litigation outcomes, and, since it would eliminate a potential obstacle to the prompt consummation of the Plan of Reorganization, it is in the best interests of the estate.
I have carefully considered the objections filed on behalf of the State of New Jersey, to some extent joined in by other parties, and have concluded that they are lacking in merit. The unfortunate problems relating to the payment of 1976 taxes are not germane to the settlement, and are not within the province of this Court. The somewhat more refined definition of what constitutes a § 211(h) claim is in conformity with the RRRA, and does not amount to a modification of the Plan of Reorganization. The $ 6.5 million cash payment can properly be regarded as a lump sum payment for ConRail's continued agency services. And the further concession made by providing that ConRail as well as USRA is entitled to insist upon retirement of the Series B Notes on schedule (with penalties for non-compliance) is entirely consistent with the Plan, does not amount to a modification thereof, and appears entirely reasonable, in view of the unique relationship between ConRail, USRA and the Debtor's estate (reorganized company) under the § 211(h) program.
While the overall impact of the proposed settlement is substantial, it does not impair the feasibility of the Plan. The proposed settlement will be approved.
SETTLEMENT WITH THE STATE OF NEW YORK
Before bankruptcy, the State of New York performed certain work in eliminating grade crossings, generating claims against Penn Central aggregating some $ 25.3 million, payable over a period of years. $ 7.7 million of this amount fell due between June 21, 1970, and December 31, 1977, and remains unpaid. The State claims that the entire balance is now payable, that it represents an administration claim against the estate, and that it must be paid in cash in full.
The State of New York also has asserted claims aggregating some $ 20.3 million in unpaid sales and use taxes, allegedly owing with respect to leased equipment and per diem charges for the use of equipment. These claims present novel legal issues, and extremely complex factual disputes.
The proposal is to resolve all of these disputes by liquidating all of these claims for a total of $ 19 million, to be classified and satisfied under the Plan as a tax relating to conveyed property. This result is well within the range of reasonably foreseeable litigation possibilities, does not impair the feasibility of the Plan, and represents an entirely satisfactory resolution of complex and difficult issues. The settlement will be approved.
SETTLEMENT WITH SIX MONTHS CREDITORS
The Plan provides that if any creditor is found to have a claim entitled to priority treatment under the "six month" rule, such claim would be included in Class H, and satisfied by the issuance of Series C-2 Notes. However, the Trustees contended, and this Court decided, that no claims were entitled to the six months priority. Rather, all such claims are included within Class M, general unsecured pre-bankruptcy claims.
The claims for which six month priority status is asserted aggregate approximately $ 60 million. Substantially all of these claimants have filed appeals from the Order approving the Plan. If it were ultimately held that this Court erred in denying six months priority status to such claims, the impact upon the reorganization would be very great indeed. Moreover, if such priority were established as a result of the appellate process, there can be no complete assurance that payment in C-2 Notes would be satisfactory.
Under the terms of the proposed settlement, all of these issues would be resolved, and the appeals would be withdrawn. Fifty percent of the amount of each claim which would qualify for six months priority if there were a fund available for payment of such claims within the meaning of the six months rule will be classified within Class H, and paid in C-2 Notes; the balance of such claims will continue to be classified within Class M, and treated accordingly. In short, the parties have agreed that the provisions of Class H are adequate for claims entitled to six months priority, and have settled the dispute over applicability of the six months rule itself on a 50-50 basis.
I remain persuaded that none of these claims is entitled to six months priority in this case, for the reasons set forth at length in the Plan Approval Opinion. I must recognize, nevertheless, that this issue has not been squarely decided in the Third Circuit. While I found the decisions from other circuits, particularly the Second Circuit, persuasive, and believe they would be followed in this Circuit, there is room for the possibility that a different view which probably prevails in the Fourth Circuit might be adopted here.
The Trustees and the other parties have presumably carefully weighed the risks involved, and the desirability of eliminating another potential obstacle to prompt consummation of the Reorganization Plan, and have reached a business judgment. I see no reason to disturb that business judgment. The settlement will be approved.
ORDER NO. 3722
AND NOW, this 5th day of Sept., 1978, upon consideration of the "Petition of Trustees for Approval of Settlement with Six-Month Creditors" (Petition), Order No. 3693 and the record in these proceedings, is hereby ordered that Order No. 3693 is amended to read:
1. The settlement of the claims of six-month creditors, on the terms set forth in paragraph 5 of the Petition, is approved.
2. The resolution of the issue raised by the Committee of Interline Railroads, relating to the satisfaction of the Plan of Reorganization, on the terms described in paragraph 6 of the Petition, is approved.
3. The Trustees or any one of them or their designees are authorized to take such action as may be necessary and appropriate to implement the settlement.