# Brief for Respondent — Smith v. Baker > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385606_1115%3A3 ## Record - **Collection:** Supreme Court brief - **Document type:** Brief for Respondent - **Published:** January 1, 1972 - **Citation:** 409 U.S. 890 ## Text a= — IN THE Supreme Court, U. Supreme Court of the United States! | © 1 October Term, 1971 MAY 31 1972 No. 71-1401 MICHAEL RORAN, JRO In the Matter of The New York, New Haven and Hartford Railroad Company, Debtor Richard Joyce Smith, Trustee of the Property of The New York, New Haven and Hartford Railroad Company, Debtor, Petitioner, v. George P. Baker, Richard C, Bond, Jervis Langdon, Jr. and Willard Wirtz, Trustees of the Property of Penn Central Transportation Company, Debtor; Manufacturers Hanover Trust Company, as Mortgage Trustee; and Penn Central Transportation Company, Respondents. On Petition for a Writ of Certiorari to the United States Court of Appeals for the Second Circuit BRIEF OF RESPONDENT MANUFACTURERS HANOVER TRUST COMPANY, AS MORTGAGE TRUSTEE Epwarp Roserrs, III, Attorney for Respondent Manufacturers Hanover Trust Com pany, as Mortgage Trustee 350 Park Avenue New York, New York 10022 Of Counsel: Frank H. Hetss Rosert L. CrawFrorp Kettey Dayz Warren CLARK Carr & Exuis _ Dated: May 26, 1972 \ ek ee a a a —S _ TABLE OF CONTENTS PAGE Preliminary Statement ae 1 Questions Presented sasiinaliaes 2 Statement of Facts 3 The Rights of Manufacturers Hanover, as Trus- tee of the 1897 Mortgage 5 The New Haven Reorganization Court’s Order on Remand 6 Reasons for Denying the Writ 8 The Court of Appeals Correctly Applied Relevant Decisions of This Court Relating to a Re- organization Court's Exclusive Jurisdiction Under Section 77(a) s 1. Finality icing 2. The Constitutional Rights of the New Haven Creditors 11 3. Warren v. Palmer 13 4. The Equities 14 Conclusion CALNE E523 A 17 Appendix Order 559 of the New Haven Reorganization Court Directing Inclusion of Debtor in Penn Central Company 1A TABLE OF AUTHORITIES PAGi Cases: In the Matter of The New York, New Haven and Hart- ford Railroad Co., Debtor, Docket Nos. 71-1902, 71-1929, 71-2024 (2d Cir. Mareh 17, 1972) 7.9, 10,1: In the Matter of The New York, New Haven and Hart- ford Railroad Co., Debtor, 331 F. Supp. 212 (1D. Conn. 1971) 6, In the Matter of The New York, New Haven and Hart- ford Railroad Co., Debtor, 330 F. Supp. 131 (1). Conn. 1971) 3, In the Matter of The New York, New Haven and Hart- ford Railroad Co., Debtor, 289 F. Supp. 793 (1D. Conn. 1968) New Haven Inclusion Cases, 399 U.S. 392 (1970) 3, 4,6 9, 10,1 Warren v. Palmer, 310 U.S. 132 (1940) 9,1 Statutes: Bankruptey Act, Section 77(a) 2 ef passiv In the Matter of The New York, New Haven and Hartford Railroad Company, Debtor Richard Joyce Smith, Trustee of the Property of The New York, New Haven and Hartford Railroad Company, Debtor, Petitioner, v. George P. Baker, Richard C. Bond, Jervis Langdon, Jr. and Willard Wirtz, Trustees of the Property of Penn Central Transportation Company, Debtor; Manufacturers Hanover Trust Company, as Mortgage Trustee: and Penn Central Transportation Company, Respondents. On Petition for a Writ of Certiorari to the United Siates Court of Appeals for the Second Circuit nN Jie en BRIEF OF RESPONDENT MANUFACTURERS HANOVER TRUST COMPANY, AS MORTGAGE TRUSTEE Preliminary Statement Respondent Manufacturers Hanover Trust Company (“Manufacturers Hanover’’), as Trustee under The New 2 York Central and Hudson River Railroad Company (the ‘*Central’’) Three and One-Half Percent Gold Bond Mort. gage, dated June 1, 1897 (the ‘£1897 Mortgage’’), by its attorneys, respectfully submits this brief in response both to the above-captioned Petition and to No. 71-1451, the similar Petition, dated May 6, 1972, of Lawrence W. Ian. notti, Successor Trustee under the First and Refunding 4% Mortgage Bonds, dated as of July 1, 1947, of The New York, New Haven and Ilartford Railroad Company, Debtor." Questions Presented The principal question raised by these petitions is whether the Court of Appeals correctly held that the New Haven Reorganization Court had no jurisdiction to declare an equitable lien on, and a constructive trust on the income from, various former properties of the New Haven because those properties, which the Penn Central Trustees had legal title to and actual possession of, were under the ex- elusive jurisdiction of the Penn Central Reorganization Court under Section 77(a) of the Bankruptey Act, 11 U.S.C. 1. For convenience we have used the same shortened reference forms as those used in the New Haven Trustee’s Petition: “New Haven”—The New York, New Haven and Hartford Rai- road Company, Debtor. “Penn Central”—Penn Central Transportation Company, Debtor “New Haven Reorganization Court’—the United States Distric: Court for the District of Connecticut. “Penn Central Reorganization Court’—the United States Di- trict Court for the Eastern District of Pennsylvania. “Court of Appeals”—the United States Court of Appeals for th: Second Circuit. “Commission” —the Interstate Commerce Commission. 