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In re Penn Central Transportation Company. Southeastern Pennsylvania Transportation Authority

argued: May 6, 1991.

IN THE MATTER OF PENN CENTRAL TRANSPORTATION COMPANY. SOUTHEASTERN PENNSYLVANIA TRANSPORTATION AUTHORITY ("SEPTA"), APPELLANT IN NO. 90-1676. IN THE MATTER OF PENN CENTRAL TRANSPORTATION COMPANY. CONSOLIDATED RAIL CORPORATION, APPELLANT IN NO. 90-1677. IN THE MATTER OF PENN CENTRAL TRANSPORTATION COMPANY. UNITED STATES OF AMERICA, APPELLANT IN NO. 90-1678


Appeal from the United States District Court for the Eastern District of Pennsylvania; D.C. Civ. No. 70-00347.

Mansmann, Nygaard and Roney,*fn* Circuit Judges.

Author: Mansmann

Opinion OF THE COURT

MANSMANN, Circuit Judge

In this appeal arising out of the complicated and protracted Penn Central Transportation Company ("PCTC") bankruptcy proceedings, we are presented with the issue of whether the United States, Southeastern Pennsylvania Transportation Authority ("SEPTA") and Consolidated Rail Corporation ("Conrail") are precluded by the district court's Consummation Order and Final Decree from seeking recovery for hazardous waste clean-up costs under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA), 42 U.S.C. § 9600 et seq., from the reorganized company, Penn Central Corporation ("PCC"), after the consummation of those proceedings. The district court found that the United States, SEPTA and Conrail were precluded from bringing their CERCLA claims, and thus denied their petitions seeking leave to sue PCC.

We conclude that the district court erred as a matter of law and that the petitioners are entitled to bring their CERCLA claims against PCC because (1) the CERCLA claims were not discharged by the consummation order because the claims were not then in existence and (2) a legal entity still exists against which claims may be asserted because the restructuring of PCTC into PCC under section 77 of the Bankruptcy Act of 1898, formerly codified at 11 U.S.C. § 205 (repealed 1978), was not a "liquidation type" reorganization. Our jurisdiction is based upon 28 U.S.C. § 1291 and section 24(a) of the Bankruptcy Act, 11 U.S.C. § 47 (repealed 1978).

I.

PCTC and its corporate predecessor, the Pennsylvania Railroad Company, had owned and operated the Paoli Yard from approximately 1915 through 1976. At the time PCTC filed for reorganization under Section 77 of the Bankruptcy Act on June 27, 1970, polychlorinated biphenyls ("PCBs") had been used at the Paoli Yard for over thirty years. For the next six years, the PCTC Trustees owned and operated the Paoli Yard, and continued to use PCBs on the property.

On April 1, 1976, pursuant to the Final System Plan established under the Regional Rail Reorganization Act of 1973, see 45 U.S.C. §§ 716-18, PCTC's Trustees conveyed the Paoli Yard to Conrail; Conrail immediately reconveyed it to the National Railroad Passenger Corporation ("Amtrak"), which has remained its owner until the present time. On that same day, Conrail commenced the operation of a commuter service for SEPTA within the Delaware Valley area, using railroad facilities that included the Paoli Yard.

Two years later, on October 24, 1978 (the "Consummation Date"), the reorganization of PCTC which had begun in 1970 culminated in the district court's issuance of a Consummation Order and Final Decree, which precluded, inter alia, future lawsuits against the reorganized debtor, PCC, "on account of or based upon any right, claim or interest of any kind or nature whatsoever which any such person . . . may have in, to or against any of the Debtors, the Trustees of the Properties of the Debtors or any of their assets or properties." Consummation Order and Final Decree, para. 7.02 (August 17, 1978). But in 1980 Congress passed CERCLA, which imposed retroactive liability on both present and past owners of facilities where hazardous substances, including PCBs, are being or have been released and it is the passage of this statute which forms the crux of these appeals.*fn1 During these same years, from 1976 through the early 1980's, we note that Conrail continued to provide commuter service for SEPTA until Congress relieved Conrail of that obligation, effective January 1, 1983, in the Northeast Rail Services Act of 1981, 45 U.S.C. § 744a. SEPTA then began to operate its own commuter service and Conrail discontinued its use of the Paoli Yard.

It was in 1986 that a series of lawsuits was filed in the United States District Court for the Eastern District of Pennsylvania against Conrail, SEPTA, and Amtrak. The suits, including one filed by the United States on behalf of the Environmental Protection Agency, alleged that Conrail, SEPTA and Amtrak had been responsible for the release of PCBs into the environment at the Paoli Yard and in the adjacent residential community since April 1, 1976. Pursuant to CERCLA, the United States sued Conrail, SEPTA, and Amtrak to clean up PCB contamination at the Paoli Yard because of their alleged ownership or operation of the Paoli Yard since April 1, 1976.*fn2 The United States requested mandatory injunctive relief to remedy PCB contamination and reimbursement of the government's cleanup and related costs.

In June of 1986, Conrail petitioned the United States District Court for the Eastern District of Pennsylvania, which had retained jurisdiction to consider such petitions under its equitable power, for leave to implead PCC in the Paoli PCB cases so that it could assert claims under CERCLA for contribution and indemnity. SEPTA also petitioned for leave to file third-party claims against PCC, and the United States asked for permission to file direct claims against PCC.

On January 14, 1988, the district court issued Memorandum and Order 4311, which resolved many of the issues that had been raised. The district court permitted claims involving direct personal injury and property damage to be brought against PCC and allowed SEPTA and Conrail to pursue third-party claims to the extent that those claims arose out of the personal injury and property damage suits. Additionally, the district court invited briefing on the relevance of the decision of the United States Court of Appeals for the Sixth Circuit entitled, In re Erie Lackawanna Ry. Co., 803 F.2d 881 (6th Cir. 1986).

On August 8, 1990, the district court issued Memorandum and Order 4331, finding that its Consummation Order and relevant principles of bankruptcy law precluded Conrail, SEPTA and the United States from asserting claims under CERCLA against PCC after the Consummation Date. In reaching its decision, the district court stated that it would require an unduly broad reading of our decision in Schweitzer v. Consolidated Rail Corp., 758 F.2d 936 (3d Cir. 1985) -- one that it would not undertake -- in order to permit the petitioners to proceed against PCC under CERCLA despite PCTC's final discharge in bankruptcy. In addition, the district court viewed the PCTC Reorganization Plan as a "liquidation type" reorganization and, following the reasoning of the court in Erie ...


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