# Reply Brief — Regional Rail Reorganization Act Cases > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386414_0347%3A18 ## Record - **Collection:** Supreme Court brief - **Document type:** Reply Brief - **Published:** January 1, 1974 - **Citation:** 419 U.S. 102 ## Text OCT OBER TERM, 1974 No. 74—166 REGIONAL RAIL or sotto abled CASES RICHARD JOYCE SMITH, Trustee of the Property Oe The New York, New Haven and Hartford Railroad Company, Debtor, Cross-Appellant vu. UNITED STATES OF AMERICA, ¢t al., Cross-Appellees ON CROSS-APPEAL FROM THE JUDGMENT OF THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA REPLY BRIEF OF CROSS-APPELLANT Of Counsel: JOSEPH AUERBACH 225 Franklin Street MORRIS RAKER . Boston, Massachusetts CHARLEs W. MORSE, jr. 02110 SULLIVAN & WORCESTER JAMES WM. Moore 225 Franklin Street 54 Meadow Street Boston, Massachusetts New core Connecticut Richard oe Set raat Be EE pk aad pO 8 55 Railroad Company, Debtor Realty TABLE OF CONTENTS Page _ Table of Citations ......... canw hve esGes casas iv Introduction ..... ee rT eer ee l PART ONE: ARGUMENT IN REPLY TO CROSS-APPELLEES: I. THE CONSTITUTIONAL ISSUES : RAISED BY THE CROSS-APPEAL ARE | : RIPE FOR ADJUDICATION ............ 3 A. The a cach Existence of a Tucker Act 4 Remedy Not Operate to Make Con- 4 Stitutional Issues Premature Because an Action for an Inadequately Compensated 7 Taking Will Lie Only if the RRRA Is CM cs. ’ 3 B.The New Haven Trustee Will Not Have a “Later and Better rtunity” to Have an Adjudication of His Claim that the RRRA‘’s Compulsory Conveyarice Provi- sions Are Unconstitutional ............. 4 EEE RICE IY BG Il. THE NEW HAVEN TRUSTEE, AS A SE- CURED CREDITOR OF PENN CEN- TRAL, HAS STANDING TO ASSERT PENN CENTRAL’S RIGHTS UNDER THE FIFTH AMENDMENT, AS WELL AS HIS OWN RIGHTS, SINCE DI- VESTMENT OF HIS LIENS BY §303(b)(2) OF THE RRRA IS A TAKING OF HIS PROPERTY WITHOUT JUST COMPEN- ; wis lacs igen CEE ee Sarees 6 III. THE RRRA, CONSIDERED AS A RE- ORGANIZATION STATUTE, IS INVALID AS A VIOLATION OF THE, FIFTH AMENDMENT’S DUE PROCESS AND TAKINGS CLAUSES .............. 8 5 ra a ti € b, & 74 a t & a , ¢Z IV. il PENN CENTRAL IS ENTITLED TO RE- CEIVE THE HIGHEST AND BEST USE VALUE OF ITS PROPERTIES AS A COM- PLETE TRANSPORTATION SYSTEM IN MONEY OR ITS PERFECT EQUIV- ALENT; THE NEW HAVEN TRUSTEE IS ENTITLED TO FOREC URE ON HIS LIENED’ PROPERTY, OR THE FAIR VARA REUEE co cerckiciscs re secess A.The Railroad Enterprise Which Would Survive the RRRA, if It Is Not Enjoined, Will Be in Substance a Public Authority . B. Since the RRRA is Invalid as Bankruptcy Legislation, the Compulsory Conveyance Provisions, Considered as an Exercise of Eminent Domain Power, Require Appli- cation of Principles of Condemnation Law to Determine Whether Payment of _ the “Constitutional Minimum” is Assured C.Penn Central’s Rajl Properties Have a Condemnation Value as a Complete Transportation System Which is Greater than the “Bare Bones” Liquidation Value OE 6 Te PUNO og ch icce ccc cysss D.The Governmental Appellees Cannot Have it Both Ways— Either the RRRA Is an Unconstitutional Attempt to Take Pri- vate Property Without Exercising Em- inent Domain Powers; or the RRRA is a to Nationalization of Penn ror SP PN ee ST ae THE LACK OF PRE-CONVEYANCE JU- DICIAL REVIEW OF THE FAIRNESS AND EQUITY OF THE MANDATORY CONVEYANCES OFFENDS DUE PRO- Be Os eNOS re re Page 10 10 12 13 20 22 tee PART TWO: LEGAL ANALYSIS OF SPECIAL COURT'S SEPTEMBER 30, 1974 DECISION, IN THE MATTER OF PENN CENTRAL TRANSPORTATION CO. (No. 74-8): Il. ION “PROCEDURAL STATUS OF SPECIAL COURT'S DECISION IN RELATION TO THE INSTANT APPEALS AND CROSS- NE eins sd Fiasendo bo eUbegh lise. it Mie uh hh add ee ee a Oe ee ar ee eee Mi scorn aaesear, woh Re EEOC OEE OER on cates a bacegan oh TET ee C. Collateral Estoppel .................... D.The Requirement of Uniformity ........ E. Fair and Equitable Process — General Con- sisinitin dep teg te ee OC OP Te F. Erosion of Investors’ Rights ............ G.The Compelled Conveyance and the Ade- quacy of the Consideration ............. H.Availability of a Remedy Under the WTAE 6 sles 08 ERs pa ets ee oc I. The Adequacy of the Remedy Under the WOE OD heed nandveecksonieiere:: RM ANNE 6 Sih CRD) So vs eign ckdns 44 47 iv TABLE OF CITATIONS CASSS: Armstrong v. United States, 364 U.S. 40 (1960) . 7,21 B ja v. General Motors Corp., 169 F. 2d 254 “aC Gs (2d Cir.), cert. denied, 335 U.S. 887 (1948) . 31 Bauman v. Ross, 168 U.S. 548 (1897) ........ “44 Brooks-Scanlon Co. v. Railroad Commission, 251 Wate WE COU Nivin veh es FaKK Gs ree 37 Bullock v. Railroad Commission of Florida, 254 . Sa RE CREED ORLY iba cea ye ks choca Sack 37 Catlin v. United States, 324 U.S. 229 (1945) ... 23-24 Chicago & Southern Airlines v. Waterman SS. s Comp, 335 U.S. 108 (1948) .............5. 30 me Omaha v. Omaha Water Co; 218 U.S. ; SP ashe ks £0 oe ck cin cxdenne ds: oc 16 Denver v. Denver. Union Water Co. 246 U.S. . PWR NOOO hn ss vag bic hin sess cnkbcn pes 16 - Des Moines Gas Co. v. City of Des Moines, 238 * wiecliicinth' aisued ie GE ee ee 16 ——— S.S. Corp. v. United States, 372 F. 2d 1 de GM RED devackisivuctinackass 42 Federal Power Commission v. Hope Natural Gas ™ Ce, S30 OS. SUT (1908)... oc 41 Group of Institutional Investors v. — M., SiP. & Pac. R.R., 318 U.S. 523 (1943) .... 40 Harlem Valley Transp: Ass’n v. Stafford, 360 F. a 1087 (SDNY. 1973), eae F 2d— GE Pk, POTD ne eennd iusaees si Weedeks - 16 operate profitably, the condemnee, while not entitled to “hold up” the public or to claim an award based on the amount it would cost the public to construct a new facility having comparable public service benefits, is entitled to compensation for “assemblage” value of its transportation system beyond the. “bare bones” of its physical assets valued under the reproduction-cost- new-less-depreciation formula.!5 In the Hudson Rapid Tubes case, Judge Keating, who dissented in the Fifth Avenue Bus case, wrote the opinion of the court.'® Judge Keating relied on this Court’s holding in United States v. Commodities Trading Corp., 339 U.S. 121, 123 (1950) that '*Judge Keating, dissenting on other grounds, observed: “In addition [to the value of the physical assets], there is real value attributable to the fact that these tangible assets are not isolated units. They are fully integrated and operating transit systems, held together by personnel available and working, franchises, operating schedules, established routes, accounting and maintenance records and all of the other elemeuits which spell the difference between ‘bare bones’ and a transportation system in operation. These are but elements of a ‘going concern’ for which a buyer would willingly pay. ... As elements of a business which have value, it is only proper that they should be considered part of the ‘just compensation’ to which the condemnees are entitled and so the case law has con- sistently held.” 219 N.E. 2d at 416. The cases cited by Judge Keating include the following decisions of this Court: Kimball Laundry Co. v. United States, 338 US. | (1949); Des Moines Gas Co. v. City of Des Moines, 238 U.S. 153 (1915): City of Omaha v. Omaha Water Co., 218 U.S. 180 (1910); Denver v. Denver Union Water Co., 246 U.S. 178 (1918). Kimball Laundry Co. v. United States, supra, is cited in USRA’s brief (at 67 n. 77 and 69 n. 83) as contra authority to the New York State Court decisions; it is not. 'CUSRA’s brief at 69 states: “In a forceful dissent, the author of the Fifth Avenue opinion [i.e. Judge Burke] noted the illogic of basing an award on original cost when the current market value did not reflect that cost.” The same Judge Burke, one year later, in his second Fifth Avenue Bus decision, 22 N.Y. 2d 613, 241 N.E. 2d 717 (1968), stated: “In the: Port Authority case, the ‘willing bayer’ rule was rejected and the rule'set forth in Fifth Avenue reaffirme ).” Id. at 720. (footnote continued on following page) 17 “ ‘... when [the] market value [of a condemnee’s property] has been too difficult to find, or when its application would result in manifest injustice to owner or publi, courts have fashioned and applied other standards.’ ” 231 N.E. 2d at 738, quoting 339 U.S. at 123 (emphasis supplied by Judge Keating). The significance of the Fifth Avenue Bus and Hudson Rapid Tubes cases to the issues presented by this cross-appeal is as follows: 1. It cannot be the law that states are forbidden to take private property for public use without just com- pensation payable in money, but the federal gov- ernment is not subject to the same strictures. Any sug- gestion that the rationale of Fifth Avenue Bus and Hudson Rapid Tubes is not applicable here because we are dealing with the Fifth Amendment’s “just compen- sation” clause, and not the State of New York’s “just compensation” clause, should be rejected. Con- trariwise, if the compulsory conveyance provision of the RRRA were held to be a valid device by which the United States Government could take the properties of an interstate railroad for public purposes and issue se- curities of the taking authority as the payment there- for, then the State of New York could not be pro- hibited from authorizing, for example, a take-over of a (footncte continued from prior page) It is obvious that Judge Burke's dissent in the Hudson Rapid Tubes case turned on his very different view of the facts: in his view, the tunnel railroad constituted a “decrepit, financially hopeless transportation sys- tem, tailored to the measurements of an ancent, badly mended tun- nel... .” 231 N.E. 2d at 742 n.1. On its facts, Penn Central more closely resemles the Fifth Avenue Bus situation than it does the Hudson Rapid Tubes ytuation. Penn Cen- tral’s present plight is in large measure the result years of regulatory constraints, including the necessity to operate money-losing passenger train and freight services. But for these regulatory constraints, Penn Central might well be a profitable railroad, just as Fifth Avenue Bus Company might have been profitable had it been allowed to charge fares determined solely by business considerations. # a 3 3 pad 2 z ee “3 a es a Pe e $ ee —, ¥ ee tte Some is 4 * *? railroad such as the Long Island Railroad in exchange for securities of a state transportation authority. Yet such a result would be difficult to reconcile with the decisions interpreting the Fourteenth Amendment. 2. In the valuation of physical properties of a com- plete transportation system in condemnation, the whole may well be worth more than the sum of the parts. Whether the excess value is called “going con- cern value” or “assemblage” value, it is clearly a value which must be reflected in a condemnation award. That value need not be the same as today’s cost in as- sembling transportation corridors, because today’s as- semblage cost would represent value to the con- demnor, not loss to the condemnee. 3. On the other hand, the assembiage value is not proven to be zero by reason of the unprofitability of the private transportation system in the regulated en- vironment in which it was forced to operate. That is the meaning of Fifth Avenue Bus. The “United States cannot first insist that Penn Central incur large losses by requiring it to maintain rail passenger operations at huge deficits, and to service lightly used freight lines; and then, when it condemns the property for the same use, declare that the “going concern” value is zero be- cause “substantial prices are not paid for the privilege of conducting a business at a loss.”!7 4. The value of the physical properties themselves will vary depending on whether they are single-use or multi-use properties and on many other factors. A se- nes of railroad tunneis which bisect mid-town Man- hattan and are absolutely essential for through passen- ger trains from Washington to Boston, as one '7Mr. Justice Cardozo in Roberts v. City of New York, 295 U.S. 264, 282 (1935), quoted in USRA’s brief at 67. 19 example, are likely to have a value of a different order of magnitude than a tunnel of equal length bisecting mountains in rural Pennsylvania where alternative rail routings exist. The Hudson Rapid Tubes case does not stand for the proposition that historical cost less depre- ciation is the guide; if it did, it would be inconsistent with both the first and second Fifth Avenue Bus de- cisions, where the physicial assets were valued at re- production cost new less depreciation. As the Court pointed out in New Haven Inclusion Cases, supra, 399 U.S. 392, 482 n. 80 (1970), the decisional principle for which both Fifth Avenue Bus and Hudson Rapid Tubes can be cited is that the New York courts “awarded the owners the value reflecting the highest and best price for their properties,” which the Court held was “pre- cisely the treatment accorded the New Haven” in its sale of rail properties to Penn Central. The New Haven Trustee and the Penn Central Trustees are in agreement on the proposition that, in an eminent domain context, Penn Central is entitled to the highest and best use value for its properties. Such value will, in turn, assure secured creditors of Penn Central that they will receive either payment of their clafm in full, or if the properties securing their claim have a lesser value, the value of the properties so determined. Such a result would be in perfect har- mony with thé Court’s decision in Wright v. Union Cen- tral Life Ins. Co, 311 U.S. 273 (1940), discussed in USRA’s brief at 44-47. Seeralso United States’ brief at 26 and 32 n. 14. 20 D. The Governmental Appellees Cannot Have it Both Ways — Either the RRRA Is an Unconstitutional Attempt to Take Private Property Without Exercising Eminent Domain Powers; or the RRRA Is Equivalent to Nation- alization of Penn Central USRA mistakenly asserts that the New Haven Trustee affirmatively advocates nationalization of Penn Central, and seeks to have the Court exceed its proper role by advising Congress on “how to amend or replace” the RRRA. USRA’s brief (at 70-72). This is a distortion of a section of the New Haven Trustee’s brief as Cross Appellant which discusses a public inter- est solution which might, but only if Congress (not the Court) concurred, be deemed a navigable route be- tween the Scylla of a complete cessation of rail oper- ations in the most heavily industrialized area of the United States and the Charybdis of a Tucker Act judg- ment against the United States Treasury amounting to hundreds of millions or billions of dollars. See New Haven Trustee’s brief as Cross-Appellant (at 88-92).!8 The Federal Appellees should not be permitted to have it both ways at once—either the RRRA is sus- tainable as eminent domain legislation, in which case there is a Tucker Act remedy; or it is not so sus- tainable, in which case it is unconstitutional. '*To carry the metaphor one step further, it is a well-charted Seaway marked by the nearly universal experience of the industrialized de- mocracies—England, France, Germany, Italy, Switzerland, Japan and even, to a great extent, Canada—all of whom have nationalized their more important railroads while allowing peripheral lines to remain pri- vate. It is not a demonstrable fact that these nations have experienced “higher costs and inefficiencies that public ownership implies.” USRA’s brief at 71. Moreover, as the New Haven Trustee pointed out (Cross-A p- pellant’s brief at 89 n. 81), if Conrail proves to be profitable, the. United States can turn it back to the private sector; if it turns out to be not prof- itable, the case law suggests that the economic burdens miust be distrib- uted equitably via taxation. ALESIS GOEL IEE RILEY IIS YY NEI ARE TS SEAL IR SAINI: nt OOD PGS Pe RD 21 The New Haven Trustee does not, as USRA asserts “prefer to have that [a public-interest solution] ac- complished by nationalization, a process he believes will constitutionally entitle him to compensation wholly in cash, and possibly in a much higher amount than obtainable in reorganization.” USRA’s brief at 71. The New Haven Trustee’s position, so far as here relevant, is set forth at. 88-92 of his brief as Cross-Ap- pellant, and speaks for itself. Contrary to USRA’s characterization of his argument, the New Haven Trustee believes that the value of the properties sub- ject to his liens is in excess of $123,809,404 plus interest; he believes, based on his knowledge as to the value of these rail properties, that he will ultimately receive $123,809,404 plus interest; he cannot, under any imaginable circumstance, claim more than $123,809,404 plus interest; and, so long as he retains his liens and ultimately receives either the right to foreclose on his properties or the cash equivalent of his foreclosure right, the New Haven estate will receive the protection accorded by the Fifth Amendment and the Court’s decision in New Haven Inclusion Cases. Under the theory of Armstrong v. United States, su- pra, it is reasonably clear that the United States cannot expropriate, without payment, the New Haven Trustee’s liens securing his $123,809,404 claim. This case concems. expropriation, not nationalization. See §303(b)(2) of the