# Appellees Brief — Regional Rail Reorganization Act Cases > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386414_0347%3A14 ## Record - **Collection:** Supreme Court brief - **Document type:** Appellees Brief - **Published:** January 1, 1974 - **Citation:** 419 U.S. 102 ## Text Supreme Court of the Unitei October Term, 1974 No. 74-165 No. 74-167 No. 74-168 UNITED STATES OF AMERICA, et al., Appellants, Vv. CONNECTICUT GENERAL INSURANCE CORPORATION, et al., 4 y~ Appellees. i On APPEAL FROM THE UNITED STATES DisTRICT COURT 4 FOR THE EASTERN DISTRICT OF PENNSYLVANIA robigs tg Matin ths ana fs ‘ a BRIEF OF APPELLEES,, CONNECTICUT GENERAL INSURANCE j CORPORATION, ET AL. 4 L Louis A. CRAcO A 1 Chase Manhattan Plaza * New York, New York 10005 é 4 FREDERIC L. BALLARD ‘ ‘ 1035 Land Title Building % Philadelphia, Pa. 19110 e ..Attorneys for Appellees ¥ 3 Of Counsel: WALTER H. Brown, Jr. Tuomas L. BRYAN MICHAEL B. TARGOFF ] CorNELIusS T. FINNEGAN, III y REBECCA T. HALBROOK WILLKIE FarR & ,GALLAGHER 1 Chase Manhattan Plaza New York, New York 10005 ALAN S. FELLHEIMER BALLARD, SPAHR, ANDREWS & INGERSOLL 1035 Land Title Building © Philadelphia, Pa. 19110 ds Aisa Dy PS ED Saks 3 MRE See ae bape es in, September 26, 1974 TABLE OF CONTENTS PAGE TOMS OF Antboritias «2... svcccsdevvewcnetssuscess Vv Ce | Ee Ver ene men iy ie rt 2 ee PCE ET ERTL OP Ce LOTR CTE ELECT Tee 2 Constitutional and Statutory Provisions Involved .. 3 COE: FURIE hi acns inne c bAs ex cvezd tenes sess 4 Statement of the Case I. Nature of Case and Proceedings Below .... 4 ‘II. The Penn Central Reorganization: Backdrop for the Rail Act ............ 6 III. The Impact of Operations During Reorgani- zation of the Penn Central Estate ....... 16 IV. Proceedings under the Rail Act ........... 20 / Cente WE DUE no sn se Sos span 6h ede onde ons /23 Argument: I. The Rail Act is Unconstitutional in that It Requires Mandatory Interim Operations at Hopeless Losses Without Providing Assur- ance of a Legal Remedy to Furnish Fair and Just Compensation for Erosion Beyond Con- MI TON sik eeicc ik cs deckese tires 33 A. The Act Does Mandate Interim Opera- tion of the Penn Central System ...... - = B. Penn Central Interim Operations Im- pose Enormous Losses, Accumulate Pri- ority Claims and Cause Erosion of the Value OF: Tak BRD xaeegeevscicensee 41 1. Post-Bankruptcy Financial Results through December 31,1973 ........ 41 li 2. Reasonably Foreseeable Future Fi- nancial Results after December 31, WOE His Oia ei kwh vs bck Eas Gadwa oo cs 3. Erosion in the Value of the Estate .. C. Compulsory Interim Operations are Un- constitutional in the Absence of Reason- able Present Assurance of Reorganiza- bility under the Act or an Assurance of Just Compensation .................. 1. The Public Interest in Continued Service Does Not Justify Mandatory, Uncompensated Interim Operations 2. The Rail Act Does Not Afford Any Reasonable Prospect of Likely Reor- nization for the Penn Centra on of Pn ae (a) Conrail will not be materially different from Penn Central ... (b) Conrail will face the same prob- lems as Penn Central ......... (c) Conrail has no reasonable pros- ene OE WEGNEEED 5. 6s... ee sak (d) Conrail is an untried concept in railroad operations ............ (e) The Penn Central Trustees’ via- bility condition concerning aban- donments -will not be satisfied .. (f) The Penn Central Trustees’ via- ; bility condition concerning un- necessary employees will not be MINIS fb dhe dhe tiie... (g) The Penn Central Trustees’ via- bility condition concerning pas- — service will not be satis- Be ECS Or coe on. aan (h) The Penn Central Trustees’ via- bility condition concerning traffic 0 revenues will not be satis- eo SR Ee Pere cane jeep PAGE 42 47 47 oh) 57 59 fe sana SMe AAS A A PARI: DME BN DEES OIA MAE Rs MEIN J i i ; | i 3 i i ! 3 t i | ul PAGE 3. The Act Provides No Assurance of Payment for the Taking by Interim ee oe nn ere ree eee ee 61 (a) Interim payments provided are inadequate .......---.-eeeeees (b) The Act fails to provide com- pensation which is adequate in medium and amount to assure fair value for the assets to be conveyed and still less does it » provide redress for interim ero- Ne Pe ee hananean hes 64 (i) Kind and amount of compen- sation under the Act ...... 66 (ii) Inadequacy of compensa- tion on any theory of valua- tiOM |... . ee eee eee eee eens 69 (c) The Act fails to provide any procedures which could assure ‘ the requisite fair value for the properties conveyed and. compen- sation for interim erosion ..... 74 D. New Haven Inclusion Cases, 399 U.S. : 392, Does Not Support the Constitution- _ &§ ality of the Rail Act, but Exposes its ‘ Unconstitutionality ...........++++++- 79 ; II. There is No Adequate Remedy at Law Avail- ; able to Appellees under the Tucker Act .. 83 A. The Statutory Scheme of the Act on Its Face Purports to be Exclusive and Wixhaustive 2.0... 00geceecseecccsenees 85 B. The Legislative History is Consistent Only With the Exclusion of a Remedy in the Court of Claims ............---- 9 C. In Light of the History and Language of the Rail Act, the Tucker Act ‘‘Remedy’’ Cannot Be Adequate ...,.-:+++++rreees 98 iv II. Injunctive Relief Granted Below was Timely CONE ons a ok eaeacc IV. The Order Entered Below may be Sus- tained on Other Grounds not ee by We SE Tinos vc cnc A. The Act Takes Appellees’ Property for Public Use Without Just Compensation B. To the Extent the Act is a Bankruptcy Act, It is Void Because It is not Geo- graphically Uniform ................. C. The Processes of the Act Deprive Ap- pellees and the Penn Central Estate of Due Process of Law 22 22 2 2 FS 0 8 6 0 6 6 tH be Conclusion PAGE 102 108 109 112 é & 3 3 : : Vv Table of Authorities PAGE CasEs: Almota Farmers Elev. & Whse. Co. v. United Waades, M0 UM. GO oo tantamount to an abandonment by USRA of its expectation © of realizing any plausible Final System Plan. 3 Not only would such abandonments be insufficient to é stanch the flow of losses, but serious objections could be é expected from RSPO on the ground that such abandon- “ ments would be inimical to the public interest. These é objections, together with those expressly contemplated by 4 Section 304(f) from state, local and regional transporta- : tion authorities, would inevitably delay and might well 5 3 stall altogether any program of abandonments, especially one sufficiently large to make a dent in the operating losses & being incurred by the estate. The fact that USRA itself does not consider Section 304 as an invitation to wholesale abandonments now is shown by its response to abandonment requests which have already been_filed by the Penn Central Trustees, to the effect that USRA had no procedures for processing such requests (J. Doc. Nos. 65, 66). It will not do to argue, as Appellants do, that the Penn Central estate would in any event have to undergo time- consuming abandonment procedures in the absence of the Rail Act. Even if such procedures are required the estate would. nonetheless be ‘‘constitutionally entitled’’ to a cer- tificate of abandonment from the ICC ‘‘acting with ap- propriate speed under 4 1(18) of the Interstate Commerce Act.” New York, N.H. & H.R.R. First Mtg. 4% Bond- holders’ Comm. v. United States, 305 F. Supp. 1049, 1055 (S.D.N.Y. 1969), vacated on other grounds sub nom. New Haven Inclusion Cases, 399 U.S. 392. See also New Haven Inclusion Cases at 459-67. 40 There exists, then, an explicit statutory command that interim operations be continued, and the massive losses that will thereby be sustained cannot be avoided with appropriate dispatch by recourse to any agency having authority to excuse the estate from the command of the Act. To avoid the impact of the plain meaning of Section 304(f), Appellant USRA complains (USRA Brief at 61-66) that the Court below misread the Act. The section, so goes the argument, ‘‘could and should have been construed to conier approval power [with respect to interim abandon- ments and service discontinuances] only within constitu- tional limits as the courts may declare them.’’ Jd. at 64. USRA goes on to argue that ‘‘[a] Reorganization Court finding it constitutionally necessary to order a discontinu- ance 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 injunction issued by the district court as it‘has in light of the injunction.”’ Id. at 67-68. USRA’s argument in this regard flies in the face of the very language of Section 304(f) forbidding any railroad in reorganization from discontinuing service or abandoning any line of railroad ‘‘notwithstanding any provision of any ... decision or order of ... any Federal court.’’ By the terms of the Act itself the reorganization courts and all other federal courts, including, presumably, this Court, are explicitly ousted of their jurisdiction to order discon- tinuance or abandonment.”® USRA’s argument is tanta- mount to a contention that the statute can be sustained only if it means the exact reverse of what it says.*° 29 Indeed, this concern with court-ordered terminations is con- sistent with the Congressional apprehension over the likelihood of such an event which stimulated passage of the Act in the first place. 8° The Court below framed its injunction to restrain the enforce- ment of Section 304(f) only “with respect to any abandonment, cessation, or reduction of service which has been or may. hereafter be determined by a court of competent jurisdiction to be necessary (Footnote continued) 4i In short, the Act does compel continued loss operations and its constitutionality must be appraised, as it was below, in light of that grim fact of life. B. Penn Central Interim Operations Impose Enormous Losses, Accumulate Priority Claims and Cause Erosion of the Value of the Estate. From inception the Penn Central reorganization pro- ceedings have had an indisputable history of mammoth and irreversible losses, extensive accumulation of prior claims and erosion of the value of the estate. All these are mat- ters in the record here, as is the fact that similar losses, accumulations of priority claims and financial and physical erosion will continue unabated so long as Penn Central is required to continue rail operations. 1. Post-Bankruptcy Financial Results through December 31, 1973. From June 21, 1970 through December 31, 1973, Penn Central’s ordinary income losses aggregated $851 million (FF 1, 4, JA 89-90; Varalli affid., J. Doc. No. 19, Ex. T-1). During this period the growth of priority claims kept pace with the losses: (a) Trustees’ Certificates were issued in the amount of $100 million (FF 3, 4, JA 89-90; Stip. No. 15, JA 208) ; (b) Unpaid and accrued taxes accumulated to the extent of $241 million (JA 37; FF 2, 4, JA 89-90; Varalli affid., J. Doc. No. 19, Ex. T-1); and (Continued footnote) - for the preservation of rights guaranteed by the United States Con- stitution.” The remedy was couched to excise from the Act language which otherwise would prevent any judicial recourse by an aggrieved owner or creditor, the same language which USRA would excise by creative interpretation. But the language is in the Act, and wrongly so; the Court in enjoining its enforcement was plainly not precipitous. See Point III, infra, at 103-04. i : REE PRES HON 8 en " +o Po ee Ne AEP SO IRN SY SR ail OSA EER RAO - | POMEL LE MAINS RE RA | ean AURA ARNDT ica gin as gm ah fats Sa LEAST LTE RAEN ETE PL NS RE AOU EAEPLATRR ORR PRD Vege eT Ty the Se aed Perea ae Tre ee a ee ere . Sih ie Papel bes Nib? oo 42 (c) Unpaid leased line rentals accrued in the amount of $101 million (JA 37; FF 2, 4, JA 89-90; Varalli affid., J. Doc. No. 19, Ex. T-1; Stip. No. 13, JA 208). These three items of post-bankruptey priority claims alone total $442 million. Of equal importance is the source of funds expended ‘and forever lost through their application to deficit rail operations. In addition to operating funds, other funds so applied during the period June 21, 1970-December 31, 1973, included non-recurring income in the amount of $155.3 million (including the $100 million in proceeds from Trus- tees’ Certificates) and approximately $157 million of in- come from non-rail operations (JA 36-37; FF 3, 4, JA 89- 90; Varalli affid., J. Doe. No. 19, Ex. T-1; Stip. No. 11(a), (ce), JA 206-07, 211). During this period the Trustees also . had the benefit of cash available by reason of the deferral of $104 million of interest on mortgage an2 collateral trust debt (FF 2, 4, JA 89-90; Varalli affid., J. Doe. No. 19, Ex. T-1; Stip. No. 14, JA 208). While these amounts are included in the operating loss figure, they measure the extent to which the losses were held to even that figure by draining resources from non-opera‘ing corners of the enterprise. 2. Reasonably Foreseeable Future Financial Results after December 31, 1973. The record here leaves no doubt that similar massive income losses, accumulations of prior claims and deferrals will continue so long as rail opérations by Penn Central are mandated. The Reorganization Court found, on undis- puted expert evidence, that it is reasonable to project that during the five-vear period ending December 31, 1978: (a) Additional ordina:y losses will aggregate approximately $722.2 million; (b) Additional accrued but unpaid taxes will amount to approximately $310.7 million; LAIR FOIL ON OE LEIS LIM REE See eM POP EO taps GP ee PETTY CLIT a oye ete aa aaa 43 (c) Additional deferred leased line rentals will approximate $140 million; and (d) Additional unpaid interest will accrue to the extent of $137.1 million. (FF 12-20, 23, JA 92-96, 98; Sloane affid., J. Doc. No. 16, at 7-11; Varalli affid., J. Doe. No. 19, at 4, Ex. T-2; Guest affid., J. Doe. No, 20, at 9-10.) On the not necessarily realistic assumption that a Final System Plan may be implemented toward the end of 1975, it is instructive that the comparable estimated figures (de- rived from the same sources) for only the two years 1974 and 1975 are as follows: (a) Additional ordinary losses will approximate $434 million; (b) Additional accrued but unpaid taxes will amount to approximately $118.2 million ; _ (e). Additional deferred leased line rentals will approximate $55.9 million; and (d) Additional unpaid interest will accrue to the extent of $164.2 million. (FF 12-20, 23, JA 92-96, 98; Sloane affid., J. Doe. No. 16, at 7-11; Varalli affid., J. Doe. No. 19, at 4, Ex. T-2; Guest affid., J. Doe. No. 20, at 9-10.) Thus, the combination of financial results found to have occurred during the reorganization proceedings through December 31, 1973 with those found to be reasonably ex- peeted to occur in the next two years (the earliest point in time at which the effectuation of a Final System Plan could reasonably be expected) shows the following: (a) Ordinary losses—-$1.285 billion; (b) Acerued but unpaid taxes—$359.2 million ; | ‘ SRA AARNE ARREARS BM RE ER oe eee 44 (c) Deferred leased line rentals—$156.9 million; and (d) Unpaid interest—$268.2 million. Faced with undisputed evidence of such tremendous sustained and expected losses and accumulations of prior ‘ claims, the Reorganization Court had no choice but to hold, as it did, that Penn Central could not be reorganized on an income basis within a reasonable period of time. 3. Erosion in the Value of the Estate. The United States alleges that there is no adequate record evidence of erosion of the value of the estate and further claims, without citation of authority, that the basis for evaluating the impact of continuing operations on Penn Central’s estate is simply a matter of comparing the amount of accumulated priority claims with the amount of alleged increases of value of carefully selected assets of the estate (U.S. Br. at 67-70). at alin aber, The contention that the record is bare of adequate evi- dence to show erosion cannot be supported. There was abundant evidence before the Court below to justify its con- clusion that the mounting losses charged to the estate would imminently harm at the very least some of the claimants who were plaintiffs in the suits before it. sell iia ae ie Income losses must have an effect on the value of the estate; obviously funds have been expended in operations which otherwise would have defrayed obligations accrued by the Trustees. The diversion of such funds to operations in order to cover losses of such magnitude necessarily de- creases the values in the estate available to satisfy claims of stockholders and creditors by creating accumulations of post-bankruptcy priority claims.. One index of the effect of such losses on the value of the estate is the decrease in stockholders’ equity from approximately $1,500 million at Peer erty ey ae Pega NE a SES StU: PARAS are Rae het 2 SERS WEF AE ean RAPP PROPS EY NNER DSN NEN TANNA RT RM NI — ste Bie 45 December 31, 1970"! to approximately $684 million at De- cember 31, 1973.