Brief for the United States — Pennsylvania v. United States

In the Supreme Court of the United States

OCTOBER TERM, 1972

No. 71-1596

COMMONWEALTH OF PENNSYLVANIA, 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 THIRD CIRCUIT

BRIEF FOR THE UNITED STATES IN OPPOSITION

OPINIONS BELOW

The opinions of the court of appeals (Pet. App.

A, 5a-8a) are not yet reported. The orders of the

district court (Pet. App. A, la-4a) are not yet re-

ported.

JURISDICTION

a The judgments of the court of appeals were en-

- tered on March 10, 1972. The petition for a writ

© of certiorari was filed on June 8, 1972. This Court’s

a jurisdiction is invoked under 28 U.S.C. 1254(1).

(1)

—— ~ nan ed > iy p vt ene oe iw ee eae a

nna se) cee Si a a TR ee ero

a,

2

QUESTIONS PRESENTED

1. Whether a district court may, in the exercise

of its bankruptcy jurisdiction, enjoin review in an-

other forum of Interstate Commerce Commission or-

ders relating to line abandonment applications filed

by the debtor railroad company.

2. Whether a district court may, in the exercise

of its bankruptcy jurisdiction, order the debtor rail-

road company to suspend operations on certain lines.

STATUTORY PROVISIONS INVOLVED

Section 1(18)-(20) of the Interstate Commerce

Act, 49 U.S.C. 1 (18)-(20), Section 77(0) of the

Bankruptcy Act, 11 U.S.C. 205(0), and Sections 1398

(a) and 2325 of the Judicial Code, 28 U.S.C. 1398

(a) and 2325, are set forth at Pet. App. B, 1b-4b.

STATEMENT

In March 1967, the Central Railroad Company of

New Jersey (“C.N.J.”) filed a petition for reorgan-

ization in the United States District Court for the

District of New Jersey. From 1958 through 1971,

C.N.J. had lost more than $100 million. The present

trustee was appointed in January 1971. The rail-

road was at that time facing a severe liquidity crisis

which threatened to cause the termination of all its

operations.

The trustee dealt with this crisis by obtaining a

$2,000,000 grant from the State of New Jersey and

permission from the court, the United States Depart-

3

ment of Transportation, and the Interstate Com-

merce Commission, to issue up to $2,500,000 in fed-

erally-guaranteed trustee certificates under the Emer-

gency Rail Services Act of 1970, Pub. L. 91-663, 84

Stat. 1975.1 The trustee also developed a program

calling for passenger and freight rate increases, ne-

gotiation of passenger contracts with the State of

New Jersey, disposition or utilization of unproduc-

tive real estate, discontinuance of unprofitable coal-

dock and marine lighterage activities, and the

abandonment of all C.N.J. operations in Pennsyl-

vania. The latter operations, which were unprofitable,

were to be turned over to the Lehigh Valley Rail-

road, which operated parallel lines in Pennsylvania.

Effectuation of this program would reduce C.N.J.

operations to an area comprising six heavily popu-

lated and heavily industrialized northern New Jersey

counties,

In May 1971, as a step in the implementation of

this program, the trustee applied to the reorganiza-

tion court for permission under Section 77(0) of the

Bankruptcy Act, 11 U.S.C. 205(0), to file an appli-

cation with the Interstate Commerce Commission for

approval and authorization of abandonment of its

lines and operations in Pennsylvania.? After notice

*Only $1,500,000 of these certificates have actually been

issued. The court in Order No. 445 authorized the trustee

to issue the extra $1,000,000 in certificates in accordance with

the terms of that Order.

* Abandonment of a few unprofitable branch lines in New

Jersey was also sought.

FES ALFERD DAISIES AN RI Ie ree ET BOR cH

a. iain

a

4

and hearing, the court granted the trustee’s request,

and on May 25, 1971, he filed his application with

the Commission. The Commission divided the ap-

plication into 29 parts, representing different’ seg-

ments of C.N.J. lines, and on August 20, 1971, sum-

marily approved the abandonment of ten of these

segments, five in Pennsylvania and five in New Jer-

sey, effective September 28, 1971.

The Commonwealth of Pennsylvania, which had

appeared in the Commission proceedings, petitioned

for reconsideration of the Commission’s order.’ On

September 28, 1971, the Commission stayed its order

pending its decision on the Commonwealth’s petition

for reconsideration. The Commission then conducted

extensive hearings on the C.N.J. abandonment appli-

cation. These hearings concluded December 14, 1971.

On December 15, 1971, the Commission denied the

petition for reconsideration, and its order approving

the abandonments became effective January 4, 1972.

On December 20, 1971, the reorganization court

issued Order No. 445, directing the trustee to sus-

pend all C.N.J. operations in Pennsylvania by April

1, 1972, pending the Commission’s final decision on

the abandonment application (including all parts

thereof), and enjoining all parties from instituting or

maintaining in any other court any action affecting

® Together with several labor organizations, the Common-

wealth also filed suit under the Urgent Deficiencies Act, 28

U.S.C. 2321-2325, in the United States District Court for the

Middle District of Pennsylvania, to set aside the Commission’s

order. That suit has in effect been stayed pending the dispo-

sition of this case.

5

C.N.J. operations in Pennsylvania. On January 11,

1972, the court issued Order No. 451, authorizing

the trustee to abandon the ten segments covered by

the Commission’s order of August 24, 1971. The

court refused to stay these orders pending appeal.

