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IN RE LEHIGH VALLEY R.R. CO.

UNITED STATES DISTRICT COURT, EASTERN DISTRICT OF PENNSYLVANIA


May 2, 1974

In the Matter of LEHIGH VALLEY RAILROAD COMPANY, Debtor. In re In Proceedings for the REORGANIZATION OF A RAILROAD

The opinion of the court was delivered by: FULLAM

MEMORANDUM AND ORDER NO. 245, and FINDINGS PURSUANT TO THE FIRST SENTENCE OF 207(b) of the Regional Rail Reorganization Act of 1973

Section 207(b) of the Regional Rail Reorganization Act of 1973 (hereinafter the 'Act'), provides:

'Within 120 days after the date of enactment of this Act each United States district court or other court having jurisdiction over a railroad in reorganization shall decide whether the railroad is reorganizable on an income basis within a reasonable time under section 77 of the Bankruptcy Act (11 U.S.C. § 205) and that the public interest would be better served by continuing the present reorganization proceedings than by a reorganization under this Act . . ..'

 The Debtor is a 'railroad in reorganization' as defined in the Act. The statute became effective January 2, 1974, which means that the decision as to reorganizability is to be made not later than May 2, 1974.

 By Order No. 218, this Court directed that a hearing be held on April 8, 1974, in relation to the decision required by the quoted language of the statute, and invited all interested parties, at stated times in advance of the hearing, to specify and brief the legal and factual issues they deemed relevant to the required determination. In response to this invitation, a number of questions have been briefed and presented.

 The facts relevant to the ability of the Debtor to reorganize have been previously explored in detail in conjunction with the Trustees' March 13, 1973 petition to terminate rail operations (Document No. 530). It was the Trustees' position at the June 1973 hearing on their termination petition that earning power adequate to support a plan of reorganization was lacking, and that additional diminution of the value of the estate from accruing administration expenses would invade the Fifth Amendment rights of the Debtor's secured creditors. Opponents of termination argued that the status quo should be preserved until the Congress completed action on the then pending Northeast rail crisis legislation, and that, in any event, the Court was without power to order termination of rail operations. In view of the imminent prospect of legislation, disposition of the Trustees' petition was deferred.

 The findings made herein are based on the records of the June 1973 and April 1974 hearings. Although it is to be hoped that these findings will expedite further proceedings in this case, no ultimate finding or conclusion pertaining to the Trustees' petition to terminate is now being made. Rather, the Trustees' termination petition will be considered in conjunction with the hearing required by the second sentence of § 207(b) of the Act.

 The issue to be considered now is whether the Debtor is reorganizable within the meaning of § 207(b). At the hearing, only the Commonwealth of Pennsylvania urged an affirmative answer. But the record simply does not support the Commonwealth's contention that the Debtor can be reorganized as an independent operating carrier. Moreover, reorganization through absorption into the Penn Central is less than realistic, as is the suggested combination of some of the smaller bankrupt carriers to form the so-called Mid-Atlantic Railroad (see Finding 51). This is particularly true since both the Penn Central and the Reading have been found not reorganizable under the § 207(b) criterion, and, therefore, at least as of this date, these carriers will be reorganized under the Act.

 Certain legal issues which were raised in the Penn Central § 207(b) proceeding have also been raised here. The discussion of these issues in Parts I and II of the Memorandum and Order No. 1543 in the Penn Central proceedings is incorporated herein by reference.

 FINDINGS OF FACT

 1. The Lehigh Valley Railroad Company (hereinafter LV) is a Pennsylvania corporation with its executive offices in Bethlehem, Pennsylvania.

 2. A petition for reorganization under § 77 of the Bankruptcy Act was filed by LV and approved by this Court on July 24, 1970.

 3. The LV had previously obtained relief from pressing financial difficulties under the Bankruptcy Act in 1939 and under § 20b of the Interstate Commerce Act in 1949. Both proceedings resulted in substantial modification of LV's debt structure.

 4. Penn Central Transportation Company owns 97% Of the stock of LV.

 5. Railroad operations are conducted by the LV in the States of New Jersey, New York and Pennsylvania. The main line extends from Buffalo, New York to Jersey City, New Jersey, via Pennsylvania. Significant branch lines serve various areas in proximity to the main line service.

 6. More specifically, the main line originates in Buffalo, New York; runs directly east to Geneva, New York; then in a southwesterly direction to Van Etten, New York, where the main line crosses the Pennsylvania border at Sayre, Pennsylvania; then down through Pennsylvania where the main line crosses into New Jersey at Phillipsburg; and thereafter the line runs in a generally northeasterly direction through New Jersey to Newark and Jersey City. The main line described above accounts for 442.6 miles of the LV's total of 972 miles of track.

 7. LV interchanges with other carriers at the following locations: In New Jersey: Jersey City, Oak Island, Newark, Perth Amboy, Manville and Phillipsburg; in Pennsylvania: Bethlehem, Allentown, Northampton, Palmerton, DuPont and Wilkes-Barre, and Croxton; and in New York: Geneva, Waverly, Oswego, P & L Junction, Buffalo, and Suspension Bridge. Of the 2,698 persons employed by the LV, approximately 451 are employed in New Jersey, 1797 in Pennsylvania, and 390 in New York.

 8. LV's operating plant (tracks, signals, switches and associated facilities) is of high quality. Few railroads have as much heavy rail, new ties and heated switches per mile as the LV.

 9. Although the physical plant of the LV has been maintained to high standards during reorganization, nevertheless the plant was in worse condition in June of 1973 than it was on July 24, 1970, the date LV's petition was filed. 10. LV's freight car and power equipment ownership and lease arrangements as of December 31, 1973 are reflected in the following chart: KIND FREIGHT OWNED LEASED TOTAL Refrig. 92 9 101 Hopper 60 0 60 Covered Hopper 478 177 655 Gondola 976 284 1260 Box 961 832 1793 Flat 52 2 54 Misc. 1 3 4 Total 2625 1307 3932 NON-REVENUE Caboose 97 0 97 Misc. 228 0 228 Total 4257 LOCOMOTIVE Road 41 30 71 Switchers 78 0 78 Total 119 30 149

19740502

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