*? ‘Sven this measure of erosion, which shows a decrease in excess of $800 million in the va'ue of the estate, does - not fully reflect two important components in any measure of the extent of erosion. The first is the aggregate amount of accumulated prior claims, admitted by the United States to be at least $457 million (U.S. Br. at 67). With post- bankruptcy income losses of $851 million and $457 million in admitted post-bankruptcy prior claims, it is inconceivable that there has! 2n no decrease in the value of the estate available to claimants, as the United States argues. Sec- ondly, testing the extent of erosion by the diminution of stockholders’ equity does not ta*e into account the de- creases in value of non-depreciable property (such as track) by reason of inadequate maintenance. The Reor- ganization Court has found that, even assuming annual expenditures of $225 to $250 million for normalized main- tenance of way, an additional $665 million in current dol- lars must be expended to remedy past deferrals (FF 10, JA 91-92; see Jackman affid., J. Doc. No. 18, at 4). USRA argues that inflation in the value of assets may be used to offset the accumulation of prior administrative claims** (USRA Br. at 79), and states that ‘‘other courts’’ 31 Form A for 1970 (J. Doc. No. 34 at 201). 82 Form R-1 for 1973 (J. Doc. No. 37 at 11). 83 A comparison is noteworthy between portions of Part D of the Appendix (pp. 67-70) to the United States brief and Part III of the “Appendix on Fact Issues” (pp. A-14 to A-19) attached to the brief of Appellants (including the United States and USRA) filed with the Special Court in connection with their appeals from the 180-Day Decision. In both cases, the specified portion of the Appendices represents an attempt to show that increases in the value of assets of the estate since bankruptcy offset the accumulation of prior administra- (Footnote continued) SERRA EL A CPEB SSR ON TCC RENE SINE MSR OTE NSA ANS SRO ee ted 2 ANG MNE ELAN ADR RARE RENO ennemenwamemnesene 46 have so held, citing only a footnote to In re Boston & Maine Corp., 484 F.2d 369 (1st Cir. 1973). Even that reliance is misplaced. The cited footnote is merely descriptive of a particular fact in a particular situation and does not pur- port to establish a rule of law. The point there at issue was one of standing to challenge the propriety of continu- ing the reorganization proceedings where, in that court’s view, there was ample hope of a successful conclusion. Moreover, at a time when inflation is so great as to in- crease asset values to the extent that, as Appellants ap- pear to claim, huge operating losses and prior claims are virtually rendered of no‘effect in calculating the value of the estate, Appellants’ theory becomes particularly inequi- table, in that claimants are deprived of their right to with- draw their capital from an enterprise in which the appre- ciations caused by an inflationary economy are offset by massive operating losses, and to reinvest in other enter- prises reflecting such appreciations in value without off- setting losses. The right to withdraw capital from such (Continued footnote) tive claims. Also in both cases the major element of such alleged increases is “Increases in the Value of the Plant Equipment [sic].” There, however, the similarity ends. In the brief filed by Appellants with the Special Court, dated August 5, 1974, the amount of such increase was alleged to be between $45 and $100 million. On the other hand, the brief filed by the United States with this Court, on the basis of the identical record, claims that such increases range between $85 and $360 million. The increase in figures, which were inexplicable to begin with, is itself nowhere explained. In both the brief filed with the Special Court and the brief filed with this Court, Appellants acknowledge the accumulation of prior administrative claims in at least the amount of $457 million. In the Special Court brief the total increase in value of the specified assets was alleged to be between $227.2 and $314.2 million, resulting in a showing of acknowledged erosion, in excess of claimed appreciation, on Appellants’ own basis, of from $142.8 to $229.8 million. This erosion is 2.5 to 4 times the amount of erosion ($60 million) which Judge Anderson found impermissible in the New Haven reorgani- zation proceedings. See In re New York, N.H. & H.R.R., 304 F. Supp. 793, 800 (D. Conn. 1969), aff’d in part sub nom. New Haven Inclusion Cases, 399 U.S. 392, 466. ee SPURS eae EAN PS SIE ERE INY 47 losing investments is, of course, squarely recognized in _Brooks-Scanlon Co. v. Railroad Comm’n, 251 U.S. 396. And this conforms to the purpose of a Section 77 reorganiza- tion, which is to attempt to develop an enterprise which has going concern valve, not to maintain an irreversibly losing status quo, offset only by inflationary increases in asset values.** f The Court below was, therefore, correct in holding that continued operations under the Act would foreseeably threaten the Penn Central estate and its stockholder and creditors. It was neither premature nor unsound in this conclusion. The constitutional significance of such compulsory op- erations turns on the necessity for and availability of methods of recouping such losses under the Act. To that we now tarn. C. Compulsory Interim Operations are Unconstitu- tional in the Absence of Reasonable Present As- surance of Reorganizability under the Act or an Assurance of Just Compensation. 1. The Public Interest in Continued Service Does Not Justify Mandatory, Uncompensated Interim Operations. Appellants urge this Court to reverse, in part upon the ground that the public interest requires the Penn Central estate to bear compulsory, uncompensated erosion because that risk is attached to investments in the railroad in- dustry by virtue of its.public service character. That argument extends beyond any limit previously recognized by this Court the impositions that may be laid upon invest- 34 In arguing that the value of the estate has increased since bank- ruptcy, the United States also argues (U.S. Br. at 68) that since the Trustees spent approximately $358 million on track replacement, the value of the estate must necessarily have been substantially in- creased. This argument cannot be sustained because (among many other reasons), as discussed above, the amount of deferred main- tenance of way greatly exceeds that amount. . 6-64 y - ty Gate San Hy 4 Ae Res CO ALET AIT LE ISLE ee a ree ab SEN A 48 ors in an industry affected by the public interest and, as applied in this case, is unsupportable by principle or prece- dent. . The thesis of the proponents of the Act is that continued operations and submission to the hazards of ultimate con- veyance are necessary to achieve the continued rail service that Hongress has declared to be in the public interest (Sec- tions 101(a), 206(a)). But, as Judge Fullam trenchantly observed in concurring below, ‘‘the magnitude of the public interest in continued rail service cannot justify treating’ these rail properties as if they were already public prop- erty’? (JA 79). . It is a seminal principle of our constitutional structure that the public should bear the cost of devoting private property to public uses. That continued interim opera- tion to the detriment of the estate may be required by the ~ public interest is the beginning, not the end, of the constitu- tional inquiry under the Fifth Amendment. This Court has long recognized the elementary charac- ter of this principle. It was succinctly framed (per Bran- deis, J.) in Louisville Joint Stock Land Bank v. Radford, 295 U.S.555, 602: ‘‘For the Fifth Amendment commands that, how- ever great the Nation’s need, private property shall not be thus taken even for a wholly public use with- out just compensation. If the public interest re- quires, and permits, the taking of property of indi- vidual mortgagees in order to relieve the necessities of individual mortgagors, resort must be had to pro- ceedings by eminent domain; so that, through taxa- tion, the burden of the relief afforded in the public interest may be borne by the public.’’ See also Armstrong v. United States, 364 U.S. 40, 49. 49 The invocation of the public interest so freely employed by Appellants does not have the talismanic force which they ascribe to it. Conceding that the rail properties of the estate are being put to public use, there remains the question of whether they may be put to that use by govern- mental compulsion at the cost of their private owners. The principle that private property may not be put coercively to public use without compensation has devel- / oped a doctrinal refinement as this Court has explored the ; frontier between regulation and takings. The cases read together seem to hold that the Government, in the exercise of its police power, may diminish or extinguish the value of property, without compensation, but within quantitative limits, in order to abate a nuisance which that property produces. See, e.g., Atchison, T. dé S.F. Ry. v. Public Util. Comm’n, 346 U.S. 346 (railroad properly assessed the costs of removing hazardous grade crossings which it construct- ed) ; Miller v. Schoene, 276 U.S. 272 (trees may be destroyed to prevent spread of disease). PEE eer ee es Tee There is no suggestion that the Government has set - about abating a nuisance here; instead it seeks to create ; an affirmative public advantage. This Court has consis- M4 tently recognized that the compulsory commitment of prop- j erty interests for the production of a public good is dif- ferent from the exaction that may be justified in nuisance abatement cases, and has held that, when property is put 3 by force of law to the production of an affirmative public 4 good, just compensation is required. See, e.g., Nashville, C., & St. L. Ry. v. Walters, 294 U.S. 405 (railroad cannot be required to bear costs of improving traffic flow on adjacent highway). | Moreover, the ‘‘principle of fairness’’ expressed in the Fifth Amendment (United States v. Dickinson, 331 U.S. ’ 745, 748), which forms the basis of its ‘‘political ethics’’ (United States v. Cors, 337 U.S. 325, 332), recognizes quan- titative limits on the exaction that the putative public ~~ 50 interest can compel. The question in such cases, so Justice Holmes put it, ‘‘narrows itself to the magnitude of the burden im”osed.’’ Interstate Consol. St. Ry. v. Massachu- setts, 207 U.S..79, 87. See also Pennsylvania Coal Co. v. Mahon, 260 U.S. 393, 413, 415. The Act neither attempts to abate a nuisance created by Penn Central nor does it impose burdens of inconse- quential magnitude on the estate. On the contrary, it imposes enormous economic burdens on the estate of Penn Central and upon Appellees for the purpose of achieving explicitly defined affirmative public advantages. It is far © outside the ambit of uncompensated regulation tolerated by the Fifth Amendment. | This principle has been applied specifically to the com- pulsory continued operation of losing railroads. Brooks- Scanlon Co. v. Railroad Comm’n, 251 U.S. 396; Bullock v. Railroad Comm’n, 254 U.S. 513; Railroad Comm’n v. East- ern Texas R.R., 264 U.S. 79. These cases all stand for the proposition that a hopelessly unprofitable railroad enter- prise cannot be compelled to continue operations in order to serve an asserted public need, in the absence of compen- sation, over the objection of its owners and creditors. ‘Appellants’ view of the Brooks-Scanlon line of cases appears to be somewhat ambivalent. While admitting, however grudgingly, that Brooks-Scanlon and its progeny may still be good law, Appellants nevertheless suggest that the authoritative force of these cases is dissipated because their constitutional doctrine was announced in the context of small railroads, prior to the advent of Section 77. The suggestion is plainly frivolous. In the first place, as- discussed above, the Brooks-Scanlon cases reflect a fundamental constitutional principle that confiscation of private property to service affirmative public needs, with- out compensation, is unfair. The advent of Section 77 did not and could not alter that constitutional insight. [ \ 51 In the second place, the reorganization court in the New Iiaven case specifically reviewed the validity of the Brooks-Scanlon line, and, over vigorous objections to its authority lodged by the ICC, held: ‘‘This court, therefore, concludes that Brooks- Scanlon and subsequent cases, reaffirming the val- idity of its holding, are still applicable and determi- native.’’ In re New York, N.H. & H.R.R., 304 F. Supp. 793, 804 (D. Conn: 1969). That opinion of Judge Anderson was reviewed and quoted extensively with approval by this Court in the New Haven Inclusion Cases, 399 U.S. 392. See also In re Penn Central Transp. Co., 494 F.2d 270 (3d Cir.), peti- tion for cert. filed, 42 U.S.L.W. 3633 (U.S. May 8, 1974) (No. 73-1672) (‘‘Columbus Options’’); New York, N.H. & H.R.R. First Mtg. 4% Bondholders’ Comm. v. United States, 305 F.Supp. 1049, 1055 (S.D.N.Y. 1969). The rule derived from these cases and the fundamental constitu- tional concern for fairness which they express is applicable here. Absent compensation, or ‘‘a reasonable prospect of profitable operation in the future’’*> (that is, reorganiza- tion), Appellees may not be forced by law to continue operations of their lines at relentless losses to serve a public purpose. Nor is the Court, in the context of this case, compelled to choose between the Brooks-Scanlon line of cases and the line of cases epitomized by Continental Ill. Nat’l Bank Trust Co. v. Chicago, R.I. & P.Ry., 294 U.S. 648, and Reconstruction Fimance Corp. v. Denver & R. G. W. R.R., 328 U.S. 495. In the context of this litigation, these lines of cases converge. The Brooks-Scanlon cases unequivocally hold that a carrier cannot be compelled to carry on its business at a 35 Bullock v. Railroad Comm'n, 254 U.S. 513, 521. Accord, Railroad Comm'n v. Eastern Texas R.R., 264 U.S. 79, 84. 52 loss out of concern for the public interest without just compensation. Here, that is exactly what the Act compels. Continental Banl:, and other cases like it arising under Section 77, do, indeed, permit some postponement of a secured creditor’s remedy of foreclosure of his lien fn the public interest and in the pursuit of a feasible, fair and equitable reorganization. All of these cases, however, proceeded upon the explicit assumption that reorganiza- tion of the railroad in question was demonstrably feasible. The cases repeatedly assert that the secured creditor, though required to postpone his remedy, was at least en- titled to ‘‘full compensatory treatment’’ for the rights which he enjoyed. See, e.g., Ecker v. Western Pac: R.R., 318 U.S. 448, 487; Group of Institutional Investors v. Chicago, Mil., St. P. & Pac. R.R., 318 U.S. 523, 565-66; Consolidated Rock Products Co. v. Du Bois, 312 U.S. 510, 528-30. The reorganization cases simply do not stand for the proposition that a secured creditor may constitutionally be compelled to stand by while a hopelessly losing rail- road is the object, for an undetermined period of time, of attempts at resuscitation which do not furnish a reason- able likelihood of success, and in any event, make no pro- vision for the depletion of the value of his lien during the period of his sufferance.** 86 In working out the balance required by the Brooks-Scanlon and Continental Bank lines of cases, the lower courts have for years oceupied themselves with attempts to reconcile in particular cases the public interest in continued rail operations and the interest of the estate in avoiding confiscation. From those cases has emerged a set of standards which, in essence, draws the line between the permissible postponement of remedies authorized by Continental Bank, and the confiscation forbidden by Brooks-Scanlon, by ascertaining whether or not there exists a reasonably likely prospect of reorganization that will yield going-concern value, in excess of liquidation values, that is, so long as there exists “a real prospect of compensating advantage . . . through a successful reorganization.” Central R.R. of N.J. v. Manufacturers Hanover Trust Co., 421 F.2d 604, 608 (3d Cir. 1970), cert. denied, 398 U.S. 949; In re Riker Del. Corp., 385 F.2d o (Footnote continued) KE ARIE He DLLME AE A UOC MEL. EY TI PL OTE 53 2. The Ratl Act Does Not Afford Any Reasonable Prospect of Likely Beorganieation for the Penn Central Estate. Appellants quite clearly have not shown—nor, on the basis of a scrutiny of the Act in light of the Penn Central experience, could they possibly have shown—that the Act furnishes that prospect of feasible reorganizability required under the cases to warrant continued loss operations of Penn Central over Appellees’ objections. On the contrary, a review of the provisions of the Act, in the context of the record before the Court below, estab- lishes the futility of pinning the constitutional propriety of continued operations to the ephemeral prospect of reor- ganization under the Act. For example: ene en oF (a) Conrail will not be materially different from Penn Central. The addition of the Reading, the Lehigh Valley, | the Central Railroad of New Jersey and the Ann Arbor, | four small bankrupt lines, will not materially alter the basic configuration of Conrail as a Penn Central, merely renamed. These railroads combined can be expected to contribute no more than 10% of Conrail’s trackage and revenues.*? (Continued footnote) 124, 126 (3d Cir. 1967). See also In re Third Ave. Transit Corp., 198 F.2d 703 (2d Cir. 1952); and Columbus Options. .The last of these cases specifically addressed the issue, much emphasized by Appellants here, that the requisite showing of reorganizability can be presumed, or accepted on the ipse dixit of Congréss, in light of the Rail Act. The court there specifically rejected the entirely executory provisions of the Act as an inadequate substitute for a judicial finding of prospective reorganizability sufficient to require continued absten- tion on the part of the creditors. Judicial notice of the passage of the Act, and of its terms, the court held, “cannot serve to enlarge the power of the reorganization court and the ICC to subject the prop- erty of secured creditors to a taking while, like Mr. Micawber, they wait for something to turn up.” 494 F.2d at 283. ** The smaller lines account for about 11% of present trackage and 8% of present revenue ton-miles. “Rail Service in the Midwest and Northeast Region”, a Report by the Secretary of Transportation dated Feb. 1, 1974, submitted pursuant to Section 204 of the Act (hereinafter “DOT Report”), Vol. I at 7 (J. Doc. No. 62). SIN RELL LILLIE LION oy OTT ETE LET LOL SISES OTE EIS EN Rata 54 / The new Conrail will, in fact, be nothing but the old bank- rupt =enn Central with inconsequential bankrupt appen- dages. (b) Conrail will face the same problems as Penn Central, Since Penn Central can be expected to comprise about 90% of the System, Conrail will be facing, to all intents and purposes, the same problems that the Penn Central Trustees have fought over the past four years. If anything, Conrail’s problems will be exacerbated by the laudable but expensive public service goalr imposed by Section 206(a) of the Act. The esnflict between these goals and economic considerations is obvious—and well illustrated by the Evaluation of the DOT Report prepared by RSPO in which RSPO says that, at its public hearings: . ‘**Winancial viability’ was criticized again and again as an improper criterion upon which to base the decision for continuation of rail service. Rather, ‘public need’ emerged as the more appropriate benchmark for measuring rail service.’’ J. Doc. No. 63 at. 13. : (c) Conrail has no reasonable prospect of viability. No feasibility study for Conrail has ever been published, and none appears in the legislative history of the Act. Not- withstanding Appellants’ extended insistence that the Act is designed to provide ‘‘new solutions’? (USRA Br. at 24-40), the Act does not address itself to such fundamental problems as shifting industrial trends, changes in fac- tory locations, and the competitive advantages enjoyed by _ truckers or the discriminatory division of tariffs—all of which were cited in the Congressional hearings.** The rea- son is obvious, There can be no quick and easy solution to problems of that kind—which is why the Conrail concept _ had a dubious future from its inception. 38 The absence of any prospect that the Trustees could effect these “fundamental changes” was specifically referred to by the Re- organization Court as a basis for its conclusion that the Penn Central was not reorganizable (JA 88). | Moreover, Conrail is not the concept that Congress originally envisioned because it can no longer include the Erie Lackawanna or the Boston & Maine. Whatever dim prospects Conrail might have had with those lines subject to the Rail Act faded with their withdrawal. The Erie carries about twice as much tonnage as Reading, Lehigh and Jersey Central combined, and the inclusion of Erie would have increased Conrail’s tonnage by more than 15%.*® The exclusion of Erie not only deprives Conrail of this tonnage, bnt leaves Erie in the picture as a competitor battling to . lure away even more business. . (d) Gonrail is an untried concept in railroad operations. Anvellants seem to recognize that Conrail will be little more j than a reinearn ‘ion of Penn Central. ‘They argue, how- ever, that the reincarnation will be more lively than the original because the Act has satisfied the conditions of viability postulated by the Penn Central Trustees.° In succeeding paragraphs we will show that the Act cannot, in fact, satisfy these conditions. However, before proceeding to that discussion, it is important to note that the Penn Central viability studies were not projections for a con- ventional railroad. Quite the contrary, the viability studies projected a new kind of railroad never before tested in operation. Neither the Penn Central Trustees nor anyone else could promise that such a railroad would run at all. As the Trustees told the Reorganization Court in 1972: PES PRA PEs oF TIS ee et ee ‘*It should be understood thai the rail networks described above are not comparable to any existing railroad, particularly in the territory served by Penn © Central. The 11,000 mile road to a great degree, and the 15,000 mile road to a lesser degree, represent a 39 Statistics taken from the DOT Report (J. Doc. No. 62) Vol. I at 7. 49 Trustees’ Report of February 15, 1972 (J. Doc. No. 4), re- capitulated in their Report of January 1, 1973 (J. Doc. No. 8). EE : 72 Ee 56 new type of transportation system consisting of main lines and high density feeder lines. The con- cept requires scattered shippers not located in highly — (~.” -/*-industrialized “areas to come to the railroad rather than having the railroad come to them.” (J. Doe. No. 7, Annex 1 at 1) It is one thing for the Federal Government to pin its hope of solving the rail crisis on a new and untried concept of railroad operation. It is a totally different thing to ask the Penn Central claimants to accept it as the equivalent of U.S. dollars. (e) The Penn Central Trustees’ viability condition con- cerning abandonments will not be satisfied. The first con- dition of viability postulated by the Penn Central Trustees was that the railroad plant be rationalized by eliminating excess lines. While the new Act might in theory provide a means for meeting this condition, practical political con- siderations point in the opposite direction. Local interests will fight significant abandonment of local lines.*? The pressures that Congress will be under to expand the Con- rail system are foreshadowed in the RSPO Evaluation of the DOT Report (J. Doc. No. 63) at 9-10: ‘‘The DOT Report was seen by the public wit- nesses as based largely on the premise that if all lines which do not make a profit are removed, the rail system will be profitable. At every hearing, the belief was voiced that the concept of large-scale abandonment as a cure for the evils of unprofitabil- ity is the wrong approach, advanced at the wrong time, and for the wrong reasons. *. Rail service continuation subsidies under Title IV of the Act are not a satisfactory answer because (a) the amount authorized for the federal share is plainly too small and (b) local communities are hard put to finance their existing services and do not have the resources to finance their share of rail service, which has not here- tofore been their responsibility. URNA NN EI LINE TEE EI LEE A ARE LT L I ELIA EE AIIE 57 ‘*Certainly, it was the possibility of rail service’ discontinuance and abandonment which raised the . “~— greatest public furor. Witness after witness de- scribed the adverse economic, social, and environ- mental impact such actions would have on communi- ties. It was contended that rail services discontinu- ance would result in market distortions, economic depression and social dislocations. Moreover, it was repeatedly stated that rail discontinuance is incon- sistent with our national environmental and energy conservation policies. Decreased rail service would result in increased truck transport and greater con- sumption of scarce energy resources, more pollution, and increased pressures on land use for additional highway construction. Public sentiment was strong that these factors must be of primary importance in determining the final rail plan.’’ ADAM LIST PREBLE SAD ILM OE AEE Spe HG AT ARIEL RID D SE” spe epagesne ermocT ac cerns i G Wet OR 1a dns eeen More important, the Wyer, Doel studies, completed after the Trustees first stated their ccaditions of viability, show that large-scale abandonment of lines is not the pan- acea proponents of the Act make it out to be. If, as the Wyer, Dick studies show, a 15,000 mile Penn Central sys- tem is not viable, it is hardly likely that a similar Conrail system (made up primarily of Penn Central lines) could be. (f) The Penn Central Trustees’ viability condition con- cerning unnecessary employees will not be satisfied. The Act makes no impact on the Penn Central Trustees’ second condition, the elimination of unnecessary labor expense. Appellants stress the acknowledged fact that the Act pro- vides $250 million for displaced employees, but they ignore the fact that the Act provides no means to achieve im- proved productivity by eliminating unnecessary employees. a ORS ges ae tats C8 pgs tm Oe EET 8 OG /ONOOOM PENOLA EMF ONS ER WE TNS Oe od The Penn Central Trustees’ Report of February 15, 1972 (J. Doc. No. 4) sets a goal of eliminating approxi- 58 mately 9,800 train and engine service employees. Their — report of July 1, 1972 (J. Doc. No. 6) states that this goal cannot be achieved except through negotiations with the affected unions on a national basis. The Act does nothing to change this situation. Indeed, the DOT Report, after observing that ‘‘one of the greatest opportunities for in- creasing productivity is in finding ways to change inflexible labor rules to permit better utilization of both labor and capital,’’—precisely the point of the Trustees’ labor condi- tion—goes on to acknowledge that the Act ‘does not pro- vide any direct mechanism for making such changes .. .”’ DOT Report (J. Doc. No. 62) at 8. (g) The Penn Central Trustees’ viability condition con- cerning passenger service will not be satisfied. The Act does not satisfy the Penn Central Trustees’ condition of viability with respect to passenger service. While the Act may ultimately provide full compensation for passenger service, it does not satisfy the fundamental assumption of the Penn Central viability studies that the core rail system ‘‘will handle freight only and passenger operations will not constitute a burden in any way. This assumption goes beyond the concept that passenger service is self- sustaining; it assumes, in essence, that the passenger service does not exist.’’