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In re Penn Central Transportation Co.


decided: July 16, 1971.


McLaughlin, Aldisert and Gibbons, Circuit Judges.

Author: Aldisert


ALDISERT, Circuit Judge.

These consolidated appeals contest two orders promulgated by the United States District Court for the Eastern District of Pennsylvania, sitting as a railroad reorganization court, Penn Central Transportation Company, debtor.

Order No. 232 prohibits the appellants*fn1 from "instituting or maintaining any litigation directly affecting the continuance or discontinuance of passenger trains covered by the Act" in any court other than the reorganization court, or "without first obtaining leave" of the court to do so. The order followed an application by Penn Central for relief after appellants had instituted an action in the United States District Court for the Western District of Pennsylvania seeking to enjoin the discontinuance of certain trains contemplated by the National Rail Passenger Corporation (Amtrak), a corporate body created by the Rail Passenger Service Act of 1970, (1a) P.L. 91-518, 45 U.S.C. ยง 501 et seq. (Railpax).

Order No. 242 denied leave requested, pursuant to Order 232, by appellants Railway Labor Executives' Association and Congress of Railway Unions to join Penn Central in a civil action brought on April 23, 1971, in the United States District Court for the District of Columbia challenging the labor protective provisions adopted pursuant to the Act.

Order No. 232

Because appellants question the jurisdiction of the reorganization court to promulgate this order and argue, assuming jurisdiction to lie, that exercise of that jurisdiction was in this case an abuse of discretion, it is necessary briefly to review the genesis of this order.

On September 30, 1970, the Interstate Commerce Commission authorized Penn Central to discontinue 16 passenger trains. An action was brought by appellants*fn2 in the Western District of Pennsylvania to review the decision. A three-judge court was convened, and an interlocutory injunction was issued, enjoining the discontinuance. Penn Central appealed the injunction order to the Supreme Court, which, in Baker v. Pennsylvania, 401 U.S. 902, 91 S. Ct. 875, 27 L. Ed. 2d 801 (1971), vacated the judgment, ruling that the matter had become moot.*fn3 Thereafter, appellants filed a second action in the Western District of Pennsylvania at No. 71-282 seeking to prevent any passenger service discontinuance until May 1, 1971, Amtrak's beginning date. This action was necessitated, according to appellants, because "despite the Supreme Court's ruling, Penn Central threatened to discontinue the trains. This defiant attitude on the part of the Trustees caused these public parties to institute suit * * * on March 19, 1971."

On April 2, 1971, Penn Central obtained from the reorganization court a rule to show cause why appellants should not be enjoined from proceeding with the Western District action because the subject matter was "subsumed in the issues presented before" the reorganization court on a petition by trustees for authority to issue trustee certificates pursuant to arrangements under the Act.*fn4

After hearing, the reorganization court found that the Western Pennsylvania litigation would hamper Penn Central organizational efforts and, by Order No. 232, enjoined appellants from proceeding in that action. This appeal followed.

Appellants urge that no jurisdiction lies in the reorganization court to enjoin matters relating to train discontinuances. Alternatively, they argue that exercise of jurisdiction here was an abuse of discretion. As recognized by the statutory court, a reorganization court does not have "exclusive jurisdiction over all controversies that in some way affect the debtor's estate," Callaway v. Benton, 336 U.S. 132, 69 S. Ct. 435, 93 L. Ed. 553 (1949), and may not oust the authority of administrative agencies charged with the responsibility of regulating service. Palmer v. Massachusetts, 308 U.S. 79, 60 S. Ct. 34, 84 L. Ed. 93 (1939).*fn5 But the teachings of these cases do not preclude the reorganization court from "[enjoining] the prosecution of any suit which would take from it the decision of any question which it has the duty to decide in connection with the reorganization or which would hamper it in any way in exercising the power imposed upon it." In re Imperial "400" National, Inc., 429 F.2d 671, 677 (3rd Cir. 1970).

Our inquiry, therefore, resolves itself to a single issue: would the persistence of the Western District proceedings relating to the discontinuance of passenger service trains, now limited to an interpretation of the Rail Passenger Service Act of 1970,*fn6 hamper the reorganization court in exercising the power imposed on it by the bankruptcy law?

