Appellants Brief — Regional Rail Reorganization Act Cases

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TABLE OF CONTENTS

Page

TABLE OF AUTHORITIES... : IV

Gene DeLee et 2

bis eipraneciing’ jot i. fee? Oma! Sanam ea i 2

CONSTITUTIONAL PROVISIONS AND STATUTES

INVOLVED ; polenta ices 3

QUESTIONS PRESENTED met 4

StATEMEN: OF THE CASE.......UUtisi—Cs o 5

The Rail Act Reorganization Process...

Reorganization Court Proceedings ........................-..-

Proceedings hie. Neier 11

SUMMARY OF ARGUMENT... 14

ARGUMENT = ald ees ae 23

Introduction: The Rail Crisis and the Rail Act ___ 23

A. The Rail Act Is Designed To Provide New So-

lutions to New Problems that Created the Rail

RN cect cuae ead ces 24

1. The Rail Act Provides a Thorough Planning

and Review Process Bi 25

2. The Rail Act Provides Resources Not Avail-

able in Section 77 Reorganizations...______ 27

B. The Rail Act Provides Solutions to the Problems

that Have Made It Impossible To. Reorganize

the Penn Central Under Section 77 L i ean 30

1. Elimination of Excess Capacity Se 32

2. Elimination of Unnecessary Labor Expense. 37

II.

-Operation of the Rail Act -..

TABLE OF CONTENTS—Continued

3. Elimination of Uncompensated Passenger

Service

4. Increased Revenues Through Application of

New Financing

I. The Court Below Should Have Denied Equitable

Relief and Dismissed the Complaints as to the

“Taking” Issues on the Ground that Plaintiffs

Have an Adequate Remedy at Law Under the

Tucker Act

A. Repeal of the Jurisdiction of the Court of

Claims Under the Tucker Act To Award Just

Compensation for Any Taking of Private

Property for Public Use May Not Be In-

ferred from Later Statutes that Do Not Ex-

pressly Repeal or Modify that Act and Do

Not Provide an Equivalent Remedy ............

B. The Rail Act Does Not Show an Intent To

Deprive the Court of Claims of Its Tucker

Act Jurisdiction To Hear Any Case priming

Just Compensation ..................... “ Te sass

C. The Legislative History Does Not Show an

Intent To Deprive the Court of Claims of its

Tucker Act Jurisdiction To Hear Any Case

Claiming Just Compensation

D. The Tucker Act Remedy Is Adequate ............

Even in the Absence of a Tucker Act Remedy

the Court Below Should Not Have Enjoined the

A. The Court Below Misconstrued Section 304

(f) of the Rail Act

B. The 304(f) Injunction Was Unwarranted

and Erroneous

Page

Ill

TABLE OF CONTENTS—Continued

. Page

C. It Was Error To Declare Section 303 of the

Rail Act Partially Unconstitutional on Its

Pee a z 68

D. The District Court Should Not Have En-

joined Certification of a Final System Plan

Under Section 209 (c) 73

III. There Is No Factual or Legal Basis for Conclud-

ing that the Rail Act Will Cause an “Erosion

Taking” of Private Property for Which Just

Compensation Will Be Due... 75

A. Plaintiffs Have Not Shown that Any Erosion

Ne 79

‘—— ___ B. Railroad Creditors and Shareholders Do Not

Have a Constitutional Right To Be Held

Harmless from Erosion During the Period

Reasonably Necessary To Reorganize and

Save the Railroad... 82

i. The Earliest Decisions Under Section 77

Established that Some Erosion Is Per-

missible Pending Reorganization .__ 84

2. This Court Reviewed and Reconfirmed

this Rule in the New Haven litigation __ 87

3. External, as Well as Internal, Sources of

Aid Must Be Considered in Assessing the

Penn Central’s Future Prospects ......___ 94

4. The Public Interest in Implementing the

Act Clearly Outweighs Any Forseeable

Burden on Investors... 95

CONCLUSION 0 98

‘

: De alee ee ee a

TABLE OF AUTHORITIES

ASES: hig Page

Amell v. United States, 384 U.S. 158 (1966) ........- 48

American Communications Association, CIO V.

Douds, 339 U.S. 382 (1950) 48

American Power & Light Co. v. SEC, 329 U.S. 90

(1946) -22.n-nepeenene-nconsneneensceensnssnsessesnsenensnnenscseosaseersenae 65

Armstrong V. United States, 364 U.S. 40 (1960)... 45

Brooks-Scanlon Co. Vv. Railroad Commission, 251

U.S. 396 (1920) _...10, 78, 88, 94, 97

Bullock v. Railroad Commission, 254 U.S. 513

(1921) 78

Clement v. United States, 140 F. Supp. 573 (Ct. Cl.

’ 1956) non. -n-n-cevnencnsensnenenenrencntnsencnesseresensnenensivencneanes 51

Communist Party V. Subversive Activities Control

Board, 367 U.S..1 (1961) .....--------------------ee-e---> 63-64

Continental Bank v. Chicago, Rock Island & P. Ry.,

294 U.S. 648 (1985).........------------e0020° 22, 78-79, 84-85, 93

Crowell v. Benson, 285 U.S. 22 (1932) .....-.------------- 65

Eastern Railroad Presidents Conference V. Noerr

Motor Freight, Inc., 365 U.S. 127 (1961) -.....--.. 65-66

Eastport Steamship Corp. V. United States, 372

F.2d 1002 (Ct. Cl. 1967) ....---------cececeeserseeneeennnnnnnes 43

Eccles Vv. Peoples Bank, 333 U.S. 426 (1948) ......... 63

Electric Bond & Share Co. v. SEC, 308 U.S. 419

(19BB) ..vececcescvesesovrsvenyeoeenssressnsesnennassnsnanencnosensonenerneee 64

Fawcett V. C.LR., 149 F.2d 433 (2d Cir. 1945) ...... 48

Federal Sugar Refining Co. V. United States, 30

F.2d 254 (2d Cir. 1929), rev’d on other grounds

sub nom. Johnson v. United States Shipping

Board Emergency Fleet Corp., 280 U.S. 320

(1980) .-.0------cnvccesnenrensencencensermecnressenrecsesnesseeoeed Trane 46

FTC v. A.P.W. Paper Co., 328 U.S. 198 (1946) ..... 48 .

Fleming Vv. Rhodes, 331 U.S. 100 ce) .......,-- 3

Flemming V. Nestor, 363 U.S. 603 CIOGOD oo saience n-ne 65

Fletcher Vv. Peck, 10 U.S. (6 Cranch) 87 (1810) ..... 65

Fort Berthold Reservation v. United States, 390

F.2d 686 (Ct. Cl. 1968) ~.-....-.----------------en te 47, 52

Gibson V. United States, 166 U.S. 269 (1897) ....----- 84

Glidden Co. v. Zdanok, 370 U.S. 530 (1962) -.......-- 60

TABLE OF AUTHORITIES—Continued |

Page

Gould v. United States, 801 F.2d 557 (D.C. Cir.

WE. eee cit ee 59

H. E. Hele v. United States, 100 Ct. Cl. 289

ND itera Bhai kl 47

- Hadacheck v. Sebastian, 239 U.S. 394 (1915) ........ 83

Harlem Valley Transportation Association V. Staf- °

ford, 360 F.Supp. 1057 (S.D.N.Y. 1973), aff'd,

No. 73-2496 (2d Cir., June 18, 1974)... 34

Hooe V. United States, 218 U.S. 322 (1910)... 46

Hurley v. Kincaid, 285 U.S. 95 (1932) ........ 1.....41, 44-45,

59, 60, 69

In re Boston & Maine Corp., 484 F.2d 369 (1st Cir.

SREIE sidiinciivonctgiibedbalarccccigaiscs oe el te 79, 93

In re Florida East Coast Ry., 137 F.Supp. 693

(S.D. Fla.), aff'd per curiam, 227 F.2d 518 (5th.

CO, RI el ences hiiieniiecieeee 36

In re New York, N.H. & H.R.R., 378 F.2d 635 (2d

CR, BND a iia cisde i 63, 88

In re New York, N.H. & H.R.R., 281 F.Supp. 65

Ras CAs NN Cie ce eo 89-90

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

CD I, Be hi aioe 87, 90-92, 94, 95

In re New York, N.H. & H-:R.R., 304 F.Supp. 793

Fs COUT Te sais tatechciidiileeotci ee 88, 94

In re New York, N.H. & H.R.R., 304 F. Supp. 1121

CE, IY IPD ae iichiinionen Bicicemti a ee rd 82

In re Penn Central Transportation Co., 494 F.2d

270 (3d Cir.), petition for cert. filed, 42

U.S.L.W. 3633 (U.S. May 8, 1974) (No. 8

Sages °° Sie cotcte anaes 85

In re Penn Central Transportation Co., Bky. No.

70-347, Order No. 1 (E.D. Pa., June 21, 1970)... 67-68

In the Matter of Reading Co., Bky. No. 71-828

(E.D. Pa., July 1, 1974), appeal pending, No.

74-7 (Spec. Ct. R.R.R.A., filed Aug. 20, 1974)... 79-80

International Longshoremen’s & Warehousemen’s

Union, Local 37 v. Boyd, 347 U.S. 222 (1954)... 64

Jackson v. United States, 230 U.S. 1 (1913) .......... 88-84

PIEPER A UE oy

Sys

wegen

TABLE OF AUTHORITIES—Continued

Page

Jacobs Vv. United States, 290.U.S. 13 (1933)............ 43, 45

Joint Anti-Fascist Refugee Committee v. McGrath,

NE RIED ei icpscemretetenincoreecpeumnnacentvceoonnce 63

Kennedy v. Silas Mason Co., 334 U.S. 249 (1948).. - 63

Kent v. Dulles, 357 U.S. 116 (1958) -....... EN Aol 66

Malone v. Bowdoin, 369 U.S. 643 (1962) ................. 45

Mariné Insurance Co. Vv. United States, #10 F.2d

RISER, SE eRe a! Sa a 51

Mercantile National Bank v. Langdeau, 371 US. .

BUSS ES SRO ers ee ence 48

Nagano V. McGrath, 187 F.2d 759 (7th Cir. sae

aff'd, 342 U.S. 916 (1962) ................. 48

New Haven Inclusion Cases, 399 U.S. 392 (1970)... "22, 57,

59, 63, 70, 79, 88, 92-93

New York, N.H. & H.R.R: Bondholders v. United

States, 289 F.Supp. 418 (S.D.N.Y. 1968) .......... 88, 92

Penn-Central Merger Cases, 389 U.S. 486 (1968) .. 22, 84,

. 88-89

Phelps v. United States, 274 U.S. 341 (1927)......... 59

Phillips v. Commissioner, 283 U.S. 589 (1931) ..... 59

Poe v. Ullman, 867 U.S. 497 (1961) ..0..20..22:02ceccnee-e 63

Portsmouth Harbor Land & Hotel Co. v. United

States, 260 U.S. B27 (1922) -.1..-n.erencecsccecenceregeeeee 45

Public Affairs Press v. Rickover, 369 U.S. 111

Tai celeeesti enphtiiaccniarcctadpaceetinglenentoncascostce 63

Railroad Commission v. Eastern Penas R.R., 264

UID FO (ADB) ancien nncpaenereevzastastasassiszasxishesyooveccen 78

Ralston Steel Corp. v. United States, 340 F. 2d 663 ~

(Ct. Cl.), cert. denied, 381 U.S. 950 (1965) ....... 43.

Reconstruction Finance Corp. v. Denver & Rio

Grande W.R.R., 328 U.S. 495 (1946) ~............ 22, 86, 93

Richard V. United States v. Stone Corral Irriga-

tion Dist., 282 F.2d 901 (Ct. Cl. 1960) 000.20. 45

Richmond Seorew Anchor Co. v. United States, 275

: Be icin cdectetenrienreinicisenrtlgedobes 65

St. Joe Paper Co. Vv, Atlantic Coast Line R.R., 347

U.S. 298. (1954) ...28, 35-36, 95

_ Shapiro v. Thompson, 394 U.S. 618 (1969)... 3

OCD MOS Met PIG % COLPR EAL ee Paces st,

LA il oD aw OM Fae

Vil

TABLE OF AUTHORITIES—Continued

ee 43-44,

Youngstown Sheet & Tube Co. v. Sawyer, 343 U.S.

8, RES SSINE Ge <a ic ae ea

we -

48, 65

45, 60

CONSTITUTIONAL PROVISIONS AND STATUTES: ~~

U.S. Constitution:

Art. I, § 8, cl. 3 (Commerce Clause) _.....

ee |

pO Oa Ratein ahisibie ni A! SL

VIII

TABLE OF AUTHORITIES—Continued

Page

Art. I, § 8, cl. 4 (Bankruptcy Clause) -........... 3, 14, 62

Amend. I 48, 66

Amend. V 3, passim

Admiralty Act of 1920:

46 U.S.C. §§ 741 et seq. -... 46-47

Bankruptcy Act:

Section 77, 11 U.S.C. § 205 5, passim

Interstate Commerce Act:

Section 1, 49 U.S.C. § 1 .. 49, 61

Section 5, 49 U.S.C. § 5 s.. 28, 35

Judicial Code: :

28 U.S.C. §§ 1252 .... 3

1253 3

1331 (a) 2

ee kas vs 2

2201 2

i cree 2°

2283 .... 2

RRR e nae ote Seis aE TIE 2

2516 .. 59

National Environmental Policy Act of 1969:

48 USC. O56 Gaei, 81-46 34, 49

Rail Passenger Service Act of 1970, as amended:

45 U.S.C. §§ 501 et seg. -...............-- sen 38

Regional Rail Reorganization Act of 1973:

Pub. L. 93-236, 87 Stat. 985, 45 U.S.C.

§§ 701-93 1, passim

Tucker Act:

Bm USS. $203 ..... 3, passim

ee aa

PRS gp SES BR AA Gt PLES Tee AIS RE 8 GARE Satie CMR, Oy i Se TRE

TABLE OF AUTHORITIES—Continued

Other Statutes: Page

Pub. L. 65-182, 40 Stat. 704, 705 (July 1,

1918), as amended 28 U.S.C. § 1498... 65

Pub. L. 93-5, 87 Stat. 5 (Feb. 9, 1973) 31

Pub. L. 93-240, 87 Stat. 1048 (Jan. 2, 1974). 28, 47

Pub. L. 93-305, 88 Stat. 195 (June 8, 1974) _.. 28, 47

ADMINISTRATIVE PROCEEDINGS:

ICC Order, Ex Parte No. 293 (Jan. 14, 1074).......... 23

Penn Central Transportation Co. Reorganization,

Corp. Reorg. Rep. (Penn Central), Document

No. 95, at 1102:86 (ICC Finance Docket No.

ee | eee ines OR ass ie 35, 37

LEGISLATIVE MATERIALS:

Conference Report, H.R. Rep= No. 93-744, 93d

Ce, 206 OO, See 27, 32

H.R. Rep. No. 93-620, 93d Cong., 1st Sess. (1973) .. 24,

passim

S. Rep. No. 93-601, 93d Cong., 1st Sess. (1978) ..... 24, 30,

31, 53

119 Cong. Rec.

H9731-32 (daily ed. Nov. 8, 1973) 54, 57

H9742 (daily- ed. Nov. 8, 1973) 54

H9743 (daily ed. Nov. 8, 1973)... 53

H9756 (daily ed. Nov. 8,1973)..... 56

H11,876 (daily ed. Dec. 20, 1973)... 52, 56

$22,483 (daily ed. Dec. 11, 1973)... 34

$22,485 (daily ed. Dec. 11, 1973)... 53, 56

$22,820 (daily ed. Dec. 18, 1973)... 56

$23,778 (daily ed. Dec. 21, 1973)... 53

$23,780 (daily ed. Dec. 21, 1973)... «50-51

S23,782-4 (daily ed. Dec. 21, 1973) 34, 53, 55

Hearings on H.R. 6591, H.R. 4897, H.R. 5822, H.R.

5385, H.R. 6880, H.R. 7373 and H.J. Res. 50 be-

fore the House Comm. on Interstate and Foreign

Commerce, 93d Cong., Ist Sess. (1973)... 31

;

bss

ATI y esas

TABLE OF AUTHORITIES—Continued

Page

Hearings on S. 1031, S. 2188 and H.R. 9142 before

the Senate Comm. on Commerce, 93d Cong.,

1st Sess. (1973) 31

Secretary of Transportation, Northeastern Rail-

road Problem, A Report to the Congress, March

26, 1973 31, 33, 36

Secretary of Transportation, Rail Service in the

Midwest and Northeast Region, Feb. 1, 1974 ..... 33

Special Staff of Senate Comm. on Commerce, 92d

Cong., 2d Sess., The Penn Central and Other

Railroads, A Report to the Senate Comm. on

Commerce (Comm. Print 1972)... .......-............. 24

Statement of Secretary Brinegar in Hearings be-

fore the Surface Transportation Subcomm. of

the Senate Comm. on Commerce, Ser. 93-8, pt.

a ot ee Tee OO, Bre? ee 23-24

MISCELLANEOUS:

Coleman, Js Railroad Accounting Off the Track?,

130 J. Accountancy 64 (Oct. 1970) —................... 77

8A Collier on Bankruptcy { 63.16 (14th ed. rev.

AR BERR aca ot SE RU Rineilvear)-S eeor ee oan an ea 82

5 Collier on Bankruptcy § 77.20 (14th ed. rev. J.

I a eke: 82

Frankfurter, Some Reflections on the Reading of

Statutes, 47 Colum. L. Rev. 527 (1947) ............. 54-55

Iron Age, June 25, 1970-.............. 81

Iron Age, July 22, 1974 .. 81

Note, Takings and the Public Interest in 1 Railroad

Reorganization, 82 Yale L.J. 1004 (1973)-..... 85

L. Orgel, Valuation Under the Law of Eminent

Dees 4 te te 83

10 Presidential Documents: Richard Nixon 8 (Jan.

2, 1974) 34

Spychalski, Imperfections in Railway Line Aban-

donment Regulation and Suggestions for their

Correction, 40 ICC Prac. J. 454 (1973)-............. 30

ees uae

In THE

Supreme Court of the United States

OCTOBER TERM, 1974

Sy —

No. 74-167

UNITED STATES RAILWAY ASSOCIATION,

Appellant,

CONNECTICUT GENERAL INSURANCE CORPORATION, et al.

