denied because the ICC correctly deter-
mined that it did not need to approve the plan. (4) The
RLEA’s appeal, No. 85-1554, from Order No. 809 is dis-
missed as moot because the RLEA seeks an alteration
of the terms of the sale. (5) CMC’s and the Milwaukee’s
appeal, No. 85-1683, from paragraph 4 of Order No. 809
does not establish a reason to vacate the paragraph.
Although we do not adopt or reject the district court’s
conclusion that the Soo paid a constitutionally adequate
price, it is inappropriate to facilitate a collateral attack
on that judgment in the Claims Court. Appeal No. 85-1683
is dismissed. (6) Paragraph 9 of Order No. 809, to the ex-
tent it is attacked by Seaboard’s appeals Nos. 85-2122 and
85-2128, is affirmed. (7) The United States, the ICC, and
the Soo shall recover their costs.
App. 39
UNITED STATES COURT OF APPEALS
For the Seventh Circuit
Chicago, Illinois 60604
October 20, 1986.
Before
Hon. HARLINGTON Woop, JR., Circuit Judge
Hon. FRANK H. EASTERBROOK, Circuit Judge
Hon. SARAH EVANS BARKER, District Judge*
No. 85-1683
IN THE MATTER OF:
CHICAGO, MILWAUKEE, ST. PAUL AND
PACIFIC RAILROAD COMPANY,
Debtor
APPEAL OF:
CHICAGO, MILWAUKEE, ST. PAUL AND
PACIFIC RAILROAD COMPANY and
CHICAGO MILWAUKEE CORPORATION
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 77 B 8999—Thomas R. McMillen, Judge.
* The Honorable Sarah Evans Barker, of the United States
District Court for the Southern District of Indiana, is sitting by
designation.
App. 40
ORDER
Counsel for the Chicago, Milwaukee, St. Paul and Pacific
Railroad Company and Chicago Milwaukee Corporation
filed a petition for rehearing and suggestion of rehearing
en bane on October 3, 1986. No judge in regular active
service has requested a vote on the suggestion of rehear-
ing en bance, and all of the judges on the panel have voted
to deny rehearing. The petition for rehearing is therefore
DENIED.
App. 41
IN THE UNITED STATES DISTRICT COURT
FOR THE 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
No. 77 B 8999—Thomas R. McMillen, Judge.
ORDER NO. 809
Upon consideration of the matter of the sale, pursuant
to Sections 4 and 5(b) of the Milwaukee Railroad Restruc-
turing Act (“MRRA”’), notice having been given to all par-
ties, of the Rail Assets, as defined in and pursuant to an
Asset Purchase Agreement dated April 6, 1984, as amended
(the “APA”’), to be entered into between Richard B. Ogilvie,
not personally, but solely as trustee (“Trustee”) of the
property of the Chicago, Milwaukee, St. Paul and Pacific
Railroad Company (‘‘Milwaukee’’) and the Soo Line Rail-
road Company, a Minnesota corporation (“‘Soo’’), and
SLRCO, Inc., a Minnesota corporation (“SLRCO”), the
Court, acting as the Court of Reorganization for the Mil-
waukee pursuant to Section 77 of the Bankruptcy Act of
1898 and pursuant to Section 4 and Section 5(b) of the
MRRA finds and concludes as follows:
1. Soo and SLRCO filed an application with the Inter-
state Commerce Commission (the ““Commission”’) seeking
approval of a purchase of the Rail Assets. In addition,
App. 42
Chicago and North Western Transportation Company
(“CNW’’) filed its application seeking the purchase of
essentially similar assets.
2. The Commission rendered its decision on September
26, 1984 with respect to the application of Soo and
SLRCO to purchase the assets specified in the APA. That
decision, inter alia, approved the application pursuant to
Section 11344(b) of the Interstate Commerce Act, Section
5(b) of the MRRA, and Section 77 of the Bankruptcy Act
of 1898. The Commission served its further decision with
respect to CNW’s modified application on January 11,
1985, which decision incorporated certain portions of its
September 26, 1984 decision.
3. The Court has considered the evidence adduced,
heard the arguments of counsel, and the oral and writ-
ten applications of various parties in interest seeking
review of and commenting upon the Commission’s Sep-
tember 26, 1984 and January 11, 1985 decisions, including
those of the Trustee, Burlington Northern Railroad Com-
pany, Chicago Milwaukee Corporation, Escanaba and Lake
Superior Railroad Company, First National Bank of Chi-
cago (as Indenture Trustee), Grand Trunk Corporation,
Bruce E. Hendry and Mobil Oil Corporation, the Com-
mission, LaSalle National Bank (as Successor Corporate
Trustee), the City of Milwaukee, Wisconsin, CNW, the
Chicago, Milwaukee, St. Paul and Pacific Railroad Bond
and Debenture Holders Protective Committee (the ‘‘Pro-
tective Committee”), Railway Labor Executives’ Associa-
tion, Soo, States of Iowa, Minnesota and Wisconsin De-
partments of Transportation, the United States, United
Transportation Union Local No. 528, Wisconsin Power and
Light Company, Green Hills Regional Planning Commis-
sion, North Dakota Public Service Commission, Seaboard
System Railroad, Inc., Harold E. Spencer, Peter N. Tod-
App. 438
hunter and Richard James Stevens, State of Missouri,
South Dakota Department of Transportation, Coalition to
Save The Milwaukee and “Certain Employees for the
Milwaukee’”’.
