The opinion of the court was delivered by: FULLAM
OPINION RE SETTLEMENTS WITH AMTRAK, CONRAIL, NEW YORK STATE, AND THE SIX MONTHS CREDITORS
In the Approval Opinion, a pending settlement of Amtrak's claims and the dispute with respect to the amount and character of ConRail's claims were discussed. The Trustees and ConRail have resolved their disputes and a settlement has been presented to the Court. Settlements with the State of New York and the Six Months Creditors have also been presented to the Court for approval. All four settlements will be approved.
The Trustees assert claims against Amtrak in the first two categories which, if the Trustees were completely successful, would mean that Amtrak owes the Trustees $ 16.3 million for accounting adjustments and $ 2.8 million for miscellaneous claims, or a total of $ 19.1 million. Many of the Trustees' claims are tenuous, however, and it is fair to state that the Trustees would undoubtedly consider it a victory if they established liability on the part of Amtrak for $ 8.8 million in accounting adjustments, and $ 1 million on the miscellaneous claims, for a total of $ 9.8 million. If Amtrak were totally successful on its claims in these categories, the Trustees would owe Amtrak $ 6.8 million for accounting adjustments, and $ 3.7 million for miscellaneous claims, for a total of $ 10.5 million. Here again, however, the likelihood of such a totally favorable outcome for Amtrak seems remote. I have no doubt that it would generally be considered a victory for Amtrak and a loss for the Trustees if the slate were wiped clean with respect to claims in these two categories. The realistic range of litigation possibilities, therefore, is probably between a $ 9 or $ 10 million recovery by the Trustees, on the one hand, and no recovery by either party, on the other.
Pursuant to the Amtrak statute, the parties have attempted to agree upon the appropriate level of compensation to be paid by Amtrak to the Trustees for furnishing facilities and services, covering the period from June 1, 1973 to April 1, 1976 (the date of the conveyance to ConRail), and, upon being unable to agree, submitted the dispute to the Interstate Commerce Commission for resolution. The ICC rendered an interim opinion, establishing certain guidelines.
The parties then worked out a tentative compromise settlement agreement, in light of the ICC guidelines and an amendment to the statute which Congress enacted in the meantime. I rejected the proposed settlement, as providing inadequate compensation to the Trustees, and Amtrak simultaneously announced its withdrawal from the settlement agreement.
Further litigation before the ICC would be required to resolve this dispute. If the Trustees were fully successful, Amtrak would owe the Trustees as much as $ 147 million. However, such complete success is unlikely. The theories on which the Trustees would be most likely to recover would generate a return of approximately $ 85 million. If Amtrak were completely successful, it would owe the Trustees nothing. Here again, however, the likelihood of such a result appears remote. It seems doubtful that the Trustees could fail to establish liability on the part of Amtrak for much less than $ 30 million additional compensation.
Thus, combining all claims in the categories thus far analyzed, it appears that the range of probable recoveries by the Trustees extends from a high of $ 94 or $ 95 million to a low of about $ 30 million.
In presenting objections to the Reorganization Plan on the basis of its failure to provide for this claim, Amtrak was unable to articulate any legal theory which would support the imposition of liability upon the Penn Central estate in these circumstances, and, so far as I am aware, no such legal theory has yet been developed by anyone. The benefit to the Debtor's estate from release of this claim in connection with the settlement agreement is therefore plainly minimal, namely, avoiding the costs of defending the action, if Amtrak were to attempt to pursue it.
The final category of claims to be considered is Amtrak's claims for the costs of upgrading trackage which the Trustees were required to maintain at the "level of utility" prevailing on May 1, 1971. A reasonable estimate of the aggregate amount of claims which Amtrak has asserted, or might be able to assert, in this category, is approximately $ 178 million. The gist of this controversy may be summarized as follows: The contract between Amtrak and Penn Central required Penn Central to maintain its tracks, for use by the passenger service, at the same "level of utility" which prevailed on May 1, 1971. The contract had many years to run when the trackage was conveyed to ConRail pursuant to the RRRA. There is a dispute between Amtrak and ConRail as to whether or not ConRail has the same maintenance obligations which Penn Central would have had. If ConRail does have those same obligations, the damages sustained by Amtrak by reason of Penn Central's alleged failures to meet its maintenance obligations would be relatively modest. If ConRail does not have the same maintenance obligations, then Amtrak may, in the future, be required to spend money upgrading the tracks used by its passenger trains which it would not have been required to spend, if Penn Central had fulfilled its maintenance obligations. On the other hand, if Penn Central had fulfilled its maintenance obligations, the tracks would have been in better condition and presumably more valuable, and thus the price to be paid for the tracks by ConRail would have been higher. More importantly, Penn Central would have been improving its own tracks, and would have had the benefit of those improvements in connection with its operation of freight service.
Amtrak will not have suffered any damage unless and until it actually does spend money to upgrade the tracks. If Penn Central is required to reimburse ConRail for such expenditures, it is difficult to avoid the conclusion that Penn Central should be in a position to recover from ConRail, the owners of the improved tracks, at least a significant portion thereof on the theory of unjust enrichment. Thus far, ConRail and Amtrak have successfully asserted that no liability may be imposed upon ConRail, except by the Special Court, While that position is certainly correct with respect to the rights and obligations arising by virtue of the conveyance under the RRRA and the contract between Amtrak and ConRail, it seems reasonably clear that the RRRA does not exonerate ConRail from liability which might arise in the future by reason of post-conveyance events, and that litigation seeking to impose such liability might be pursued in other courts, so long as it did not impinge upon the Valuation Case or the Orders of the Special Court stemming from the conveyance.
If these matters were to be litigated further, Amtrak would assert that the vast sums it has already spent in upgrading the Northeast Corridor satisfy the requirement that damages must be actually incurred before they can be recovered. But no claim for undermaintenance of the Northeast Corridor has ever been suggested (with respect to the off-Corridor passenger lines, Amtrak did pursue an arbitration proceeding in connection with certain lines in Indiana (National Arbitration Panel 11), and, on the eve of the conveyance to ConRail, filed a notice of intent to arbitrate this issue with respect to other lines); moreover, there is the problem arising from the fact that Amtrak now owns the Northeast Corridor, which it purchased at a price reflecting its "as is" condition.
Perhaps the strongest argument in favor of Amtrak's claim is the "confirmed" award of the arbitrators in the NAP 11 proceeding, which, shortly before conveyance, directed the Trustees to perform certain track upgrading and maintenance which would have cost about $ 22 million. The Court of Appeals for the Third Circuit upheld this Court's denial of Amtrak's petition for specific performance of that arbitration award, but left open the possibility that damages in some amount might be appropriate. In the Matter of Penn Central Trans. Co., 560 F.2d 169 (3d Cir. 1977). See, also National Railroad Passenger Corp. v. Blanchette, 551 F.2d 127 (7th Cir. 1977), reversing National Rail Passenger Corp. v. Blanchette (S.D.Ind., Civil No. IP 76-274-C, June 25, 1976). The Court of Appeals directed this Court to make ConRail a party to the proceeding; the Special Court thereafter entered a "stay" purportedly precluding this Court from deciding issues relating to ConRail, See Consolidated Rail Corp. v. National Rail Passenger Corp., et al., Civil Action No. 77-39 (Special Ct., Dec. 7, 1977). And the issue remained unresolved until the present settlement agreement was reached. The award of the NAP 11 panel gives Amtrak two principal points of strength: It defined "level of utility" by reference to scheduled performance rather than actual performance as of May 1, 1971, and it directed Penn Central to perform the track rehabilitation "at no cost to Amtrak." With ...