Appellees.

On Appeal from the District Court for the

Eastern District of Pennsylvania

BRIEF OF APPELLANT

UNITED STATES RAILWAY ASSOCIATION

This is an appeal from the decision of a three-judge

United States District Court sitting in the Eastern

District of Pennsylvania, which held unconstitutional

certain sections of the Regional Rail Reorganization Act

of 1973, Public Law 93-236, 45 U.S.C. $§ 701-93 (the

“Rail Act” or “Act”). Appellant is the United States

Railway Association (“USRA” or the “Association’”), a

WE SEAS haa ee 5g PIPER E LOO td MERE

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ET Biter TT Tre ee ee ee

‘, bid

Pe Ow Can, oR ek evn ty eaeee

STN OP IER AL I LALO ALONE Rie POP IO Tye tg

“government corporation” formed pursuant to Section

201 of the Rail Act.

OPINIONS BELOW

The opinion and concurring opinion in the district

court and its order of June 25, 1974, are reprinted in

the Joint Appendix (“JA”)* at JA 9-83. The opinions

are not yet officially reported.

_ JURISDICTION

These cases were brought pursuant to 28 U.S.C. §§ 1331

(a), 1837, 2201 and 2202, seeking a declaratory judg-

ment that the Rail Act is void for repugnance to the

United States Constitution and seeking an injunction

against the enforcement, operation and execution of the

Rail Act. Three-judge courts were convened pursuant

to 28 U.S.C. §§ 2282 and 2284. By consent of the parties,

two of the actions originally brought in the District

of Columbia were transferred to and consolidated for

disposition before the three-judge court in the Eastern

District of Pennsylvania.

The order appealed from, declaring certain provisions

of the Rail Act null and void as violative of provisions

of the Constitution and enjoining Appellant from taking

certain actions pursuant to the Rail Act, was entered on

June 25, 1974 in all of the cases. No order has been

issued respecting a rehearing. Notice of Appeal to this

Court was filed in the United States District Court for

the Eastern District of Pennsylvania on July 17, 1974.

JA 386. Appellant’s Jurisdictional Statement was filed

*A Joint Documentary Submission (“S. Doc.”) has also been

filed with this Court.

PN ALINE LE PLD LEE PRESET

on August 23, 1974. This Court has jurisdiction pursuant

to 28 U.S.C. §§ 1252 and 1253. See Shapiro v. Thomp-

son, 394 U.S. 618, 625 (1969); United States v. Raines,

362 U.S. 17, 20 (1960); Fleming v. Rhodes, 331 U.S.

100, 102-04 (1947). .

const CONSTITUTIONAL PROVISIONS

ae AND STATUTES INVOLVED

Article I, Section 8, Clauses 3 and 4 of the United

States Constitution provide:

“The Congress shall have Power...

, “To regulate Commerce with foreign Nations, and

among the several States, and with the Indian

Tribes;

“To establish an uniform Rule of Naturalization,

and uniform Laws on the subject of Bankruptcies

throughout the United States, ... .”

The Fifth Amendment to the United States Constitu-

tion provides in pertinent part:

“No person shall . . . be deprived of life, liberty,

or property, without due process of law; nor shall

private property be taken for public use, without

just compensation.”

The Regional Rail Reorganization Act of 1973, Pub.

L. 93-236, 87 Stat. 985, 45 U.S.C. §§ 701-98, is set forth

at JA 391-431.

The Tucker Act, as amended, 28 U.S.C. § 1491, pro-

vides in pertinent part:

“The Court of Claims shall have jurisdiction to

render judgment upon any claim against the United

States founded either upon the Constitution, or any

Act of Congress, or any regulation of an executive

department, or upon any express or implied con-

os meses RNG REM BUT Aerie ane ee DEER

SRE, Ses |

eotioes 3:

tract with the United States, or for liquidated or

unliquidated damages in cases not sounding in

tert, 5"

QUESTIONS PRESENTED

1. Whether the court below erred in granting injunc-

tive relief on Plaintiffs’ claims that the Rail Act may

effect a taking of their property without just compensa-

tion, when Plaintiffs have adequate remedies at law in-

cluding a suit in the Court of Claims under the Tucker

Act, 28 U.S.C. § 1491.

- 2. Whether the court below breached its duty to con-

strue statutes so as to save their constitutionality when

it construed the Rail Act, despite its silence on the sub-

ject, as amending the Tucker Act by implication so as

to bar any suit in the Court of Claims to recover any

difference between the consideration provided in the Rail

Act and the “constitutional minimum” expressly recog-

nized in the Rail Act—a construction of the Rail Act

which led the court to declare certain provisions of the

Rail Act unconstitutional.

3. Whether the court breached its duty to construe

statutes so as to save their constitutionality when, after

holding that the Rail Act impliedly amended the Tucker

Act to bar a remedy for constitutional claims of the rail

estates, the court

(a) construed Section 304(f) of the Rail Act to

authorize USRA to forbid discontinuance of rail

service or abandonment of rail properties even if the

“erosion” of the railroad estate should pass the limits

beyond which operations can no longer be -constitu- ——

tionally required without compensation—a construc- acy

tion of Section 304(f) which led the court to hold

Section 304 (f) unconstitutional; and

. . PEE NOS SAE PRO AGEN GL nc Ey BN IRATE LY eee

ELIS NLS TSIEN HE IK ERIE ON AACE RIAN es Nr ee he RTE jay 2 ray

2 eh season tS Soa Sad bese

‘

(b) construed Section 303 of the Rail Act, which

expressly requires a “constitutional minimum” con-

sideration for transfers of rail property, to exclude

consideration for erosion beyond constitutional limits

—a construction of Section 303 which led the ,court

to hold Section 303 unconstitutional.

4. Whether the court below erred in first enjoining

all Defendants from taking any action under Section

304(f) to require continuation of rail service that would

result in “erosion” beyond constitutional limits and there-

after nullifying other provisions of the Rail Act solely

for their failure to provide explicitly for just compensa-

tion for the very “erosion” beyond constitutional limits

that the court had already enjoined Defendants from

causing.

5. Whether, in any event, an injunction unconditionally

prohibiting USRA from certifying any Final System Plan

for reorganized rail service to a federal court was a

necessary or appropriate remedy to prevent the possibility

of erosion beyond constituticnal limits that the court had

already enjoined USRA and all other Defendants from

causing.

STATEMENT OF THE CASE

Eight major railroads operating “in ‘the ’ Northeast/

Midwest region of the United States are now in reor-

ganization proceedings pursuant to Section 77 of the

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

threat that this rail crisis presented to the welfare of

the region and. of the United States, and because of the

inability of the procedures and resources of Section 77

to resolve the underlying problems of these railroads,

Congress enacted the Regional Rail Reorganization Act of

1973, which became law on January 2, 1974.

SOAR PORTS PE PR OER TOE LET EF GRP RELL ART SS SPA ORE: ROE NTE

SEEN DENRA CONT EMER LER IIES O

wo ie SBR Sw

Plaintiffs below are creditors and the sole shareholder

of the largest of the railroads now in reorganization,

Penn Central Transportation Company (“Penn Central”).

They brought these actions seeking declaratory judg-

ments that the entire Rail Act is unconstitutional on its

face on a large number of grounds, and further seeking

injunctions against the implementation of all of its pro-

visions. JA 161-75. The Trustees of the property of

Penn Central Transportation Company, Debtor (“Penn

Central Trustees”) intervened as Defendants. JA 191.

Both sides filed Motions for Summary Judgment. JA

221-25. This appeal is taken from a final judgment

granting in part Plaintiffs’ Motions for Summary J udg-

ment and denying Defendants’ Motions. JA 9-83.

The Rail Act Reorganization Process

The following five steps required by the Rail Act

are essential to an understanding of the proceedings be-

low. In the Introduction to the Argument there is a

fuller discussion of the statutory provisions intended

by Congress to achieve “the reorganization of railroads

in this region into an economically viable system capable

of providing adequate and efficient rail service to the

region.” Section 101(b) (2).

(1) Each United States district court having jurisdic-

tion of a railroad in the region in reorgani@tion under

Section 77 (“Reorganization Court”) was required to

de‘ermine within 180 days of enactment whether its

railroad should be reorganized pursuant to the Rail Act.

Section 207(b). Such determinations (which are described

below under the heading “Reorganization Court Proceed-

ings”) have been made and are now under review by a

special United States district court of three judges

(“Special Court”) which was authorized by the Rail Act,

Section 209(b), and which has been formed in the Dis-

trict of Columbia.

FD tae Ag Repay

(2) A new government corporation, Appellant USRA,

is required to prepare a “Final System Plan” for re-

se NS Ne

structuring the rail properties of the railroads being - !

reorganized pursuant to the Rail Act into a “financially

self-sustaining rail service system.” Sections 201, 202,

204-06. A central feature of the Final System Plan will

be the transfer of designated rail properties to a new,

for-profit corporation called Consolidated Rail Corporation

(“Conrail”) in exchange for all the securities of Con-

rail, plus up to $500 million of USRA obligations guar-

anteed by the United States. Sections 206(d) (1), 210.

(3) USRA is required to submit a proposed Final

System Plan to Congress within 450 days of enactment

(1.e., by March 28, 1975). Section 208(a).° The Plan

becomes “effective” if neither House of Congress disap-

proves it within sixty continuous session days after sub-

mission. Section 208. The Plan is then transmitted by

USRA, within 90 days after its effective date, to the

Special Court, which has exclusive jurisdiction of all

“proceedings with respect to the Final System Plan.”

Section 7-09. The Special Court is then directed to order

the trustees of each railroad in reorganization to transfer

to Conrail all right, title and interest in the rail prop-

erties designated in the Final System Plan. Section 303

(b).

(4) The Special Court is directed then to, determine

whether the exchange of rail properties for Conrail se-

curities, USRA. obligations and suck “other benefits” as,

the Rail Act provides, is fair and equitable to the estate

of each railroad in reorganization. Section 303(c). If

the Special Court finds that the transfer is not fair and

equitable “in accordance with the standard of fairness

and equity applicable to the approval of a plan of re-

organization or a step in such a plan under Section 77

of the Bankruptey Act,” the Court is directed to order

a reallocation of the Conrail securities, and/or to order

the issuance of additional Conrail securities and USRA

obligations (subject to an overall $500 million limitation

on USRA obligations used for this purpose), and/or to

enter a judgment against Conrail. Jd. Section 303 does

not authorize the Special Court to enter a judgment

against the United States. Section 303 does, however,

recognize that the consideration to be transferred in

exchange for the rail properties must equal the “con-

stitutional minimum” and directs the Special Court’ to

make necessary adjustments so that this “constitutional

minimum” is not exceeded. The judgment of the Special

Court may be appealed directly to this Court. Section

803 (d).

(5) Section 304 of the Rail Act provides that railroads

in reorganization subject to the Act may discontinue

service over, and may “abandon’—i.e., dispose of as

they wish—any rail properties not designated for trans-

fer under the Final System Plan. In the interim, how-

ever, Section 304(f) permits a railroad in reorganization

to discontinue service on or to abandon lines of railroad

only with the consent of USRA.

Reorganization Court Proceedings

: Section 207(b) of the Rail Act required each Re-

organization Court to decide, in two stages, whether its

railroad should be reorganized pursuant to the Rail Act.

q First, each Reorganization Court was to decide, within

120 days of the Rail Act’s enactment, whether (a) its

railroad is reorganizable on an income basis within a

reasonable time under Section 77 of the Bankruptcy Act

and if so whether (b) the. public interest would be better~

served by continuing the reorganization under Section ‘

77 than by proceedings under the Rail Act. If a Re-

organization Court made both affirmative findings, it was

authorized to keep its railroad out of all subsequent

Rail Act proceedings. Railroads not eliminated at the

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“120-day” stage went through the second stage, or “180-

day” proceeding, in which each Reorganization Court was

to order that reorganization proceed under the Rail Act

unless it found that the Rail Act “does not provide a .

process which would be fair and equitable to the estate

of the railroad in reorganization.”

On the date of enactment, eight major railroads were

in reorganization in the region.’ In addition, fifteen

of Penn Central’s railroad subsidiaries ( “Secondary

Debtors”) were considered separately from Penn Central

in distinct “120-day” and “180-day” proceedings in the

Penn Central Reorganization Court. Hence, the major

railroads and the Secondary Debtors required nine de-

terminations by the Reorganization Courts under Section

207 (b). "

On Muy 1, 1974, two railroads—the Boston & Maine ©

and the Erie Lackawanna—were kept out of the Rail

Act procedures on the “120-day” grounds that they are

reorganizable on an income basis under Section 77 and

that the public interest would be better served by con-

tinuing under’ Section 77. These determinations have

not been appealed. In the remaining seven cases, the

railroads were not taken out of the Rail Act at the 120-

day stage. In six of these eases, the Reorganization

Courts found that the railroads were not reorganizable

on an income. basis under Section 77. Certain of the

Secondary Debtors were found to be reorganizable on an “

income basis under Section 77 but the Court was unable

to conclude that the public interest would be better

;

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* They were and are the only operating railroads in reorganiza-

“~* fe tion in the United States, except for a tiny carrier, the Cadillac and

Lake City Railroad. The Cadillac and Lake City, which is also in

the region, has been excluded from further proceedings under the

Act on the ground that it is separately reorganizable on an income

basis under Section 77 and the public interest would be better served

by continuing under Section 77.

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served by reorganization under Section 77 than by pro-

ceedings under the Rail’ Act,

‘These seven cases were therefore the subject of the

subsquent “180-day” proceedings in the respective Reor-

ganization Courts. On July 1, 1974, six days after the

decision of the three-judge Court below in the present

case, two Reorganization Courts, having before them

Reading Company and The Ann Arbor Railroad Com-

pany, ordered that their reorganizations proceed under

the Rail Act. In the remaining five proceedings, which

dealt. with Penn ‘Central, Secondary Debtors, Lehigh

Valley Railroad Company, The Central Railroad Com-

pany of New Jersey, and The Lehigh and Hudson River

Railway Company, the Reorganization Courts* con-

cluded, wholly or in substantial part on the basis of the

decision below in the present case, that the Rail Act

does not provide a fair and equitable ‘process and de-

clined to order reorganization under the Rail Act.

Section 207(b) provides that appeals from Reorgani-

zation Court orders pursuant to that section shall be

made to the Special Court. It further provides that

there shall be no appeal from the decision of the Special

Court. These seven 180-day determinations are all on

appeal to the Special Court, which is required by Sec-

tion 207(b) of the Rail Act to rénder its decision within

80 days after the appeals were taken, a period which.

expires on September 29, 1974.* Appellant USRA and

other parties intend to suggest to the Special Court that

it render its decision at that time but stay its mandate

pending the determination by this Court of the issues

on this appeal.

* These five determinations were made by three courts: the Penn

Central, Secondary Debtors, and Lehigh Valley reorganizations are

all before Judge Fullam in the Eastern District of Pennsylvania.

Judge Fullam was also a member of the court below.

*In the case of The Central Railroad of New Jersey, the 80-day

period expires on September 26, 1974.

we 2 \shragdstsibedien co

Proceedings Below

Plaintiffs in the court below challenged the constitu-

tionality of the Rail Act on a number of grounds. A

primary conterition was that the consideration provided

in the “Final System Plan” for required transfers of

rail property pursuant to that Plan will or may, despite

the statutory requirement that the consideration be equal

to the “constitutional minimum standard of fairness and

equity,” fall below constitutional requirements so that

the transfers will constitute a taking of Plaintiffs’ prop-

erty for less than just compensation in violation of the

Fifth Amendment. This contention was rejected by the

court below as premature. JA 9 at 23-25.

Plaintiffs also contended below that a taking of their

property without just compensation will result from a

combination of the allegedly required continuation of rail

operations pending implementation of the Final System

Plan with the alleged “erosion” beyond constitutional

limits of the Penn Central estate during this period.

Appellant USRA contended below that, (i) on any theory

of “erosion,” the record before. the court below did not

permit a determination of the amount of erosion suffered

by any railroad estate or a determination that any rail-

road. estate has reached the “constitutional limit” be-

yond which operations cannot be required to continue

without an adequate remedy at law for compensation;

‘ (ii) railroad creditors and owners can constitutionally

required to sustain a reasonable burden of interim

erosion while efforts are being made to restructure the

railroad on a profitable basis: and (iii) in any event

Plaintiffs were not entitled to an injunction or a declara-

tory judgment of unconstitutionality because, if it should

ultimately be determined that the Rail Act had caused

an erosion of their interests beyond constitutional limits,

Plaintiffs would have an adequate remedy at law in the

Court of Claims under the Tucker Act for any claimed

; shortfall in their compensation.

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' The court below determined that the present existence

of operating losses in the Penn Central system made

the erosion issue “ripe for adjudication.” JA 9 at 40. The

court did not define erosion, nor did it decide whether

the Penn Central or any other railroad has yet reached

the constitutional limit of erosion, nor did it attempt to

define the constitutional limit. The court said only that,

“we are persuaded that a significant possibility

exists that a point of erosion either has been or

may soon be reached so that it can be said that

plaintiffs’ contention of interim unconstitutional tak-

ing by°tontinued loss operations is ripe for adjudi-

cation.” Id.

