Jurisdictional Statement — Regional Rail Reorganization Act Cases

OCTOBER TERM, 1974

RICH se rae 4 16 |

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NEW YO 66

({ARD JOYCE SMITH, TRUSTEE

\F THE PROPERTY OF THE

RK, NEW HAVEN AND HARTFORD

RAILROAD COMPANY,

UNIT DEBTOR,

CROSS-APPELLANT, ,

Vv.

ON CROSSpp STATES OF AMERICA, et al.,

THE L

CROSS-APPELLEES.

EASTE ray SORE

>-ARPEAL FROM THE JUDGMENT OF

UNITED STATES DISTRICT COURT

FOR THE

‘RN DISTRICT OF PENNSYLVANIA

Of Counsel-p rgntCTIONAL STATEMENT

Morris RAK OF CROSS-APPELLA

CHARLES W. ———

SULLIVAN & , JOSEPH AUERBACH >

_ 225 Fran / * 225 Franklin Street

Boston, ' . _ Boston, Massachusetts

O2eR . 02110

Morse, JR.

JAMES WM. MOORE

WORCESTER * ”. 54 Meadow Street

hlin Street New Haven, Connecticut

fassachusetts 06506

10

Pete or A nt

Richar fe mith, Trustee

of the Property of The New

ork, New Haven and Hartford —

Railroad Company, Debtor

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5b TE NNR oP 8 STIL D EL ba Se OPN TO IO. FEE EAE PRE Sv T BAER PTT

In The

Supreme Court of the Anited States

OCTOBER TERM, 1974

No. 74—

RICHARD JOYCE SMITH, TRUSTEE

OF THE PROPERTY OF THE |

NEW YORK, NEW HAVEN AND HARTFORD

RAILROAD COMPANY,

DEBTOR,

CROSS-APPELLANT,

UNITED STATES OF AMERICA, et al.,

CROSS-APPELLEES.

‘ON CROSS-APPEAL FROM THE JUDGMENT OF

THE UNITED STATES DISTRICT COURT

FOR THE

EASTERN DISTRICT OF PENNSYLVANIA

JURISDICTIONAL STATEMENT

OF CROSS-APPELLANT

This jurisdictional statement is submitted on behalf

of cross-appellant, Richard Joyce Smith, Trustee of the

property of The New York, New Haven and Hartford

Railroad Company, Débtor (the “New Haven Trustee”

and the “New Haven,” respectively). Since July, 1961,

the New Haven has been in reorganization under §77

of the Bankruptcy Act, 11 U.S.C. §205, before the

Fd

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2

United States District Court for the District of Con-

necticut (Circuit Judge Robert P. Anderson sitting by

designation). On December 31, 1968, the New Haven

Trustee (together with his then co-Trustee) conveyed

substantially all of New Havens assets to Penn Central

Transportation Company (“Penn Central’) in ex-

change for a then-to-be judicially determined con-

sideration comprised of cash. mortgage bonds and

shares of common stock of Penn Central. See New Ha-

ven Inclusion Cases, 399 U.S. 392 (1970). The New Ha-

ven Trustee’s standing in this case is predicated on

ownership of $34,025,800 of defaulted mortgage

bonds of Penn Centrai (Stip. Fact ffi and 2), which

has been in reorganization under §77 of the Bank-

ruptcy Act since June 21, 1970, and is also based on

his claimed equitable lien, temporarily protected by

Order No. 546 of the Penn Central Reorganization

Court (Stip. Fact ]3) to secure the total unpaid portion

($123,809,404) of the purchase price ($174,635,899)

approved in New Haven Inclusion Cases, supra. In terms

of standing, the New Haven Trustee must be deemed

to have the rights of a secured creditor to the full ex-

tent of his claim, based on the “underwriting” imposed

by the New Haven Reorganization Court as to the

value of $87.50 per share relative to the 956,000

shares of Penn Central Company! common stock

which he holds pending adjudication of the New Ha-

ven’s plan of reorganization, based on this Court’s re-

mand, 399 U.S. at 488-89.

‘Penn Central Company is the holding company which owns 100%

of the stock of Penn Central. The 956,000 shares held by the New Ha-

ven Trustee pending final adjudication of New Haven’s plan of re-

organization represent 4% of the outstanding shares.

