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IN RE PENN CENT. TRANSP. CO.

August 8, 1972

In the Matter of PENN CENTRAL TRANSPORTATION COMPANY, Debtor. In re SALE OF LAND AND FACILITIES TO the COMMONWEALTH OF MASSACHUSETTS, Settlement with New Haven Trustee and Boston and Albany bondholders

Fullam, District Judge.


The opinion of the court was delivered by: FULLAM

FULLAM, District Judge.

 The Trustees have filed a petition (Document No. 2725) for approval of a proposed sale of certain land and facilities to the Commonwealth of Massachusetts for a total price of $19.5 million. Included within the proposed sale are the following properties:

 1. Approximately 50.65 miles of right-of-way, formerly the property of the reorganization trustee of the Boston and Providence Railroad Corporation (B & P), acquired by the Trustees pursuant to Order No. 215 in these proceedings;

 2. Approximately 84.52 miles of right-of-way, formerly the property of the reorganization trustees of the New York, New Haven and Hartford Railroad Company (New Haven), acquired by the Debtor as the result of the inclusion of the New Haven in the merger between the New York Central and Pennsylvania Railroad Company (see New Haven Inclusion Cases, 399 U.S. 392, 90 S. Ct. 2054, 26 L. Ed. 2d 691 (1970));

 3. Approximately 10.09 miles of right-of-way, formerly the property of the Boston and Albany Railroad, acquired by the Debtor's predecessor, the New York Central Railroad Company, through an earlier merger.

 A hearing on the Trustees' petition was held on May 15, 1972. At the hearing, objections to the proposed sale were raised on behalf of the bondholders of the Boston and Albany Railroad, asserting that the proposed sale price was inadequate with respect to the former Boston and Albany property (item number 3 above); and the trustee of the New Haven reserved the right to challenge the adequacy of the price with respect to the former New Haven property (item number 2 above), in the event that a proposed settlement agreement then under discussion did not materialize.

 Thereafter, further hearings were held, on June 12 and June 30, 1972, to consider (1) a proposed form of order approving the proposed sale (Document No. 3769); (2) the Trustees' petition for approval of a settlement agreement with the New Haven trustee (Document No. 3525); and (3) approval of a proposed settlement with the Boston and Albany bondholders, embraced within the form of order proposed by the Trustees.

 If the proposed settlements with the Boston and Albany bondholders and the New Haven trustee, respectively, are approved, this would remove all objections to the proposed sale to the Commonwealth of Massachusetts. However, Morgan Guaranty Trust Company and a group of other indenture trustees object to the proposed settlements with Boston and Albany bondholders and the New Haven trustee, although they do not object to the underlying sale itself.

 If the Boston and Albany settlement is approved, the Court will also be required to act upon the petition of New England Merchants National Bank, as indenture trustee of the Boston and Albany bonds, "for determination of procedure for partial payment of Boston and Albany 4 1/4% bonds due 1978" (Document No. 3770). And if the proposed settlement with the New Haven trustee is approved, the Court will be able to act finally upon the Trustees' earlier petition (Document No. 2258) seeking approval of the transfer of various highway bridges in Massachusetts to the Commonwealth of Massachusetts; and various other pending matters (certain aspects of the earlier sale of commuter lines to the Metropolitan Transit Authority and Connecticut Transportation Authority, and the Summer Street bridge transaction) will be resolved without further litigation.

 I. The Merits of the Proposed Sale

 Determination of a fair price for the properties proposed to be conveyed is extremely difficult. Under the terms of the proposed conveyance, the purchaser would acquire fee title to the roadbed and appurtenances, including air rights, but the Debtor's estate would retain a permanent easement for rail operations. Thus, the uncertainties in evaluating the worth of the fee title to a rather narrow strip of land, much of it in rural and undeveloped areas, or below the grade of adjacent streets and highways, is compounded by the difficulty in evaluating the retained railroad easements. The property is, in reality, sui generis. Executives of the Debtor, experienced in such matters, are satisfied that the negotiated price is fair, and their judgment has been supported by the testimony of an independent appraiser.

 There is no evidence in the record of any higher appraisal, but the Boston and Albany bondholders, through cross-examination and through the testimony of an expert appraiser whose qualifications are somewhat more impressive than those of the Trustees' expert, sought to impeach the validity of the Trustees' methods of appraisal. The principal thrust of this challenge involves a theory of "enhancement value" adopted by an arbitrator in certain condemnation proceedings involving somewhat similar property of the Boston and Maine Railroad. Under this approach, the aggregate of prices arrived at upon a per-square-foot or per-parcel basis would be substantially increased by multiplying an arbitrary factor to reflect the fact that the parcels have all been assembled and are being purchased as a unit, without the necessity of incurring the costs and risks of assemblage.

 Whatever may be the merits of this challenge, as a matter of abstract theory, the following facts have been ...


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