Without resolving the factual issues further, the court

then turned to the relevant statutory issues. The court

apparently read Section 304(f), which requires a railroad

in reorganization to obtain the approval of USRA be-

fore it discontinues rail service or abandons rail lines dur-

ing the planning process, as authorizing USRA to with-

hold approval even if a court has determined that “ero-

sion” has gone beyond constitutional limits and even if an

adequate remedy at law for compensation is barred by

the Rail Act.

The court then concluded that the Rail Act did bar an

adequate remedy at law. It explicitly rejected the con-

tention of Appellant, of the other Government Parties,

and of the Penn Central Trustees that if the constitu-

tional limit of permissible uncompensated erosion should

be passed, Plaintiffs would have an adequate remedy at

law in the Court of Claims under the Tucker Act for

just compensation. JA 9 at 53. The court construed the .

Rail Act, despite its silence on the subject, as precluding

the Court of Claims from taking jurisdiction of any suit

for compensation for actions taken under the authority

of the Rail Act. The court also apparently decided that

the power of the Special Court, pursuant to Section 303, €

“a3

to determine whether transfers of rail properties are fair

and equitable to the estate of each railroad in reor-

ganization and to award the “constitutidnal minimum,”

does not include the power to remedy erosion beyond con-

stitutional limits. Jd. at 58, 82.

Based on this analysis, the court below held Section

304 (f)

“null and void as violative of the Fifth Amendment

of the United States Constitution, to the extent that

it would require continued operation of rail services

at a loss in violation of the constitutional rights

of the owners and creditors of a railroad.” Jd. at

82-83.

The court did not define such constitutional rights, but

it enjoined al] Defendants,

“from taking any action to enforce the provisions of

Section 304(f) . . . with respect to any abandon-

ment, cessation or reduction of service which has

been or may hereafter be determined by a court of

competent jurisdiction to be necessary for the pres-

ervation of rights guaranteed by the United States

Constitution.” Jd. at 82.

Technically, this order has effect only if some other .

court (presumably a Reorganization Court) determines

that an abandonment, cessation, or reduction of service

is constitutionally required.

The court below went on to declare that Section 303

of the Rail Act, relating to transfers of rail properties

pursuant to the Final System Plan, is

“null and void as contravening the Fifth Amendment

of the United States Constitution insofar as it fails>

to provide compensation for interim erosion pending

final implementation of the Final System Plan

Tis Id.

In addition, without explanation, the court enjoined

USRA, unconditionally, from certifying any Final Sys-

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IR mate 44:

tem Plan to the Special Court pursuant to Section 209

(c). Ja.

Plaintiffs made a third challenge to the Rail Act on

‘the ground that it is not “uniform” within the meaning

of Article I, Section 8, Clause 4, of the Constitution,

providing that Congress shall have the power to enact

“uniform Laws on the subject of Bankruptcies through-

out? fhe United States.” The court below rejected this

contention except as to one sentence of Section 207(b).

Id. at 83. That sentence provides that if any Reorganiza-

tion Court determines, in the “i80-day proceedings,”

that the Act does not provide a fair and equitable process

for the reorganization of its debtor and therefore that

the debtor shall not be reorganized in accordance. with

the Act, then the Reorganization Court shall dismiss the

Section 77 proceedings. Since the court’s ruling nullifying

this dismissal requirement does not materially affect the

administration of the Rail Act, we do not appeal- from

this part of the court’s order.

SUMMARY OF ARGUMENT

The Rail Act provides varied and substantial new

resources to meet a rail crisis that is-centered in the

Northeast and Midwest but threatens the welfare of the

entire nation. These resources can be used to create a

self-sustaining rail service system that will meet the

needs of the public. The creation of that system will

resolve the several present railroad reorganization pro-

ceedings and will afford fair and equitable treatment to

the creditors and shareholders of the bankrupt railroads.

The Rail Act has been attacked on the ground that

under some hypothetical circumstances fairness and equity

to these private interests would not be assured. The

Act itself, with its commitment of major new public

resources, its. revamping of the regulatory framework,

and its imaginative adaptation of traditional railroad re-

organization procedures and principles, provides ample

refutation of the Act’s detractors. The short answer to

their contentions, however, is that if, despite all of the

resources that Congress pledged and all the care it de-

voted to legislating a constitutional solution to the rail

crisis, the Act should require the use or transfer of rail

properties for less than the “constitutional minimum”

consideration that the Act expressly recognizes to be due,

a suit for just compensation in the Court of Claims under

the Tucker Act is an adequate and proper remedy at law, é

and no injunction is justified.

Tucker Act. In the court below, Plaintiffs sought (a)

a declaration that the Rail Act is unconstitutional on

its face and (b) an injunction against its implementa-

tion. Their primary contention was that the Rail Act

will cause a “taking” of their “property” for “public

use”) without “just compensation” in violation of the

Fifth Amendment to the Constitution of the United

States. The court below should have responded to that

challenge by denying the relief sought and dismissing

the complaints on the ground that if Plaintiffs should

ever wish to present such a claim, they will have an

adequate remedy at law in the form of a suit for just

compensation in the United States Court of Claims under

the Tucker Act, 28 U.S.C. § 1491. Decisions of this

Court have clearly established that since just compensa-

tion remains available in a suit under the Tucker Act,

it is inappropriate ever to enjoin duly authorized federal

action on the ground that it may constitute a taking for

less than the just compensation that must be paid. The

same decisions establish that this. adequate legal remedy

makes it unnecessary and inappropriate for a court of

equity, when asked for such an injunction, even to in-

quire into whether a taking in fact has occurred or will

occur. .

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The court below, however, ruled that the Rail Act

bars a Tucker Act remedy for claims arising under the

Rail Act. The court assumed that the existence of such

a remedy depends on the intention of Congress, when

it passed the Rail Act, to make a, Tucker Act remedy

available. Hence, the court stated the question as whether

there was an “implied remedy at law,” JA 9 at 41, and

concluded that to “read a Tucker Act remedy into the

[Rail] Act” would be “judicial legislation on a grand,

if not arrogant, seale.” Jd. at 52.

In fact, the Tucker Act stands by itself as a century-

old bulwark both against inadequately compensated tak-

ings of property and against unwarranted prior restraint _

by courts of equity against the efforts of Congress to

provide for the needs of the nation. The Tucker Act,

by itself, confers jurisdiction on the Court of Claims

to hear money claims arising under the Constitution of

the United States, including claims for just compensation

for the public use of private property. This remedy is

available for any claim of taking (including claim of a

taking of the use of property) that results from au-

thorized federal action. It is not necessary,” when Con-

gress passes later substantive legislation which soneone

alleges to have caused a taking, that Congress have in-

tended a taking, or have provided a remedy, or have

explicitly or implicitly preserved the availability of- the

Tucker Act remedy in the later legislation.

The only question properly before the court below on

this issue was whether the Rail Act repealed the jurisdic-

tion of the Court of Claims pro tanto as to affected

rail estates. This it clearly did not do. The Rail Act

nowhere mentions either the Tucker Act or the Court of

Claims, although it contains thirteen separate provisions

explicitly modifying or repealing other federal statutes,

including an entire section entitled “Relationship to Other

Laws.” While it is clear from the statute and its legis-

lative history that Congress did not expect that the con-

sideration provided under the Rail Act would be ju-

dicially determined to.be less than the “constitutional

minimum” that the Rail Act expressly recognizes to be

due, there is nothing in the Rail Act or its legislative

history to suggest that Congress intended to deny the

traditional Court of Claims remedy to anyone asserting

such a claim.

The questionable inference, drawn by the court below,

that the Rail Act implicitly repealed a basic grant of

jurisdiction to a federal court, was especially inappropri-

ate in light of its consequences: (a) to impute to Con-

gress a deliberate intention to act in an unconstitutional

manner by requiring transfers of rail property for con-

sideration that might judicially be determined to be

less than the “constitutional minimum” Congress itself

recognized and by barring any remedy to recover the

shortfall, and (b) to strike down portions of a major

federal statute that the Court apparently would ‘have

upheld if it had drawn the opposite inference. The

action of the court below thus violated the basic precept

of constitutional litigation that a statute shall be inter-

preted, where possible, so as to save rather than destroy

its constitutionality.

Section 304(f). Apart from its rejection of the Tucker

Act remedy, the district court’s resolution of the merits

of the “taking” allegations was also erroneous. One of

Plaintiffs’ allegations was that Section 304(f) of the

Rail Act, which forbids railroads in reorganization from

discontinuing service or abandoning rail lines during the

rail planning process without the approval of USRA,

has caused and/or will cause a “taking” of Plaintiffs’

property in the form of “erosion” of railroad estates

through continued rail operations. The court below did

not decide whether “erosion” amounting to a “taking”

has occurred or will occur. Indeed, the court neither de-

ACUI Np siets hs cated:

B28 POs oe PREP ER

fined “erosion” nor specified the constitutional limits

beyond which erosion becomes a taking and cannot be

compelled unless an adequate remedy for just compensa-

tion is available. Instead, the court took the following

extraordinary steps: (a) it decided that the constitu-

tionality of Section 304(f) was ripe for adjudication even

though the constitutional limit of erosion had not been

found to have been reached and might not ever be

reached; (b) it interpreted Section 304(f) as barring ©

discontinuances and abandonments even though the re-

sult would be erosion beyond constitutionai limits for

which the court had ruled no adequate remedy was

available; {c) it declared Section 304(f), as so construed,

unconstitutional as applied to these hypothetical circum-

stances; (d) it enjoined USRA, now, from interfering

with any discontinuance or abandonment that another

court may hypothetically find constitutionally required;

and (e) finally, it declared other portions of the statute

unconstitutional, without explanation, because they do

not specifically provide a remedy for the very erosion

beyond constitutional limits that the court itself had al-

ready done more than necessary to prevent. .

The court, based on its ruling that the Rail Act barred

an adequate remedy at law, declared Section 304(f) “null

and void as violative of the Fifth Amendment .. . to

the extent that it would require continued operation of

rail seriveeS at a loss in violation of the constitutional |

rights of the owners and creditors of a railroad.” JA 9

at 82-83. The court then enjoined the Defendants

“from taking any action to enforce the provisions

of Section 304(f) of the Regional Rail Reorganiza-

tion Act of 1973, with respect of any abandonment, *

cessation, or reduction of service which has been or

may hereafter be determined by a court of compe-

tent jurisdiction to be necessary for the preserva-

tion of rights guaranteed by the United States Con-

stitution.” Jd at 82.

If this were all the court below had done, its order

would be merely gratuitous. The court did not need

to interpret Section 304(f) as permitting USRA to

ignore such constitutional rights as a later court may

declare. It did not need to strike down the section,

or to enjoin USRA, now, from violating constitutional

rights declared by a hypothetical later court. Even if

the court correctly construed the Rail Act as denying

an adequate remedy at law, the entire resulting problem

could have been resolved by interpreting Section 304(f)

as conferring authority only within the bounds permitted

by the Constitution. If, as the court below hypothesized,

some later court finds that an abandonment, cessation

or reduction of railroad service is required to preserve

constitutional rights, there is no reason to assume now :

that USRA will act in violation of that hypothetical de-

termination or that the later court would not be able

itself to issue such injunctive and other orders as may

be necessary to enforce the constitutional rights it has

declared.

Section 303. The court below did not stop at en-

joining action under Sectien 304(f). It also declared

that Section 303 of the Rail Act, which provides for the

conveyance of rail-properties to Conrail pursuant to the

Final System Plan and for the valuation of those prop-

erties and the consideration therefor

‘fs null and void as contravening the Fifth Amend- >

ment of the United States Constitution insofar as it

fails to provide compensation for interim erosion

pending final implementation” of the Final System

Plan pursuant to the statute.” JA 9 at 82.

This ruling, holding void a section of the statute that is

not even discussed (save for incidental references) in the

court’s opinion, was wholly unnecessary and erroneous

even on the court’s view of the Tucker Act and ercsion

issues. In the first place, the court below did not de-

SEY ILRI IRI LE LILLTL OI IE LTE ICL TL OE ey Se OE OPEL Re tiPes: Garp 5 Serres Se co |

termine that an erosion ‘taking, requiring just compensa-

tion, either has occurred or would occur if the process

of the Act were allowed to go forward unimpeded. Con-

sequently, even on the court’s view of the facts, the

erosion question may never arise.

More important, by its treatment of Section 304(f),

the court below itself eliminated any possible objection

to Section 303. The court enjoined all. Defendants from

taking action under Section 304(f) that would conflict

- with any future judicial determination that service should

be discontinued or property abanconed in order to avoid

erosion beyond constitutional limits. In fact, no .Reor-

ganization Court or other court has yet determined that

the constitutional limit has been reached in the case

of -its railroad. If any Reorganization Court or other

federal court determines that the constitutional limit

has been reached, it will presumably order selective or

total discontinuance of rail service or abandonments of

rail lines. As noted above, (a) once the court below

held that the Rail Act bars an adequate remedy at law,

it should not have interpreted Section 304(f) of the Rail

Act to purport to give USRA authority to prevent dis-

continuances or abandonments in such circumstances,

(b) the Reorganization Court or other federal court

making such determination would obviously have power,

should it for some reason be necessary, to enjoin USRA

from interfering with its orders issued 9n constitutional

grounds, and (c) in any event, the coyrt below itself

enjoined USRA from interfering with such hypothetical

future constitutionally required discontinuances or aban-

donments. Consequently, if there was ever any possibility

that the Act would cause any railroad estate to reach

the constitutional limit of erosion and yet require such

railroad to continue to operate beyond that point, this

defect has been anticipatorily remedied by the court be-

low. There was no need to declare Section 303 uncon-

stitutional for failing to provide just compensation for

an erosion taking caused by the Rail Act when the pos-

sibility of any such taking has been more than adequately

eliminated.

Certifirution of the Final System Plan. The court be-

low did not stop even with this second ruling. It went

on to enjoin USRA from certifying any Final System

Plan to the Special Court. There is not a single sentence

in the opinions below that offers an explanation for this

ruling prohibiting the central step contemplated by the

Act. On the district court’s own analysis, the constitu-

tional limit of erosion may never be reached. If it is

reached, it may be possible for the affected railroad,

USRA, and others including Congress and the Special

Court to devise a basis for continuing rail service subject

to adequate compensation in the Final System Plan or

otherwise. If that is not possible, the Reorganization

Court (or another avpropriate court) can order discon-

tinuance or abandonment, as necessary, on constitutional

grounds. If it be presumed that USRA would disregard

any such order, USRA has now been enjoined from doing

so. In no imaginable set of circumstances, however,

_ could the certification of a Final System Plan by USRA

to the Special Court be an unconstitutional step; nor

could an injunction against this step serve in any way

to remedy any defect in the Rail Act found by the court

below.

Calculation of Erosion. Calculation of erosion requires

a comparison between the consequences to creditors and

shareholders of reorganization under the Rail Act with

the consequences of some other alternative now avail-

able. The record in this case does not permit a determina-

tion of the consequences of a long and expensive liquida-

tion proceeding commenced now, or of any other avail-

able alternative. Nothing in the record demonstrates that

proceedings under the Rail Act, including the preserva-

tion of going-concern values in a railroad system suited

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to the present economic environment, the ability to obtain

state, local and private support for important but un-

profitable rail services, the abandonment and transfer of

unprofitable lines in a prompt and orgerly manner, fed-

eral assumption of labor protection costs,’ substantial di-

rect and indirect cash subsidies and the use. of federally

guaranteed debt, will yield creditors and shareholders

less than they can receive from any available alternative.

“Moreover, the Rock Island,* Denver & Rio Grande,’

Penn-Central Merger® and New Haven Inclusion’ cases

make it clear that even if it could be shown that interim

operations will lead to a less satisfactory result for

claimants than some alternative available now, a reason-

able burden of “erosion” may constitutionally be imposed

while efforts are made to restructure their railroads into

a viable going concern. The “property” of railroad

creditors and owners is inherently subject to the right

of the public to make reasonable efforts to preserve es-

sential rail operations on a self-sustaining basis. There

33 no reason to assume, at this time, that the implementa-

tion of this major federal program in accordance with

the very tight time schedule provided in the Act itself

will subject creditors or shareholders to an unconstitu-

tional erosion of their property.

* Con: Sasited Bank v. Chicago, Rock Island & P. \Ry., 294 US.

648 (1935). |

5 Reconstruction Finance Corp. v. Denver & Rio Grande W.R.R.,

328 U.S. 495 (1946).

6 Penn-Central Merger Cases, 389 U.S. 486 (1968).

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

ARGUMENT

Introduction: The Rail Crisis and the Rail Act

Eight major railroads* operating in the Northeast/

Midwest Region’ of the United States are now in re-

organization proceedings pursuant to Section 77 of the

Bankruptcy Act, 11 U.S.C. £205. The resi:}tiig threat

to the welfare of the Region and of the United States,’

6 Seven are Class I railroads: the Penn Central, Reading, Erie

Lackawanna, Central of New Jersey, Lehigh Valley, Boston & Maine,

and Ann Arbor. Of these, the Erie Lackawanna and Boston &

Maine were found by their Reorganization Courts to be separately

reorganizable under Section 77, and consequently will not be reor-

ganized under the Rail Act. A Class I railroad is defined “by the

Interstate Commerce Commission (“ICC”) as a railroad with $5

million or more of annual revenue. ICC Finance Dockets show

these seven to be the only Class I railroads in the nation in re-

organization.

In addition to these Class I railroads, one significant Class II rail-

road, the Lehigh & Hudson River, is ih reorganization in the

Region. -As noted above, a second, tiny Class II railroad, the

Cadillac and Lake City, is also in reorganization in the Region but

has been found to be separately reorganizable ard will not be re-

organized under the Rail Act. See p. 9 note 1 supra. The ICC

Finance Dockets disclose that the only Class I] railroad in re-

organization outside the Region ceased all operations in 1968 and

sold substantially all of its lines in 1969.