4. Section 5(bX2) of the MRRA empowers this Court
to review the order of the Commission entered under that
Section only under Sections 706(2XA), 706(2XB), 706(2XC),
and 706(2XD) of title 5 of the United States Code. The
Commission has certified to this Court the full record of
proceedings before it in connection with the decision of
September 26, 1984 and the decision of January 11, 1985.
The Court has considered and reviewed the findings and
decisions of the Commission filed with this Court, pur-
suant to the requirements of those sections. The Court
has further considered the allegations of error contained
in the petitions for review and comments and has found
that the Commission’s findings and decisions should be
and are approved by this Court, since the findings and
decisions were in accordance with law and were not arbi-
trary, capricious, an abuse of discretion, contrary to con-
stitutional right, power, privilege or immunity, in excess
of statutory jurisdiction, authority or limitations, short of
statutory right, or without observance of procedure re-
quired by law.
5. The Court has considered the evidence adduced,
heard the arguments of counsel, and the oral and writ-
ten arguments of various parties in interest expressing
a preference for or objecting to the approval-of the sale
to either the Soo and SLRCO or CNW, including those
_of the Trustee, Burlington Northern Railroad Company,
Chicago Milwaukee Corporation, Escanaba and Lake
Superior Railroad Company, First National Bank of Chi-
cago (as Indenture Trustee), Grand Trunk Corporation,
Bruce E. Hendry and the Mobil Oil Corporation, LaSalle
App. 44
National Bank (as Successor Corporate Trustee), the City
of Milwaukee, Wisconsin, North Dakota Public Service
Commission, CNW, the Protective Committee, Railway
Labor Executives’ Association, Soo, States of Iowa, Min-
nesota and Wisconsin Departments of Transportation,
Stickney Corporation, the United States, United Transpor-
tation Union Local No. 528, Wisconsin Power and Light
Company, Green Hills Regional Planning Commission,
Seaboard System Railroad, Inc., State of Missouri, South
Dakota Department of Transportation, Coalition to Save
The Milwaukee and ‘Certain Employees of the Milwau-
kee”. The Court has considered the Commission’s findings
with respect to the public interest, the Commission’s vote
and basis for its preference for the Soo and SLRCO over
CNW, the consideration to be paid to the Debtor’s estate,
the amount of wages to be paid to employees and other
relevant matters. The prompt sale of the Rail Assets to
Soo and SLRCO for the continued provision of common
carrier service in return for the consideration specified
in the APA (including the assumption of certain liabilities
of the Milwaukee’s estate) is in the best interest of the
Milwaukee’s estate and of ultimate reorganization of the
Milwaukee, and is consistent with the public interest.
6. The immediate execution by the Trustee of the
APA, and the prompt closing of the transactions in the
manner and time contemplated by the APA, are in the
best interests of the Milwaukee’s estate.
7. The Trustee has issued certain Trustee Certificates
during the course of these proceedings which were pur-
chased by the United States Department of Transporta-
tion (“DOT”) and the Federal Financing Bank pursuant
to Sections 505 and 511 of the Railroad Revitalization and
Regulatory Reform Act of 1976 and Section 7 of the
MRRA. The estate also is liable to the DOT under the
App. 45
terms of its Series I Redeemable Preference Shares issued
in 1977 prior to the Milwaukee filing for reorganization.
The Trustee’s obligations under the above Trustee Cer-
tificates and under the Preference Shares will be assumed
at closing by Soo and SLRCO in the manner provided
in the APA.
8. The purchase of the Rail Assets together with prior
purchases approved by this Court constitute the purchase
of substantially all of the Milwaukee Railroad for purposes
of Section 7(hX1XB) of the MRRA (as amended by Sec-
tion 701(cX1) of the Staggers Rail Act of 1980), 45 USC
§906(hX1)(B), and all obligations to the United States or
any agency or instrumentality of the United States in-
curred pursuant to Section 7 of the MRRA by the Mil-
waukee or the Trustee, including Trustee Certificates 1980
A and B are waived and cancelled.
9. The sale of the Rail Assets and the assignment and
assumption of the trackage agreements, joint facilities and
operating rights over segments of the rail properties now
operated by the Trustee are in the public interest (as de-
termined by the Commission and affirmed by this Court)
and are in the best interest of the estate as found by this
Court. The assignment and assumption of the trackage
agreements, interests in or agreements with respect to
joint facilities, leases, operating rights and all other rights
and interests of the Trustee being assigned pursuant to
the APA will not effect a termination of the Trustee’s
rights and interests under the contracts, leases and agree-
ments granting those rights and interests, and those
rights and interests are assignable to Soo and SLRCO
in accordance with the terms of the APA, and notwith-
standing any provisions in any such contracts, leases or
agreements to the contrary.
App. 46
10. Section 5 of the MRRA mandates that the Court
require the carrier to provide a fair arrangement at least
as protective of the interests of employees as that re-
quired under Section 11347 of title 49 of the United States
Code. In prior sales of lines of railroad pursuant to Sec-
tion 5, the Court imposed “Appendix B Conditions” (re-
port of the Special Master dated February 20, 1980) which
were found to be as protective as statutorily required and
consistent with both the scheme and language of the
MRRA by the Court of Appeals for the Seventh Circuit
in Matter of Chicago, Milwaukee, St. Paul & Pacific
Railroad Company, Consolidated Appeals of Railway Labor
Executives’ Association, 658 F.2d 1149 (7th Cir. Aug. 17,
1981), cert. den. 455 U.S. 1000 (Mar. 8, 1982).
11. Section 5 of the MRRA does not require that labor
protective conditions be imposed with respect to employ-
ees of The Milwaukee Motor Transportation Company,
and the Court finds that such conditions should not be
imposed.
