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In re Penn Central Transportation Co.

argued as amended august 11 1977.: April 1, 1977.



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 ...

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