# Reply Brief — Smith v. Baker > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385606_1115%3A4 ## Record - **Collection:** Supreme Court brief - **Document type:** Reply Brief - **Published:** January 1, 1972 - **Citation:** 409 U.S. 890 ## Text 1 COPY BOUND C October Term, 1971 SUPREME COURT, U. Ly THE MarrTer oF Tur New York, New Haven anp Hartrorp RaAILRoap Company, Desror Ricuarp Joyce Smiru, Trustee or THE Property oF THE New York, New Haven anp Hartrorp Rartroap Company, Desror, PETITIONER Vv. 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 REPLY BRIEF IN SUPPORT OF CERTIORARI Of Counsel: Morris RAKER Nancy F, Gans Epwarp WOLL, Jr. SULLIVAN & WoRCESTER 225 Franklin Street Boston, Massachusetts 02110 Dated: June 7, 1972 James WM. Moore 54 Meadow Street New Haven, Connecticut 06506 JosEPH AUERBACH 225 Franklin Street Boston, Massachusett. ©2110 Po for Petitioner, Richard Joyce Smith ————————e————————— ee OSE IN CENTER COPY BOUND | r i TABLE OF CITATIONS Page Cases: Chicot County Drainage District v. Baxter State Bank, PM eerie enter Wet he ae 3 Durfee v. Duke, 875 US.106..00 3 New Haven Inclusion Cases, 399 U.8.392... 2, 5, 6, 7, 8, 9 , Penn Central and N&W Inclusion Cases, 389 U.S. 486 2 ) Stoll v. Gottlieb, 305 US.165..0. 3 Treimes v. Sunshine Mining Co.,308U.S.66...... 3 Warren v. Palmer, 310 U.8.182.....00000 1, 3,4 Statutes: Barkruptey Act Section 77 (11 U.S.C. §205) 20.00 2, 3, 4, 9 Interstate Commere: Act section 5 (49 US.C. 45)... 3 Miscellaneous: Rule 19, Rules, Supreme Court of the United States _. 2 ;LOSE IN CENTER COPY BOUND (| - in The Supreme Court of The United States October Term, 1971 No. 71-14-01 Ty tHE Marrer or Te New Yorx, New Haven anp Hartrorp Rattroap Company, Desror Ricuarp Joyce Smiru, Truster or THE Property or THE New York, New Haven ann Harrrorp Rartroap Company, Destor, PETITIONER y George P. Baker, Richard (. 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 ; ReEsponpents REPLY BRIEF IN SUPPORT OF CERTIORARI I. The Decision Below Presents Important Legal Questions That Should Now Be Settled By This Court. The decision below is novel and unprecedented in that it strips the New Haven Reorganization Court of its re- organization jurisdiction and, also, of its power to protect the constitutional rights of the New Haven bondholders from further erosion in the Penn Central reorganization ; misconstrues Warren y. Palmer, 310 U.S. 132; and, is gen- erally significant in attempting to delineate the coordinate jurisdiction of two reorganization courts, each having ‘‘ex- elusive jurisdiction," Ede Pa eh vey ww OSE IN CENTER 9 Only this Court can construe its mandate with finality, It should do so now in order to protect the New Haven cred- itors, and to expedite the reorganization process. In opposing certiorari, the Penn Central Trustees and Manufacturers Hanover Trust Company mainly argue the merits of the Court of Appeals’ decision that the New Haven Reorganization Court lacked jurisdiction to enter its order of remand. Their briefs are tellingly limited in meet- ing the grounds stated in the Petition why, pursuant to Rule 19 of this Court, certiorari should be granted. Who eek al ew Pet bee Respondents’ only arguments which fairly pertain to the Rule 19 standards are that: the factual issues, but not the legal issues, are unique; no question of general im- portance under the bankruptcy laws is raised; and it is premature to consider the substantive issues. 1. That the facts are unique may readily be agreed; but they are all established of record. As to the issues of law, it must fairly be agreed that they are novel and of broad significance. Further, the nature of the questions and their litigation history categorically establish that only this Court may resolve them. Specifically, and apart from questions of general significance, the issues involved require an interpretation of this Court’s own remand to one of two district courts, each of which has claimed ex- clusive jurisdiction under §77 of the Bankruptcy Act to decide the issues at bar. The New Haven Reorganization Court’s claim to juris- diction is based upon the specifies of this Court’s remand in the New Haven Inclusion Cases, 399 U.S. 392, and its own reservation of jurisdiction