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Penn Central Transportation Co.

decided: January 11, 1979; As Amended February 8, March 1, 1979.

PENN CENTRAL TRANSPORTATION COMPANY, DEBTOR JOSEPH A. SCHAFER, WHITNEY W. IRONS, ALTON P. GAINER, EMIL MILAN, CAROL KUCHAR, LEO SUKALA, STEPHEN SLOBODA, CHARLES W. HANNON, AND PHILIP MORTON, APPELLANTS (APPEAL FROM D.C. ORDER NO. 3455) APPELLANTS (APPEAL FROM D.C. ORDERS NOS. 3707 AND 3708) IN THE MATTER OF PENN CENTRAL COMPANY, DEBTOR. JOSEPH A. SCHAFER, WHITNEY W. IRONS, ALTON P. GAINER, EMIL MILAN, CAROL KUCHAR, LEO SUKALA, STEPHEN SLOBODA, CHARLES W. HANNON, AND PHILIP MORTON, APPELLANTS (APPEAL FROM D.C. ORDERS OF 10/10/78 AND 10/12/78).


ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA D.C. Nos. B-70-347 and B-76-1469 In Bankruptcy

Before Aldisert, Gibbons and Higginbotham, Circuit Judges.

Author: Higginbotham

Opinion OF THE COURT

There are 150,000 shareholders in the Penn Central Company of which only nine have appealed from certain orders concerning two bankruptcy proceedings: the reorganization of the Penn Central Transportation Company pursuant to section 77 of the Bankruptcy Act, 11 U.S.C. § 205, and the arrangement of the Penn Central Company pursuant to Chapter XI, 11 U.S.C. § 701 Et seq. For the reasons given below we will dismiss certain appeals because of the appellants' lack of standing and will affirm those orders from which valid appeals were taken. Other challenges to the Penn Central Transportation Company's Plan of Reorganization are dealt with in Judge Aldisert's opinion in In re Penn Central Transportation Co., 596 F.2d 1154 (3d Cir. 1979) and in Judge Gibbons' opinion in In re Penn Central Transportation Co., 596 F.2d 1102 (3d Cir. 1979).

Until 1969, the Penn Central Railroad was operated by a company named the Penn Central Company. In that year the stockholders approved a reorganization of the Penn Central Company through which the common stock of the Penn Central Company was exchanged, on a one-for-one basis, for the common stock of a holding company. The old Penn Central Company, now a wholly owned subsidiary of the holding company, changed its name to the Penn Central Transportation Company and the holding company took the name Penn Central Company. The reorganization was accomplished to facilitate consolidation of the railroad business as well as diversification into non-railroad enterprises.

The Penn Central Company (PCC) and a wholly owned subsidiary, Penn Central International N.V., are debtors-in-possession in a proceeding pursuant to Chapter XI of the Bankruptcy Act. That proceeding is under the supervision of Chief Judge Joseph S. Lord, III of the United States District Court for the Eastern District of Pennsylvania. The Penn Central Transportation Company (PCTC) is undergoing reorganization pursuant to section 77 of the Bankruptcy Act, 11 U.S.C. § 205. The crucial interdependence of the PCC's Chapter XI arrangement proceedings and the PCTC's section 77 reorganization proceedings will become apparent in the course of this opinion.

Order No. 1 of the PCTC reorganization under section 77 was filed on June 21, 1970. The Trustees of the PCTC first submitted their plan of reorganization in July of 1973. On March 9, 1978, after extensive hearings and numerous compromises, the reorganization court approved the amended plan of reorganization proposed by the PCTC's Trustees. See In re Penn Central Transportation Co., 458 F. Supp. 1234 (E.D.Pa.1978) (hereinafter referred to as Approval Opinion). On August 17, 1978, following approval of the plan by creditors and stockholders pursuant to section 77(e), the reorganization court entered an order confirming the plan and also ordered that the plan be consummated on October 24, 1978. See In re Penn Central Transportation Co., 458 F. Supp. 1364 (E.D.Pa.1978) (hereinafter referred to as Confirmation and Consummation Opinion).

