UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT
argued as amended august 11 1977.: April 1, 1977.
IN THE MATTER OF PENN CENTRAL TRANSPORTATION COMPANY, DEBTOR, NATIONAL RAILROAD PASSENGER CORPORATION, APPELLANT
APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA (D.C. Bkcy. No. 70-347).
Gibbons, Van Dusen and Garth, Circuit Judges Van Dusen, Circuit Judge.
Author: Van Dusen
VAN DUSEN, Circuit Judge:
This is an appeal, taken pursuant to the Bankruptcy Act, 11 U.S.C. § 47, from Order 2569, dated October 1, 1976, of the United States District Court for the Eastern District of Pennsylvania (the Reorganization Court), entered in the Penn Central Railroad reorganization proceedings. Order 2569*fn1 denied a petition of the National Rail Passenger Corporation (Amtrak) for an order "authorizing, instructing, and directing" the trustees of the Penn Central to carry out a March 24, 1976, judgment of the United States District Court, Southern District of Indiana*fn2 which confirmed an arbitration decision*fn3 that the trustees should restore or cause to be restored certain rail lines in Indiana so as to provide for the same level of passenger service which was in effect as of May 1, 1971. We vacate the first sentence of paragraph 2 of Order 2569 and affirm it in all other respects.
Initially on this appeal, Amtrak's arguments relied on the res judicata effects of a June 25, 1976, declaratory judgment*fn4 of the Indiana district court which held that its March 24, 1976, confirming order was a conclusive bar against any further claims by the trustees that the Rail Act rendered the arbitration award unenforcible. In this connection, Amtrak also argued that the Reorganization Court had no jurisdiction to take any action in this matter except to enforce the now confirmed arbitration award.*fn5 After the entry of the Reorganization Court's Order 2569 in October 1976 and the filing of briefs for the appeal in this Court but before oral argument here on April 1, 1977, a panel of the Seventh Circuit reversed the June 25th declaratory judgment of the Indiana district court. See National Railroad Passenger Corporation v. Blanchette, 551 F.2d 127 (7th Cir. 1977) (hereinafter cited as Blanchette). In reversing the district court, the Seventh Circuit held, inter alia :
"That the Declaratory Judgment of the Indiana Court was an improper exercise of its limited jurisdiction and was wrong on the merits. Accordingly, the judgment of the Indiana Court is reversed. This case is remanded to the Indiana Court with directions to vacate its declaratory judgment.
"The issues hereinabove discussed are within the exclusive jurisdiction of the Pennsylvania Reorganization Court and it may now proceed therewith."
Id. at 136. In our view the Seventh Circuit's decision either mooted or severely undermined most of Amtrak's contentions in its initial brief.*fn6 However, because certain language in Part III*fn7 of the Reorganization Court's opinion and order 2569 is ambiguous or might be read to have an effect in futuro far outstripping that justified by the hearings conducted, we asked that the parties respond to additional questions*fn8 and that each be covered in oral argument. Our concerns are essentially twofold: first, the language of order 2569 seemed to preclude further resort to the Arbitration panel should any further disputes arise that, otherwise, would have been within the purview of that forum's jurisdiction. Secondly, the contextual nexus of the order and Part III seemed to preclude Amtrak from ever asserting any claim for contractual breaches occurring during the preconveyance period (i.e. the period from May 1, 1971 to April 1, 1976).*fn9 Language of a subsequent opinion of the Reorganization Court has alleviated many of these concerns as will be discussed below (see slip op. pp. 14-16 infra).
For the sake of clarity and to frame an essential perspective into this case, it is necessary that we outline the rather complex statutory and factual background of this case. We are indebted to Judge Hastings' analysis in the Seventh Circuit opinion.