#? Furthermore, the viability studies’ assumptions would require the provision of a new freight route from Boston to Washington so as to permit the exclusive use of the existing corridor for passenger service. The problems in- herent in attempting to run slow-moving freight trains and increasingly high speed Metroliners over the same tracks are reflected in the RSPO recommendation that USRA: ; “*. . . should consider alternate means of han- dling freight traffic now moving over the Northeast ‘2 Trustees’ Report of October 1, 1972 (J. Doc. No. 7) Annex 1, (101; Exhibit T-7 to Affidavit of Nelson A. Sharfman, dated March 21, 1974 (J. Doc. No. 17). apy tase RARE ALLELE SEER By ES Yee EAE FED oy UPR TN RS. 59 passenger corridor between Boston, New York City, and’ Washington. The Final System Plan should include and provide for the improvement of routes which would make it possible to remove as much freight traffic as possible from the corridor.’? RSPO Report (J. Doc. No. 63) at 3. The Act makes no provision for carrying out this essential condition. = cd E } : ' e bY * (h) The Penn Central Trustees’ viability condition concerning traffic and revenues will not be satisfied. The final, and perhaps most vital, condition of viability postu- lated by the Penn Central Trustees is the achievement of the traffic and revenue potentials forecast by Temple, Barker & Sloane. (See J. Doe. No. 38; FF 12-22, JA 92- 98.) The basic assumptions of the Temple, Barker & Sloane studies appear in Attachment 4 to the Trustees’ Plan for Reorganization dated April 1, 1972 (J. Doc. No. 5). They include an assumption that Penn Central will have adequate plant and equipment to carry the forecast tonnage and to maintain service at or above current levels, and the assumption that there will be increased prod- uctivity from manpower, equipment and plant. (See also FF 13, JA 92-93.) The importance of these factors was recently emphasized by the Executive Vice President of Temple, Barker & Sloane thus: ae ree CE IS 2 IN eM OME SEATS ‘‘Finally, by way of introduction, it is of critical importance to note that in our February 1974 fore- east, TBS is projecting traffic that is potentially available to Penn Central. As was the case in our previous three forecasts, the Trustees requested that e TBS assume in its latest forecast that Penn Central 4 has sufficient plant, equipment and manpower to provide the quality of service that shippers can reasonably expect from railroads; and the present forecast is predicated on this key assumption. In é 60 the course, however, of developing this latest fore- cast, evidence was obtained from shippers which now leads me to state with a reasonable degree of confidence that the current state of Penn Central’s plant and equipment will render PC incapable of fully realizing the potential traffic and revenues forecast for it.’’** As noted above, the Act does not provide a mechanism for increasing manpower productivity to satisfy the Temple, Barker & Sloane assumptions. Similarly, it does not provide nearly adequate resources. for rehabilitating and modernizing Penn Central’s equipment and plant, nor does it provide any funds for Conrail’s working capital. The Trustees reported as early as February 1, 1973 (J. Doe. No. 9) that as much as $800 million would be required _ for rehabilitation and modernization. That figure has since » been increased by additional deferred maintenance and in- flation** and would be further increased by the inclusion of other bankrupt. lines in the Conrail system. To meet this need the new Act provides that only $1 billion of USRA obligations be issued to Conrail, of which only $500 million must be allocated to rehabilitation and mod- ernization. The amount is clearly inadequate for Penn Central alone upon the facts found by the Reorganization Court (JA 92). What is worse, however, any funds ad- vanced under these provisions of the Act will apparently constitute a first lien on the Conrail properties ranking prior to the claims of the present Penn Central creditors. It is important to reiterate that Appellants offered no evidence below to show that Conrail was likely to be viable, but rested upon the record submitted to the Court and on the facial terms of the Act. *8 Sloane affid. (J. Doc. No. 16) at 2. See also FF 22, JA 97-98. ** Jackman affid. (J. Doc. No. 18); FF 10 and footnote thereto, JA 91-92. eae PtP IEE PAL Se 61 The conclusion is inevitable: immediately before the Act became law there was concededly no light at the end of the Penn Central tunnel.*® The Reorganization Court, whose findings on such matters are customarily accorded great weight here,*® made detailed findings which fleshed out that bare stipulation and concluded that a railroad of any configuration that could plausibly be designed from the Penn Central would not have any reasonable prospect of viability (JA 92-102) in the absence of special provisions meeting the Trustees’ conditions which the Act patently fails to afford. . :. & Ke & & Fs e& % ‘ he * . 5 f The introduction of Conrail does not change the situa- tion in any material way. The addition of a few thousand miles of unprofitable track and the adoption of a hopeful new name are not enough to alter the outlook for viability. On the basis of the Act as it now stands, Conrail has no better prospects. 3. The Act Provides No Assurance of Payment for the Taking by Interim Erosion. Congress could have provided for payment of compen- sation for interim erosion in at least two ways: it could have provided direct payments to subsidize the losing in- terim operations or it could have provided that the final payment for the rail properties compulsorily conveyed to Conrail include assured compensation for the imposed interim losses.*7 It did neither. Rather the burden of interim losses from operating Penn Central for the pub- lie purpose was left upon the estate and its creditors. 45 See Stip. No. 9, JA 206. 46 See, e.g., New Haven Inclusion Cases, 399 USS. 392, 463; Reconstruction Finance Corp. v. Denver & R.G.W.R.R., 328 USS. 495, 533. 47 Even this procedure would have required legislative ingenuity, since the erosion is being felt system-wide, and the conveyances pre- sumably will be less extensive. : Ree eR CR Nae ais es gat ee a ake Re ae I eg ot = Te EP OEE: 62 (a) Interim payments provided are inadequate. The Act does have provisions which were evidently in- tended to. relate to interim operations. However, if in fact these were intended to provide some degree of compen- sation for burdens of interim operations, they are wholly inadequate. Section 213, the only provision of the Act which pro- vides funds which may be used for operations during the planning period, authorizes the Secretary of Transporta- tion to make payments for certain specific purposes: ‘‘{a) Emergency Assistance-—The Secretary is authorized, pending the implementation of the final system plan, to pay to the trustees of railroads in reorganization such sums as are necessary for the continued provision of essential transportation serv- ices by such railroads. Such payments shali be made by the Secretary upon such reasonable terms and conditions as the Secretary establishes, except that recipients must agree to maintain and provide service at a level no less than that in effect on the date of enactment of this Act. (b) Authorization for Appropriations.—There are authorized to be appropriated to the Secretary for carrying out this section such sums as are nec- essary, not to exceed $85,000,000, to remain available until expended.’’ The $85,000,000 is plainly not enough to effect even a dent in the massive interim losses anticipated for Penn Central alone, much less for the other bankrupt lines which might comprise parts of Conrail. The Government was well aware that Section 213 money would be of no major significance. John Barnum, Under Secretary of the De- partment of Transportation, advised the Senate Commerce Committee that the $85,000,000 was ‘‘merely the amount PSEA AE. RAYS TOME SEBO EINES LR SPT PES LMS SME) Bo TERIOR RE Dy SIME ls PENA EGIL —, BESET WP RES ERR EAGT AHL: AER EINER LITA AIAN LIES IP CSTE : 63 which we thought should be provided in the form of a grant to the bankrupt railroads so that they would be able to meet their payrolls Friday and not run out of cash.” ** And Counsel to the Department of Transportation con- ceded to the Penn Central Reorganization Court that even for the purposes intended, the $85,000,000 had been caleu- lat®d on faulty premises (J. Doc. No. 25).*® | The second provision in the Act relating to interim payments is Section 215, which provides funds for the acquisition, maintenance or improvement of rail properties to be included under the Final System Plan. However, that section provides that Conrail need not compensate a railroad for that portion of the value of rail properties transferred to it which is attributable to such acquisition, maintenance or improvement. The section thus does not so much compensate for interim erosion as it creates a charge against subsequent compensation. Moreover, the provision does nothing at all to help with the maintenance of rail properties which, though required to be kept ‘in operation under Section 304(f), are not to be included in the Final System Plan. The section plainly does not con- stitute any compensation for required interim erosion. Given the history of Penn Central losses equalling $851,000,000 for the period June 21, 1970 until December 31, 1973 and the findings of the Reorganization Court that the losses will continue unabated, the Court below had no choice but to hold that: ‘‘It becomes quickly apparent that the limited amounts of these funds—available to railroads in 48 Hearings on S. 2188 before Senate Commerce Comm., 93d Cong., Ist Sess..at 65 (Nov. 15, 1972). 49 For a further emphatic statement that “the granting of financial assistance to protect against further erosion of the estate, is not in accordance with,the purpose for which the funds under § 213 of the Act have been appropriated, see Letter of Federal Rail Adminis- trator Ingram to the Trustee of the Central Railroad of New Jersey (Trustees’ Br., Annex A, at Sa). \ PLIES PPLE VOLE PLE LE LOE OL LLL GOO LEE IE SELLE LEE LILLE GPG PT, NLT LTE ET LI Re te hae a el PRETEEN ede: | 64 reorganization in the region—have not been specially ‘designated to meet challenges of unconstitutional erosion.’’ (JA 31) (b) The Act fails to provide compensation which is ade- quate in medium and amount to assure fair value for the assets to be conveyed and still less does it provide redress for interim erosion.*° The Act neither authorizes the Special Court to provide recompense, nor requires Conrail or USRA to make direct payment for interim erosion. The burden of such losses was specifically left with the bankrupt railroads’ estates. Appellants, however, claim that the Special Court may somehow fix the compensation to remedy erosion by includ- ing such amounts in the ‘‘constitutional minimum”’ to be provided under Section 303. Upon this basis they then contend that the Court below was premature and improvi- dent in concerning itself with the adequacy of the com- pensatory mechanism set out in Section 303 (see, e.g., USRA Brief at 71). The problem with this approach, of course, lies in the fact that reliance on Section 303 requires rather than excuses a study of the adequacy of its com- pensatory mechanism. And that study in turn involves a consideration of the extent to which those procedures pro- vide adequate assurance of compensation for the conveyed rail assets and have the clear potential of yielding values in excess of the amounts required to meet that cost, so as to defray the burdens of interim erosion. The Special Court does not have any method by which it can increase the amount of compensation available under the Act and 50 The New Haven Trustee has cross-appealed and the Penn Central Trustees have appealed, inter alia, from so much of the judgment below as determined (by a 2-1 vote) that the constitutional challenges to the ultimate conveyance provisions of the Act were premature. While Appellees here have not joined in those appeals, they do concur in the arguments expressed at New Haven Trustee’s Brief at 24-92 and Penn Central Trustees’ Brief at 48-62. 65 the Final System Plan for the rail assets conveyed. If, as seems inevitable, the value of the compensation real- izable under the Act turns out to be less than the fair value of the assets transferred to Conrail, there will obviously be no way in which the Special Court can also compensate the estate for two years’ erosion. Yet that is plainly the prospect, and the Court below properly and necessarily reached the issue now. We therefore turn to an examination of the workings of Section 303 which, Appellees submit, reveals its inade- quacy both for the purpose it was ostensibly to serve and the new assignment which Appellants ask this Court to read into it. The Act ultimately requires a non-consensual transfer of title in the rail assets from the estate of Penn Central with a simultaneous extinction of liens on those assets. At no point do any of the relevant parties—Trustees, stock- holder, secured or unsecured creditors, or reorganization judge—have any option about the disposition of the prop- erty once the estate has been committed to the process of the Act. None of these propositions seems to be, nor can they be, seriously controverted. Whether this peculiar process results in a condemnation under the eminent domain power of Congress or an ex- change of assets under the bankruptcy power may be hard to discern. In either case, however, it is constitutionally indispensible that there be in the process of the Act an assurance that those whose property is transferred by virtue of its mandatory terms will be justly compensnvet for their losses. Assuming that the Act is not regarded as an exercise of the power of eminent domain, Section 303 nonetheless falls far short of meeting the Fifth Amendment requirement of just compensation. The compensation payable under the Act is woefully inadequate to equal the constitutional mini- 66 mum value of the properties to be taken, and the Act permits Appellees no recourse by which they might re- cover the amount by which such minimum value exceeds the amounts payable under the Act. Still less is there any procedure by which a bill for interim erosion can be added to the claims against the compensation afforded by the Act with any hope—let alone assurance—that it could be paid. In short, the Act would take Appellees’ property in the interim and ultimately, without assuring them that just compensation would be paid in all events. (i) Kind and amount of compensation under the Act. The Act provides that payment for rail properties conveyed to Conrail is to