3 j205(a)? A secondary question raised by the petitions is whether the admittedly important federal question of Section 77(a) jurisdiction has not already been settled by previous decisions cf this Court, which were correctly applied by the Court of Appeals in the decision, review of which the New Haven Trustee and Mr. lannotti now seek ? Statement of Facts This Court last considered the problems arising out of the various proceedings involving the reorganization of the New Haven, the merger of the Pennsylvania Railroad Company and the Central, and the sale of the New Haven’s properties to the newly formed Penn Central in the New Haven Inclusion Cases, 399 U.S. 392 (1970). Briefly what had transpired prior to that decision was the following: July 7, 1961—New Haven enters reorganization under Section 77. April 6, 1966—Commission approves Penn Central merger subject to the inclusion of the New Haven. November 19, 1967—Commission prescribes terms for the New Haven’s inclusion setting the considera- tion to be paid by Penn Central at $125 million. February 1, 1968—Penn Central merger effected. November 25, 1968—Commission revises the terms for the New Haven’s inclusion it prescribed November 19, 1967, increasing the consideration to be paid by Penn Central to $145.6 million. December 24, 1968—New Haven Reorganization Court orders the transfer of the New Haven’s assets to Penn Central by January 1, 1969. Pe ee ee a aia lt. 4 May 28, 1969—New Haven Reorganization Court jp. creases the consideration to be paid by Penn Cep- tral to $174.6 million. June 21, 1970—Penn Central enters reorganization m- der Section 77. June 29, 1970—New Haven Inclusion Cases, supra, decided. In the New Haven Inclusion Cases, supra, this Court affirmed the decision of the New Haven Reorganization Court setting the consideration to be paid by Penn Central for the New Haven assets at $174.6 million. But, because the major part of that consideration was to be paid in Pem Central stock which in the spring of 1970 was not selling at the $87.50 intrinsic value set by the New Haven Re- organization Court, this Court remanded the case for ‘further proceedings before the Commission and the appropriate federal courts * * * to determine the form that Penn Central’s consideration to New Haven should properly take * * *."’ New Haven Inclusion Cases, Supra at 489. Instead of simply remanding the proceedings to the Commission in accordance with this Court’s direction, the New Haven Reorganization Court, on August 10), 1970. ordered that the Trustee of the New Haven and ail other interested parties file ‘‘statements of positieu’’ on certain specified issues, as to which, the Court indicated, it might give directions to the Commission in its remand order. Two of the issues listed in the New Haven Reorganization Court’s August 10, 1970 Order—whether it could an should declare an equitable lien on the New Haven assets transferred to Penn Central on December 31, 1968 and COPY BOUND CLC 5 whether it could and should order the Penn Central Trustees to pay the New Haven Trustee half the excess income from the so-called Grand Central Terminal prop- erties*—vitally affected the rights of Manufacturers Han- over, as Trustee of the 1897 Mortgage. The Rights of Manufacturers Hanover, as Trustee of the 1897 Mortgage In its Statement of Position, filed in response to the New Haven Reorganization Court’s August 10, 1970 Order, Manufacturers Hanover, in addition to challenging the Court’s power to declare equitable liens on or otherwise affect the property of Penn Central within the exclusive jurisdiction of the Penn Central Reorganization Court, advised the New Haven Reorganization Court of the fol- lowing. On June 1, 1897, the Central had mortgaged ail its properties to a predecessor of Manufacturers Hanover, as Trustee, to secure an issue of bonds. Included in the trust estate mortgaged by the Central were the Grand Central Terminal properties. There were presently outstanding under the 1897 Mortgage approximately $80,000,000 in bonds, all in default as a result of the Penn Central bank- muptey. Any rights the New Haven had had in the Grand Central Terminal properties arose from a 1907 agreement tetween the Central and the New Haven for the develop- 2. (A. 26-27). References preceded by the letter “A” are to the pages of the Appendix annexed to the New Haven Trustee’s Petition and NOT the Appendix to this brief. LOSE IN CENTER h ' 9 Jee Stl) in Wh REMIND 6 ment of the Grand Central Terminal area.