# Appellants Brief — Regional Rail Reorganization Act Cases > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386414_0347%3A10 ## Record - **Collection:** Supreme Court brief - **Document type:** Appellants Brief - **Published:** January 1, 1974 - **Citation:** 419 U.S. 102 ## Text 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 vo 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 37 38 40 43 48 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 IV 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 / Vv 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 ~ VI 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 1 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 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- Oe ne 0b PAARL Fe tay Oa tale C9, es Wisiouibie inthe Bape Bees IR mate 44: 14 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, 15 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. . eee | BARMAN ie) wr STR MR —— wis ea Re anne hati hii Sh! PE PA a eh bat NaS 8 PS HMES 2 i; # 16 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- 17 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- 3 3 ef $ 3 a pa 3 4 ig ACUI Np siets hs cated: B28 POs oe PREP ER 18 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. 19 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 | 20 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 21 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 SORT Mote ie RR EPI IS RS Oe SR RR SON ORL HEE EN TTR Svea pigs Led oe ae | . ss a : d 5 3 j 4 P i 22 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). 23 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- LS ALEGRE TIES CEERI PELE LELV EE OO OG SAE SI LEIS IEE OEP NE ES ORE: LEELA eR a | iit nists Nene satiate cara Clade ead by ORG 4 | Reto 4 4 24 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, 25 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 26 (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 27 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 ] PT 29 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 | x B| 2 % a A 4 « 2 Es : LED RANA ihe ornalea tle Bl net Pee 30 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 é { t | 31 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 ur 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 x ma ' > ¢ aS Be ee fin. Lae SUR ae ee eee wi ~ wee SUAS OE VARGAS RN Ot BOR — es \ SEAGATE AOL GT AH TPR SOOT! DAE LE LAPT EOSAPOA BER NL EASA KS LOSS ERE BE 2 33 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. 34 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 35 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 fe 36 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. (c) Transfer of the burden of uneconomic but 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 87 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 ‘ eee SRNR HORNA: THOS SENET “EEG 38 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. . ee 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 3 x 39 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”) . ie Ee tla 5 2h al = OM Eee —_ st es iS a iia hi li a ie ELLIE LE SELLE IL LILO POLONIA GEL 40 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 SESE PRATT ETE Se peste » : GRIN CIES fas ME PEALE EOS FRG eR EE 41 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 42 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 x BEEP AE OEE LS EAI BMS EEG RE NTIS LEE EET PIL EO LILO LE OE TNO Re Sar Rann Te et aA Pe ip ORR OS MRIS RE TSE BAAD RE RE RISE RY RR. 43 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 | a . e : g ee a ee inp iadss a AOR AOA AD 55k Men dea me ists RIS huisrbars Peds RAE rirrnieinosrrcinicncsiaet Yes: BIE BR GF FB, « 44 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 = 45 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. 46 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- q a ELLIE DION LEI AI POLE NEL ELE DIALED BLEDEL ALE CIA NELLIE LARISA LLL L ATE LSE LEE LOL IODIDE Cla Ag TOES HELL BLAS Ree AA NTR 47 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 $ * 5 £ z 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). fe 48 ‘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). 49 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). ‘ne aa caus Bae Bh AMT TUT SS CREP PAST PES ea ETAL EL ATI a 50 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 to the Court of Claims—explain the few provisions of © 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 JA 9 at 46-49, 51. Sh SPIN viata? AAI i PA Lb GO RRM Ns AAT OEY EN MRE CALS Di AA 08 VIG EY ihe! 51 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). ¥ i ig 4 i het ae 52 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). ns ore GRR AUD Gyn” ’ Fe be Te bite ee NNN VS EMI eb CFS EL ANON PLS OD AWA AE HID LT INNS CPT BE 9h tw Tee 53 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. » [Footnote continued on page 54) f € f : f 5 RED ) a v- MELEE IIT OO LTTE VTS EN CR . Br Mi: ¥ B4 ) 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.” ” REE RODEN EO CBE MEAS Tae» Congress plainly intended to provide constitutionally adequate compensation to the owners of the rail prop- erties transferred to Conrail. Whether the consideration + 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 TT i Bak RRR aes SEN tgs 61 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.” 62 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. 63 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 i 4 % Le 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 64 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 65 372 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 ; prohibiting assignment of unliquidated claims against © 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 ue *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 66 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 67 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 aA ba cs & ey 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 68 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 3 : ¥ A “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 69 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 70 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) .” Reh MGR AE NES eve Rots eae Fe DRG Ne ee CEASE Ae rial ORG GN NDR NEE ENERGIE aa LE REA EROS ALOE SEALE OCALA LIES OLN AA ELE 71 { 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 possible claim to compensation. Once any Reorganization Court has determined that discontinuance of service or abandonment is constitu- tionally required in the absence of compensation, USRA’ (and the other Defendants) will be powerless to inter- fere and, unless provision is made for compensation satisfactory to the Reorganization Court, the discon- tinuance or abandonment will occur. Under these cir- cumstances, there was no basis for invalidating Section 303 for an imputed failure to provide compensation for an “erosion taking” that cannot lawfully occur. tional minimum” is the amount necessary to place the Penn Central estate in the position it would have been in had the transfer oc- curred on some earlier date determined by the Special Court to be appropriat [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386414_0347%3A10. Public record. Not legal advice.