12. The additional findings and conclusions of law, not
inconsistent with the provisions of this Order, made pur-
suant to Rule 52 by the Court orally on February 8, 1985,
are incorporated in this Order by reference and made a
part of this Order.
NOW, THEREFORE, IT IS ORDERED, ADJUDGED
AND DECREED as follows:
1. That the sale and assignment to Soo and SLRCO,
in accordance with the APA and this Order, of the Trus-
tee’s right, title and interest in the Rail Assets are ap-
proved and confirmed in all respects. The Rail Assets
shall, upon conveyance, be free and clear of all liens,
security interests, claims and encumbrances, of whatever
nature, whenever arising, including without limitation
ee
App. 47
those arising from federal, state and local tax claims or
liens, those arising from that certain First Mortgage dated
as of January 1, 1944 with Continental Illinois National
Bank and Trust Company of Chicago, Indenture Trustee,
and the General Mortgage dated as of January 1, 1944
with Harris Trust and Savings Bank, Indenture Trustee,
and all mortgages supplemental thereto, except only liens,
security interests, claims and encumbrances created by,
or specifically permitted to remain on the Rail Assets pur-
suant to, the APA.
2. That the Trustee is authorized and directed to ex-
ecute promptly and deliver to Soo and SLRCO the APA,
to consummate promptly the sale as set forth in the APA
and to execute and deliver on or as soon as practicable
after the Closing Date (as defined in the APA), all deeds,
bills of sale, assignments, certificates of title, and other
documents, and to take such other actions, as shall be re-
quired or appropriate to effectuate the transactions con-
templated by the APA, including to the extent necessary
under the circumstances as determined by the Trustee,
modifications to the APA or the transaction required to
result in a fully taxable transaction, so that for federal
income tax purposes gain or loss will be fully recognized
by the Milwaukee on the consummation of the sale, and
that the net operating loss carry forwards and tax credits
available to the Milwaukee immediately prior to the clos-
ing of the sale will be preserved to the Milwaukee.
3. That the Trustee is authorized and directed to assign
to Soo or SLRCO, as appropriate, all of his rights under
contracts as provided by the APA.
4, That the Trustee is authorized and directed to assign
to Soo or SLRCO, as appropriate and in accordance with
the APA, all of the trackage agreements, joint facilities
App. 48
and operating rights necessary for Soo or SLRCO, as the
case may be, to operate the Railroad (as defined in the
APA).
5. That the Trustee is authorized and directed to assign
to Soo or SLRCO, as appropriate, all labor contracts (in-
cluding collective bargaining agreements) with respect to
employees of the Trustee required by the APA to be of-
fered employment by Soo or SLRCO.
6. That Soo and SLRCO, or either of them, assume
each of the obligations and liabilities arising under the
contracts or agreements assigned by the Trustee in ac-
cordance with paragraphs 2, 4 and 5 of this Order. In ad-
dition, Soo and SLRCO, or either of them, shall assume
the Trustee’s obligations under the Wage Deferral Agree-
ment and the last two sentences of Paragraph 2b of the
Wage Reduction Agreement, as specified in the APA as
modified in the December 4, 1984 letter agreement be-
tween the Soo and the Trustee, the obligations of the
Trustee under the Trustee Certificates issued to DOT and
the Federal Financing Bank pursuant to Sections 505 and
511 of the Railroad Revitalization and Regulatory Reform
Act of 1976 or Section 7 of the MRRA (excluding Trus-
tee Certificates 1980 A and B), the obligations with
respect to the Series I Redeemable Preference Shares,
the obligations of the Trustee with respect to any labor
conditions imposed with respect to the transactions con-
templated by the APA and other obligations and liabilities
of the Trustee to be assumed by Soo and SLRCO, or
either of them, pursuant to the APA. After the Closing
(as defined in the APA), all obligations and liabilities of the
Trustee to be assumed by Soo or SLRCO in accordance
with this Order or the APA and not otherwise discharged
shall be the sole obligation of Soo or SLRCO, or both,
as the case may be, and the Trustee and the Milwaukee
App. 49
shall be relieved from any and all liabilities in connection
with or arising out of such obligations except as express-
ly may be provided otherwise by the APA, whether oc-
curring after the Closing or arising out of the conveyance
or assignment; provided, however, the foregoing shall not
impose on Soo or SLRCO any liability or obligation not
imposed upon or assumed by them in accordance with the
terms of the APA.
7. That all prepetition obligations and debts of the
Trustee and Debtor and its subsidiaries to Soo and its
subsidiaries are cancelled. In addition, all outstanding
debts and obligations of the Trustee and Debtor and any
of its subsidiaries arising out of facilities embargoed or
abandoned prior to Closing are cancelled.
8. That the sale, transfer and assignment of the Rail
Assets is without warranties, representations or guaran-
tees of any kind, expressed or implied, except as specifi-
cally stated in the APA.
9. That upon consummation of the transactions contem-
plated by the APA, all common carrier obligations of the
Trustee and Debtor be assumed by Soo and SLRCO, and
shall cease as to the Trustee and Debtor.
10. Subject to the agreement of Soo and SLRCO with
representatives of employees to labor protection conditions
at least as protective as those specified below, the condi-
tions contained in Appendix B to the Report of the Special
Master dated February 20, 1980 are adopted for the pro-
tection of employees of Soo and Milwaukee Road affected
by the transactions contemplated by the APA; Section 4(e)
is included therein as specified in Order No 276B; Ap-
pendix B is also modified as provided in Order No. 409A.
