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 rendered 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).
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).
Amtrak's objection to the tax proposal differs from others in that Amtrak has not been afforded the opportunity to accept a similar compromise. Its position is essentially that no administration claim should be paid unless and until Amtrak also is paid. This position is simply without merit. The United States has not elected to include Amtrak within the compromise, and absent such consent of the Government it is not possible to require the Government to include Amtrak. Second, Amtrak's claims are not even liquidated. Amtrak's suggestion that the entire case await its pleasure is less than realistic. Finally, payment of the tax claimants will not prejudice Amtrak in any way. Indeed, the potential reduction of the tax claims by one-half would be to Amtrak's advantage. In sum, consummation of the tax proposal will not have an adverse effect on Amtrak's position. If and when Amtrak establishes that it has an administration claim, adequate provision can be made to satisfy its claim.
VI. The Proposed Settlement with Personal Injury Claimants
Unlike the tax claims discussed above, the claims for pre-bankruptcy personal injury (or death) do not rank as claims of administration. Ordinarily, these claimants would not be entitled to receive payment in cash unless and until all senior claims have been paid in full in cash or equivalent. Thus, approval of the Trustees' compromise proposal cannot be granted over the objections of senior claimants, unless it can be shown that the rights of the objectors would not be adversely affected.
In this case, most of the senior claimants have expressly consented to the Trustees' proposed compromise. The narrow question, therefore, is whether the interests of objecting senior claimants would be adversely affected by consummation of the Trustees' proposal.
It should be noted at the outset that, while pre-bankruptcy personal injury claims are generally regarded as mere unsecured pre-bankruptcy claims of general creditors, a strong argument can be made that the usual justification for such treatment -- the normal risks assumed when one extends credit -- does not apply to personal injury claims. These claimants stand alone among all of the creditors of the Penn Central in the sense that they neither voluntarily extended credit to the Debtor, nor occupied any other business relationship with the Debtor. As an abstract proposition, therefore, it is arguable that the claims of secured creditors should not necessarily be preferred in bankruptcy over these personal injury claims -- particularly secured claims arising from credit extended after the personal injuries were sustained.
Congressional uneasiness with the normal treatment of personal injury claims in bankruptcy may be readily discerned in the 1976 amendments to § 211(h) of the RRRA, and in the legislative history of those amendments. Indeed, it might not be much of an overstatement to hold that Congress has, in effect, recognized that claims for personal injuries and wrongful death are entitled to priority classification.
Be that as it may, I am persuaded that the settlement with the Government in the present case provides ample justification for permitting the Trustees to carry out their proposal. The amount of cash which would be paid to personal injury claimants under the Trustees' proposal is relatively small (approximately $13 million), and would be more than offset by the monetary value of the deferral of the pay-out of the Government's claims. Thus, to carry out the Trustees' proposal as a condition precedent to the Government's agreement to defer its claim would impair neither the amount, form of payment, or timing of the satisfaction of the claims of the objectors.
VII. Source of Cash to be Used
For the reasons thus far discussed, I am satisfied that none of the objections expressed is sufficient to justify rejection of the proposed compromise settlements. The final question to be considered is whether consummation of the settlement proposals might impermissibly jeopardize valid liens held by any of the objectors. It is clear, of course, that if the Plan of Reorganization as presently proposed is ultimately approved and consummated, the present compromise proposals are entirely consistent with it, and would do no impermissible violence to vested lien rights. The problem is to insure that no such rights will be impaired by carrying out these compromise proposals now, notwithstanding the possibility that the reorganization may abort, or some alternative plan of reorganization may be adopted.
No difficulty arises with respect to the Government's all-encompassing liens, nor with respect to the liens of other secured creditors who are willing to have the compromise proposals carried out. The remaining objections fall into two general categories: (1) Some of the Secondary Debtors object to the use of escrowed funds derived from sales of leased line properties, and (2) some of the taxing authorities object to the use of escrowed funds against which they claim to have liens.