RRRA. USRA asserts that the Court’s role is limited to adjudicating whether the RRRA is constitutional oi not. The New Haven Trustee agrees. If the Court upholds the Tucker Act argument of the United States and USRA, however, it is reasonable to infer from the views of the sponsors of this legislation in both the House and the Senate that Congress may well decide to repeal the RRRA. If the Court uphoi's POPOL EE HOON! BELLE LL ip NPP OME LLL LLIN DEE GEE LP NE SLE PERE TFL I Pa Re tee SIRES LINC HPT POUR AER DS MAA YS AL NT iad © 22 the injunction issued below, but does not reach the is- sue raised by the New Haven Trustee’s cross-appeal, Congress will be in the dark as to the limits of its con- stitutional powérs when it comes to amend or repeal the RRRA. If the Court decides the cross-appeal in fa- vor of the New Haven Trustee, Congress will be on notice ‘as to the applicable Fifth Amendment prin- ciples. That will fulfill the Court’s role; and leave the political decision to Congress and the President. Vv THE LACK OF PRE-CONVEYANCE JUDICIAL RE- VIEW OF THE FAIRNESS AND EQUITY OF THE MANDATORY CONVEYANCES OFFENDS DUE PROCESS USRA attempts to justify the RRRA’s failure to af- ford procedural’ due process by comparing it to §77(0).'9 However, §77(0) relates essentially to in- cidental sales; a sale of the nature that would be in- volved in the compulsory transfer to Conrail has been held to be beyond the scope of §77(o).2° Further, §77(0) provides significant safeguards that are absent from the RRRA. For example, no transaction of sale may be effected under §77(0) unless the trustees of the debtor, who have fiduciary duties to the creditors and stockholders, affirmatively recommend that it is in the best interest of the debtor’s estate; and even then any proposed transaction must be approved as to its specific terms by the reorganization court. 'The whole of the Rail Aat is very roughly analogous to Section 77(0). .. .” USRA's brief at 41. 2°In re Penn Central Transportation Co. (Park Avenue Properties), 484 F. 2d 323 (3d Cir.), cert. denied sub nom. Baker ¥. Morgan Guaranty Trust Co. of N.Y, 42 U.S.L.W. 3334 (U.S., Dec. 3, 1973). ; PENT V ALLA LE ELLE RIT EOI OLN SOOEINS EI TY BILLING EIEN 2a 2B ey TEE " “Cosh 2° 28 pie iON EWES A CE OB I Tepe, SGA ORM, BEE IRIE OGL SIN eRe BN lia pit a ge SR CEES Sait: AGT SA at is AMD 23 More to the point is a significant concession con- tained in the United States’ brief: “We concede that in the absence of a Tucker Act remedy the bankrupt estates would as a group be constitutionally entitled to a preconveyance judicial determination of the fairness and equity of the to- tal amount of the consideration payable under the final system plan.” United States’ brief at 39. The New Haven Trustee concurs with that view of the United States, so far as it goes. Aside from the RRRA being inadequate from the point of view of compensation when analyzed as a taking statute, it is also deficient insofar as §§303(b) and (c) require the Special Court to order conveyances willy-nilly, before determining whether the final system plan certified by USRA is “fair and equitable,” and permit only a sub- sequent review of the merits or lack thereof of the fi- nal system plan under the fair and equitable rubric.?! On this issue, Catlin v. United States, 324 US. 229 (1945), discussed in the New Haven Trustee’s brief as *'Before the Special Court, the United States and USRA argued that the Special Court would, under the statutory time-table, have 110 days after Congressional approval of the final system plan before having to order transfer of the properties, and that such period could be utilized to review the prima facie fairness and equity of the plan. (The same argu- ment as to timing is made here; see USRA's brief as Cross-A ppellee at 30-31; 33 n. 29). The New Haven Trustee pointed out that the RRRA provides no procedure for that prima facie review and that the Gov- ernment has it in its power to reduce the 110 days to 11 or 12 days. The Government continued to press its position before the Special Coun, which has held that even 110 days would not afford it enough time to make a meaningful preconveyance decision as to whether the final sys- tem plan is fair and equitable to the Penn Central estate. Yet when it be- came expedient to adopt the argument that the 110 days could be short- ened, the Government parties did so. See transcript of the hearing on September 19, 1974 inclines the Penn Central Reorganization Court, at 13,627-30. When it was pointed out that Congress was considering post- rtagp: apr RRRA time-table by 120 days, the United States responded that the conveyance need be only slightly delayed because the Gov- ernment could “speed up” the period between Congressional approval and transfer. /d. at 13,630. Te . * 24 Appellee (at 59 n. 50) is in point. Catlin involved an eminent domain statute under which the United States took property for military purposes. The statute pro- vided for title to be vested in the United States in ad- vance of any judicial determinations as to the legit- imacy of the taking. The Court construed the statute to permit post-taking reconveyances of the property, saying: “The alternative construction, that title passes irre- vocably, leaving the owner no opportunity to ques- tion the taking’s validity or one for which the only rem- edy world be to accept the compensation which would be just of the taking were valid, would raise serious question concerning the statute’s validity.” 324 U.S. at 241 (em- phasis added). The United States argues that under §303(b) of the RRRA, once conveyances are ordered by the Special Court (apparently without any pre-conveyance appel- late review), “reconveyance of all the rail properties would not be feasible” (United States’ brief at 38 n. 17),*° even if the Special Court finds in its subsequent §303(c) proceedings (a) that the final system is not fair and equitable, and (b) that none of the remedies pro- vided by the RRRA suffice to cure the lack of fairness and equity. Such findings, if made by the Special Court, or if made by this Court on its §303(d) review of the Special Court’s §303(c) decision, will mean that an unconstitutional final system plan will have become final and binding on the parties, who presumably are then remitted to a possible Tucker Act remedy in the Court of Claims. And, as previously shown (New Ha- ven Trustee’s bref as Appellee at 67-75), Congress *2Contrary to note 17 of the United States’ brief, the New Haven ‘Trustee does not, “assume . . . that reconveyance of all the rail properties would not be feasible.” However, reconveyance, which might be required to rectify unconstitutional takings, would be much less desirable, both to private and public interests, than a pre-conveyance injunction. 25 . - f | could then act to prevent any Tucker Act remedy, e1- ther by repealing the sovereign’s consent to suit or by refusing to appropriate the funds required to enable the Secretary of the Treasury to satisfy execution upon any Court of Claims judgment. The above-cited con- cession by the United States (United States’ brief at 39) is fatal to its case. The lack of pre-conveyance judicial review (including appellate review here’of any decision by the Special Court), based on actual knowledge of the terms of the final system plan, as to the fairness and equity of the mandatory conveyances as applied to individual railroads, such as Penn Central, takes prop- erty without due process of law, irrespective of whether or not the provisions for compensation in the form of securities of a public authority are valid. we: 26 PART TWO: LEGAL ANALYSIS OF THE SPECIAL COURT’S SEPTEMBER 30, 1974 DECISION, IN THE MATTER OF PENN CENTRAL TRANS- PORTATION CO. (NO. 74-8) I ; a PROCEDURAL STATUS OF SPECIAL COURT'S DECISION IN RELATION TO THE INSTANT APPEALS AND CROSS- APPEAL On esis 30, 1974, the Special Court, Re- gional Rail Reorganization Act (Henry J. Fnendly, Presiding Judge, Carl McGowan and Roszel C. Thom- sen,. Judges) entered a conditional order reversing the Penn Central Reorganization Court’s Order No. 1596?