Notwithstanding the foregoing, no labor protective con-
ditions are imposed with respect to the employees of The
Milwaukee Motor Transportation Company.
App. 50
11. That the Court shall retain jurisdiction over this
matter for the purpose of implementing and carrying out
the APA and resolving any disputes arising under or with
respect to the APA, this Order or the Closing. The ICC
shall have such continuing jurisdiction over this transac-
tion as is by law vested in it.
12. That the rights, claims, liens and interests of any
creditor of, or claimant against, the Debtor’s estate which
are not assumed by Soo or SLRCO in accordance with
this Order or adjudicated by this Order as applying to
the Rail Assets which are sold, transferred or assigned
pursuant to this Order shall be, upon the Closing, trans-
ferred from,the Rail Assets to the net proceeds of the
sale; such net proceeds shall, until further order of this
Court, be deposited and retained in the existing trust ac-
count bearing the designation “Escrow Agent Account”
No. 13-01043-4 at the Continental Illinois National Bank
and Trust Company of Chicago and shall be invested pur-
suant to this Court’s Order No. 536 in accordance with
instructions from the Trustee or a person designated by
him.
13. That following the closing of the sale and pending
the earlier of (i) further order of this Court, (ii) the date
on which this Order authorizing the sale shall not have
been reversed and no further appeal may be taken by
any party or (iii) 90 days after the Closing Date, Soo and
SLRCO are directed to conduct the operations of the Rail-
road, (as defined in the APA), and to maintain the Rail
Assets, subject to additions and dispositions in the or-
dinary course, on a basis reasonably designed to account
for the operations of the Railroad and the identification
of the Rail Assets subsequent to their transfer to Soo and
SLRCO.
App. 51
14. All requests for relief pertaining to the subject mat-
ter of this Order not otherwise granted hy this Order
shall be considered denied.
15. Directions contained in this Order shall be carried
out forthwith.
Dated: Feb. 19, 1985
ENTER
/s/ Thomas R. McMillen
United States District Judge
App. 52
(1)* UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
Docket No. 77 B 8999
IN THE MATTER OF:
CHICAGO, MILWAUKEE, ST. PAUL
AND PACIFIC RAILROAD COMPANY,
Debtor.
February 8, 1985—11:00 O’Clock A.M.
TRANSCRIPT OF PROCEEDINGS
BEFORE THE
HONORABLE THOMAS R. McMILLEN
APPEARANCES: 0
MR. ROBERT H. WHEELER
MR. LAWRENCE S. ADELSON
MR. MICHAEL D. SULLIVAN
MR. WILLIAM C. SIPPEL
MR. ALBERT E. JENNER, JR.
MR. DANIEL R. MURRAY
MR. EDMUND J. KENNY
MR. GARY T. JOHNSON
* Numbers in brackets refer to the court reporter’s original
pagination of the Transcript of Proceedings.
App. 53
MR. DAVID D. ROSENSTEIN
MR. MARVIN F. METGE
MR. BYRON OLSEN
MR. MICHAEL COOK
MR. SALVATORE SONTORO
MR. STUART F. GLASSNER
MR. JAMES P. DALEY
MR. CHARLES MILLER
MR. HENRY SAILER
MR. PAUL DUKE COVINGTON
MR. LAWRENCE BEMIS
MR. JAMES S. THIEL
MR. ROBERT S. STEINER
MR. JOHN O’B. CLARKE, JR.
MR. JOHN H. CALDWELL
MR. LARRY MITCHELL
MR. HENRI RUSH
Court Reporter: JAMES W. CHEEK
[2] THE CLERK: 77 B 8999, in the matter of the
Chicago, Milwaukee Railroad.
THE Court: First of all, I would like to compliment
the very able presentations that were made by all of the
attorneys yesterday and particularly those for the Chicago
Milwaukee Corporation and Trustee and, I should add,
the North Western Railroad. The reason I mention them
specifically is not because I would value or grade their
arguments any higher than some of the others but that
they made my task more difficult by presenting tne argu-
ments that they did.
The problem that I am faced with is probably deeper
and somewhat more complicated than I had originally be-
lieved when I told the assembled group that I felt the
application of the Soo should be adopted and consummated
by the Trustee but, as I told you at that time, it was
a tentative decision that was certainly subject to recon-
sideration and that I was going to listen carefully to the
App. 54
arguments of the parties and also read more carefully the
briefs and the records. I, of course, had an opportunity
to do that but not in the detail that I would have been
able to do had I not wanted to expedite this decision. In
other words, you will have to forgive me if I don’t cite
a number of facts and figures completely accurately be-
cause I don’t want to take up your time by looking back
into the record to check them out unless it is something
that is important to get down to the exact dollar figure.
But I am prepared to give you my findings and conclu-
sions [3] and that is what this proceeding is about, pur-
suant to Federal Rule 52. -
Now, with all of these talented and competent attorneys
that have been proceeding with me in this task it is not
surprising that questions of an appeal or a stay or disrup-
tion of the orderly proceedings of the Court’s order would
be raised. I would like to say at the outset that I do not
think that the possibility of those things occurring should
be the basis for a decision. There are enough attorneys
here so that we can anticipate there may be some pro-
ceedings in higher courts or back with the Interstate
Commerce Commission for some time no matter which
way the decision goes and what the details of the deci-
sion are. I think it would be entirely improper for me
to decide this case in favor of one party or the other be-
cause of the possibility of an appeal or even the possibility
of a stay.
