FRIENDLY, Presiding Judge:

We have here a number of appeals from orders of district courts under the second sentence of § 207(b) of the Regional Rail Reorganization Act of 1973 (generally hereafter the Act), 87 Stat. 985 (1974), which subsection we quote in its entirety in the margin. The district courts made the orders in the reorganization proceedings under § 77 of the Bankruptcy Act which were before them. Appendix A to this opinion lists the various appellants and appellees and counsel for them.

In the first five cases in the caption — those dealing with the Penn Central, the Penn Central secondary debtors, the Lehigh Valley (LV), the Central Railroad of New Jersey (CNJ), and the Lehigh Hudson River Railway (LH) — the respective judges concluded that the Act "does not provide a process which would be fair and equitable to the estate of the railroad in reorganization. . . ." In the cases of the Reading and the Ann Arbor, Judge Ditter in the District Court for the Eastern District of Pennsylvania and Judge Pratt in the District Court for the Eastern District of Michigan took a contrary view and ordered that reorganization should proceed under the Act.

Broadly speaking, the parties who are appellants in the first five cases — the United States, the Interstate Commerce Commission, the United States Railway Association (USRA), and railroad labor organizations — are appellees in the last two, whereas creditor and stockholder interests support the orders in the first five cases and attack those in the Reading and Ann Arbor proceedings. The Penn Central trustees support the Act only if the Supreme Court rules that a remedy under the Tucker Act is available. See Parts VII and VIII infra. In two other § 77 proceedings which the Judicial Panel on Multi-district Litigation referred to us by its order of March 1, 1974, those concerning the Erie-Lackawanna, in the District Court for the Northern District of Ohio, and the Boston Maine, in the District Court for the District of Massachusetts, the respective judges entered orders under the first sentence of § 207(b), finding that "the railroad is reorganizable on an income basis within a reasonable time under section 77 of the Bankruptcy Act (11 U.S.C. 205) and that the public interest would be better served by continuing the present reorganization proceedings than by a reorganization under this Act." Since these conclusions have not been contested by anyone, the Erie-Lackawanna and Boston Maine cases are not before us. The court wishes to express its appreciation to counsel for their cooperation in limiting the number and size of briefs by allowing most of the major legal issues to be presented in the Penn Central appeal by counsel for the United States and its agencies; the Penn Central Trustees; institutional investors, indenture trustees, certain creditors, and shareholders of the Penn Central; and the New Haven trustee as a large creditor and stockholder of Penn Central.

The Act was a Congressional response to the threat to the national welfare posed by the bankruptcy of the railroads in the northeastern United States we have listed. The most dramatic was the bankruptcy of the Penn Central on June 21, 1970, little more than two years after consummation of its widely heralded merger. These bankruptcies differed from earlier railroad insolvencies in an essential respect. Whereas earlier insolvencies had typically been caused by inability to meet fixed charges or debt maturities, the causes of current railroad bankruptcies in the northeastern region went much deeper; the roads were unable to pay taxes and operating expenses, even with substantial under-maintenance of plant which, in turn, led to revenue losses and increased expense, particularly for freight car hire. Although it was at first believed that the problems of the Penn Central could be overcome within the existing legal framework, early in 1973 the Penn Central Trustees reported to the reorganization court that substantial governmental assistance, later quantified as between $600 and $800 million, was needed to improve Penn Central's plant and equipment in such a manner as to secure the traffic increases on which a successful income-based reorganization would depend. Trustees' Interim Report of February 1, 1973, at 1; Trustees' Interim Report of January 1. 1973. at 2 (submitted to Judge Fullam in In re Penn Cent. Trans. Co., Bky. No. 70-347, (E.D.Pa. 1974)).

Congress thereupon passed a joint resolution, 87 Stat. 5 (1973), directing the Secretary of Transportation to submit within 45 days "a report which provides a full and comprehensive plan for the preservation of essential rail transportation services in the Northeast. . . ." Id. at 6. The Secretary rendered a report on March 26, 1973. In the meantime, however, Judge Fullam had entered an order directing the Penn Central Trustees to file either a plan of reorganization or a proposal for liquidating the road. In re Penn Cent. Transp. Co., 355 F. Supp. 1343 (E.D.Pa., 1974). While acknowledging that "the legislative and executive branches of government must be looked to for solutions" of the problems of Penn Central, id. at 1345, he found those problems to be so severe that "the point of unconstitutionality is fast approaching, if it has not already arrived," id. at 1344, and suggested that it was "highly doubtful that the Debtor could properly be permitted to continue to operate on its present basis beyond October 1, 1973." Id. at 1346. Spurred by Judge Fullam's warning, see House Report at 27, Congress engaged in the extensive consideration which led to passage of the Act.

While the Act is titled a reorganization statute, its drafters acknowledged that the northeastern railroad problem cannot be solved simply by resort to the traditional procedures available under § 77 of the Bankruptcy Act and the Interstate Commerce Act, 49 U.S.C. § 1 et seq. (1970). See House Report at 29. The Act therefore contains provisions, of which more hereafter, designed to eliminate duplicative trackage of one or more railroads and also to permit abandonment of unprofitable mileage without the delays and uncertainties characteristic of proceedings under § 1(18) of the Interstate Commerce Act, to provide governmental assistance in meeting the onerous labor protective conditions imposed by the Interstate Commerce Commission or provided in collective bargaining agreements, to assist in the sale of passenger facilities to the National Railroad Passenger Corporation (Amtrak) or state, local or regional authorities, and to provide funds for rehabilitation and modernization of neglected physical plant and for subsidy of non-economic service. Recognizing the existence of new problems, Congress devised imaginative and innovative solutions, in an endeavor to avoid the national disaster that would result from cessation of the bulk of railroad operations in the northeast.

The basic scheme of the Act is as follows: It relates to railroads in reorganization under § 77 of the Bankruptcy Act in a region defined in § 102(13), which may be generally described as the northeastern United States from the Canadian border on the north to Virginia, West Virginia, and the Ohio River on the south, and from the Atlantic Ocean on the east to Michigan and Illinois on the west. The Act provides for two new entities. One is the United States Railway Association (USRA), a government nonprofit corporation of the District of Columbia. See generally Title II. USRA is vested with powers and duties of three major sorts: One is to develop a "final system plan," § 202(a)(1), determining, inter alia, which rail properties of the bankrupt railroads that are to be reorganized under the Act shall be conveyed to Consolidated Rail Corporation (hereafter described), sold to profitable railroads operating within the region, purchased, leased, or otherwise acquired from the Corporation by Amtrak, purchased or leased from the Corporation by states or public transportation authorities for providing rail passenger service, or devoted to other public purposes; which rail properties of profitable railroads operating in the region may be offered for sale to the Corporation or other profitable railroads operating in the region; and what the consideration will be. § 206(c), (d). The second is authority to issue obligations, not more than $1.5 billion of which shall be outstanding at any one time, guaranteed by the Secretary of Transportation, whose possible uses are described below. § 210. A third is the power to make loans to assist in carrying out the Act. § 211. The other new entity is a for-profit corporation, Consolidated Rail Corporation (Conrail), see generally Title III, established under the laws of a state, which "shall not be an agency or instrumentality of the Federal Government." § 301(b). Conrail is to acquire and operate the rail properties provided for conveyance to it in the "final system plan." § 302(a), (b).

After proceedings here unnecessary to detail, USRA is to submit to Congress a final system plan within 450 days of enactment of the Act. §§ 207(c), 208(a). This shall be deemed approved unless, within 60 calendar days of continuous session of Congress after submission, either house of Congress passes a resolution of disfavor; in that event USRA is to submit a revised plan to which similar procedures apply. § 208(a), (b). The goals of the final system plan, the factors to be considered in its formulation, and its content are described in § 206, which we set out in the margin.

Section 209(c) provides:

Delivery of Plan to Special Court — Within 90 days after its effective date, the Association shall deliver a certified copy of the final system plan to the special court and shall certify to the special court —

(1) which rail properties of the respective railroads in reorganization in the region and of any railroad leased, operated, or controlled by such railroads in reorganization are to be transferred to the Corporation, in accordance with the final system plan;

(2) which rail properties of the respective railroads in reorganization in the region or railroads leased, operated, or controlled by such railroads in reorganization are to be conveyed to profitable railroads, in accordance with the final system plan;

(3) the amount, terms and value of the securities of the Corporation (including any obligations of the Association) to be exchanged for those rail properties to be transferred to the Corporation pursuant to the final system plan, and as indicated in paragraph (1) of this subsection; and

(4) that the transfer of rail properties in exchange for securities of the Corporation (including any obligations of the Association) and other benefits is fair and equitable and in the public interest.

Section 303(a) directs that, within 10 days after the action specified in § 209(c), Conrail shall deposit with this court all of its stock and other securities and obligations of USRA designated in the final system plan to be exchanged for the rail properties to be conveyed to Conrail, and each profitable railroad operating in the region purchasing rail properties of the various bankrupt estates in accordance with the final system plan shall similarly deposit the compensation to be paid by it. Within 10 days after such deposit, this court shall, § 303(b),

(1) . . . order the trustee or trustees of each railroad in reorganization in the region to convey forthwith to the Corporation and the respective profitable railroads operating in the region, all right, title, and interest in the rail properties of such railroad in reorganization and shall itself order the conveyance of all right, title, and interest in the rail properties of any railroad leased, operated, or controlled by such railroad in reorganization that are to be conveyed to them under the final system plan as certified to such court under section 209(d) of this Act.

Section 303(b) further provides:

(2) All rail properties conveyed to the Corporation and the respective profitable railroads operating in the region under this section shall be conveyed free and clear of any liens or encumbrances, but subject to such leases and agreements as shall have previously burdened such properties or bound the owner or operator thereof in pursuance of an arrangement with any State, or local or regional transportation authority under which financial support from such State, or local or regional transportation authority was being provided at the time of enactment of this Act for the continuance of rail passenger service or any lien or encumbrance of no greater than 5 years' duration which is necessary for the contractual performance by any person of duties related to public health or sanitation. Such conveyances shall not be restrained or enjoined by any court.

(3) Notwithstanding anything to the contrary contained in this Act, if railroad rolling stock is included in the rail properties to be conveyed, such conveyance may only be effected if the profitable railroad operating in the region or the Corporation to whom the conveyance is made assumes all of the obligations under any conditional sale agreement, equipment trust agreement, or lease in respect to such rolling stock and such conveyance is made subject thereto; and the provisions of this Act shall not affect the title and interests of any lessor, equipment trust trustee, or conditional sale vendee or assignee under such conditional sale agreement, equipment trust agreement or lease under section 77(j) of the Bankruptcy Act (11 U.S.C. 205(j)).

(4) Notwithstanding anything to the contrary contained in this Act, if a railroad in reorganization has leased rail properties from a lessor that is neither a railroad nor controlled by or affiliated with a railroad, and such lease has been approved by the lessee railroad's reorganization court prior to the date of enactment of this Act, conveyance of such lease may only be effected if the Corporation or the profitable railroad to whom the conveyance is made assumes all of the terms and conditions specified in the lease, including the obligation to pay the specified rent to the non-railroad lessor.

After the conveyances, this court must undertake an extensive process of hearing and decision described in § 303(c), which we set forth in the margin. That decision may be appealed directly to the Supreme Court, which, however, "shall dismiss any such appeal within 7 days after entry of such an appeal if it determines that such an appeal would not be in the interest of an expeditious conclusion of the proceedings and shall grant the highest priority to the determination of any such appeals which it determines not to dismiss." § 303(d).

In addition to these provisions bearing directly on the reorganization process, other important provisions should be mentioned. The Secretary of Transportation is authorized, pending implementation of the final system plan, to pay to the trustees of railroads in reorganization such sums as are necessary for the continued provision of essential transportation services; these are to be "upon such reasonable terms and conditions as the Secretary establishes, except that recipients must agree to maintain and provide service at a level no less than that in effect on the date of enactment of this Act." § 213(a). The sum of $85 million was authorized to be appropriated for this purpose, § 213(b). The Secretary, with approval of USRA, is also authorized, in the period prior to the conveyance to Conrail, to enter into agreements, to be financed by obligations not exceeding $150 million, with "railroads in reorganization" as defined in § 102(12), for the acquisition, maintenance or improvement of railroad facilities and equipment necessary to improve property that will be in the final system plan, § 215; as we read the section, these advances are not debts of the estates of the borrowing railroads, although they must be assumed by Conrail. USRA is also authorized to make loans (or in some instances guarantees of loans) to Conrail, Amtrak, and other railroads in the region (including a railroad in reorganization which has been found to be reorganizable under § 77) for purposes of assistance in the implementation of the final system plan; upon direction by the Secretary, to a state or local or regional transportation authority which has made an offer to purchase any rail properties of a railroad in reorganization under the Act in an amount not exceeding 70% of the purchase price and also to provide additional assistance not to exceed 70% of the cost of restoring or repairing such rail properties to conditions enabling safe and efficient rail transportation; and to a railroad which connects with a "railroad in reorganization" and requires financial assistance to avoid having to invoke § 77. § 211. The Act also has a program, at present limited to two years, for subsidies for continuation of rail service on lines not included in the final system plan. § 402. As much as $90 million may be appropriated for this purpose during each of the two years of the program's operation. § 402(i)(1). Any state taking advantage of the loan program of § 211 with respect to the purchase of rail properties, discussed above, forfeits its right to a continuation subsidy. § 403(a). Conrail, USRA (where applicable), and railroads acquiring operation of railroads in reorganization under the Act are to be reimbursed, in an amount not exceeding $250 million, for the cost of complying with employee protective conditions, § 509; this should contribute to the viability of Conrail and should attract purchasers for properties not to be included in that system. Finally, there are new procedures governing the discontinuance of rail service and abandonment of rail property. § 304.