In accordance with the Rail Passenger Service Act of 1970, 45 U.S.C. § 501, et seq., Amtrak was authorized to contract with each railroad undergoing reorganization and operating passenger trains in a basic system, for use by Amtrak of railroad tracks, facilities and services "on such terms and conditions as the parties may agree." See 45 U.S.C. § 562(a). Pursuant to this statutory authorization, Amtrak entered into The National Railroad Passenger Corporation agreement of April 16, 1971 (the "Basic Agreement"). The Basic Agreement's purpose was "to relieve the railroad of its entire responsibility for the provision of intercity rail passenger service" under "such terms and conditions as necessary to permit the Corporation [Amtrak] to undertake passenger service on a timely basis." 45 U.S.C. § 562(a). Article 6 of the Basic Agreement incorporated by reference the National Railroad Passenger Corporation Arbitration Agreement (the "Arbitration Agreement"). Essentially, the Arbitration Agreement established a system of adjusting contract disputes through resort to an arbitration panel, rather than through constant resort to the Reorganization Court.*fn10
"Under the terms of the Basic Agreement, Amtrak undertook to assume the intercity rail passenger responsibilities of the Trustees of Penn Central and all other contracting railroads, and Penn Central undertook to render certain services to Amtrak and to maintain its rail lines used by Amtrak at an agreed upon 'level of utility.'
"Under Article Six of the Basic Agreement any 'claim or controversy' between Amtrak and Penn Central was to be resolved by binding arbitration in accordance with the provisions of The National Railroad Passenger Corporation Arbitration Agreement separately contracted to by the parties on April 16, 1971. Referred to by the parties as the 'Arbitration Agreement,' Section 4.2 provides:
'* * * Any arbitration award hereunder made by a majority of the members of any Arbitration Panel shall be binding upon the parties thereto. Any arbitration award hereunder shall declare the rights of the parties thereto and may make awards of money, or enjoin or otherwise operate in such a way as to require specific performance by a party of any act or obligation.' (Emphasis added.)
Section 4.3 of the Arbitration Agreement further provides:
'Judgment may be entered upon any arbitration award hereunder * * * in any United States District Court.'"
Blanchette, supra at 130.
"In authorizing the Trustees of Penn Central to enter into the Basic Agreement with Amtrak, the Reorganization Court in Order No. 238, in pertinent parts, stated:
'1. The Trustees are authorized to execute a contract with Amtrak in substantially the form submitted to the Court at the hearing, PROVIDED, however, * * * (b) that whenever any matter is resolved by arbitration pursuant to the Main Agreement or the Arbitration Agreement, the decision shall be submitted to this court for review and approval before becoming finally binding upon the Trustees or the Debtor, during the pendency of these reorganization proceedings.
'4. The Court reserves jurisdiction over said contract for the purpose of directing such actions and granting such further relief as may be necessary to protect the interests of the Debtor's Estate.'"*fn11
Id. at 131-32.
"A dispute arose between Amtrak and Penn Central concerning the 'level of utility' of about 360 miles of certain rail lines of Penn Central connecting Kankakee, Illinois, with Louisville, Kentucky, and Cincinnati, Ohio, via Indianapolis, Indiana, under the Basic Agreement of 1971. Amtrak's claim that Penn Central had defaulted in its obligation to maintain the track was duly submitted to the National Arbitration Panel.
"After the parties submitted extensive written memoranda and oral testimony was heard, the arbitration was interrupted by an 'Emergency Order' of the Federal Railroad Administration on August 1, 1974. This emergency order terminated Amtrak's service on the above-mentioned Penn Central line because the track had been found to be 'in an unsafe condition,' creating 'an emergency situation involving a hazard of death or injury to persons affected by the use thereof.'
"Without objection from Penn Central and in accordance with its rules, the Panel began additional hearings, accepted a revised request for an award from Amtrak, and received additional evidence on September 11, September 24, September 29 and December 16, 1975, and January 20, 1976. Thereafter, on February 3, 1976, the National Arbitration Panel issued a written award in NAP Case No. 11, In re: Level of Utility, with the following declarations and awards:
"First, the Panel declared that Amtrak had a contract right to have the Penn Central rail lines connecting Kankakee with Cincinnati and with Louisville via Indianapolis kept 'at no less than the level of utility' which existed on May 1, 1971.
" Second, the Trustees of Penn Central had defaulted in keeping this bargain.*fn12
"Third, the Trustees were ordered to 'cause' the restoration of these lines to their proper condition by January 1, 1978, in accordance with a 'Panel Program,' which provided, inter alia, for a detailed work schedule to be submitted to Amtrak within ninety days of this award.
"The estimates of the cost of these repairs ranged from 22 million dollars, based upon independent evaluation, to 11 million dollars, estimated by Penn Central using its own employees. Costs were estimated in terms of October 1975. The Panel's award further provided that Penn Central would bear the entire financial burden of the repairs."