I do differ with Mr. Murray and, I believe, also with
the Trustee that the St. Joe Paper Company decision by
the Supreme Court, particularly Justice Frankfurter, is
one that precludes my considering anything other than
the desires of the stockholders of the CMC. I have read
the case and, of course, I have read the Interstate Com-
merce Commission’s comments on the case. I go beyond
what the Interstate Commerce Commission report has
|
App. 55
said. In my opinion, the case does not apply to the situa-
tion that is before us here. It is a case where a merger
was being imposed upon another corporation, contrary to
the desires of the stockholders of the [4] corporation with-
out giving any consideration to them, something like a
cram-down consolidation, which we are not considering
here. This is simply a sale of some of the assets of the
debtor. Although I am not sure that St. Joe Paper Com-
pany is still good law, as the Interstate Commerce Com-
mission attorneys believe it is not, I will say this much: it
probably would depend a great deal on whether you get
five persons like Justice Douglas writing the opinion or
five persons like Justice Frankfurter writing the opinion.
It might be a five-four decision, just like we have had
some close decisions in this case.
In any event, I do not think the St. Joe Paper Com-
pany case would be reviewed other than to say that it
is not applicable to the situation that we have here. So,
that is my first conclusion on the law. As a matter of fact,
I find it very difficult to separate conclusions on the law
from conclusions of fact or inferences of fact or findings
of fact. So, sometimes, they are going to be taken out
of sequence. That is another thing, if I had time to sit
down and write an opinion or to go over proposed find-
ings and conclusions, I might be able to make it a little
more orderly but some of the findings and conclusions will
be mixed together, both factual and on the law.
While we are on the subject of litigation, I might add
that I do not agree with Mr. Murray’s argument that the
stockholders of the CMC are being deprived of any of
their property without due process, in violation of the
Fifth Amendment. I am [5] not an authority on constitu-
tional law and I would have to defer to authorities such
as Mr. Murray, if he purports to be one, or Mr. Jenner,
who wasn’t here when Mr. Murray was able to give his
App. 56
presentation. But it seems to me that the stockholders
of the Chicago Milwaukee Corporation have received full
due process as far as their basic original offer was con-
cerned of $569 million and that, as far as that goes, they
are receiving due process as far as the additional $210
million is concerned. But I would like to point out that,
in my opinion, that is not property of the CMC. The $210
million is basically a premium or a ‘“‘windfall’’ as one of
the attorneys termed it, and it is difficult for me to see
how a person can be deprived of a windfall or something
which is not theirs without due process under the Fifth
Amendment. I think, however, that the CMC has received
due process unless they are correct that they have the
right, or their stockholders do, to veto or have to pre-
vent any transfer except one for the highest and best of-
fer, which is what their $786 million offer consists of.
The fair market value of this property has been deter-
mined by the Interstate Commerce Commission as some-
thing below what the offer by the Soo Railroad stands
at right now. $570 million is the approximate figure that
the Soo Railroad is offering. It is well above the fair
market value determined by the Interstate Commerce
Commission. I find that the determination by the Inter-
state Commerce Commission is not arbitrary, capricious
or an abuse of discretion under Section 706 of the Ad-
ministrative Procedure [6] Act and that that is the fair
market value to which the stockholders of the CMC are
entitled and, of course, the Trustee. Over and above that
I think it becomes a matter of evaluating just what the
significance of the additional $210 million is and how it
should be viewed as far as evaluating the offer of the
Chicago Milwaukee Corporation vis-a-vis the offer of the
Soo Railroad. We will get into that a little bit further
as we go along. But, in my humble opinion, the $210 mil-
lion—it is almost $211 million—is not by any means a con-
App. 57
trolling factor in which railroads should prevail in this par-
ticular contest.
Now, in the question of possible future litigation, which
occurs in many cases and can’t be overlooked as a pos-
sibility in this case, it is my intention to structure the
consummation of this acquisition in such a way that the
identity of the Milwaukee equipment, real estate, person-
nel and operation as a unit will be preserved insofar as
it is physically possible to do so.
Both of the parties have set up subsidiaries to which
this property will be transferred. I am going to ask the
Trustee at the time of executing a judgment order on
February the 19th to structure the consummation of this
acquisition in such a way that if the matter should be
overturned by a higher court or if one of the parties
defaulted it could be turned back to the other party or
to the Trustee. In other words, a disengagement has to
be considered under the circumstances because no one
knows, actually, how this controversy is actually going to
turn out [7] except as far as the end of this particular
dissertation is concerned.
I remember :a case in which some of you may have been
involved some years ago, when I was in private practice.
There was a controversy over whevher the Continental
Illinois National Bank and Trust Company of Chicago,
which Mr. Ogilvie, by the way, is now a director but a
new director, I might add, could acquire the City National
Bank and Trust Company, which was right across the
street, and the Comptroller of the Treasury, as I recall,
objected to the acquisition. The Court overruled the ob-
jections but made it a condition of the acquisition that
the books and records of the Continental Bank be kept
in such a way that, if the Comptroller of the Treasury
was correct, the City National Bank could be reestab-
lished and go back into its original quarters and operate
App. 58
its business as before. That litigation went on for about
two years, as I recall, or maybe three. Eventually, of
course, the Continental Bank prevailed. But had it not
prevailed, the City National Bank and Trust Company
would have become an operating entity. It was done by
the persons that were responsible for the acquisition and
they kept separate books and records. They segregated
the assets. They even segregated the customers. They
knew which business was City National Bank’s busines
and which business was not. The same thing, I think, can
be done in this case without interrupting the actual ac-
quisition or the flow of not only the property but per-
sonnel and material from the Trustee to the acquiring
common [8] carrier. So, that would be, I suppose, one of
my conclusions of law, but, nevertheless, an order on the
Trustee.