* Regardless of what rights, if any, the New Haven retained in the Grand Central Terminal properties following the transfer of those properties to Penn Central on December 31, 1968, those rights were clearly subordinate to the recorded lien of Manufacturers Hanover, as Trustee of the 1897 Mortgage. Consequently, even if the New Haven Reorganization Court were to conclude that it did have subject matter jurisdiction to declare an equitable lien and to order the Penn Central Trustees to pay half of the excess income from the Grand Central Terminal properties to the New Haven, it could not do so without totally abrogating the rights held by Manufacturers Hanover as Trustee for the holders of the bonds issued under the 1897 Mortgage. a th AIA NR ec le Sas sk NS ale Bs COA thle Ni The New Haven Reorganization Court’s Order on Remand On June 22, 1971, nearly a year after this Court had remanded the Vew Haven Inclusion Cases, supra, ‘‘for fur ther proceedings before the Commission,’’ the New Haver Reorganization Court in its Order of Remand‘ declared an equitable lien encumbering virtually all the assets which the New Haven had conveyed to Penn Central on December 3. This was the conclusion of the Special Master appointed by the New Haven Reorganization Court to make a legal appraisal of the interests and rights of the New Haven in the Grand Central Ter- minal properties. The Special Master’s report was adopted by the New Haven Reorganization Court and that portion of its decision affirmed by this Court. Jn re New York, New Haven and Hartford Railroad Co., 289 F. Supp. 451, 463 (1968), aff'd in part sub nom, New Haven Inclusion Cases, supra at 438-451. 4. In the Matter of The New York, New Haven and Hartfori Railroad Co., Debtor, 331 F. Supp. 212 (D. Conn. 1971) (A. 61 ¢t seq.). COPY BOUND CLO 7 , 1968." In addition, the Order of Remand directed the Penn Central Trustees (i) to hold in trust for the benefit f the New Haven all the right, title and interest in the rand Central Terminal properties which the New Haven ad transferred to Penn Central on December 31, 1968 and ii) commencing on July 1, 1971, to accrue to the account f the New Haven one-half the excess income from the trand Central Terminal properties.® Nn ATA ii cb SOS ith Die, The New Haven Reorganization Court’s Order of Re- mand completely ignored the rights in the Grand Central erminal properties held by Manufacturers Hanover, as rustee of the 1897 Mortgage, although curiously enough he Court in its accompanying Memorandum of Decision? ommented on those rights: ‘‘* * * Manufacturers Hanover rust Co., Indenture Trustee under N.Y. Central & Hudson R.R.Co. Gold Bond Mortgage of 1897, claims that the New Haven property comes within the provisions of its mort- age. The Penn Central Trustees do not contradict this.’ eS he a eA Oe hl Me Ui Say The New Haven Reorganization Court’s Order of Re- mand was appealed to, and reversed by, the Court of Ap- peals on March 17, 1972 on the ground that ‘‘the district ourt lacked subject matter jurisdiction under §77(a) of he Bankruptcy Act, 11 U.S.C. §205(a) (1970), to issue the brder, since the property affected is within the exclusive urisdiction of another district court.’” 5. 331 F. Supp. at 215 (A. 64). 6. 331 F. Supp. at 215-216 (A. 64-65). 7. In the Matter of The New York, New Haven and Hartford ailroad Co., Debtor, 330 F. Supp. 131 (D. Conn. 1971) (A. 25 et eq.) 8. 330 F. Supp. at 144 (A. 44). 9. In the Matter of The New York, New Haven and Hartford katlroad Co., Debtor, F. 2d (2d Cir. March 17, 1972) (A. -LOSE IN CENTER ai) SY ae ke ee owe sees Sh ot Bete oo empneemeagaarereren en — sea instir Ibi Sass scat Se | Wa MR. Reasons for Denying the Writ The Court of Appeals Correctly Applied Relevant Decisions of This Court Relating to a Reorganization Court’s Exclusive Jurisdiction Under Section 77(a). Section 77(a) of the Bankruptcy Act, 11 U.S.C. §205 (a) (1970), provides in relevant part: ‘If the petition [stating that the railroad is insol- vent and wishes to reorganize its capital structure] is so approved [by a judge of the district court of proper venue], the court in which the order is entered shall, during the pendency of the proceedings under this section and for the purposes thereof, have exclu- sive jurisdiction of the debtor and its property wher- ever located * * *”? (Emphasis added). When the New Haven Reorganization Court in its Order of Remand imposed an equitable lien on the former New Haven assets conveyed to Penn Central on December 31, 1968 and ordered the Penn Central Trustees to hold Penn Central’s Grand Central Terminal properties in trust for the benefit of the New Haven, it was circumventing the unambiguous language of Section 77(a) which granted the Penn Central Reorganization Court exclusive jurisdic- tion over the property of Penn Central. The Court of Appeals could have simply relied on See- tion 77(a) when it reversed the New Haven Reorganization Court’s Order of Remand. Instead, however, the Court of Appeals, in a detailed and well-reasoned opinion, re- viewed each of the arguments made by the appellants and the appellees on the jurisdictional issue, cited and dis- cussed the relevant decisions of this Court, and then con- COPY BOUND CLOS ; id ) cluded that under Section 77(a) and the decisions of this Court interpreting Section 77(a) ‘** * * only the Pennsyl- ) vania [i.e., the Penn Central] reorganization court had jurisdiction under §77(a) over the property here in ques- tion 9910 The New Haven Trustee lists four reasons why this Court should review the Court of Appeals decision: (i) only this Court can construe its remand decision in the New Haven Inclusion Cases, supra, with finality; (ii) the New Haven Reorganization Court had jurisdiction to pro- tect the constitutional rights of the New Haven creditors; (ili) the Court of Appeals misapplied Warren v. Palmer ;" and finally (iv) an argument based on the equities. None of these reasons warrant the grant of certiorari. 