treated somewhat more favorably than the claims of other fully-secured creditors, in recognition of the fact that Irving's claims are "super secured" (i.e., substantially more than 100% secured by retained assets, as distinguished from assets conveyed to ConRail which cannot be realized upon until conclusion of the Valuation Case litigation in the Special Court), and in recognition of the fact that the P&LE stock pledged as collateral for Irving's claims (a) represents a relatively liquid asset, and (b) would arguably be somewhat less vulnerable to the pre-eminent claims of the Federal Government, and to unpaid administration claims, than the assets securing the claims of other secured creditors. (See Plan Approval Opinion of March 17, 1978, slip op. at p. 62.)
Needless to say, if the Plan is consummated, all of the claims represented by Irving Trust will be satisfied through the mechanism of the Plan, and there will be no occasion for recourse to the pledged collateral or to the escrow funds. If the Plan is not consummated, Irving Trust would no doubt be in a position to seek leave of Court to foreclose, but the claims of the Federal Government, of state and local tax claimants, and of other higher-priority administrative claimants would also be heard from.
Irving Trust has seized upon certain language in the Court of Appeals Opinion cited above as suggesting that Irving is virtually in the same position as the real owner of the pledged shares, and thus should be free to negotiate its own settlement with respect to them. I believe this misconstrues the Court's holding. The Court was simply making the point that, as between the pledgor and the pledgee, the latter had the paramount interest in preserving the value of the collateral; and that this was emphatically true when the threatened impairment of the collateral stemmed from the settlement of litigation charging the pledgor with wrongdoing. No one has intimated, or could successfully maintain, that the Trustees were charged with improprieties, that Order No. 1 should be ignored, or that the pledged shares are no longer assets of the Debtor's estate within the fiduciary responsibility of the Trustees.
It should be noted, also, that because of the limitations in the record presented to the Court of Appeals, it was necessary for that Court to proceed on the assumption that the pledged shares of P&LE stock represented the only security for the underlying indebtedness to the bondholders. As the more complete record in the Plan proceedings now demonstrates, however, the indebtedness is amply secured, by other assets as well as the pledged stock. This in no way detracts from the legitimacy of Irving's objections to the threatened impairment of the value of the pledged stock, but it has an important bearing upon the Trustees' "equity" in the pledged collateral, and the need for its continued availability for disposition pursuant to the Plan of Reorganization.
I am satisfied that the proposed settlement of the M.D.L. litigation is in the best interests of the Penn Central estate, and that the Trustees should be permitted to carry out the terms of the proposed settlement, if the Trustees' interpretation of the settlement documents is correct, as I believe it to be. I am equally persuaded that it would not be permissible to authorize the Trustees to agree to provide Irving Trust Company or the bondholders it represents with special benefits in the form of potential cash payments beyond the distributions contemplated in the Plan of Reorganization. Irving Trust is plainly entitled to have the protection of the escrow arrangement, but cannot be permitted to obtain actual payment from that source except upon further Order of this Court.
An Order in conformity with the foregoing views will therefore be entered. As stated above, I believe this result is entirely consistent with the intention of the parties to the settlement agreement, and with the intention of the M.D.L. Court in approving the settlement. Should this interpretation be erroneous, I am confident that further clarification will be forthcoming.
ORDER NO. 3503
AND NOW, this 11th day of April, 1978, upon consideration of the "Petition of Trustees for Authority to Agree to Settlement of Litigation Involving The Pittsburgh and Lake Erie Railroad Company and to Enjoin Certain Penn Central Transportation Company Bondholders" (Doc. No. 19,776) (Petition), and after hearing thereon duly noticed,
It appearing that the terms of the settlement of the litigation entitled In re Pittsburgh and Lake Erie Railroad Company Securities and Antitrust Litigation, U.S.D.C.E.D.Pa.M.D.L. Docket No. 134, 374 F. Supp. 1404, and any related cases not included therein (P&LE cases), as set forth in the Petition, will be in the best interests of the Debtor's estate and its reorganization, it is hereby ORDERED that:
1. The Trustees are authorized to join in the settlement of the P&LE cases in accordance with the terms of the Stipulation of Settlement and Compromise dated May 6, 1975, as amended by Revised Stipulation of Settlement and Compromise dated April 13, 1977 (Settlement Agreements), entered into among the plaintiffs and defendants in the P&LE cases.
2. The Trustees, or any of them, or their designees, are authorized to execute and deliver such agreements or other documents as may be necessary or appropriate to effectuate the provisions of the Settlement Agreements applicable to the Trustees.
3. Irving Trust Company, and any successor to it, as Indenture Trustee under the Collateral Trust Indentures dated April 15, 1965 and April 15, 1968, is enjoined, until further Order of this Court, from obtaining or seeking to obtain payment from the escrow fund established pursuant to the Settlement Agreements or from otherwise attempting to realize upon the pledged collateral; the provisions of Order No. 1 in these proceedings shall apply and continue to apply to the escrow fund, as well as to the pledged stock.
4. The Trustees shall give notice of this Order by mailing a copy of it to Irving Trust Company, New York, New York, all holders of the Collateral Trust Bonds whose identities are known to the Trustees, all parties customarily notified of orders in this proceeding, and to counsel for plaintiffs and defendants in the P&LE cases.
© 1992-2004 VersusLaw Inc.