A three-judge court, convened pursuant to 28 U.S.C. § 2282 and 2284, has entered a declaratory judgment that the Act was unconstitutional, as applied to the Penn Central reorganization, in three respects:

(1) Section 303, insofar as it fails to provide compensation for interim erosion pending final implementation of the final system plan, is in contravention of the Fifth Amendment;

(2) Section 304(f), relating to interim abandonments, violates the Fifth Amendment insofar as it would require continued operation of rail services at a loss in violation of the constitutional rights of owners and creditors;

(3) So much of § 207(b) as requires the reorganization courts to dismiss pending § 77 proceedings under the circumstances set forthin § 207(b) violates the uniformity clause of the Constitution, Art. I, Section 8, Clause 4.

Connecticut General Insurance Corp. v. United States Railway Ass'n, 383 F. Supp. 510 (E.D.Pa. 1974). The case has been appealed to the Supreme Court, with all briefs to be filed by mid-October 1974.

We have concluded that the Act does "provide a process which would be fair and equitable" to the reorganization estates. That conclusion rests, in considerable measure, on our belief, contrary to that of the Connecticut General court, that Congress did not withdraw the ability of parties having a claim that the Act deprives them of a right "founded upon the Constitution" to seek redress in the Court of Claims under the Tucker Act, 28 U.S.C. § 1491 (1970). The Tucker Act issue, however, is before the Supreme Court in the appeal in the Connecticut General case. Because of that and also because, apart from that, our decision on that issue might not have preclusive effect upon the Government, we shall mold our order so as to enable us to make whatever modifications, if any, the Court's decision may render appropriate.

This opinion will consider major issues common to all appeals, although the factual discussion of "erosion" and the "viability" of Conrail will be built primarily on the record in the Penn Central case. We do this since Penn Central comprises some 94% of the operated rail mileage and 87% of the railroad operating revenues of the roads here before us and also because the Penn Central factual record, although by no means wholly satisfactory, comes nearer to being so than those in the other cases. An opinion by Judge McGowan will deal with special issues raised by the appeals as to leased lines which are secondary debtors in the Penn Central proceedings. Judge Thomsen's opinion will discuss special considerations raised in other appeals. All of us join in all three opinions.

I. JURISDICTION.

The New Haven trustee, a large holder of divisional mortgage bonds and stock of Penn Central and also a creditor for the substantial amount of consideration for the New Haven remaining unpaid when Penn Central entered § 77, see New Haven Inclusion Cases, 399 U.S. 392, 483-489, 90 S.Ct. 2054, 26 L.Ed. 2d 691 (1970), mounts a number of challenges to our jurisdiction. These are as follows:

The first claim is that the 180-day order does not constitute a decision of a case or controversy because § 207(b) of the Act has no requirement for adversary pleadings. Such lack of adversary pleadings is scarcely unprecedented in bankruptcy. To cite one example, a court may dismiss a petition under Chapter X of the Bankruptcy Act if not satisfied that the petition has been filed in good faith, § 141, although no one has asked it to do so. The court may also approve the petition ex parte, "a judicial determination of law and fact," 6 Collier on Bankruptcy, ¶ 6.02 at 1001 (Moore ed. 1971). In these cases it was reasonable to expect that USRA and perhaps other parties would support reorganization under the Act while others would oppose. Cf. Fong Yue Ting v. United States, 149 U.S. 698, 729, 13 S.Ct. 1016, 37 L.Ed. 905 (1893) (deportation hearing); Tutun v. United States, 270 U.S. 568, 575, 577, 46 S.Ct. 425, 70 L.Ed. 738 (1926) (naturalization hearing). To say that there was a live controversy, see Aetna Life Ins. Co. v. Haworth, 300 U.S. 227, 240-241, 57 S.Ct. 461, 81 L.Ed. 617 (1937); Goosby v. Osser, 409 U.S. 512, 516-517, 93 S.Ct. 854, 35 L.Ed.2d 36 (1973), in each of these cases would be something of an understatement. If more were needed, the § 77 proceedings, in which all the orders here sub judice were entered, themselves constitute the necessary case or controversy. See Burco, Inc. v. Whitworth, 81 F.2d 721 (4th Cir.), cert. denied, 297 U.S. 724, 56 S.Ct. 670, 80 L.Ed. 1008 (1936).

The trustee next claims that the Act contravenes Article III because the finding in clause (1) of the third sentence of § 207(b) "and that the public interest would be better served by such a reorganization [under § 77] than by a reorganization under this Act" is legislative rather than judicial. It is argued that the district courts had no jurisdiction to make such a finding and, consequently, we have no jurisdiction to review it. Cf. Mitchell v. Maurer, 293 U.S. 237, 55 S.Ct. 162, 79 L.Ed. 338 (1934). As the cases stand, the only ones where anything turned on such a finding were those of the twelve Penn Central secondary debtors which Judge Fullam found to be reorganizable on an income basis under § 77 but concerning which he was unable to find that the public interest would be better served thereby. See Judge McGowan's opinion. In all other cases the district court found that the road was not reorganizable under § 77 and these findings are beyond successful challenge; there was therefore no occasion for it, or for us, to consider whether reorganization under § 77 would better serve the public interest.

The question whether a given decision is legislative or judicial is not susceptible of solution by a litmus paper test. Admittedly the Act does not in terms set out what criteria the judge should apply. But each district judge was familiar with the course of the proceedings under § 77, with the problems that would be faced in endeavoring to continue thereunder, with the important benefits potentially afforded by the Act, and also with its problems. We do not see why the decision whether it was better to proceed under § 77 or under the Act was any more legislative than a decision under § 328 of the Bankruptcy Act that a proceeding under Chapter XI "should have been brought under Chapter X of this Act," an issue which the Supreme Court has thrice implicitly determined that an Article III court could properly decide. SEC v. U.S. Realty Improvement Co., 310 U.S. 434, 60 S.Ct. 1044, 84 L.Ed. 1293 (1940); General Stores Corp. v. Shlensky, 350 U.S. 462, 76 S.Ct. 516, 100 L.Ed. 550 (1956); SEC v. American Trailer Rentals Co., 379 U.S. 594, 85 S.Ct. 513, 13 L.Ed.2d 510 (1965). The type of decision required also does not seem essentially different from that demanded under Fed.R.Civ.P. 23(b)(3) whether "a class action is superior to other available methods for the fair and efficient adjudication of the controversy." Several provisions of § 77 require the reorganization court to make determinations of the public interest. See § 77(c)(6) (lessor's duty to operate upon rejection of lease); § 77 ( o) (abandonment or sale of lines); In re Boston Maine Corp., 455 F.2d 1205 (1st Cir. 1972) (application of § 77( o)). The power of the courts to apply similarly broad standards has repeatedly been sustained, United Steelworkers of America v. United States, 361 U.S. 39, 80 S.Ct. 1, 4 L.Ed.2d 12 (1959); United States v. First Nat'l City Bank, 386 U.S. 361, 87 S.Ct. 1088, 18 L.Ed.2d 151 (1967). See also Wright v. Vinton Branch of Mountain Trust Bank, 300 U.S. 440, 462 n. 6, 57 S.Ct. 556, 81 L.Ed. 736 (1937). As intimated in Hart Wechsler, The Federal Courts and the Federal System 237-38 (2d ed. 1973), we think these decisions, as well as Federal Radio Comm'n v. Nelson Bros. Co., 289 U.S. 266, 53 S.Ct. 627, 77 L.Ed. 1166 (1933), have drained all vitality from Federal Radio Comm'n v. General Electric Co., 281 U.S. 464, 50 S.Ct. 389, 74 L.Ed. 969 (1930), which is relied on by counsel for the Penn Central Secondary Debtor Indenture Trustees, who also raise the point here under discussion.

The New Haven trustee also argues that we are being asked to render an advisory opinion because if we find the Act in part defective Congress may repair it, whereas if we hold the Act constitutional on the grounds that it leaves creditor and stockholder interests free to sue the United States under the Tucker Act for any deficiency in compensation or for unconstitutional erosion, Congress subsequently may eliminate that remedy.

The former possibility is in no way troubling. A decision condemning the present statute would not be deprived of effect by Congress' taking steps to meet the court's objections. as it has frequently done. See, e.g., the amendment of the Frazier-Lemke Act, sustained in Wright v. Union Central Life Ins. Co., 311 U.S. 273, 61 S.Ct. 196, 85 L.Ed. 184 (1940), in order to overcome the defects that had led to condemnation of the act of June 28, 1934, 48 Stat. 1289, in Louisville Joint Stock Land Bank v. Radford, 295 U.S. 555, 55 S.Ct. 854, 79 L.Ed. 1593 (1935). McGrath v. Kristensen, 340 U.S. 162, 71 S. Ct. 224, 95 L.Ed. 173 (1950), seems sufficient to dispose of the trustee's second suggestion. See generally Hart Wechsler. The Federal Courts and the Federal System, Note on the Court of Claims and the Problem of Legislative Revision 98 (2d ed. 1973).

Another contention raised by the New Haven trustee is that we are somehow deprived of jurisdiction because Congress passed the Act in the face of a pending motion by the trustee to dismiss the Penn Central reorganization proceeding under § 77(g). But Congress did not purport to strip the reorganization court of power to decide the motion; it simply created new legislation which might lead that court to consider it the part of wisdom not to decide the motion until the feasibility of proceeding under the new Act had been explored and then to render a decision consistent with the result of that exploration. We know of no principle whereby the making of a motion in a pending case can strip the Congress of its power to enact legislation creating an alternative solution which the court might deem worthy of consideration. Cf. Pennsylvania v. Wheeling Belmont Bridge Co., 18 How. (59 U.S.) 421, 15 L.Ed. 435 (1855).

Finally the New Haven trustee contends that the last sentence of § 207(b) prohibiting review of our decisions on appeals from the 180-day orders deprives us of jurisdiction. Much of the learned discussion, including extensive quotations from Professor Henry M. Hart, Jr.'s remarkable article, The Power of Congress to Limit the Jurisdiction of Federal Courts: An Exercise in Dialectic, 66 Harv.L.Rev. 1362 (1953), falls by the wayside in light of the possibility f obtaining Supreme Court review of the constitutionality of the Act by appeal from the decision of the three-judge court in the Connecticut General case, see generally Choper, The Supreme court and the Political Branches: Demcratic Theory and Practice, 122 U.Pa.L.Rev. 810, 852-55 (1974), unless the trustee is justified in fearing that because the Act requires us to render our decision before the Supreme Court will have heard the Connecticut General appeal, our judgment may have a preclusive effect on the Court — an issue discussed in Part II B below. In any event unconstitutionality of this provision would not have the effect of depriving us of jurisdiction; it would simply entitle the Supreme Court to disregard this limitation if its appellate jurisdiction were invoked.

II. COLLATERAL ESTOPPEL.

We deal here with two issues in the law of judgments which Congress could hardly have expected to arise.