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3

THE OPINION BELOW

The New Haven Trustee cross-appeals from so

much of an Order, dated June 25, 1974, of a three-

judge court convened pursuant to 28 U.S.C. §§2282

and 2284 in the United States District Court for the

Eastern District of Pennsylvania (the “court below”) as

denied the relief sought by cross-appellant.

The Opinion of the court below pursuant to which

the Order was entered has not yet been officially re-

ported. Copies of the Opinion and Order are sepa-

rately bound in the Joint ‘Appendix hereto, at pp. 9-

a3."

' JURISDICTION

This action was brought pursuant to 28 U.S.C.

§§1331, 1337, 1651, 2282, 2284 and 2321-2325, to en-

join enforcement of various provisions of the Regional

Rail Reorganization Act of 1973, Public Law 93-236,

87 Stat. 985, 45 U:S.C. §§701 et seg. (the “RRRA”) for

repugnance to the Constitution of the United States.

In addition, declaratory relief was sought pursuant to

28 U.S.C. §§2201-02.

The principal appellants from the decision of the

court below are the United States of America, United

States Railway Association (“USRA’”’), Claude S.

Brinegar, Secretary of the United States Department

of Transportation and the Interstate Commerce Com-

mission (“ICC”) (herein collectively referred to as the

“governmental appellants”) and Robert W. Blanchette,

Richard C. Bond, and John H. McArthur’, Trustees

2References to documents contained in the Joint Appendix will be

identified by the letters “JA” followed by the appropriate page numbers.

‘Subsequent to commencement of the action, George P. Baker, an

onginal Trustee of Penn Central, resigned and John H. McArthur was

appointed in his stead.

4

of Penn Central, intervening defendants pursuant

to Rule 24, Fed. R. Civ. P. (the “Penn Central

Trustees”).4

Since the Order of the court below enjoined certain

of the governmental appellants from enforcing certain

provisions of the RRRA on grounds of repugnance to

the United States Constitution, the governmental ap-

pellants and the Penn Central Trustees each have a

statutory right of direct appeal to this Court under 28

U.S.C. §1252 and also under 28 U.S.C. §1253.

The New Haven Trustee, as a “party who has re-

ceived notice of appeal under this section” within the

meaning of the penultimate sentence of 28 U.S.C.

§1252, is directed by statute to “take any subsequent

appeal or cross-appeai to the Supreme Court.” 28

U.S.C. §1252.

The New Haven Trustee’s notice of appeal was

filed with the Clerk of the United States District Court

for the Eastern District of Pennsylvania on July 3

1974, and a copy thereof is printed at JA 385.

The governmental appellants and the Penn Central

Trustees support the constitutionality of the RRRA,

and therefore are the cross-appellees here. It is under-

stood that the cross-appellees do not challange the ju-

risdiction of the Court to hear this cross-appeal.

‘The governmental appellants filed notices of appeal on July 17,

, 1974, (USRA), July 22, 1974 (United States), and July 24, 1974

’ (Brinega “in Smith v. United States (JA 386-88). Defendants Stafford

(Chairman of the ICC), Schultz (formerly Secretary of the Treasury) and

the ICC, named as party defendants in the Connecticut General and/or

Penn Central Co. cases, filed notices of appeal on July 24, 1974 (JA 389-

90). The Penn Central Trustees’ notice of appeal was filed on July 1,

1974 (JA 384). The Ney,Haven Trustee's notice of appeal was filed on

July 3, 1974 (JA 385).

MEMORIES SIDE PIPL Pe

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CONSTITUTIONAL PROVISIONS

AND STATUTES INVOLVED

The following provisions of the United States Con-

stitution and Statutes are believed to be involved in the

determination of this case:

_- United States Constitution:

~ Article I, Section 8, Clauses 3 and 4

Article I, Section 9, Clause 7

Fifth Amendment

Section 77 of the Banknmiptcy Act, 11 U.S.C.

§205

Regional Rail Reorganization Act of 1973,

Public Law 93-239, 87 Stat. 985, 45 U.S.C.

§§701 et seq.

