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Maranzini v. Consolidated Rail Corp.

argued: August 13, 1991.

IN THE MATTER OF: THE CENTRAL RAILROAD COMPANY OF NEW JERSEY, WILMAT HOLDINGS, INC., (AS SUCCESSOR-IN-INTEREST TO CENTRAL JERSEY INDUSTRIES, INC.) ("WILMAT"), APPELLANT


On Appeal from the United States District Court for the District of New Jersey. (D.C. No. 67-00401)

Before: Cowen and Nygaard, Circuit Judges, and Pollak, District Judge*fn*

Author: Pollak

Opinion OF THE COURT

POLLAK, District Judge.

Introductory Statement

In order properly to understand the problem now before this court, it may be helpful to take a brief retrospective look at events now well in the past.

On March 12, 1967 -- almost a quarter of a century ago -- the Central Railroad of New Jersey (CNJ), following the well-blazed path of many another financially ailing railroad, filed a bankruptcy petition in the District Court for the District of New Jersey. Nine years into the reorganization process -- on April 1, 1976 -- CNJ's rail assets were conveyed to Conrail. And over three years later -- on September 14, 1979 -- CNJ emerged from reorganization as a non-railroad enterprise called Central Jersey Industries (CJI). The launching of CJI followed by one day the entry by the district court of Order 965 denominated an "Order in Aid of Consummation of Amended Plaintiff's Reorganization of the Central Railroad of New Jersey." Paragraph 22 of Order 965 reads, in pertinent part:

All persons . . . are hereby permanently restrained and enjoined from instituting, prosecuting or pursuing . . . any suits or proceedings . . . against the Reorganization Company or its successors or assigns or against any of the assets or property of the Reorganized Company or its successors or assigns, directly or indirectly, on account of or based upon any right, claim or interest of any kind or nature whatsoever which any person . . . may have in, to, or against the Debtor. . . .

Some years after the consummation of the CNJ reorganization, numerous asbestos-related FELA suits were brought against CNJ and CJI in federal and state courts. These suits sought compensation for sickness allegedly caused by asbestos exposure during the course of employment before the CNJ ceased operations. Concurrently, similar suits were brought by former employees of the bankrupt Reading Railroad, which, after turning its rail assets over to Conrail in 1976, had in 1980 emerged from reorganization proceedings in the District Court for the Eastern District of Pennsylvania as a non-railroad. The defendants in these various suits contended that suits arising out of the operations of the two reorganized railroads were barred by Section 77(f) of the then-governing Bankruptcy Act, former 11 U.S.C. ยง 205(f), which specified, in relevant part, that:

The property dealt with by the plan, when transferred and conveyed to the debtor or to the other corporation or corporations provided for by the plan, or when retained by the debtor pursuant to the plan, shall be free and clear of all claims of the debtor, its stockholders and creditors, and the debtor shall be discharged from its debts and liabilities . . .

The District Court for New Jersey agreed with defendants that the plaintiffs' suits were "claims" that had been "discharged" and, in reliance on the protective authority spelled out in Order 965, enjoined the prosecution of the FELA suits against CNJ and CJI. The District Court for the Eastern District of Pennsylvania reached the same result with respect to the suits against the Reading.

The enjoined plaintiffs -- together with Conrail, which had intervened to oppose the CNJ-CJI-Reading position -- appealed the determinations of the two district courts. In Schweitzer v. Consolidated Rail Corp. (Conrail), 758 F.2d 936 (3d Cir.), cert. denied sub nom Reading Co. v. Schweitzer, 474 U.S. 864 (1985), this court, through Judge Seitz, reversed.

This court began its analysis in Schweitzer by setting forth the relevant language of former Section 77(f), and then observed (id. at 941):

The quoted statutory language clearly provides broad authorization for the discharge in bankruptcy of claims against the debtor in order to secure a fresh start for a company resulting from a section 77 reorganization. It is equally clear that plaintiffs' rights only could have been affected by the discharge of all "claims" against their employer if they had "claims" ...


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