* The Act defines “Region” as “the States of Maine, New Hamp-

shire, Vermont, Massachusetts, Connecticut, Rhode Island, New

York, New Jersey, Pennsylvania, Delaware, Maryland, Virginia,

West Virginia, Ohio, Indiana, Michigan, and Illinois; the District

of Columbia; and those portions of contiguous States in which are

located rail properties owned or operated by railroads doing business

primarily in the aforementioned jurisdictions (as determined by the

[ICC] by order).” Section 102(13). ICC Order, Ex Parte No. 293,

approved January 14, 1974, delineated areas near Louisville, Ken-

tucky; St. Louis, Missouri; and Kewaunee and Manitowoc, Wiscon-’

sin, as included in the Region. As used herein, the term “Region”

refers to the area defined in the statute and by the ICC.

10 A 1970 Department | of Transportation study concluded that

within eight weeks of a ‘complete shutdown of the Penn Central,

GNP for the nation would drop by 2.7% and for the Northeast by

5.2%. Nearly two million Penn Central and other affected employees

would be laid off. Statemen* of Secretary Brinegar in Hearings be-

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coupled with the inadequacy of the procedures and re-

sources of Section 77 to resolve it, led Congress to enact

the Rail Act. ,

A. The Rail Act Is Designed To Provide New Solutions

to New Problems that Created the Rail Crisis

The present rail crisis resulted from a number of

problems that Section 77 is inadequate to correct. The

number of railroads in reorganization, their concentra-

tion in a single region, and the vast extent of their

operations make it clear that there is a crisis. The fact

that the railroads’ problems in the 1970’s are not pri-

marily problems of capital structure but arise from

shifting economic trends and are in part the result

of regulatory policies** make the limited resources of

Section 77 inadequate. The Rail Act refiects Congress’

recognition that some of the problems can be solved

only by providing new financial and legal resources and

new procedures for resolving regulatory issues. The Act

also modifies existing Section 77 procedures to permit

fore the Surface Transportation Subcomm. of the Senate Comm. on

Commerce, Ser. 93-8, pt. 2, at 258 (May 30, 1973).

The area served by the Penn Central included, in 1970, 55% of

the nation’s manufacturing plants and 60% of its employees en-

gaged in manufacturing. Congress was well aware of the problems

that would be caused by the shutdown of a railroad carrying about

1 million tons of freight every day, carrying over its lines about

21% of all freight cars loaded in the United States, and serving

exclusively 59 defense facilities. Special Staff of Senate Comm. on

Commerce, 92d Cong., 2d Sess., The Penn Central and Other Rail-

roads, A Report to the Senate Committee on Commerce XIX (Comm.

Print 1972).

11 See S. Rep. No. 93-601, 93d Cong., Ist Sess. (“Senate Report’)

6-7 (1973). As the House Committee stated, Section 77, which

“contemplates a program of restructuring capital” in response to the

fact that “depression-spawned railroad bankruptcies were the prod-

uct primarily of over capitalization,” is not “responsive to the urgent

problems confronting the railroads in the northeast today” where

“insolvency is much more complex.” H.R. Rep. No. 93-620, 93d

Cong., 1st Sess. (‘House Report”) 29 (1972).

he,

reorganization of several railroads into a single con-

solidated unit.

1. The Rail Act Provides a Thorough Planning and

Review Process

In general, the Rail Act provides for the following

steps to plan a restructured rail system created out of

selected rail properties of railroads now in reorganiza-

tion, and to review the “fairness and equity” of the

Plan.

(a) USRA, with the assistance of the Secretary

of Transportation (“Secretary”) and the Rail Services

Planning Office (“RSPO”), a new office created by the

Rail Act within the ICC is to prepare a Final System Plan

for restructuring the operations of the railroads in reor-

ganization. A central feature of tre Final System Plan

will be the transfer of designated rail properties of rail-

roads in reorganization to Conrail, a private corporation

for profit to be created, pursuant to Section 301, to own

and operate the restructured system. The Final System

Plan will provide for the issuance to the transferor es-

tates of securities of Conrail, plus up to $500 million of

USRA obligations guaranteed by the United States. Sec-

tions 206(d) (1), 210. It may also provide for transfer to ~

and consideration from profitable railroads, Section 206

(ce) (1) (b) and 206(d) (2), and may provide for addi-

tional Government obligations, subject to approval by

joint resolution of Congress. Sections 206(h), (i), and

210(b).

12 Sections 202, 204, 205, and 206. The statutory deadlines in

Sections 204 and 205(d)(1) for preliminary reports by the Secre-

tary and RSPO have been met.

13Mhese transfers are subject to expedited review by USRA

and the ICC, whose rulings are not reviewable by any court. Section

206(d) (3).

2 i a i Hes cb Sl il DE a arcane

(b) Following publication of and hearings on a

preliminary system plan, USRA must submit a proposed

Final System Plan to the ICC and Congress within 450

days after enactment (ie., by March 28, 1975). Sec-

tions 207(c), 208(a). The Plan becomes effective if

neither house of Congress disapproves it within 60 con-

tinuous session days. Section 208.. Within 90. days after

it becomes effective, ‘the Final System Plan is to be

transmitted to the Special Court created pursuant to Sec-

tion 209 of the Rail Act. Section 209(c). The Conrail

securities and USRA obligations designated in the Final

System Plan as consideration for rail properties to be

transferred to Conrail under the Plan, and the considera-

tion from any profitable railroad purchasing property,

must be delivered to the Special Court within ten days

after the Plan is transmitted. Section 303(a). Within

a further ten days, the Special Court is to order the

transfer of the rail properties designated in the Plan.

Section 303 (b).

(ce) The Special Court is then to determine whether

the exchange of rail properties for securities and “other

benefits” is fair and equitable to the estate of each

railroad in reorganization “in accordance with the stand-

ard of fairness and equity applicable to the approval

of a plan of reorganization or a step in such a plan

under Section 77 of the Bankruptcy Act.” Section 303 (c)

_(1) (A). Congress recognized that, for the exchange to

be “fair and equitable,” the value of the consideration for

the transferred properties had to equal the “constitutional

minimum,” and directed the Special Court to make any

adjustment needed so as not to exceed this “constitu-

tional minimum.” Sections 303(c) (1) (B), (¢) (3). The

- Special Court is required, if it finds that the exchange

is not fair and equitable, to order a reallocation of the

Conrail securities, and/or to order the issuance of addi-

tional Conrail securities or USRA obligations, and/or to

enter a judgment against Conrail. Section 303(c) (2). A

finding, determination, order, or judgment of the Special

Court under Section 303 may be appealed directly to this

Court. Section 303(d).

2. The Rail Act Provides Resources Not Available

in Section 77 Reorganizations

Section 77 was designed primarily to provide a pro-

cedure for the recapitalization of a single railroad. It

does not provide any means of trimming rail operations

to meet changed economic and competitive conditions, or

any means of compensating employees whom the railroads

are obligated to employ but who are unneeded in a

slimmer system. It does not provide any government

financial assistance. It does not provide any specific

means of transferring rail properties either to other. rail-

roads (which might put them to more profitable rail use)

or to governments or other entities for rail or non-rail

use. Finally, it provides no means of coordinating the

reorganizations of two or more railroads in the same

area.

The Rail Act was designed in part to supplement

Section 77 in these respects. The center of the Rail Act

is its provision for a planning process leading to a re-

structuring of rail operations and the abandonment of

excessive facilities..* At the same time, the Act includes

special features, funded by up to $250 million of au-

thorized federal appropriations, to protect employees who

might be adversely affected. Title V.

Four additional forms of financial support provided

by the Rail Act deserve special mention:

(a) USRA is authorized to issue $1.5 billion in

Government-guaranteed obligations. Of this sum, up to

$1 billion may be issued to Conrail, of which not less than

14 The differing Senate and House approaches and their resolu-

tion are described in the Conference Report, H.R. Rep. No. 93-744,

93d Cong., Ist Sess. (“Conference Report’) 61-63 (1973).

ios.) Sah

Lite Pool Sesien aa ate He carats

Lgl ANSE P ae civabebeaitbi)

half must be used by Conrail for. rail rehabilitation and —

modernization. Section 210(b). Additional amounts above

this revolving $1.5 billion ceiling may be issued if ap-

proved by joint resolution of Congress. Jd. The Act

permits Conrail’s obligations to USRA to be on terms dif-

ferent from the terms of USRA’s government-guaranteed

obligations. Thus, $1 billion in financing can be made

available to Conrail on terms more favorable than are

ordinarily available in the commercial market.

(b) The Secretary, with USRA’s approval, is au-

thorized to enter into agreements (involving the issuance

of up to $150 million in USRA obligations) for the ac-

quisition, maintenance, or improvement of property that

will be included in the Final System Plan. Section 215.

(ec) Te meet emergency needs pending implementa-

tion of the Final System Plan, the Secretary is further

authorized to make payments not exceeding $85 million

to the trustees of railroads in reorganization. S :ction

213."

(d) The Secretary and USRA may provice to pub-

lic agencies (within a $180 million authorization) sub-

sidies for continuing non-economic service and loans for

the acquisition and modernization of rail properties. Since

these funds are to be made available on a 70-30 matching

basis, the assistance under these programs is actually

approximately $250 million.

To overcome the difficulty of severing and transferring

properties in the traditional Section 77 process, Con-

15 The court below stated, JA 9 at 32, that only $35 million of this

amount had been appropriated. The current total is $74,800,000.

See Foreign Assistance and Related Programs Appropriations Act

of 1974, Pub. L. 93-240 (Jan. 2, 1974) ($35 million) ; Second Sup-

plemental Appropriations Act, 1974, Pub. L. 93-305 (June 8, 1974)

($39.8 million).

16 See Interstate Commerce Act § 5, 49 U.S.C. §5; St. Joe Paper

Co. v. Atlantic Coast Line R.R., 347 U.S. 298 (1954).

SP EMG ADI LGR LPO OLE FEED

]

gress provided that the Final System Plan could require

rail properties.of the railroads in reorganization to be

sold for their fair value pursuant to the Final System

Plan to (i) profitable railroads in the Region, (ii) the

National Railroad Passenger Cecporaticn (“Amtrak”) for

rail passenger service, (iii) state, regional, or local =

transportation authorities for commuter and intercity

rail services, and (iv) various recipients for other public

purposes, including highways, conservation, education, —

and recreation.” As already mentioned, railroads in re-

organization will also be able, subject to USRA’s ap-

proval, to dispose of unneeded rail properties for the

best price under simplified abandonment and termination

procedures.” The Act also provides for the possibility that

Congress will authorize USRA to guarantee Conrail ob-

ligations, Section 206(i), or to issue obligations in excess

of the $1.5 billion limit in order to implement the Final

System Plan, Sections 206(h) and 210(b).

Finally, the Rail Act reflects Congress’ recognition of

the need to coordinate the reorganization of adjoining

and competing railroads in reorganization: “[N]Jo one

Court can restructure the entire system under Section

77.” * Congress therefore created a new agency—USRA

—to formulate “essentially a railroad reorganization plan —

which would consolidate parts of [the] bankrupt carriers

into a new for-profit carrier,” *° and, to review and ap-

prove the Plan, it created a single new court—the Special .

Court—with all the powers of a Section 77 court.”

17 Section 206(c).

18 Section 304.

19 House Report at 29.

20 Td. at 23-24.

21 Section 209(b).

PERE GEDA te OEE EE ER TTY rs RINE EP Re eR ee ee |

LED RANA ihe ornalea tle Bl net Pee

B. The Rail Act Provides Solutions to the Problems that

Have Made It Impossible To Reorganize the Penn

Central Under Section 77 ~

All Plaintiffs in this case have claims against the

Penn Central estate, and the Penn Central Trustees have

intervened as Defendants. Consequently—atthough Plain-

tiffs challenged the Rail Act as unconstitutional on its

face, the Penn Central reorganization proceeding pro-

vides an essential backdrop against which their conten-

tions must be evaluated.

The Penn Central entered reorganization under Section

77 on June 21, 1970. During the first 30 months of re-

organization, the Penn Central Trustees identified and

attempted to satisfy four conditions which they judged

necessary to a successful Section 77 reorganization:

(1) rationalization of the physical plant by elim-

inating excess capacity;

(2) elimination of unnecessary labor expense;

(3) full compensation for all passenger service;

and

(4) increased freight traffic and revenues.”

22 Since the primary focus of the Act was on the Penn Central,

this and the following section of this Brief present examples of

how and why Congress thought the Rail Act was a reasonable

approach to the Northeast/Midwest problem. Although the ex-

amples are drawn specifically from the Penn Central reorganization

proceeding, it is clear that Congress considered many of the Penn

Central’s problems to be shared by other Northeast/Midwest rail-

roads. See Senate Report at 6-14; House Report at 25-29.

23 The first three conditions were identified in the Preliminary

Report of Trustees Concerning Premises for a Reorganization

(February 10, 1971), J. Doc. 1 at 3. As for the fourth condition,

a September 1971 report concluded that a study of Penn Central’s

revenue-producing potential was necessary. Second Report of

Trustees on Status of Reorganization Planning (September 17,

1971) (“September 1971 Report”), J. Doc. 3 at 14-18. In February

1972 the Trustees reported that a successful reorganization re-

quired, inter alia, attaining a certain projected volume of freight

{

The Penn Central Trustees reported for the first time

on January 1, 1973, that they believed substantial gov-

ernment financial assistance was essential in order to

achieve service improvements that would attract the

necessary increases in freight traffic and revenues.”*

Seven days after the Penn Central Trustees’ February

1973 Report quantified this needed assistance at $600-

$800 million,** Congress passed Joint Resolution 59 di-

recting the Secretary te submit within 45 days “a full

and comprehensive plan for the preservation of essential

rail transportation services in the Northeast ... .” *Aft-

er studying various measures to relieve the rail crisis

during the remainder of 1$73, Congress approved the Rail

Act.”

RDA EAR RET

pak

traffic and. revenue increases. Report of Trustees on Reorganiza-

tion Planning (February 15, 1972) (“February 1972 Report’),

J. Doc. 4 at 1.

These four conditions were made especially explicit in the Penn

Central Trustees’ Plan for Reorganization (April 1, 1972) (‘April

1972 Reorganization Plan”), J. Doc. 5 at 1, and were reiterated in,

e.g., Trustees’ Interim Report of October 1, 1972 (“October 1972

Report”), J. Doc. 7 at 1; Trustees’ Interim Report of January 1,

1973 (“January 1973 Report”), J. Doc. 8 at 1; and Trustees’ Report

on Reorganization Planning (April 3, 1974) (“April 1974 Report”),

J. Doc. 10 at 4>

24 Penn Central Trustees’ January 1973 Report, J. Doc. 8 at 1.

25Penn Central Trustees’ Interim Report of February 1, 1973

(“February 1973 Report”), J. Doc. 9 at 2.

26 Pub. L. 93-5, 87 Stat. 5. The Secretary satisfied this require-

ment with Northeastern Railroad Problem, A Report to the Con-

gress, submitted to Congress on March 26, 1973 (“Northeastern

Railroad Problem’’).

27 On April 16 and 17, May 8, 9, 10, 21, 30, and 31, and June 6

and 7, 1973, the House Committee on Interstate and Foreign Com-

merce held hearings on H.R. 6591, H.R. 4897, H.R. 5822, H.R. 5385,

H.R. 6880, H.R. 7373, and H.J. Res. 50. On February 28, March 2,

May 30 and 31, and June 4, 15, 21, and 22, 1973, the Senate Com-

mittee on Commerce held hearings on S. 1031, and, on November

15, 16, and 19, 1973, it held hearings on S. 2188 and H.R. 9142.

Out of these hearings evolved the 1973 Act. The House and Senate

Reports are dated November 3 and December 6, 1973, respectively,

DEE SIS RAI Ae RET BRN OLIN TE Ben eT a -

Pel a el BS a,

, z RIS Sh LOA Po ER

”

. 32

On May 2, 1974, the Penn Central Reorganization

Court found in the 120-day proceedings provided for in

the first sentence of Section 207(b) of the Rail Act

that the Penn Central is “not reorganizable on an

income basis within a reasonable time under § 77 of

the Bankruptcy Act... .”* The Reorganization Court

described the Penn Central’s situation in part as follows:

“ . . T am persuaded that reorganizability must

be determined on the assumption that the existing

- regulatory and operational setting will continue.

From the very inception of these proceedings, it has

been reasonably clear that, if certain conditions

could be altered, the Debtor could be made viable.

The needed changes—elimination of plant redun-

dancy, reductions in crew consists, full reimburse-

ment for passenger service, improvement in rates

and divisions, and, more recently, substantial gov-

ernmental financial assistance—are not within the

control of the Trustees or this Court, and have not

been realized.” JA 84 at 88.

The accomplishment of the very task the Pea Central

Reorganization Court found impossible unZer Section 77

—the creation of a viable system—is described in thé Rail

Act as the first goal of the Final System Plan. Section

206(a)(1). To achieve this goa’, the Act provides the

resources and mechanisms—unavailable in Section 77—

that are necessary.

1. Elimination of Excess Capacity

The Penn Central Trustees,” the Department of Trans-

and the Conference Report is dated (in the House) December 20

and (in the Senate) December 26, 1973. Enactment occurred on

January 2, 1974.

28 In re Penn Central Transp. Co., Bky. No. 70-347, Memorandum

and Order No. 1543 (E.D. Pa., May 2, 1974), JA 84 at 102.