° (JA 124-152), as well as that Court’s Secondary Debtor decision (JA 153-56). The order of reversal was con- ditioned by a stay pending further order of the Special Court after a final determination by the Court of this cross-appeal and the relatéd appeals (Nos. 74-165, 74- \ 66, 74-167 and 74-168), and the Special Court re- served jurisdiction to modify its opinion and order in light of the decision of the Court. The Special Court refused to give res judicata or collateral estoppel effect to the prior judgment of the three-judge district court below in Connecticut General Ins. Corp. v. United States Railway Ass'n. and related cases which are the subject of these appeals and cross- appeal; at the same time, the Special Court has indi- cated that it will give preclusive effect to the Court’s decision herein: “We also state, for whatever bearing it may have, that the last thing we have in mind 1s to impair in *3The Special Court left in effea the Reorganization Court's Order No. 1543, from which no appeals were taken except the New Haven Trustee's appeal limited to jurisdictional issues. The findings of fact in support of Order 1543 are accordingly still in effect. FLAT LIL AI EN EL PTE, RINE SY ORS BO ae RSTO PEE PORTE IS 27 any way the [Supreme] Court’s freedom of action in the Connecticut General appeal.” In the Matter of Penn Central Transportation Co., Special Court, Re- ional Rail Reorganization Act, Nos. 74-8 et al., oo 30, 1974, slip opinion by Friendly, J., at S. Because of the Lotenital importance of the Special Court’s analysis of the RRRA, and the conflict between its view of the constitutional safeguards afforded to claimants to the Penn Central estate by the Fifth Amendment and that of the Connecticut General court, the New Haven Trustee has included in this Reply Brief an analysis of the Special Court’s decision, indi- cating both the areas with which the New Haven Trustee is in accord and the areas in which the New Haven Trustee respectfully submits that the Special Court was in error. In the following discussion, how- ever, the New Haven Trustee will refrain from any ex- tensive analysis of the evidenciary conclusions of the Special Court based on its record, which is not before the Court at this time and is not relevant to the de- cision of the constitutional issues presented for de- cision on the appeals and cross-appeal. Since the Spe- cial Court has indicated that its decision ultimately will be guided by the Court’s decision of the instant cross- appeal and the related appeals, a definitive conclusion by the Court of the legal issues properly posed by the summary judgment motions of the plaintiffs below and here, in the context of the appeals and cross-ap- peal, is both legally warranted and of extreme im- portance to the public aid private interests involved. The New Haven Trustee submits that the Court should hold that the RRRA is unconstitutional, either by sustaining the judgment of the court below or by reversing that judgment on the grounds urged by the New Haven Trustee in this cross-appeal; if the Court so holds, the Special Court will be required by its own 28 indication to enter an order affirming the §207(b) or- der (Order No. 1596) of the Penn Central Re- organization Court. Thus, the matter will have been properly and expeditiously decided as requested by all the parties in the joint motion for expedited treatment. ~The Special Court’s decision did not, of course, constitute a reversal of the judgment of the three- judge district court convened under 28 U.S.C. §§2282 and 2284; only this Court has appellate jurisdiction to hear appeals from a judgment declaring an act of Congress unconstitutional. While the Special Court’s conclusions as to the existence of a Tucker Act remedy are in apparent disagreement with the court below, it is submitted that the Special Court was in error, as more fully developed in the following analysis of Judge Friendly’s Opinion. See infra at 47-48 for a dis- cussion as to the grounds upon which the decision of the Special Court may properly be remedied by the Court, and as to the appropnate procedural dis- positions to be made in this case. SOR NREL SLL LEGO GL ES TELL NI CELE AOE RE SME pt ae a col Fae PMOL RS 29 II ANALYSIS OF SPECIAL COURT'S OPINION The Special Court’s Opinion relating to Penn Cen- tral consists of an introductory section (at 1-26) plus eight numbered sections dealing with discrete issues, each of which is summanized below. A. Introduction (t-26) This section contains a general statement of the case (at 1-10) and summary of the RRRA (at 11-26). Aside from the point noted below,”4 the summary is largely accurate. B. Jurisdiction (26-32) The Special Court’s Opinion does not, it is submit- ted, correctly address the Article III issues raised by the New Haven Trustee. The New Haven Trustee did not argue that the “case or controversy” was lacking because of the lack of adversary pleadings (Opinion at 27). The following head note of the New Haven Trustee’s brief in the Special Court summarized the argument actually made on this point: “Even if §207(b) is interpreted not to confer new jurisdiction upon a §77 count, it requires an Article III court to exercise legislative and adminisirative functions and to issue an advisory opinion.”25 . The New Haven Trustee cited the following cases in support of that contention: National Mutual Ins. Co. *4See Opinion at 24, n. 20, stating that “it is common knowledge” that the labor protective conditions in ihe Penn Central merger were a cause of the Penn Central debacle. It :s unlikely that this was a signifi- cant cause, particularly as compared with the crew-consist issue, as to which see n. 21. The RRRA provides no relief from excessive and need- less costs in the crew-consist area. *>Brief of New Haven Trustee, Appellant as to jurisdictional! issues, before the Special Court (No. 74-8), August 2, 1974, at 11. ALLELES OR ARMA LLL FELIS NTI GLE FIORE RELIES ISP ARG ARISE RO PIE ETRE PET OR OL ENED 30 v. Tidewater Transfer Co. 337 U.S. 582 (1949); Textile Workers Union v. Lincoln Mills, 353 U.S. 448, 472 (1957) (Frankfurter, J., dissenting, explaining the posi- tion of a majority of the Justices in the Tidewater Trans- fer case); Yakus v. United States, 321 U.S. 414, 468 (1944) (Rutledge, J., concurring: “It is one thing for Congress to withhold jurisdiction. It is entirely another to confer it and direct that it be exercised in a manner inconsistent with constitutional requirements, or, what in some instances may amount to the same ; thing, with- out regard to them.”).. The Special Court’s Opinion fails so address the ar- guments actually made by the New Haven Trustee. The applicability of the cases cited above are not dis- cussed at all. Further, the decision of the Special Court as to the Tucker Act remedy is in fact an advisory opinion in the sense that it will not be a final judg- ment unless Congress, upon reviewing the situation, decides that it is willing to contemplate the entry of a deficiency judgment against the United States in the Court of Claims.26 We respectfully disagree that McGrath v. Kristensen, 340 U.S. 162 (1950) is the an- swer to the New Haven Trustee’s contention that §207(b) called for an advisory opinion as to a matter upon which Congress retains the ultimate power of decision in §208. The New Haven Trustee cited Hayburn’s Case, 2 U.S. (2 Dall.) 409 (1792) and more recent authority, such as Chicago & Southern Airlines v. Waterman S.S. Corp., 333 U.S. 103 (1948) for the prop- osition that §207(b) called for a non-judicial decision as to a matter subject to legislative revision. Indeed, 26Congress may act to preclude a Tucker Act judgment of sub- stantial amount either by vetoing all final system plans submitted to it under §208(a), or by amending the RRRA to limit expressly the potential liability of the United States. Neither of these steps would constitute a re- peal of the Tucker Act; but each would effectively make the United States immune to suit, or limit the aggregate dollar amount of any li- ability to which Congress chooses to expose the Treasury. So 31 the indication that the Speaal Coun may not have the power to bind the Court of Claims (Opinion at 106 n. 10927) as to the existence of any substantive cause of action, or as to the amount of damages if there be such a cause of action, makes itsentire Tucker Act remedy discussion (see Sections VII and VIII, at 83- 117) an advisory opinion, contrary to both Article III limitations and the Court’s holdings in United States v. Sherwood, 312 U.S. 584 (1941) and United States v. King, 395 U.S. | (1969). Finally, the Special Court disposed of Part II of the New Haven Trustee’s brief-on jurisdictional issues?