The reorganization court found that "at least for the present" it should retain control of such litigation. Upon an examination of the reasons set forth by the reorganization court, we have concluded that this was no abuse of discretion. We recognize, as did the court below, that matters relating to train discontinuances are not ordinarily heard by the reorganization court. But we hold that the district court amply justified its action in this case:

"In view of the Railpax statute, however, the present situation is quite different. This Court has pending before it the preliminary application of the Trustees for leave to enter into a Railpax contract and to borrow the money which will be required for the initiation payment under that statute. A hearing on that application is scheduled to be held on April 20, 1971. As this opinion is being written, crucial negotiations are in progress between the Trustees and the Railpax incorporators, and various other interested Federal agencies, seeking to establish the terms of the proposed contract. The views of the Trustees and the many other parties in interest in the reorganization proceeding, as to the desirability of 'joining' Railpax, and the ultimate decision of this Court as to whether to approve such action, must necessarily involve a careful weighing of the advantages and disadvantages. It would be unthinkable, in my view, that this already complicated situation should be further complicated by the uncertainties of pending litigation in other courts. It now appears that a wide range of issues involving the implementation of the Railpax legislation will be coming to a head within the next few weeks or months.

"It is a matter of common knowledge that very many interested persons and governmental entities and agencies question the adequacy of intercity rail passenger service proposed to be supplied by Railpax. It is not inconceivable that, if they were free to do so, large numbers of such persons, entities and groups might seek to litigate particular issues in a wide variety of forums. This would clearly hamper reorganization efforts, not only because of the burden of the litigation itself, but because of the prospect of inconsistent results. It is apparent, therefore, that, at least for the present, this Court should retain control over litigation involving the impact of the National Rail Passenger Service Act of 1970 upon the Debtor."

Order No. 242

The labor associations also appeal from an invoking of Order No. 242 by the reorganization court prohibiting Penn Central from being added as a defendant in a District of Columbia proceeding, Civil Action No. 825-71, which they brought to attack the validity of the Secretary of Labor's certification under Section 405 of the Act.*fn7

There they sought a temporary restraining order and preliminary and permanent injunctions against three railroads from discontinuing rail service on May 1, 1971, under Section 401(a) (1) and against Amtrak from taking over responsibility for rail service on May 1, 1971, under Section 401(b). The request for injunction was based upon the invalidity of the Secretary's certification under Section 405(b) and the failure of the railroads to provide employee protective arrangements as required by Section 405(a) and (b) resulting in the invalidity of the Amtrak-Railroad contracts. At the time the suit was brought, April 23, 1971, the application of the trustees for authorization of Penn Central to execute Amtrak contracts was pending before the reorganization court. Approval was received April 27, 1971, after hearings were held on April 20 and 23, 1971. Proper notice had been given to the labor association appellants because they had been permitted to intervene generally in the reorganization proceedings.*fn8

On April 28, 1971, the court entered its Order No. 242 denying appellants' request to join Penn Central in the District of Columbia action on the ground that they should have raised at the Philadelphia hearings on April 20 and 23, 1971, all issues raised in the District of Columbia action and since they did not do so, they are not permitted to raise them thereafter "on principles of res judicata, estoppel and laches." The court held that the "contracting parties, and this Court, had a right to rely upon the certification of the Secretary of Labor * * * as the basis for determining whether the contract was or was not in the best interests of the Debtor's estate." The court concluded that the "time to challenge the sufficiency or legality of these provisions was before the contract was approved" and that "having silently acquiesced in permitting the parties to make binding commitments, these organizations cannot be allowed to rewrite the contract."

The unions have labored hard to demonstrate that the issue concerning the Secretary's certification was not, and should not have been, before the reorganization court; hence, they urge, the res judicata principle was improperly applied. We agree, and, indeed, Penn Central conceded the point at oral argument. But because the Secretary's certification issue vis a vis Penn Central was not foreclosed in the reorganization court, it does not necessarily follow, as the unions would have it, that reversal is required.

The grant or denial by the reorganization court of leave to join Penn Central in the District of Columbia proceeding was a matter within the sound discretion of the court. We find the very reasons articulated by Judge Fullam in support of his promulgation of Order 232 to compel affirmance of his action here.

In assessing the propriety of the district court's action, we find no prejudice to appellants in denying them leave to join Penn Central in the District of Columbia action. We perceive the thrust of that suit to be a frontal attack on the Secretary's certification affecting Amtrak generally, and though Penn Central is now a contract party to Amtrak, by the force of appellants' own argument any judgment in the District of Columbia action affecting Amtrak generally may be subsequently enforced against Penn Central in the reorganization court, since the issue has never been considered there. In sum, Penn Central is not an indispensable party to the District of Columbia suit. Hence, it is no abuse of discretion for the district court to refuse to require further disbursements to defend the District of Columbia action or to subject the debtor to the uncertainties the pendency of the action would generate.

The orders of the district court will be affirmed.

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