Opposition Brief — Chicago, Milwaukee, St. Paul & Pacific Railroad v. United States

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In the Supreme Court of the Up itOO SS Ete

OCTOBER TERM, 1986

CHICAGO, MILWAUKEE, ST. PAUL AND PACIFIC

RAILROAD COMPANY, ET AL., PETITIONERS

Vv.

UNITED STATES OF AMERICA, ET AL.

ON PETITION FOR A WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

BRIEF FOR THE RESPONDENTS IN OPPOSITION

CHARLES FRIED

Solicitor General

RICHARD K. WILLARD

Assistant Attorney General

MICHAEL F. HERTZ

ALAN E. KLEINBURD

Altorneys

Department of Justice

Washington, D.C. 20530

(202) 633-2217

ROBERT S. BURK

General Counsel

HENRI F. RUSH

Deputy General Counsel

CHARLES A. STARK

Altorney

Interstate Commerce Commission

Washington, D.C. 20423

QUESTION PRESENTED

Whether, in these bankruptcy proceedings, the court of

appeals correctly declined petitioners’ request to vacate the

district court’s finding that the compensation paid to peti-

tioners by private parties for certain rail assets was con-

stitutionally adequate, so as to enable petitioners to seek

additional compensation in a suit against the United States

under the Tucker Act.

(1)

TABLE OF CONTENTS

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TABLE OF AUTHORITIES

Cases:

Ashbacker Radio Co. v. FCC, 326 U.S. 327 (1945) ......

Black v. Cutter Laboratories, 351 U.S. 292 (1956) .......

Burlington Northern, Inc.—Control—Green Bay, 354

EE Se a eae re

Chevron U.S.A. Inc. v. NRDC, Inc., 467 U.S. 837

CRESS EOL re oa ae

Chicago, M., St.P. & Pac. R.R., In re, 701 F.2d 604 (7th

Cir.), cert. dismissed, 463 U.S. 1233 (1983) ...........

Chicago, M., St. P. & Pac. R.R., In re, 713 F.2d 274 (7th

Cir. 1983), cert denied, 465 U.S. 1100 (1984) .........

FPC v. Colorado Interstate Gas Co., 348 U.S. 492

ee eek oa kte eb veeaaeee esse

Hooe v. United States, 218 U.S. 322 (1910) .............

Midwestern Rail Properties, Inc. —Purchase— Rock

ie, OEE bo cw rsd vbescuresvevrs

Mississippi Univ. for Women v. Hogan, 458 U.S. 718

EEA 5 AA RP Sa ee

Mitchell v. United States, 267 U.S. 341 (1925) ..........

Mountain States Tel. & Tel. Co. v. Pueblo of Santa Ana,

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

Penn Cent. Merger Cases, 389 U.S. 486 (1968) ..........

Penn Cent. Transp. Co., In re, 520 F.2d 1388 (3d Cir.

ee ae ge ye Weneeieee ees

Railway Labor Executives’ Ass’n v. Gibbons, 455 U.S.

ee i bis age Vwi dek o

Railway Labor Executives’ Ass’n v. Gibbons, 448 U.S.

a ee rs uh cles be eso 8

Railway Labor Executives’ Ass’n v. Gibbons, 448 U.S.

ee ee is i caw Wena sae ae eknes

Cases — Continued: Page

Reconstruction Finance Corp. v. Denver & R.G.W.R.R.,

aE. eee. Gis wh cack tend eben eek ahs eek 5-6, 21

Regional Rail Reorganization Act Cases, 419 U.S. 102

|| ere Ceres esy Spurred Pon ore ees 14-15, 18, 19

Ruckelshaus v. Monsanto Co., 467 U.S. 986 (1984) ...... 15

Schwabacher v. United States, 334 U.S. 182 (1948) ...... 3

Southern Pac. Transp. Co. v. ICC, 736 F.2d 708

'- (D.C. Cir. 1984), cert. denied, 469 U.S. 1208 (1985) ... 3

Tully v. Mobil Oil Corp., 455 U.S. 245 (1982) .......... 16-17

United States v. Commodities Trading Corp., 339 U.S.

Re EE soca s 60a 0k ane REEL e PAN OSS bane me 21

United States v. Locke, 471 U.S. 84 (1985) ............. 13

United States v. North American Co., 253 U.S. 330

EE sc Bo ok oe RR a ee en eres 15

United States v. Varig Airlines, 467 U.S. 797 (1984) ..... 15

Constitution, statutes and rule:

ee ee OM Eo a Se ee ee ke ee 15

Bankruptcy Act of 1898, Ch. 8, 11 U.S.C. (1976 ed.)

202a ef Seq.:

Re is 2 ee Se ror re Se ee res 2, 3, 4, 17

Bey, “| Et 8 emt) | | Ree are yr wenn 3

Bankruptcy Reform Act of 1978, Pub. L. No. 95-298,

a kt ee elles flee eer ea reg 2

i 3 ER Re ere eer er ee 2

Federal Tort Claims Act, 28 U.S.C. 2671 ef seq. ........ 1, 15

ee Ae en aw aieas ae 15

eee oss Se oe aus pee ee awe 15

Interstate Commerce Act § 5, 49 U.S.C. 11343 ...... ea Se

Milwaukee Railroad Restructuring Act, 45 U.S.C. 901

él Seq. :

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See, ee OP ED ce ces ese scs aes 7, 38, 2 oh, oe

ee ear A, ED babes dcae ken eexe cs» 2

See 0 A, SEED ov o't eh vs ca ey bes 2

Statutes and rule — Continued: Page

he SS 2th fot Pree eee 22

Be © fe te 66 ere errr re 22

BB 8 gs le eer err errr rer ree 22

§ 7(h)(1)(B), 45 U.S.C. 906(h)(1)(B) ..........00.0. 22

Oe EE ha ces oe awe ens ebee pan reas 22

Bie fos ft ak: eer rere ea 22

BR Rk Ta | ne err eer ere o 22

Rock Island Railroad Transition and Employee Assistance

Act, 45 U.S.C. (& Supp. III) 1000 ef seq.:

