course of business. Be that as it may, I do not believe it can be reasonably asserted that the Court of Appeals intended to prohibit the carrying out of preliminary steps in preparation for such sales, or even for a comprehensive divestiture program.
Under the proposed agreement, unless and until the separate real estate entity is set up in accordance with a reorganization plan which has been considered by the ICC and approved by this Court, the final decision as to whether particular sales shall occur would remain with the Trustees and this Court, subject to appellate review. Thus, there is no merit to the argument of the Penn Central Company that, because the Managers' compensation is contingent upon sales, the proposed agreement would be inconsistent with any form of reorganization which did not contemplate large-scale dispositions. In the first place, as noted above, the Managers do not contemplate recommending immediate sales except for certain properties where that course appears appropriate (sales which, presumably, would be permissible under the Third Circuit's ruling). In the second place, and more importantly, no sales can occur in violation of the ruling of the Court of Appeals.
The proposed agreement would not have any adverse effect upon the ability of the Interstate Commerce Commission to formulate and recommend its proposed plan of reorganization. The work in question would have to be done irrespective of the final outcome of the reorganization proceedings, and would be equally beneficial no matter which of the various possible alternatives may come to pass.
A more difficult question is the advisability of undertaking this additional expense at a time when it appears that, in the absence of outside financial support, the Debtor's continued rail operations at substantial losses are likely to result in unconstitutional erosion of the Debtor's estate, and are likely to become simply impossible in any event, for lack of operating cash. For two reasons, I have concluded that there is no justification for postponing the inception of this necessary program. (1) In the context of the Debtor's cash needs, the amount involved is relatively small. It represents less than one day's revenues; or, to put it another way, in the absence of federal funding to support deficit operations while Congress works out its solution to the Northeast rail crisis, and if the Debtor as a consequence is forced to terminate rail service for lack of cash, the amount of cash here involved would not alter the date of shutdown by more than one month. (2) In reality, the ultimate issue in this connection is whether the proposed program should be financed from operating revenues (i.e., income from real property which is now being devoted exclusively to rail operations), or from the escrowed proceeds from real estate sales (not now available for operating expenses). In advancing their proposal, the Trustees have expressly reserved the right to assert at a later date that the entire cost of the program should be financed from the proceeds of property sales. Thus, present approval of this agreement does not foreclose a later restoration to operating funds if that becomes necessary and is held to be legally appropriate.
I have therefore concluded that the proposed agreement, in its broad outlines, should be approved. I find persuasive support for this conclusion in Exhibit T-2, and in the testimony of Victor Palmieri. I recognize, as do the Trustees, that the existing personnel in the Debtor's Real Estate Department are highly competent, and have done a truly commendable job under extremely adverse circumstances. They are, however, admittedly hampered by the lack of staff and adequate financial support. If the Debtor were not in bankruptcy, it might well be feasible to achieve the results here sought by merely increasing the budget of the Real Estate Department, centralizing all decision-making within the Department, and attempting to isolate the decision-making process from traditional Operating Department controls. But I am not persuaded that the Trustees' business judgment, to the effect that, because of the pendency of reorganization proceedings, better results are likely to be obtained by following the course proposed by the Trustees, is erroneous.
There remain, however, some features of the proposed contract which require clarification and redrafting. The form of agreement submitted at the hearing (as amended in accordance with statements made at the hearing) is not sufficiently clear that the expiration date (in the event the new real estate company does not commence operations) is three years from July 2, 1973. The contract should be further revised to make clear that the budget therein set forth includes all payroll and other overhead expenses of the Managers. It should be made clear that the Trustees are incurring no present obligation to make additional capital expenditures. And, while I recognize that the Managers are entitled to some assurance that, after the new real estate company is formed, the Managers will not be deprived of the fruits of their development activities through premature termination of their contract, consideration should be given to providing such assurance otherwise than through a seemingly perpetual agreement. And finally, I do not believe the form of agreement proposed (which is obviously motivated by a desire to have the benefit of the demonstrated and undeniable expertise of Victor Palmieri himself) is sufficiently clear as to what would occur if, for any reason, Mr. Palmieri's availability to provide supervision should terminate.
The Trustees will be required to submit a revised form of agreement, and a revised form of final order for approval. No further hearings will be required.
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