entered at a time when both the Interstate Commerce Commission (the ‘‘Conmis- sion’’) and the New Haven Reorganization Court consid- ered that the public interest required a conveyance of the New Haven’s assets before the intertwined terms of con- sideration and payment could be finally fixed. That re- servation of jurisdiction was itself based upon the findings of this Court in the Penn Central and N&W Inclusion COPY BOUND CL\ PED AERA T APM S EA MMA. 3 Cases, 389 U.S. 486, that Penn Central was unconditionally bound to meet terms of payment for the New Haven’s as- sets ultimately determined by the Commission ané the New Haven Reorganization Court as being fair and equitable un- der $77 (and §5 of the Interstate Commerce Act), On the other hand, and based upon precisely the same opinion and remand of this Court, the Penn Central Re- organization Court claimed ‘exclusive jurisdiction” pur- suant to §77 over the same former New Haven assets, and construed the remand to the New Haven Reorganization Court .ctually as ousting the New Haven Reorganization Court from all jurisdiction. (See appendix to brief of Penn Central Trustees.) The Court of Appeals for the Second Cireuit reached the same result but on an entirely different | theoretical basis. It considered that Warren v. Palmer, | supra, wholly ousted the New Haven Reorganization Court | from jurisdiction under (77 and vested it solely in the Penn Central Reorganization Court, notwithstanding the duties of the New Haven Reorganization Court under §77 to make specific findings regarding approval (or rejection) of a re- organization plan, to confirm a plan, to consider so-called “eram-down’’ provisions in the event of adverse votes, and to oversee the steps leading to consummation of the plan. At the same time, however, the Court of Appeals made it clear that it did not disagree with the equitable protection deemed necessary by the New Haven Reorganization Court in its limited exercise of jurisdiction. The Penn Central Reorganization Court, in asserting its jurisdiction, unequivocally entertained and sanctioned a collateral attack by the Penn Central Trustees on the judgment of the New Haven Reorganization Court in direct conflict with, and disregard of, the specific holdings of this Court in such cases as Durfee v. Duke, 375 US. 106; Chicot County Drainage District v. Baxter State Bank, 308 U.S. 371; Treinies v. Sunshine Mining Co., 308 U.S. 66; and Stoll v. Gottlieb, 305 U.S. 165. F f These sweeping issues stem from the unique fact that CLOSE IN CENTER ¥ ee | 4 the New Haven creditors were compelled to stand by, be- cause of public interest considerations, while the property that comprised their entire security was ordered to be con- veyed to Penn Central. It may be granted that it was reason- able at that time for the Commission and the Courts to assume that the transaction would be carried out on a bas's approved after full judicial consideration. However, at the time when Penn Central became bankrupt, the transaction had not been completed. It is in the executory nature of the transaction that the basie and troublesome questions of jurisdiction of two federal district courts under §77 have their genesis. Thus, both the underlying questions of fact and law are unique, and the questions of law raised by the decision of the Court of Appeals here sought to be reviewed are pre- cisely defined, novel, and of current and substantial im- portance, as hereinafter discussed. 2. With respect to the general importance of the ques- tions involved in the Petition, the significance of the pend- ing number of reorganizations under (77 of the Bankruptcy Act cannot be disparaged, as suggested by the Penn Central Trustees, in weighing the importance of a resolution of the jurisdictional meaning of Warren v. Palmer, supra. Not only must jurisdictional boundaries and the New Haven’s rights be resolved as set forth in the Petition, but questions of ‘‘exelusive jurisdiction’’ also exist in other pending re- organizations under (77; for instance, in the reorganization of Lehigh Valley Railroad Company, a subsidiary of Penn Central. In that case, questions of ‘‘exclusive jurisdiction” already exist for the respective creditors of Lehigh Valley and Penn Central where the same district court (in fact, the same judge) has ‘‘exclusive jurisdiction’’ over con- flicting claims in the two reorganizations. 