A. The effect upon this court of the decision of the three-judge court in the Connecticut General case.

Several opponents of the Act contend that the decision of the three-judge court in the Connecticut General case has preclusive effect upon this court with respect to the three issues there decided and other points on which the court necessarily ruled in reaching those conclusions. The argument runs as follows: Collateral estoppel normally applies to issues of law as well as to issues of fact. ALI, Restatement of Judgments 2d § 68 (Tent.Draft No. 1, March 28, 1973). But see Vestal, Res Judicata/Preclusion 250 (1969). And "[t]he federal rule is that the pendency of an appeal does not suspend the operation of an otherwise final judgment as res judicata or collateral estoppel, unless the appeal removes the entire case to the appellate court and constitutes a proceeding de novo," 1B Moore, Federal Practice § 0.416 [3] at 2252 (1974), citing many cases; ALI, Restatement of Judgments 2d § 41f at 5-6 (Tent.Draft No. 1, March 28, 1973), although, of course, the matter may be reopened if there is a reversal. The conclusions of the three-judge court allegedly thus preclude relitigation in the Penn Central and Penn Central secondary debtor cases by USRA, the United States, the Interstate Commerce Commission, and the Penn Central trustees, each of whom was a party to the Connecticut General case, of issues there decided. Furthermore, under the rationale of Blonder-Tongue Laboratories, Inc. v. University of Illinois Foundation, 402 U.S. 313, 91 S.Ct. 1434, 28 L.Ed.2d 788 (1971), these parties would also be precluded from relitigating those issues in any other case.

We believe it would be wrong for this court to refuse to consider relevant issues of law simply because they were also decided by the Connecticut General court. There are many parties — labor organizations and public bodies — supporting the validity of the Act who were not parties to that case, and we perceive no basis for use of collateral estoppel against them. See Blonder-Tongue Laboratories, Inc. v. University of Illinois Foundation, supra, 402 U.S. at 329, 91 S.Ct. 1434. Moreover, Congress envisioned a special role for this court which, in contrast to the Connecticut General court, can look at all the proceedings rather than only at one, and has available more ample factual records. We do not think Congress intended that in the cases which it put before us, raising issues of such major public importance, our review of the decisions of the district courts under the second sentence of § 207(b) should be trammeled by the decision of another court, although we, of course, treat its ruling with respect. Compare Denver Build. Constr. Trades Council v. NLRB, 87 U.S.App.D.C. 293, 186 F.2d 326, 330-32 (1950), rev'd on other grounds, 341 U.S. 675, 71 S.Ct. 943, 95 L.Ed. 1284 (1951).

B. The effect of our decision on Supreme Court review of the Connecticut General case.

We have already referred to the fear, expressed by the New Haven trustee, that our judgment, which the final sentence of § 207(b) expressly makes unreviewable, might preclude a contrary ruling by the Supreme Court on the appeal in the Connecticut General case. We feel certain that it will not. Any decision by this court is essentially interlocutory — either allowing reorganization to proceed under the Act or requiring further action in the proceedings under § 77. Although finality in the sense of 28 U.S.C. § 1291 is not always required for issue preclusion, see Lummus Co. v. Commonwealth Oil Refining Co., 297 F.2d 80, 87-90 (2d Cir. 1961), cert. denied, 368 U.S. 986, 82 S.Ct. 601, 7 L.Ed.2d 524 (1962); Zdanok v. Glidden Co., 327 F.2d 944, 955 (2d Cir.), cert. denied, 377 U.S. 934, 84 S.Ct. 1338, 12 L.Ed.2d 298 (1964); ALI Restatement of Judgments 2d, § 41g, at 6-7, the circumstances here would dictate strongly against reliance on that principle so as to preclude decision on the issues in Connecticut General by the highest court in the land. As we have recently seen, great cases often demand departures from procedural rules which serve a useful purpose in the ordinary run of litigation but would lead to an unjust result in the case at hand. United States v. Nixon, 418 U.S. 683, 94 S.Ct. 3090, 41 L.Ed.2d 1039 (1974) (refusing to apply general rule that the denial of a motion to quash a subpoena is not appealable unless the person subpoenaed subjects himself to contempt). Similarly, while the rule that there can be no preclusion where "[t]he party against whom preclusion is sought could not, as a matter of law, have obtained review of the judgment by an appellate court in the initial action . . . .", ALI, Restatement of Judgments 2d, supra, § 68.1(a), does not generally require a second appellate review, the issues here are of such importance that the inability to secure Supreme Court review of our decision should prevent its having preclusive effect on that Court. While the provision of § 207(b) requiring us to render our decision within 80 days after appeals have been taken renders it infeasible for us to stay these proceedings pending a Supreme Court decision, as suggested by some of the parties and in the amicus brief of the New York State Department of Transportation, we shall mold our judgment so that we can reflect any changes appropriate in light of the Court's determination. We also state, for whatever bearing it may have, that the last thing we have in mind is to impair in any way the Court's freedom of action in the Connecticut General appeal.

III. THE REQUIREMENT OF UNIFORMITY

Article I, § 8, Clause 4 of the Constitution empowers the Congress

To establish a uniform Rule of Naturalization, and uniform laws on the subject of Bankruptcies throughout the United States:

The purpose behind the grant of the bankruptcy and naturalization powers was to enable the new central government to eradicate the opportunities for fraud and forum-shopping engendered by varying state insolvency and naturalization laws, see The Federalist No. 42, at 308 (Law ed. 1961); Story, Commentaries on the Constitution, § 1109 (1833). It was thus rather natural for the framers to suggest that an important advantage of federal supersession would lie in uniformity. While the primary reason for use of this adjective was very likely promotional rather than normative, we agree that in giving the bankruptcy power to Congress the framers intended to prevent its use in a manner that would in some degree continue the evils it was meant to end. That, however, is a long way from construing the adjective so as to hobble Congress by forcing it into nationwide enactments to deal with conditions calling for remedy only in certain regions. Such appears to be the clear intimation of Wright v. Vinton Branch of Mountain Trust Bank, 300 U.S. 440, 463 n. 7, 57 S.Ct. 556, 81 L.Ed. 736 (1937), upholding a provision in the amended Frazier-Lemke Act permitting bankruptcy courts to determine whether the Act should continue to apply in particular localities. See also Hanover Nat'l Bank v. Moyses, 186 U.S. 181, 189-190, 22 S.Ct. 857, 46 L.Ed. 1113 (1902).

However, we are not required to rest our decision on such considerations. The uniformity required by Article 1, § 8, Clause 4, is geographical, not temporal. Cf. Hanover Nat'l Bank v. Moyses, supra. If the Act had been written to apply only to railroads that were in proceedings for reorganization under § 77 on the date of its enactment, objection on the ground of lack of uniformity would not have been even arguable. While the Act does not say in ipsissimis verbis that it applies only to such railroads, § 207(b) and the elaborate timetable provided in the Act make plain that such was the intent of Congress. Every such railroad was within the region defined in § 102(13) of the Act, with the single exception of the Tennessee Central Railroad Company; this small railroad has not operated since August 31, 1968, substantially all of its lines have been sold to other railroads, and the only unresolved questions concern the distribution of certain funds still retained by the railroad. See In re Tennessee Central Ry., 304 F. Supp. 789 (M.D.Tenn. 1969). Clearly the Tennessee Central is not a candidate for reorganization under the Act. Even if it were, the uniformity clause would not be offended by a statute dealing only with railroads in § 77 proceedings at the time of its enactment whose rail lines and other properties were then in operation. Yet such a statute would have had precisely the same inclusions and exclusions as the Act. The only provision in the Act that would have required change if the statute had been drafted in either of the ways we have suggested is § 206(c)(1)(B), providing that an offer of rail properties for sale may be made only "to a profitable railroad operating in the region . . . ." But if Congress had worded the statute in either of the forms discussed, the commerce power would have permitted it, despite the uniformity clause, to limit sales to railroads whose operations were in the general geographical area served by the seller, in order to minimize the disruption of competitive balance elsewhere. Since what Congress did was not in violation of the Constitution, we decline to hold its action to have constituted a breach of the uniformity clause simply because it used words readily intelligible to its members and the public rather than circumlocutions that would have had exactly the same effect.

IV. FAIR AND EQUITABLE PROCESS — GENERAL CONSIDERATIONS

The task set for us by Congress is to review the decisions of the reorganization courts that the Act does not or, as held in the Reading and Ann Arbor cases, does "provide a process which would be fair and equitable to the estate of the railroad in reorganization . . . ."

A few conclusions emerge rather clearly and rapidly from the statutory text. We are free, indeed bound, to look down the road, without the same concern for considerations of prematurity or ripeness that would be material in other contexts. If the process in its present or future operation is unconstitutional, we must, of course, condemn it unless the unconstitutional provision can be properly excised under the separability clause, § 604. Beyond this, however, a process not condemned by the Constitution still may not be "fair and equitable."

At this point agreement ceases. Some parties have suggested that courts must look at the process without regard to the facts. We do not believe Congress intended this; in any event we find such a feat beyond our capacities. The parties also differ over how our telescope should be tilted. The Government parties say that, since Congress presumably did not intend to do anything unfair or inequitable, Brief of Appellants at 45-50, In re Penn Central Transp. Co., No. 74-8 (joint brief for Nos. 74-8, 74-12, 74-11, 74-6, 74-10) (hereinafter cited as Appellants' Joint Brief), we should sustain the Act notwithstanding any doubts about the ultimate viability of Conrail. Id. at 62 n. 105, 76. Others, especially the investors, say that, if there is any significant possibility that the Act might operate so as to deprive them of legal rights, we must condemn it since, as they also argue, there will be no later opportunity for us or anyone else to do this within the Act's framework. Joint Brief of Certain Appellees at 85-91, In re Penn Central Transp. Co., No. 74-8 (hereinafter cited as Appellees' Joint Brief).

The correct view must lie between these extremes. Congress cannot be held to a standard of perfection which few institutional arrangements could pass. Indeed, there is a certain incongruity between the high demands which the investors make of the Act and the unhappy position they, or in any event most of them, occupied when it was enacted. The idea that billions of dollars of liquidation proceeds of these bankrupt railroads are lurking just around the corner is unrealistic in the last degree. On the other hand, it can hardly suffice that the Act might provide fair treatment under optimum conditions which are very unlikely to occur. This is true even on our view with respect to the ultimate applicability of the Tucker Act. If, as the investors assert, the outcome of proceedings under the Regional Rail Reorganization Act were certain to be that, after much further "erosion," they would be handed a package of essentially worthless Conrail securities and then have to sue in the Court of Claims, it would scarcely be fair and equitable, even though it might be constitutional, to make them wait many years or their due. We therefore think it necessary and desirable to discuss the main complaints of the opponents on heir merits and not rest entirely on our view of the applicability of the Tucker Act.

One minor complaint which may be dismissed here and now is the attack on the following provision of § 207(b), see note 1 supra:

Because of the strong public interest in the continuance of rail transportation in the region pursuant to a system plan devised under the provisions of this Act, each such court shall order that the reorganization be proceeded with pursuant to this Act unless it (1) has found that the railroad is reorganizable on an income basis within a reasonable time under section 77 of the Bankruptcy Act (11 U.S.C. 205) and that the public interest would be better served by such a reorganization than by a reorganization under this Act, or (2) finds that this Act does not provide a process which would be fair and equitable to the estate of the railroad in reorganization. . . .

Some of the opponents complain that the language in this provision, combined with the difficulties of obtaining or developing certain facts about the ultimate shape of Conrail, the mix of consideration, or the potential profitability of railroads in reorganization, renders the Act "unfair, inequitable and unconstitutional." Brief of Secondary Debtor Indenture Trustees at 19, In re United N. J. R. R. . C. Co. and Other Secondary Debtors of Penn Cent. Transp. Co., No. 74-12. See Appellees' Joint Brief at 114. While this provision creates a presumption in favor of reorganization under the Act, as Judge Fullam correctly recognized below, In re Penn Cent. Transp. Co., 382 F. Supp. 856, 862, supra, mem. op. we fail to see why it is unconstitutional, or unfair and inequitable, for Congress to declare a preference for one mode of reorganization rather than another and to place the burden of persuasion on those who challenge its judgment. This comes nowhere near the "conclusive presumption," which the Supreme Court has recently condemned as violative of the Due Process Clause. See Stanley v. Illinois, 405 U.S. 645, 92 S.Ct. 1208, 31 L.Ed.2d 551 (1972); Vlandis v. Kline, 412 U.S. 441, 446, 452,93 S.Ct. 2230, 37 L.Ed.2d 63 (1973); Cleveland Bd. of Educ. v. LaFluer, 414 U.S. 632, 94 S.Ct. 791, 39 L.Ed.2d 52 (1974).

V. EROSION OF INVESTORS' RIGHTS

A major criticism by opponents of the Act is that, by forcing continued operation at allegedly hopeless losses until the conveyance to Conrail or other carriers of the rail properties included within the final system plan without provision for compensation of those losses, it contravenes the principles laid down in a line of cases beginning with Brooks-Scanlon Co. v. Railroad Comm'n, 251 U.S. 396, 40 S.Ct. 183, 64 L.Ed. 323 (1920), and including Bullock v. Railroad Comm'n, 254 U.S. 513, 41 S.Ct. 193, 65 L.Ed. 380 (1921), and Railroad Comm'n v. Eastern Texas R. R., 264 U.S. 79, 84, 44 S.Ct. 247, 68 L.Ed. 569 (1924). The gist of these cases was compressed in two statements of Mr. Justice Holmes in Brooks-Scanlon, 251 U.S. at 399, 40 S.Ct. at 184:

. . . A carrier cannot be compelled to carry on even a branch of business at a loss, much less the whole business of carriage . . . . If the plaintiff be taken to have granted to the public an interest in the use of the railroad, it may withdraw its grant by discontinuing the use when that use can be kept up only at a loss.

