reorganized in the lessee's proceeding if the debtor operated substantially all of the properties of the lessor, but this provision was not reenacted . . ..'
Examples of non-operating lessor companies reorganizing under § 77 are found in Freeman v. Mulcahy, 250 F.2d 463 (1st Cir. 1957), cert. denied, Boston & Providence R. Corp. v. New York, N.H. & H.R. Co., 356 U.S. 939, 78 S. Ct. 781, 2 L. Ed. 2d 813 (1958) and Warren v. Palmer, 310 U.S. 132, 60 S. Ct. 865, 84 L. Ed. 1118 (1940).
I conclude, therefore, that the UNJ is a 'railroad' within the meaning of § 77. Since the Penn Central owns a controlling share of the UNJ stock, the petition was properly filed in this district, under § 77(a). Such filing seems particularly appropriate in this case, since the principal office and headquarters of UNJ, and most of its records, are located in Philadelphia.
The State of New Jersey contends, nevertheless, that the case should be transferred to a United States District Court in the District of New Jersey. A principal basis for this argument appears to be the misapprehension as to the legal situation discussed earlier in this Memorandum. The legal rights of the parties remain the same, regardless of whether UNJ is to be reorganized in this Court or elsewhere. But the argument also appears to be based, to some extent, upon a general feeling of frustration common to many lessor interests in the Penn Central system. If the Penn Central were to resume its payments under the lease, the UNJ's financial problems would disappear. Or, if the lease were disaffirmed and the properties somehow freed of the burden of maintaining rail service, UNJ's problems would likewise disappear. These propositions, however plausible initially, contain a large element of wishful thinking. It must be borne in mind that when UNJ leased all of its properties to Penn Central for 999 years, the transaction had many of the aspects of a sale, with the price to be paid in installments. In such a situation, when the purchaser goes into bankruptcy, the seller can scarcely expect to avoid problems relating to the bankruptcy. It should also be remembered that, so long as Penn Central has the obligation of maintaining rail service over the UNJ properties, those properties cannot be expected to be readily freed from the burdens involved.
In short, while the ultimate treatment to be accorded the creditors and shareholders of UNJ may, and probably will, be significantly different from the treatment to be accorded Penn Central's creditors, the timing of the ultimate resolution of the two sets of problems must necessarily be closely related. In my judgment, all that would be accomplished by transferring the UNJ proceeding elsewhere would be to increase the expense, and greatly increase the complexity, of the litigation.
The State of New Jersey also advances arguments of bad faith based upon the fact that the petition was filed two days in advance of termination of a 14-day notice provision prescribed by Order No. 170 in the Penn Central proceeding. The reasons for this are discussed in the Memorandum which I filed in connection with Order No. 1 in the UNJ proceeding, and need not be repeated here. I remain convinced that there is no merit in this argument.
UNJ challenges the standing of the minority shareholders to object to the § 77(a) filing, since the statute contemplates objections only on behalf of 'any of the creditors.' The minority shareholders contend that, as such, they are actual or potential creditors of UNJ. Since all of the arguments sought to be advanced by the shareholders were also advanced by the State of New Jersey, and have been disposed of above, it is unnecessary to resolve the issue of standing of Walter J. Schloss Associates. At the very least, it was within the discretion of the Court to permit that firm, in its own right, to be heard on the subject. This, of course, does not mean that this firm is authorized to represent other minority shareholders. See § 77(p).
ORDER NO. 11
And now, this 11th day of March, 1974, the objections of the State of New Jersey and Walter J. Schloss Associates to the Petition for Reorganization, and their respective Motions to Dismiss the proceedings or to transfer the proceedings to a district court in the District of New Jersey, are respectively denied.
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