Now, another scarecrow that has been erected by some
of the parties is the question of the government’s obliga-
tion—or the Trustee’s obligation to the government for
the $143 million of notes that are outstanding which the
government has made some statements to the effect could
be called for immediate payment. That scarecrow also
doesn’t bother me enough to tilt the scales against the
Soo Railroad.
In the first place, the Soo has said that it is going to
honor the obligation. It is going to indemnify the Trus-
tee from any litigation that may arise when the govern-
ment attempts to call the notes. They are really not called
but they are terminated, according to the government’s
theory, terminable. I looked over Appendix I to the In-
terstate Commerce Commission’s report, as Mr. Wheeler
suggested, and found nothing to really be concerned about
as far as the Soo’s ability to negotiate an amicable disposi-
tion of those particular obligations. I don’t say nothing
to be concerned about but it is not going to be something
we
App. 59
they can do out of their present cash, pay out of their
) present reserves but, when they need to, they will be able
to do whatever the government agrees to.
It would seem to me, however, the government has in-
: dicated to the North Western Railroad that it is not going
to call these loans, and that is for a very good reason.
The reason is the [9] loans were made to rehabilitate the
Milwaukee Railroad. As long as the Milwaukee Railroad
is in existence, either as a part of another railroad or as
a part of a subsidiary of another railroad, the purpose
. of those loans and the purpose of those notes was to help
the Milwaukee Railroad become a viable transportation
entity. I think it would be entirely contrary to the in-
tent of Congress in passing the Milwaukee Railroad Re-
structuring Act and the statutes under which the loans
were authorized to then turn around and attempt to force
the acquiring carrier to drain off the $143 million which
undoubtedly would be needed by either of the railroads,
-and thereby cause serious problems and possibly, as Gov-
ernor Ogilvie mentioned yesterday, even cause a miscar-
riage of the transaction in the event the Soo were the
acquiring carrier. I don’t believe the government would
be justified in doing that. They have indicated clearly to
the North Western Railroad that it would not do that.
I think it certainly owes, the same kind of consideration
to the Soo Railroad if the Soo Railroad is the acquiring
carrier. What the ultimate disposition of those will be I
would not predict because I believe that the matter might
be subject to litigation if an agreement is not reached if
the Soo is the acquiring carrier. But I have every con-
fidence in believing that the government is going to be
reasonable and not going to take steps which will ulti-
mately either destroy the Milwaukee core railroad and
possibly with it the Soo Railroad or cause a miscarriage
of the transaction if the Soo is the acquiring carrier. So,
ial
App. 60
that [10] particular scarecrow does not cause me sufficient
concern to tip the scale against the Soo Railroad.
A third one has been raised—and I am not, again, an
expert on the subject—is that for some reason the trans-
action with the Chicago & North Western Railroad would
preserve the tax losses or tax benefits of the CMC and
that this may not happen if the Soo is the acquiring rail-
road. That, to me, I don’t understand. I don’t think Mr.
Murray understands it because he wasn’t able to explain
it to me yesterday, with all due deference.
I will instruct the Trustee to structure whatever the
consummation of this acquisition is in such a way that
it will preserve whatever tax benefits the Chicago Mil-
waukee Corporation can have regardless of who the trans-
feree is. It is beyond my understanding why there should
be any different results as far as the tax benefits to the
CMC are concerned whether it is the Soo or the Chicago
& North Western Railroad. So, that is a third scarecrow
that doesn’t scare me very much.
Incidentally, I hope I don’t sound as though I am an
advocate because, obviously, that is not my function in
this case. We have had enough advocates already. I am
trying to make a decision on the basis of the record and
in the exercise of my discretion and, in order to do so,
I must make certain findings and conclusions which sup-
port my decision. In that respect, of course, my findings
and conclusions must be in accordance with the record
but they are necessary to support my decision and, [11]
therefore, I want you to understand that in doing so I
am not taking the position of advocacy except that I want
to enter a decision and an appealable order, final order,
under Rule 58 that is supported by proper findings and
conclusions.
I will make another conclusion of law at this point, since
it is generally done at the beginning of the decision rather
a 5 Naa AEN NS Ra cad
ae IE leila tle sea
App. 61
than at some other point, and that is that we are proceed-
ing under Section 5(b) of the Milwaukee Railroad Restruc-
turing Act and that is the basis of my jurisdiction along
with the fact that the Milwaukee Railroad is here pur-
suant to Section 77(b) of the Bankruptcy Act. I am acting
as a bankruptcy judge in that respect. Just what effect
or relationship there is between Section 5(b) of the MRRA
and Section 77(b) of the Bankruptcy Act is not entirely
clear because Section 5(b) is a relatively new section. It
is special legislation. Even Mr. Rush could not satisfy me
in answering some of the questions about jurisdiction of
the ICC under Section 5(b). I have some question in my
own mind—and I am not going to try to resolve it at this
point—as to just what kind of continuing jurisdiction, for
example, there is with the Commission under Section 5b).
But I will, as usual, welcome any exercise of jurisdiction
that the Commission might have to the extent that it has
the jurisdiction. Those questions may arise some time in
the future, also.
I also asked Mr. Wheeler yesterday why we couldn’t
proceed under Section 4 of the MRRA. He didn’t have
time to frame [12] his answer. I am sure he has an
answer. It looks to me as though on the face of it, Sec-
tion 4 is equally applicable to Section 5(b). As far as I
am concerned, I am also proceeding under Section 4.