consist solely of common stock of Conrail, other unspecified securities referred to in Section 206(i) (and, if Congress concurs pursuant to such section, obliga- tions of USRA not to exceed $500 million, which might be guaranteed by the United States), and other undefined ‘*benefits’’ accruing to the estate by reason of the transfer. If the Special Court should determine, pursuant to Section 303 (c), that the value of such consideration is less than the fair value of the properties conveyed, the only remedies allowed it by the statute are (a) an order reallocating the securities issued to the various estates; (b) an order requiring the provision of additional Conrail securities designated in the Final System Plan; and (c) an order entering a deficiency judgment against Conrail. The common stock of Conrail can have value only insofar as Conrail will be a viable entity generating income in excess of costs and fixed charges. In light of the dismal prognosis for the bankrupt lines, parts of which will ulti- mately comprise Conrail, in light of the failure of the Act to deal with the problems which beset Penn Central and given the public service goals which must be served by Conrail (Section 206), the common stock will have little, if any, value. But whatever be the ultimate value of the common stock, there can be.no dispute that there presently 67 exists sufficient doubt about that value to require considera- tion of the other potential sources of compensation avail- able to the Special Court. Securities of Conrail other than common stock and USRA obligations could possibly be included in the package of compensation to go to the estates of the bank- rupt railroads. However, even if proper under the Act,” the addition of such securities to the Conrail mix could not solve the problem. Virst, if Conrail issued debt secured by liens on all the property transferred, the mere existence of these securities would substantially decrease the intrinsic market value, if 5! Appellees believe, however, that the issuance of a substantial amount of Conrail secured debt to pay for the rail assets would fly in the face of the Act’s design for Conrail. Debt secured by liens on the properties transferred would add nothing to the real value of Appellees’ compensation unless the debt were senior and carried adequately secured fixed charges. Appellees cannot regard seriously any implication by the Government that the Act contemplated that the USRA obligations (and any other United States debt) ‘would be junior. (Cf. Rail Act, §211(e)(3) and (f).) Further, use of a substantial amount of Conrail debt to pay the estates would render superfluous Section 301(d), which clearly contemplates that the Government would initially control Conrail because of its debt in- vestments therein. Reliance on substantial Conrail debt to pay the estates would also subvert the Act’s intent that the capital structure of Conrail be based on pro forma earnings (as constructed by USRA), “including such debt capitalization as shall be reasonably deemed to conform to the requirements of the public interest with respect to railroad debt securities, including the adequacy of fixed charges” (§ 206(e) ). A Conrail saddled with substantial first priority secured debt could borrow only with great difficulty, if at all, a burden hardly in the public interest. Also ignored would be the Act’s intent that securities issued by Conrail in exchange for the rail properties be such as “will minimize any actual or potential debt burden on [Conrail]” (§ 206(i)) and that Conrail adopt and implement employee stock ownership plans (§ 206(e) (3)), presumably using stock that has some real value after Conrail issues its securities to pay for the rail assets, 68 any, of the common stock.*? Second, it must be assumed — that such senior securities would carry with them rights to interest or dividends in order to be marketable ;** however, payment of interest or dividends would result in a continual cash drain on Conrail’s resources, thus further reducing the value of its common stock, Moreover, there could be no assurance that payments of interest or dividends could be made. Third, the existence of secured debt on Conrail’s properties would render further borrowing by Conrail difficult and expensive, if possible at all. Last, that USRA may include Conrail debt securities in the Final Systein Plan does not supply the necessary assurance that the estate and the creditors will be paid the constitutional minimum value of the properties conveyed to Conrail, even assuming such securities could, if included, add value to the total package. Finally, the Act provides only one remedy—a deficiency judgment against Conrail—in the event that the Special Court finds that Conrail’s securities, as authorized by the Act and designated in the Final System Plan, cannot pro- 52 If senior securities were issued to investors for cash, rather than to pay for acquired assets and interim erosion, the reverse might well be the case in that Conrail would receive funds for operations and rehabilitation of its. properties, the judicious use of which could increase Conrail’s earning power thus giving rise to a concomitant increase in the value of its common stock. This, un- fortunately, is not the situation hypothesized here. Senior securities issued in exchange for transferred rail properties would not bring ’ needed operating funds to Conrail, but would only increase its already difficult task of making ends mect. 53 If the right to receive interest or dividends on the senior securities should be postponed for a period of years after their issuance, the value of such securities would ‘have to be severely dis- counted for purposes of determining the “constitutional minimum.” If the securities carried no rights to interest or dividends, their value would not only be greatly discounted, but they would ‘then represent only a right to foreclose at maturity, in effect, a very expensive ticket to another Section 77 proceeding. | 69 vide that requisite value. But the deficiency judgment must necessarily reduce the value of the common stock, the inadequacy of which-®equires the entry of the judgment in the first place. Thus, whether described as ‘essentially circuitous’ (JA 77) or as a ‘“‘relatively pointless’ (JA 137) remedy, the Conrail deficiency judgment cannot cure the constitutional inadequacy. No party has presented any analysis which claims significant value for the judgment or which otherwise supports a contrary conclusion. (ii) Inadequacy of compensation on any theory of valua- tion. USRA is (contingent upon subsequent Congressional ratification) authorized to provide in the Final System - Plan for the issuance of up to $500 million of debt obliga- tions of USRA, which may be guaranteed by the United States Government, for use by Conrail in paying for rail assets. Once it is appreciated that the value of the stock and other securities of Conrail is not necessarily equal to the value of the rail assets of Penn Central to be conveyed, and that the deficiency judgment is ‘‘ essentially ¢circuitous,’’ the only remaining test of the constitutional adequacy of | Section 303 is an assessment as to whether and under what circumstances this $500 million of theoretically available debt securities would provide the Penn Central estate with a total package of securities whose value would equal the constitutional minimum value of the rail properties conveyed. Appellees submit that the assessment made by the Reorganization Court in the 180-Day Decision was cor- rect: whether the Act be regarded as an eminent domain statute or as a reorganization statute, its provisions are on their face incapable of providing compensation equal to the constitutional minimum value, whatever standard may be employed to measure that value. The evidence before the Reorganization Court on valua- tion of Penn Central’s rail properties consisted primarily 4 “ih a Ee ee eee eee ee 70 of a Day & Zimmermann study filed with the ICC,** which estimates the value as of December 31, 1970 of the physical assets of Penn Central and all its leased lines, exclusive of the Park Avenue properties, and includes, in part, land not required for rail use and railroad lines which USRA might determine should be abandoned rather than included in a Final System Plan. It is, of course, impossible to show at this time what portion of the assets studied by Day & Zimmermann would be included in a Final System Plan. It is reasonable and conservative to project, how- ever, that in terms of the value of all physical assets of Penn Central and its leased lines studied by Day & Zim- mermann, the properties designated in a Final System Plan would be likely to comprise not less than 50% of the total value of the physical assets of the Penn Central System.** Two different approaches to valuation were presented by the Day & Zimmermann study, one based on a con- tinued rail use methodology and the other based on an assumed liquidation for non-rail use. In the case of the latter methodology, a present value of a projected stream of future liquidation proceeds was also calculated. In sum- 54 Day & Zimmermann, Inc., “The PCTC Physical Asset Valua- tion Study,” April, 1973; Revised May 1973 as Appendix 1 to Exhibit T-21 (witfiess: Carlisle) in ICC Fin. Dkt. No. 26241 (J. Doc. No. 40). 55 For example, the New Haven Trustee’s Plan of Reorganization, dated June 27, 1973, submitted to and considered by the ICC in its September 28, 1973 Report, called for a redu¢tion in route miles from some 19,000 route miles actually operated now to 11,000 rcute miles. The 11,000 mile “core system” would Rave required sub- stantially more than half the total value of the physical assets studied by Day & Zimmermann. Moreover, Penn Central comprises over 19,000 9f the aggregate 26,000 route miles in the region potentially coveréd by the Act. With the Erie and Boston & Maine out of Conrail, it becomes mani- festly impossible to structure Conrail without at least 50% of Penn Central. 71 mary, the results of the Day & Zimmermann study were as follows: Total Value of . Wholly-Owned Assets, Penn Central and Assumption as to Leased Lines as of “Highest and Best Use” December 31, 1970 Continued Railroad Use ............ $13,858,493,000 Liquidation for Non-Rail Uses: Estimated Gross Proceeds of Sales over a Period of Years .......... $ 3,532,110,000 Present Value of » Estimated Net Proceeds, after deducting interest factor and all expenses of sale and of preservation of assets pending DE Ee ea eT ee $ 1,995,778,000°° These valuations provide substantial evidence®’ upon which it may properly be concluded that even if all $500 million of USRA securities available for such use were committed to the Penn Central estate, it would not consti- tute payment in full for the value of the Penn Central pro- perties likely to be included in the Conrail system; but rather that, as the Reorganization Court held, ‘‘. . . there is every reason to suppose that the included properties would be worth considerably more than $500 million’’ (JA 137). 56 The present value approach results in negative values being assigned to certain leased lines; for example, New York Connecting R.R. has an assumed negative value of $2,898,000, after deducting $8,844,000 as the net cost of demolishing its bridges and tunnels. This is an aspect of the “scrap value” approach which is totally inconsistent with preservation of an essential national asset. 57 In addition, Penn Central’s Annual Report for 1973, prepared by Haskins & Sells, certified public accountants (Doc. No. 7813), shows, as of December 31, 1973, Penn Central’s rail properties to have a_book value (after depreciation and certain reserves) in ex- cess of $2.5 billion. SANTO Da Ca alle 72 The conclusion that the Act simply does not provide enough value of any kind to pay the constitutional minimum value of the conveyed rail assets alone does not at all depend upon the valuation standard applied. Both the esti- mated value for continued rail use ($13.5 billion) and the estimated liquidation value ($3.5 billion) clearly greatly exceed the value which could be provided by the Act’s com- pensation mechanisms.** Even the Day & Zimmermann dis- counted scrap value approach, an approach which Appellees contend would be wholly erroneous, produces a value of ap- proximately $1 billion on the assumption that only 50% in value of the Penn Central assets would be included in the Final System Plan. Finally, mention should be made of a novel theory of valuation which Appellants pressed below and in the Spe- cial Court, although it does not yet appear in their briefs here. That is the proposition, unsupported by any au- thority, that if going concern value based upon earning capacity is Jess than liquidation value, the latter is no meas- ure of the ‘‘constitutional minimum.’’ As the Reorganiza- tion Court noted in the 180-Day Decision, this theory of valuation appears in the legislative history to be the basic rationale of the Rail Act: ‘ ’ 5 Re . : a . Appellees contend that this position is wrong as a mat- ter of law. The New Haven Inclusion Cases plainly held that the bondholders there were receiving a value re“ecting ‘*the highest and best use of their properties’’ (399 U.S. at 482, n. 80), and described that value as being the equivalent of ‘‘the right to liquidate and a per-parcel sale that is theirs | by virtue of their mortgage liens’’ (399 U.S. at 489-90). The Court defended this value against a challenge by Penn Central predicated on the truism that it was paying liquida- tion value for property which had a lower (or negative) going concern value, by noting that the bondholders’ right to liquidation value derived from their state-created liens (399 U.S. at 499). New Haven Inclusion Cases*® thus reinforces the propo- sition that liquidation is the highest and best use of the operating property of a hopelessly losing enterprise. This too stems from the investors’ right to withdraw their capital from hopelessly non-remunerative use. Brooks- Scanlon Co. v. Railroad Comm’n, 251 U.S. 396. And that use then determines the value that must be reflected in any compelled conveyance. Appellants’ intimation below that less will suffice, and the apparent assumption of Congress in the Act that the ‘‘constitutional minimum’’ can be less than liquidation value is simply wrong. Of course, to the extent that Appel- lants .seek. to excuse the absence of assured liquidation values in the Act on this theory, they implicitly acknowledge SAREE PLR ALS AEE NIE TENE BELEN LS RMN LL SET EDS NS Pe PO ERA RPI NE 59 See also In re New York, N.H. & H. R.R., 289 F. Supp. 451, 454-55 (D. Conn. 1968). RAISER OEE DIERKS Be NaS OP ENS a 74 _that no surplus over such liquidation value is provided in the Act to defray the burden of interim erosion. (ec) The Act fails to provide any procedures which could assure the requisite fair value for the properties conveyed and compensation for interim erosion. This Court has long held that the procedures set out in Section 77 are constitutional because they provide mech- anisms by which ‘‘full compensatory treatment’’ can be accorded claimants against the estate, in order of their priority. Consolidated Rock Products Co. v. Du Bois, 312 U.S. 510, 528-30; Group of Institutional Investors v. Chi- cago, Mil., St. P. & Pac. R.R., 318 U.S. 523. Ecker v. Western Pac. R.R., 318 U.S. 448, 565-66, recognized that such treatment could not be formulistic, but depended on the existence of procedures which assured that the in- formed judgment of the ICC and the reorganization court would be brought to bear on “all relevant factors’? in giving prior approval to any exchange of securities re- quired by a reorganization plan. The essence of this case law is that creditors are entitled to procedures which provide reasonable assurance that they will receive the fair equivalent of their property, in order of absolute priority, before their property may be taken from them in bankruptcy. Louisville Joint Stock Land Bank v. Radford, 295 U.S: 555; Wright v. Vinton Branch of the Mountain Trust Bank, 300 U.S. 440; Wright v. Union Central Life Ins. Co., 311 U.S. 273, 278. The processes of the Rail Act preclude any such assurance. In the first place, the Special Court’s Section 303 powers do not assure fair and equitable treatment. Congress provided in Section 206(d) (1) that the transfers to Conrail ‘*shall be . . . in exchange for stock and other securities of [Conrail].’’ Consistent with that intent, the Special Court, which has the power to determine the fairness of the exchanges mandated by the Act, but only after they are consummated, initially decides whether the transfers PETROL EE BT PLES IE ALLIEN TELE ECL IIE LIB oases il aes we se keg Whe gOS Pe ae - . ail 75 to Conrail and the exchange of securities are in the public interest and are fair and equitable to the estate of each railroad, The remedy granted to the Special Court to cure any failure of the exchange to meet the fair and equitable standard is: first, to reallocate those securities of Conrail, specified in the Final System Plan, which had been deposited with it prior to the transfer, among the various railroads; second, if the lack of fairness anki equity is not thereby cured, to order Conrail to provide addi- tional securities of Conrail or the limited obligations of USRA, if any, specified in the Final System Plan, as may be necessary; finally, ‘‘if the lack of fairness and equity cannot be completely cured’’ by these first two steps, then the Special Court ‘‘shall . . . enter a judgment against [Conrail].’’ Section 303(c)(2)(C). (Emphasis supplied.) These procedures fail to assure receipt of the consti- tutional minimum for the obvious reason that no assurance whatsoever exists that there are sufficient assets available to the Special Court pursuant to Section 303(c) to enable it to provide a total value in the package of Conrail securi- ties which will equal the value of the rail properties taken. Presumably, this is precisely the reason for the inclusion in Section 303(c)(2)(C) of a power to order a judgment against Conrail. Thus, while the processes of the Act necessarily contemplate a deficiency judgment, there is, as Judge Fullam’s concurrence below points out, ‘‘no assur- ance that the price fixed by the Special Court can be paid, under the statutory scheme’”’ (JA 79). The compensation procedures of the Act are inadequate, then, first because they are illusory. The Special Court, moreover, is hamstrung by the Act. Unlike an ordinary reorganization court confronted by a plan of reorganization which is not feasible, the Special | Court cannot refuse to order the mandated transfers and the exchange of securities required by Section 303. The Act provides explicitly that ‘‘the Special Court shall, within ten days after the deposit’’ of the securities RINT aN i MOS RS LT AEN ao >: PEALE AL AR ORG ATR I 76 called for by the Final System Plan order the Trustees of railroads in reorganization to convey ‘‘forthwith’’ to Conrail the rail assets specified in the Final System Plan and ‘“‘shall itself order the conveyance’’ of lessors’ inter- ests called for by the Final System Plan. In case this explicit language of Section 303(b) did not carry clearly enough the intent to defer consideration of compensation until the conveyances had been irrevocably consummated, Section 303(c) further provides that the Special Court shall decide whether the exchanges are fair and equitable “after the rail properties have been conveyed to [Conrail] and profitable railroads operating in the region under sub- section (b) of this section . . .’’ (Emphasis supplied.) It is crystal clear from the legislative history that Con- gress meant exactly what it said. In the Report of the Senate Committee on Commerce on S. 2767, the Committee submitted its explanation of Section 303(b) of that bill, which itself was carried unchanged in this respect directly into the Act: . “The conveyances are to be free and clear of liens and eneumbrances and may not be judicially restrained or enjoined. . . . Because of the public interest in permitting the new Corporation [Conrail] to obtain all the rail properties it will need so that it may commence operations at the earliest prac- ticable time, the special court is not given any discre- tion in making the order requiring conveyance.”’ © (Emphasis supplied. ) The Act further underscores the determination to fore- stall valuation of the assets until after they have ‘been conveyed by its specific provision that the ‘‘conveyances shall not be restrained or enjoined by any ae ’? Section 303(b) (2). 69S. Rep. No. 93-601, 93d Cong., 1st Sess., Dec. 6, 1973 at 33. ; 17 Not only are the procedures of the Act illusory, then; they are so constructed as to preclude the Special Court or any other court from interfering with the inexorable convey- ances that they prescribe.*’ No court, therefore, possesses the power to scrutinize the Final System Plan in advance of conveyances and to prevent a conveyance which appears almost certain to be confiscatory. Far from assuring just compensation for interim erosion as well as the assets ultimately conveyed, the procedures of the Act go to great lengths to dissipate the assurances normally afforded by procedures under Section 77 of the Bankruptcy Act. The procedures under the Act are not analogous to the Section 77(e) cramdown. The Rail Act procedures cannot be sustained by analogy to the ‘‘cramdown’’ pro- vision of Section 77(e) of the Bankruptcy Act. The cram- down power is set in a context which is wholly absent in the Rail Act. Section 77 affords securityholders in a rail- road reorganization the opportunity to be heard and then to vote before their property rights may be adjusted in the reorganization. This provision is consistent with the long history of legislation regarding the composition and adjustment of debts, both in‘ England and the United States, and recognizes the safeguard of claimants’ interests implicit in the consensual underpinning for railroad reor- ganizations. The cramdown is designed to-prevent an obstinate class of claimants from arbitrarily withholding its assent. and 61 It does not appear that Appellants press upon this Court the argument urged upon the Special Court that, notwithstanding the contrary language of its organic Act, it possesses some inherent power to make a “prima facie review” of the Final System Plan before ordering the conveyances. In any event, since the interval between delivery of the Final System Plan and the mandated trans- fers may be as little as eleven days, it would be impossible for the Special Court to rest any such decision upon an informed indepen- dent judgment of its fairness. ~ 78 thereby frustrating a reorganization plan which is fair and equitable and in the public interest.*? However, the cramdown is permitted only if the court finds, after hear- ing, that the plan makes adequate provision for fair and equitable treatment of the interests or claims of those rejecting it and that such rejection is not reasonably justi- fied in the light of the respective rights and interests of those rejecting it and all relevant facts. The cramdown provision, therefore, grows out of a combination of consensual arrangement and informed judicial scrutiny in advance of the consummation of the reorganization plan. The Rail Act eliminates both of these underpinnings of the cramdown provision; it neither per- mits the exercise of enlightened self-interest to protect the rights of the claimants through the provision of a vote, nor allows any court the opportunity of informed judicial supervision of the terms of the exchange in advance of their occurrence. There is no precedent for compelling such exchanges in the absence of both assent and prior judicial determina- tion that they are fair and equitable. > ®2 It is improbable that the cramdown power is intended to be available where, as here, there is general objection to the plan by all classes of claimants. As the leading commentator puts it: “[T]heoretically the judge may confirm a plan where no classes at all have assented to it... . The language [of § 77(e)] is broad enough to permit this. . But aside from questions as to constitutionality, it is difficult to conceive of a plan being ‘fair and equitable’ . . . which is disapproved by all the classes. Such disapproval would in itself forcefully indicate that that judge confirming such a plan was wrong in determining the commercial expediency of the plan, which the classes are usually better qualified to determine than the judge ... . There seems little doubt that the provision will be applied only to small, obstructing, dissenting groups after most of the other classes have indicated their approval of the plan.” 5 Collier, Bankruptcy § 77.19 at 555 and n.10 (14th ed. 1974). 79 . D. New Haven Inclusion Cases, 399 U.S. 392, Does Not Support the Constitutionality of the Rail Act, but Exposes its Unconstitutionality. Appellants and Amici Curiae all confirm the under- standing derived from the legislative history that the Act is consciously based on the New Haven reorganization and allegedly draws constitutional support from the decisions handed down in its course. Appellees here defer to the New Haven Trustee’s review of the relevant history of that proceeding which, we are informed, he will present in his Appellee’s brief. In view of the emphasis placed upon the New Haven precedent, however, Appellees here do emphasize certain particulars which demonstrate that the defenders of the Rail Act are misguided in the comfort they draw from that proceeding: In New Haven, the rail properties of the debtor were conveyed to the newly merged Penn Central, a corporate colossus having assets with a value more than twenty times the value of the acquired New Haven properties: The size of Penn Central, the corporate history of its components, and the economic prospects for the merged company as developed in the long Penn Central merger proceeding, all led to a confidence that the underwritten value of the stock of Penn Central would furnish fair intrinsic value, espe- cially when taken together with the conditions and protec- tions ordered in advance by the reorganization court. Even so, when it became apparent (because of the filing of the Penn Central reorganization petition) that there was doubt about the value of the Penn Central stock, this Court re- manded the matter to the District Court observing that: ‘‘The fairness and equity that are the essence of a $77 proceeding forbid our approval of a pay- ment for the transferred New Haven properties that may be worth only a fraction of its purported val- ue.”’ New Haven Inclusion Cases, 399 U.S. 392, 488; and compare generally Jd. at 483-89. 80 Here, by contrast, there is no pre-existing corporate en- tity to which the rail properties of Penn Central can be conveyed; rather, the conveyed assets are the totality of operating assets of Conrail and the prospective earning power of Conrail turns entirely on its capacity to wring a profit from these bankrupt lines. There does not exist behind the Conrail stock even the measure of assurance, forlorn as it turned out to be, that underwrote the value of the Penn Central common stock delivered to the New Haven. No court under the Act may circumscribe with ’ “eonditions the compensation to be afforded the Penn Cen- tral estate under its terms and no court, not even this one, has the power to do what this Court did in the New Haven case, namely, remit the cause for reconsideration in light of doubt about the intrinsic value of the securities constitut- ing consideration for the conveyed rail properties. In New Haven, the ‘‘light at the end of the tunnel’’ at all times was thought by all parties involved to be real; here, excepting only the Government and USRA, all parties —including the Trustees, secured creditors, unsecured creditors and the stockholder—agree that the hope of re- organization afforded by the Act upon its own terms is ephemeral. In New Haven, all the parties agreed that, from the point of view of the estate, continued operation until the inclusion was accomplished was better than liquidation. Here Appellees and the Trusteées, creditors and the stock- holder have strenuously opposed the indeterminate con- tinuation of loss operations required by the Act until the Final System Plan emerges and Conrail is born. In New .Haven, the bondholders, motivated by the con- siderations mentioned just above, consented to inclusion by a substantial majority and then bided their time. Here the consents of Appellees have not been solicited and the Act affords them no opportunity to register their vigorous 81 opposition in any operative way. They have, however, protested, by every means available, the otherwise inex- orable’ processes of the Act, in this action, by a motion . to terminate rail operations and by pressing their objec- tions to the Act and its processes in the proceedings re- quired by Section 207(b) of the Act. This general rising against the impositions of the Act, further illustrated by the companion appeals before this Court, is clearly not the cavil of an obstructionist minority. It is also a far cry from the position taken by the majority of private inter- ests in the New Haven case. _ In New Haven, the reorganization court had continuous surveillance of the reorganization effort to be effected by inclusion in the Penn Central merger so that: (a) It could and did pass ‘upon the plan of re- organization and the proposed inclusion; the Re- organization Court under the Act would. have no such power. (b) It could and did pass upon, modify, and ulti- mately determine the value for which ‘the New Haven assets would be conveyed to the merged Penn Cen- tral, in which capacity it reviewed the elaborate rec- ord of two separate ICC valuation proceedings; the Reorganization Court under the Act would have no such power. (c) It could and did pass upon the feasibility and continued vitality of the inclusion as time passed from its first proposal to the event of its consumma- tion; the Reorganization Court under the Act would have no such power. (d) It could and did determine that if inclusion were not effected by a date certain (December 31, 1968), it would have been unreasonably delayed and, notwithstanding its once bright hope, the New Haven would be shut down; the Reorganization Court under the Act would have no such power. ™~ 82 In short, at each step of the way the New Haven court had decisive control of the estate which was in custodia legis before it. The Rail Act ousts the Reorganization Court here of that power, denies the Special Court com- parable powers and strips Appellees of the protection that such powers would afford. ' It is not irrelevant to note that, despite these significant differences, including the vastly superior prospect of suc- cess, the substantial approbation of the private interests, the scrutiny of the ICC and the surveillance of the court, the New Haven inclusion in Penn Central turned out to be an unmitigated disaster. If, as Appellees contend, a reasonably likely prospect of feasible reorganization is re- quired as the constitutional predicate for continued loss operations, the New Haven experience, fraught with dis- tinctions and cataclysmic in result, hardly provides a basis for optimism here. , * * * The Act, therefore, contains neither an assurance of just compensation or fair value for rail assets to be con- veyed, nor the financial components necessary to provide such assurance, nor mechanisms—judicial or consensual— to protect the estate from loss of its property in the ab- sence of such assurance. These shortcomings not only affect the compensation which may come due for the ultimate con- , veyances but also preclude the prospect of compensation for interim erosion. They are failures of constitutional magnitude which the Court below was right to declare as such and to enjoin. 