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IN RE READING CO.

August 4, 1975

In the Matter of READING COMPANY, Debtor. Petition of UNITED STATES of America For an ORDER DIRECTING the TRUSTEES TO CEASE MAKING INTERLINE PAYMENTS


The opinion of the court was delivered by: DITTER

OPINION AND ORDER NO. 880

The Court of Appeals for this Circuit decided almost two years ago that freight balances collected by one rail carrier for services performed by another *fn1" are held in trust and must be paid to their rightful owners. See In re Penn Central Transportation Company, 486 F.2d 519, 524 (3d Cir. 1973), cert. denied, 415 U.S. 990, 94 S. Ct. 1588, 39 L. Ed. 2d 886 (1974). Following that decision, Reading personnel and the Committee of Interline Railroads, representing other carriers, met to work out an acceptable schedule for payment of interline trust funds amounting to $ 3,722,894.84. As a result of these negotiations a settlement was reached, the terms of which I approved on December 4, 1974, in Order No. 730 of this proceeding.

 On May 9, 1975, in an unpublished per curiam opinion, the Court of Appeals vacated an order of the Central Railroad of New Jersey (CNJ) reorganization court denying the Government's application for an order restraining the CNJ trustee from paying certain interline balances. The Government had contended that such payments should not be made unless the trustee demonstrated that they would not jeopardize the continuation of CNJ's rail service. See In re Central Railroad Company of New Jersey, 515 F.2d 506 (3d Cir., filed May 9, 1975). In remanding the matter to the District Court, the Court of Appeals stated:

 The district court should have provided that it would reconsider, upon an appropriate record, at regular intervals the propriety of CNJ's paying $ 250,000. per month in discharge of the above interline balances, and such reconsideration should take place at least quarterly. At the time it reconsiders the monthly payments which can be made by the trustee, consistent with the obligation to continue operation's of the railroad as part of the nation's national transportation system, the court should make findings of fact consistent with Rule 52 of the Federal Rules of Civil Procedure and give reasons for its action based on such findings, so that appellate review will be facilitated. The district court's failure to make such findings and to state its reasoning is among the causes for our vacating Order No. 705.

 Factors that should be considered by the district court in determining the amount, if any, that should be paid on account of the interline balances still owing include these:

 (A) projected income and expense estimates and cash flow for the month in which any payment is planned to be made and for future months, insofar as such estimates can be made;

 (B) the effect which the proposed payments on account of the above-described interline balances will have on continued operation of CNJ in light of a plan of reorganization under the R.R.R.A., as well as on continued operation of B & O and C & O;

 (C) the risk of CNJ's being placed on a prepay basis by B & O and C & O if it fails to pay these deferred balances and the hardship to CNJ of being placed on a prepay basis;

 (D) the position taken by the Federal Railroad Administrator, the Secretary of Transportation, and the State of New Jersey concerning the proposed payment, in view of their regular payments to CNJ;

 (E) whether payment of these deferred balances from funds paid to CNJ pursuant to Section 213 of the R.R.R.A. is consistent with the purposes of that section; and

 (F) the extent to which the State of New Jersey is paying for the losses incurred in operating passenger service for the benefit of New Jersey residents and businesses.

 Id. at 4-6.

 Subsequent to the CNJ decision, the Government filed in these proceedings a petition for an order directing the trustees to cease making installment payments on account of deferred interlines. *fn2" The trustees and the Committee of Interline Railroads filed timely answers and memoranda in opposition to the Government's petition. Following a hearing on July 14, 1975, I entered an order directing the trustees, pending this decision, not to make the payment due in July, 1975.

 Although I entertain substantial doubts concerning the precedential value of the unpublished CNJ decision, *fn3" in the interest of facilitating the appellate review which almost inevitably will follow this opinion, and addressing, as closely ...


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