Now, I know there is some legislative history that
would indicate that Section 4 may not be applicable but
I read the statute according to its plain words. What it
says is what it means. If there is no ambiguity, if there
is no question that requires one to go into the legislative
history, then the statute speaks for itself. It seems to me
that Section 4, which bypasses the Interstate Commerce
Commission, incidentally, does give the Court authority
to do what we are doing now, in other words, to approve
the sale of assets of the Milwaukee Railroad.
App. 62
Now, as far as the merits are concerned, I should let
you know at the outset that I do agree with the recom-
mendation of the Interstate Commerce Commission that
the acquisition should be made by the Soo Railroad. That
is not a binding recommendation. I believe we all agree
on that. It is a recommendation that I asked for and
which I give considerable weight to. It is not binding but
because of the expertise of the Interstate Commerce Com-
mission I feel that it is entitled to great weight.
I also asked Trustee Ogilvie for his opinion. I don’t
criticize him one bit for giving me his opinion. I don’t
know whether I asked him on the record or not but I
value his opinion and I have taken it into consideration.
The rest of the persons that spoke yesterday are advo-
cates for their own position. They [13] represent clients.
They present the arguments. most forcefully for their
client’s side of the case. It was only at my request, I
believe, that Governor Ogilvie departed from his ordinarily
impartial or, let’s say, concern primarily for the best in-
terest of the estate to take an adversary position. He did
it for the best interests of the estate, in his opinion. It
just so happens I don’t agree with him. We haven’t al-
ways agreed. In fact, we had a matter in which he took
an appeal from an order which I entered and, as I recall,
obtained, I think, the only reversal we have had in this case.
He asked me before he took the appeal if I would mind.
I said, “No. That is your right. We want to know what
the law is.”’ It so happens I don’t think the Court of Ap-
peals made the right decision but Governor Ogilvie does.
That is all water over the dam.
We have had what, 25 appeals in this case? At least.
Mr. OGILVIE: More than that.
THE Court: More than that. Good business for the
lawyers. That is why, with all these lawyers sitting around
here, I expect we are going to have some more appeals.
App. 63
. But I don’t think anybody is going to appeal just because
of vindictiveness or try to destroy a valuable piece of our
) economy, of our transportation system or to try to put
the Soo Railroad out of business. I don’t believe any of
the parties are interested in that. I hope that the CMC
will take that into consideration.
I am not going to allow an appeal to frustrate what I
[14] consider to be the public interest in this matter. I
have already said that. I think that the decision has to
rest upon what is in the public interest. That is, in my
opinion, not a particularly close question.
I have tried to think about whether or not the addi-
tional $210 million that the CMC would get, if the North
Western were to acquire this railroad, could be weighed
against the public interest. There is no way that I think
those two can be compared. The public interest is not
something that you can attach a dollar value to. It is a
matter of intangibles in many respects. It is a matter of
inferences in many respects. It is not something that you
can say is worth more than $210 million, which is the ex-
cess that the North Western is willing to pay, or less than
$210 million. It is my belief that the $200 million is a
windfall or a bonus that the CMC would get if the North
Western Railroad would be the prevailing party and that
it really should not control the decision. Because what,
basically, the stockholders of CMC are entitled to is the
fair value of the line. When both parties came up with
what they believed the fair value was in the time just
before the first ICC decision, that in my opinion, is the
expression of the North Western Railroad as to its opin-
ion. It offered another $210 million, basically, because it
thought it could get some other advantages besides the
fair value of the line. It’s believe that it would be able
to outbid its competitor, which it did dollarwise, and it
believed, I think, that it could buy out some of its [15]
App. 64
competition. I think that, probably, the $210 million was
partly arrived at because the North Western Railroad
believed that it could make that much more money in op-
erating the Milwaukee as part of its system and recoup
it for the stockholders of the North Western Railroad than
it did when it made the offer which it thought was the
fair market value of the Milwaukee lines.
On that subject there has been quite a bit of talk about
the $123 million that the North Western Railroad would
be able to contribute to the public generally by virtue
of consolidations and increased efficiency and general sav-
ings by virtue of operating on a large scale but consoli-
dating and so forth, selling the unnecessary Bensenville
yards, for example, just one small example. What I think
is obvious from the $123 million figure is that someone
is not going to be working. A large proportion of the ex-
penses of operating a railroad, something in the vicinity
of 70 percent, I believe, Mr. Wilson pointed out, are per-
sonnel expenses. If you are going to save $123 million,
that means that there is going to be $123 million less for
the employees who are not working because of the con-
solidation. I don’t know who they would be. But I can’t
see that that saving is particularly advantageous to the
public. It is advantageous in the sense that it will make
the North Western more efficient and more profitable but
in the same breath the North Western is going to take
$210 million of its assets and pay it to the CMC. So, they
are taking $210 million excess money out of the transpor-
tation system and giving it to a non-transportation [16]
entity, the CMC.
I hope the CMC can use its money, whatever it gets
in this case, as advantageously as the predecessor of the
Chicago & North Western Railroad did, Mr. Heinemann,
when he spun off the railroad and took the benefits of
tax deductions. I suppose the stock of the Northwest In-
App. 65
eo ae
dustries has increased as much as the stock of the Mil-
waukee Railroad has in the last few years. I am not talk-
ing about the last few years of the Northwest Industries.