Although the continued vitality of these decisions was challenged in the New Haven Inclusion Cases, the lower courts rejected the attack, see New York, N. H. . H. R. R. First Mortgage 4% Bondholders' Committee v. United States, 289 F. Supp. 418, 440-441 (S.D.N.Y. 1968); In re New York, N. H. H. R. R., 304 F. Supp. 793, 802-804 (D.Conn. 1969), modified and aff'd sub nom. New Haven Inclusion Cases, 399 U.S. 392, 90 S.Ct. 2054, 26 L.Ed.2d 691 (1970); New York, N. H. H. R. R. First Mortgage 4% Bondholders' Committee v. United States, 305 F. Supp. 1049, 1055 (S.D.N.Y. 1969), vacated on other grounds sub nom. New Haven Inclusion Cases, 399 U.S. 392, 90 S.Ct. 2054, 26 L.Ed.2d 691 (1970), and the principle has been recognized in connection with the reorganization of the Penn Central. In re Penn Cent. Transp. Co., 494 F.2d 270, 278-283 (3 Cir.), petition for cert. filed, 42 U.S.L.W. 3633 (U.S. May 8, 1974) (No. 73-1672). While we in no way disagree with the Brooks-Scanlon principle, we think the advocates of the erosion argument, which constituted the principal ground for the Connecticut General decision, have failed to analyze the issue with sufficient precision.

Although the fundamental principle of Brooks-Scanlon remains unimpaired, the right to withdraw the grant has been procedurally qualified in two ways. One is that the reorganization court must be allowed a reasonable time to determine whether management can be improved, the property can be restructured so as to restore its earning power, or a disposition more consistent with the public interest than liquidation can be found. Under the rule of Continental Illinois Nat'l Bank Trust Co. v. Chicago, R. I. P. Ry., 294 U.S. 648, 55 S.Ct. 595, 79 L.Ed. 1110 (1935), where creditors' remedies, the exercise of which might seriously impair formulation of an effective plan of reorganization, were held in abeyance during a period in which the value of the collateral could decline, the estate of a railroad may be made to suffer interim losses for a reasonable period during which a feasible plan of reorganization may be developed. The key finding prerequisite to such postponement of creditors' remedies is the likelihood of successful reorganization, variously described in analogous contexts as "probably feasible" and highly likely. Cf. Central R. R. Co. of N. J. v. Manufacturers Hanover Trust Co., 421 F.2d 604, 606, 608 (3d Cir. 1974); In re Third Avenue Transit Corp. v. Lehman, 198 F.2d 703, 706 (2d Cir. 1952); In re Penn Cent. Transp. Co., supra, 494 F.2d at 276. Opponents of the Act, claiming that Conrail has no prospects of viability and that there are no other means for adequately protecting claimants' rights, conclude that the Act necessarily thereby provides a process which is not fair and equitable to the bankrupt estates. If we were convinced that they were correct on the viability question and if no other procedural consideration intervened, we might be inclined to agree. As we note in the next part, however, the evidence on Conrail's prospects is not so wholly negative as these opponents suggest. There is in any event another and still more pertinent procedural consideration.

This is that liquidation cannot commence until public bodies, acting under statutory authority, have had a reasonable opportunity to consider and act upon the proposed abandonment, as § 77(o) prescribes with respect to the ICC. This is true even when the Constitution requires that a certificate of abandonment must ultimately issue, since such proceedings give other parties, notably public authorities, a final opportunity to come up with plans that may prevent serious injury to the public interest. Such is the teaching of Palmer v. Massachusetts, 308 U.S. 79, 88, 60 S.Ct. 34, 84 L.Ed. 93 (1939) ("[T]he power of the district courts to permit abandonments is specifically conditioned on authorization by the Commission"); New York, N. H. H. R. R. First Mortgage 4% Bondholders Committee v. United States, supra, 305 F. Supp. at 1055 (while railroads with no reasonable hope of future earnings had a constitutional right to cease operations and liquidate, it could not do so until ICC issued abandonment certificate); and finally and most important, the New Haven Inclusion Cases, supra, 399 U.S. at 461, 90 S.Ct. 2054. Such administrative review "assures that an agency with substantial expertise . . . will provide that the appropriate amalgam of public concerns for rail transport and private rights of property is achieved." In re Central R. R. Co. of N. J., 485 F.2d 208, 215 (3d Cir. 1973) (en bane). It follows that the Act does not unconstitutionally erode the rights of the investors except as it may impair the power of the reorganization court, on a proper showing, to direct the trustee to apply for the approvals needed for a cessation of operations or the power of an administrative agency to grant such approval.

The opponents contend that the Act does contain a provision of the latter sort, which makes futile any attempt to move the reorganization courts to authorize discontinuance or abandonment applications. The provision is § 304(f), which reads as follows:

Interim Abandonment. — After the date of enactment of this Act, no railroad in reorganization may discontinue service or abandon any line of railroad other than in accordance with the provisions of this Act, unless it is authorized to do so by the Association and unless no affected State or local or regional transportation authority reasonably opposes such action, notwithstanding any provision of any other Federal law, the constitution or law of any State, or decision or order of, or the pendency of any proceeding before any Federal or State court, agency, or authority.

But for the second "unless" clause, this provision would simply substitute USRA for the ICC as the federal agency authorized to permit abandonments or discontinuance of service under §§ 1(18) and 13a of the Interstate Commerce Act. The Government parties claim that this is precisely the effect and that § 304(f) will facilitate rather than impede abandonments and discontinuances since it substitutes informal action for the evidentiary hearings required by § 1(18) and, to some extent, by § 13a. This is standing the section on its head. While we do read § 304(f) as eliminating any need for approval by the ICC or state agencies and thus facilitating interim abandonment or discontinuance to that extent, see note 34 supra, the standard to be applied by USRA is very strict. Instead of determining whether "the present or future public convenience and necessity permit of such abandonment," § 1(18), or applying the similar standards of § 13a (discontinuance of service), USRA may not permit interim abandonment or discontinuance if any affected state or local or regional transportation authority "reasonably opposes such action." The test is not whether the opposition is sound but whether there is a reasonable basis for it. The rather strict limitation on interim abandonment or discontinuance contained in § 304(f) is a complement of the provision that abandonments and discontinuances of property and service not contained in the final system plan may take effect "notwithstanding any provision of the Interstate Commerce Act (49 U.S.C. 1, et seq.) or the constitution or law of any State or the decision of any court or administrative agency of the United States or any State." § 304(c). Opportunity to speak against such abandonments and discontinuances is confined to provisions in the Act for comments to USRA on the preliminary system plan, § 207(a)(1), for public hearings to be held thereafter by the Rail Services Planning Office, § 207(a)(2), and for Congressional review of the final system plan, § 208(a), during which local interests presumably will be aired. In order to avoid large inroads on the time of USRA as a consequence of abandonment applications in what was conceived as a rather short interim period and especially to prevent the premature arousing of local opposition, Congress confined interim abandonments or discontinuances to those which were not opposed or concerning which opposition would be unreasonable.

On its face such a change in the standards for abandonment or discontinuance for over a year might indeed seem serious. But the issue must be viewed in a practical frame, namely, by comparing the prospects afforded by § 304(f) with those that would have prevailed in its absence. An affidavit filed with us by an attorney for the ICC states that for the year ending June 30, 1973, the average time for handling abandonment applications where an oral hearing was held was 15 months from the date of filing and 11 months from the date when the Commission designated the case for hearing on proof that required local notice, 49 C.F.R. § 1121.5, had been given. Moreover, when Congress passed the Act, the Commission had placed a freeze on all abandonment applications because of the injunction issued in Harlem Valley Transp. Ass'n v. Stafford, 360 F. Supp. 1057 (S.D.N.Y. 1973), subsequently affirmed, 500 F.2d 328 (2d Cir. 1974), requiring the ICC staff to prepare a NEPA impact statement, 42 U.S.C. § 4332(2)(C), prior to the hearing. Although we are advised that the moratorium has now been lifted, the Commission had a backlog of 325 abandonment applications on July 30, 1974, in which NEPA impact statements must be prepared prior to hearing. Penn Central alone had 141 applications pending Commission action. The Commission, we were told, has augmented its staff with environmental experts and formulated new procedures to satisfy Harlem Valley, but the implementation of the new procedures will hardly be without friction. The log jam that would be created by a flood of applications for large scale or total abandonments by the carriers here in question boggles the mind. A statement of the environmental consequences of abandonment of large parts of the Penn Central alone would doubtless rival that for the construction of the Alaska Pipeline, which spread over 6 volumes and cost $9 million to prepare. Wilderness Society v. Morton, 156 U.S.App.D.C. 121, 479 F.2d 842, 846-847 (D.C. Cir.), cert. denied, 411 U.S. 917, 93 S.Ct. 1550, 36 L.Ed.2d 309 (1973). And, unlike the Alaska Pipeline statement, such a statement in a Penn Central abandonment case would become a subject for cross-examination and rebuttal in an evidentiary hearing. See, e. g., Pennsylvania v. United States, 361 F. Supp. 208, 212 (M.D.Pa. 1973). We thus believe that even if abandonment applications had been authorized by the reorganization courts and filed early in 1974, the chance of favorable action by the Commission on any large-scale abandonments within 620 days would have been exceedingly poor. Such force as exists in the erosion argument thus rests primarily on the risk that, due to administrative delays, see notes 38 supra and 73 infra, or to Congressional disapproval of the final system plan, § 208(a), and the theoretically possible infinite regression provided by § 208(b), the period prior to conveyance to Conrail might prove to be much longer.

For such merit as this argument may have, a ready cure would be to hold § 304(f) unconstitutional insofar as it denies the right of access to the ICC and state regulatory agencies, or, if that were not regarded as sufficient, to rule, in the language of the order in Connecticut General, that § 304(f) may not be applied "with respect to any abandonment, cessation or reduction of service which has been or may hereafter be determined by a court of competent jurisdiction to be necessary for the preservation of rights guaranteed by the United States Constitution." Indeed, that gloss has already been superimposed by the Connecticut General order and will remain in effect unless erased by the Supreme Court. We are thus in a situation where there are only two possible outcomes, and authoritative decision between these will likely be made before the year-end. One is that § 304(f) will be ruled not to be unconstitutional; the other is that the Court will enter whatever order is needed to prevent that subsection's operating in an unconstitutional manner. This would seem to mean that § 304(f) cannot pose any problem from the date of the Court's decision and, for the practical reasons already mentioned, we do not believe it will have injured any of the estates in the interval between January 2, 1974, and that date.

We believe, however, that further observations on the erosion problem will be helpful since excision or modification of § 304(f) is not a particularly attractive solution. Much of the discussion by the opponents and the reorganization courts that have condemned the Act on this ground concerns losses and erosion prior to its enactment. This appears to be relevant only in two ways. The first is evidentiary, as providing some basis for predicting future erosion. The other is that the longer erosion has been in process and the greater it has been in amount relative to the value of the estate, the less are the limits that can be tolerated for the future. Opponents of the Act thus did not satisfy their burden merely by showing past losses; they were required to show (1) that there would be significant erosion while the processes of the Act were at work, and (2) that the Act provided no adequate means of compensation.