On July 22, 1976, PCC filed its petition for arrangement under Chapter XI. Its petition to remain in possession and continue operations was granted on August 16, 1976. On August 10, 1976, it received the permission to employ counsel. On March 16, 1978, the PCC filed its plan of arrangement in the Chapter XI proceedings. On April 21, 1978, the Chapter XI Court granted PCC permission to vote in favor of the PCTC Plan of Reorganization that the reorganization court had approved. On July 27, 1978, the appellants filed a complaint before the Chapter XI Court seeking to set aside PCC's vote in favor of the plan and to enjoin the PCC from taking any steps to consummate either the PCTC plan of reorganization or the PCC plan of arrangement without the consent of PCC's shareholders. Appellants also sought an order requiring the holding of a meeting of PCC shareholders. The Chapter XI Court granted summary judgment against the appellants on August 16, 1978. On August 21, 1978, the Chapter XI Court confirmed PCC's plan of arrangement. Appellants appealed the orders confirming the PCC arrangement and granting summary judgment against them to the district court supervising the Chapter XI proceedings. The district court affirmed the granting of summary judgment on October 10, 1978 and the confirming of the plan of arrangement on October 12, 1978.

Appellants are nine shareholders of the Penn Central Company. They are appealing from the orders of the Chapter XI Court approving the plan of arrangement and granting summary judgment against them on their complaint filed in that court. They are also appealing from the reorganization court's orders that approved the plan of reorganization, confirmed the plan and ordered consummation of the plan. A motion to stay consummation of the PCTC plan was denied by this court on October 17, 1978. We will discuss first the appeals from the reorganization court's orders and then the appeals from the orders of the Chapter XI Court.

APPEALS FROM THE ORDERS OF THE REORGANIZATION COURT

The Trustees of the PCTC have moved to dismiss the appeals from the reorganization court's orders by the nine PCC shareholders here on the ground that they lack standing in that they are not shareholders or creditors of the PCTC. We agree with the Trustees that appellants have no standing to press these appeals.

As this court has stated in an earlier appeal in this reorganization proceeding, "the standing of a participant to a railroad reorganization to appeal from an order of the reorganization court turns on whether Section 77(c) (13) of the Bankruptcy Act, 11 U.S.C. § 205(c)(13) (1964), grants him a right to be heard." In re Penn Central Transportation Co., 455 F.2d 811, 815 (3d Cir.), Cert. denied, 407 U.S. 915, 92 S. Ct. 2440, 32 L. Ed. 2d 690 (1972) (footnote omitted).

Section 77(c)(13) provides in relevant part:

The debtor, any creditor or stockholder, or the duly authorized committee, attorney or agent of either or the trustee or trustees of any mortgage, deed of trust or indenture pursuant to which securities of the debtor are outstanding, shall have the right to be heard on all questions arising in the proceedings, and, upon petition therefor and cause shown, any such person or any other interested party may be permitted to intervene. The judge may, after hearing, make reasonable rules defining the matters upon which notice shall be given to other than interveners and the manner of giving such notice.*fn1

Appellants have not sought to intervene below. The reorganization court has previously denied intervention to other PCC shareholders and we have upheld that denial. See In re Penn Central Transportation Co., 328 F. Supp. 1273 (E.D.Pa.1971), Aff'd per curiam, 455 F.2d 976 (3d Cir.), Cert. denied, 407 U.S. 915, 92 S. Ct. 2440, 32 L. Ed. 2d 690 (1972). Failure to seek intervenor status would not, however, be fatal to this appeal if appellants had a right to be heard in the proceedings below. In re Penn Central Transportation Co., 455 F.2d 811, 815 n. 11 (3d Cir.), Cert. denied, 407 U.S. 915, 92 S. Ct. 2440, 32 L. Ed. 2d 690 (1972). Appellants, however, did not have the right to be heard below.

Appellants are stockholders of the PCC, not the debtor PCTC.*fn2 This court faced a similar issue when bondholders of a creditor of the PCTC sought to appeal a reorganization court order authorizing the sale and lease of certain of the PCTC's property. The court held that the bondholders lacked standing to appeal stating, "The relevant language of the Bankruptcy Act indicates . . . that Congress did not intend that those with simply a derivative interest in a railroad reorganization proceeding have a right to be heard and to appeal. See Callaway v. Benton, 336 U.S. 132, 139, 69 S. Ct. 435, 93 L. Ed. 553 (1949); Boston & Providence Railroad Stockholders Development Group v. Smith, 333 F.2d 651 (2d Cir. 1964)." In re Penn Central Transportation Company, 455 F.2d 811, 816 (3d Cir.), Cert. denied, 407 U.S. 915, 92 S. Ct. 2440, 32 L. Ed. 2d 690 (1972). Appellants, as shareholders of a ...


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