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PENN CENT. TRANSP. CO. v. BOROUGH OF HUNTINGDON

December 10, 1975

In the Matter of PENN CENTRAL TRANSPORTATION COMPANY, Debtor
v.
Petition of Borough of Huntingdon to require debtor to comply with Pennsylvania Public Utility Commission order at complaint Docket No. 18169.



The opinion of the court was delivered by: FULLAM

 FULLAM, Judge.

 The Government has filed a "Petition . . . for an Order to Preserve Debtor's Rail Properties" (Document No. 9643), and the Trustees of the Debtor have filed a "Petition . . . for Instructions Concerning Payment of Retroactive Wage Adjustments and Certain Special Accounts" (Document No. 9645). These petitions, which were heard together on December 5, 1975, raise closely-related, and unusually difficult, problems concerning the proper administration of the Debtor's estate during this interim period before final conveyance of substantial portions of the Debtor's railroad to Conrail pursuant to the Regional Rail Reorganization Act of 1973 ("RRRA").

 The record brings into focus several areas of sharp conflict between the Government representatives, on the one hand, and representatives of the Trustees, the creditors, the stockholders, indeed all other parties to the reorganization proceeding, on the other. The task of this Court in attempting to resolve these conflicts has not been made easier by the increasing polarization of views reflected in the arguments of counsel for the respective sides. Counsel for the estate interests tend to accuse the Federal Rail Administrator (acting herein for the Secretary of Transportation) of attempting to frustrate the intent of Congress by withholding funds expressly appropriated by Congress to meet the railroad's current operating deficits, thus intentionally aggravating the unconstitutional erosion of property rights, jeopardizing a rational transition to Conrail, and unnecessarily magnifying eventual claims against the Government under the Tucker Act. Counsel for the Government, on the other hand, accuse the Trustees and the creditors of trying to use RRRA funds for other purposes than current operating deficits; of attempting to upset the careful plans of the FRA for prudent administration of the entire RRRA funding program; and even of seeking to create fictional crises for the purpose of jeopardizing continued rail service. While not all of these mutual suspicions are entirely groundless, many of them are. The persuasiveness of a given argument is not enhanced by overstatement, or by shrillness in delivery.

 I start with the proposition that Congress has supplied a certain amount of money for the purpose of enabling the bankrupt railroads to continue to provide rail service until the date of conveyance (February 28, 1976) without running out of cash. The Federal Rail Administrator, acting for the Secretary of Transportation, is charged with the responsibility for administering that funding program. If the total funding proves insufficient, the railroads must nevertheless continue to operate, and the resulting further erosion will be compensable under the Tucker Act. I remain convinced, however, that Congress did not intend to vest the FRA with discretion to increase unnecessarily the liability of the Government under the Tucker Act by impounding RRRA funds, or by requiring the Trustees to defer until after the conveyance date the payment of current operating expenses not heretofore deferred which could be met through use of RRRA funding.

 It is, of course, axiomatic that Congress did not intend the use of § 213 funds to prepay expenses properly attributable to post-conveyance operations or activities of the bankrupt railroads.

 Thus, in my view, the bankrupt estates have no right to insist that all RRRA funds be exhausted during the pre-conveyance period, unless that is necessary to prevent further erosion which would otherwise be unconstitutional; and the FRA has no right to insist upon arriving at the conveyance date with a surplus of unexpended § 213 funds achieved through further unconstitutional erosion.

 In attempting to insure that the affairs of the Debtor are managed in conformity with the foregoing general guidelines, certain caveats should be noted. In the first place, it is not always easy to identify a particular liability as properly attributable to pre-conveyance operations, rather than post-conveyance activities. Secondly, no one has suggested that the jurisdiction of this Court extends to directing the expenditure of public funds; a legal determination by this Court that certain unmet obligations of the Debtor's estate can properly be satisfied through the use of § 213 funds, for example, does not necessarily result in payment from that source. And finally, the problems discussed below must be dealt with in the context of the present statute and existing uncertainties concerning its implementation, without regard to the considerable amount of Congressional activity now under way in this field.

 I. SPECIFIC PROBLEMS

 A. Retroactive Wage Payments. The current impasse has been triggered by the necessity of satisfying the estate's obligation to pay certain systemwide wage increases, retroactive to January 1, 1975. With the approval and encouragement of the FRA, the Trustees have been paying the increased wages on a current basis since June, and have agreed to liquidate their obligation for the retroactive increases covering the January-June 1975 period before the end of the current calendar year. Before agreeing to make these payments, the Trustees were assured by the FRA that § 213 funds would be made available, when appropriated, to the extent necessary to meet these retroactive wage adjustment obligations. The Secretary of Transportation sought, and obtained, an appropriation of some $60 millon of § 213 funds upon a representation to Congress that the appropriation was primarily intended for use in making these payments. This Court earlier approved the Trustees' proposal to comply with the requirements of the new industry-wide labor contracts in reliance upon assurance that the FRA desired these payments to be made, and that § 213 funds would be made available as necessary in order to comply.

 Obviously, if the Trustees had refused to carry out the terms of the agreements negotiated on an industry-wide basis, the likelihood of cessation of rail service because of strikes would have been very great. Hence, it is not surprising that all parties still agree that these payments must be made. The only issue is the FRA's right to insist that certain other funds of the Debtor be exhausted before § 213 funds will be made available.

 The aggregate amount of January-June liability for increased wages is approximately $44 million, of which the Trustees have thus far paid approximately $10 million. The Trustees propose to liquidate the balance before Christmas 1975. With the consent of all parties, this proposal will be approved.

 B. Special Accounts. The Government asserts that the Trustees should first be required to exhaust the funds in certain special accounts, before resorting to § 213 money. Initially there were three such accounts in question, but one of them, a reserve of approximately $9 million to cover the cost of settling certain judgments ("refrigerator car settlements") has been used by the Trustees to pay the first installment of the retroactive wage claims here involved, and the Government has agreed that § 213 funds will be made available to comply with the requirements of these agreed settlements. The two special accounts now in dispute are:

 1. Equipment Obligation Escrow. Order No. 1981 requires the Trustees to repurchase from USRA certain obligations for installments on equipment (see Memoranda and Orders Nos. 1884, 1981, and 2100) not later than December 31, 1975. From time to time, the Trustees have tendered payment of these sums, but tender has been rejected. The underlying legal disputes are on appeal. The Trustees have escrowed approximately $13.4 million in order to comply with the foregoing orders of ...


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