Since, as indicated above, operation of railroads undergoing § 77 reorganization at an actual loss is a relatively recent phenomenon, it is not surprising that the courts have had little occasion to define just what items constitute unconstitutional "erosion"

There is no disagreement that at least four items qualify for inclusion — the issuance of trustees' certificates with liens superior to those of mortgage bonds, accumulation of property taxes which similarly prime such liens, accumulation of administration expenses which are entitled to priority over secured creditors, and use of cash or property held as security for liens to pay operating expenses. We have not been pointed to convincing evidence in the Penn Central record that any of these developments is likely in the 620 days prior to conveyance on the optimum schedule provided in the Act, in light of the grants for emergency assistance authorized by § 213(a), the provisions of § 215, and the 10% freight rate increase, effective June 5, 1974, authorized in Nationwide Increase of Ten Percent in Freight Rates and Charges, 1974 [Ex parte No. 305], 39 Fed.Reg. 20256 (1974), earmarked for capital improvements and deferred maintenance except as needed for increased material and supply costs other than fuel. An affidavit of Ernest Varalli, employed by the Penn Central Trustees as Assistant Vice President — Budget Planning, submitted at the 120-day hearing, prior to the Ex parte 305 increases, estimated that, through 1975, an additional $118 million in taxes on the Penn Central might accrue. However, this accrual would be more than offset by an increase in freight operating revenues. The income statement submitted by the Penn Central Trustees to the reorganization court for the period January 1 to July 31 shows a substantial improvement for 1974 over 1973, which itself showed a reduction in the annual deficit of net railway operating income from the $236.5 million experienced in 1970 to $92.7 million. Freight railway operating revenues increased by almost 13.5%. Indeed for the month of July 1974, after taking account of tax accruals and equipment hire, there was positive net railway operating income of more than $2.2 million. There was also testimony before Judge Fullam as to the effect of Ex parte 305 on revenues through the first quarter of 1975. Some $88 million in additional revenues would be available through the end of 1974, an additional $42 million during the first quarter of 1975, and presumably at least an equivalent amount during the second. Barring an economic catastrophe, there is thus little likelihood that during 1975 Penn Central will experience any of the four items of erosion we have recognized.

When we go beyond these four items, any semblance of agreement as to what constitutes impermissible erosion ends. The Government parties object strenuously to what they term the income statement method of determining erosion; the investors defend this, although contending that the excess of the results produced by this method over others is not significant. Resolution of the controversy would require, among other things, a determination of the proper method for valuation of the properties to be conveyed to Conrail or other railroads and an estimate of the likely disposition of those not so conveyed. If liquidation value is the proper test, we confront the fact that of the total value of roughly $3.5 billion (excluding the so-called Park Avenue properties in New York City) as of May 30, 1973, found in a report of Day Zimmerman commissioned by the Penn Central Trustees, over $2.6 billion represented land values, which would not be decreased by continued loss operations except for the items previously mentioned. The salvage value of other items will decrease as a result of continued use but not necessarily as much as the depreciation charges. Indeed, the scrap value of some assets, e.g., steel scrap, have increased in recent years considerably more than the overall inflation rate. Moreover, with the beneficial effects of rate increases going beyond cost inflation and of applying such increases and § 215 funds to catch-up maintenance, which are discussed in Part VI, it would not be unreasonable to expect, subject to the important reservations in note 44 supra, that Penn Central could earn, or nearly earn, its depreciation charges in 1975.

The investor interests and the Penn Central Trustees, in addition to challenging much of what has just been said, complain that even income statement erosion does not tell the whole story. Net railway operating income does not reflect any charges for the use of capital (save those in equipment leases), such as interest on funded debt and leased line rentals. Bondholders, they assert, are hurt by long continued refusal to pay for the use of their capital as well as by a decrease in the value of the assets available for repayment; yet no one predicts that Penn Central can resume full payment of interest on debt or of leased line rentals prior to the conveyance to Conrail. Agreeing that deprivation of a return on capital obligations entitled to consideration in a reorganization is a matter of serious concern, we think it can be tolerated somewhat longer than an actual whittling away of asset values by continued operation, so long as there is a reasonable prospect of a successful reorganization.

The upshot of our analysis thus is that, aside from the legal and practical considerations at the beginning of this part, the factual showing of likely unconstitutional erosion subsequent to January 2, 1974, in the Penn Central case was not so strong as would lead us to condemn the Act on that score, even apart from the Tucker Act remedy, if there were fair assurance that the final system plan would be consummated approximately as scheduled and that the investors would receive adequate consideration for properties sold to Conrail. The difficulty is that such assurance does not exist.

The Government parties answer that, apart from a remedy under the Tucker Act or the possible excision or reformulation of § 304(f), this court could compensate for any unconstitutional erosion in the final system plan, either by fixing a valuation date prior to the date of conveyance or by a specific award, § 303(c)(2)(B), or a deficiency judgment against Conrail under § 303(c)(2)(C). The earlier valuation date method would hardly be satisfactory even if permissible, since this would not cure erosion with respect to rail properties that were not conveyed. It would be permissible for the final system plan to provide or for us to direct that compensation for erosion should be made in the case of any railroad some of whose properties are conveyed. However, if, as the opponents urge, the consideration now authorized is inadequate as compensation for the properties themselves, enlarging the amount of claims that may be made against it would be of no avail.

In summary, we think the erosion claims are largely met by the points that, to such extent, if any, as § 304(f) may constitute a problem, this can be eliminated by the Supreme Court before any legally cognizable damage has been done. We think also that, at least for the Penn Central and the Reading, see note 50, the erosion likely during the interim period has been considerably exaggerated, assuming that the conveyance occurs approximately as scheduled. However, reasonably entertained doubts that USRA will be able to meet its prescribed schedule, see note 38 supra, or that Congress may not accept USRA's initial effort would require reformulation or excision of § 304(f) (as imposed, for example, by the Connecticut General court) unless a Tucker Act remedy exists. Given the availability of a Tucker Act remedy, no such action would be necessary. Absent such remedy, on the other hand, we think that the Act would be unconstitutional in any event, for reasons now to be discussed.

VI. THE COMPELLED CONVEYANCE AND THE ADEQUACY OF THE CONSIDERATION

In our view the most serious challenge to the fairness of the Act is this: Section 303 directs that within 10 days after the deposit of the securities and other compensation to be paid under the final system plan, which deposit is to be made within 10 days after delivery to us of a certified copy of the plan, this court shall "order the trustee or trustees of each railroad in reorganization in the region to convey forthwith to the Corporation and the respective profitable railroads operating in the region, all right, title, and interest in the rail properties of such railroad in reorganization and shall itself order the conveyance of all right, title, and interest in the rail properties of any railroad leased, operated, or controlled by such railroad in reorganization that are to be conveyed to them under the final system plan as certified to such court under section 209(d) of this Act." § 303(b)(1). The conveyances are to be "free and clear of any liens or encumbrances," subject to various qualifications set forth in § 303(b)(2), (3) and (4), and "shall not be restrained or enjoined by any court." It is only after making these orders that this court is to engage in the process described in § 303(c). We were horrified to learn that one of the Act's principal advocates had estimated this process as requiring from 5 to 10 years. 119 Cong.Rec. H 9742 (daily ed. Nov. 8, 1973). While we do not mean it to take that long, it will necessarily be time consuming.

At argument counsel for USRA referred to this provision for enabling Conrail to get off to a reasonably quick start as "the genius of the Act." Certainly it is the only mechanism, short of condemnation, that would permit Conrail to begin operation within any reasonable time. Reorganizations under § 77, with the seemingly interminable proceedings before the Commission and the battledore-and-shuttlecock between it and the reorganization courts, have dragged on for years. It was for this reason that Congress rejected the suggestion of the Secretary of Transportation, Letter from Claude S. Brinegar to Hon. Warren G. Magnuson, Nov. 14, 1973, in Sen. Rep. No. 93-601. 93rd Cong., 1st Sess. 133 (1973), U.S. Code Cong. Admin.News 1973, pp. 3242, 3294 [hereinafter cited as Senate Report], that this court should pass on the sufficiency of the consideration before rather than after the conveyances. See Senate Report at 15; House Report at 54-55 ("It is the intent of the Committee [on Interstate and Foreign Commerce] that the rail properties designated in the Final System Plan be conveyed first, and that any and all litigation concerning the amount or type of payment or consideration take place thereafter. The timely implementation of the Final System Plan cannot be obstructed by controversy over the payment for the properties.")

What the supporters find to be genius, the opponents consider to be evil genius. They assert that, except for eminent domain, there is no precedent for a regime of conveying first and valuing later. And they regard the exception as furnishing no support for the Act since it rests on the assurance that government will provide "a full and perfect equivalent of the property taken," Monongahela Navigation Co. v. United States, 148 U.S. 312, 326, 13 S.Ct. 622, 626, 37 L.Ed. 463 (1893), which they say the Act does not. The Act thus fails as a bankruptcy statute because of the absence of judicial determination of fairness prior to the required exchange, as in the "cramdown" provision of § 77(e) sustained in R. F. C. v. Denver R. G. W. R. R., 328 U.S. 495, 533, 66 S.Ct. 1282, 90 L.Ed. 1400 (1946), and as an eminent domain statute because of the lack of assurance of full payment.

Although the argument is forceful, we would not accept it if we were certain that this court had been given the means to rectify any unfairness inherent in the final system plan. Congress did not have to choose between the Scylla of outright condemnation and subsequent nationalization and the Charybdis of a collapse of rail transportation in the most heavily industrialized section of the country.hat was said with regard to the New Haven in the Penn-Central Merger and N W Inclusion Cases, 389 U.S. 486, 510-511, 88 S.Ct. 602, 614, 19 L.Ed.2d 723 (1968), applies here with exponential force:

While the rights of the bondholders are entitled to respect, they do not command Procrustean measures. They certainly do not dictate that rail operations vital to the Nation be jettisoned despite the availability of a feasible alternative. The public interest in not merely a pawn to be sacrificed for the strategic purposes or protection of a class of security holders whose interests may or may not be served by the destructive move.

Congress evidently thought it had created the means to assure against any unfairness in the final system plan. It spoke in terms of "a constitutional minimum," § 303(c)(1)(B), 303(c)(3), and apparently considered it had provided USRA or, failing that, this court with the means adequate to provide for the payment of this. Seemingly it reasoned somewhat as follows: Congress is entitled to insist on the continued operation of rail lines earning or capable of earning a profit. The very first goal of the final system plan is "the creation, through a process of reorganization, of a financially self-sustaining rail service system in the region." § 206(a)(1). The owners of the hypothetically profitable properties conveyed to Conrail will receive all its securities plus up to $500 million in Government guaranteed obligations, along with other benefits. They will thus retain all the earning power with which they parted, plus the added sweetener of having part of the consideration in Government guaranteed obligations.

We think the reasoning, while understandable, was too simplistic.. The mere fact, if it be one, that Conrail might make some profit would not necessarily give is securities a value sufficient to render them fair compensation. In order to be assured to fairness this court must be confident that it would either have knowledge at the time of conveyance that the securities and other benefits would equal the "constitutional minimum," something manifestly impossible since neither side of the equation could be accurately determined, or the power to summon whatever additional resources are needed. This proposition is reinforced by the question, discussed below, whether Conrail will be a profitable railroad at all.

Unhappily the options afforded us by § 303(c)(2) do not fulfill the latter requirement. The first, § 303(c)(2)(A), a reallocation of securities among the various railroads, while of possible value to some smaller lines, is meaningless with respect to Penn Central, which is bound in any event to receive the lion's share of the securities. The second, a power to "order the Corporation to provide for the transfer to the railroad of other securities of the Corporation or obligations of the Association as designated in the final system plan in such nature and amount as would make the exchange or exchanges fair and equitable," has more usefulness but not enough. What would be truly useful, power to increase the amount of obligations of the Association, is expressly conditioned, § 210(b), at least if the final system plan had provided for the maximum of $500 million, on a joint resolution adopted by the Congress. Since an increase in the amount of common stock would add substantially nothing to its value, all that would be left for us would be to increase the amount of debt or to provide that more of this should be secured. While experience with railroad reorganization plans, under the Public Utility Holding Company Act, and in other contexts has demonstrated that an alteration in mix to provide a more attractive capital structure can add to total market value, such alterations cannot be relied upon to cure any major deficiency.

The final tool given us, § 303(c)(2)(C), is seemingly a rather curious one, namely, to "enter a judgment against the Corporation" for the deficiency between the value of the securities of Conrail, obligations of USRA, and other benefits and the fair value of the properties conveyed. If this were unsatisfied, as it almost certainly would be if in any substantial amount unless Congress promptly stepped up with additional funds, see remarks of Rep. Shoup, 119 Cong.Rec. H9247 (daily ed. Nov. 8, 1973), the levy of execution would largely strip all value from everything but the USRA obligations and any secured debt that had been issued. In order to avoid the levy of execution, Conrail would probably seek reorganization under § 77. Perhaps what Congress had in mind was that such a judgment would enable the bankrupt estates to get back what they had conveyed; it thereby assumed that the Act would be fair and equitable. But since we would not be entering the judgment for some years, levy of execution, even if permitted to occur, would return the properties only after the accrual of new prior claims, the possible incurring of senior debt, and perhaps further erosion while we might not go quite so far as Judge Fullman, who characterized the deficiency judgment as "essentially circuitous," in his concurring opinion in Connecticut General Ins. Corp. v. U.S.R.A., supra, or as "relatively pointless," in his Penn Central decision here under review, we do agree that it fails to supply an adequate tool with which to cure any deficiency in the consideration.

