that the Debtor stands ready to supply the service to the extent of its ability. And it may well be that, for some reasonably limited period, the Trustees should be permitted to obligate the estate to bear portions of the continuing losses, as a reasonable price to pay in order to bring about the total elimination of losses. But I do not believe it constitutionally permissible to authorize committing the bankrupt estate by contract to sustain these losses permanently, or for as long as 90 years.
A further factor must be mentioned. Under the provisions of the various mortgages on the property, the mortgagees are entitled to have liens on the facilities of an operable railroad. If fixtures essential to rail operations are removed, they must, under the mortgages, be replaced by equivalent or better fixtures, which become subject to the liens of the mortgages. Under the proposed lease, it is entirely possible that the mortgagees could end up with liens on mere strips of land, which could be rendered operable in rail service only by the expenditure of substantial sums of money. It is no answer to say, as counsel for the Trustees has argued, that the lien continues on the railroad's right to use the facilities, even though title to the facilities may remain in MTA. The difficulty here is that the railroad's right to use the improvements continues only so long as the railroad is required to provide rail service. Thus, the right to use the facilities could be lost if, for example, MTA should exercise its right to substitute a different carrier to provide the service, or in the event of abandonment.
For all of the foregoing reasons, I am unable, on the present record, to approve the proposed agreements. It should be emphasized, however, that this is not necessarily fatal to the general concept involved. The Trustees may be able to produce evidence which would satisfy the Court that the lease rentals do in fact provide a reasonable return on investment. The parties may be able to convince the indenture trustees, or the Court, that the security of the mortgages would be amply protected by the improvements which are undeniably not removable fixtures. The parties may be able to defer the question of reimbursement for capital expenses, with perhaps some mutual accounting later on, which might off-set these costs against the value of improvements.
All that is now decided is that the agreements presently proposed cannot be approved, but this rejection is without prejudice to further applications.
I recognize that, by Order No. 63, this Court approved arrangements with MTA and the Connecticut Transportation Authority covering the New Haven-West End passenger service (hereinafter "MTA/CTA"), which arrangements are in many respects quite similar to the arrangements proposed here; and that, by Order No. 75, the Trustees were authorized to execute a letter of intent in connection with the present transaction, on the assumption that the final terms of the present transaction would be substantially similar to those in the MTA/CTA situation. (Tr, pp. 503-11.)
There are, however, important distinctions between the terms presently proposed, and both the MTA/CTA agreements and the letter of intent. In MTA/CTA, there was an outright purchase of a substantial part of the facilities to be operated under the service contract; the trackage rights retained by the Debtor probably were of much greater significance; and the provisions regarding reimbursable costs are dissimilar. The terms now proposed differ from the letter of intent in several important respects, not the least of which is the proposed $10,000,000 credit over the initial five-year term of the service contract. (See: affidavit of E.R. Adams, Document No. 2014, pp. 2-6.)
Thus, on their merits, it is entirely possible to justify both approval of the MTA/CTA agreement and rejection of the MTA agreements presently proposed. But the crucial distinction, it must be candidly acknowledged, lies in the fact that no opposition was expressed to either the MTA/CTA agreements, or the letter of intent. A court's willingness to approve, as an exercise of sound business judgment, agreements as to which no question of legality or constitutionality is raised, does not establish a precedent for deciding legal and constitutional questions when they are raised. It is clear that the final documentation was not previously approved by this Court, nor did any of the parties waive their rights to object.
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