1. Finality The New Haven Trustee argues that this Court is the only Court which can construe its remand decision in the New Haven Inclusion Cases, supra, with finality. Clearly, that is so. It is, however, hardly a reason for this Court to issue a writ of certiorari. The relevant question here is whether the Court of Appeals correctly interpreted the New Haven Inclusion Cases, supra. A comparison of both opinions shows that it did. In the New Haven Inclusion Cases, supra, this Court remanded the case for ‘‘[f]urther proceedings before the Commission and the appropriate federal courts * * * to 10. —— F. 2d at —— (A. 16). 11. 310 U.S. 132 (1940). LOSE IN CENTER 12. 399 U.S. at 489. determine the form that Penn Central’s consideration to New Haven should properly take * * *.’"" The Court of Appeals decision reversing the New Haven Reorganization Court’s Order of Remand provides: 10 ‘‘This case must be remanded to the Commission so that a reorganization plan, fair and equitable to all parties, can be formulated. One of the main rea- sons for the enactment of §77 was to establish a re. organization procedure in which an expert agency would examine the technical and financial problems of the railroad and propose a reorganization plan to the reorganization court for approval. As both the Penn Central and the New Haven are in reorganiza- tion, at least nominally, before courts in different circuits, the Commission is the common denominator between those courts so far as the formulation of a single plan, or two interrelated plans, is concerned, Whatever protection the New Haven estate must re- ceive in terms of some senior position in the Penn Central proceeding must first be proposed by the Commission in the context of a reorganization plan for the Penn Central which, it is to be hoped, will advance the public interest by successfully establishing a financially viable Penn Central. The Commission has stated that, if the proceeding is remanded to it, it will consolidate the Penn Central reorganization and New Haven inclusion proceedings so as to con- sider the terms of the New Haven inclusion as ‘a por- tion of the reorganization of Penn Central * * *’ This procedure is, we believe, the proper method by which the interests of all parties—the New Haven estate, Penn Central and its ereditors, and the public—can best be advanced.’’ 13, —— F. 2d at — (A. 18-19), COPY BOUND CLO y Clearly it is the Court of Appeals decision remanding the case directly to the Commission, and not the New Haven 1 Reorganization Court’s Order of Remand, which correctly carries out the mandate in the New Haven Inclusion Cases, , supra. 11 2. The Constitutional Rights of the New Haven Creditors The New Haven Trustee argues that the New Haven Inclusion Cases, supra, held that ‘‘the New Haven creditors have suffered all the losses they were required to suffer in the public interest and that any further losses would be an unconstitutional taking of their property without just compensation * * *.’* He also states that the equitable lien and constructive trust were appropriate security de- vices to prevent further losses and an unconstitutional taking. The argument is fallacious in two respects. First, the losses referred to in the New Haven Inclusion Cases were losses suffered by the New Haven estate because of its unprofitable operation of the New Haven as a railroad in the public interest. That operation ceased on December 31, 1968, when the New Haven transferred its railroad to Penn Central. Thereafter it was and still is Penn Central and its creditors who are suffering the losses incurred in the operation of the former New Haven rail assets, Ss lm UNS Si i Fee Secondly, the equitable lien and the constructive trust are not appropriate security devices since ms violate not only Section 77(a), but also the New Haven Reorganization Court’s own order of December 24, 1968 approving the 14. New Haven Trustee's Petition, p. 21. LOSE IN CENTER 12 transfer of the New Haven assets to Penn Central. There the New Haven Reorganization Court ordered “‘a binding transfer’ of the New Haven assets to Penn Central “free and clear of all liens, charges and encumbrances thereon.’