Confronted with all this, the Government parties contend that if this court were convinced that the plan was fundamentally unfair, it could refuse to direct the conveyance provided for in § 303(b). We agree that, absent a Tucker Act remedy, we would have power, indeed a duty, to take such a course, deriving not from the Act but from the Constitution. But this does not cure the defect. Unlike § 304(f), § 303(b) cannot be excised under the separability clause, § 604. Compare Hill v. Wallace, 259 U.S. 44, 70-72, 42 S.Ct. 453, 66 L.Ed. 822 (1922); Williams v. Standard Oil Co., 278 U.S. 235, 241-245, 49 S.Ct. 115, 73 L.Ed. 287 (1929); Railroad Retirement Board v. Alton R.R., supra, 295 U.S. at 361-362, 55 S.Ct. 758. See also Carter v. Carter Coal Co., supra. As counsel for USRA rightly said, it is the very heart of the Act. If we should refuse to order the conveyance, no alternate procedure is available under the Act; USRA would have to return to Congress for possible new legislation. The situation would revert to that of 1973, with operations having been compelled for another two years and no solution in sight. Beyond all this there is the problem that, when we are obliged to act or not to act in compliance with § 303(b), we shall have only the meagre and one-sided information furnished pursuant to § 206(f), the outraged cries of investors, and the conflicting answers of the Government to assist us in our deliberations with respect to valuation problems of unprecedented complexity. We therefore decline to hold that an opportunity, which derives from the Constitution but which we would necessarily have to exercise in haste and without adequate information or opportunity for hearing and deliberation, is sufficient to cure a defect which would otherwise require us to hold that the Act "does not provide a process which would be fair and equitable to the estate of the railroad in reorganization." Absent a showing that the Government guaranteed obligations, the securities of Conrail, and "other benefits" clearly would provide fair compensation, we would thus be compelled to affirm the five decisions so holding and reverse the two decisions holding the contrary but for our view that a remedy under the Tucker Act is not foreclosed.

As we will now develop, there was no such showing. To the contrary the investors showed Conrail's prospects to be sufficiently doubtful that, taking into account the limited nature of the powers of rectification which Congress has conferred upon us, we would not find the processes of the Act to be fair and equitable, absent a Tucker Act remedy. On the other hand, as we will also show, they did not demonstrate such a certainty of failure as to make it unfair and inequitable, as they contend, to compel them to resort to the processes of the Act if recourse to the Tucker Act remains open.

The investors in Penn Central mounted an elaborate case, hereafter summarized, to show that Conrail would be, as sharply put, "another Penn Central," with much talk of promise but little reality. Somewhat surprisingly the Government parties declined the gambit except to the extent of vigorous cross-examination. Their basic position is that, since no one can tell what form Conrail will take until the final system plan becomes effective, it is inappropriate and premature to speculate on its viability and the courts should have faith that if USRA cannot formulate a plan that will create "a financially self-sustaining rail service system in the region," § 206(a)(1), it will report its inability to Congress, which "could well . . . at that stage . . . right any apparent constitutional wrong, or . . . provide any additional resources determined necessary at that time to assure Conrail's viability."

While we do not need to decide this, the reorganization courts and this court perhaps could rely on such a presumption in the absence of contrary evidence, although the practical compulsion on USRA to bring forth a plan will be exceedingly heavy. But when, as in the Penn Central proceeding, the opponents came forward with evidence that what would seem the most probable form of Conrail would be a dismal failure, the supporters could not rely on a mere presumption of Conrail's viability.

While the opponents in Penn Central offered a quantity of evidence, it will be sufficient to discuss the presentation by Mr. John W. Ingraham, a vice president and senior credit officer of First National City Bank of New York (Citibank). Mr. Ingraham had been assigned since July 1, 1970, "to oversee recovery efforts on behalf of 48 lending banks and 5 participating banks in a $300 million Credit Agreement dated as of April 1, 1969 with Penn Central Transportation Company under which Citibank acts as Agent"; he had available and made use of various studies commissioned by the Penn Central trustees, the reports of those and other trustees to the reorganization courts, materials from the August-September, 1973, Penn Central hearing before the I.C.C., the 120-day hearings before the reorganization court for both Penn Central and the secondary debtors, and other material.

Mr. Ingraham's study assumed a 15,000-mile system made up mainly of Penn Central but also comprising mileage of the other railroads here before us (excluding the L H, a Class II railroad with 115 miles of operating trackage, about 0.5% of the total for these roads in 1973) — a shrinkage of some 8,000 miles. The analysis was made on the basis of January 1, 1974, constant dollars; Ingraham thought that estimates made on what seems the more realistic basis of continued inflation would yield even worse results.

The nub of Ingraham's analysis was this: He assumed for the first year of Conrail's operation — roughly 1976 — freight revenues equivalent to those of the bankrupt roads increased by 10%. He estimated further increases over the base year of 20%, 30%, and 40%, respectively, for the third, sixth and ninth years of operations. He thus assumed a compound annual growth rate for freight volume over nine years of 3.8%, which he characterized as optimistic in view of the historical figure of 2.5%, but he apportioned a large part of the total 40% in growth to early years in order to provide Conrail more income in years when it was most needed. These assumptions produced negative net railway operating income from freight service in each year unless Conrail was able to reduce its operating ratio (the ratio of operating expenses to operating revenues expressed as a percentage) below 75%. Even a 70% operating ratio, which Ingraham considered unattainable, produced net railway operating income from freight service of only $56, 62, 70 and 90 million in the four years for which he projected figures. Deductions of interest charges, including amounts ranging from $35 to $31 million for acquisition bonds at an assumed interest rate of 7% (but not for leased line rents), and for "catch-up" maintenance, and passenger service losses produced deficits even at a 70% operating ratio until the ninth year and even in that year the net income was only $51 million. The most vital schedule in the analysis was one showing that at a 75% (or greater) operating ratio and excluding certain items, e. g., passenger service losses (estimated at $55 million per annum), Conrail would have the cash required for cash expenditures only in its first year of operation, when it would have the benefit of an assumed $300 million working capital loan, and that cash deficits would rise in the third, sixth, and ninth years to $15, 160 and 186 million, respectively. Even at a 70% operating ratio the positive cash balance before the excluded items would be only $109 and $105 million in the first and third years of operation and would turn to negative figures of $31 and $51 million in the sixth and ninth. The adverse changes in the later years are the result of a number of factors, including amortization requirements on new equipment debt, on rehabilitation bonds, and on acquisition bonds (only partially counteracted by a reduction of principal payments on old equipment debt), exhaustion of the $300 million of borrowed working capital, the institution of a $125 million common stock dividend in the sixth year.

We have no doubt that Mr. Ingraham made a thoughtful and conscientious analysis. On the other hand, like all predictions, his rested on assumptions and some of these may well have been too pessimistic.

The first main attack by the supporters of the Act is that he underestimated freight revenues. As stated, he estimated a 10% increase in freight revenues for 1976 over 1973; apparently this was on the basis of two years' growth in volume and changes in commodity mix. Most of this 10% increase, it is argued, has already become available as a result of the 10% rate increase which was granted in Ex parte 305, effective June 5, 1974, subsequent to the preparation of Ingraham's analysis for the Penn Central case. The effect of the increase cannot be brushed aside, it is said, on the ground that Ingraham's revenue estimates were based on January 1, 1974, dollars, for the roads had already received 1974 increases to compensate for inflation, 3% in Ex parte 299, 4% in Ex parte 303, and 3% as a fuel surcharge, and the bulk of the 10% of Ex parte 305 was intended not to counterbalance inflation, but to enable the roads to catch up with deferred maintenance. If one combines an effective increase until Ex parte 305 expires on June 30, 1975 (absent Commission action to retain it), of 9.5% due to Ex parte 305, the other freight rate increases granted in 1974, and the increase of 4.1% per annum as a result of freight volume increases, commodity mix shifts, and changes in unit revenues postulated in a study (in the Penn Central record) by Temple, Barker Sloane, consultants to the trustees, 1976 freight revenues would be increased from Ingraham's $2,195 million to $2,594 million. So much of this as was represented by rate increases rather than by traffic growth would translate itself automatically into a reduction of operating ratio if expenses were held constant — an assumption consistent with the concept that increased expenses due to further inflation would be met by additional rate increases. To take a simple example, if a 10% rate increase could be translated into 9.5% added revenues, Penn Central's 1973 freight operating ratio of 80.3% would become 73.3% (80.3 . 109.5 = 73.3). While this reduction would not be attained to the extent that the catch-up maintenance program required greater operating expenses, that program would have other favorable effects which Ingraham allegedly did not adequately consider.

The other major attack is on the expense side. One of the most serious effects of the bankruptcies of the Penn Central and other railroads and the deferred maintenance both before and after bankruptcy has been the growth of net rents for equipment. This has been due to two different factors. The financial plight of the roads has forced them to finance new purchases by leases rather than the traditional equipment trusts. This markedly decreases net railway operating income since all such rents are deducted as expenses even though a large portion represents an increase in capital; moreover, the total outlay is greater than the interest and amortization charges under equipment trust obligations. Even more important, the lack of an adequate number of serviceable owned freight cars, with consequent added dependence on the fleets of other roads and private owners, and the delay in handling such cars due to "slow orders" on many miles of track and other inefficiencies resulting from deferred maintenance have resulted in vastly increased per diem charges. In 1970 the Penn Central paid a total of $79,448,000 for net car hire expenses, but by 1973 that figure had grown by $43,189,000 to $122,637,000. Car lease rental expenses grew during the same period from $36,028,000 to $66,703,000. Moreover, in 1973 Penn Central had a net debit balance in its incentive per diem accounts of $10,944,000. Schedule 376 of Annual Reports Form A (1970), Form R-1 (1973). The magnitude of these factors is shown by the fact that in 1973 Penn Central's net rents for equipment constituted 14.8% of freight operating revenues as compared, e.g., with 2.5% for the Chesapeake Ohio, 3.7% for the Norfolk Western, 9.4% for the Seaboard Coast Line, 7.3% for the Southern, and 5.3% for the Louisville Nashville. With the benefit of the Ex parte 305 increase insofar as it generates revenues for capital expenditures and § 215 loans, Penn Central and the other bankrupt railroads should be able to make substantial progress in decreasing net equipment rents before the conveyance to Conrail, and Conrail, with another $500 million of loans available solely for rehabilitation and modernization of rail properties conveyed, § 210(b), should be able to do better still. Ingraham's estimates that Conrail would start in year 1 with a 14.3% ratio of net rents to freight revenues, and would be able to reduce this only to 12.9%, 11.5% and 10.3% in the third, sixth and ninth years of operation do not appear to be substantiated in the record and may well be too pessimistic. To the extent that rehabilitation can be carried on before the conveyance to Conrail, post-conveyance expenditures and the large borrowings postulated by Ingraham as needed for rehabilitation and new equipment rising to a net of $2,228 billion in year 9, with attendant requirements of $272 million for amortization and interest, would be reduced.

There are still other favorable factors that might make a 70% freight operating ratio, computed on Ingraham's basis, much more reasonable than he assumed. The 1973 freight operating ratio of the five roads was 80.9% and the expenses reflected in the ratio included elements of inflation thought by the ICC to justify 10% in the three rate increases granted in 1974 before Ex parte 305. The Wyer-Dick estimates of 1973, which are in the Penn Central record, forecast savings in operating expenses of the order of $300 million from a 15,000-mile Penn Central core system, without significant loss of revenue; this would imply a freight operating ratio of 64% before taking into account the effect of catchup maintenance on expenses, which Ingraham handled as a separate item in the cash flow rather than as an expense entering into the operating ratio. As was acknowledged by Charles C. Shannon, President of the consulting firm, Wyer, Dick Company, and witness for the investors, during cross-examination, there is a rule of thumb commonly used by the ICC that increased volume can be handled at a 50% marginal operating ratio. A prime objective of the Act is to produce operating economies by eliminating unprofitable and duplicating mileage; we should not lightly assume that this will not be achieved. Also noteworthy are the Act's provisions which should assure against passenger service losses and provide a return (whether by lease or sale) on Penn Central's substantial investment in the portion of the Boston-Washington corridor properties that are used by Amtrak for passenger service.