Petitioners then prosecuted expedited appeals.

The district court’s orders were affirmed per curiam

by the court of appeals, which denied petitioners’

applications for stay. Petitioners’ applications for

stay submitted to Mr. Justice Brennan, and by him

referred to Mr. Justice Stewart, were denied on

March 27, 1972.*

ARGUMENT

The district court’s orders were a proper exercise

of its bankruptcy jurisdiction. The petition presents

no question warranting further review.

1. Contrary to petitioners’ contention (Pet. 7-10),

a reorganization court has jurisdiction to review In-

terstate Commerce Commission orders deciding aban-

donment applications filed by the trustee, and the

court, to protect its review jurisdiction, may enjoin

the parties from seeking review of such orders in

another forum.’ See New Haven Inclusion Cases, 399

‘In an order entered May 26, 1972, the Interstate Commerce

Commission approved C.N.J.’s application to abandon all its

lines and operations in Pennsylvania. This order is not yet

effective.

* Petitioners urge (Pet. 9) that the C.N.J. abandonment

application here should be considered as materially uncon-

nected with the reorganization proceeding, contending that

C.N.J.’s abandonment application is no different from the

os amma

6

U.S. 392; Chicago & North Western Ry. Co. v. United

States, 52 F. Supp. 65 (N.D. Ill.), affirmed per curiam,

320 U.S. 718. To permit appeal from the Commis-

sion’s orders to be taken to a district court unfamiliar

with the reorganization would result in confusion, un-

necessary expense, and excessive delay, the very evils

which Congress has sought to eliminate in railroad

reorganizations, As this Court noted in New Haven

Inclusion Cases, supra, at 421:

* * * the Commission was required to certify its

proposal to the court as a prerequisite to judicial

approval. §77(d), 11 U.S.C. § 205(d). Injunc-

tive intervention by the three-judge court would

thus have disrupted an essential statutory phase

of the New Haven reorganization.

Here, as in New Haven Inclusion Cases, the variety

of issues and parties raises the possibility of multiple

litigation in several district courts unless primacy is

accorded a single forum. See 399 U.S., at 418-419 n.

50. See also In re Penn Central Transportation Co.,

329 F. Supp. 387, 390 (E.D. Pa.), affirmed, 446 F.2d

1109 (C.A. 3). Moreover, confining review to the

reorganization court should not affect the outcome of

the litigation: since Section 77(0) of the Bankruptcy

Act incorporates Section 1(18) of the Interstate Com-

merce Act, the question of public convenience and

abandonment application of a railroad not in reorganization.

The reorganization proceedings and the abandonment are,

however, intimately connected: the abandonment application

originated in the reorganization court (see p. 3, supra),

and the reorganization court must act on the Commission’s

final order pursuant to Section 77(0) of the Bankruptcy Act.

7

necessity may be reviewed by the reorganization

court, and such a court would exercise the same

scope of review as a three-judge court,

The power of a bankruptcy court to enjoin parties

from litigation which would hamper exercise of its

statutory responsibility or would otherwise interfere

with exercise of its jurisdiction over the debtor is

well established. 11 U.S.C. 11(a)(15). See Con-

tinental Illinois National Bank v. Chicago, RI. &

Pac. R. Co., 294 U.S. 648, 675. See generally, 1

Collier, Bankruptcy, para. 2.60-2.62. Any delay en-

gendered here by intrusion into the review process

by a three-judge court unfamiliar with the C.N.J.

reorganization might seriously hamper the reorgani-

zation court in exercising its statutory responsibility.

The district court was therefore justified in restrain-

ing the litigants from proceeding in some other forum.

2. Petitioners also contend (Pet. 10-12) that a

reorganization court lacks jurisdiction to order a

temporary suspension of a portion of the railroad

debtor’s operations. However, a reorganization court

may even order cessation of all operations, where

further operations of the debtor at a loss would

amount to a taking of property without compensa-

tion. New Haven Inclusion Cases, 399 U.S. 392, 490-

492; New York, N.H. & H. R. Co., Bondholders’ Com-

mittee v. United States, 289 F. Supp. 418 (S.D. N.Y.);

In re New York, N.H. & H. R. Co., 289 F. Supp. 451

(D. Conn.). In this case, the Commission has noted,

in its order of May 26, 1972 (see note 4, supra),

that:

8

The overriding factor with which we are faced,

is that since 1967, C.N.J. has been Debtor in

Reorganization under the Bankruptcy Act he-

fore the United States District Court for the

District of New Jersey. Its position has con-

tinuously deteriorated, as have other railroad[s]

serving the New York Metropolitan area. C.N.J.

now may be considered in extremis. During and

since 1970, its losses have amounted to more

than $1 million per month. Under the circum-

stances, some form of drastic remedial action

became imperative [Opinion of the Commission,

p. 105].

Thus, the reorganization court was within its au-

thority in ordering a partial shutdown of C.N.J. op-

erations where continuance of such operations for

public convenience would involve an uncompensated

taking of property.

CONCLUSION

For the foregoing reasons, the petition for a writ

of certiorari should be denied.

Respectfully submitted.

ERWIN N. GRISWOLD,

Solicitor General.

HARLINGTON WOOD, JR.,

Assistant Attorney General.

MoRTON HOLLANDER,

RONALD R. GLANCZ,

Attorneys.

JULY 1972.

% ov. 6. GOVERNMENT PRINTING OFricE; 1972