™ The order provided that the various liens, charges and encumbrances to which the transferred assets had been subject prior to conveyance **shall attach and be recognized as continuing liens, charges and encumbrances upon the assets hereafter held by the New Haven Trustees,”’ which included the consideration paid by Penn Central." The equitable lien and the constructive trust, interfering as they do with the assets transferred from the New Haven to Penn Central, violate the New Haven Reorganization Court's own order approving the transfer ‘‘free and clear of all liens, charges and encumbrances.”’ 15. Paragraphs J and K of Order No. 559, which we have printed in its entirety as an appendix to this brief, were quoted at pp. 7-8 of the New Haven Trustee's Petition. Paragraph H of Order No. 559 provides : “The convevance of the Debtor's assets to Penn Central Com- pany pursuant to the [lan shall be @ finding transfer to Penn Central Company free and clear of all liens, charges and encum- brances thercon except as specitied im Section 3.2 of the Purchase Agreement as moditie!d with regafd te the Harlem River Division mortgage and bends and approvdll in the Ilan; the liens, charges and encumbrances to which the Belbtor's asscts are subject prior toy the conveyance of such assetgishall attach and be recognized as continuing hems, charges 4: munbrances upon the assets hereafter held bw the New Haven Trustees, including all assets on deposit in the registry ot thas Court, all as provided in the Plan” (Enyphasts added) 16. Paragraph L of Order No. 55% set forth in the Appendix me j ’ I d COPY BOUND CLOS!| a 3. Warren v. Palmer The Court of Appeals held that Warren y. Palmer, supra, was determinative," concluding that the New Haven Reorganization Court's Order on Remand “‘could * * * seriously impair the formulation of a workable plan for the financial resuscitation of Penn Central by the Commission and the ability of the Pennsylvania reorganization court to administer the entire Penn Central system, of which the New Haven line is but a division * * *,°"* 13 The New Haven Trustee argues that there was no show- ing that any such impact had occurred.” Reference to the New Haven Reorganization Court's Order on Remand re- futes this contention. The operative provisions of the Order of Remand do not merely declare the equitable lien, they also direct the Penn Central Trustees to hold the Grand Central Terminal properties in trust for the benefit of the New Haven and to accrue for the account of the New Haven one-half the excess income from those prop- erties. This is precisely the sort of interference with the oper- ations of a railroad in reorganization to which Warren vy. Palmer applies. The existence of the Order on Remand, we submit, constitutes impermissible encroachment on the Penn Central Reorganization Court's Section 77(a) juris- diction. Nor does the statement of the New Haven Reorganiza- tion Court in its Memorandum of Decision that ‘** * * this 17, —— F. 2d at —— (A. 13). 18 —— F. 2d at —~— (A. 16). 19. New Haven Trustee's Petition, p. 26. OSE IN CENTER 14 court claims only the power to declare the existence of an equitable lien on the conveyed property, including a con- structive trust to the extent of the capitalized value of one- half of the excess income from the Grand Central properties * ** [T]he New Haven reorganization court does not under the present circumstances assert the power to en- force such a lien.””” As United States courts are not nor- mally given to knowingly making unenforceable declara- tions, one can question this distinction which the New Haven Reorganization Court makes between its power to declare and its power to eeforce. Such questioning is not neces- sary however—it is the Order of Remand with its clear-cut directions to the Penn Central Trustees which restricts their management of Penn Central, and it is the Order of Remand which the Court of Appeals reversed. 4. The Equities Throughout his Petition the New Haven Trustee has sought to create the impression that the Penn Central's other creditors are being unjustly enriched at the expense of the New Haven and that the New Haven Reorganization Court is the only tribunal which can effectively protect the New Haven’s right. A return to reality seems justified. a Nate Ra eet ee Eee hee aPC Lee a ec ee After the December 31, 1968 transfer of the rail assets of the New Haven to Penn Central, the New Haven estate’: principal assets were securities—bonds, stock and Pem Central’s promise to underwrite the value of the stock— of Penn Central. As long as Penn Central remained sol- vent, the New Haven Trustee had the right, as a Pem Central security holder, to require Penn Central to live | % i F & i 20. 330 F. Supp. at 137 (A. 30). COPY BOUND CL<¢ a lO oe ee | | Or ee + -<« Le rr . 