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Citibank, N.A. v. Fullam

argued: March 30, 1978.



Gibbons, Maris and Rosenn, Circuit Judges.

Author: Gibbons


GIBBONS, Circuit Judge.

The petitioner, Citibank, N.A., seeks issuance of a writ of mandamus or prohibition to compel United States District Judge John P. Fullam of the Eastern District of Pennsylvania to comply with this court's earlier order in In re Lehigh Valley R.R., 558 F.2d 137 (3d Cir. 1977). In that case, we directed the district court not to use rent from secured property to finance the expenses of reorganizing the debtor's estate unless it found "both that the funds necessary to meet the operating deficits are not available elsewhere and that there is a probable benefit or likely absence of injury to the Bondholders." Id. at 150. Because we agree with the petitioner that Judge Fullam has failed to comply with that order, we grant the requested relief.


On July 24, 1970, the Lehigh Valley Railroad Company commenced reorganization proceedings under § 77 of the Bankruptcy Act, 11 U.S.C. § 205 (1964). In 1973, while those proceedings were still pending, Congress enacted the Regional Rail Reorganization Act,*fn1 which called for the preparation of a Final System Plan for transferring certain rail properties from railroads in reorganization to Consolidated Rail Corporation.*fn2 The constitutionality of the Rail Act was upheld by the Supreme Court in Regional Rail Reorganization Cases, 419 U.S. 102, 42 L. Ed. 2d 320, 95 S. Ct. 335 (1974). The trustee of the Lehigh Valley Estate continued to operate a railroad system until April 1, 1976, when most of the railroad's properties were transferred to Conrail pursuant to the Final System Plan issued on July 26, 1975.*fn3 From the time of that transfer, the Lehigh Valley trustee has had no further obligation to operate ongoing railroad facilities. Proceedings to reorganize Lehigh Valley under § 77 of the Bankruptcy Act have continued since that date.*fn4

The petitioner is the successor trustee under the Lehigh Valley Harbor Terminal Railway Company First Mortgage Indenture, dated February 1, 1924, as supplemented. That indenture secures the payment of principal, in excess of $4 million, and interest on the Lehigh Valley Railroad's 5% First Mortgage Gold Bonds, which are due in 1984. The bonds and the indenture require Lehigh Valley to pay interest on the bonds on February 1 and August 1 of each year. In order to secure the bondholders' claims, the indenture grants to the petitioner an interest in certain non-operating property owned by Lehigh Valley known as the Claremont Terminal Property. The indenture also provides that if Lehigh Valley defaults in its interest payments and if such default continues for sixty days, Citibank is entitled to collect all earnings, income, and rent from the mortgaged property. The bondholders have received no interest payments from Lehigh Valley since reorganization proceedings commenced on July 24, 1970. During the course of the reorganization proceedings, the trustee of the Lehigh Valley Estate has used the income from the Claremont Terminal Property to meet the current expenses of administering the estate. That property generates an annual lease income of almost $350,000, or approximately 76% of the total lease rentals derived from the holdings of the debtor's estate.

Our prior decision in In re Lehigh Valley R.R., 558 F.2d 137 (3d Cir. 1977), resulted from a petition filed by Citibank, as indenture trustee, to stop the debtor's trustee from using the rent from the mortgaged property to pay the expenses of administering the estate. Specifically, Citibank petitioned the district court to order the trustee to deposit the rental monies in an escrow fund for the benefit of the bondholders. The district court denied this petition, stating that such an order "would impermissibly interfere with the formulation and implementation of a plan or reorganization for the Debtor's estate."*fn5 On appeal, we reversed.