The record establishes that the personal injury settlement can be consummated without affecting these liens. With respect to the proposed tax compromise, the necessity for invading funds in either of the foregoing categories will depend upon how many of the tax claimants elect to accept the Trustees' offer.
It seems probable that these potential problems are more theoretical than real. More importantly, the record justifies the conclusion that, if necessary, the Trustees can adequately indemnify against impairment of leased line and tax lien interests in funds on deposit, should it appear that impairment is threatened. Adequate provisions for the protection of these interests will be included in the Order to be entered.
ORDER NO. 2921
AND NOW, this 22nd day of April, 1977, upon consideration of the "Petition of the Trustees to Pay Pre-Bankruptcy Personal Injury and Wrongful Death Claims" (Doc. No. 11766) ("Petition"), and responses thereto, after hearing thereon, and upon consideration of the Outline of Settlement with the United States of America given preliminary Court approval by Order No. 2744, it is hereby ORDERED that:
1. The Petition is GRANTED.
2. The Trustees are authorized to pay pre-bankruptcy personal injury and wrongful death claims as outlined in the Petition where such claims have been timely filed and liquidated within one hundred-eighty (180) days from the date of this Order, or within such further period as the Trustees may allow pursuant to Paragraph 4 of this Order, or as this Court may direct.
3. The Trustees are also authorized to pay pre-bankruptcy personal injury and wrongful death claims as outlined in the Petition where there now exists a dispute as to the timeliness of the filing of a claim but which is later determined by this Court to be timely filed.
4. Where a claimant is unable to liquidate a claim within one hundred-eighty (180) days from the date of this Order, the Penn Central Trustees are authorized, for good cause shown, to extend the period within which a claim must be liquidated. The Trustees, upon request made at least thirty (30) days prior to the expiration of said one hundred-eighty (180) day period to Robert W. Watson, Proof of Claims Administrator, Suite 2610 IVB Building, 1700 Market Street, Philadelphia, Pennsylvania 19103, will furnish all such eligible claimants with a form for stating why the time should be extended in an individual case.
5. The Trustees shall serve a copy of this Order on:
a. All parties customarily notified in these proceedings;
b. The Secretary of Transportation and the Attorney General of the United States; and
c. All persons, either personally or through their legal representatives, known to have filed a proof or proofs of claim against Penn Central for pre-bankruptcy personal injury or wrongful death.
JOHN P. FULLAM / J.
ORDER NO. 2922
AND NOW, this 22nd day of April, 1977, upon consideration of the "Petition of the Penn Central Trustees for Authority to Compromise and Pay Real Estate and Other Taxes Deferred Pursuant to Order No. 70" (Doc. No. 11767) (Tax Compromise Petition), the documents filed in support thereof, the Statements of Position filed by the various parties, the Petition of the City of Pittsburgh and other taxing authorities for modification of Order No. 70 (Docs. Nos. 10665, 10784, 10785, 10797) (Pittsburgh Petitions) and hearing having been held, it is hereby ORDERED that:
1. The Penn Central Trustees ("Trustees") are authorized to compromise and settle outstanding tax claims against Penn Central Transportation Company ("Penn Central"), the Secondary Debtors and the non-bankrupt leased lines by payment of 50% of the principal amount of post-petition taxes, or such amount of post-petition taxes as would cause the payment in each case to equal 44% of the principal amount of all tax claims, whichever is greater. Provided that with respect to tax claims of less than $10,000 in principal amount and tax claims in excess of $10,000 which are liquidated by agreement or otherwise for less than $10,000 principal amount, the Trustees are authorized to pay the principal amount of the claim in full.
2. The Trustees are authorized to create a cash fund for the compromise and settlement of taxes pursuant to this Order (Tax Settlement Fund) from the following sources:
a. Monies set aside in respect of defaulted trustees certificates pursuant to Order No. 2158.
b. Escrow deposits relating to taxes owed by tenants of the estate.