2? The Penn Central Trustees’ February 1972 Report, J. Doc. 4

at 2, proposed “(i) taking advantage of the potential for increased

Riedel bid

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aS Be ee fin. Lae SUR ae

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SUAS OE VARGAS RN Ot BOR

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SEAGATE AOL GT AH TPR SOOT! DAE LE LAPT EOSAPOA BER NL EASA KS LOSS ERE BE 2

portation,“ the Penn Central Reorganization Court,”

and Congress have all recognized that the Northeast

railroads, and the Penn Central in particular, are bur-

dened by an excessive physical plant. By January 1,

1973, the Trustees had filed applications with the ICC

to abandon over 3,000 miles of lines which they deemed

to be uneconomic, of which the ICC had approved less

than 800 miles.** By then the Trustees had concluded

that at this rate the reduction needed to produce net

income by 1976 could not be achieved. The problem of

plant redundancy also includes the operation of duplica-

tive facilities by two railroads in an area that can sup-

port only one, a problem that the Rail Act can ameliorate

but Section 77 cannot.**

The Act offers a process of streamlining and restructur-

ing that simply was not available to the Reorganiza-

efficiency made possible in theory by the 1968 merger but never

realized in fact, (ii) abandonment of those freight lines which

_have neither busines nor public service justification, and (iii) mak-

ing appropriate arrangements for continuing those freight lines

found to be essential to the public service but inoperable on a sound

business basis.” See also Trustees’ January 1973 Report, J. Doc.

8; Trustees’ April 1974 Report, J. Doc. 10.

30 See Northeastern Railroad Problem, supra at 6. Congress

obviously accepted the premise, which creditors now ask this Court

to reject, that “if permitted to emerge unencumbered from the

tangled web that now embraces these carriers, a new entity (or

entities) would generate sufficient profits and be able to raise

sufficient cash to finance operations and expansions.” Jd. See also

the Secretary’s Section 204 report, Rail Service in the Midwest and

Northeast Region, February 1, 1974 (“Secretary’s Rail Service

Report’).

31 Memorandum and Order No. 1543, supra, JA 84 at 88.

32 House Re: ort at 27.

33 Penn Central Trustees’ January 1973 Report, J. Doc. 8 at 3.

34 Secretary's Rail Service Report, supra at 3, concludes that 96%

of the 1972 freight carloads carried on the railroads in reorgani-

zation could have been accommodated on 75% of the 1972 route

mileage.

sr RETRO sesoiiiaieieenemeimeneianll |

é al TRL ERS.

tion Courts. In general, Section 77 makes no provision

for restructuring rail operations, and discontinuance of

service and abandonment of property could be accom-

plished only on a line-by-line basis following standard ICC

procedures, The Act turns the process around by per-

mitting USRA to select the services and properties that

are to be kept in operation, with essentially automatic

discontinuance and abandonment of everything else. That

process goes far to explain why there is a reasonable

prospect of creating a viable Conrail under the Act

even though the Penn Central and other railroads now

in reorganization cannot be made viable in Section 77

proceedings,

(a) Abandonments have been difficult,gaind have

not been accomplished with sufficient speed, because of

the need to comply with ICC and National Environmental

Policy Act procedures.*® The Act dispenses with the need

for both, and permits USRA—in the absence of reason-

able objection from affected state or local governments—

to authorize prompt interim abandonments, Sections 304

(f) and 601(c).

A core system could not be established by the Penn

Central Reorganization Court because it has no authority

85 See Harlem Valley Transp. Ass’n Vv. Stafford, 360 F. Supp. 1057

(S.D.N.Y. 1973), aff’d, No. 73-2496 (2d Cir., June 18, 1974). Be-

tween the district court’s decision in that case in July 1973 and

the court of appeals’ affirmance in June 1974, there was a de facto

moratorium on almost all abandonment applications pending before

the ICC.

The economic burden imposed on railroads by lengthy abandon-

ment procedures is emphasized in House Report at 27 and 55 and

in the debates at 119 Cong. Rec. $22,483 (daily ed. Dec. 11, 1973)

(remarks of Senator Hartke) and 119 Cong. Rec, $23,782-83 (daily

ed. Dec. 21, 1973) (remarks of Senator Hartke). In addition, the

advantageous procedures for abandonments contained in the Act

*were stressed by the President when he signed the bill into law.

10 Presidential Documents: Richard Nixon 8 (Jan. 2, 1974).

pes EAANIE SIRE AIEL LALA AA PAT Beha RH ALAM LAD BONE LINER SE ELAR AN 0 ATONIEHST ETE HB

to order the restructuring of the debtor’s rail operations.”

Even a final reorganization plan under Section 77 would

be dependent on piecemeal abandonments, each subject

to ICC approval.’ The Act, on the contrary, permits the

selection of properties that have going-concern value and

permits the prompt discontinuance of service, without ;

ICC action, on all lines and properties not so selected.”

(b) Excessive duplication of plant and service

among competing carriers could not be effectively dealt

with by the Section 77 reorganization process because

of the difficulty of negotiations between carriers that are

in reorganization, the need for ICC approval of mergers

and consolidations *° and the ICC’s lack of authority under

Section 77 to authorize mergers not initiated by the

debtor,’ antitrust law considerations, and, of course,

36 Section 77 makes no provision for a comprehensive restruc-

turing of rail operations as part of the reorganization process.

Discontinuance of service and abandonment of lines can be ac-

complished, during Section 77 proceedings, only by ICC proceedings

on a line-by-line basis. For example, abandonments that would ;

require the closing of some line segments which, viewed individually,

appear viable, but whose continuation reduces the carrier’s over-

all earnings from what they could be if the carrier were allowed to

concentrate its traffic on fewer routes may not be possible within

present ICC regulatory guidelines. Spychalski, Imperfections in

Railway Line Abandonment Regulation and Suggestions for their

Correction, 40 ICC Prac. J. 454, 456-57 (1973). No such constraints

limit the broad power of USRA to exclude rail lines from the Con-

rail system.

87 See Penn Central Transportation Co. Reorganization, Corp.

Reorg. Rep. (Penn Central), Document No. 95, at 1102:86, 104

(ICC Finance Docket No. 26241, Sept. 28, 1973).

38 Sections 304(a) and 601(b). Operations may be continued

on a fully subsidized basis. See Section 304(c).

89 See House Report at 29.

40 Interstate Commerce Act § 5, 49 U.S.C. § 5. 4

41 See St. Joe Paper Co. v. Atlantic Coast Line R.R., 347 U.S. 298

(1954). That case states “that those who in the absence of § 77

would wield the corporate merger powers must initiate and work

each reorganization court’s lack of jurisdiction over other

carriers in reorganizations under the supervision of other

judges. The Act offers an entirely different framework.

USRA will have final control, subject only to review by

Congress, over the design of the intramodal environment

in which Conrail will compete.” USRA can encourage

competition where traffic can support it, but USRA

can control competition among carriers in reorganization

and duplication of facilities where necessary to produce

a viable system.

significant lines to the states, localities, and private inter-

ests affected was difficult under Section 77 but becomes

possible under the Act. The Penn Central Trustees, as

early as February 15, 1972, expressed the hope that lines

that were producing losses for the Penn Central but

were asserted to be important to particular localities

and shippers could be continued, under contracts with

those localities and shippers that would make Penn Cen-

tral'whole.® Penn Central, however, had little bargaining

leverage because the alternative of selective discontinuance

of service was a very remote possibility. The Depart-

ment of Transportation’s proposals for the Northeast rail

problem included the suggestion that “states and local

communities will be given the opportunity to ensure the

continuation of rail service if they find it necessary and -

are willing to subsidize the deficits fully.” ** Under Sec-

out the merger now.” Id. at 309 n. 12. “The implication is plain:

the officers and directors of the Debtor are the ones entitled to

initiate and work out a merger.” In re Florida East Coast Ry., 137

F. Supp. 693, 694 (S.D. Fla.), aff'd per curiam, 227 F.2d 618

(5th Cir. 1955).

*2 See Sections 207 and 208.

** Penn Central Trustees’ February 1972 Report, J. Doc. 4 at 2.

See also Trustees’ February 1973 Report, J. Doc. 9 at 1.

** Northeastern Railroad Problem, supra at 48 (emphasis added).

oe Re RE

SiS ke ee BS

SE oe per 2S et Rites SERGE ee ce a

Aen GeO PRA

SSS DASE NOES

tion 304 of the Act, service on lines not included in the

Final System Plan may be terminated promptly unless |

the service is fully subsidized or the lines are purchased

and operations are provided for by the purchaser.”

2, Elimination of Unnecessary Labor Expense

The Penn Central Trustees and the Reorganization

Court identified elimination of excess labor costs for rail-

way operating personnel as another requirement for a

successful reorganization.” This problem involves both

crew size on operating lines and labor protection in

connection with necessary abandonments.”’ Title V of the

Rail Act offers labor protection in connection with neces-

sary abandonments, and authorizes $250 million of federal

assistance to pay the cost of this protection. Section 509.

3. Elimination of Uncompensated Passenger Service

The third condition for a successful reorganization of

the Penn Central is the elimination of the burden of pas-

senger service for which the railroad is not fully com-

pensated.“* a

One of the major issues in litigation between the Penn

Central and Amtrak has been whether Penn Central

should receive a return on investment as part of its

compensation for the use by Amtrak of its rail prop-

45 See Section 304(a)-(d).

46 B.g., Memorandum and Order No. 1543, supra, JA 84 at 88;

Penn Central Trustees’ February 1972 Report, J. Loe. 4 at 2;

Trustees’ April 1972 Reorganization Plan, J. Doc. 5 at 1; Trustees’

January 1973 Report, J. Doc. 8 at 3.

47 See, ¢.g., Penn Central Transportation Co. Reorganization,

supra, Corp. Reorg. Rep. (Penn Central) at 1102:104-06; Penn

Central Trustees’ January 1973 Report, J. Doc. 8 at 3; Trustees’

October 1972 Report, J. Doc. 7 at 3-4.

48 See, e.g., Memorandum and Order No. 1543, supra, JA 84 at 88;

Penn Central Trustees’ February 1972 Report, J. Doc. 4 at 5.

er wee ona ee age

PE NI it AID DEE MIO EE CIE, FLEE IE, FLET ty ae ae

SRST FOP Te wr

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eee SRNR HORNA: THOS SENET “EEG

erties in the Boston-Washington corridor. The Rail Act

provides for the sale or lease to Amtrak of those rail

properties. Sections 206(c) (1) (C)}, 601(d).*

As pointed out above, the Act further provides for a

system of subsidies, involving matching federal grants

authorized at $180 million for two years to state, local,

or regional authorities, to ensure the continuation of rail

services, including passenger services. Sections 401 and

402. This USRA authority should enhance the prospects

that other governmental entities will subsidize uneconomic

commuter passenger operations. Also, USRA can make

loans to state, local, or regional transportation authorities

to acquire rail properties and to modernize their prop-

erties. Section 403.

4. Increased Revenues Through Application of New

Financing

The Penn Central Trustees have noted that the Penn

Central has been caught in “a vicious circie.” “ In order

to become viable it needed to increase the volume and

efficiency of freight traffic and operations, but inade-

quate revenues and lack of borrowing capacity made un-

attainable the necessary substantial additions and im-

provements to the physical plant as well as substantial

catch-up maintenance. .

The Act offers a means by which Conrail can break

the circle. Section 210 provides, in effect, $1 billion in

; federally guaranteed obligations of UWSRA to enable Con-

- rail to borrow funds on the favorable interest and pay-

ment terms enjoyed by the United States. Half of this

* ° sum must be used to rehabilitate and modernize the phy-

is covered by the Rail Passenger Service Act of 1970, as amended,

45 U.S.C. §§ 501 et seq.

5° Penn Central Trustees’ January 1973 Report, J. Doc. 8 at 2.

See also Trustees’ April 1974 Report, J. Doc. 10 at 3.

; $2 PRA ATES oe ea PENTA ENT SST —

3 4° The method of compensation for services provided te Amtrak

sical plant, and USRA may make available the remaining

half, if necessary, for that purpose.”

The Act, clearly, is broadly responsive, and in many

ways more than responsive, to the concerns expressed

by the Penn Central Trustees when they first outlined

their views on the necessary government financial assist-

ance.“ They themselves, of course, have ‘acknowledged

the soundness and responsiveness of the Act as it relates

to the creation of a self-sustaining rail service system:

“The basic concept of the Act is, in the Trustees’

judgment, sound. The Act envisions the transfer

to a new entity (Consolidated Rail Corporation,

CRC) of those Penn Central lines, and lines of other

bankrupt carriers, which, following a thorough

planning process, are found to offer the prospect of

a viable rail network in the Northeast. Provision is

made for public support or abandonment of those

lines not deemed essential in the restructuring proc-

ess. Provision is also made for government-guar-

anteed financing of improvements to the plant being

conveyed to CRC. The Act embodies a labor pro-

tection arrangement, satisfactory to both labor and

_industry, whereby Federal funding is available to

certain employees whose services would not be re-

quired after the restructuring.” *

51In the interim period before implement:

System Plan, USRA is authorized to issue up Wu

obligations to finance agreements with the Penn Cent:

railroads in reorganization for the maintenance anu LON

ment of rail properties. Section 215. In addition, $85 millon in

subsidies is authorized for the continued provision of essential

transportation services. Section 213.

52 Penn Central Trustees’ February 1973 Report, J. Doc. 9 at 1-2.

33 Penn Central Trustees’ April 1974 Report, J. Doc. 10 at 4. The

Penn Central Reorganization Court shares the Trustees’ view that

“the basic approach of the statute is fundamentally sound.” Memo-

randum in Support of Findings and Order No. 1596, In re Penn

Central Transportation Company, Debtor (E.D. Pa., July 2, 1974),

JA 124 at 148. (“Penn Central ‘180-Day’ Decision”) .

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I The Court Below Should Have Denied Equitable Relief

and Dismissed the Complaints as to the “Taking” Issues

on the Ground that Plaintiffs Have an Adequate

Remedy at Law Under the Tucker Act

Plaintiffs alleged in the court below that implementa-

tion of the Rail Act would cause, or threatened to cause,

a “taking” of their property for public use without

just compensation, contrary to the Fifth Amendment

to the Constitution. They alleged two sorts of “takings”:

first, they contended that there would or might be a trans-

fer of rail properties pursuant to the Final System Plan

for less than the constitutionally required consideration

(alleged “permanent taking”) ; second, they contended

that by allegedly requiring Penn Central to continue op-

erating its railroad until the implementation of the Final

System Plan, the Rail Act would or might cause an “in-

terim” or “erosion” taking for which just compensation

would be due.

Appellant believes that when the processes of the Rail

Act have run their course, no such taking, of either kind,

will be found to have occurred. The ultimate determina-

tion of this question, however, will depend on facts not

of record in this case, events in the future including the

actions of USRA and other governmental bodies, and the

resolution of many large and complex statutory and con-

stitutional issues whose exact scope will depend on the

course of events.

Appellant urged the court below to follow the decisions

of this Court in similar cases and decline to inquire into

the merits of the taking allegations, on the ground that

if future actions under the Rail Act should lay a basis

for a claim to compensation beyond the consideration

provided for railroad estates under the Rail Act, plain-

tiffs have an adequate legal remedy in the form of a suit

in the Court of Claims under the Tucker Act. The rule

of law for which Appellant contended can be simply

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stated: an equity court may never enjoin congressionally

authorized, otherwise proper federal action on the ground

that it may cause a taking for which compensation may

be due, because a plaintiff always has another forum,

the Court of Claims, in which he can obtain just com-

pensation if his claims are upheld. This is the teach-

ing of Hurley v. Kincaid, 285 U.S. 95 (1932), and ac-

counts for the fact that, so far as we are aware, no fed-

eral court*has issued such an injunction between the

decision in Hurley and the present case. a

The court below did not question the principle that

equitable relief should be denied, without further inquiry,

when there exists an adequate remedy at law. Nor did

the majority question the fact that the Tucker Act

remedy, if available to railroad estates, would be an ade-

quate remedy.** Rather, it ruled that the Court of Claims

would not have jurisdiction over any claim for a taking

allegedly caused by the Rail Act because the Rail Act

does not explicitly make a Tucker Act remedy available.

It said that to “read a Tucker Act remedy into the

[Rail] Act” would be “judicial legislation on a grand, if

not arrogant, scale.” JA 9 at 53.

The court below, we respectfully submit, put the Tuck-

er Act question the wrong way around. The century-old

Tucker Act needs no supplemental implementing legis-

lation, judicial or otherwise. The remedy is available

unless later legislation repeals or modifies it. Nothing

in the Rail Act repeals or modifies the Tucker Act and

nothing in the Rail Act provides a basis from which re-

peal or modification can be inferred, especially when the

consequence of the inference is to invalidate a major

federal statute.

The Tucker Act is the basic jurisdictional statute for

suits seeking just Compensation from the United States

5¢ The adequacy of the remedy is discussed below at pp. 58-60.

FREAD SAAR AS O RE

for takings of private property for public purposes.

There is no need-for Congress, every time it passes sub-

stantive legislation that might lead to a taking of private

property, to make an explicit or implicit new grant of

authority in order for the Court of Claims to exercise

its historic jurisdiction. No court, so far as we have

been able to discover, has ever required such a supple-

mentary grant of jurisdiction, and no case suggesting

such a notion was cited by the court below.

The question, properly framed, is whether Congress, in

the Rail Act, took away the Court of Claims’ jurisdiction

with respect to claims based on actions authorized by the

Rail Act. The court below found a congressional intent

to bar a Tucker Act remedy, not in the words of the Rail

Act, which is silent, nor even in the reports of the con-

gressional committees, none of which discuss the point.

Rather, the entire decis‘on rests on several exchanges .

among individual members on the floor of the Senate and

House. But these exchanges, more thoroughly discussed

below, show only a congressional intent to restructure

Northeast/Midwest rail services in a manner that Con-

gress believed would not result in any taking or transfer

of property for less than the “constitutional minimum”

value that the Rail Act expressly recognizes to be due.

There is no basis in these exchanges for concluding that

Congress intended to bar the normal Tucker Act remedy

if, contrary to Congress’ expectation, the steps taken pur-

suant to the Rail Act should require transfers for a con-

sideration that the Special Court (and this Court on re-

view) determined to be less than the “constitutional min-

imum.”