Be Oe Bk se ey rere rrr re 19

S- S20, OO USA. FORGES) on occ ev ceavas 16

§ 124(b), 45 U.S.C. (& Supp. II]) 1018(b) .......... 19

DC ae Ot OE cares an ckcaesvacarnuna 19, 20

Staggers Rail Act of 1980, Pub. L. No. 96-488, §701,

| ie rere VEC Tree 20

Tucker Act, 28 U.S.C. 1491(a)(1) .. 9, 14, 15, 16, 17, 19, 20, 24

Bankr. R. 8-703(a)(6) (11 U.S.C. App. (1976 ed.) at

SUE can kn Sena Rcbae ess Cie eae 4h eee ee eee 8, 13

Miscellaneous:

H.R. Conf. Rep. 96-1430, 96th Cong., 2d Sess. (1980) ... 20

Jn the Supreme Court of the Anited States

OCTOBER TERM, 1986

No. 86-1234

CHICAGO; MILWAUKEE, ST. PAUL AND PACIFIC

RAILROAD COMPANY, ET AL., PETITIONERS

Vv.

UNITED STATES OF AMERICA, ET AL.

ON PETITION FOR A WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

BRIEF FOR THE RESPONDENTS IN OPPOSITION

OPINIONS BELOW

The opinion of the court of appeals (Pet. App. 1-38) is

reported at 799 F.2d 317. The order of the district court

(Pet. App. 41-51) is not reported.

JURISDICTION

The judgment of the court of appeals was entered on

August 20, 1986, and a petition for rehearing was denied

on October 20, 1986 (Pet. App. 39-40). The petition for a

writ of certiorari was filed on January 20, 1987. The

jurisdiction of this Court is invoked under 28 U.S.C.

1254(1).

STATEMENT

1. In December 1977, petitioner Chicago, Milwaukee,

St. Paul and Pacific Railroad Company (Milwaukee

Road) filed a petition in bankruptcy in the United States

(1)

District Court for the Northern District of Illinois, pur-

suant to Section 77 of the Bankruptcy Act of 1898, 11

U.S.C. (1976 ed.) 205.' Thereafter, in 1979, Congress

enacted the Milwaukee Railroad Restructuring Act

(MRRA),? which was intended to facilitate the reorganiza-

tion of the Milwaukee Road.

Section 5(b)(1) of the MRRA empowered the bankrupt-

cy court, independently of any plan of reorganization, to

authorize the sale of lines of the Milwaukee Road to be

used in continued rail operations. See 45 U.S.C. 904(b)(1).

Such a sale could be authorized only if an “appropriate ap-

plication” for the sale had been filed with and approved

by the Interstate Commerce Commission. 45 U.S.C.

904(b)(2). The Commission in the instant case construed

the latter provision to incorporate the requirements of the

Interstate Commerce Act that govern similar applications.

The Commission accordingly concluded that an “ap-

propriate application” under Section 5(b)(1‘ of the MRRA

is subject to Section 5 of the Interstate Commerce Act, 49

U.S.C. 11343, which governs the Commission’s approval

of the purchase of the property of one carrier by a second

carrier. See Chicago, M. St.P. & Pac. R.R. Reorganiza-

tion, Fin. Dkt. No. 28,640 (ICC Sept. 26, 1984), slip op.

44-45, 90 n.111 [hereinafter JCC Decision I); accord,

Midwestern Rail Properties, Inc. — Purchase — Rock

Island, 366 1.C.C. 915, 921 (1983).

' These bankruptcy proceedings were instituted prior to the effec-

tive date of the Bankruptcy Reform Act of 1978, Pub. L. No. 95-598,

92 Stat. 2549. Accordingly, by virtue of Section 403(a) of that Act (92

Stat. 2683), the proceedings continue to be governed by Section 77 of

the 1898 Act and the former Bankruptcy Rules. See /n re Chicago, M.,

St. P. & Pac. R.R., 701 F.2d 604, 605 n.1 (7th Cir.), cert. dismissed,

463 U.S. 1233 (1983).

> Pub. L. No. 96-101, 93 Stat. 736, codified at 45 U.S.C. 901 ef seq.

Under Section 5 of the Interstate Commerce Act, the

Commission must consider whether the terms of the trans-

action are just and reasonable to the shareholders. See

Schwabacher v. United States, 334 U.S. 182, 198-199

(1948); Southern Pac. Transp. Co. v. ICC, 736 F.2d 708,

725-726 (D.C. Cir. 1984), cert. denied, 469 U.S. 1208

(1985). This standard in turn is equivalent to the “fair and

equitable” treatment of shareholders required by Section

77(e) of the Bankruptcy Act of 1898. New Haven Inclu-

sion Cases, 399 U.S. 392, 424-425 (1970). The Commis-

sion concluded in this case that both of these standards re-

quired that the estate be paid the fair market value of the

assets. ICC Decision I, at 90.

2. After several years of operating under the protec-

tion of Section 77 of the Bankruptcy Act of 1898, the

Milwaukee Road received offers from three railroads to

purchase its remaining rail operations. The three were the

Soo Line Railroad (the Soo), the Chicago and North

Western Transportation Company (CNW), and the Grand

Trunk Corporation (GTC). Both the Soo and CNW of-

fered approximately $150 million for the lines, in addition

to an assumption of approximately $420 million in

liabilities; GTC offered substantially less. As required by

Section 5(b) of the MRRA, the three bids were submitted

to the Commission. Petitioner Chicago Milwaukee Cor-

poration (CMC), the entity that was to emerge with the

Milwaukee Road’s non-rail assets, objected that the $150

million offered by the Soo and CNW was insufficient and

that the net value of the rail assets was $360 million. Pet.

App. 3-4.

In a decision dated September 26, 1984, the Commis-

sion held that the Soo and CNW proposals both provided

“fair compensation” for the Milwaukee Road’s rail assets,

but that the GTC proposal offered “inadequate compensa-

tion” (ICC Decision I, at 54-55; see also id. at 90).