Some idea of the effect of taking into account these and other factors is conveyed by the affidavits of two transportation experts, Gerald W. Fauth, Jr., and James S. Krull, submitted by appellees other than the Government in the Ann Arbor case to refute the conclusions in Mr. Ingraham's affidavit submitted to the Ann Arbor court by opponents. Using operating ratios ranging downward from 73% in year 1 (1976) to 69% in year 9 (1984), Mr. Fauth arrived at positive net railway operating income for Conrail in every year ranging upward from $139.6 million in 1976 to $1026.4 million in 1984, and net income after taxes ranging upward from $42.4 million in 1976 to $638.5 million in 1984. Excess of cash sources over uses would range upward from $141 million in 1976 to $696 million in 1984 — after providing for dividends of $69 million in years 6 and 9 on an estimated $1,370 million of stock, an amount Mr. Fauth viewed as more realistic in light of valuation studies. See note 78 supra. Mr. Fauth's analysis accepted Mr. Ingraham's analytic framework in large part but, in disagreement with him, reflected the following factors: the availability of additional revenues as a consequence of Ex parte 305 and other rate increases for use in capital improvement programs and other purposes; a greater growth factor for freight volume; consequently higher railway operating revenues for year 1; substantially reduced net car hire and equipment lease rents to reflect the anticipated rehabilitation program and the industry average; and availability and use of cash in excess of current cash needs. Mr. Krull's analysis led him to conclusions as to the viability of Conrail generally in line with Mr. Fauth's.

Counsel for the investors in Penn Central objected to our considering the Fauth and Krull affidavits in the Ann Arbor because he had no opportunity to cross-examine. But we cannot close our eyes to material that has come to our attention in examining the records in all these cases. These proceedings, after all, are not mere private litigation; and it would be anomalous in the last degree for us to hold that Conrail was viable for purposes of the Ann Arbor case but not for that of the Penn Central. At the very least the Fauth and Krull affidavits can be taken as quantifying points scored in Ingraham's cross-examination and as showing that qualified experts can reasonably reach markedly different conclusions depending on their assumptions. If Fauth's estimate, or Krull's estimate based on a 70% operating ratio, should be realized, the value of the Conrail shares, under normal market conditions, along with the $500 million of Government guaranteed bonds, could well equal the value of the properties conveyed on the basis of Day Zimmermen's April 1973 $1.87 billion liquidation value estimate for a 15,000-mile Penn Central system — without consideration of the other benefits conferred by the Act.

We are not suggesting any certainty that such heartening results will be obtained, even though we have not yet mentioned such elements as the recovery of traffic lost to competing railroads or other modes of transportation as a result of the deficiencies in the track and equipment of the bankrupt roads; the elimination of such crazy-quilts of industrial trackage as that in Philadelphia, vividly described in the DOT report; and others too numerous to mention. As heretofore suggested, see note 44 supra, much will depend on a quickened response to inflation by the Commission and on Conrail's ability to pass on increased rates without loss of traffic to competing modes of transportation which, although perhaps even more subject to inflationary pressures, may find it desirable not to increase some rates to the same degree. Obviously Conrail's management will have to be markedly different from Penn Central's prior to bankruptcy. Even more will depend on the general economic condition of the country. We have a deep sense of unreality in discussing projections of what Conrail will do in 1985 or even in 1976 when the prospects for 1975 are so uncertain and gloomy. As to this, we can say only what we did before — that if an economic calamity should occur, the investors would be in no position to liquidate immediately and would surely resist computation of liquidation value on the basis of what they would urge to be spot depression prices.

The upshot is that the investors cast sufficient doubts on Conrail's prospects that it would be unfair and inequitable to remit them solely to the inadequate remedies provided in § 303(c)(2). On the other hand, there is a sufficient possibility of the viability of Conrail that it is not unfair and inequitable to require them to await the processes of the Rail Reorganization Act if a remedy under the Tucker Act is ultimately available.

VII. AVAILABILITY OF A REMEDY UNDER THE TUCKER ACT

The alignment of the parties with respect to the availability of a remedy under the Tucker Act for any unconstitutional erosion or for inadequacy of compensation is rather different from what one would have expected. The United States, which normally opposes with vigor the right to assert claims against the Government in any doubtful case, along with USRA and the Interstate Commerce Commission, stoutly contend that a supplemental remedy under the Tucker Act is available, although they doubt that resort to it will be necessary. In contrast the investor groups who would benefit from such a remedy strongly contend that it does not exist. Only the Penn Central trustees take the positions seemingly in line with their interests, namely, that the Tucker Act remedy exists and that the Act would be unconstitutional without it. The three-judge court in the Connecticut General case held that the remedy was not available, and those reorganization courts which considered the issue reached the same conclusion, most relying directly on that holding without engaging in further extended analysis. Recognizing the point to be close, we disagree.

Our disagreement is rooted in a belief that the Connecticut General court may not have framed the issue properly. As said in Vanston Bondholders Protective Committee v. Green, 329 U.S. 156, 170, 67 S.Ct. 237, 243, 91 L.Ed. 162 (1946),

Putting the wrong questions is not likely to beget right answers even in law.

The Connecticut General court apparently viewed the availability of a Tucker Act remedy as depending on whether the "Congress intended that the financial obligations of the United States be limited to the express terms of the Act." Subsequently, Judge Fullam, a member of the Connecticut General court, put the issue in the 180-day decision in In re Penn Central Transportation Co., 382 F. Supp. 851, supra, here under review, as being whether in adopting the Act "Congress had intended to permit recourse to a Tucker Act remedy in the event that implementation of the [Act] proved violative of constitutional rights . . .", apparently requiring an affirmative showing of such intent. If that were the true issue, we would agree that affirmative intent cannot be found. But, as hereafter developed, the true issue is whether there is sufficient proof that Congress intended to prevent such recourse. The Act being admittedly silent on the point, the issue becomes whether the scheme of the Act, supplemented by the legislative history, sufficiently evidences a Congressional intention to withdraw a remedy that would otherwise exist.

The Tucker Act, 28 U.S.C. § 1491, confers jurisdiction on the Court of Claims:

[T]o render judgment upon any claim against the United States founded either upon the Constitution, or any Act of Congress, or any regulation of an executive department, or upon any express or implied contract with the United States, or for liquidated or unliquidated damages in cases not sounding in tort.

If the United States eliminates or substantially impairs an owner's use of his property or requires him to convey it, there is a "taking," which gives rise to a claim under the Constitution, whether or not the United States so intended. This is the teaching of United States v. Causby, 328 U.S. 256, 66 S.Ct. 1062, 90 L.Ed. 1206 (1946), and of other cases too numerous to require citation. The investors' claim here is that the Act does precisely this, by forcing a conveyance of certain rail properties to Conrail at less than fair compensation and by requiring loss operations to continue while the required proceedings are being prosecuted. Such claims would be cognizable in the Court of Claims as claims founded upon the Constitution, unless the Act by fair implication withdraws such jurisdiction. In order for this negative implication to prevail the evidence must be weighty since, as will subsequently be developed, several rules of construction operate to sustain that court's jurisdiction if a fair basis exists for doing so.

The strongest argument that Congress intended to withdraw the Tucker Act remedy that would otherwise be available is based on the existence of a set of provisions in the Act limiting the amount of certain obligations guaranteed by the United States that may be issued by USRA. The total amount of USRA obligations guaranteed by the Government which may be issued is limited to $1.5 billion, of which not more than $1 billion may be issued to Conrail and not more than $500 million may be used for acquisition purposes, § 210(b), except as this amount may be increased by a joint resolution of Congress. The only authorizations for appropriations are those contained in § 210(f) — appropriations to the Secretary of Transportation for such amounts as are necessary to discharge the obligations of the United States with respect to guaranteed obligations of USRA authorized by the Act — and in § 214 — appropriations for expenses of the Secretary, the Rail Services Planning Office, and USRA. Such provisions, it is urged, are inconsistent with an open-ended liability in the Court of Claims.

The argument is reinforced by the limited nature of the powers conferred on this court by § 303(c) discussed in Part VI of this opinion. As there explained, if this court finds that the terms of exchange of rail properties for securities are not fair and equitable to any reorganized estate and cannot be cured by reallocation of Conrail securities (including authorized obligations of USRA) among the various estates, or by changing the amount or the mix of such securities, the only further tool available for us is to "enter a judgment against the Corporation." The manifold problems of such a judgment, previously analyzed, could have been avoided by allowing us to enter judgments against the United States, a potential remedy that Congress did not afford us. Putting the matter in another way, since this court would hardly direct the entry of a deficiency judgment against Conrail, with all its inherent difficulties, if inadequacy of the compensation could be cured by a judgment against the United States in the Court of Claims, Congress apparently did not intend the latter.

The Government parties and the Penn Central trustees seek to answer these contentions on the basis that Congress was so convinced of the constitutional adequacy of the Act, which made available some $2 billion of Government monies, that it never considered the possible need for a suit in the Court of Claims. This belief was expressly stated in the House Report at 54-55. There is no evidence in the text or scheme of the Act that if Congress had recognized possible constitutional inadequacy of compensation, it would have preferred that the Act be struck down, with consequent serious disarray, rather than that additional monies be expended to rectify the inadequacy. Congress clearly intended to meet the constitutional standard of fairness and equity, § 303(c)(3), yet the only operative provision in this regard authorizes this court to reduce payments to the bankrupt estates if we find that these and other benefits "are fairer and more equitable than is required as a constitutional minimum." Id. We should not lightly assume that had Congress considered the problem, it would have placed itself in the morally indefensible position of affording redress if the final system plan provided too much but denying it if the plan provided too little.

The view that Congress did not intend to withdraw jurisdiction under the Tucker Act but simply failed to consider the issue is reinforced by reference to § 601, entitled "Relationship To Other Laws." This section specifically declares that the antitrust laws are inapplicable to any action taken to formulate or implement the final system plan, § 601(a)(2), that the Interstate Commerce Act and the Bankruptcy Act are inapplicable whenever inconsistent with the Act, § 601(c), and that § 102(2)(C) of the National Environmental Policy Act of 1969 shall not apply to any action taken under authority of the Act before the effective date of the final system plan, § 601(b). Ten other sections of the Act rule out, in whole or in part, the applicability of various statutes. Yet there is no provision withdrawing the jurisdiction of the Court of Claims, under its general jurisdictional statute, for any constitutional claim resulting from operation of the Act.

With the arguments premised on the general scheme and text of the Act thus somewhat in balance, those parties who contend that no Tucker Act remedy exists rely on two pieces of legislative history, one from each side of the Capitol. The one from the Senate side is quite equivocal. In explaining the Conferences Report, Senator Hartke, who was a Senate manager, said:

It we did nothing while continuing to mandate rail service, there is the distinct possibility in view of the prior action of Congress that a number of these people could make a claim against the Government which could be sustained in the Court of Claims. 119 Cong.Rec.S. 23,783-84 (daily ed. Dec. 21, 1973).

However, these remarks are not inconsistent with the view that the Senator was so convinced that the bill, as amended in conference, contained such adequate compensation provisions that a suit in the Court of Claims could not prevail, particularly in view of what he had characterized as a "rather slim" chance of the creditors getting their money through liquidation, rather than as meaning that such a claim could not be maintained. On the House side, reliance is placed on a colloquy between two of the House managers on the Conference Committee in the debate on that Committee's report, 119 Cong.Rec. 11,876 (daily ed. Dec. 20, 1973), which we set forth in the margin. Literally, at least, this colloquy concerns only the deficiency judgment against Conrail, and the powers of this court — not the residual power which the Court of Claims would possess unless this was explicitly or implicitly withdrawn.

Battle over the weight to be given to statements on the floor of Congress, even by sponsors of legislation, has been waged for many years. The banner of those favoring such use has tended to advance, if for no other reason than the frequent lack of other material illuminating Delphic enactments. But it is one thing to rely on such statements, often themselves of debatable meaning, when resolution of the issue will allow a statute to stand with one meaning or another, and quite a different thing when such reliance may cause the statute to fall. Apart from the principles of construing to avoid unconstitutionality or even serious constitutional doubt, which are hereafter discussed, such reliance in this case would amount to saying that the members of Congress who heard or read the statements and the many more who did not would have opted for a construction that entailed serious danger of imperiling many months of diligent and constructive Congressional effort on a problem of vital consequences to the nation rather than take the slightest chance of the courts being able to order a further payment by the United States in such amounts, if any, as would be necessary to save the statutory plan. We have been cited to no decision in which a court has resorted to statements on the floor of Congress in order to consign an ambiguous statute to destruction.

If,. as we believe, the Act can fairly be read as not withdrawing the remedy under the Tucker Act that would otherwise exist, even though a contrary reading might be somewhat more natural, several principles of statutory construction and at least one Supreme Court decision require us to adopt the former view.

One such principle is that repeals by implication are not favored. Graham v. Goodcell, 282 U.S. 409, 424-426, 51 S.Ct. 186, 75 L.Ed. 415 (1931); FTC v. A. P. W. Paper Co., 328 U.S. 193, 203-204, 66 S.Ct. 932, 90 L.Ed. 1165 (1946); Amell v. United States, 384 U.S. 158, 165-166, 86 S.Ct. 1384, 16 L.Ed. 2d 445 (1966). As recently said in Morton v. Mancari, 417 U.S. 535, 550, 94 S.Ct. 2474, 2483, 41 L.Ed.2d 290 (1974):

The courts are not [free] to pick and choose among congressional enactments and when two statutes are capable of co-existence, it is the duty of the courts, absent a clearly expressed congressional intention to the contrary, to regard each as effective.

