The opinion of the court was delivered by: DEBEVOISE
This is an action brought by a taxpayer, the Delaware & Bound Brook Railroad Company (D&BB) by its escrow agents, Richard Drayton, John R. Saverteig and Sydney G. Stevens, to obtain a refund of income tax from the United States. The government seeks to dismiss the complaint, and plaintiff has cross-moved for summary judgment. These motions are now before the court.
Statement of Facts and Procedural History
Pursuant to a provision of the Regional Rail Reorganization Act of 1973, 45 U.S.C. § 743(b), all of D&BB's rail properties were conveyed to Conrail on April 1, 1976. Although D&BB itself was solvent, it was affected by the Act because, in May 1879, it had leased all of its rail and nonrail properties to the Reading Company for a period of 990 years. The Reading Company had, several years before the enactment of the 1973 Rail Act, filed a petition for reorganization and thus was one of the bankrupt railroads to be reorganized into Conrail. The Act provided that railroads not in reorganization that were leased, operated and controlled by a railroad in reorganization were to convey their rail properties to Conrail. 45 U.S.C. Section 716(d).
Pursuant to 45 U.S.C. Section 743(a), Conrail deposited Conrail securities and certificates of value issued by the United States Railroad Association (USRA) with a special court, as compensation for D&BB's properties. The certificates were guaranteed by the Secretary of Transportation, under 45 U.S.C. Section 746(a), and subject to redemption at a later date, pursuant to 45 U.S.C. Section 746(c). The statute provided that the certificates were to be redeemed at "base value" by USRA on a date specified by it, after the special court had decided issues of valuation and compensation. Section 746(c) (4) sets forth the formula for computing the base value of each certificate of value. That formula is:
(a) The net liquidation value of a transferor's properties as of April 1, 1976 (net liquidation value to be determined by the special court); minus
(b) "other benefits" provided to a transferor under the 1973 and 1976 Acts; plus
(c) "compensable unconstitutional erosion" suffered by a transferor as a result of the 1973 and 1976 Rail Acts; plus
(d) interest from April 1, 1976 at the rate of 8% per annum, compounded annually; divided by
(e) the number of certificates issued to the transferor.
See also In the Matter of the Valuation Proceedings Under Sections 303(c) and 306 of the Regional Rail Reorganization Act, 425 F. Supp. 266, 276 (Special Court 1976).
The D&BB properties were assigned a net liquidation value by USRA in its Final System Plan. That value, however, was not accepted by D&BB which prosecuted the valuation issue before the special court. Malyska Aff. paras. 11, 12. At around the same time, D&BB and the Reading Company entered into an agreement resolving their disagreement as to their respective shares of the compensation to be obtained through the valuation litigation. The agreement, dated April 1, 1976, included a formula for allocating any compensation paid to D&BB for its rail properties transferred to Conrail. Malyska Aff. paras. 13, 14.
On August 13, 1981, the Omnibus Budget Reconciliation Act of 1981 amended existing law by eliminating Conrail securities as a payment medium and by directing that for purposes of computing the amount for which certificates of value were ...