Extracts of the pertinent constitutional and stat-

utory provisions will be set forth as an Appendix to

Siaiuies:

the New Haven Trustee’s Brief. The complete text of .

the RRRA is printed at JA 391 et seq.

‘QUESTIONS PRESENTED

1. Was the court below in error in refusing to adju-

dicate whether or not the compulsory conveyance pro-

visions of the RRRA are void on their face as re-

pugnant to the constitutional nights of the New Haven

Trustee and other claimants to the Penn Central

estate?

~-9. Did the New Haven Trustee have standing to

assert that the enforcement of the compulsory con-

veyance- provisions of the RRRA, if not enjoined,

would cause irreparable injury to the New Haven

estate?

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3. Where a railroad in reorganization under §77 of

the Bankruptcy Act is unable to achieve an earnings-

based reorganization by reason of large deficits in net

railway operating income and the lack of any prospect

of earnings, can Congress by enactment deprive

claimants to the railroad’s estate of their right to insist

upon termination of rail operations and the sale of rail

properties subject to their mortgage liens for their

“highest and best-use” value?

4. Considered as an exercise of Congress’ Com-

merce Clause and eminent domain powers, do the

compulsery conveyance provisions of the RRRA in-

volve an intentional uncompensated taking, or a tak-

ing not compensated in money or its perfect equiv-

alent, of the property of Penn Central, and of

claimaiiis to iis estate, in violation of the Fifth Amend-

ment to the Constitution?

5. Considered as an exercise of Congress’ Bank-

ruptcy Clause powers, do the compulsory conveyance

provisions of the RRRA, offend substantive due pro-

cess rights of claimants to the Penn Central estate by

divesting such claimants’ liens on valuable rail trans-

portation properties in exchange for common stock

and other securities of uncertain value of a gov-

ernmentally-controlled corporation and an illusory de-

ficiency judgment against such corporation?

6. Do the compulsory provisions of §§303(b)(1)

and (2) of the RRRA, requiring conveyance of rail

properties and divestment of the liens of claimants to

the Penn Central ‘estate, in advance of judicial de-

terminations as to “highest and best use” value of such

properties and tyg equitable equivalent value of the se-

curities and common stock to be exchanged therefor,

offend the procedural due process rights of claimants

to the Penn Central estate?

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7. Are the compulsory conveyance provisions of

§§206, 207, 208, 209, 303 and 304 of the RRRA void

as a law, purportedly on the subject of bankruptcies,

which is not uniform geographically throughout the

United States?

2 SR Ht SOE

: STATEMENT OF THE CASE

On January 2, 1974, the RRRA was signed into. law

by the President. On January 25, 1974, the New Ha-

ven Trustee filed a complaint asserting that the RRRA

was unconstitutional on its face and as applied to Penn

Central, naming as defendants the United States,

USRA, and Secretary of Transportation Brinegar. The

action was filed in the United States District Court for

the District of Columbia. On the same day, other cred-

itors of Penn Central filed a similar complaint in the

United States District Court for the Eastern District of

Pennsylvania (Connecticut General v. USRA, Civil Action

No. 74-189). In order to achieve a single expedited

proceeding, the New Haven Trustee consented to a

motion of the United States and other governmental

defendants to transfer Smith v. United States, et al. to

the Eastern District of Pennsylvania pursuant to 28

U.S.C. §1404(a). A ‘third case, Penn Central Co. v.

Brinegar, was also transferred, pursuant to §1404(a),

from the District of Columbia.

Pursuant to 28 U.S.C. §§2282 and 2284, a three-

judge district court, consisting of Circuit Judge Rug-

gero J. Aldisert- and District Judges John P. Fullam

and Louis C. Bechtle, was constituted to hear all the

cases concerning the constitutionality of the RRRA.

The Penn Central Trustees, who intervened as de-

fendants, answered that the RRRA was constitutional

*Public Law 93-236, codified as 45 U.S.C. §§701 et seg. Section refer-

ences are to the Section numbers in Public Law 93-236, and not to the

codification in 45 U. S.C.

4

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8

on the assumption of a “Tucker Act remedy” under 28

U.S.C. §1491 to “underwrite” any constitutional de-

ficiency in the RRRA.

