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In re Penn Central Transportation Co.

August 4, 1975

IN THE MATTER OF PENN CENTRAL TRANSPORTATION COMPANY, DEBTOR PENN CENTRAL COMPANY, APPELLANT


APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA. (D.C. No. B-70-347 in Bankruptcy).

Seitz, Chief Judge, Aldisert and Gibbons, Circuit Judges. Seitz, Chief Judge, dissenting.

Author: Gibbons

Opinion OF THE COURT

GIBBONS, Circuit Judge

Penn Central Company, sole stockholder and an unsecured creditor of the debtor Penn Central Transportation Company, appeals from Order No. 1698 of the reorganization court which enjoins it from prosecuting a suit asserting a claim solely on its own behalf, against the United States in the Court of Claims pursuant to the Tucker Act.*fn1 28 U.S.C. § 1491. We conclude that the reorganization court had neither statutory nor equitable power to enjoin proceedings in the Court of Claims which did not affect any property or interest of the debtor, and thus we reverse.

In January 1974 Congress enacted the Regional Rail Reorganization Act, 45 U.S.C. § 701 et seq. That enactment was challenged in several courts on the ground that by requiring railroads in reorganization to continue deficit operations over extended periods, it affected an uncompensated taking of the property of the debtor, its creditors, and its shareholders in violation of the fifth amendment.

On April 10, 1974, Penn Central Company filed a petition in the Court of Claims against the United States alleging an "erosion taking" of the estate. Since the petition as originally drawn asserted not only any "erosion taking" claim which might belong to Penn Central Company itself, but also the claim for injury to the debtor's estate, the trustees in reorganization sought an order from the reorganization court enjoining the Court of Claims action. Thereupon, on May 17, 1974, Penn Central Company filed an amended petition seeking only the difference between the value of its interests and holdings in the debtor on February 8, 1973 (the date alleged to be the beginning of governmentally mandated erosion) and the present value thereof. It appears that the filing of the amended Court of Claims petition on April 10, 1974 resulted from a difference in viewpoint between the attorneys for the trustees in reorganization and the attorneys for Penn Central Company over the timing of the pursuit of a then rather problematical Tucker Act remedy for "erosion taking." Although that difference persists, it is clear that in the amended petition Penn Central Company has abandoned the pursuit of any claim belonging to the debtor. (App. at 1a-6a).

On October 22, 1974 the reorganization court entered Order No. 1698 enjoining the Court of Claims action. In its opinion in support of that injunction, the court based its action on two principal grounds. First, in expressing some skepticism as to whether Penn Central Company actually could assert any separate "erosion taking" claim, the court stated:

"Assuming, without deciding, that parties injured by a less-then-totally-successful reorganization outcome may have a cause of action for the reason alleged by Penn Central, it seems self-evident that the assertion of such a cause of action at this time by anyone other than the Trustees is at least premature." (App. at 8a).

We are not certain if this sentence was intended to suggest that Penn Central Company was actually still pressing the debtor's cause of action, or to suggest that the trustees could assert a Penn Central Company claim, or to suggest that the assertion by Penn Central Company of its own cause of action at this time was premature. The amended Court of Claims petition seems to us to have unequivocally abandoned any attempted assertion of a claim for erosion to the debtor's estate. Whether in its amended form it actually states a claim upon which relief could be granted to Penn Central Company is quite another matter; a matter which the Court of Claims is competent to decide. Since, in its amended form, the petition asserts a cause of action, for whatever it is worth, belonging to Penn Central Company, and not to the debtor, it is not a claim that the trustees in reorganization may advance now or anytime hereafter. And if Penn Central Company decides to waste time and effort in the pursuit of a cause of action which has not sufficiently ripened, we do not see how that prematurity concerns the debtor, the estate, or the reorganization court.

The second reason advanced in support of the injunction by the reorganization court was the state of confusion existing then over the availability of a Tucker Act remedy. The court wrote:

"Moreover, I am persuaded that to permit the Penn Central litigation in the Court of Claims to proceed at this time would be irresponsible, if for no other reason than the existing confusion as to the nature and extent of possible remedies under the Tucker Act, and the consequent uncertainty as to the possible adverse effects of the Penn Central litigation (res judicata, collateral estoppel, double recovery, etc.) upon claims which others, including the Trustees, may be held entitled to assert." (App. at 8a).

The reorganization court then referred to the several cases in which challenges to the constitutionality of the Regional Rail Reorganization Act were pending and noted that one of them, Connecticut General Insurance Corp. v. United States Railway Ass'n, 383 F. Supp. 510 (E.D. Pa. 1974), was scheduled for argument on the next day, October 23, 1974, in the Supreme Court. On December 16, 1974 the Supreme Court held that there was a Tucker Act remedy for "erosion taking," and that in view of this remedy, the Regional Rail Reorganization Act was constitutional. Regional Rail Reorganization Act Cases, 419 U.S. 102, 136, 42 L. Ed. 2d 320, 95 S. Ct. 335 (1974).

It is difficult to follow the reorganization court's second reason for granting an injunction. Certainly there was confusion prior to December 16, 1974, as to whether the Regional Rail Reorganization Act eliminated or left intact whatever remedy the Tucker Act provides for "erosion taking." Prior to that date, the three-judge district court in Connecticut General, supra, had held that there was no such remedy, while the Special Court created under § 209(b) of the Regional Rail Reorganization Act had decided just the opposite. In re Penn Central Transportation Co., 384 F. Supp. 895 (Spec. Ct. 1974). An opinion by the Court of Claims on the existence or scope of a Tucker Act remedy for an "erosion taking" would have been for the Supreme Court ...


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