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In re Penn Central Transportation Co.

decided: July 11, 1980.



Before Seitz, Chief Judge, and Gibbons and Rosenn, Circuit Judges.

Author: Gibbons


David C. Bevan, a creditor and retired executive of Penn Central Transportation Company (PCTC), debtor, appeals from Order Nos. 4001 and 4008 which classified his claims against the debtor's estate under a plan of reorganization.*fn1 Bevan's claims were previously before this court in In re Penn Central Transportation Company, 484 F.2d 1300 (3d Cir. 1973), cert. denied, 415 U.S. 951, 94 S. Ct. 1475, 39 L. Ed. 2d 567 (1974). In that case, we affirmed the district court's limitations on and classifications of claims under unfunded pension plans and a contingent compensation plan arising in the context of allowable operating expenses during the reorganization of the debtor. The reorganization court has continued these limitations in the actual plan of reorganization, and Bevan again objects. He contends that the equitable considerations for originally imposing these limitations no longer exist in the implementation of the plan. We affirm the reorganization court's classification of Bevan's claims.


Our previous consideration of these claims is not determinative of the issues now before us, but is certainly the best starting point for an analysis of Bevan's current contentions. By Order No. 12 in July of 1970, the reorganization court enjoined the debtor until further order from paying any compensation or emolument in excess of an annual rate of $50,000 to any officer or employee or former officer or employee. In Order No. 1087, the reorganization court considered the extent to which claims of employees under certain unfunded pension plans and a Contingent Compensation Plan (CCP) should be paid during reorganization as operating expenses of the debtor. In re Penn Central Transp. Co., 354 F. Supp. 408 (E.D.Pa.1973). The court authorized the trustees to continue funding of the funded pension plans and relegated qualifying participants under the CCP to the status of general unsecured creditors. The entitlements under the CCP were to be calculated on the basis of a formula and to be paid as operating expenses only as cash permitted. In addition to the formula limitations, the court imposed the $50,000 limitation of Order No. 12 to all of the programs. Accordingly, no payment to an employee under any unfunded program could be made if, by reason thereof, such employee would receive more than $50,000 in the aggregate annually from the debtor. This court affirmed Order Nos. 1087 and 1088, holding that the reorganization court had not abused its equitable discretion in the imposition of these limitations. 484 F.2d at 1306. Petitions for certiorari by Bevan and several PCTC former officers were denied. 415 U.S. 951, 94 S. Ct. 1475, 39 L. Ed. 2d 567 (1974).

The Trustees Amended Plan of Reorganization was approved by the court in March, 1978. 458 F. Supp. 1234 (E.D.Pa.1978), aff'd 596 F.2d 1102, 1127, 1134, 1155 (3d Cir.), cert. denied, 444 U.S. 834, 100 S. Ct. 67, 68, 62 L. Ed. 2d 44 (1979). And in August, 1978, the Plan was confirmed and ordered implemented by October, 1978. 458 F. Supp. 1364 (E.D.Pa.1978). The Plan provided, inter alia, for full satisfaction of deferred tax claims, and the trustees were authorized to pay timely filed and liquidated prebankruptcy personal injury and wrongful death claims in cash. Following the consummation of the Plan in October, the Penn Central Corporation (PCC), the new name for the reorganized PCTC, has continued to make the same payments that the PCTC did with respect to unfunded pension plans and the CCP.

In April, 1978, the Trustees petition for funding the unfunded pension plans under the Regional Rail Reorganization Act of 1973, 45 U.S.C. §§ 701-794, was approved in Order No. 3497. There were no objections to the funding other than Bevan's objection to the $50,000 limitation.

On April 1, 1976, Conrail took over the funded plan and payments under that plan were continued. However, the trustees were still expected to recognize the payments made under that plan in applying the $50,000 limitation to their other benefit programs.*fn2

Initially, there was a voluntary proposed compromise between the PCTC Trustees and Bevan which consisted of a removal of the $50,000 per year ceiling in exchange for Bevan waiving claims to eight years of interest accrued since 1970. However, this negotiation activity terminated and Bevan filed a petition with the court for reclassification which the PCTC trustees ultimately decided to oppose. Opposition to the petition was later concurred in by the PCC.

More specifically, Mr. Bevan's claims consist of $325,815 for amounts which would have been paid to him pursuant to Order No. 1087 under the CCP but for the $50,000 limitation, $210,000 of contract pension payments and unpaid salary of $22,500 both of which would have been paid but for the $50,000 limitation, and inter vivos annual future contract pension payments at the rate of $27,627. The reorganization court held that the continuation of the $50,000 limitation and the proposed classification were not unjust even though the reorganization turned out better than was expected in 1973. In Order No. 4001, the court classified the salary and CCP claims as Class H claims, and the remaining claims as Class M claims. According to the Plan of Reorganization, general unsecured prebankruptcy claims are assigned to Class M and receive a Certificate of Beneficial Interest equal to 30% of the claim plus common stock of the PCC for the remainder. Unsecured claims entitled to some priority are assigned to Class H. Order No. 4001 was vacated because copies thereof were not timely served, but that Order was readopted and reentered as Order No. 4008. Only Bevan appeals these Orders.*fn3


A. The Dollar Limitation Did Not Constitute Unlawful Discrimination.

Bevan contends that the continued limitation on payments to him result in unlawful discrimination because other claimants in the same class have had their total claims paid in cash. The $50,000 dollar limitation has not limited payments to other employees (except Saunders, Smucker, and the Estate of Mr. Symes) because their claims do not exceed that amount. But all employees are subject to exactly the same limitation: the result is a differential impact rather than an illegal discriminatory one. Bevan argues, however, that this discrimination between claimants violates the Regional Rail Reorganization Act of 1973, 45 U.S.C. §§ ...

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