Id. at 130-31 (emphasis supplied) (footnote omitted).
"The Arbitration Panel held that it was without jurisdiction to decide the [issue of whether the passage of the Rail Act and the pending conveyance of Penn Central properties to ConRail would operate to excuse the performance of Penn Central's contractual obligations to Amtrak]. The issue was not raised before the Indiana Court. Yet, Amtrak urged and the Indiana Court held [in its declaratory judgment of June 25, 1976] that the Trustees could not raise the issue of the transfer of the subject lines to ConRail."
Id. at 136.
"On February 4, 1976, pursuant to 9 U.S.C. § 9, United States Arbitration Act, and Section 4.3 of the Arbitration Agreement, supra, Amtrak petitioned the United States District Court for the Southern District of Indiana, Indianapolis Division, for confirmation of the arbitration award. However, on February 17, 1976, Penn Central petitioned the Reorganization Court in the Eastern District of Pennsylvania for an order requiring Amtrak to show cause 'why it should not be required * * * to comply with the provisions of Order No. 238 and, pending the filing of said petition, why it should not be enjoined from proceeding further in the [Confirmation Proceedings]."
Id. at 131.
"The Reorganization Court, however, never ruled on Penn Central's February 17, 1976, petition to show cause, because the Trustees of Penn Central subsequently consented to the entry of a judgment in the Indiana Court. The consent of the Trustees, and by implication that of the Reorganization Court, was induced by the assurances of counsel for Amtrak that it was only attempting to liquidate its claim in the Indiana court, and that Amtrak was well aware of and, in fact, accepted the primary jurisdiction of the Reorganization Court."
Id. at 132 (emphasis supplied).
"Thereafter, the Trustees consented to the entry of judgment in the Confirmation Proceedings in Indiana, based upon the above assertions in the Reorganization Court, that the Indiana Court would review the arbitration proceedings 'to see that the award was a proper award and that the arbitrators acted honestly and did not exceed their powers.' Thereafter, the Indiana Court entered an Order of Confirmation on March 24, 1976.
"On April 9, 1976, Amtrak petitioned the Reorganization Court for enforcement of the now confirmed Arbitration Award. Penn Central, thereafter, filed an answer to the petition for enforcement, asserting that the award could not be enforced against Penn Central because the rail tracks in question had been conveyed to ConRail pursuant to the Rail Act, and, therefore, Penn Central's obligation to restore the tracks was terminated. Amtrak secured an indefinite postponement of its petition in the Reorganization Court, returned to the Indiana Court and filed its . . . declaratory judgment action in Indiana."*fn13
Following oral argument in this court, on April 22, 1977, the Reorganization Court entered Memorandum and Order Nos. 2921 and 2922. Generally, the Memorandum discussed and the Orders dealt with certain aspects of the Penn Central trustees' Proposed Plan of Reorganization not at issue in this appeal; however, as Amtrak objected to certain of the trustees' proposals, the Reorganization Court had occasion to enter into the following discussion which has particular relevance to this case:
" Amtrak's Objections
"Amtrak is not a direct provider of passenger service, but rather contracts with operating rail carriers for them to provide Amtrak's passenger service. The Debtor performed such services for Amtrak from May of 1971 until the conveyance of the Debtor's rail property to ConRail on April 1, 1976. Amtrak has been pursuing a rather complex litigation strategy to assert certain claims allegedly arising from the Trustees' failure to meet their pre-conveyance contractual obligations. As part of this effort, Amtrak presented to this Court a petition for enforcement of an award made by an arbitration panel, which determined that, during the period before conveyance of the rail system to ConRail, the Trustees had failed to maintain certain passenger track at the level of utility required by the contract between the Trustees and Amtrak. The relief sought was in the nature of specific performance: an order requiring the Trustees to perform certain engineering services and to plan for, and thereafter carry out, certain large-scale track restoration. I denied Amtrak's request because the conveyance of the railroad to ConRail pursuant to the RRRA render performance of track maintenance by the Trustees a legal and practical impossibility. See In re Penn Central Trans. Co. (Petition of Amtrak to Enforce Arbitration Award), 422 F. Supp. 67 (E.D. Pa. 1976).