After joinder of issue, the New Haven Trustee on

April 29, 1974 filed a motion for summary judgment

as to certain of the legal. issues raised by his com-

plaint.® The United States and the other governmental

defendants, and the Penn Central Trustees, each then

filed counter-motions for summary judgment. The

factual record was then completed by a Stipulation as

to the Record in the Penn Central Reorganization Pro-

ceedings, a Stipulation as to Factual Matters, a Joint

Documentary Submission, and affidavits of two gov-

‘ernment witnesses.” Smith v. United States was then con-

solidated for purposes of oral argument and dis-

position on the merits with the Connecticut General and

Penn Central Company cases, in. which motions for sum-

mary judgment had also been filed.’

The issue before the court below was whether an

injunction should issue restraining the enforcement of

various sections of che RRRA on grounds of re-

pugnance to the Constitution., The court below

granted, in part, the motion of the New Haven

Trustee for summary judgment, and issued an order

dated June 25, 1974 (“Order”) (JA 82-83) which en-

joined defendant USRA from certifying a final system

plan to the Special Court pursuant to §209(c) of the

RRRA, and enjoined all defendants from taking any

®See New Haven Trustee’s Memorandum of Points and Authorities

in Support of Motion for Summary Judgment (E.D. Pa. C.A. No. 74-

1107, Doc. No. 4, May 2, 1974; JA 258), pp. 1-8 for listing of issues in-

cluded in the Motion for Summary Judgment.

7Ten copies of the Joint Documentary Submission have been filed

with the Clerk of this Court. One of the government's affidavits is Doc. .

No. 61 in the Joint Documentary Submissicn; the other is reprinted at

JA 226-55. The Stipulation as to Factual Matters is printed at JA 317-24.

— Stipulation as to the Record is identical to that set forth at JA 197-

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action to enforce the provisions of §304(f) of the

RRFA with respect to any abandonment, cessation or

reduction of railroad service which may hereafter be

determined by a court of competent jurisdiction to be

necessary for the preservation of rights guaranteed by

the Constitution (Order, 1, 2; JA 82). In addition,

the court below enjoined all parties “from enforcing or —

taking any action to implement so much of Section

207(b) of the RRRA as purports to require dismissal of

pending proceedings for reorganization [of Penn Cen-

tral] under Section 77 of the Bankruptcy Act” (Order,

43; JA 82).° Finally, the court below entered a de-

claratory judgment that §303 of the RRRA is null and

void insofar as it fails to provide compensation for in-

terim erosion pending final implementation of the fi-

nal system plan contemplated by the RRRA and that

§304(f) of the RRRA is null and void as violative of

the Fifth Amendment of the Constitution to the extent

it would require continued operation of rail services at

a loss in violation of the constitutional rights of the

owners and creditors of Penn Central (Order, 94a, 4b;

JA 82). The court below also declared a portion of the

third sentence of §207(b) of the RRRA to be null and

void as violative of Article 1, Section 8, Clause 4 of the

Constitution in that the RRRA is not uniform geo-

' yraphically throughout the United States and, to the

extent that the RRRA amends §77 of the Bankruptcy

Act, it is a law on the subject of bankruptcies within

the meaning of Article I, Section 8, Clause 4 (Order,

4c; JA 83).

The court below was not unanimous in every re-

spect. Circuit Judge Aldisert, who wrote the Opinion

of the Court, was joined by District Judge Bechtle in

*This portion of the order was entered sua sponte as none of the

plaintiffs sought this relief.

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10

disposing of “plaintiffs’ threshold contention that the

possible future conveyance of rail properties to Conrail

[Consolidated Rail Corporation] in consideration for

Conrail stock and secunities constitutes a Fifth Anrend-

ment taking without payment of just compensation”

(Opinion of the Court; JA 23) by concluding that “we

do not meet these Fifth Amendment questions be-

cause we are persuaded that these issues are pre-

mature” (Opinion of the Court; JA 23). Judge Fullam

concurred in the rest#t, but took the view that certain

of the constitutional issues presented were ripe for ad-

judication and should not have been deferred (Con-

curring opinion of Fullam, J., Part 1; JA 55-60). The

New Haven Trustee as cross-appellant asserts that the

court below was in error in finding that the issue of

the facial-constitutionality of the compulsory con-

veyance provisions of the RRRA was not required to

be adjudicated on account of alleged prematunty and

lack of npeness.