Nevertheless, the court below read these portions of the

legislative history as showing an affirmative intent in the

Rail Act to deny the constitutionally required remedy

even if the consideration provided for the transfers under

the Final System Plan is eventually found to be less than

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the “constitutional minimum.” In so doing, as we show

below, that court engaged in the very type of judicial

legislation from which it professed to abstain.

A. Repeal of the Jurisdiction of the Court of Claims

Under the Tucker Act To Award Just Compensa-

tion for Any Taking of Private Property for Public

Use May Not Be Inferred from Later Statutes that

Do Not Expressly Repeal or Modify that Act and

Do Not Provide an Equivalent Remedy

The Tucker Act, 28 U.S.C. § 1491, confers jurisdiction

on the Court of Claims:

“to render judgment upon any claim against the

United States founded either upon the Constitution,

or any Act of Congress, or any regulation of an

executive department, or upon any express or im- :

plied contract with the United States, or for liqui- :

dated or unliquidated damages in cases not sounding

in tort.”

Section 1491 is the Court of Claims’ “general jurisdic-

tional statute.” Ralston Steel Corp. v. United States, 340

F.2d 663, 668 n.5 (Ct. Cl.), cert. denied, 381 U.S.

950 (1965); Simon v. United States, 113 Ct. Cl. 182,

190-91 (1949); see also Eastport Steamship Corp. Vv.

United States, 372 F.2d 1002, 1007-08 (Ct. Cl. 1967)

(dictum), and Jacobs v. United States, 290 U.S. 13

(1933). One is not required to seek in any later act, no

matter how significant, a renewed grant of jurisdiction

to the Court of Claims to hear a suit “founded” upon

the later act or upon any constitutional claim thereunder,

including any claim for just compensation for an alleged

taking. The Court of Claims has such jurisdiction under

28 U.S.C. § 1491 unless Congress has in the later act

withdrawn it.

In Yearsley v. W.A. Ross Construction Co., 309 U.S.

18 (1940), for example, plaintiffs sought damages against

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a government contractor for land erosion alleged to have

been caused by performance of a government construc-

tion contract. The statute authorizing the construction

contract was silent on claims of government liability to

third parties. The Court held that the defendant con-

tractor could*not be held liable for carrying out a con-

tract authorized by Congress and found it unnecessary

to determine the merits of plaintiffs’ argument that they

were entitled to recover compensation from the defend-

ant for what amounted to a governmental taking of their

property. If a taking had occurred, the Court said, an

adequate remedy for compensation existed by way of suit

in the Court of Claims, because

“in the case of a taking by the Government of pri-

vate property for public use . . . it cannot be

doubted that the remedy to obtain compensation from

the Government is as comprehensive as the require-

ment of the Constitution... .” Jd. at 22 (Mr. Chief

Justice Hughes).

Hurley v. Kincaid, 285 U.S. 95 (1932), is even more

directly in point ad is, we submit, dispositive of this

case. Hurley involvei a statute authorizing a flood con-

trol project and providing for condemnation of any land

in the path of planned diversion channels. Plaintiff sought

to enjoin work on the project, alleging that his land had

not been condemned although his land was in the path of

the planned diversion channels. Although the authorizing

statute expressly provided that the United States shall

have “[nJo liability of any kind... for any damage from

or by floods” (id. at 102 n.2), a unanimous Court, speak-

ing through Mr. Justice Brandeis, held that injunctive

relief should have been denied. The Court reasoned that

if the acts alleged did constitute a taking, just compen-

sation under the Tucker Act was an available and ade-

quate remedy at law.

Hurley shows how reluctant courts have been to infer

that later statutes bar the Tucker Act remedy; the Court

found that remedy available despite a statutory provi-

sion expressly barring Government liability for flooding.

Hurley also is living proof of Chief Justice Hughes’ state-

ment in Yearsley that if the Government takes property,

the remedy to obtain compensation “is as comprehensive

as the requirement of the Constitution .. .” (309 US.

at 22), and demonstrates that a congressionally directed

taking cannot be enjoined because a Tucker Act remedy is

always available until Congress affirmatively withdraws

it.

The Court of Claims’ jurisdiction exists even though no

taking was intended and even though, apart from the

Fifth Amendment, no governmental promise to pay com-

pensation was made at or before the time of taking.

Armstrong v. United States, 364 U.S. 40, 48-49 (1960) ;

United States v. Dickinson, 331 U.S. 745 (1947):

United States v. Causby, 328 U.S. 256 (1946);

Jacobs v. United States, 290 U.S. 13 (19383); Ports-

mouth Harbor Land & Hotel Co. v. United States, 260

U.S. 327, 330 (1922); Richord w United States v. Stone

Corral Irrigation Dist.,. 282 F.2d 901, 904 (Ct. Cl.

1960). See also Malone v. Bowdoin, 369 U.S. 648, 647 n.

8 (1962) (dictum).** For example, in Causby, supra, this

Court held that the Court of Claims could award com-

pensation on a claim, based directly on the taking clause

of the Fifth Amendment, that low and frequent flights

55 The earlier cases, such as Portsmouth Harbor, reached the

result on an implied contract theory. “If the acts amounted to a

taking, without assertion of an adverse right, a contract would be

implied whether it was thought of or not.” 260 U.S. at 330. A

similar rationale was used in Yearsley. Later cases, such as

Causby, find the Government’s promise to pay in the Constitution

itself. Thus it is not necessary to find a promise to pay implied in

the legislation which authorizes the taking. Nothing in these cases

supports the suggestion that they are limited to situations where

Congress did not attempt to prescribe any consideration for the

property taken, and Yearsley and Hurley show that no such limited

reading is proper.

of military aircraft took the property of the owner be-

neath the flight path, even though the Government’s

intent neither to take nor to pay was clear from its re-

liance in court on the Air Commerce Act of 1926 grant-

ing to the United States “complete and exclusive national

sovereignty in the air space” over this country, and to

the citizen “a public right of freedom of transit in air

commerce through the navigable air space... .” *

Congress should not be held to have repealed or limited

the basic jurisdiction of the Court of Claims without

the clearest evidence of an explicit intention to do so. A

repeal of the jurisdiction of any federal court may not

be lightly inferred. Federal Sugar Refining Co. v. United

States, 30 F.2d 254, 255 (2d Cir. 1929), rev’d on other

grounds sub nom. Johnson v. United States Shipping

Board Emergency Fleet Corp., 280 U.S. 320 (1930)."

56 328 U.S. at 260 (footnote omitted). Of course, the result is

different (a) in cases in which there was a mere trespass (“sound-

ing in tort’) rather than a taking, e.g., Tempel v. United States,

248 U.S. 121, 129 (1918), and (b) in cases in which the taking

was by a federal officer acting outside the scope of his authority.

In the latter cases, there is no taking by the United States because,

as this Court put it in Hooe v. United States, 218 U.S. 322, 335

(1910), the officer does not, “in any legal or constitutional sense,

represent the United States, and what he does or omits to do,

without the authority of the Congress, cannot create a claim against

the Government ‘founded upon the Constitution.’” This latter

theory accounts for the suggestion in Youngstown Sheet & Tube Co.

v. Sawyer, 343 U.S. 579, 585 (1952), that there was “doubt” about

the ability to recover in the Court of Claims for a taking made by

the Executive without statutory authority. Although both the

trespass and the lack-of-authority cases sometimes involve diffi-

cult distinctions, this case is nowhere near either border because

here the actions alleged to threaten a taking are expressly author-

ized by an act of Congress that is asserted to be unconstitutional

“on its face.”

‘Detacies >

57 Johnson v. United States Shipping Board Emergency Fleet

~ Corp., supra, does not support the view that Congress intended

7 in enacting the Rail Act to oust the Court of Claims of jurisdiction.

‘The Admiralty Act, the. statute involved in Johnson, explicitly

created another basis for claims against the United States and pro-

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With respect to the Court of Claims in particular, Con-

gress’ intent to limit its jurisdiction “must be evidenced

_expressly or by necessary implication.” H. EH. Hele v.

United States, 100 Ct. Cl. 289, 294 (1943) (statute pro-

viding that reasonable value of improvements on tracts

occupied by the United States “be determined by the

courts of the Canal Zone” did not oust Court of Claims

of jurisdiction over suit brought under predecessor of

28 U.S.C. $1491 for breach of contract arising from

failure to pay reasonable value). See also United States

v. Pfitsch, 256 U.S. 547 (1921).*

Moreover, the fact that Congress authorized a limited

amount of appropriations and made a limited amount of

government-guaranteed obligations available as part. of

the consideration for acquisition of rail properties, in the

belief that the Rail Act would not require the transfer of

property for less than the “constitutional minimum,”

does not indicate that Congress intended to withdraw a

remedy if such transfers should occur. In Fort Berthold

Reservationv. United States, 390 F.2d 686 (Ct. Cl.

1968), the Court of Claims held that acquisition of

Indian lands under a statute containing a provision fixing

a per-acre payment was a taking, for which the Court of

Claims could award compensation above the statutory

vided a constitutionally adequate remedy by suits in admiralty.

The case thus illustrates only that where the United States creates

a right against itself and provides a special and constitutionally

adequate remedy, it may make that remedy exclusive. See United

States v. Babcock, 250 U.S. 328 (1919).

58 The court below also relied on the facts that’ authorizations for

emergency assistance under Section 213 of the Rail Act are limited

in amount and that Congress had appropriated less than half of the

authorized amount. In fact, Congress has now appropriated al- é

most all of the authorized amount. See Foreign Assistance and é

Related Programs Appropriations Act, 1974, Pub. L. 93-240, 87 :

Stat. 1048 (Jan. 2, 1974) ($35 million); Second Supplemental Ap-

propriations Act, 1974, Pub. L. 93-305, 88 Stat. 195 (June 8, 1974)

($39.8 million).

‘per-acre limit. The specification of a per-acre price by

Congress was held not to oust the Court of Claims of

jurisdiction to award a larger amount as just com-

pensation.

Finally, where a statute that is claimed to repeal by

implication the jurisdiction of a court is also claimed

to be unconstitutional when so read, the court must adopt

any reasonable construction that can save the statute’s

constitutionality. For more than a century this precept

has been invoked to save the constitutionality of statutes

where First Amendment rights are involved, United

States Civil Service Commission v. National Association

of Letter Carriers, AFL-CIO, 413 U.S. 548, 571 (1973) ;

American Communications Association, CIO v. Douds,

339 U.S. 382, 407 (1950); and to construe in a consti-

tutional manner statutes affecting “existing contracts,

rights of actions, or . . . vested rights,” Twenty Per Cent

Cases, 87 U.S. 179, 187 (1873), as well as the Bank-

ruptey Act itself, Wright v. Vinton Branch of the Moun-

tain Trust Bank, 300 U.S. 440, 461 (1937).”

B. The Rail Act Does Not Show an Intent To Deprive

the Court of Claims of Its Tucker Act Jurisdiction

To Hear Any Case Claiming Just Compensation

When Congress intended the Rail Act to override other

important federal statutes, it did not rely on judicial

inference and conjecture. For example, in Section 601.

of the Rail Act, entitled “Relationship to Other Laws,”

Congress explicitly declared the antitrust laws to be in-

5° The decision below also violates the rule of construction that

repeal of a statute is not to be inferred unless there is no other

reasonable way to construe the subsequent statute. E.g., Amell v.

United States, 384 U.S. 158 (1966); Mercantile Nat'l Bank v.

Langdeau, 371 U.S. 555 (1968) ; FTC v. A.P.W. Paper Co., 328 U.S.

193 (1946); Nagano v. McGrath, 187 F.2d 759, 766-67 (7th Cir.

1951), aff’d by an equally divided court, 342 U.S. 916 (1952) ;

Fawcett v. C.I.R., 149 F.2d 483, 435 (2d Cir. 1945).

applicable to the actions taken to formulate the Final

System Plan (Section 601(a)); it declared portions of

the Interstate Commerce Act and thé Bankruptcy Act

to be inapplicable .to the extent inconsistent with the

Rail Act (Section 601(b)); and it declared certain pro-

' visions of the National Environmental Policy Act of

1969 inapplicable to actions authorized by the Rail Act

before the effective date of the Final System Plan.

— 601(c). Congress also provided that a railroad

in rganization could discontinue service or abandon

raj property only in accordance with the Rail Act,

notwithstanding

“any provision of any other Federal law, the consti-

tution or law of any State, or decision or order of,

or the pendency of any proceeding before any Fed-

eral or State court, agency, or authority.” Section

304 (f).

In all, the Rail Act contains no fewer than 13 provisions

repealing or making inapplicable provisions of various

laws or excluding the jurisdiction of federal courts on

various subjects.”

There is, of course, no explicit provision relating to

the Tucker Act. One searches the Rail Act in vain for

a sentence such as “The Court of Claims shall have

no jurisdiction over any action alleging that the property

of any person has been taken pursuant to this Act with-

out just compensation.” The fact that Congress gave

meticulous and explicit attention to modifying other laws

should at least make one pause before concluding that

Congress, without saying so, amended the Tucker Act

and implicitly removed the traditional remedy should

actions taken pursuant to the Rail Act give rise to a

claim for just compensation for a taking of property.

60—In addition to those cited in the text, see Sections 202(a),

205(c) (2), 206(d)(3), 207(b), 209(a), 209(b), 303(b)(2), 303

(d), and 304(c).

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Nor do any provisions of the Rail Act imply that the

Court of, Claims is to be deprived of jurisdiction. The

Act’s statement of congressional findings and purposes

emphasizes the essential nature of the rail services which

the Act seeks to preserve, the immediate threat to those

services, the necessity for prompt and substantial action

by the federal government to protect those services, and

the need to provide federal financial assistance “at the

lowest possible cost to the general taxpayer.” Section

101(b) (6). These goals—not the desire to deny access

the Rail Act that the court below relied on as evidence

of an intent to amend the Tucker Act.

_ The court below apparently inferred an intent to

repeal the Tucker Act from Section : 209(b), providing

that “all judicial proceedings with respect to the final

system plan” shall be consolidated before the Special

Court, and from the further provision in Section 303

(d) for appeal from the Special Court’s determinations

and findings directly and exclusively to this Court.” In

the first place, as a matter of language, a suit against

the United States for compensation for erosion that

occurs while the Act’s processes work is not, on any

normal reading of the words, a “proceeding with respect

to the final system plan.” More fundamentally, the

purposes, of these provisions, as expressed by Senator

Javits, have nothing to do with excluding suits against

the United States: '

“Our experience in the environmental field indicated

what a mess can be made’ of the best laid plans

by a diversity of legal proceedings all over the Na-

tion, with different theories canceling each other

out very often, and not resolvable until you get to

the Supreme Court, and sometimes not even then.

Here, by exercising the authority we first exercised

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in the Judiciary Act of 1789, we have provided for

consolidating these proceedings and appointing a

special court for the purpose. I think it is [a] very,

very gifted position, for which the Committee is en-

titled to great credit.” 119 Cong. Rec. 823,780

(daily ed. Dec. 21, 1973).

The function of the Special Court is to prevent a

multiplicity of suits in different courts on such questions

as the value of the rail properties transferred to Conrail

and of the consideration received by the transferors.” A

subsequent suit against the United States in the Court of

Claims would neither infringe upon the Special Court’s

functions nor invalidate the congressional purpose in

consolidating the valuation proceedings. Indeed, if the

Special Court (and the Supreme Court on review) found

the values of the rail properties transferred to be greater

than the values of the consideration provided therefor,

so that the consideration fell below the “constitutiona'

minimum,” these values would presumably be binding on

the private parties in any subsequent Court of Claims

suit. Whether or not these determinations were tech-

nically binding on the United States, they would still be

dispositive, as a practical matter, of the same issues in

the Court of Claims.

The court below also referred to Section 303(c), which

specifies how the Special Court shall determine “fair

and equitable” compensation and states the means (not

including a judgment against the United States) by which

the Special Court could remedy any deficiency, as show-

ing an intent to bar subsequent claims under the Tucker

62 House Report at 52.

68 See Marine Insurance Co. v. United States, 410 F.2d 764 (Ct.

Cl. 1969) ; Clement v. United States, 140 F.Supp. 573 (Ct. Cl. 1956).

64 See United States v. United States Fidelity & Guaranty Co.,

309 U.S. 506 (1940).

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Act.** But the court below ignored the provisions of

Section 303(c) that equate “fair and equitable” with

“constitutional minimum.” Those provisions require the

Special Court to determine whether the value of the con-

sideration to be received by each rail estate is “fair and

equitable” and whether it is “more fair and equitable

than is required as a constitutional minimum,” in which

event Section 303(c) (3) instructs the court to adjust

the consideration down to that level.

The quoted language and the entire structure of Sec-

tion 303(c) show beyond doubt thé Congress intended

to provide compensation out of the means provided by

that section that would equal the “constitutional mini-

mum”—no more and no less. It cannot be fairly con-

strued to mean that Congress intended to provide less

than the “constitutional minimum.” Accordingly, it can-

not be construed to mean that if the Special Court ‘(and

the Supreme Court on review) should ultimately find that

the value of the consideration available for award under

Section 303(c) to any rail estate is less than the “con-

stitutional minimum,” Congress intended to deny the

traditional Tucker Act remedy for the difference. Com-

pare Fort Berthold Reservation v. United States, supra,

holding that a statutory per-acre price for transferred

lands did not bar the Court of Claims from awarding

compensation alhove tke statutory price. To infer here

that the statutory consideration is exclusive even if be-

low the “constitutional minimum” recognized in the

statute is to suggest that Congress deliberately intended

to act in an unconstitutional manner.”

®5 JA 9 at 50-51.

*6 Such an inference would contradict the flat statement of Rep-

resentative Adams, for example, that consideration other than

Conrail common stock was to be “at the lowest possible limit to meet

the constitutional guarantees.” 119 Cong. Rec. H11,876 (daily ed.