Specifically, the Commission found that the $150 million

(plus assumption of liabilities) offered by the Soo and

CNW was “fair and equitable” under the standards incor-

porated into Section 5 of the MRRA from Section 5 of the

Interstate Commerce Act and Section 77 of the Bank-

rupcty Act. In the Commission’s view, this conclusion was

especially evident under the price/earnings method of

evaluation, which the Commission regarded as the most

reliable. Applying that methodology, the Commission

found that when compared to the Milwaukee Road’s net

earnings of $8.9 million in 1983 and its projected net earn-

ings of $18.7 million in 1984, the $150 million yielded

price/earnings ratios of 16.9 and 8 for the two years. At

the same time, the Commission rejected as too high peti-

tioner CMC’s proposed net value for the rail assets of $360

million. The Commission explained that CMC’s valuation

was based on the discounted present value of a projected

stream of future earnings, which the Commission deter-

mined “is not a particularly reliable methodology since it

involves speculation about the amount of future earnings”

(ICC Decision I, at 54). The Commission further ex-

plained that CMC’s proposed value would yield a

price/earnings ratio of 40 based on 1983 earnings and 19.3

based on projected 1984 earnings, which far exceeded the

price/earnings ratios for other railroads (as reflected in

sales of their stock) and which the Commission regarded

as unrealistic. Jd. at 54-55, 90; id. App. I, at 19-23; see

Pet. App. 4.°

The Commission also evaluated the applications with

respect to factors other than the adequacy of compensa-

tion. In particular, the Commission found that the CNW

proposal would have “a significant adverse competitive ef-

fect on rail transportation in [three rail] corridors,” which,

the Commission held, would have to be ameliorated by

certain conditions on the acquisition if the CNW proposal

> The Commission also found that CMC’s projection that the

Milwaukee Road would earn $18.7 million in 1984 was “overly op-

timistic” (ICC Decision I, at 54).

were to be approved (JCC Decision I, at 61-63, 70). The

Commission found no comparable anticompetitive prob-

lems with the Soo proposal (id. at 63-64, 69). Based on

these and other factors, the Commission concluded that

the Soo’s proposal has “important public interest benefits”

and is “preferable to that of CNW” (id. at 5-6). The Com-

mission therefore approved the Soo proposal. A majority

of the Commission did not reach a definitive decision

regarding the CNW proposal, and the Commission there-

fore neither approved nor disapproved it. /d. at 2, 5-6,

94-95.

3. After the Commission’s decision was issued and the

matter was referred to the district court, CNW increased

its offer by $210 million (Pet. App. 4). CNW’s revised pro-

posal was then referred back to the Commission. In a deci-

sion dated January 11, 1985, the Commission approved

CNW’s offer, subject to certain conditions to ameliorate

anticompetitive impacts. Chicago, M., St.P. & Pac.

R.R.— Reorganization—Acquisition by Grand Trunk

Corp., Fin. Dkt. No. 28,640 (ICC Jan. 11, 1985), slip op.

21-22, 29-30, 34-36 [hereinafter JCC Decision I].

The Commission also expressed the view in its January

11 decision that the Soo’s bid, while less than CNW’s re-

vised bid, remained fair and constitutionally adequate

(ICC Decision II, at 14-15). The Commission acknowl-

edged that an arms length agreement between a willing

buyer and willing seller is one benchmark in determining

the issue of fair and equitable consideration. But it con-

cluded that in this context the amount that the highest bid-

der is willing to pay does not necessarily establish a con-

stitutional entitlement on the part of the stockholders,

because “those who invest their capital in a railroad enter-

prise assume[] the risk that in any reorganization the in-

terest of the public will be considered as well as the in-

vestors” (id. at 14, citing Reconstruction Finance Corp. v.

Denver & R.G.W.R.R., 328 U.S. 495, 536 (1946)). The

Commission observed that this Court and the Commission

itself have regarded the constitutional adequacy of con-

sideration in circumstances such as these to turn primarily

on the past, present, and prospective earning capacity of

the railroad. Viewed from this perspective, the Commis-

sion continued to find the Soo’s offer to be fair, because (i)

it provided for a reasonable price/earnings ratio, and (ii) it

exceeded the net liquidation value of the Milwaukee

Road’s rail assets by more than $220 million. JCC Decision

IT, at 14-15.

At the request of the district court, the Commission also

expressed its view of the relative merits of the two pro-

posals. By a 4-3 vote, the Commission concluded, on the

basis of its “review of the entire record,” that “the benefits

offered by the Soo proposal outweigh those of the CNW”

and that the Soo’s proposal was preferable to CNW’s

modified proposal (ICC Decision IT, at 2, 31). The Com-

mission explained that the increased compensation offered

by the CNW did not reflect any changed circumstances af-

fecting the intrinsic value of the Milwaukee Road’s rail

assets, but only a change in CNW’s business judgment

regarding the value of those assets to CNW’s own system.

The Commission also explained that the Soo’s proposal

was less likely to result in downgrading and abandonment

of lines. However, the Commission’s “greatest concern”

was with the anticompetitive effects of CNW’s proposal in

“several critical areas”; those effects, the Commission

stressed, would require ameliorative conditions to the ac-

quisition, while the Soo’s acquisition would serve the

public interest without such conditions. See id. at 31-33;

Pet. App. 5, 62.

4. The district court, after considering the two offers

and the Commission’s recommendations, approved the

sale of the Milwaukee Road’s rail properties to the Soo.