.

The court below was also in disagreeinent as to

whether the RRRA was, to the extent it represents a

“law on the subject of bankruptcies,” void for want of

geographical uniformity under Art. I, Sec. 8, Cl. 4 of

the Constitution. Judges Fullam and Bechtle so held,

but concluded that the only provision in the RRRA

that could not be rationalized as being based on Com-

merce Clause powers was the provision requiring man-

datory dismissal of §77 proceedings,? which they held

to be void for lack of geographical uniformity (Con-

curring. opinion of Fullam, J., Part II; JA 61-65).

Judge Aldisert dissented from this conclusion on the

ground that the RRRA is uniform in its application to

creditors, and that creditor parties lack standing to as-

sert the constitutional defect of the RRRA’s non-appli-

°RRRA, §207(b), third sentence, Clause (2).

1]

cability to a debtor railroad located outside the region

(JA 26-29). The New Haven Trustee, on this appeal,

asscrts that the RRRA.is void for want of geographical

uniformity in a number of respects, including (but not

«limited to) Clause (2) of the third sente:ice of §207(b),

and that, for the reasons set forth in Part II of Judge

Fullam’s concurring opinion (for the majonty of the

court), the New Haven Trustee has standing to assert

this constitutional defect.

SUBSTANTIALITY OF QUESTIONS PRESENTED

This cross-appeal challenges the constitutional va-

lidity of the compulsory conveyance provisions of the

RRRA, an issue which the majonty of the court below

refused to reach on grounds of alleged prematurity.

While the RRRA was declared unconstitutional in part

by the court below, and the court below enjoined certi-

fication of any “final system plan” by USRA to the

Special Court, this judgment was based solely on the

constitutional defect that the RRRA requires Penn

Central to sustain enormous operating deficits, and

consequent erosion of the estate available to satisfy

Penn Central claimants, during the penod January 2,

1974 to the date when the compulsory conveyances

mandated by the RRRA may occur, without making

provision for payment to the Penn Central estate of

just compensation in respect of these operating deficits

and consequent erosion. While the decision of the

Court below provides an obstacle to the im-

plementation of an unconstitutional taking, the issues

which the court below found to be ripe for adju-

dication represent, in effect, but the up of the iceberg.

The issues which it treated as “premature,” which

went to the constitutional defects, both facial and as

applied to Penn Central, of the compulsory con-

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12

veyance provisions of the RRRA, are inherently im-

portant issues which require concurrent resolution. If

this Court merely sustains the judgment below without

addressing the constitutionality of the compulsory con-

veyance provisions of the RRRA, a correction by Con-

gress of only the constitutional defects in the RRRA

found by the’’couit below, without remedying the

more basic constitutional defect asserted in this cross-

appeal, would produce senously adverse consequences

to both the Penn Central creditors and the. public in-

terest. This cross-appellant under such circumstances

would be required to commence still another action to

declare such an amended RRRA unconstitutional on

the grounds which are urged on this cross-appeal,

Yhereby resulting in still another round of appeals to

this Court from either the grant or denial of an in-

junction in a subsequent §2282 action attacking the

RRRA. Broad public and pnivate considerations, as

well as objectives of judicial economy, thus favor the

adjudication of this cross-appeal at this time.

13

CONCLUSION

This Gourt has jurisdiction of this cross-appeal, and

substantial questions are presented requiring plenary

consideration. If the Court notes probable jurisdiction

of the related appeals by the governmental appellants

and the Penn Central: Trustees, it should similarly note

probable jurisdiction of this cross-appeal.

Respectfully submitted,

August 23, 1974

Of Counsel: JOSEPH AUERBACH

225 Franklin Street

MORRIS RAKER Boston, Massachusetts

CHARLES W. MORSE, JR. 02110

SULLIVAN & WORCESTER JAMES WM. MOORE

225 Franklin Street 54 Meadow Street

Boston, Massachusetts New Haven, Connecticut

02110 06506

Attorneys for Appellant

Richard Joyce Smith, Trustee

of the Property of The New

York, New Haven and Hartford

Railroad Company, Debtor