They have had a little bit of a set back. The point is that
the CMC is not a transportation industry and $210 million
at the very least is going to be transferred from our
transportation system to a non-transportation entity of the
North Western were the bidder.
| Now, I think that everyone agrees that but for the con-
stitutional problem or the St. Joe Paper problem, which
I have already put aside, the basic consideration on valu-
ing these transactions is what is in the best public in-
terest, what is most beneficial to the public. Now, the
public is a large amorphous group. I wouldn’t eliminate
the stockholders of CMC from members of the public. Ob-
viously, they are going to benefit just as they have bene-
fitted up to this time. But the public is a much greater
group than that.
The main problem that I see with an acquisition by the
Chicago Milwaukee Corporation is the defeat of a substan-
tial amount of competition for it to acquire the Milwau-
kee assets. I am sure you are all familiar with these maps.
I am holding here the one [17] that shows the Milwau-
kee in orange and the North Western in green. Although
you probably all can’t see it, as I say, you are probably
familiar with it. You can see that most of the lines are
in the same general area, Wisconsin, southern Minnesota,
particularly Iowa, and it is what the ICC calls a parallel
acquisition. That means that to a large extent many of
the lines are parallel to each other and therefore subject
to deterioration or abandonment or lower efficiency be-
cause a corporation doesn’t compete with itself as strenu-
ously as it competes with another corporation. You can’t
expect the Chicago Milwaukee Corporation to compete
with its subsidiary.
|
App. 66
So, I think it is perfectly reasonable to assume and I
find that there will be a large amount of abandonment
of the Chicago and North Western trackage if they were
to acquire the Milwaukee line.
Take the line from Chicago to Milwaukee as just one
example. There are three main lines now, according to
this map, running up there. There are two main lines that
go up to Minneapolis-St. Paul. As far as from Milwaukee
to Wyeville, or some junction there, Wyeville, Wisconsin,
the North Western and the Milwaukee are only a few
miles apart, relatively few miles apart. There are very
few intermediate stops on either of those lines. They are
not going to last very long in competition with each other.
The Chicago & North Western Railroad was perfectly
[18] frank in saying in the first filing that it made with
the Interstate Commerce Commission that it was going
to abandon approximately 1100 miles of its line if it ac-
quired the Milwaukee. Now it says it won’t abandon the
1100 miles until it goes through the process of the Inter-
state Commerce Commission. But it hasn’t said it isn’t
going to abandon 1100 miles, and I wouldn’t expect it to
say it isn’t going to abandon 1100 miles. If it can’t operate
1100 miles profitably, it is going to come in before the
Interstate Commerce Commission and ask for abandon-
ment, and we know, Governor Oglivie and I and Mr.
Wheeler, that it is going to get that abandonment.
I wanted to say one other thing about the question of
duplication of routes and that is on the transportation
system from Minneapolis-St. Paul to Kansas City. Now,
I think the Interstate Commerce Commission, in attempt-
ing to restore competition in that particular corridor, puts
the Chicago & North Western Railroad into something
of a “Catch-22” situation. It said that we will approve—
they didn’t say this—they said one of the conditions we
would impose upon any transaction between the Milwau-
App. 67
kee and the North Western would be trackage rights for
the Soo so it can get down the spine line in favorable
conditions. It didn’t say “favorable conditions”. But, ob-
viously, “trackage rights” means that the Soo would be
able to operate profitably from Minneapolis-St. Paul to
Kansas City over the Chicago & North Western line.
They would have to pay rent, of course. Yet, on the other
hand, [19] the trackage rights would be worth nothing
unless they were not sufficiently advantageous to the Soo
so that it would use them and make money on them. That
means that the river route will go by the boards in large
part.
The river route has been used by the Milwaukee Rail-
road to good advantage. It is making money on the river
route as far as I know. It is making money period. The
river route is the way it carries its traffic from Kansas
City to the Twin Cities and back. As a matter of fact,
Governor Ogilvie and I took a journey along the river
route. It is a beautiful trip. It is too bad they don’t have
any passenger trains any longer. In any event, the route
has been maintained. The Milwaukee has put a consider-
able amount of money into it. It still needs more money
put into it to bring it up to full operating capacity.
What the trackage right agreement would amount to
is that there would be no longer competition between the
river route and the spine line to amount to anything. It
would be local traffic. Even the Chicago, Milwaukee
Railroad concedes that. On their map, which they filed
some time around the first proceeding, showing what was
going to be abandoned, which is attached as one of the
exhibits to one of the—I believe it is tne Soo Railroad’s
reply memorandum—they specifically showed a large seg-
ment of the river route as subject to abandonment.
It is my finding that there would be a substantial amount
of loss of transportation system by abandonment if a par-
allel [20] acquisition were to be authorized.
App. 68
Now, on the other hand, the ICC definitely prefers an
end to end consolidation. The reason for that is perfectly
clear. It does not require abandonments or, at least, a very
minimum amount of abandonments and it increases the
efficiency of the system. They have an opportunity to run
through-trains for a much longer period, much longer dis-
tance, much longer time and we would no doubt, find the
Soo running trains from-someplace in Canada to Kansas
City and Louisville, Kentucky by an end-to-end consolida-
tion. That has been a policy of the Interstate Commerce
Commission for at least as long as the Tucumcearri deci-
sion and probably before that because of its logic. I don’t
think there is any argument that the system is going to
survive in the way in which it becomes consolidated with
the Soo and a much more viable transportation entity than
it would under a consolidation with the Chicago & North
Western Railroad.
You can see that, again, from the other map, which has
the Soo property at the top in blue and the Milwaukee
property in brown at the bottom. There are very few
places where there is any parallel excess trackage. The
ICC found that the Soo would not have to abandon any
of its trackage in order to operate the Milwaukee
property.
Now, what is the matter
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