In our opinion in In re Lehigh Valley R.R., we first stated the rule of In re Penn Central Transp. Co., 474 F.2d 832 (3d Cir. 1973), and Central Railroad of New Jersey v. Manufacturers Hanover Trust Co., 421 F.2d 604 (3d Cir.), cert. denied, 398 U.S. 949, 26 L. Ed. 2d 289, 90 S. Ct. 1867 (1970), that if certain conditions are satisfied, a debtor's trustee may use income generated by mortgaged property. 558 F.2d at 147-48.*fn6 However, we found no legal justification for differentiating between proceeds from the sale of mortgaged property and income from the rental of such property. Moreover, since Lehigh Valley is no longer operating a railroad, we concluded that the public has no interest in these reorganization proceedings. Accordingly, the factors in the Central Railroad test dealing with the successful rehabilitation of the railroad are irrelevant. The only purpose of these § 77 proceedings is "to protect the rights of the creditors." Id. at 149. But, as our holding recognized, the bondholders whose interests are secured by the Claremont Terminal Property must be given special protection. Before income from that property can be used to finance the expenses of administering the estate, we held, the district court must find, first, that such funds are necessary and cannot be obtained elsewhere and, second, that the bondholders' interests will be benefited, or at least not prejudiced, by the use of the rental income. Because the district court had not made the requisite findings, we vacated its order and remanded the petition to that court "for a threshold determination of these factors and further proceedings consistent with this opinion." Id. at 150.

Four months after we had remanded Citibank's petition, the district court had not acted to make the threshold determinations required by our remand. Accordingly, Citibank filed with the district court a Notice of Renewal of Petition and a Petition for Scheduling Order. On November 21, 1977, without holding a hearing, the district court denied Citibank's original petition to sequester the rents from the mortgaged property. Contending that the district court had failed to comply with our order in In re Lehigh Valley R.R., Citibank filed the instant petition on December 21, 1977, to compel the district court to comply with that order.


The remedy of mandamus is a drastic one and should be invoked only under extraordinary circumstances. Kerr v. United States District Court, 426 U.S. 394, 402, 48 L. Ed. 2d 725, 96 S. Ct. 2119 (1976); Bankers Life & Cas. Co. v. Holland, 346 U.S. 379, 382-85, 98 L. Ed. 106, 74 S. Ct. 145 (1953); Ex parte Fahey, 332 U.S. 258, 259, 91 L. Ed. 2041, 67 S. Ct. 1558 (1947). As the Supreme Court stated in Will v. United States, 389 U.S. 90, 95, 19 L. Ed. 2d 305, 88 S. Ct. 269 (1967), "only exceptional circumstances amounting to a judicial 'usurpation of power' will justify the invocation of this extraordinary remedy." The reasons for this judicial reluctance to grant writs of mandamus are twofold. First, a mandamus action has the undesirable consequence of making a district court judge a litigant. Kerr v. United States District Court, 426 U.S. at 402. More importantly, granting writs of mandamus in less than extraordinary situations would foster piecemeal litigation and thus would frustrate Congress' preference for appellate review only over final judgments. Id. at 403.

Despite federal appellate courts' general reluctance to grant writs of mandamus, they have uniformly granted such writs in one situation -- where the district court has failed to adhere to an order of the court of appeals. The Supreme Court has repeatedly held that an appellate court has jurisdiction under 28 U.S.C. § 1651 to issue a writ of mandamus to compel an inferior court to comply with an earlier mandate. General Atomic Co. v. Felter, 436 U.S. 493, 98 S. Ct. 1939, 56 L. Ed. 2d 480, 46 U.S.L.W. 3736 (1978); United States v. United States District Court, 334 U.S. 258, 92 L. Ed. 1351, 68 S. Ct. 1035 (1948); Delaware L. & W.R.R. v. Rellstab, 276 U.S. 1, 72 L. Ed. 439, 48 S. Ct. 203 (1928); In re Potts, 166 U.S. 263, 41 L. Ed. 994, 17 S. Ct. 520 (1897). The authority to grant extraordinary writs in such situations follows directly from the language of § 1651, which permits appellate courts to"issue all writs necessary or appropriate in aid of their respective jurisdictions. . . ." As the Supreme Court has stated on several occasions, the writ of mandamus "has traditionally been used in the federal courts '. . . to compel [an inferior court] to exercise its authority when it is its duty to do so.'" Kerr v. United States District Court, 426 U.S. at 402; Will v. United States, 389 U.S. at 95; Roche v. Evaporated Milk Ass'n, 319 U.S. 21, 26, 87 L. Ed. 1185, 63 S. Ct. 938 (1943). A federal district court has a clear duty to ...

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