* on the ground that it “falls by the wayside” in view of the pendency of these appeals before the Court. (Judge Fniendly’s Opinion at 31-32). Since the New Haven Trustee was contending that the RRRA improperly af- fected the outcome of a case or controversy (his §77(g) Motion) which was pending at the date of enactment of the RRRA, a matter which is not now before the Court, the Special Court erred in dismissing this con- tention. The New Haven Trustee cited United States v. Klein, 80 U.S. (13 Wall.) 128 (1871), Battaglia v. General Motors Corp, 169 F. 2d 254, 257 (2d Cir.), cert. denied, 335 U.S. 887 (1948), Lockerty v. Phillips, 319 U.S. 182 (1943), and Yakus v. United States, supra, in sunport of his position that §207(b) was repugnant to the Con- stitution insofar as it purported to withdraw the Re- organization Court’s power to dismiss the re- 27Note 109 reads: “We intimate no opinion to what extent, if at all, ‘the Court of Claims would be bound by our determination as to the value either of the compensation issuable under the Act or of the assets conveyed.” See infra at 44-46 for a discussion of this point. *8T his argument was headnoted: “§207(b) Confers New Jurisdiction Upon the Reorganization Court and this Court, and Withdraws Jurisdiction from the Supreme Court, in a Designed Attempt to Dictate a Rule of Decision in a Pending Case, the New Haven Trustee’s §77(g) Motion.” (at 28). Pe AEN Bata, Lp AAAS BLINN IE LITRE aetitae 32 organization proceedings under §77(g) of the Bankruptcy Act. The New Haven Trustee further con- tended that the latent power to dismiss under §77(g) is the constitutional “safety-valve” under which secured creditors of Penn Central have been restrained from exercising their contractual rights for over four years. -The Opinion addresses none of these contentions; and yet the Special Court’s order expressly prohibits entry of an order under §77(g) by any of the reorganization courts. C. Collateral Estoppel (32-35) The Special Court was admittedly faced with a sit- uation not contemplated by Congress when it estab- lished the Special Court and required it to render an appellate decision in a number of distinct cases\ansing from appeals of orders of reorganization courts under §207(b). Prior to the decisions by the respective re- organization courts, a three-judge federal court with jurisdiction of the subject matter and the persons of most of the parties to the Penn Central proceeding had adjudicated that the RRRA was void in certain re- spects for repugnance to the Constitution; and that decision was on appeal and cross-appeal to this Court.. The Penn Central Reorganization Court in its §207(b) decision, Opinion and Order No. 1596, seems not to have given the Connecticut General decision binding ef- fect, but Judge Fullam explained that this was necessi- tated by the refusal of a majority of the three judges to reach and decide the issue of the constitutional validity of the compulsory conveyance provisions (JA Zo) Judge Friendly, however, declares that the Special 29Judge Fullam, concurring below, stated that: “The policies embodied in 28 U.S.C. §2282 appear applicable in this case. ... It is preferable that the deliberate and collegial judgment of this three-judge court should determine the constitutionality of the RRRA’s conveyancing provisions.” (JA-59). ER IPRS LE ELE AEN RII IE CS MDI PLES NEEL INL or ee eed AGE LL LOET VIOREL CLE LIE DALOLEL ALLL SIE EAE 33 Court is not bound even by decisions of the duly con- stituted §2284 court on issues which it did reach —such as the. non-availability of a Tucker Act remedy. The ground cited is that Congress did not intend that the Special Court’s decision could be governed by a prior decision of another district court. Yet, it is undisputed that Congress left 28 U.S.C. §§2282 and 2284 in effect as to any complaint asserting that an act of Congress is unconstitutional:3° Moreover, irrespective of Congress’ intent, a duly constituted Article II] court has already declared that the RRRA is unconstitutional and is not saved by the alleged existence of a Tucker Act rem- edy; and that court’s decision is reviewable only by this Court. In upholding a collateral attack upon the prior holdings of a court with clear jurisdiction of the sub- ject matter, the Special Court has seemingly assumed that it has jurisdiction to set aside the judgment of the §2284 Court. Recognizing that, without more, a non- appealable decision by the Special Court might itself be viewed as a final disposition of issues, such as the constitutionality of the RRRA and the alleged exis- tence of a Tucker Act remedy, a wholly untenable po- sition, the Opinion (at 34) declares that “great cases of - ten demand departures from procedural rules” otherwise applicable. The Opinion asserts that because of the alleged non-reviewability of the Special Court's decision (based on the ‘last sentence of §207(b), a pro- vision which the New Haven Trustee contends is itself void under Article III) its decision should not be per- mitted to have a preclusive effect on this Court in the instant cross-appeal and related appeals. By accepted jurisprudential standards, the Special Court should 30Qn March 25, 1974, the Judicial Panel on Multidistrict Litigation denied the attempt of the governmental parties herein to transfer all constitutional litigation under the RRRA to the Special Court. In re Lit- igation under the Regional Rail Reorganization Act of 1973, Docket No. 166 (J.P.M.L. March 25, 1974). See supra at 4, n. 1. ELLE BEE DELL IT ILE ELE EERE EEF ILENE DIST Oe ee? FOS. alec 34 have deferred to the holding of a fellow district court of the United States in a case in which, though the de- cision was under appeal as to its merits, the other court had clear jurisdiction of the subject matter and the parties. See Hart & Wechsler, The Federal Courts and the Federal System (2d Ed. 1973) at 1232-34.*! See also New Haven Inclusion Cases, supra, 399 U.S. at 419-30. D. The Requirement of Uniformity (35-37) In the Connecticut General decision, a majority of the court (Judges Fullam and Bechtle) held that the RRRA is invalid insofar as it rests on the Bankruptcy Clause because it is not, on its face, a uniform law on. the subject of bankruptcies. Judge Aldisert agreed that the RRRA failed to comply with the uniformity re- quirement, but reasoned that creditors of Penn Cen- tral, who are treated alike regardless of where they re- side, lack standing to raise the constitutional defect of want of uniformity. The Special Court, having decided that it was not bound by the Connecticut General de- cision, adopted the position of the United States and USRA, that had also been advanced by them below and rejected without discussion by the §2284 court, that the RRRA is uniform legislation due to the hap- penstance that all active railroads in reorganization were, on January 2, 1974, located in geographical areas which are within the defined region. It is re- spectfully submitted that the Special Court’s dis- position of the uniformity issue was in error. 31“Should it be a postulate of federal judicial administration that there ought to be no more than one trial of a controversy between the same parties at the same time in the federal courts, and that accordingly, when duplicating actions of this kind are instituted, the only problem is to decide which action should be allowed to proceed?” /d. at 1232. IP LPS LF OS A PODER SEP LOC GEE LOLS, LOSE IGE LIE GE PLE SIO VERE AE 35 E. Fair and Equitable Process—General Con- siderations (37-41) a The Special Court in this section of its Opinion has made some general observations** which are pertinent only to the inquiry which the Special Court was en- gaged in: a determination whether the process of the RRRA will be fair and equitable. The Special Court correctly pointed out that if the RRRA is uncon- stitutional as to any non-severable provision, it must be held not fair and equitable. It is for this reason that the Special Court’s ultimate judgment cannot stand if the Court sustains tie holding below as to uncom- pensated interim erosion, or if the Court accepts the argument of the New Haven Trustee that the com- pulsory conveyance provisions are unconstitutional. F. Erosion of Investors’ Rights (41-57) The Special Court wholly disagreed with the Connecticut General court’s handling of the interim ero- sion issue. The Special Court’s view of erosion is based on the authority of Judge Friendly’s 1969 opinion in the New Haven proceedings,** which is cited (Opinion at 44) to sustain the proposition that Penn Central sielEsinicsinssia *2The New Haven Trustee must respectfully disagree with one of the Special Court’s observations: “The idea that billions of dollars of liquidation proceeds of these bankrupt railroads are lurking just around the corner is unrealistic in the last degree.” Opinion at 39. This statement, carried to its logical conclusion, would mean that Penn Central will be a “bankrupt bankrupicy,” unable to pay even its priority administration claims, now in excess of $1 billion. It also casts grave doubt upon there being any Tucker Act remedy. 