studies are available; at the earliest, none will be available before August of 1974.
To add to the difficulty, as noted above, severance studies based upon data derived from past and current operations are unlikely to reflect accurately the changes which can be expected to flow from implementation of the final system plan under the 1973 Act.
For all of these reasons, I am inclined to agree with the contention advanced by many of the parties that requiring a finding on reorganizability by May 2, 1974 represents a violation of procedural due process of law. But while I have grave doubts on that subject, I have concluded that such findings should be attempted anyway, for two reasons: (1) arguably, the procedural deficiency would amount to a due process violation only in the event of a finding of non-reorganizability, and (2) an erroneous refusal to make a finding could not be corrected later, whereas an inadequately supported or erroneous finding could be.
V. Reorganizability of the Secondary Debtors
In each of the Secondary Debtors' proceedings, a separate document is being filed, setting forth what may be termed subsidiary findings as to the present situation and future prospects of each of the Secondary Debtors. My views on the ultimate question of reorganizability of the Secondary Debtors will be outlined here.
By entering Orders, less than ten months ago, approving the reorganization petitions of the Secondary Debtors as having been properly filed, in good faith, this Court necessarily espoused the view that the Secondary Debtors were probably reorganizable. As noted above, the Trustees of the Secondary Debtors have had only about one month in which to familiarize themselves with the affairs of their charges and analyze their respective prospects. There is every reason to believe that, in establishing the deadline for the first decisions under § 207(b), Congress did not actually have in mind these special circumstances relating to the Secondary Debtors. It therefore seems reasonable to hold that the burden of proof should be upon those who seek to establish that the Secondary Debtors are not reorganizable within a reasonable time under § 77 of the Bankruptcy Act. There is nothing in the language of the 1973 Act which compels a different assignment of the burden of persuasion; and I should be reluctant to conclude that Congress, by enactment of the 1973 Act, intended to create a presumption against reorganizability, while at the same time including provisions which virtually rule out any prompt decisions with respect to affirmance or disaffirmance of the leases of the Secondary Debtors.
Somewhat related to the foregoing approach is my feeling that the concept of reorganization 'on an income basis' may be somewhat different in the case of a lessor railroad than in the case of an operating railroad. Lessors can be expected to reorganize on an income basis by reason of income derived from lease of the property, rather than from operations. The identity of the lessee is not necessarily a crucial factor. Since most of these leases were negotiated many years ago, it is reasonable to suppose that, where substantial portions of the rail properties involved appear likely to remain essential for serving the public, equivalent arrangements could be worked out which could support reorganization of the lessors. In my view, a 'reasonable time' for exploring these possibilities has not yet expired.
In my view, the evidence attempting to project independent operation of a Secondary Debtor has principally a negative relevance. That is to say, it should be considered primarily in order to identify and weed out situations in which, by reason of light density, or identification of most of the trackage as potentially excess (in the preliminary report of the Department of Transportation) and similar factors it appears that a reorganization which contemplates continued operation of the property by someone is unlikely.
Applying the approaches outlined above, I have concluded that, with the exception of the Beech Creek, Erie & Pittsburgh, and Penndel Companies, all of the Secondary Debtors appear to be reorganizable on an income basis within a reasonable time under § 77 of the Bankruptcy Act. In the case of the three exceptions, the evidence is such that I find myself unable to make a finding either way.
Separate orders will be entered in each of the Secondary Debtor's proceedings, in conformity with the conclusions expressed above.
ORDER NO. 16
And now, this 2nd day of May, 1974, pursuant to § 207(b) of the Regional Rail Reorganization Act of 1973, it is ordered, and this Court finds, as follows:
1. That the above-named Secondary Debtor is reorganizable on an income basis within a reasonable time under § 77 of the Bankruptcy Act (11 U.S.C. § 205).
2. That the evidence available does not preponderate in favor of a finding that the public interest would be better served by continuing the present reorganization proceedings than by a reorganization in accordance with the Regional Rail Reorganization Act of 1973; that the presumptions established by § 207(b) of said Act have not been overcome; and that therefore, until further Order of this Court, the reorganization of the above-named Secondary Debtor shall be conducted pursuant to the Regional Rail Reorganization Act of 1973 as well as the pertinent provisions of § 77 of the Bankruptcy Act.
THIS ORDER WAS ENTERED IN ALL SECONDARY DEBTORS EXCEPT BEECH CREEK, ERIE & PITTSBURGH, AND PENNDEL COMPANY.
ORDER NO. 9
And now, this 2nd day of May, 1974, it is ordered, and the Court finds, that the record as a whole does not permit a decision at this time as to whether or not the above-named Secondary Debtor is reorganizable on an income basis within a reasonable time under § 77 of the Bankruptcy Act (11 U.S.C. § 205), within the meaning of § 207(b) of the Regional Rail Reorganization Act of 1973.
THIS ORDER WAS ENTERED IN THE BEECH CREEK RR. CO., THE ERIE & PITTSBURGH RR. CO. AND THE PENNDEL COMPANY.