15 up to the terms of those securities. He could enforce that right in the New Haven Reorganization Court or any other court where Penn Central could be served. On June 21, 1970, when the Penn Central entered re- organization in the Penn Central Reorganization Court, that Court and that Court alone acquired jurisdiction over the assets of Penn Central. All claims on those assets had to be made before the Penn Central Reorganization Court so that it could apportion equitably the limited assets of the Penn Central estate among the various claimants to those assets. No greater demonstration can be made of the soundness of Section 77(a) in bestowing upon a reorganization court exclusive jurisdiction over the property of a debtor in reorganization than the example of the encroachment on the Penn Central Reorganization Court’s exclusive juris- diction by the New Haven Reorganization Court in its Order of Remand. Notwithstanding that the New Haven Reorganization Court was sitting as a court of equity, it ignored considera- tion of the relative merits of the claims of all creditors of Penn Central. Instead, it considered only the merits of the unsecured claim of the New Haven Trustee which the New Haven Reorganization Court, by its Order of Remand, elevated to secured status. It is not surprising that most creditors of Penn Central did not appear in New Haven and did not attempt to justify the merits of their claims against Penn Central before the New Haven Reorganization Court. They undoubtedly as- SLOSE IN CENTER WER hd anti eRS = 16 sumed that their claims would eventually be weighed by the Penn Central Reorganization Court. It is surprising that the New Haven Reorganization Court chose to ignore this vast body of claimants, many of whom may be entitled to the same solicitous consideration which the New Haven Reorganization Court reserved for the New Haven Trustee. As Manufacturers Hanover informed the New Haven Reorganization Court in its Statement of Position, the Grand Central Terminal properties are pledged to it, as Trustee under the 1897 Mortgage. Any order of the New Haven Reorganization Court diverting the excess income of the Grand Central Terminal properties to the New Haven Trustee would violate the rights of 1897 Mortgage bond- holders who are entitled to the full security of the pledge of the Grand Central Terminal properties. Whatever may have been the rights of the New Haven Trustee in the Grand Central Terminal properties vis-a-vis the rights of Pen Central as successor to the Central, those rights are clearly subordinate to the rights of Manufacturers Hanover, as Trustee of the 1897 Mortgage, to the full security of the pledge of the Grand Central Terminal properties. There was not in the record before the New Haven Reorganization Court one shred of evidence which even suggests that the rights of the New Haven Trustee to the Grand Central Terminal properties are superior to the rights of the 1897 Mortgage Trustee. There is nothing in the record before this Court to suggest that the New Haven Reorganization Court, which has ignored the claims of Manufacturers Hanover, as Trustee for the holders of bonds secured by the 1897 Mortgage, and which has apparently been unconcerned over the plight of any other Penn Central eS COPY BOUND CLOS! 17 ereditor except the New Haven Trustee, is better equipped than the Penn Central Reorganization Court to dispense equitably the limited assets of Penn Central to those cred- itors entitled to them. Section 77(a), the decisions inter- preting Section 77(a), and common sense all compel the conclusion that the Penn Central Reorganization Court is the only tribunal which, in the first instance, has or should have the power over the assets of Penn Central. Conclusion Petitioners have not shown any reasons for grant- ing the writ; certiorari should be denied. Respectfully submitted, Epwarp Roserts, III, Attorney for Respondent Manufacturers Hanover Trust Company, as Mortgage Trustee 390 Park Avenue New York, New York 10022 Of Counsel: Frank H. Hetss Rosert L. Crawrorp Kevtey Drye Warren CLARK Carr & Eis Dated: May 26, 1972 OSE IN CENTER APPENDIX CORY ROLIND CI a 1A : Order No. 559 IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF CONNECTICUT In Proceedings for the Reorganization of a Railroad lo the Matter of THE NEW YORK, NEW HAVEN AND No. 30226 HARTFORD RAILROAD COMPANY, Debtor. ORDER DIRECTING INCLUSION OF DEBTOR IN PENN CENTRAL COMPANY — The Interstate Commerce Commission (the Commission) having certified to this Court, on December 2, 1968, a Plan of Reorganization for the Debtor (the Plan), as embodied in its reports and orders of November 16, 1967 and March 1, 1968 which have been modified in accordance with its report and order of November 25. 