33In New York, N.H. & H. R.R., First Mortgage 4% Bondholders’ Commu- tee v. United States, 305 F. Supp. 1049, 1055-59 (S.D.N.Y. 1969), rev'd sub nom. New Fiaven Inclusion Cases, supra, 392 U.S. at 419-30, a three-judge district court headed by Judge Friendly approved two “discounts” on liq- uidation value of New Haven’s rail assets imposed by the ICC (334 (footnote continued on following page) PELLLL LRP BL BILE PEALE AE 36 could not achieve a termination of operations except after lengthy proceedings before the ICC. It is submit. ted that the earlier case is improperly cited, and that the Court’s opinion in ‘New Haven Inclusion Cases, 399 U.S. at 461, did not affirm the decision of the three- judge court headed by Judge Fnendly. The Court did not even pass on the ments of Judge Frendly’s earlier opinion, because it ruled that the three-judge Court headed by Judge Friendly should have deferred to the New Haven’s reorganization court (Anderson, j.).*4 Part IV of the Opinion is accordingly premised on the erroneous legal concept that the public interest is entitled to two “bites of the apple,”*> the first com- prising the period during which creditors can con- stitutionally be restrained while efforts to reorganize the railroad are explored, and the second, a period in which the ICC and the state regulatory agencies can process abandonment applications in the usual and (footnote conti nued from prior page) : ’ 1.C.C. 25 (1968)), one based on an assumed one-year delay by the ICC in acting upon a hypothetical abandonment application (the granting of : which, the court held, would have been constitutionally required) and 4 the other a “bulk sale” discount, based on an alleged risk factor that a hypothetical buyer of properties in bulk would have discounted for if he purchased the properties at the date the ICC finally approved the hypo- thetical abandonment application. Judge Weinfeld dissented on both points, 305 F. Supp. at 1066-69. The New Haven's reorganization court rejected these discounts imposed by the ICC. Jn re New York, N.H. & H. R.R, 304 F. Supp. 793, 800 (D. Conn. 1969), aff'd sub nom. New Haven Inclusion Cases, supra, 392 U.S. at 457-73. *4Had the Court passed on the merits of Judge Friendly’s opinion in 305 F. Supp. at 1055-59, it would have reversed. This is abundantly.clear from the dissenting opinion of Justices Black and Harlan, who would have reviewed the decisions of both district courts and sustained the dis- counts imposed by the ICC, thereby affirming Judge Frendly’s opinion at 305 F. Supp. at 1055-59. See New Haven Inclusion Cases, supra, 399 U.S. at 502. 35Jn re New York, N.H. & H. R.R., supra, 304 F. Supp. at 801, quoted, with approval, New Haven Inclusion Cases, 399 U.S. at 466. Pee Oe LB COME 2 uae Docent he VR. ae Mane REAR ER 37 customary fashion as though no Fifth Amendment rights were at stake. It is further submitted that Palmer v. Massachusetts, 308 U.S. 79, 88 (1939) does not stand for the proposition for which it is cited in the Opinion (at 44}. Palmer is clearly applicable during the period prior to a finding that the railroad is not reorganizable on an income basis within a reasonable time, but its applicability thereafter is doubtful in the light of New Haven Inclusion Cases. Judge Fullam has found Penn Central not to be re- organizable on an income basis under §77; all parties to this cross-appeal and the related appeals agree with that conclusion. Earlier the ICC had found that Penn Central could be reorganized only with massive gov- ernment aid.*° By taking the position that the ICC can in the public interest subject a railroad in re- organization to a kind of “one last chance” doctrine (in Judge Fnendly’s words, “a final opportunity to come up with plans that may prevent serious injury to the public interest” —Opinion at 44), the Special Court has undermined the doctrine of the Brooks-Scanlon line of cases,*’ while at the same time giving lip service to its continued vitality. Having incorrectly determined the law applicable to erosion and the nght of creditors to demand a rea- sonably prompt cessation of deficit rail operations once it has been determined that the railroad is not re- organizable, the Opinion then compares the effect of the RRRA, particularly §304(f), to the prospects “that would have prevailed in its absence.” (Opinion at 47). 36Penn Central Transportation Company Reorganization, Report on Re- organization Plans, Finance Docket No. 26241 (ICC, September 28, 1973), J.D.S. 54. 37 Brooks-Scanion Co. v. Railroad Commission, 251 U.S. 396 (1920); Bullock v. Railroad Commission of Florida, 254 U.S. 513 (1921); Raztroad Commission v. Eastern Texas R.R., 264 U.S. 79 (1924). + : ¥ & * se = 8 y = ep PI ity Nt iis visancctens are SAORRAR SORBE Da ab WV NBEO PNR 38 Assuming that the Fifth Amendment notwithstanding, Congress and the ICC could subject Penn Central to the task of proving no adverse environmental impact as a result of a total cessation of service, see Harlem Valley Transportation Ass'n. v. Stafford, 360 F. Supp. 1057 (S O.N.Y. 1973), affd.—F. 2d—(2d Cir. 1974), Judge Friendly concluded that the RRRA by making the National Environmental Policy Act of 1969 (“NEPA”) inapplicable (RRRA, §601(c)), simply re- places one burdensome set of regulatory hurdles to abandonment with another. It is submitted that this conclusion is incorrect. The Opinion does not deal with the argument that NEPA itself would be uncon- stitutional if it prevented, or unduly delayed, a de- cision permitting cessation of operations to which the Penn Central creditors would be otherwise entitled by reason of the Fifth Amendment. Turning to a factual discussion of the erosion issue, the Special Court first defines erosion incompletely,** and then asserts that there is no “convincing evidence” in the record that erosion is likely in the 620 days (which has now become 740 days, see USRA’s brief as Appellee at 3 n. 1) prior to the first date a final system 38Judge Frendly’s minimum definition of erosion includes issuance of trustees’ certificates, deferral of property taxes, accrual of other ad- ministration expenses, and use of cash or property subject to mortgages for payment of operating expenses. Opinion at 51. Each of these el- ements is a consequence of continued net losses from operations; but such net losses produce other forms of erosion. In any event, the min- imum definition fails to treat with the following elements of erosion: de- cline in value of railroad equipment due to retirements in excess of de- preciation reserves; the excess of deprecation of equipment and of track and structures, to the extent that it reflects actual wear and tear and ob- solescence, over new investment therein; borrowings otherwise than on trustees’ certificates from the Government and its agencies to the extent used to defray operating expenses in excess of revenues from rail oper- ations; and diversion of non-rail income from real estate and investments to defray operating expenses. 39 plan can become effective.*° Not only does the Opin- ion fail to treat with the evidence of erosion in the record (such evidence consisting primarily of un- disputed facts that are stipulate’ in this proceeding), but it seemingly reverses the tnal court’s findings of fact in Opinion and Order No. 1543 (JA 84-103) with- out any determination that they are erroneous under the standard for appellate review and in a situation where neither the Government nor USRA had ap- pealed Order No. 1543. Judge Fullam found that Penn Central will have negative cash available for oper- ations of $153,700,000 at December 31, 1975, a date which is within the 740 days allowed for a final system plan to become effective. Opinion and Order No. 1543, Finding of Fact No. 26 (JA 99-100). Negative cash of this magnitude necessarily will require the fi- nancing of cash deficits by borrowings having the pn- ority of administration claims. The Opinion as to erosion indicates that the Spe- cial Court viewed its role under §207(b) of the RRRA as one calling for a trial de novo, not an appellate pro- ceeding. It appears that the Special Court considered that it could reach its own conclusions without regard to the factual findings of the reorganization courts.