Dec. 20, 1973).

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C. The Legislative History Does Not Show an Intent

To Deprive the Court of Claims of Its Tucker Act

Jurisdiction To Hear Any Case Claiming Just

Compensation

The most plausible reading of the Act and its legisla-

tive history is that Congress believed that Conrail would

be a viable and profitable entity *’ and that as a result

Conrail’s securities plus government-guaranteed USRA

obligations, deficiency judgments against Conrail, if neces-

sary, and “other benefits” would have a value equal to

the consideration due to the railroad estates—the “con-

stitutional minimum.” The House Report expressly de-

clared the belief that stock in the reorganized system

plus other securities and consideration would in fact prove

constitutionally adequate:

“The Committee intends that the valuation of the

common stock be based on the intrinsic value of that

stock, taking into account the full benefits to be

realized from the reorganized rail system embodied

in the Final System Plan. The Committee expects

that the intrinsic value of the stock of [the] new

Corporation will be found to be at least equal to the

fair and equitable value [i.e., the “constitutional

minimum” referred to in Section 303(c)] of the

rail properties conveyed in exchange.” *

67 See, e.g., Senate Report at 18; House Report at 54; 119 Cong.

Rec. $23,783 (daily ed. Dec. 21, 1973) (remarks of Senator Hartke) ;

id. at $23,778 (remarks of Senator Beall); 119 Cong. Rec. $22,485

(daily ed. Dec. 11, 1973) (remarks of Senator Hartke); 119 Cong.

Rec. H9743 (daily ed. Nov. 8, 1973) (remarks of Representative

Kuykendall).

68 House Report at 54. The intent to act constitutionally appears

as well from other passages in the House Report, such as:

“The Committee feels that this legislation is the most pre-

ferable alternative for a solution to the crises in the North-

east. It feels that this legislation takes into account the many

Constitutional problems interwoven into the various bank-

ruptcies involved.” Jd. at 29; see id. at 47.

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The House Report also stated at 55: z

“The Committee is of the opinion that provisions

of this title of the Act, and especially the provision

for deficiency judgment and payment of obligations

of the Association provided in the preceding subsec-

tion, are more than adequate to guarantee that the

creditors of the bankrupt railroad will receive all

that they may Constitutionally claim.” ”

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Congress plainly intended to provide constitutionally

adequate compensation to the owners of the rail prop-

erties transferred to Conrail. Whether the consideration <

specifically provided in the Act will be adequate for that

purpose is both premature and, for the purpose of this

argument, beside the point. There is nothing in the

legislative history to support the view that if the con-

sideration is eventually found by the Special Court (and

by this Court on review) to be less than “fair and equit-

able’—i.e., less than the “constitutional minimum’—

Congress intended to foreclose a Court of Claims remedy

for the difference.

The few statements on the floor of the Senate and .

House quoted by the court below to show that Congress

intended to bar subsequent claims under the Tucker Act

prove no such thing.” They reinforce the view that Con-

ry : ex 7 = essE Td

68 [Continued]

See also 119 Cong. Rec. H9731-32 (daily ed. Nov. 8, 1973) (remarks

of Representative Adams); id. at H9742 (remarks of Representa-

tive Kuykendall).

6°In both of the above quotations, as Section 303(c) clearly

shows, the Committee regarded “fair and equitable” as effectively

synonymous with the “constitutional minimum.” See also House

Report at 2, 31, 43.

70 The majority opinion below professed to be guided in construing

the Rail Act by Frankfurter, Some Reflections on the Reading of

Statutes, 47 Coium. L. Rev. 527 (1947). Mr. Justice Frankfurter’s

reflections included the following at 543:

[Footnote continued on page 55}

;

: a,

EYELET NE LN HME INES YEATES EEL GENES PR

bail aN 2 oe Sk tee

gress thought it was providing constitutionally adequate

consideration under the Act. They indicate nothing about

the intention of Congress in the event that the considera-

tion provided under the Act should be found by the

Special Court to be less than the “constitutional mini-

mum.”

On the Senate Floor, in commenting on the Conference

Report, Senator Hartke stated:

“If we did nothing while continuing to mandate rail

service, there is the distinct possibility in view of

the prior action: of Congress that a number of

these people could make a claim against the Gov-

ernment which could be sustained in the Court of

Claims.” 119 Cong. Rec. $23,783-84 (daily ed. Dec.

21, 1973).

The Senator’s speech does not support the inference

apparently drawn by the court below (JA 9 at 48-51)

that should the Special Court find the value of the con-

sideration paid to a rail estate to be less than “fair and

equitable” and therefore less than the “constitutional

minimum,” Congress intended to deny a remedy under

the Tucker Act and thereby to effect a “taking” for less

than just compensation. Indeed, Senator-Hartke’s words

can fairly be read to recognize the continuing availability

of a suit in the Court of Claims, and merely to predict

that the public funding, the plan of reorganization and

consolidation, and the forms of consideration provided

70 [Continued]

“[Statements] made impromptu in the heat of debate, less in-

forming in cold type than when heard on the floor, will hardly

be accorded the weight of an encyclical.

“Spurious use of legislative history must not swallow the

legislation so as to give point to the quip that only when legis-

lative history is doubtful do you go to the statute.”

This is not to suggest that the statements under discussion were not

well considered. On the contrary, they were carefully addressed to

a different point from the one that concerned the court below.

CME DORE GRRE RN EEN TRG RR QED TEA MID sat i

under the Act would be sufficient" to prevent such a

claim from being “sustained in the Court of Claims.”

(Emphasis added.)

No different light on what Congress meant is cast

by the portion of House debate set forth in the opinion

below at JA 9 at 49. The dialogue focuses on “the

deficiency judgment” and whether Section 303 would

keep “the Federal court,” 1.¢., the Special Court, from

having “the key to the Treasury” in “the court proceed-

ings.” Because the context of this dialogue was not

brought to the attention of the court below, that court

may have gravely misconstrued its meaning. Neither the

Senate nor the House bill contained a counterpart to

Section 303(c) (2) (C), providing for a deficiency judg-

ment in money against Conrail.** This provision was

added in conference; the subsequent House discussion

seems clearly intended to explain it and to assure mem-

bers that any such money judgment against Conrail

would not be a judgment against the United States.

Representative Kuykendall’s several references to “the

Federal Court” and “the court proceedings” are, we

submit, clearly references to the Special Court and its

authority added in Section 303(c) (2) (C). Representa-

tive Adams’ careful response that there was a limit to

authorizations “under the bill” was entirely correct. As

we read the dialogue, he was not asked and did not

volunteer a view as to whether there could be liability

of the United States otherwise than “under the bill”

71 Senator Hartke expected Conrail to be profitable, as is dem-

onstrated by his comments cited at p. 53 note 67 supra.

72 119 Cong. Rec. H11,876 (daily ed. Dec. 20, 1973).

73 See Section 308(c)(2) of the Senate bill, 119 Cong. Rec.

$22,820 (daily ed. Dec. 13, 1973) and Section 502(d) of the House

bill, 119 Cong. Rec. H9756 (daily ed. Nov. 8, 1973). Both versions

authorized the Special Court to award additional Conrail or USRA

securities to railroads in reorganization, but neither authorized the

entry of a money judgment against either.

;

if, despite Congress’ expectation to the contrary, the

consideration available under Section 303(c) were ju-

dicially determined to be less than the “constitutional

minimum.” Indeed, the dialogue itself stressed Mr.

Adams’ concern that any amount other than Conrail

securities “was to be at the lowest possible limit to meet

the constitutional guarantees.” (Emphasis added.)

Earlier Mr. Adams had stated his view that the con-

stitutional minimum in a reorganization is liquidation

value, and asserted that “we have done everything pos-

sible in the legislative history . . . to make certain

that no more than the constitutional minimum for liquida-

tion as defined by the Supreme Court will be paid by

the new corporation... .” Mr. Adams, we submit,

was contrasting a congressional commitment to considera-

tion equal to liquidation value for non-rail purposes—

which he regarded as constitutionally necessary and was

willing to support—with an open-ended commitment es-

timated at up to $15 billion as the cost of “nationaliz-

ing” the properties, as some members of Congress had

urged.”

We do not believe that this Court can fairly read the

language in the dialogue about keeping “the Federal

Court” from having “the key to the Treasury” as refer-

ring to claims against the Government for the amount,

if any, by which the value of the consideration trans-

7#119 Cong. Rec. H9732 (daily ed. Nov. 8, 1973) (emphasis

added). Appellant does not accept the view that liquidation value

is the constitutional minimum. Creditors and shareholders would

appear to be entitled to liquidation value only if they have an

underlying constitutional right to liquidate. Whether there is a

constitutional right to liquidate an essential railroad that is, or

can be made, viable has never been decided. The issue was expressly

reserved by this Court in New Haven Inclusion Cases, 399 U.S. 392,

489-490 (1970).

78 Id. at H9731.

ere Ry

NR MRL LAOTIAN IE

ferred under the Act might some day be found by the

Special Court (and on appeal by this Court) to fall

below the “constitutional minimum.” The inference that

Congress intended to bar a claim under the Tucker Act

for this difference does not square with its express

recognition-in Section 303(c) of the need to provide the

“constitutional minimum.”

To summarize, there are two possible ways to read

the Rail Act in relationship to the Tucker Act. One

is to agree with the court below that even if the Special

Court should ultimately find the consideration available

to be paid for rail properties under the Act to be less

than the “constitutional minimum,” Congress intended

to bar a Tucker Act claim for the difference. A second

is to conclude that Congress, believing that the value

of the consideration available under Section 303 would

in fact equal the “constitutional minimum,” never ad-

dressed itself in the Rail Act to the question of what

would happen if the Special Court found to the con-

trary.

We respectfully submit that the first reading, if it

is possible, is not plausible since it requires the con-

clusion that Congress, in a statute expressly and repeat-

edly recognizing the existence of a “constitutional mini-

mum,” also decided to bar a claim to obtain that mini-

mum. We further submit that under the second reading,

the Tucker Act remedy must be found to remain avail-

able, and the Rail Act must be found constitutional.

D. The Tucker Act Remedy Is Adequate

Having concluded that Congress meant to repeal or

modify the Tucker Act, the majority of the court below

did not examine the adequacy of the Tucker Act remedy.

However, the concurring judge questioned the due process

adequacy of relegating claimants to the “lengthy and

complex” procedures of the Rail Act and then, if there

RARER CEPI NL SINE it Ce eI PRET

PANT TREN RAI RES

should remain a basis for a claim against the United 4

States, to the Court of Claims.”* No rule of due process ;

holds that a process that results in full and complete

compensation is unconstitutional merely because it may

be lengthy and complex.” .

Three points deserve mention. First, even in a con-

demnation case, which reorganization under the Rail Act

is not, it is unquestionably constitutional to complete a

“taking” before a judicial determination of the required

amount of compensation.” Second, a Court of Claims

award of compensation for an inadequately compenstated

taking under the Rail Act would be a “perfect’’ remedy:

although interest is not generally recoverable against the

United States in the absence of a statute or contract

expressly authorizing it,” interest on a just compensation

award runs from the date of the taking.’ Third, as

we have noted above, a Tucker Act suit after the

Special Court (and the Supreme Court on review) had

76JA 9 at 81. These doubts were not so serious as to prevent

the same judge from concluding in the Penn Central “180-Day”

Decision at JA 124 at 148 that:

“I agree with the Trustees that the basic approach of the stat- ~

ute is fundamentally sound. If I were persuaded that Congress

had intended to permit recourse to a Tucker Act remedy in the

event that implementation of the RRRA [Regional Rail Reor-

ganization Act] proved violative of constitutional rights, an

affirmative § 207(b) finding might be permissible.”

717 See Phillips v. Commissioner, 283 U.S. 589, 596-99 (1931).

78 Hurley Vv. Kincaid, 285 U.S. 95 (1932). Moreover, as indicated

in the discussion below of the New Haven Inclusion litigation,

there is precedent in the reorganization field for transfer before

valuation or payment.

79 28 U.S.C. § 2516; United States v. Goltra, 312 U.S. 203, 207-08

(1941); Gould v. United States, 301 F.2d 557, 558-59 (D.C. Cir.

1962).

80 United States v. Thayer-West Point Hotel Co., 329 U.S. 585,

588 (1947); Phelps v. United States, 274 U.S. 341, 344 (1927).

+ eo oi San ean cre

60 ”

found the relevant values would not, asa practical mat-

ter, require retrial of these issues."

II. Even in the Absence of a Tucker Act Remedy the

Court Below Should Not Have Enjoined the Operation

of the Rail Act

Even if the court below correctly construed the Rail

Act to bar a Tucker Act remedy for erosion beyond

constitutional limits, each element of its order was er-

roneous. The order rested on other misconstructions of

the’ statute. It anticipated problems that may not arise

and can be remedied at the time if they do. Moreover,

even on the district court’s stated view of both the law

and the facts, the relief it granted, relief whose most

crucial features were wholly unexplained, was super-

fluous.

The court below held that the erosion issue was “ripe

for adjudication,” but it did not in fact decide whether

or to what extent the asset values available to satisfy

pre-reorganization creditors have declined during the Penn

Central reorganization or will decline in the future. Nor

did the court decide the extent to which pre-reorganiza-

tion creditors may be required to accept such “erosion”

during the reorganization process, on account of the

public interest in continued rail service, where, as here,

there is a reasonable prospect of reorganizing the rail-

road on a self-sustaining basis. We argue, in Part III

below, that the extent of any erosion problem cannot

81 Concerns that Congress might not appropriate funds to pay a

judgment do not vitiate the adequacy of a Tucker Act suit. No

such concern was mentioned in Yearsley and Hurley, supra. More-

over, in concluding that the Court of Claims is an Article III court,

Mr. Justice Harlan rejected an argument to the contrary based on

that court’s inability to enforce its judgments, saying “there seems

to be no sound reason why the Court of Claims may not rely on

the good faith of the United States,” Glidden Co. v. Zdanok, 370

U.S. 530, 571 (1962). None of the other opinions in that case chal-

lenged his view.

at eget

ery

Faas ete et whe

i Bak RRR aes SEN tgs

be determined on the present record and without refer-

ence to the benefits of reorganization under the) Rail Act,

and that in any event a reasonable erosion burden may

be imposed on persons who invest in a railroad while

prompt and substantial public efforts are made to create

a “self-sustaining rail service system.” Our argument

here is that even if it is assumed that the constitutional

limit of erosion—the point beyond which service may not

be required without an adequate remedy at law for com-

pensation—may be reached before implementation of the

Final System Plan, and even assuming that the court

below correctly read the Rail Act to bar an adequate

remedy at law, the orders issued by the court below were

nevertheless unwarranted and erroneous.

A. The Court Below Misconstrued Section 304(f) of

the Rail Act

Before passage of the Rail Act, Section 1(18) of the

Interstate Commerce Act*® required any railroad

(whether or not in reorganization) to obtain ICC ap-

proval for discontinuance of rail service on any line of

track, or for the abandonment of such rail properties.

This procedure was replaced, with respect to railroads in

reorganization in the Region, by Section 304 of the Rail

Act. Section 304, whose primary purpose is to provide

a more efficient means for a substantial reduction and

streamlining of the Northeast/Midwest rail system, per-

mits the Region’s railroads, without the approval of any

governmental entity, to discontinue service over and to

abandon (i.e., liquidate as they wish) all rail properties

82 49 U.S.C. § 1(18) provides in pertinent part:

“(No carrier by railroad subject to this chapter shall abandon

all or any portion of a line of railroad, or the operation there-

of, unless and until there shall first have been obtained from

the Commission a certificate that the present or future public

convenience and necessity permit of such abandonment.”

not designated for transfer pursuant to the Final System

Plan.

In order, however, to facilitate a planning process

that is required to be completed within 450 days after

enactment, Section 304(f) provides as follows:

“After the date of enactment of this Act, no rail-

road in reorganization may discontinue service or

abandon any line of railroad other than in accord-

ance with the provisions of this Act, unless it is

authorized to do so by the Association and unless

no affected State or local or regional transportation

authority reasonably opposes such action, notwith-

standing any provision of any other Federal law, the

constitution or law of any State, or decision or order -

of, or the pendency of any proceeding before any

Federal or State court, agency, or authority.”

As we read the opinions and order of the court below,

all of the court’s objections to the Rail Act (except one

minor point)* flow from its interpretation of that Sec-

tion.

The district court interpreted Section 304(f) as au- |

thorizing the required continuation of rail operations after

the (hypothetical) point has been reached at which con- |

tinuation of service can no longer be constitutionally |

required without compensation. Having construed the

section to authorize an unconstitutional action in a hy-

pothetical situation, the court declared the section to that

extent unconstitutional on its face.

In the first place, the court reached its troublesome

construction prematurely. Having concluded that the

88 The one exception is the court’s holding that the requirement,

in Section 207(b), that Section 77 proceedings be dismissed in the

case of certain railroads not being reorganized under the Rail Act,

violates the requirement of Article I, Section 8, Clause 4, of the

Constitution that bankruptcy laws shall be uniform throughout the

United States. USRA does not agree with this ruling but, in view

of the fact that the ruling has no material effect on USRA’s

planning process, USRA has not appealed on this question.

erosion issue was “ripe for adjudication,” the court pro-

ceeded not to adjudicate whether the constitutional limit

of erosion had been or would be reached, nor to define

the limit. Instead, the district court proceeded as if the

erosion limit had in fact passed, when in fact it remains

possible that the issue will never arise.