+ The district court made clear that the Commission’s statement of a

preference for the Soo’s proposal was only a non-binding recom-

a. In its oral findings delivered on February 8, 1985

(Pet. App. 52-83), the court recognized that “the

stockholders of [petitioner] CMC are entitled to-* * * the

fair value of the line” (id. at 63). But the court credited

what it understood to be the Commission’s finding that the

“fair market value” of the property was “something

below” the Soo’s tota! offer of $570 million (id. at 56). The

court also expressed the view that the Soo and CNW both

had arrived at what they believed was the fair market value

of the property when they submitted their offers prior to

the Commission’s first decision, and that CNW thereafter

had offered an additional $210 million only “because it

thought it could get some other advantages besides the fair

value of the line,” such as “buy[ing] out some of its com-

petition” (id. at 63-64). Finally, the court, like the Com-

mission, found the “main problem” presented by CNW’s

acquisition of the rail lines to be that it “[would] defeat

* * * a substantial amount of competition” (id. at 65; see

generally id. at 65-67). Although the court believed that

these anticompetitive effects could be reduced by the im-

position of trackage rights and other conditions for the

benefit of competitors, it concluded that competition

would best be promoted by an end-to-end acquisition of

the Milwaukee Road’s lines by the Soo, which could then

compete with CNW without regulatory restrictions (id. at

70-75).° |

b. Immediately after the district court delivered its

oral findings on February 8, 1985, CNW informed the

trustee by hand-delivered letter that CNW’s offer was

withdrawn (R. 79). See 2/19/85 Tr. 82-83. Petitioners

mendation solicited by the court (Pet. App. 62). In a submission filed

with the district court on January 21, 1985, the United States sup-

ported CNW’s application and opposed that of the Soo.

5 The court also determined that acquisition by CNW would lead to

substantial abandonment of the Milwaukee Road lines that were

parallel to those of CNW (Pet. App. 66-70).

took the position that this withdrawal was invalid because

CNW’s offer was to be binding “until rejected by the

reorganization court” (R. 44), which, in petitioners’ view,

could not occur until the court entered a final written

order. 2/19/85 Tr. 83-84. Petitioners therefore filed a peti--

tion for a writ of mandamus or prohibition in the court of

appeals, seeking to bar consummation of the sale and

CNW’s withdrawal of its offer. By order dated February

19, 1985, the court of appeals denied that relief, finding no

“clear cut abuses of discretion or usurpation of power

necessary for [its] use of the extraordinary remedy sought”

(2/19/85 Tr. 84; R. 105). However, the court of appeals

emphasized that its order was without prejudice to the

right of any party to seek other relief, including a stay

(ibid.).

c. The district court entered its written order later in

the day on February 19, 1985 (Pet. App. 41-51). In

paragraph 4 of the section of the order setting forth the

court’s findings and conclusions, the court stated that

after considering the parties’ objections, it approved the

Commission’s findings and decisions because, inter alia,

they were not “contrary to constitutional rights” (id. at

43). In the subsequent section of the order that contained

the district court’s actual decree, the court approved the

sale of the Milwaukee Road lines to the Soo and directed

the trustee to consummate the sale (/d. at 46-51).

d. Bankruptcy Rule 8-703(a)(6) (11 U.S.C. App. (1976

ed.) at 1412) provides that “[uJnless an order approving a

sale of property * * * is stayed pending appeal, the sale to

a good faith purchaser * * * shall not be affected by the

reversal or modification of such order on appeal, whether

or not the purchaser or holder knows of the pendency of

the appeal.” By virtue of this rule, in the absence of a stay,

the sale to the Soo could not have been affected by any ap-

peal taken by petitioners. See Pet. App. 23-26. Never-

theless, although several other parties unsuccessfully

moved in the court of appeals for a stay of the district

court’s order on other grounds, petitioners did not seek

such a stay in the court of appeals or in this Court pending

appeal on the question of the adequacy of the compensa-

tion.® The sale to the Soo was then closed on February 20,

1985. Pet. App. 8.

5. Although they failed to pursue a stay, petitioners

took an appeal to the court of appeals. They expressly did

not urge that court to reverse the district court’s decree ap-

proving the sale of the Milwaukee Road’s rail properties to

the Soo. See 85-1683 C.A. Appellant’s Br. 2, 5. They also

expressly did not challenge the district court’s finding that

the public interest favored the acquisition of the

Milwaukee Road’s core assets by the Soo, rather than

CNW. 7d. at 5. Petitioners sought only to have the court

of appeals vacate the district court’s finding that the con-

sideration paid by the Soo was fair and constitutionally

adequaie. /d. at 5-6, 21-22, 27, 30. Petitioners’ stated pur-

pose in seeking vacation of that finding was to put

themselves in a position to file an action against the United

States in the Claims Court under the Tucker Act, 28

U.S.C. 1491(a)(1), claiming that the district court’s ap-

proval of the sale to someone other than the highest bidder

resulted in a “taking” of their property by the United

States to the extent of the difference between the two of-

fers. 85-1683 C.A. Appellant’s Br. 2, 32. Petitioners

acknowledged that because of the district court’s finding

that the compensation they received was constitutionally

adequate, they would be collaterally estopped, absent a

reversal or vacation of that finding, from relitigating

the constitutional issue in the Claims Court. At no

previous time in these proceedings — either before the In-

terstate Commerce Commission or the district court — did

® Petitioners did seek a stay from the district court, but that request

_was denied (2/19/85 Tr. 96).

petitioners argue that the United States might be liable in a

Tucker Act suit for compensation in addition to that paid

by the Soo.

The court of appeals unanimously denied petitioners’ re-

quest to vacate the district court’s finding that the compen-

sation petitioners received was constitutionally adequate

(Pet. App. 3-21). The court first declined petitioners’ sug-

gestion that it vacate that finding without deciding

whether there had actually been a “taking” by the United

States, in order to permit petitioners to present their

taking argument to the Claims Court. The court explained

(id. at 12): ;

[T]he valuation was fully litigated before the ICC,

which issued mountainous valuation studies and two

full opinions, and the district court. The parties in-

vested 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 the deal if it

thought the decision exposed the Treasury to a $210

million award —are substantial.

The court of appeals also declined to vacate the district

court’s finding on the merits, holding that even if the

district court’s ruling regarding the adequacy of the com-

pensation was erroneous, that ruling would not give rise to

a claim for compensation against the United States (Pet.

