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IN RE PENN CENT. TRANSP. CO.

January 4, 1972

In the Matter of PENN CENTRAL TRANSPORTATION COMPANY, Debtor. Petition of DETROIT BANK AND TRUST COMPANY, Liquidating Trustee

Fullam, District Judge.


The opinion of the court was delivered by: FULLAM

FULLAM, District Judge.

 The petitioner, Detroit Bank and Trust Company, liquidating trustee, seeks approval of the sale of the Debtor's interest in Executive Jet Aviation, Inc. and its subsidiaries ("EJA"). The Debtor, through its subsidiary, American Contract Company ("ACC"), has equitable ownership of 659,450 shares of EJA's capital stock and of debt obligations of EJA totalling more than $21,000,000. Legal title to the stock and debt obligations is held by the petitioner under a trust agreement with ACC.

 Petitioner became trustee as a result of an order of the Civil Aeronautics Board which required the Debtor to place its interest in EJA in an irrevocable voting trust and to divest itself of all interest in EJA by March 1, 1971. Since then, the CAB has afforded petitioner additional time to accomplish the divestiture.

 By a "Purchase Agreement" dated March 31, 1971, and amended August 31, 1971 (exhibit 7 to the affidavit of Harry C. Pratt), petitioner agreed to sell ACC's interest in EJA to Bruce G. Sundlun and Robert L. Scott, Jr. The agreement is conditioned on approval of the CAB, of the Debtor's Trustees and of this Court. By Order 71-11-51, dated November 12, 1971, the CAB approved the transaction subject to the approval of this Court.

 A hearing was held on the petition on December 21, 1971. At the hearing, no objection was raised to the purchase price. Penn Central Company, the parent of the Debtor, raised some questions as to the disposition of the proceeds of the sale. However, these problems need not now be resolved since it appears that all parties agree that, for the time being, the proceeds of the sale may be deposited with petitioner subject to further order of this Court.

 The only substantial issue presented in the present petition is the effect of this transaction on claims asserted by Penn Central and others in certain actions which have been consolidated for pretrial proceedings before Chief Judge Joseph S. Lord, III of this Court at M.D.L. Docket No. 56.

 Penn Central, its shareholders, ACC, and the Debtor's Trustees, are all possible claimants, and may be able to assert claims in the following categories:

 1. Direct claims against any corporation or individual, including past and present directors and officers of EJA, who had dealings with EJA to the detriment of the claimants.

 2. Direct claims against EJA and its subsidiaries.

 3. Derivative claims asserting the rights of EJA and its subsidiaries against various individuals or corporations.

 The first category presents no problem since all parties agree that this transaction would have no effect on the claim of any party asserted in his own right against anyone, other than EJA itself.

 Nor does any problem of substance arise with respect to the second class of claims. While PCC is satisfied that the direct claims it may have against EJA would not be affected by this transaction, it does assert that the Debtor's Trustees should receive additional consideration for the release of the Debtor's and of ACC's claims against EJA. In reality, this objection amounts to an assertion that the purchase price is inadequate. However, from the outset the releases have been an integral part of the proposed transaction because the Debtor is required by the order of the CAB to divest itself entirely of both its equity and its debt interest in EJA. It is uncontradicted that the agreed purchase price reflects a reasoned evaluation by ...


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