The objections to premature decision of hypothetical

_ legal issues, particularly on an incomplete factual record,

are, too familiar to be repeated at length here.** The

district court itself recognized the dangers in another

context. JA 9 at 23. Suffice it to say that the objections

to premature decision are especially forceful where there

is a major question of statutory construction which re-

lates directly to the. constitutionality of the statute and f

the decision is adverse to constitutionality. E.g., Poe v. Ma

Ullman, 367 U.S. 497, 502-03 (1961) ; Communist Party Z

84“Courts do not review issues, especially constitutional issues, é

until they have to.” Joint Anti-Fascist Refugee Comm. Vv. McGrath,

341 U.S. 123, 154-55 (1951) (Frankfurter, J., concurring). A court

should stay its hand when the injurious impact of the challenged :

condition depends on the “concurrence of . . . contingent events . . . ¢

too speculative to warrant anticipatory judicial determinations,”

Eccles v. Peoples Bank, 333 U.S. 426, 432 (1948). Courts, moreover,

do not adjudicate “matters of serious public concern” on a record

-that is not “adequate and full-bodied.” Public Affairs Press V.

Rickover, 369 U.S. 111, 112-13 (1962). Kennedy’ v. Silas Mason Co:,

334 U.S. 249, 256 (1948).

The courts reviewing the inclusion of the New Haven in the

merged Penn Central illustrated these rules by refusing to decide "

issues that were premature or where the factual record was in-

complete. E.g., In re New York, N.H. & H.R.R., 378 F.2d 635, 640

(2d Cir. 1967):

“Since we thus are by no means certain the plan the Com- a

mission and the court will approve . . . will contain the features :

to which appellants object, we think it improper to pass upon

their objections at this time.

“ _ . [T]here was no occasion to involve Judge Anderson é

or us in an advisory opinion to the Commission on legal issues 4

that may never arise.” \

See also New Haven Inclusion Cases, 399 U.S. 392, 447 n. 65 (1970).

tes

\ oe

sai PULLING IED ale te eerimanenrmiea ee

v. Subversive Activities Control Board, 367 U.S. 1, 81

(1961); International Longshoremen’s & Warehouse-

men’s Union, Local 37 v. Boyd, 347 U.S. 222 (1954);

Electric Bond & Share Co. v. SEC, 303 U.S. 419 (1938).

Having decided to reach the erosion issue, the district

court then took a second headlong leap into the path

of a constitutional problem. Although it had construed

the Rail Act to bar a Tucker Act remedy for erosion past

constitutional limits, the court decided to construe Sec-

tion 304(f) as purporting to confer authority to require

continuation of rail service even where discontinuance

is required to protect constitutional rights. This construc-

tion was wholly unwarranted. In the assumed absence

of a remedy at law, Section 304(f) could and should

have been construed to confer approval power only within

constitutional limits as the courts may declare them.

‘A statute cast in general terms need not recite the con-

stitutional limits on its reach in order to avoid being

declared unconstitutional on its face. If it is inferred

that Congress barred suits in the Court of Claims for

required erosion beyond constitutional limits, the entire

statutory scheme could nevertheless function as fairly

(though possibly less successfully) if it were also inferred

that Congress intended to require continued operations

only within constitutional limits.”

No rule of construction is more well established than

the rule that federal courts should accord acts of Con-

gress a “strong presumptive validity” and seek an “inter-

pretation which supports the constitutionality of legisla-

tion.” United States v. National Dairy Products Corp.,

8 There are, of course, substantial problems in determining,

pe Ban actual case, whether discontinuances or abandonments are

/ constitutionally required. The resolution of that problem in indi-

vidual cases, however, is no easier after the decision below than it

was before, since the court offered no guidance on either the sub-

stance or procedures involved in that determination.

et OR a i eee fs Re A Meee DS Me oe Ie i CR Ae Sei Ra ff

epee Peers

372 U.S. 29, 32 (1963). There are numerous cases in

| which federal courts have gone to considerable lengths

to construe statutes to uphold their constitutionality.

The case of Richmond Screw Anchor Co. v. United States,

275 U.S. 331 (1928), is a good illustration.’ As the law

stood immediately before July 1, 1918, the owner of a

patent infringed by a government contractor could or-

dinarily sue either the contractor or the United States.

If the owner were an assignee, however, his suit against

the United States would be barred by the general statute ;

the United States. On July 1, 1918, Congress passed a

new statute depriving a patent owner of a suit against

a government contractor and limiting him to his remedy

against the United States. The 1918 statute, together '

with the general anti-assignment statute, thus appeared

to prevent an assignee from suing either the contractor

or the government. The Court, noting that this result

“‘would seem to raise a serious question as to the con-

stitutionality of the Act of 1918 under the Fifth Amend- :

ment,” id. at 345, and stating that “[i]t is our duty in ;

the interpretation of federal statutes to reach a conclu- ¢

sion which will avoid serious doubt of their constitu- :

tionality,” id. at 346, interpreted the 1918 statute as ¢

making the general anti-assignment statute inapplicable

to patent rights covered by the 1918 statute, so that the

assignee could sue the United States in the Court of

Claims.

In Eastern Railroad Presidents Conference v. Noerr

Motor Freight, Inc., 365 U.S. 127 (1961), a unanimous

Court held that the Sherman Act does not prohibit a

*6 Accord, e.g., United States Civil Service Commission vy. Na-

tional Association of Letter Carriers, AFL-CIO, 413 U.S. 548, 571 "

(1973); Flemming v. Nestor, 363 U.S. 603, 617 (1960); Crowell i

v. Benson, 285 U.S. 22, 62 (1932); Fletcher v. Peck, 10 U.S. (6

Cranch) 87, 128 (1810).

87 See also United States v. Thirty-Seven (87) Photographs,

402 U.S. 363 (1971); American Power & Light Co. v. SEC, 329

U.S. 90 (1946).

Meetuth

priests: Be OF, ee oe ee gaat anna edad Ra EEF

eshte teen.

PRD a gE POSe SRE CNA HET ie A ARS TENE L MS I Theil

conspiracy or combination to influence the passage of

legislation-or the enforcement of the laws, even where

the objective is to harm competition and the means used

are deceptive. The Court reached its construction of the

statute by considering policies underlying the First

Amendment and, in part, because a contrary construc-

tion “would raise important constitutional questions.” Jd.

at 188. Similarly, in Kent v. Dulles, 357 U.S. 116

(1958), when faced with a constitutional challenge to

regulations of the Secretary of State governing the issu-

ance of passports, the Court decided that the statutory

power of the Secretary, though “expressed in broad

terms,” id. at 127, should be construed more narrowly

so as to avoid constitutional questions. This case is a

good example of the rule that a delegation in broad

terms should be narrowly construed to avoid constitu-

tional questions rather than broadly construed and then

struck down.**

B. The 304(f) Injunction Was Unwarranted and

Erroneous

The court below then enjoined USRA from

“taking any action to enforce the provisions of Sec-

tion 304(f) of the Regional Rail Reorganization Act

of 1973, with respect to any abandonment, cessa-

tion, or reduction of service which has been or may

hereafter be determined by a court of competent

jurisdiction to be necessary for the preservation of

rights guaranteed by the United States Constitu-

tion.” JA 9 at 82.

This injunction against a federal agency just starting,

in good faith, on the Herculean task Congress assigned

it was unwarranted and erroneous.

*§ The Kent case divided the Court 5-4’on the statutory issues,

and neither the majority nor the dissent reached the constitutional

issues. There is no suggestion, however, that the dissenters dis-

agreed with the general principle of using narrow construction to

avoid constitutional issues.

PRON LETTER CET RRL TIEN MRS ANEILE HE SEE PSR TONG MT NSE NRE OTA EE ES EL EN —

. 7 ps a ir ak hl A elle RCO A I

eis

LAER AEE RETER REO RMA L AGT T SLI

As we read the injunction, it applies only after and

to the extent that some federal court (presumably a

Reorganization Court) has declared that an abandonment,

cessation or reduction of service is constitutionally neces-

sary.” If that is what the district court meant, USRA,

had it been asked, would have assured the district court,

and now assures this Court, that it has no intention of

violating any constitutional rights so declared. In any

event, there was no reason why the federal court making

the hypothetical constitutional determination could not

have been left the task of issuing appropriate orders to

enforce it. Reorganization Courts, which under the Rail

Act retain their present jurisdiction over the railroad

estates and their interim operations, have amply broad

powers to provide injunctive protection of the estates over

which they have jurisdiction. A Reorganization Court

RO VATA ncaa that ¢ha = ASA nat mon tn nenhihi+t TICDA

we assume vesayv vhs coi mew MA AA mcan “wy ere eae wwe,

should an appropriate occasion arise, from seeking review of any

_ such determination, and we therefore assume that the court was

speaking of a final and unreviewable constitutional determination

by a federal court.

9° Compare, for example, Paragraph 9 of Order No. 1, issued

June 21, 1970 in In re Penn Central Transp. Co., Bky. No. 70-347

(E.D. Pa.) :

“9. All persons and all firms and corporations, whatsoever and |

wheresoever situated, located or domiciled, hereby are re-

strained and enjoined from interfering with, seizing, convert-

ing, appropriating, attaching, garnisheeing, levying upon, or

enforcing liens upon, or in any manner whatsoever disturb-

ing any portion of the assets, goods, money, deposit balances,

credits, choses in action, interests, railroads, properties or

premises belonging to, or in the possession of the Debtcr as

owner, lessee or otherwise, or from taking possesion of or

from entering upon, or in any way interfering with the same,

or any part thereof, or from interfering in any manner with

the operation of said railroads, properties or premises or the

carrying on of its business by the Debtor under the order of

this Court and from commencing or continuing any proceeding

against the Debtor, whether for obtaining or for the enforce-

ment of any judgment or decree or for any other purpose, pro-

vided that suits or claims for damages caused by the opera-

> DOT RR ee RON MED Pe

MOET ANEE EIN PRO TES LED

ar ree

Spare Se RETNA

Mi Cie healt

. a

FOO EOD 2 Tang PR ai as BR ode) Cee E

mee MRR nasty ON NMR NRE Mm ital RANGES ERR i ha

finding it constitutionally necessary to order a discon-

tinuance of service or abandonment of properties would

have as much power both to make this finding and to

have the resulting orders carried out without the in-

junction issued by the district court as it has in light

of the injunction.

C. It Was Error To Declare Section 303 of the Rail

Act Partially Unconstitutional on Its Face

Section 303 of the Rail Act provides generally that the

Special Court shall order transfers of rail properties re

in accordance with the Final System Plan, and shall 5

then order the distribution of the consideration pro-

vided therefor after determining that the exchanges are

“in the public interest and are fair and equitable

to the estate of each railroad in reorganization in 7

accordance with the standard of fairness and equity F

applicable to the approval of a plan of reorganiza- :

tion or a step in such a plan under Section 77 of

the Bankrupty Act... .”

and that the exchanges are not “more fair and equitable

than is required as a constitutional minimum.”

ea red

w $F bs) SPRY as

In context, it is clear that Congress meant the term

“fair and equitable” to refer to an exchange in which b

each estate receives the “constitutional minimum” con-

sideration—no more and no less. Congress thus exhibited

its concern, throughout Section 303, that each railroad

estate receive the constitutionally required consideration

for its properties.

tion of trains, buses, or other means of transportation may be

filed and prosecuted to judgment in any Court of competent

jurisdiction, and provided, further, that the title of any owner,

whether as trustee or otherwise, to rolling stock equipment ‘

leased or conditionally sold to the Debtor, and any right of 4

such owner to take possession of such property in compliance

with the provisions of any such lease or conditional sale con-

tract, shall not be affected by the provisions of this order.” F

PRA RELI BRAM A MRS BETO REL ANA ESNR RNP DENA ON aN NE

Plaintiffs challenged the Rail Act on the ground that

the total consideration available under the Act cannot

or may not be sufficient to achieve the congressional ob-

jective of providing each estate the “constitutional mini-

mum” consideration, and on the ground that in any event

the processes of the Act do not adequately assure that

this stated objective will be achieved. The court below”

put aside these challenges as premature.”

[ OLPLE LAE E ORES EN ee ee

%1 Appellant’s position is that since Plaintiffs were alleging only a

taking or threatened taking of their property without just compen-

sation, and since the Tucker Act provides an adequate legal remedy

should any such taking result from the processes of the Rail Act,

the court below should have followed the’ decision of this Court in

Hurley v. Kincaid, supra, and avoided the difficult statutory. and

constitutional issues by leaving Plaintiffs to their plain and ade-

quate remedy at law. See Part I, supra.

On the assumption that the court below correctly construed the

Rail Act to bar a Tucker Act remedy, we agree that the question

whether the consideration available under the express terms of the

Rail Act itself will meet the constitutional minimum is premature:

(a) It is impossible to determine at this time the value to which

the estates will be entitled; among many other difficulties, the

properties to be included in the Final System Plan have not been

identified. (b) It should be assumed that the procedures carefully

designed after long study by Congress will be able to achieve the

statutory goal of a “self-sustaining rail service system” and

LEAL LOL LL OE RIG PI LE EPO LI Mea Ee

that the rail properties transferred to Conrail will therefore have H

substantial going-concern value; the dollar amount of this value, a

however, is obviously incalculable today. (c) If, after the Final :

System Plan has become effective, there are grounds for contending :

(in the assumed absence of a Tucker Act remedy) that its imple- &

mentation will cause a taking of private property for less than just _

compensation, these grounds can be urged upon the Special Court e

during the period of up to 110 days between the effective date of 3

the Final System Plan and the date on which the Special Court is ;

directed to order the transfer of rail properties; if these grounds Fe

appear substantial, the Special Court may then decide that it can- 5

not constitutionally order the transfer until the constitutional issue k

has been resolved; this theoretical possibility does not make it ‘

necessary to resolve the series of complex statutory and consti-

tutional issues involved until there is some basis for concluding 3

that the processes of the Rail Act have failed to provide the “con- &

stitutional minimum” consideration that Congress commanded. f

Nevertheless, the court below declared that

“Section 303 of the Regional Rail Reorganization

Act of 1973 is null and void as contravening the

Fifth Amendment of the United States Constitu-

tion insofar as it fails to provide compensation for

interim erosion pending final implementation of the

Final System Plan pursuant to the statute.” JA 9

at 82.

Reading that part of the court’s order, one might

assume that the court below concluded that all such

“interim erosion” is compensable under the Fifth Amend-

ment. We argue in Part III, infra, that any such con-

clusion would be erroneous. In fact, the court below

reached no such conclusion. On the contrary, the court

did not define “erosion” or its constitutional limits, and

did not determine that the point has been or will neces-

sarily be reached at which erosion becomes compensable.

The closest the court below came to stating its view of

the law of erosion was in footnote 23, JA 9 at 41, where

‘it quoted as follows:

“«'T]here are limits beyond which . . . [the] public

interest cannot be served without violating the con-

stitutional prohibition against appropriation of pri-

vate property for public use without just compensa-

tion. New Haven Inclusion Cases, 399 U.S. 392, 90

S.Ct. 2054, 26 L.Ed.2d 691 (1971) ; cf. Brooks-Scan-

lon Co. v. Railroad Commission of Louisiana, 251

U.S. 396, 40 S.Ct. 183, 64 L.Ed. 323 (1920). These

limitations are measured both in terms of the amount

of erosion of the Debtor’s estate which can be per-

mitted to occur before impairing liquidation value,

and in terms of the length of time that is reasonable

for assessing the ultimate prospects of achieving

sufficient profitability to support a valid recapitaliza-

tion of the enterprise.’ In Re Penn Central Trans-

portation Company, 347 F.Supp. 1346, 1366 (E.D.

Pa. 1972) .”

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We read the court’s order, therefore, as declaring Sec-

tion 303 unconstitutional only insofar as it fails to pro-

vide compensation for erosion that is determined to ex-

ceed constitutional limits unless an adequate remedy at

law for compensation is provided. This part of the order,

so read, parallels the court’s Section 304(f) injunction

in which the court left the determination of the actual

limit to a future court.

So read, the court’s Section 303 order is premature

for the same reasons as its Section 304(f) injunction; it

deals with a situation that has not arisen and may not

arise. There are, however, even more fundamental ob-

jections: the court’s reading of Section 303 was er-

roneous and the court’s order, on its own view of the

issues, was superfluous.

In the first place, there was no reason to read Sec-

tion 303, with its repeated emphasis on fairness, equity,

and the “constitutional minimum” consideration, as de-

liberately excluding one element of that consideration,

that the court below thought might turn out to be con-

stitutionally required. On the contrary, if it is later

determined that the constitutional limit of erosion has

been reached, and if the Act is construed to require

rail operations to continue beyond that point, then this

must be taken into account when the Special Court meas-

ures the “fairness and equity” of the exchanges. Rather

than presume, in the face of clear. congressional concern

for constitutionality, that Congress deliberately intended

an unconstitutional result in the hypothetical. situation

the court itself constructed, the court below could have

solved its own problem by construing Section 303’s “con-

stitutional minimum” to include all constitutionally re-

quired consideration.”

®? As a practical matter, there would be no insurmountable diffi-

culty if the Special Court ruled, for example, that the “constitu-

a a id ns A irs te a ba la a i - we

EARN Sr aer. |

Steen

- 72

There is, however, an even more ‘obvious point: Rail

estates in reorganization are entitled to compensation

for erosion only to the extent that the United States

requires them to continue rail operations or preserve

their properties beyond the point at which uncompensated

erosion can no longer be required. The only section of the

Rail Act that could conceivably impose such a require-

ment is Section 304(f). We have argued above, in Part

II(A), that the court below could and should, in the

assumed absence of a Tucker Act remedy, have construed

Section 304(f) as not imposing any such requirement.

Instead, the eourt below construed Section 304(f) as im-.

posing such a requirement but then declared the Section

pro tanto unconstitutional and enjoined the enforcement

of the objectionable requirement. At that point, the

court had achieved by constitutional adjudication what

it could have achieved by construction: it eliminated any

requirement in the Rail Act that rail estates suffer any

erosion for which an adequate remedy for compensation

would be constitutionally required. In so doing, it elimi-

nated any possib

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