83 II. There is No Adequate Remedy at Law Available to Appellees under the Tucker Act. Appellants urge this Court to hold that the Tucker Act provides an adequate remedy at law for the per- ceived constitutional inadequacies of the Rail Act and, upon that ground, to vacate the injunctions issued below.* The same Appellants have also conceded, however, that in the absence of a Tucker Act remedy a serious constitu- tional issue does indeed exist with regard to the propriety of the Act. Preliminarily, Appellees contend that one of the grounds of decision employed by this Court in Y oungstown Sheet & Tube Co. v. Sawyer, 343 US. 579, to reject precisely the same contention when urged by the Government there is equally applicable here. In addition to deciding that there was substantial doubt as to whether a taking by the °*8 The Tucker Act provides in pertinent part: “The Court of Claims shall have jurisdiction to render judg- ment upon any claim against the United States founded either upon the Constitution, or any Act of Congress, or any regula- tion of an executive department, or upon any express or im- plied contract with the United States, or for liquidated or unliquidated damages in cases not sounding in tort... .” °* Even if the Tucker Act were an adequate remedy at law, it is apparent that the declaratory relief afforded below should not be set aside on that ground. Fed.R.Civ. P. 57 specifically provides that “The existence of another adequate remedy does not preclude A judgment for declaratory relief in cases where it is appropriate.” Here, such declaratory relief is plainly appropriate, if Appellees are right on the merits, if for no other reason than to foreclose subse- quent quarrels in the Court of Claims over whether there were in fact constitutional wrongs done them. See Altvater Vv. Freeman, 319 U.S. 359; Delaney v. Carter Oil Co., 174 F.2d 314, 317 (10th Cir. 1949), cert. denied, 338 U.S. 824. °° See, e.g., USRA Br. at 40; Trustees’ Br. at 30. 84 President, which was unauthorized by the Congress, could form the basis of a claim under the Tucker Act, the Court noted that the ‘‘seizure and governmental operation of these going businesses were bound to result in many present and future damages of such nature as to be difficult, if not incapable, of measurement.’’ Id. at 585. Viewing the case that way, and in the light of the facts presented below, enormous difficulties are readily foreseeable in identifying and measuring the damages that could be inflicted upon Appellees by the compulsory interim operations mandated by Section 304(f) and the complicated set of conveyances ultimately contemplated by Section 303.°° Nor does the fact that in Youngstown the President had ordered direct Government operation of the steel mills materially change the complexity and dimension of these problems. The compulsory operation, for an indeterminate period even by existing managements, for a public purpose and under force of law, generated in Youngstown and would generate here difficulties of damage assessment of the kind that, in part, motivated this Court to disregard the Tucker Act as.a plausible remedy in Youngstown. Moreover, an analysis of the Act and its legislative history makes clear that, even apart from these practical considerations, the option of a Tucker Act remedy does not in fact exist. It is plain from such a review that the Act creates procedures which: (a) are intended to exhaust the claims upon which a Tucker Act remedy could hypo- thetically be sought; (b) are intended to vest in the Special Court exclusive jurisdiction with respect to compensation for the amount constitutionally owed the bankrupt estates; _ ®® Among these problems are, for example, the marshalling of divisional mortgages in relation to properties operated and the re- spective profitability of the several parts of the system, as well as the distribution of proceeds upon ultimate conveyance; the proper distribution of the burden and the “benefit” of labor protection under the Act; and, of course, the calculus of erosion which has already produced a considerable literature in this case. 85 Bi and (c) accurately reflect the explicit Congressional inten- tion that claimants against the estates of railroads in reorganization be denied recourse to the United States Treasury for any deficiencies in compensation under the mechanics of the Act. A. The Statutory Scheme of the Act on Its Face Pur- ports to be Exclusive and Exhaustive. _The provisions of the Act comprise a self-contained structure for the adoption of the Final System Plan which determines the properties to be transferred to Conrail and the manner and measure of payment to be afforded in exchange. This process by its terms is exclusive, pre- emptive and exhaustive of any cause of action against the United States, The Act clearly sets up a preemptive system of judicial participation with respect to the Final System Plan. Sec- tion 209 mandates the empanelling of the Special Court: . and the consolidation before it of ‘all judicial proceedings with respect to the final system plan.’’ Section 303(c) endows the Special Court with the duty to review the consideration to be received for the properties conveyed and ultimately the authority to enter a deficiency judgment against Conrail. The exclusive appeal from the Special Court’s findings is provided for in Section 303 (d).°? *7 Section 303(d) provides that: “A finding or determination entered pursuant to subsection (c) of this section may be appealed directly to the Supreme Court of the United States in the same manner that an injunction order may be appealed under section 1253 of title 28, United States Code: Provided, That such appeal is exclusive and shall be filed in the Supreme Court not more than 5 days after such finding or determination is entered by the special court. The Supreme Court shall dismiss any such appeal within 7 days after the entry of such an appeal if it determines that such an appeal would not be in the-interest of an expeditious conclu- sion of the proceedings and shall grant the highest priority to the determination of any such appeals which it determines not to dismiss.” (Emphasis added.) 86 The very nature of the mode of exchange set out in the Act reinforces the conclusion that Congress legislated what it believes to be an exclusive method for both measuring and satisfying Appellees’ rights to just compensation for their property transferred to Conrail. Congress provided in Section 206(d)(1) that the transfers to Conrail ‘‘shall be . . . in exchange for stock and other securities of [Con- rail].’’ Consistent with that intent, the Special Court, which has the power to determine the fairness of the ex- changes mandated by USRA, decides, after the fact, whether the transfers to Conrail and the exchange of securities are in the public interest and are fair and equit- able to the estate of each railroad. The remedy granted to the Special Court to cure any failure of the exchange to meet the fair and equitable standard is: first, to reallocate among the various railroads those securities of Conrail which had been deposited with it prior to the transfers; second, if the lack of fairness and equity is not thereby cured, to order Conrail to provide additional securities of Conrail or the limited obligations of USRA, specified in the Final System Plan, as may be necessary; and finally, ‘if the lack of fairness and equity cannot be completely cured’’ by these first two steps, then the Special Court ‘‘shall ... enter a judgment against [Conrail]’’ (Section 303(c)(2)(C)). In Section 303 (c)(3), the Act prescribes the applicable standard of completeness to be ‘‘the consti- tutional minimum standard of fairness and equity.’’ Congress clearly determined, then, that the deficiency judgment against Conrail—which, under Section 209, only the Special Court has subject matter jurisdiction to render —was to be the means by which any shortfall below the | ‘constitutional minimum”’ was to be ‘‘completely cured.’’ Of course, if the deficiency judgment is intended to be the complete cure of such a constitutional deficiency it must by that fact have been intended to extinguish the claim for such a shortfall which is said to be available in the Court of Claims. There simply is no room for inference from the 87 statutory scheme that any recourse was left to the public coffers. The Amicus Curiae Brief submitted herein by thirty- seven members of the House of Representatives (including the principal authors and managers of the Act on the House side) makes clear, if it was not already clear, the legislative intent underlying passage of the Act. The Brief states in pertinent part (pp. 17-22): ‘“‘The Tucker Act, 28 U.S.C. 1491 (1970), waiver of the sovereign’s jurisdictional immunity was en- acted to provide adequate opportunity for expedi- tious and orderly determination of claims against the government. The Tucker Act deals with the five limited areas of liability to which the government consents. The five areas do not purport to deal with the upholding of other Acts of Congress. This Court has never relied upon the presence of the Tucker Act to uphold the constitutionality of another Act of Congress. ‘The logic employed in attempting to argue that the Rail Act is constitutional because of a potential Tucker Act remedy is indeed strained. Each and ; every act of Congress of a similar nature, irrespec- tive of the amount of authorization or the process provided for in any such act, could be constitution- : ally upheld on the grounds that a future Tucker Act remedy might be invoked. The intent of Congress in passing the Tucker Act was not to insure the constitutionality of potential unconstitutional laws , and such a precedent would be very dangerous. 4 * * s 4 ‘«.,. there is no question that in considering the process under this Act the 93rd Congress, specifi- cally the House of Representatives, rejected giving the Federal Courts the key to the Treasury which 88 would result from an open-ended deficiency judg- ment against the United States. The legislative history of this Act is emphatic in restricting the total amount of funds to be used in carrying out the reorganization process authorized by the Act. ‘‘Tf this Court should decide at this time that a mechanism of a deficiency judgment against the United States under the Tucker Act is necessary to make this Act constitutional, the the [sic] Act must fall since the legislative history and the language of the Act are clear that no deficiency judgment against the U.S. is authorized by the Act.’’ As Congress envisioned it, then, only the Special Court is to review the exchange of securities for rail properties, and as to its functions its jurisdiction was plainly intended to be exclusive. No other agency, court or entity, including the Court of Claims, was given such authority. As a practical matter (questions of the adequacy of the consideration apart), it makes some sense to vest the Special Court with such an exclusive and preclusive role. That Court, in determining the fairness of the considera- tion, must allocate the securities of Conrail among the various estates of the bankrupt railroads. This allocation obviously can only be made by a court competent to ascer- tain the values of all the properties transferred by the various railroads pursuant to the Final System Plan. It is impossible to believe that Congress went to such great pains to create this new tribunal and endow it with the special and unique function of allocating Conrail securities among the various railroads, and at the same time con- templated that the estates of the railroads should undergo still another, duplicate proceeding in the Court of Claims to supplement the inadequate consideration awarded by the Special Court. 89 As Appellants contend, there is no doubt that Congress thought that the consideration available under the terms of the Act would be sufficient to afford a ‘‘constitutional minimum.,’’ It is equally certain that Congress explicitly intended not to open the doors of the Treasury either by the terms of the Act or under any other statute should the compensation provisions of the Act be found unconstitu- tional, It simply does not follow that because Congress had hoped that the Act by its own terms would be con- stitutional, this Court can exercise legislative creativity to adopt a construction of the Act, which actually amounts to the antithesis of the Congressional intent, all to save the Act from its unconstitutionality. B. The Legislative History is Consistent Only With the Exclusion of a Remedy in the Court of Claims. The entire history of the Act is instinct with the Con- gressional intent not to afford the bankrupt estates or their creditors recourse to the federal treasury in the event the compensation provided under the Act proved constitutionally inadequate. Appellants have suggested (USRA Br. at 17, 58) that, in contesting the existence of a Tucker Act remedy upon such a reading of the legisla- tive intent as above described, Appellees are imputing to Congress a willful constitutional violation. Appellees need not and do not attribute any such heinous intent to Con- gress. Appellees merely take the Congress at its word: if the procedures of the Act are inadequate on their own terms to provide constitutional compensation to the estate, then Congress wishes another opporttnity to examine the entire question in order to determine the nature and amount of any federal investment that should be made in the revitalization of the region’s railroads. 