App. 16-20). The court said, “a judicial error in the

: 11

implementation of a program is not a taking, if a correct

implementation of the program would not be a taking”

(id. at 18). The court found this conclusion to be sup-

ported by the general rule that accidental and unintended

injuries inflicted by governmental actors are treated as

torts, not takings, and that torts are compensable only to

the extent permitted by the Federal Tort Claims Act (id. at

16-18). So, too, the court reasoned (id. at 18-19):

The government is not absolutely liable for mistaken

implementation of a law that does not otherwise 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 Constitution; to the contrary, there was

consensus that the sovereign could not be sued for er-

rors save with its consent.

Applying these principles to this case, the court of ap-

peals held that the MRRA “neither requires nor authorizes

a judge to transfer property for compensation that is less

than the constitutional minimum,” and it therefore

“makes adequate compensation a condition of any sale”

(Pet. App. 20).’? Here, both the Commission and the

district court found that the Soo’s application provided for

the payment of fair market value. If the district court was

correct in this ruling, there could be no taking of peti-

tioners’ property. In the court’s view, it followed that “a

judicial error in answering [this] constitutionally ap-

propriate question does not subject the United States to a

claim of taking” (ibid.).

? The court concluded that the MRRA “is thus unlike the statute at

issue in the Regional Rail Reorganization Act Cases, [419 U.S. 102

(1974),} which not only required a transfer without a prior finding of

adequate 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” (Pet. App. 20).

; ARGUMENT

The adequacy of the consideration petitioners received

for the Milwaukee Road’s rail assets was fully litigated

before the Interstate Commerce Commission and the

district court. The district court’s finding that the compen-

sation satisfied constitutional requirements was an essen-

tial ingredient of its decision to approve the sale to the

Soo, because the MRRA did not authorize the court to ap-

prove the sale for consideration that was not constitu-

tionally adequate. The court of appeals correctly declined

to vacate that finding in order to enable petitioners, who

enjoy the benefit of the sale to the Soo, to relitigate the

compensation question in the form of a taking claim

against the United States based on the alleged error of the

district court in making the finding on which the sale was

predicated. The court of appeals’ decision does not con-

flict with any decision of this Court or of another court of

appeals, and it arose in unique circumstances and under

statutory provisions that are now effectively obsolete. Fur-

ther review by this Court is not warranted.

1. a. Petitioners concede (Pet. 4, 7, 10, 11, 12) that

the district court, like the Commission, found that the

consideration paid by the Soo for the Milwaukee Road’s

rail assets satisfied constitutional requirements. Peti-

tioners do not ask this Court to reverse that finding on the

merits. Rather, petitioners urge this Court to vacate the

district court’s finding — while leaving the rest of its decree

standing —so that they can relitigate the just compensation

issue in a separate action against the United States in the

Claims Court, in which they will claim that the court-

ordered and now unrescindable sale to the Soo took their

property because the valuation finding was erroneous.

There is no basis for such a collateral attack on the orderly

administrative and judicial procedures that Congress

fashioned in Section 5 of the MRRA. Petitioners had a

statutory right, under the MRRA, not to have their prop-

erty transferred except for constitutionally adequate con-

sideration as determined in advance by a court, subject to

appellate review in the prescribed manner. They do not

have any entitlement to compensation from the United

States on the ground that the constitutionally adequate

process reached the wrong result.

If the district court’s valuation finding had been ap-

pealed on the merits and reversed, the logical course would

have been to bar the sale to the Soo on the ground that the

compensation was inadequate—not to award petitioners

additional amounts from the United States Treasury. The

reason why the logical course was unavailable here was

Bankruptcy Rule 8-703(a)(6) (11 U.S.C. App. (1976 ed.) at

1412), which provided that once the sale to the Soo had

been consummated reversal of the decree would not undo

it, together with petitioners’ failure to seek and obtain a

stay pending appeal.® The fact is that after denial of their

petition for mandamus, petitioners had no interest in

reversing the valuation finding and blocking the sale to the

Soo: CNW had withdrawn its higher offer, and petitioners

therefore could not anticipate receiving greater compensa-

tion from CNW or any other private party even if the sale

to the Soo were set aside. Instead, after the CNW option

was eliminated by the voluntary actions of CNW and peti-

tioners themselves, petitioners’ evident strategy was to

8 There can be no claim of a “taking” by the United States when a

person’s alleged property interests are lost as a result of his own failure

to follow established procedures. United States v. Locke, 471 U.S. 84,

107-108 (1985). It is entirely possible that such relief pendente lite

would have been granted here if petitioners had advanced in stay pro-

ceedings the claim of irreparable constitutional deprivation that they

now wish to present to the Claims Court. Compare Railway Labor

Executives’ Ass’n v. Gibbons, 448 U.S. 909 (1980); Railway Labor Ex-

ecutives’ Ass’n v. Gibbons, 448 U.S. 1301 (1980) (Stevens, Circuit

Justice). It is true that stay requests by other parties were denied by the

court of appeals, but those other parties did not advance constitu-

tional objections to the February 19 order (see Pet. App. 21-38).

split the baby and take both halves—both to obtain the

benefits of the Soo sale and to obtain from the United

States in a separate action under the Tucker Act the $210

million that they failed to obtain from CNW. Petitioners

are not entitled both to forgo an appeal (and accept the

benefits) of the decree, and yet at the same time have the

court of appeals vacate a finding that was an “essential in-

gredient” of that decree and the transaction it approved

(Pet. App. 12). See FPC v. Colorado Interstate Gas Co.,

348 U.S. 492, 502 (1955) (a plaintiff “cannot * * * be

allowed to attack an officially approved condition of the

merger while retaining at the same time all of the

benefits”); cf. Mississippi Univ. for Women v. Hogan, 458

U.S. 718, 723 n.7 (1982); Black v. Cutter Laboratories,

351 U.S. 292, 297 (1956). For this reason alone, the court

of appeals correctly rejected petitioners’ attempt to open

the way for a “taking” claim against the United States.