*° In the erosion discussion, the Opinion places great weight on the 10% temporary rate increase granted by the ICC in Ex Parte 305 (see Opinion at 52 and n.-44, 45) ’8The court below correctly granted summary judgment on the ground of uncompensated interim erosion, treating the Stipulation as to Factual Matters and the uncontested findings of fact of Judge Fullam in Opinion and Order No. 1543 (JA 84-103) as conclusive evidence that some erosion was likely in the 620 days preceding the effective date of any final system plan. “Thus, in a later section (Opinion at 70-83), the Special Court de- cides how much weight it considered appropriate to give to the re- spective witnesses on Conrail viability, without regard to the findings of the respective reorganization courts. OS artergl pr ere Miey eet PR STATIS ACIS PASO oe 40 and even concludes, based on the month of July, 1974 (a month following the trial court’s decision)*! that Penn Central's operations will now be profitable (on the basis of net railway operating income, not net in- come after fixed charges). See Opinion at 54 n. 49. The Special Court, which was plainly given an appel- late function by §207(b), erred when it applied its own views to the facts of the case de novo.” G. The Compelled Conveyance and the Adequacy of the Consideration (57-83) The New Haven Trustee agrees with the Special Court’s analysis of §§302 and 303 of the RRRA as the product of congressional reasoning which was too “simplistic” (Opinion at 61); and with the observation: “The mere fact, if it be one, that Conrail might make some profit would not necessarily give its se- curities a value sufficient to render them fair com- pensation.” /d. (emphasis in original; footnote _ omitted).* ‘Section 207(b) of the RRRA required a decision by the re- ° organization courts not later than July 1, 1974, and according!y reliance upon evidence arising after that date by an appellate court is improper. “On review of the §2284 court's decision, this Court’s role is of course limited to the determination of whether the tral court's judgment is supported by substantial evidence. As Mr. Justice Stewart observed in New Haven Inclusion Cases, supra: “It is not for-us to pass upon the myriad factual and legal issues as though we were trying the cases de novo. ‘It is not enough to reverse the District Court that we might have appraised the facts somewhat differently. If there is warrant for the action of the Distnct Court, our task on review is at an end.’ ” 399 U.S. at 435, quoting Group of Institutional Investors v. Chicago, M., St. P. & Pac. R.R., 318 U.S. 523, 564 (1943). *31f the Special Court’s observation (Opinion at 60) that: “Congress is entitled to insist on the continued operation of rail lines earning or capable of earning a profit. . .” ( footnote omitted) (footnote continued on following page) ee ¢ 4) The New Haven Trustee agrees with the analysis of the deficiencies of §303(c)(2) of the RRRA (Opinion at 62-67); that section “fails to supply an adequate tool with which to cure any deficiency in the con- sideration.” (Opinion at 67). Thus, the Special Court found that, absent a Tucker Act remedy, the process of the RRRA is not fair and equitable (Opinion at 68-69), since there was no showing that the combination of Government guar- anteed cbligations, the securities of Cagnrail and ,the “other benefits” would provide just compensation. (Opinion at 69-83).*4 (footnote continued from pnor page) means that Congres: ‘- entitled to insist on continued operation of a line or segment of railro. .. so long as that line or segment makes a positive rather than negative contribution to net railway operaung income, even if not sufficent to provide any return on invested capital, then it is far too broad and not supported by the Court’s modern decisions, such as Federal Power Commission v. Hope Natural Gas Co., 320 U.S. 591 (1944). ‘It is appropriate to note in passing that the entire discussion of ~ Conrail viability (Opinion at 69-83) is based on a de novo trial approach, rather than appellate review of evidence in the record; and this error is compounded by the use in the Penn Central case of evidence from the Ann Arbor case which was never subjected to cross-examination. See Opinion at 80-81. Considered as a de novo trial, the proceedings before the Special Court were unfair to the Penn Central estate and its creditor and stockholder claimants, and violated due process of law, because no opportunity was afforded to parties who submitted evidence as to Con- rail’s non-viable status to introduce evidence or to cross-examine evi- dence relied upon by the Spécial Court. Not only was the decision in the appeal from the Penn Central Reorganization Court decided on the basis of evidence dehors the record in that proceeding, but the Government and USRA in effect disavowed the Ann Arbor evidence on the ground that ‘it is not possible at this time to know what form Conrail will take, thereby requiting all predictions as to its viability to be based on assump- tions which cannot be verified. See transcript of hearings before the Spe- cial Cour at 85, 88, 91-92. Moreover, the states of Wisconsin and Michigan, which introduced evidence as to Conrail’s potential viability in the Ann Arbor proceeding, where, by agreernent, it was not subjected to cross-examination, had standing to introduce the same evidence in the Penn Central proceedings (where it would have been subject to cross-ex- amination) and did not do so. ps ES TS STARE ARNT er wae Nae CES PRE LIRIIN RD D HAT RED, be en Fe SERFS RS a 42 H. Availability of a Remedy Under the Tucker Act (83- 102) The Special .Court’s analysis of the Tucker Act remedy issue is exclusively premised upon the con- clusion that the jurisdiction of the Court of Claims was not repealed, expressly or impliedly, by the RRRA. The New Haven Trustee submits that the judgment below, that there is no Tucker Act remedy, is sound whether or not the jurisdiction of the Court of Claims was repealed. The Special Court stated that its disagreement with the Connecticut General court was that the court stated the wrong issue; according to the Opinion, the issue is whether Congress expressed. an affirmative intent ‘‘to withdraw a remedy that would otherwise exist.” Opin- ion at 85. The Opinion thus fails to differentiate be- tween (a) affirmative intent to withdraw the consent of the sovereign to suit and withhold jurisdiction af- firmatively granted in 28 U.S.C: §1491 to the Court of Claims, and (b) assuming that the waiver of sovereign immunity and conferral of jurisdiction are still in ef- fect, affirmative tntent to preclude any plaintiffs from being able to prosecute a substantively valid cause of action in the Court of Ciaims.* The Opinion does not discuss any of the cases re- lied on by the New Haven Trustee in his Fucker Act remedy analysis save Youngstown Sheet & Tube Co. v. Sawyer, 343 U.S. 579 (1952), which is dismissed with the obsefvation: “The Court of Claims has itself recognized this critical distinction, pointing out that: “... it is not every daim involving or invoking the Constitution, a federal statute or a regulation which is cognizable here.” See Eastport S.S. Corp. v. United States, 372 F. 2d 1002, 1007 (Ct. Cl. 1967), quoted in New Haven Trustee's brief as Appellee at'38-40. Rp sarees CPI LLL A OEE SMSF ORE NLR ENP LIS OED ARIE HOT saa ia a OA ALY ER M2 BOLE EOE LE PIES A be SIDE. FEEL SAVED RGA, 43 “The basis of the doubt [as to adequate remedy at law in the Court of Claims for the seizure of the steel mills] was that the Executive’s action there was without authorization in law.” Opinion at 102, n. 106. . The Special Court thus did not address the New Haven Trustee’s contention that Youngstown has a dif- ferent meaning which is to be derived from the Court’s citation in Youngstown of Larson v. Domestic & Foreign Commerce Corp., 337 U.S. 682 (1949).** So far as the New Haven Trustee can discover, no case has ever held that an unconstitutional taking Has an ade- quate remedy at law in the Court of Claims, although there are legions of inverse eminent domain cases holding that a constitutional taking which is inad- equately compensated gives rise to a valid cause of ac- tion under the Tucker Act. The Opinion correctly discounts the applicability of Hurley v. Kincaid, supra, to the problem at hand (Opin- ion at 94-99), but then relies upon another opinion of Mr. Justice Brandeis, Lynch v. United States, 292 US. 571 (1934) (Opinion at 99-102). Lynch involved an un- usual action by Congress which came very close to re- pudiation of the public debt, just as the RRRA in- volves an unprecedented attempt by Congress to exercise the power to cancel the contractual nghts of mortgage bondholders.