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Central Railroad Co. v. United States

May 9, 1975



Forman, Van Dusen and Garth, Circuit Judges.

Author: Per Curiam


This appeal challenges Order No. 705, issued on October 25, 1974, by the Central Railroad Company of New Jersey (CNJ) Reorganization Court. Order No. 705 denied an application of the United States of America for an order restraining the CNJ trustee from paying certain interline balances during October and November 1974, as well as at any later time, unless the court, upon a showing by the trustee that making such payments would not jeopardize the continuation of CNJ's rail service, should approve the payments.*fn1 The interline balance whose payment the Government sought to restrain were owed by CNJ to the Chesapeake & Ohio Railway Co. (C & O) and the Baltimore & Ohio Railroad Co. (B & O).*fn2 The district court had previously, on September 9, 1974, entered its Order No. 701, requiring the trustee to repay C & O and B & O deferred interline balances totaling approximately $4,375,000.00 and to file within 30 days "a reasonable installment schedule" for paying such balances.*fn3

During oral argument of this appeal, the parties informed the court that (a) $250,000.00 has been paid by the trustee to B & O and C & O each month from October 1974 through April 1975 on account of the above sum of $4,375,000.00, and (b) the district court will hear on May 12 a motion to restrain the payment of $250,000. on account of such balances in May 1975.

The parties apparently concede that mootness precludes this appeal from challenging the payment of the $1,750,000.00 which has already been paid to B & O and C & O. DeFunis v. Odegaard, 416 U.S. 312, 94 S. Ct. 1704, 40 L. Ed. 2d 164 (1974); Kauffman v. Johnston, 454 F.2d 267 (3d Cir. 1972); Woody v. Judge, 435 F.2d 706 (3d Cir. 1970); National Lawyers' Guild, University of Texas Chapter v. Regents of the University of Texas System, 490 F.2d 97 (5th Cir. 1974). However, we have concluded that the appeal is not moot insofar as it challenges the refusal of the court to enjoin the trustee from continuing such monthly payments if they will jeopardize CNJ's continued rail operations.

Under the R.R.R.A., the reorganization proceeding must be designed to keep CNJ operational until the final railroad reorganization plan has been devised. See In Re Lehigh Valley Railroad Company, 508 F.2d 332, 338-40 (3d Cir. 1975).

After careful consideration, we have concluded that Order No. 705 must be vacated insofar as it may preclude the United States or any other interested party from challenging future payments of these deferred interline balances upon a showing that such payments would jeopardize CNJ's continued operations. The district court should have provided that it would reconsider, upon an appropriate record, at regular intervals the propriety of CNJ's paying $250,000. per month in discharge of the above interline balances, and such reconsideration should take place at least quarterly.*fn4 At the time it reconsiders the monthly payments which can be made by the trustee, consistent with the obligation to continue operations of the railroad as part of the nation's national transportation system, the court should make findings of fact consistent with Rule 52 of the Federal Rules of Civil Procedure and give reasons for its action based on such findings, so that appellate review will be facilitated. The district court's failure to make such findings and to state its reasoning is among the causes for our vacating Order No. 705.

Factors that should be considered by the district court in determining the amount, if any, that should be paid on account of the interline balances still owing include these:

(A) projected income and expense estimates and cash flow for the month in which any payment is planned to be made and for future months, insofar as such estimates can be made;

(B) the effect which the proposed payments on account of the above-described interline balances will have on continued operation of CNJ in light of a plan of reorganization under the R.R.R.A.,*fn5 as well as on continued operation of B & O and C & O;

(C) the risk of CNJ's being placed on a prepay basis by B & O and C & O if it fails to pay these deferred balances and the hardship to CNJ of being placed on a prepay basis;

(D) the position taken by the Federal Railroad Administrator, the Secretary of Transportation,*fn6 and the State of New Jersey concerning the proposed payment, in view of their regular payments to CNJ;*fn7

(E) whether payment of these deferred balances from funds paid to CNJ pursuant to Section 213 of the R.R.R.A. is consistent with ...

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