2. Furthermore, petitioners do not appear to challenge

the court of appeals’ central holding on the taking

issue—namely, that an erroneous determination by a

federal district court that the compensation paid for

private property was constitutionally adequate would not

be a “taking” of property by the United States (Pet. App.

16-21). This holding is, at all events, clearly correct.

The district court was authorized to ascertain whether

the consideration offered by a private party—the

Soo — for the Milwaukee Road’s assets was constitutional-

ly adequate. The court was not authorized by Congress to

exercise the power of eminent domain or acquire any part

of the property for the United States. Any legal or factual

error in determining the amount of compensation con-

stitutionally due was subject to correction in the usual

manner. It did not —any more than any other judicial er-

ror —constitute a taking or give rise to a claim for compen-

sation from the United States. This Court made clear in

the Regional Rail Reorganization Act Cases, 419 U.S.

102 (1974), upon which petitioners principally rely, that

“ ‘(t]he taking of private property by an officer of the

United States for public use, without being authorized, ex-

pressly or by necessary implication, to do so by some act

of Congress, is not the act of the Government,’ and hence

recovery is not available in the Court of Claims.” 419 U.S.

at 127 n.16 (quoting Hooe v. United States, 218 U.S. 322,

336 (1910)); see also Ruckelshaus v. Monsanto Co., 467

U.S. 986, 1016 (1984); Mitchell v. United States, 267 U.S.

341, 345 (1925); United States v. North American Co., 253

U.S. 330, 334 (1920).

As the court of appeals observed, accidental and

unintended injuries inflicted by ordinary governmental ac-

tors generally are treated as torts, not as takings, and torts

are compensable by the United States only to the extent

permitted by the Federal Tort Claims Act, 28 U.S.C. 2671

et seq. (Pet. App. 16-18). The discretionary function ex-

ception to the FTCA, 28 U.S.C. 2680(a), would preclude

liability for an error made in an administrative adjudica- —

tion. United States v. Varig Airlines, 467 U.S. 797,

809-810, 813-814 (1984). A fortiori, an error committed by

an Article III court in the adjudication of a case or con-

troversy does not give rise to liability under the FTCA,

since the courts are not covered by the FTCA. See 28

U.S.C. 2671. The remedy for an erroneous judgment by a

district court is an appeal (to the extent Congress has made

an appeal available), not an independent suit against the

United States for compensation, whether under the FTCA

or under the Tucker Act.

The court of appeals therefore properly concluded that

“a judicial error in the implementation of a program is not

a taking, if a correct implementation of the program

would not be a taking” (Pet. App. 18). In this case, a cor-

rect decision under the MRRA that the compensation paid

for rail properties was constitutionally adequate would by

definition not result in a taking of that property by the

United States. It follows that an error in that decision

likewise would not be a taking. “Were it otherwise, the

Treasury would guarantee the accuracy of all ad-

ministrative and judicial decisions. That was certainly not

the understanding in 1791, when the Takings Clause was

added to the Constitution; to the contrary, there was con-

sensus that the sovereign could not be sued for errors save

with its consent” (id. at 19).

3. a. Petitioners acknowledge the legitimacy of the

court of appeals’ concern that if a taking claim would lie

against the United States whenever a district court erred,

“the floodgates would be opened” (Pet. 10). Petitioners

argue that this case is special because, they allege, the

MRRA gave the district court no authority to address the

issue of whether the compensation was adequate. In peti-

tioners’ view, Congress intended the question of the ade-

quacy of compensation to be decided only in a suit against

the United States under the Tucker Act.

The real question presented by the petition is therefore

whether the MRRA, as a statutory matter, authorizes

bankruptcy court review of the adequacy of compensation

prior to transfer of assets. That narrow question does not

merit this Court’s review. The Commission, the district

court, and the court of appeals unanimously concluded

that the adequacy of the compensation was properly con-

sidered in these proceedings under Section 5. In particular,

the court of appeals held that the MRRA “neither requires

nor authorizes a judge to transfer property for compensa-

tion that is less than the constitutional minimum,” and

that the MRRA therefore “makes adequate compensation

a condition of any sale” (Pet. App. 20). The Seventh Cir-

cuit has extensive experience in cases arising under the

MRRA (see also 45 U.S.C. 1018(a)(2)), and its interpreta-

tion of that Act therefore is entitled to special weight.

Mountain States Tel. & Tel. Co. v. Pueblo of Santa Ana,

472 U.S. 237, 254-255 (1985); Tully v. Mobil Oil Corp.,

455 U.S. 245, 248 (1982). In addition, Section 5(b) of the

MRRA dealt only with the sale of the Milwaukee Road’s

rail assets, and it therefore is of no continuing importance.

The Seventh Circuit’s resolution of the statutory question

at issue here therefore does not warrant review by this

Court.

b. In any event, the Seventh Circuit’s interpretation of

the statute is clearly correct. Section 5(b) of the MRRA

provided for a prospective purchaser of the Milwaukee

Road’s lines to file an “appropriate application” with the

Commission. Because the MRRA did not define the term

“appropriate application,” the Commission had the

responsibility for giving content to that term. Chevron

U.S.A. Inc. v. NRDC, Inc., 467 U.S. 837, 842-845 (1984).

The Commission reasonably determined that such an ap-

plication should be governed by standards that have

evolved under Section 5 of the Interstate Commerce Act

and Section 77 of the Bankruptcy Act of 1898, which

apply to essentially similar transactions and proceedings

and which require that the acquisition be fair and

equitable to the stockholders. Petitioners have not shown

that this interpretation is “arbitrary, capricious, or

manifestly contrary to the statute.” Chevron, 467 U.S. at

844. There is, for example, nothing in Section 5(b) to sup-

port the proposition that either the Commission or the

bankruptcy court was required to approve a sale without

regard to whether the debtor would receive adequate con-

sideration. Indeed, common sense virtually compels the

conclusion that Congress would not have intended to re-

quire the court and the Commission to blind themselves to

so critical a feature of a proposed sale as the adequacy of

the consideration. Common sense further suggests that

Congress would not have intended to require that the com-

perisation Owing be paid by the public, through a Tucker

Act suit, rather than by the private railroad that will

acquire and receive the benefit of the assets. The inter-

pretation given Section 5(b) by the Commission and both

courts below therefore is correct.

c. Petitioners rely extensively on the Regional Rail

Reorganization Act Cases tor the proposition that they

should be entitled to seek additional compensation in a

Tucker Act suit. This case, however, is wholly different

from the Regional Rail Reorganization Act Cases.