"Although I had no occasion at that time to decide whether Amtrak had a claim for damages, I did point to some possible obstacles to the successful assertion of any such claim: Before the arbitrators, Amtrak expressly disavowed any claim for damages; the causal relationship between the level of track maintenance and Amtrak's revenues might be difficult to establish; and the amount of money due the estate from Amtrak under the agreement would have been greater if the Trustees had spent the amount of money for track maintenance which Amtrak contended was necessary. By reiterating these potential infirmities, I do not mean to preclude Amtrak from asserting any claim it may feel is justified. The Third Circuit presently has under advisement Amtrak's appeal in that matter.
"It would be difficult to conclude that Amtrak has standing to object to the tax compromise if the only basis for such objection is its alleged right to have the Trustees do heavy track work on ConRail's railroad. However, Amtrak now seems to be asserting that it has administration claims against the estate of approximately $150 to $170 million in contract damages (Docs. Nos. 12096, 12694).*fn15 While the validity and amount of these claims has not yet been established, the reasonable course at this point is to accord Amtrak standing as an administrative claimant. Cf. Rule 8-306(a).
Id. at pages 20-22 of slip opinion (emphasis supplied).
II. THE SCOPE OF THE REORGANIZATION COURT'S ORDER 2569
The issue yet to be decided is whether the Regional Rail Reorganization Act of 1973, 45 U.S.C. § 701 et seq., as amended, and the consequent conveyance of certain of Penn Central's rail assets to ConRail excused the Penn Central trustees from performance of work or damages claims related to Penn Central's pre-conveyance contractual track maintenance obligations to Amtrak as required under the Basic Agreement. At this point in the litigation, the Reorganization Court has not definitively granted or denied any claim made by Amtrak related to the alleged pre-conveyance contractual breaches of the Penn Central because the Arbitration Panel never decided whether the conveyance to ConRail relieved the trustees of liability for money damages and did not consider the effects of the Rail Act on the performance of the obligations. In short, the Rail Act issue has never been litigated in any forum.
In developing the record below, Amtrak relied almost exclusively on the res judicata effect of the Indiana district court's declaratory judgment without ever reaching the substantive merits of the Rail Act's effects; this position has been vitiated by the reversal in Blanchette, supra.*fn14 Under the Indiana district court's confirmation order of March 24, 1976, however, Amtrak has established, at least, a case of pre-conveyance contractual breaches by the Penn Central trustees. We have noted that the record is substantially undeveloped with regard to the Rail Act issue and to the effect of the Final System plan in relieving the Penn Central trustees of liability, as an expense of administration, for damages for the breach of contract found by the Arbitration Panel and "confirmed" by the Indiana district court. We express no opinion on these issues at this time. See, e.g., note 12 above. It is also clear that the determination of the amount of damages is still to be decided. See Arbitration Award at 32a-33a.
The language of Order 2569 would be too sweeping if we did not have the Reorganization Court's Memorandum and Order Nos. 2921-2 of April 22, 1977. However, in light of the wording used there, it is clear that Amtrak has the right to request enforcement of the arbitration award by the Reorganization Court or to establish its claims to damages as a result of the pre-conveyance breaches.*fn15a Although we believe the language of the Reorganization Court's order in this case contemplated no more than that enforcement of the Arbitration Award, supra, is now to be reviewed by the Reorganization Court in the light of any defenses which the trustees may raise, we have concluded that the language of the first sentence of paragraph 2 of Order 2569 is too sweeping and will be vacated.*fn16
We agree with Judge Hastings' holding that "the Indiana Court was without jurisdiction by declaratory judgment, or other judicial means, to circumscribe the jurisdiction of the Pennsylvania Reorganization Court as to the enforcement of an arbitration award which was subsequently confirmed by the Indiana Court, and we now so hold." Blanchette, supra at 135.
For the reasons stated, the first sentence of paragraph 2 of Order 2569 will be vacated and that order will be affirmed in all other respects, with directions to the court, on remand, to join ConRail under Rule 719, if this has not already been done (see footnote 8 at pages 173-74 above). That Court may now proceed to the question of any enforcement of the Arbitration Award or the claim on which it is based, taking into consideration any defenses that may be raised by the trustees.