1968; together with exhibits and a transcript of the proceedings before the Commission; this Court having, by Order of December 3, 1968, directed the filing of objections and claims for equitable treatment on or before December 16, 1968, and scheduled hearings on the Plan commencing December 20,-1968; notice ci said Order of December 3, 1968 and of the hearings thereon having been duly given in accordance with said \ Order; all parties in interest having been given due opportunity to file their objections in writing to said Plan and their claims (7383) I QMOGE IAI CEAITES BP ae 2A 7384 for equitable treatment; the Court having, at the Rearing on December 20, 1968, limited said hearing to the issue of the inclusion of the Debtor's railroad operations in Penn Central } Company on or before January 1, 1969 by conveyance of the Debtor's assets to Penn Central Company and payment of con- sideration therefor by Penn Central Company, as specified in the Plan, subject to the jurisdiction reserved in this Order; all parties in interest having been heard or given opportunity to be heard on said issue; and this Court having filed its opinion in the premises, THE COURT FINDS AS FOLLOWS: 1. Due and lawful notice to all persons and parties has been given in strict compliance with the Order of ‘this Court oi December 3, 1968 prescribing the manner of notice. 2. Subject to the jurisdiction reserved herein, the inclusion of the Debtor’s operations in Penn Central Company as oi December 31, 1968 in accordance with the Plan is fair ani equitable, and otherwise fully complies with the requirements of Section 77 of the Bankruptcy Act, including subsections (b) and (e) thereof. 3. The Debtor is insolvent within the meaning of Section 77(e) of the Bankruptey Act, and the equity of the holders oi the Debtor’s preferred and common stock and certificates ¢ beneficial interest has no value. 4. Inclusion of the Debtor's operations in Penn Centr Conipany as of December 31, 1968 by conveyance of the Debtors assets and payment of the consideration specified in the Plan subject to the jurisdiction reserved herein, will not adverse and materially affect any class of stockholders or of creditor of the Debtor's estate, except that under Section 77(e) of th Bankruptcy Act, the interest of the United States of Americ is dcemed to be affected. §. The United States of America has consented to the ore’ of the Interstate Commerce Cominission insofar as it relates t the conveyance of the Debtor's assets to Penn Central Company COPY BOUND CLOS 3A 7386 . ¢ New Haven Trustees, and the New Haven Trustees are author- ized to receive, on the closing date provided in the Plan, to wit, } December 31, 1968, the following consideration : (1) 950,000 shares of Penn Central Company stock (plus such additional shares as may be necessary by the anti-dilution provisions approved by the Commission) ; (2) $33,600,000 principal amount of Penn Central Com- pany bonds; (3) $8,000,000 in cash (less any amount representing accrued vacation pay which the New Haven Trustees and Penn Central Company agree is to be assumed by Penn Central Company) ; and Penn Central Company is further directed on December 31, 1968 to assume obligation and liability in respect of : (a) the Debtor's equipment obligations ; (b) the Debtor's Harlem River Division mortgage and bonds; (c) the mortgage, bonds and certificates of contingent beneficial interest when issued pursuant to the Plan of Reorganization of the Boston and Providence Railroad Corporation (B&P) ; (d) the payment for publicly held shares of the Boston and Providence Railroad Corporation upon consum- mation of the Plan of Reorganization of the B&P: and (e) such other obligations and liabilities of the Debtor or of the New Haven Trustees, all as are provided in the reports and orders of the Commission referred to herein; and Penn Central Company is further directed, on December a4, 1968, to cancel and surrender to the New Haven Trustees all Certificates of the New Haven Trustees held by said Company to evidence loans tu the New Haven Trustees. ~OSE IN CENTER C. The New Haven Trustees and Penn Central Company are hereby authorized and directed to perform all obligations to be performed by them pursuant to the provisions of the Plan relating to the inclusion of the Debtor and of the operations of the B&P in Penn Central Company, including the making of adjustments on May 31, 1969, the post-closing adjustment date under the Plan, in such amounts as may be payable by the New Haven Trustees and Penn Central Company, respectively, on said date pursuant to Section 7 of the Agreement between the New Haven Trustees and the Pennsylvania Railroad Company and the New York Central Railroad Company, dated April 21, 1966, as amended (the Purchase Agreement). } D. The New Haven Trustees are authorized and directed i to turn over to Penn Central Company on December 31, 1968 i the operations of the B&P and all rights of the Debtor wit ; respect to such operations, and Penn Central Company P directed to operate the B&P, subject to the reserved jurisdiction } of the Commission and of this Court, pending consummation 6! ; the Plan of Reorganization of the B&P, the payment by Pen y held shares of the B&P, th 1387 ~— : Central Company for the publicl 5 conveyance of the assets of the B&P to Penn Central Compan , and the assumption by Penn Central Company of the obligation under the mortgage bonds and certificates of contingent benehc: interest to be issued pursuant to the Plan of Reorganization of th: \ B&P, Penn Central Company to succeed to the rights of the Ne 2 . . i Haven upon consummation of said Plan. = 4 E. The Clerk of this Court is directed forthwith to turn ov : to the New Haven Trustees for delivery to Penn Central Cor : pany on the closing date the following assets held in the regisit 4 of this Court: ‘ 1 & P j j (1) 5% Note of Railway Express Ageney, Incorporat. 