Through the Regional Rail Reorganization Act, Congress

mandated that the rail properties of several bankrupt

railroads be transferred to a new private railroad, Conrail.

The Act also created a new Government corporation, the

United States Railway Association, to identify the rail

properties to be conveyed and the value of those proper-

ties. 419 U.S. at 111-117. As ihe court of appeals said, the

Regional Rail Reorganization Act “not only required a

transfer without a prior [judicial] finding of adequate

value, see 419 U.S. at 155, but also could have caused a

taking by the erosion of value during the judicial pro-

ceedings, id. at 122-25” (Pet. App. 20). By contrast, Sec-

tion 5(b) of the MRRA did not mandate the transfer of the

Milwaukee Road’s rail assets to a new entity. It merely

allowed the court to provide for the sale of the debtor’s

property to another private party during the bankruptcy

proceedings.

The Regional Rail Reorganization Act authorized an ex-

traordinary process—transfer of the properties in ex-

change for Conrail securities first, and then valuation of

the properties with the bill for any shortfall sent to the

United States—precisely because Congress wanted the

properties transferred promptly to an entity whose

securities might not have constitutionally adequate value;

in essence the Court ruled that Congress was prepared to

buy part (it turned out to be essentially all) of the railroad.

By contrast, there is no evidence that in the MRRA Con-

gress sought to have the Milwaukee Road’s properties

transferred to any transferee not able and willing to pay

consideration equal to their value — and no reason to think

that Congress wanted to foot the bill itself rather than

have that value determined as a precondition to transfer.

The Regional Rail Reorganization Act Cases do not

demonstrate that the transfer-first, value-later approach

was required under the MRRA, and certainly do not sup-

port the notion that persons who have litigated their con-

stitutional claims and lost are entitled to relitigate the same

claims in a Tucker Act suit on the theory that the defeat

itself constituted a taking.?

d. Petitioners contend (Pet. 11-12), however, that a

congressional intent to afford them a Tucker Act remedy

is reflected in 45 U.S.C. 1018(c). This contention is

without merit. Section 1018 was enacted in 1980 as an

amendment to the Rock Island Railroad Transition and

Employee Assistance Act (RITEA), 45 U.S.C. 1001 et seg.

It addresses the question of judicial review under the

RITEA and the MRRA. Section 1018(a) provides that ap-

peals of decisions concerning the constitutionality of

either Act must be taken to the Seventh Circuit. Section

1018(b) establishes certain procedures for such appeals.

Section 1018(c) then provides:

Nothing in [the RITEA] or in the Milwaukee Railroad

Restructuring Act (45 U.S.C. 901 et seq.) shall limit

the right of any person to commence an action in the

United States Court of Claims under section 1491 of

title 28 (commonly referred to as the Tucker Act).

By its terms, Section 1018(c) merely provides that any

cause of action that is otherwise available under the

* Petitioners’ reliance (Pet. 13-14) on Jn re Penn Cent. Transp. Co.,

520 F.2d 1388 (3d Cir. 1975), is equally misplaced. That case likewise

involved the Regional Rail Reorganization Act, and it therefore

likewise did not present a situation in which there had been a judicial

determination, prior to the transfer, that the compensation was con-

stitutionally adequate.

Tucker Act shall not be precluded. It does not purport to

grant a right to recover a money judgment from the

United States where such a right would not otherwise

exist. In this case, no such cause of action otherwise exists.

The legislative history of 45 U.S.C. 1018(c) likewise

lends no support to petitioners’ contention. That provision

was enacted as part of the Staggers Rail Act of 1980, Pub.

L. No. 96-488, §701, 94 Stat. 1959, not as part of the

MRRA in 1979. It therefore cannot be read to establish

congressional intent that under Section 5(b) of the MRRA,

the bankruptcy court was required to approve a sale of the

Milwaukee Road’s lines without regard to whether the

compensation was constitutionally adequate. Further-

more, the legislative history shows that 45 U.S.C. 1018(c)

was enacted in specific response to an injunction that had

been entered by the district court in the Rock Island

reorganization litigation, which barred implementation of

a labor protection statute that effectively directed the pay-

ment of $75 million from the bankrupt estate. The persons

whose property allegedly was taken as a result of that

statute would have received no compensation for their

loss. Congress therefore enacted 45 U.S.C 1018(c) to en-

sure that compensation would be available under the

Tucker Act for any taking that might be found, thereby

saving the constitutionality of the special Rock Island

labor protection statute against a taking claim. See H.R.

Conf. Rep. 96-1430, 96th Cong., 2d Sess. 137 (1980);

Railway Labor Executives’ Ass’n v. Gibbons, 455 U.S.

457, 463-464 (1982); Railway Labor Executives’ Ass’n v.

Gibbons, 448 U.S. 1301, 1305 (1980) (Stevens, Circuit

Justice). The legislative history does not mention a sale of

assets under Section 5 of the MRRA as another occasion

on which a cause of action should be available under the

Tucker Act. Moreover, the legislative history in fact con-

firms that Congress intended to make the Tucker Act

available where the statutory provision involved did not

otherwise assure the payment of just compensation. As we

have explained, Section 5(b) of the MRRA, as applied by

the Commission and the courts below, did provide for the

payment of just compensation.

4. While the merits of petitioners’ valuation claim

were not reached below,'® and are not presented by the

petition, we note that we strongly disagree with peti-

tioners’ contention that the owners of. a railroad are

statutorily or constitutionally entitled to sell it to the

highest bidder without regard to the public interest.