3. Respondents’ contentions that a present review of the issues would be premature, at worst, endorse a philoso- phy of adjudication by postponement, and at best, have only circumstantial relation to a determination whether the Peti- COPY BOUND CLC | ) tion should be grated. The hard facts are that there is now outstanding a judgment of the New Haven Reorganization Court which held not only that it had jurisdiction, but that equity required the New Haven creditors to be secured by an equitable lien and constructive trust for the pay- ment found by this Court in the New Haven Inclusion Cases, supra. Whether the Penn Central Reorganization Court would ever reach the same result, or whether the New Haven Trustee would have an opportunity at some undefined future occasion to claim such protection, has no bearing on determination of the Petition. The constitutional significance to the New Haven creditors now to be made secure in their right to payment, no matter what form the payment may eventually take as a consequence of a Penn Central reorganization plan approved by the Penn Central Reorganization Court, may not fairly be gainsaid. It is no answer to the New Haven creditors that the Petition should be denied because, although the Penn Central Reorganiza- tion Court sanctioned a collateral attack on the judgment of the New Haven Reorganization Court, it voluntarily pro- vided the New Haven Trustee with “‘a lien, indeterminate in amount and indeterminate as to priority’? (Penn Cen- tral Trustees’ brief, 21a), pending some future determi- nation. ee ae ee > 4. As note? above, respondents’ briefs deal princi- pally with the merits of the decision of the Court of Ap- peals. In that context certain of the arguments particularly require factual clarification. At page 15 of the Penn Central Trustees’ brief, it is stated that no one appealed the order of the New Haven Reorganization Court whieh provided for conveyance of the New Haven’s assets to Penn Central ‘“*free and clear of all liens, charges and encumbrances.’ In fact, that pro- vision was conditioned upon specific exceptions, including reservation of the right of New Haven creditors to litigate the terms and of the court to adjudicate the issues so raised. Of primary significance is that the quoted language Was necessarily required to be contained in the order Se) -LOSE IN CENTER 6 ——— that the specific terms of the plan of reorganization which the Commission had certified to the New Haven Reorgani- zation Court could be executed without any hiatus in the transportation services provided to the publie by the New Haven. Without such provision there could have been no conveyance pursuant to the plan by January 1, 1969, when the New Haven’s operations were scheduled to cease. The reason why the New Haven interests did not appeal from that order was that the specifie conditions expressly pro- vided by the New Haven Reorganization Court, with the concurrence of the Commission, were that the ‘‘free and clear’’ conveyance was ‘‘without prejudice to the right of any party to contest the fairness and adequacy of the con- sideration and the other terms of the inclusion.’’ (Order No. 559, December 24, 1968; Manufacturers’ brief, 7A). As pointed out by the New Haven Reorganization Court, fur- thermore, the form of the conveyance did not ‘‘constitute a waiver of the chancellor’s equitable lien or a bar to his power to create one’’ (New Haven Trustee’s Petition, (+45). At page 16 of the Penn Central Trustees’ brief, it is stated that the decision of the Court of Appeals ‘‘is in accord with the only previous decision by this Court deal- ing with a conflict between the respective jurisdictions of two Section 77 reorganization courts,’’ citing Warren r. Palmer, supra. The decision of the Penn Central Reorgani- zation Court, attached to the Penn Central Trustees’ brief, and cited by them as a principal basis for denial of cer- tiorari stated, however: ‘‘Since the case [Warren vr. Palmer] involved largely post-bankruptey issues, and liens which were necessary for the continued operation of rail service, the decision is not directly apposite’? (Penn Cen- tral Trustees’ brief, 14a). At pages 17-18 of the Penn Central Trustees’ brief, it is claimed that this Court remanded the New Haven In- clusion Cases ‘‘to the Commission and the appropriate federal courts.’’ This characterization is a travesty of the actual order of this Court, dated June 29, 1970, filed in the United States District Court for the District of Connecti- Pe tn an a Oe | oo oe ae ee ol _ : eut on July 31, 1970, in which it was stated: ‘‘These causes be and they hereby are remanded to the United States Dis- triet Court for the District of Connecticut for further pro- ceedings in conformity with the opinion of this Court.’’ At page 19 of the Penn Central Trustees’ brief, it is stated ‘‘in fact, however, the New Haven Reorganization Court reserved jurisdiction only to pass upon objections to the amount and the form of consideration which had been previously filed with the court.’’ As previously noted, how- ever, the New Haven Reorganization Court provided, as a basie condition of its order, that the conveyance and the payment of consideration were to be without prejudice to the right of any party not only to contest the fairness and adequacy of the consideration, but also ‘‘the other terms of the inclusion of the Debtor’s operations in Penn Central Company’’ (Manufacturers’ brief, 6A). II. Counter-Statement of Pertinent Facts. The facts of this case are not disputable. Petitioner believes, however that the factual summary contained in the Penn Central Trustees’ brief is inaccurate in a number of instances of significance to the Court’s consideration of the Petition; and, accordingly, brings the following to the Court’s attention. Purchase agreement was never approved by New Haven Reorganization Court. 1. At pages 3-4 of the Penn Central Trustees’ brief, in the diseussion of the effect of the purchase agreement among the Pennsylvania Railroad, the New York Central Railroad and the New Haven Trustees, no reference is made to the fact of record (previously recognized by this Court, 399 U.S. at 410, n. 46) that the New Haven Reor- ganization Court never approved the purchase agreement. Further, although the purchase agreement had been ap- proved by the Commission, that approval was specifically conditioned upon an approval by the New Haven Reorgani- zation Court (327 LC.C. 475, 553 (1966) ). i a "“fFrocre IA: COC Arro Dp a 8 “Free and clear’’ transfer was subject to reserved juris. diction. 5 “a 2. At page 5 of the Penn Central Trustees’ brief, the order of the New Haven Reorganization Court approving the transfer to Penn Central ‘‘free and clear’’ is noted simply to have been with certain unspecified exceptions, In fact, the New Haven Reorganization Court made the entire transfer subject to the condition that the ‘*convey- ance of the Debtor’s assets by the New Haven Trustees and the payment of consideration by Penn Central Com- pany, as provided herein, shall be without prejudice to the right of any party to contest the fairness and adequacy of the consideration and the other terms of the inclusion” ({J, Manufacturers’ brief, 6A). In addition, the New Haven Reorganization Court also reserved jurisdiction to adjudi- cate all objections and claims theretofore filed, except those going to the fact of inclusion itself ({K, Manufacturers’ brief, 6A). Furthermore, it is relevant to these facts that, al- though it was unconditionally bound to include the New Haven’s properties, Penn Central sought a stay of such order from a three-judge district court, notwithstanding that it provided for a ‘‘free and clear transfer,’’ specifically on the basis that the matters covered by the reservations of jurisdiction should be resolved before Penn Central should be required to carry it out. Increase in purchase price was due to Com mission’s under- valuation of assets. 3. At page 5 of the Penn Central Trustees’ brief, it is stated that the New Haven Reorganization Court in- creased the consideration which ‘Penn Central was to pay for assuming the New Haven’s deficit operations.’’ There was, in fact, no payment of any kind for New Haven’s operations (399 U.S. at 482); the $29 million increase in purchase price ordered by the New Haven Reorganization Court related to the Commission’s undervaluation of the _— se ee eo er rer 9 assets Which Penn Central received at liquidation value, discounted for the costs of a liquidation. As this Court pointed out in the New Haven Inclusion Cases, **we thereby accord the bondholders the right to a liquidation and a per parcel sale that is theirs by virtue of their mortgage liens”’ (399 U.S. at 489-490). Underwriting plan was to assure full payment of purchase price. +. At page 5 of the Penn Central Trustees’ brief, it is stated that the New Haven Reorganization Court ‘‘de- vised a so-called ‘underwriting plan’ to cushion the New Haven estate against a decline in the value of Penn Cen- tral common stock below $87.50 per share.’’ The stock has never reached that price. As put by this Court, in analyzing the underwriting plan (399 U.S. at 487, 488): ‘‘In sum, the reorganization court devised a plan that added to its as- sessment of present worth both a reasonable assurance of realization of such worth and the opportunity of additional gain.’’ This Court was referring to Penn Central’s bankruptcy in recognizing the impact of recent events upon the un- completed purchase transaction. ). At page 7 of the Penn Central Trustees’ brief, it is implied that, when this Court referred in its opinion to “the impact of recent events,’’ it intended to refer to the reduction in the market price of Penn Central common stock on the New York Stock Exchange between J anuary 2, 1969 and May 30, 1970. The finding of the New Haven Reorganization Court was that this Court was referring to the filing by Penn Central of a petition for reorganization under $77 which oeeurred only eight days prior to the en- try of this Court’s opinion, and which was specifically re- ferred to at the outset of the Court’s opinion. New Haven Reorganization Court considered Penn Cen- tral bonds and stock in relation to payment of purchase. price. Jr ed WE RSRUL ids sone Hd thle ORO ae apiiee! wt watabigiet on a Rial aN sich talons Weds 10 6. At page 9 ({2) of the Penn Central Trustees’ brief, the New Haven Reorganization Court’s Order of Remand is summarized as having given no credit whatever for the Penn Central bonds and stock received by the New Haven Trustee. In facet, the New Haven Reorganization Court provided that such bonds and stock would be held as secu- rity ‘‘and to the extent such security is liquidated or is re- tained under a plan of reorganization, Penn Central shall be credited with the fair value thereof’? (New Haven Trustee’s Petition, A64). Furthermore, the New Haven Re- organization Court provided that the purchase price due the New Haven would be reduced by all interest and divi- dends received by the New Haven on such bonds and stock (Ibid.). New Haven Reorganization Court did not attempt to set aside purchase and sale of assets. 7. At page 9 ({3) of the Penn Central Trustees’ brief, it is stated that the New Haven Reorganization Court ‘‘pur- ported to set aside the purchase and sale of the New Haven assets.’’ There is no such indication anywhere in the Memo- randum of Decision or the Order of the New Haven Re- organization Court (New Haven Trustee’s Petition, \25- A65), and no such inference may fairly be drawn. ‘Related proceedings in the Philadelphia Court” consti- tuted an improper collateral attack. 8. At page 10 of th» Penn Central Trustees’ brief, reference is made to ‘‘related proceedings in the Phila- delphia Court.’’ No mention is made that such proceedings were instituted by petition of the Penn Central Trustees on June 17, 1971 (the Memorandum of Decision of the New Haven Reorganization Court having been entered on June 11, 1971) collaterally attacking the decision of the New Haven Reorganization Court. —— ) 11 CONCLUSION Petitioner submits that, for the reasons stated in his Petition, the Petition for Writ of Certiorari should be granted. Respectfully submitted, Of Counsel: Morris Raker e Es Wo. Mya Ps POREPH Shakin: i G Nancy F. Gans Epwarp WOLL, Jr. A4ttorney for Petitioner, Sutzavan & Woncmaren Richard Joyce Smith 225 Franklin Street Boston, Massachusetts 02110 Dated: June 7, 1972 ees, --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385606_1115%3A4. Public record. Not legal advice.