5 in the principal amount of $1,272,284.02; (2) $1,068,000 principal amount of The Provide Terminal Company 44% First Mortgage Bonds: Bae BEA Se COPY BOUND CLOSs alae " 8e ; 7388 (3) 9,551 shares of stock of Providence and Worcester Railroad Company ; (4) 1,071 shares of stock of Norwich and Worcester Railroad Company ; (5) 3,364 shares of stock of Fruit Growers Express Com- pany; (6) 15,000 shares of stock of The New York Connecting Rail Road Company ; (7) 7 shares of stock of The Boston Terminal Corpora- tion; and ed (8) 15,000 shares of stock of New England Transporta- y tion Company and 656 demand note of said Company in the principal amount of $738,000. F. The Trustees under the indentures of the Debtor’s First and Refunding Mortgage and of the Debtor's General Income Mortgage are hereby directed to turn over and release forthwith tothe New Haven Trustees for delivery to Penn Central Company on the closing date all securities held in pledge pursuant to said indentures including the following : (1) 25,877 shares of stock of The Pullman Company ; (2) 400 shares of stock of South Manchester Railroad Company ; and (3) Voting trust certificate substituted for 91,344 shares of stock uf Railway Express Agency, Incorporated, pursuant to Order No. 510 herein. 1 G. All. persons, firms and corporations whatsoever, and Wheresoever situated, located or domiciled are directed to turn over forthwith to the New Haven Trustees for delivery to Penn Central ( empany on the closing date any and all of the Debtor's ap ets held by them, in pledge or otherwise, which are to be fonveved to Penn Central Company pursuant to the Plan. H. The conveyance of the Debtor's assets to Penn Central ™pany pursuant to the Plan shall he a hinding transfer to C0 LOSE IN CENTER Pd a A ti or OS TéBren, Dati ricvisiovaue, GA 7389 Penn Central Company free and clear of all liens, charges and encumbrances thereon except as specified in Section 3.2 of the Purchase Agreement as modified with regard to the Harlem River Division mortgage and bonds and approved in the Plan; the liens, charges and encumbrances to which the Debtor's assets are subject prior to the conveyance of such assets shall attach and be recognized as continuing liens, charges and en- cumbrances upon the assets hereafter held by the New Haven Trustees, including all assets on deposit in the registry of this Court, all as provided in the Plan. I. Upon inclusion of the Debtor in Penn Central Company, the New Haven Trustees shall be relieved of the duty to operate and manage the railroad and common carrier properties of the Debtor, including those railroad and common carrier properties operated by the Trustees under lease or other arrangement; and in all other respects, the Trustees shall have all of the authority hitherto granted them in these proceedings. J. The conveyance of the Debtor's assets by the New Haven Trustees and the payment of consideration by Penn Central Company, as provided herein, shall be without prejudice to the right of any party to contest the fairness and adequacy of th: consideration and the other terms of the inclusion of the Debtor’ operation in Penn Central Company. K. The Court hereby reserves jurisdiction to adjudicate @ operations and claims for equitable treatment heretofore file herein except that all objections to the inclusion of the Debtor: operations in Pern Central Company as of December 31, 1% are hereby overruled and denicd. L. Upon receipt of the consideration to be paid from Per Central Company, the Trustees shall forthwith deposit in th registry of this Court the stock and bonds of Penn Cent: Company received by them, pending further order of this Ce upon notice to all parties, provided, however, that, until fe: order of the Court, the New Haven Trustees shall be entitle to receive directly payments ci interest and dividends on S- securities. LrODY ROININ CT _ QoQe 7390 M. The Clerk of this Court is hereby directed to transmit a certified copy of this Decree and of the Opinion of the Court } hereon dated December 24th, 1968 to the Interstate Commerce Commission. Enter: ; Rosert P. ANDERSON United States Circuit J udge, ) sitting by designation. Dated : December 24th, 1968. OSE IN CENTER --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385606_1115%3A3. Public record. Not legal advice.