*” *6 Youngstown is a case where equitable relief was deemed appropriate because the governmental action complained of was unconstitutional, thereby qualifying under the test of Larson (as explained in Malone v. Bowdoin, 369 U.S. 643 (1962)) for the applicability of the doctrine of United States v. Lee, 106 U.S. 196 (1882). Youngstown, and numerous other cases which relied on the Lee decision, stand in contrast to cases where the government action alleged to constitute a taking is conceded by the condemnee to be constitutional (eg. Hurley v. Kincaid, 285 U.S. 95 (1932); United States v. Causby, 328 U.S. 256 (1946); and Larson). *7The Lynch opinion casts doubt on the availability of a substantive cause of action in the Court of Claims by its holding that Congress re- tains the power to withdraw the consent of the sovereign to suit. See 292 U.S. at 581-82. ° *°The RRRA is uniquely burdensome in this regard because the se- curities will be valued by the Special Court many years before they are likely to achieve the status of a publicly traded security. For example, §77 plan proceedings for Penn Central that will result in distribution of the condemnation proceeds, might well take the better part of a decade, con- (footnote continued on following page) f ¥ i Hi a & “4 eR OIE EAT ARSE AV OER ERE. EAE TOL DHT f ORES TEIN WOT ACIP a ae a SMOG id tae we ME Pa AIC 46 The Opinion advances the proposition that there can be a statute which, while not valid as a Bankruptcy Clause enactment alone, is valid as a Bankruptcy Clause enactment if supplemented by an eminent do- main power. The same statute is both a “re- _ organization” and a “taking” at one and the same time, * so that even though it would be invalid solely as a re- organization or solely as a taking, it is valid as an amal- gam of the two. (Opinion at 105-108). The Bankruptcy Clause and the eminent domain power have never before been considered to com- plement one another, so that a statute which fails as a reorganization law because it provides securities of in- sufficient value, and fails as an eminent domain law because it pays compensation otherwise than in money or its perfect equivalent, can be held valid because of a remedy in the Court of Claims. (footnote conti nued from prior page) sidering the multitude of proofs of claim filed and Penn Central’s ex- traordinarily complex debt and lien structure. And the §77 plan pro- ceedings cannot even begin until after completion of “horrifyingly” long valuation proceedings in the Special Court, appellate review by the Court, and then a lengthy Court of Claims proceeding. Thus, under the statutory scheme of superimposing the RRRA on §77, a traditionally lengthy process has become a modern day equivalent of Charles Dickens’ Jarndyce v. Jarndyce, and the “escape valve” based on unreasonable delay (§77(g)) has been removed. If, as is likely, the 21st century will have been closely approached, or even reached, before the Conrail securities will be available for distribution, it is clear that their fair market value when re- ceived may be far less than the “intrinsic” value determined by capital- ization of projected earnings. Even if the Penn Central Trustees could shorten this process by securing Reorganization Court approval to sell the Conrail securities, such sale would presumably have to await con- clusion of a Tucker Act deficiency judgment proceeding. Unless Conrail had reported substantial net income for one or more years, it is unlikely as a practical matter that an underwritten public offering of Conrail’s common stock could take place, particularly in the light of disclosure re- quirements of the Securities Act of 1933. Accordingly, there may not be a public market where Conrail’s securities can be traded, and thus no way to ascertain their fair market value. PRE Pe WE AN IE Ray Cw ep Pe PS SO Ie POLLING Oe, OMA I ALOP OL S YP E NE SALTED LAN 6 ALI AAG A OP Sa PEA AIO okey 47 CONCLUSION Based on the foregoing, it is the position of the New Haven Trustee that: . 1. The decision of the court below in Connecticut General should be affirmed insofar as it relates to the interim taking; 2. The court was correct in concluding that an ade- quate Tucker Act remedy is not available to cure the constitutional defects of the RRRA; 3. The court was correct in concluding that insofar as the RRRA is a law on the subject of bankruptcies it is in violation of the constitutional requirement of geo- graphical uniformity; 4. The decision of the court below should be re- versed, as requested in this cross-appeal, insofar as it failed to enjoin implementation of the compulsory conveyance provisions of the RRRA on the ground that they effect a taking of private property for public use without just compensation;>! and 5. In deciding this cross-appeal and the related ap- peals the Court can properly disregard the Special Court’s §207(b) decision on the ground that the de- cision below in Connecticut General was binding as to the constitutional issues decided and that, in other re- spects, the decision of the Special Court is not relevant to the issues here before the Court. The order sought here by the New Haven Trustee will presumably cause the Special Court to modify its §207(b) order dated September 30, 1974 so as to af- firm Order No. 1596 of the Penn Central Re- organization Court (JA 152), thus precluding appli- cation of the RRRA to Penn Central. ‘\See New Haven Trustee's brief as Cross-Appellant at 107-09 for the precise terms of the order requested. LP LAL ILIAD ALG LPO RISEN NPG DOES i! LPL D8 IPN EO AY 48 If‘ after hearing argument of the instant appeals and cross-appeals, the Court were to consider thar the RRRA is facially constitutional as to both its interim erosion and compulsory conveyance aspects, there would still remain issues determined by the Special Court as to the fairness ind equity of the process of the RRRA, which urgently require review because ot their constitutional implications. The record in the Special Court’s §207(b) proceedings would then be re- quired in order to adjudicate definitively all aspects of the case, including the issue of availability of a sub- stantively adequate Tucker Act remedy, and it would be proper for the Court to withhold its decision in these cases pending a decision to review, pursuant to a writ of certiorari to the Special Court under 28 U.S.C. §1651, the Special Court’s §207(b) order;5? in such event, the petition for review of the Special Court’s or- der could be consolidated with the instant appeals and cross-appeal for decision on the merits. The Court would thus be in a position to review the issue of whether or not the RRRA provides a process which is fair and equitable, an issue which must be reached in the event that the Court determines that a Tucker Act action exists, but otherwise need not be decided. *?The New Haven Trustee plans to file with the Court, as soon as ible in the premises, such a petition for a writ of certiorari under 28 S.C. §1651 to review the Special Court's §207(b) order. The petition will assert that this Court has jurisdiction to issue the writ in aid of its ap- pellate jurisdiction under §303(d); that there is no other statutory provi- sion whereby the decision of the Special Court can be reviewed by the Court; that the last sentence of §207(b) of the RRRA purporting to pre- clude appellate review of the Special Court's §207(b) decision is void for repugnance to the Constitution; that §207(b) confers jurisdiction im- properly in view of the constraints of Article III of the Constitution; and that the Special Court's decision on the merits was erroneous, based on errors of law and errors of fact. i / 49 October 10, 1974 Kespectfully submitted, Of Counsel: JOSEPH AUERBACH . 225 Franklin Street ( MorRRIS RAKER Boston, Massachusetts CHARLES W. MORSE, JR. 02110 - SULLIVAN & WORCESTER JAMES WM. MOORE 225 Franklin Street 54 Meadow Street ‘ Boston, Massachusetts New Haven, Connecticut ' 02110 06506 Attorneys for Appellant { Richard Joyce Smith, Trustee F of the Property of The New York, i p Ses f Aas.cap a artford Railroad 4 Company, yA i p 4 b é f t i i f f { --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386414_0347%3A18. Public record. Not legal advice.