68 Indeed, Appellees have some difficulty with the position adopted here by the Government, in face of so explicit a legislative understanding as we shall presently review. That position essen- tially involves the Executive Branch in an effort to elicit from the Judiciary a construction of the Act manifestly at odds with the intent and expectation of the Legislative Branch. ere cr , plage at LOG GOD RSL IE ENN ENE LTN PEM OTN TTI IEG IP 90 This intent is evident from a review of the Act as it went through the drafting process, from the various Com- mittee reports dealing with it, from the floor debates, most particularly including the specific explanations of its managers in both Houses, and finally from the retro- spective view afforded by oversight hearings and the Amicus Brief. To begin with, Congress fashioned the Act in the model of a Section 77 reorganization for the purpose of avoiding judicial characterization of the Act's processes as a ‘‘taking.’’ The reason for the use of a rev: xanization construct is apparent throughout the legislative history. Congress wanted to cure the Northeast rail crisis ‘‘at the lowest possible cost to the general taxpayer.’’ Section 101(b)(6). In order to avoid Fifth Amendment claims for just compensation by the estates of the bankrupt rail- roads, the drafters imported language, such as the phrase ‘‘fair and equitable,’’ from Section 77, and excised lan- guage from early drafts of the Act requiring ‘‘mandatory consolidations of all properties of bankrupt railroads.’’® For example, the substitute provision in House Bill 9142 articulates the first goal of the Final System Plan as follows: ‘‘Section 303(a). The final system plan shall be formulated in the light of the following goals—(1) the objective of creating, through a process of re- organization, a financially self-sustaining rail service system. ...’’ (Emphasis supplied.) Similarly, the final version of the Act which emerged from the Conference Committee contained fourteen separate references to the Act as a ‘‘reorganization.’’ The language of Section 207 and the history underlying the drafting of it is all to the effect that Congress tried to create in Sec- 69 Section 303(a) of the Subcommittee Print—H.R. 9142, dated August 2, 1973 with Changes Proposed by Messrs. Shoup and Adams. 91 > tion 207 a constitutionally adequate procedure comparable to the Section 77 judicial options. Congress persistently refused throughout the legislative process to make the full faith and credit of the United States available to guarantee or underwrite Conrail securi- ties or the deficiency judgment or otherwise to open the Treasury directly or indirectly. One striking example lies in the comparison of the report of the Senate Commerce Committee on S. 2767, the Senate version of the bill (S. Rep. No. 93-601, 93d Cong., 1st Sess., Dec. 6, 1973), and the final conference report on the bill as passed. In the “former, the Senate Commerce Committee, in explaining Section 206(i), which provided that the Final System Plan might include terms and conditions for securities to be issued by what has become Conrail, stated that, ‘‘Some form of Federal guarantee of the value of the Corporation stock may be one such arrangement which the planners may consider.’’ Jd. at 28. The report went on to note that no such guarantee could become effective without affirmative joint resolution of Congress. Even as so limited, however, the Conference Committee ruled out such a possibility and the eventual bill was explicitly intended to exclude even the possibility of such a guarantee of Conrail stock. The conference report specifically states: ‘“‘The conferees agreed that the arrangements recommended by the planners under Section 206(i) shall not include any form of Federal guarantee of the value of the Corporation stock.’’?° The conferees thus returned to a position which had been consistently expressed by prior committee reports. See, e.g., Explanation of Legislation Pertaining to the Midwest and Northeast Rail Crisis, Senate Commerce Comm., 93d Cong., Ist Sess. (Nov. 15, 1973) at 17 where it is observed 70H. R. Rep. No. 93-744, 93d Cong., Ist Sess. 56 (Dec. 20, 1973). / OPAL NG MOLT ITNT LING LAY BEI TE ON TAR II 92. that ‘‘The limitations on the amount of obligations Fannie Rae [now USRA] is allowed to issue would determine what the maximum exposure of the Federal Government would be.’’ (Emphasis added.) That Congress passed the Act in this form and upon this understanding is made clearer still by study of the debates. ’ The debates in both the House and the Senate are replete with explanations of the scheme of the Act as pro- viding non-governmental compensation to the estates of the bankrupt railroads thus saving the American taxpayers from paying billions in just compensation to the estates. Perhaps the most important of these exchanges occurred during the discussion on the conference report accompany- ing H.R. 9142 in a colloquy between two of the ‘‘Managers on the Part of the House’’ on December 20, 1973: ‘‘Mr. Kuykendail. Mr. Speaker, I would like to ask the gentleman from Washington one point, and that is the matter of the deficiency judgment. There was a lot of colloquy in the original debate which expressed fears that the Federal Court had the key to the Treasury. ‘*Will the gentleman give us his interpretation of the guarantees we have to keep that from happen- ing in the court proceedings? ‘“‘Mr. Adams. Mr. Speaker, there is a definite limitation on the total amount that can be authorized under this bill. Any amounts that go beyond that, or the shifting of the way in which it is spent, is to be approved by an Act of Congress, to be signed by the P~esident. ... [I]t was the clear intent of the managers that any amount other than common stock [of Conrail] was to be at the lowest possible limit to meet the constitutional guarantees. 93 ‘Mr. Kuykendall. There is no way the Federal Court may assess the taxpayers or this Congress on the judgments of the creditors, is that correct? ‘‘Mr, Adams. The gentleman is correct. ‘Mr. Kuykendall. There is no way they can assess the Congress for the money? ‘“‘Mr. Adams. The gentleman is correct.’’ ™ The Amicus Brief (pp. 21, 1a-3a) filed by, among others, those who spoke the words, clearly believes the Court be- low correctly caught their meaning (JA 49-50). Also illus- trative is a statement made by the co-drafter of the House Bill, H.R. 9142, Congressman Adams: ‘*, . . we have done everything possible in the leg- islative history surrounding this bill to make cer- tain that no more than the constitutional minimum for liquidation as defined by the Supreme Court will - be paid by the new corporation for the properties obtained from the bankrupt estates. In addition, we have limited the amount of Government loan guar- antees that can be used for acquisition so that tax- payers are protected both by legislative history guided by the determination of the Court and by an absolute limit on the amount of Government guaranteed loans that can be used. ‘*... There is a specific limitation in the final bill which says no more than $200 million of Government loan guarantees can be used for acquisition in any event, so if the court in 5 to 10 years should come in with a higher value, the only judgment would be against this new corporation [Conrail] that is there.’’ 7? : 1119 Cong. Rec. H11876 (daily ed. Dec. 20, 1973). *2.119 Cong. Rec. H9732, 9742 (daily ed. Nov. 8, 1973). 94 Congressman Metcalfe, a member of the Transporta- tion and Aeronautics Subcommittee which reported the bill to the House Committee on Interstate and Foreign Commerce, speaking on behalf of the bill, stated that: ‘¢. |. I think that those who look upon this as a ‘billion dollar bonanza’ are using terms which are misleading to the American people. Title VI of the bill is concerned with financial arrangements and obligations of the association. Under this section the Federal Government will guarantee obligations of the association up to $1 billion. This will not be at any cost to the Federal Government. Under this title the Federal Government is guaranteeing loans, not granting subsidies.’’"* Moments later, Congressman Shoup, a co-author of H.R. 9142, observed that the Special Court would have to either enter a deficiency judgment against Conrail itself ‘‘or require that the assets be returned to the bankrupt railroad.’’"* On the same occasion, Congressman Conte, espousing the purported virtues of the Act, explained that it rationalizes the railroads ‘‘within the private sector. It calls for no great and continuing influx of Federal funds.’’”® Consistent with the remarks made in the House, when asked by Senator Beall to ‘‘describe the total amounts of money involved”’ in the process of the Rail Act, the man- ager of the Senate bill, Senator Hartke, listed only the authorization on the face of the Act for grants, debt guarantees and labor protection.”* Indeed, Senator Hartke went on to express the view that a Court of Claims case might be created by not passing the Rail Act.”” 73 119 Cong. Rec. H9741 (daily ed. Nov. 8, 1973). 74119 Cong. Rec. H9742 (daily ed. Nov. 8, 1973). 78 119 Cong. Rec. H9746 (daily ed. Nov. 8, 1973). 76 119 Cong. Rec. $23777-78 (daily ed. Dec. 21, 1973). 77 119 Cong. Rec. $23783-84 (daily ed. Dec. 21, 1973). 95 / It is significant that nowhere is there a single comment either in the House or the Senate evidencing intent to appropriate additional funds should the Act’s provisions prove to be insufficient. After argument below, Oversight Hearings were held by the Subcommittee on Transportation and Aeronautics of the House Committee on Interstate and Foreign Com- merce to inquire into the Tucker Act position argued below by USRA and the Government, and to make it clearer still that recourse to the Treasury via the Court of Claims was not intended by Congress. In these hearings, Congressman Dingell chastised Appellants for taking the legal position below that a Tucker Act remedy is available: . I believe the actions of the Department of Transportation, and the Department of Justice, as of this point, are in the gravest error and constitute a clear misconstruction of the intentions of the Congress with regard to the Northeast Rail legisla- tion and constitute what may properly even be charged as a potential throwaway, or giveaway of millions or perhaps even billions of dollars of the taxpayers’ money in the clearest defiance of the ex- press intent of the Congress as set forth in the re- ports, the debate and in the clear language of the legislation, which we are presently scrutinizing in this gathering here today. (pp. 253-4) ‘I wish to reiterate my outrage in the situation which I see going on before us. I wish to state that, it is, again, in my view, the clearest and most extra-' ordinary defiance of the clearly expressed intention of the Congress with the portent of perhaps millions or perhaps even billions of dollars of taxpayers’ money being dissipated to persons who have no proper and rightful claim on it, either under the Con- stitution or the law. -—- oo : | 96 ae ‘‘T think, for the Department of Justice, or the Department of Transportation to engage in the kind of brief that I have seen here before us today, essen- tially agreeing with the rape of the public Treasury, | is a scandal of the greatest dimension, and I think it may necessarily fall upon this committee or one of our subcommittees to look into and to inquire into why this kind of extraordinary action has been taken in terms of a total and clear misconstruction of the attitude of the Congress and the intention of the Congress when we passed the legislation.’’ (pp. 254- 55) Congressman Dingell continued, quoting from a memo- randum prepared for the Committee by the Library of Congress: ‘¢.. ‘It should be noted that any claim which is granted by the court of claims must be paid by ap- propriated funds of the United States. The testi- mony sets the potential value of the rail properties of the Penn Central at as much as $12 billion to $14 billion.’ ‘That is the potential liability of the taxpayers here. That is, if this matter is not handled with great care by the Attorney General and the Execu- tive Departments, ‘the scrap or ‘salvage value alone is estimated to be at least $2 billion. Such enor- mous potential expense would certainly have been brought to the attention of the Congress at the time of the passage of the Act, but the statement of the floor managers of the Act in the House and Senate contained no such mention.’ s & & ‘‘But I want to make it plain that the floor man- agers, and, Mr. Adams, Mr. Kuykendall and Mr. Staggers over in the House and other Members, the language of the bill: the Report clearly indicated there was no intention of imposing this kind of con- _ tingent liability upon the people with enactment of the Northeast legislation.’’ (pp. 290-91). ' 97 Congressman Kuykendall, joining in the expression ot dismay over the position advanced below on the Tucker Act, and, quoting his exchange with Congressman Adams during debate, emphasized his belief that the colloquy rep- resented what the Committee promised the Congress of the United States as to the availability of further call on fed- eral funds by virtue of the Act. And he reiterated that, if the compensation provisions of the Act were unconstitu- tional, ‘‘then, we will go back to the drawing beard, if necessary.’’ Id. at 252. On the same occasion, Congressman Skubitz adopted and read into the record a portion of the Library of Con- gress memorandum which, after quoting the Conference Report passage quoted supra at 91, went on to say (Id. at 284-85) : ‘*It hardly appears reasonable that the Congres- sional managers of the Act would so explicitly ex- clude the possibility of a Federal guarantee of the value of Con-Rail stock if a similar guarantee were available through the back door by means of the Tucker Act. ‘ [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%3A14. Public record. Not legal advice.