The opinion of the court was delivered by: FULLAM
Approximately one-half of the rail system of the principal Debtor, Penn Central Transportation Company, is not owned in fee by the Debtor, but is operated under some 42 leases from other railroad companies. In most instances, these lessor companies have virtually no assets except their interests under the leases, and perform no active function except the collection and appropriate distribution of the rentals under the leases. Penn Central has not paid rentals under most of these leases since entering reorganization in 1970.
At an early stage of the Penn Central reorganization proceedings, questions arose concerning the extent of the jurisdiction of the reorganization court over the lessors' interests in the properties demised, and the power of the Court to preclude creditors of the lessors from exercising their normal remedies. The Trustees of the Penn Central Transportation Company asserted that the doctrine of In Re Reorganization of Pittsburgh Railways Co., 111 F.2d 932 (3d Cir. 1940), aff'd sub nom., Philadelphia Company v. Dipple, 312 U.S. 168, 61 S. Ct. 538, 85 L. Ed. 651 (1941), established such jurisdiction; others, including certain indenture trustees of lessors' bond issues, asserted the contrary. Neither side was particularly anxious to have the issues immediately resolved. The contending parties thereupon worked out an agreement which was embodied in Order No. 170. Under the terms of that Order, all creditors of the lessors are precluded from enforcing any claims or taking any other action affecting the properties in question, except upon 14 days' notice to the Trustees and all other parties to the Penn Central reorganization; and the Trustees, and all of the lessors, are likewise precluded from filing for the reorganization of any of the lessors, or obtaining any stay order or injunctive relief except upon 14 days' notice to all parties concerned.
The Trustees have now filed a proposed plan of reorganization of the Penn Central Transportation Company, which plan contemplates the reorganization of most of the lessors which are owned or controlled by the Trustees. In conformity with this approach some 15 of the lessor companies propose to file for reorganization as secondary debtors in conjunction with the Penn Central proceeding. Pursuant to Order No. 170, 14-day notices have been given in each case, announcing the respective lessors' intentions to file for reorganization on July 14, 1973.
The jurisdiction of this Court to entertain UNJ's petition for reorganization under § 77(a) of the Bankruptcy Act seems entirely clear. Any objections questioning the propriety of such filing, or the propriety of granting such petition, can be pursued in this Court at the hearing mandated by the provisions of the Bankruptcy Act. And this, of course, includes whatever objections might be filed pursuant to the opportunity afforded by the 14-day notice provision of Order No. 170.
In order to avoid unnecessary duplication and complexity, and to guard against the threatened interference with the exercise of this Court's jurisdiction, and the orderly proceeding of the Debtor's reorganization and the proposed reorganizations of the secondary debtors, I have granted the Trustees' informal application for partial relief from the strictures of Order No. 170, to the extent of permitting the Trustees, two days in advance of the date specified in their 14-day notices, to cause to be filed the UNJ's reorganization petition, and have entered Order No. 1 in the UNJ reorganization. If, during the balance of the 14-day notice period, valid objections are filed, this Court will promptly reconsider the propriety of Order No. 1 in the UNJ reorganization proceeding. In any event, the propriety of Order No. 1 and all other related matters will be the subject of the hearing to be held pursuant to that Order on July 31, 1973.
ORDER NO. 1 APPROVING PETITION OF UNITED NEW JERSEY RAILROAD AND CANAL COMPANY TO EFFECT A REORGANIZATION IN CONNECTION WITH OR AS PART OF THE PLAN OF PENN CENTRAL TRANSPORTATION COMPANY, DEBTOR
And now, this 12th day of July, 1973, upon consideration of the "Petition of United New Jersey Railroad and Canal Company to Effect a Reorganization in Connection With or as Part of the Plan of Penn Central Transportation Company, Debtor", verified June 29, 1973, and filed herein this day, showing that a majority of the capital stock of the United New Jersey Railroad and Canal Company (Secondary Debtor) is owned, either directly or indirectly through an intervening medium, by the Debtor herein and that the Secondary Debtor is unable to meet its debts as they mature, the Court being satisfied that such petition complies with Section 77 of the Bankruptcy Act (11 U.S.C. Sec. 205) and has been filed in good faith, it is ordered:
1. The Petition is approved as properly filed under Section 77 of the Bankruptcy Act (11 U.S.C. Sec. 205).
2. The Trustees of Penn Central Transportation Company (PCTC), principal debtor herein, are authorized and directed, pending further order of this Court, to continue in possession of and to operate the properties of the Secondary Debtor under the terms and Conditions of Order No. 1, as amended, in the PCTC proceedings.
3. The Secondary Debtor is hereby authorized and directed, pending further order of this Court, to exercise all of the powers, rights, duties and authorities conferred by this order on the Secondary Debtor, to take all actions necessary and appropriate to maintain its corporate existence.
4. The Secondary Debtor shall, pending further order of this Court, make no payments upon or in respect of (a) the principal of, or interest on, any of its funded or floating debt, except that the Secondary Debtor may make payments on the principal of, or interest on, equipment obligations issued, guaranteed or assumed by the Secondary Debtor, (b) taxes, assessments or other governmental charges, except for payroll and withholding taxes, and (c) ...