Although the owners cannot be required to donate their

property to the public, the nature of their property in-

terests is affected by the fact that they “invested their

capital in a public utility that does owe an obligation to the

public,” and “by their entry into a railroad enterprise,

assumed the risk that in any depression or reorganization

the interests of the public would be considered as well as

theirs.” Reconstruction Finance Corp. v. Denver &

R.G.W.R.R., 328 U.S. at 535-536; see also New Haven In-

clusion Cases, 399 U.S. at 431-433; Penn Cent. Merger

Cases, 389 U.S. 486, 499, 510-511 (1968); cf. United States

v. Commodities Trading Corp., 339 U.S. 121, 123 (1980).

In this case, the Commission performed a comprehen-

sive financial analysis of the Soo’s application and deter-

mined, based on projected earnings, that the Soo proposal

exceeded the comparable market values of other interstate

railroads and far exceeded the net liquidation value of the

Milwaukee Road’s rail assets. At the same time, both the

Commission and the district court concluded that the

public interest, including the interest in competition,

would be better served by sale of the assets to the Soo than

by sale to CNW. See pages 5-7, supra. The Constitution

peals did not hold that the compensation they received was constitu-

tionally inadequate. The court of appeals declined to reach that ques-

tion. See Pet. App. 12-13.

aii a i |

did not entitle the owners of the Milwaukee Road to sell

their lines to the high bidder without regard to these public

interest determinations. Cf. Ashbacker Radio Co. v. FCC,

326 U.S. 327, 333 (1945); accord Burlington Northern

Inc. —Control—Green Bay, 354 1.C.C. 458, 498-499

(1977).!!

Petitioners also did not have a constitutional right to

have the review process under Section 5(b) of the MRRA

restructured so as to fit the time demands of a bidder who

quickly got cold feet. Petitioners, as well as the Soo,

CNW, and GTC, had every reason to believe that bids

reflected in the “appropriate applications” submitted to

the Commission for approval on the first occasion would

be regarded as final offers. All parties concerned also had

every reason to believe that one or more of those offers

would be found to be constitutionally adequate. CNW did

not thereafter increase its offer until October 9, 1984, after

the Commission had already found that the Soo’s offer

'! Furthermore, a complete assessment of the just compensation

issue in these circumstances could not ignore the substantial counter-

vailing benefits petitioners realized under the MRRA. The Milwaukee

Road and the unions representing its employees entered into a special

labor protection agreement pursuant to special authority in the

MRRA (45 U.S.C. 908, 912, 914), which resulted in reductions in the

Milwaukee Road’s labor protection obligations that amounted to

perhaps hundreds of millions of dollars. See Jn re Chicago, M., St.P.

& Pac. R.R., 701 F.2d 604, 607 (7th Cir.), cert. dismissed, 463 U.S.

1233 (1983); In re Chicago, M., St. P & Pac. R.R., 713 F.2d 274, 278

(7th Cir. 1983), cert. denied, 465 U.S. 1100 (1984). In addition, Sec-

tions 7(d) and (e) of the MRRA authorized the Secretary of Transpor-

tation to guarantee trustee certificates of the Milwaukee Road to cover

its losses attributable to maintenance and continuation of services dur-

ing a specified period. See 45 U.S.C. 906(d) and (e). Section 7(h) then

provided that all obligations of the Milwaukee Road under those

guarantees would be cancelled if more than 50% of its rail system was

purchased. 45 U.S.C. 906(h)(1)(B). The district court’s February 19

order in fact cancelled liabilities totalling more than $100 million, in-

cluding interest, under that provision (Pet. App. 45).

and CNW’s own initial offer would satisfy constitutional

standards. CNW soon developed misgivings about the

wisdom of its revised offer. CNW accordingly withdrew

its offer immediately after the district court rendered its

oral findings on February 8, 1985, and petitioners sought

mandamus and prohibition relief in the court of appeals in

part for the specific purpose of preventing CNW from

withdrawing its bid. The statutory procedures Congress

has prescribed for evaluating the relative merits of com-

peting applications to purchase rail lines are not rendered

unconstitutional merely because one of the bidders was

unwilling to pursue those procedures further in order to

obtain the official governmental approval that is required

for any person to acquire rail lines.

Petitioners also contend (see Pet. 9 & n.5) that in any

event the CNW offer is controlling evidence of fair market

value. But the history of CNW’s revised offer, just

described, substantially undermines petitioners’ conten-

tion that that offer reflected what a “willing” buyer would

pay for the assets at the time the district court formally

entered its order on February 19, 1985. The Constitution

did not require that CNW’s short-lived offer be given con-

trolling weight, to the exclusion of what the court of ap-

peals described as the ICC’s “mountainous valuation

studies and two full opinions” (Pet. App. 12), in deciding

the compensation question.

5. Finally, we note that petitioners never argued

before the Commission or the district court that the

United States would be liable for any difference between

the consideration paid by the Soo and that offered by

CNW. Rather, petitioners, like the other parties, litigated

the question of the value of the assets and the adequacy of

consideration on the premise that petitioners would

receive only what they were paid by whichever applicant

was permitted to acquire the property. Indeed, when peti-

tioners sought a writ of mandamus or prohibition in the

court of appeals on February 12, 1985—which was after

the district court concluded in its oral findings of February

8 that the consideration offered by the Soo was ade-

quate — petitioners argued that they would “be without an

effective remedy” if the sale to the Soo was authorized and

CNW’s offer was withdrawn. Emergency Original Petition

for Writ of Mandamus and/or Prohibition at 3. If peti-

tioners had raised the Tucker Act issue before the Com-

mission and the district court, the United States and the

Commission could have considered the potential liability

of the public for as much as $210 million when weighing

the relative merits of the Soo’s and CNW’s proposals. Peti-

tioners should not be permitted to trap the United States in

that manner, by raising the issue only after the pro-

ceedings in district court were completed and the sale to

the Soo could not be set aside.

CONCLUSION

The petition for a writ of certiorari should be denied.

Respectfully submitted.