A new statute will not be read as wholly or even partially amending a prior one unless there exists a "positive repugnancy" between the provisions of the new and those of the old that cannot be reconciled. Wood v. United States, 16 Pet. (41 U.S.) 342, 362-363, 10 L.Ed. 987 (1842); Mercantile National Bank v. Langdeau, 371 U.S. 555, 565-566, 83 S.Ct. 520, 9 L.Ed.2d 523 (1963). See Red Rock v. Henry, 106 U.S. 596, 601-602, 1 S.Ct. 434, 27 L.Ed. 251 (1882); United States v. Borden, 308 U.S. 188, 198-203, 60 S.Ct. 182, 84 L.Ed. 181 (1939); Fawcett v. Commissioner, 149 F.2d 433, 434 (2d Cir. 1945). This principle rests on a sound foundation. Presumably Congress had given serious thought to the earlier statute, here the broadly based jurisdiction of the Court of Claims. Before holding that the result of the earlier consideration has been repealed or qualified, it is reasonable for a court to insist on the legislature's using language showing that it has made a considered determination to that end. See FTC v. A. P. W. Paper. Co., supra, at 203-204, 66 S.Ct. 932.

A second body of principles relates to possible conflict between a statute and the Constitution. When a statute is ambiguous, "construction should go in the direction of constitutional policy," United States v. Johnson, 323 U.S. 273, 276, 65 S.Ct. 249, 250, 89 L.Ed. 236 (1944), here the Fifth Amendment right of a person whose property is taken to just compensation. When one admissible construction will preserve a statute from unconstitutionality and another will condemn it, the former is favored even if language, see Twenty Per. Cent Cases, 87 U.S. 179, 187, 22 L.Ed. 339 (1873); American Communications Ass'n v. Douds, 339 U.S. 382, 407, 70 S.Ct. 674, 94 L.Ed. 925 (1950), and arguably the legislative history point somewhat more strongly in another way. As said in United States Civil Service Comm'n v. National Ass'n of Letter Carriers, AFL-CIO, 413 U.S. 548, 571, 93 S.Ct. 2880, 2893, 37 L.Ed.2d 796 (1973), a court's "task is not to destroy the Act if we can, but to construe it, if consistent with the will of Congress, so as to comport with constitutional limitations." Indeed the same rule has been held to prevail even when a construction less favored but not excluded by the language and history will avoid a serious constitutional doubt. See United States v. Jin Fuey Moy, 241 U.S. 394, 36 S.Ct. 658, 60 L.Ed. 1061 (1916); Richmond Screw Anchor Co. v. United States, 275 U.S. 331, 346, 48 S.Ct. 194, 72 L.Ed. 303 (1928); Lucas v. Alexander, 279 U.S. 573, 577, 49 S.Ct. 426, 73 L.Ed. 851 (1929); Crowell v. Benson, 285 U.S. 22, 62, 52 S.Ct. 285, 76 L.Ed. 598 (1932); United States v. Rumely, 345 U.S. 41, 45, 73 S.Ct. 543, 97 L.Ed. 770 (1953).

Going further, the Government parties contend that Hurley v. Kincaid, 285 U.S. 95, 52 S.Ct. 267, 76 L.Ed. 637 (1932), "is even more directly in point and is . . . dispositive." While the argument has a surface plausibility, analysis shows that the Court was not obliged to and did not face a problem so difficult as that which has arisen here.

Kincaid, an owner of land in the Boeuf River Basin brought a suit against the United States, the Secretary of War, and others, which sought to enjoin the construction of the Boeuf Floodway under the Mississippi Flood Control Act, 45 Stat. 534 (1928). He alleged that construction of the Floodway would increase the depth of flood water on his lands, that the Flood Control Act required the Government to condemn or to otherwise acquire flowage rights over the property before proceeding with the project, and that starting work before acquiring such rights constituted a taking without just compensation in violation of both the Act and the Constitution. The district court found it unnecessary to reach the constitutional issue since it held that § 4 of the Act required the Government to condemn or to otherwise acquire either Kincaid's property or rights over that property, before commencing construction of the floodway. It enjoined the defendants, with the exception of the Government which it earlier had held immune from suit, 35 F.2d 235 (W.D.La. 1929), from continuing work on the project until compensation had been paid. 37 F.2d 602 (W.D.La. 1929). The court of appeals affirmed in a short per curiam opinion, 49 F.2d 768 (5th Cir. 1931). The Supreme Court held that it was improper to have granted an injunction since Kincaid had an alternative remedy at law, an action for just compensation under the Tucker Act. The Court indicated that it was not material whether defendants had in fact violated their duty under the Flood Control Act to acquire flowage rights over Kincaid's land prior to construction of the project since the Fifth Amendment requires only that the individual be compensated after the taking, not before, 285 U.S. at 103-104, 52 S.Ct. 267.

Two sections of the Flood Control Act were directed to the question of damages and of compensation for taking of land. Section 3 provided in part that:

. . . No liability of any kind shall attach to or rest upon the United States for any damage from or by floods or flood waters at any place: Provided, however, That if in carrying out the purposes of this [Act] it shall be found that upon any stretch of the banks of the Mississippi River it is impracticable to construct levees, either because such construction is not economically justified or because such construction would unreasonably restrict the flood channel, and lands in such stretch of the river are subjected to overflow and damage which are not now overflowed or damaged by reason of the construction of levees on the opposite banks of the river it shall be the duty of the Secretary of War and the Chief of Engineers to institute proceedings on behalf of the United States Government to acquire either the absolute ownership of the lands so subjected to overflow and damage or floodage rights over such lands.

Section 4 provided in part that:

The United States shall provide flowage rights for additional destructive flood waters that will pass by reason of diversions from the main channel of the Mississippi River.

The Secretary of [War] may cause proceedings to be instituted for the acquirement by condemnation of any lands, easements, or rights of way which, in the opinion of the Secretary of [War] and the Chief of Engineers, are needed in carrying out this project, the said proceedings to be instituted in the United States district court for the district in which the land, easement, or right of way is located. . . . The provisions of sections [5 and 6 of the River and Harbor Act of July 18, 1918,] are [hereby] made applicable to the acquisition of lands, easements, or rights of way needed for works of flood control. . . .

The apparent strength of the case from the standpoint of the Government parties lies in the fact that the first part of the quoted portion of § 3 seems to indicate that Congress did not intend to compensate the individuals whose property was damaged by floods, yet the Court ruled that the Tucker Act was still applicable so that Kincaid might receive compensation for any of his property that was taken by increased flooding from construction under the Act. However, when one considers the "no liability" provision in the context of the legislative history of the Act analyzed in detail in the margin,it is clear that the provision was not intended to apply to Kincaid's claim. There was a general consensus in Congress that property owners whose land was actually damaged as a result of the Project should be compensated for the value of what was taken, but a corresponding fear that, under the bill as passed by the Senate and as introduced in the House, the Government might be held liable for immense amounts of flood damage in the future even though this did not result from the reallocation of flood waters by the Project, and the "no liability" clause was inserted only to protect against this.

Viewed in the light of this legislative history, the Hurley case stands simply for the propositions that when there is a taking, the failure of Government officials to institute condemnation proceedings provided for in the statute authorizing the taking does not prevent an owner from suing under the Tucker Act, and that he should be remitted to that remedy, but not for the broader proposition apparently asserted here by the Government parties that in the absence of an express repeal of the remedy, even an expressed intention to avoid liability will not alone suffice to withdraw access to the Court of Claims.

While Hurley v. Kincaid thus does not provide the strong support for their position that the Government parties assert, such support is furnished by another Supreme Court decision not cited by them. This is Lynch v. United States, 292 U.S. 571, 54 S.Ct. 840, 78 L.Ed. 1434 (1934), which Professor Henry M. Hart, Jr., correctly cited for the position that:

. . . where constitutional rights are at stake the courts are properly astute, in construing statutes, to avoid the conclusion that Congress intended to use the privilege of immunity, or of withdrawing jurisdiction, in order to defeat them.

At issue in Lynch and its companion case, Wilner v. United States, were policies for yearly renewable term insurance issued during World War I pursuant to the War Risk Insurance Act of 1917, §§ 400-405, 40 Stat. 409. The plaintiffs, beneficiaries of such policies, alleged that their insureds had been totally and permanently disabled before September 1, 1919, while the policies were in force; that under the terms of the policies the insureds were entitled to compensation sufficient to pay the premiums on the policies until they matured by death; that no such compensation had ever been paid; that the insureds had died respectively in 1924 and 1929; that the United States had refused payment; and that such refusal constituted a "disagreement" entitling the beneficiary to sue the United States in an appropriate district court under § 405 of the Act as amended by subsequent legislation in 1924 and 1930, see 292 U.S. at 581 n. 11, 54 S.Ct. 840. The United States demurred on the basis of a clause of § 17 of the Economy Act of 1933, 48 Stat. 11, a measure enacted in the depths of the Great Depression to limit government spending, which stated:

. . . all laws granting or pertaining to yearly renewable term insurance are hereby repealed . . . .

The Government prevailed in the district courts and the courts of appeals, 67 F.2d 490 (5th Cir. 1933), 68 F.2d 442 (7th Cir. 1934).

In a unanimous opinion by Mr. Justice Brandeis, the Supreme Court reversed, reasoning essentially as follows: The quoted provision was indeed intended to abolish the liability of the United States, 292 U.S. at 583, 54 S.Ct. 840, but, as applied to a government contract as distinguished from "the many grants of gratuities to veterans and dependents of veterans," id. at 585, 54 S.Ct. at 846, also repealed by § 17, such action was a taking of property forbidden by the due process clause of the Fifth Amendment. Admittedly Congress was under no similar disability to withdraw its consent to suit against the United States. But Congress had failed to do this, as indeed was unnecessary with respect to most of the other repeals effected by § 17 where Congress could validly abolish the liability of the United States. While Congress was in error in not recognizing the distinction between its power to withdraw grants of gratuities and to abolish contractual rights, the Court would not read the statute as depriving holders of the latter of a remedy in the absence of a clear direction to that end. In a passage particularly pertinent here, the Court said, 292 U.S. at 586, 54 S.Ct. at 846:

Fifth. There is a suggestion that although, in repealing all laws "granting or pertaining to yearly renewable term insurance," Congress intended to take away the contractual right, it also intended to take away the remedy; that since it had power to take away the remedy, the statute should be given effect to that extent, even if void insofar as it purported to take away the contractual right. The suggestion is at war with settled rules of construction. It is true that a statute bad in part is not necessarily void in its entirety. A provision within the legislative power may be allowed to stand if it is separable from the bad. But no provision however unobjectionable in itself, can stand unless it appears both that, standing alone, the provision can be given legal effect and that the Legislature intended the unobjectionable provision to stand in case other provisions held bad should fall. Dorchy v. Kansas, 264 U.S. 286, 288, 290, 44 S.Ct. 323, 68 L.Ed. 686. Here, both those essentials are absent. There is no separate provision in section 17 dealing with the remedy; and it does not appear that Congress wished to deny the remedy if the repeal of the contractual right was held void under the Fifth Amendment.

Translated into terms of this case, there is no separate provision in the Rail Reorganization Act dealing with the Tucker Act remedy, and it does not appear that Congress wished to deny this remedy if the Act should be held to involve a possible taking that would require the award of just compensation under the Fifth Amendment.

We therefore hold that the Act does not preclude relief in the Court of Claims.

VIII. THE ADEQUACY OF THE REMEDY UNDER THE TUCKER ACT

We shall deal in Section A with arguments on this score that would be applicable even if only a single railroad were here involved. Having considered these, we will then discuss in Section B the contention, raised especially by investors in the smaller roads, that it is particularly unfair or even unconstitutional to require them to accept, as part of the compensation for any property finally taken, securities of a combined corporation, with the consequence that they must look to the value of the entire enterprise rather than of the small segment on which they initially relied in making their investment. Finally, in Section C we will consider the special problem of the effect, or lack of effect, on the Court of Claims of our judgment with respect to the applicability of the Tucker Act.

A.

Most baldly put, the contention is that the Rail Reorganization Act is simply a condemnation statute masquerading under bankruptcy robes, and that if Congress wishes to condemn assets that are to be conveyed to Conrail, it must provide for payment in cash and then, if it chooses, for sale of the securities of Conrail to investors willing to buy them. The just compensation clause, it is argued, cannot be satisfied by a mix of securities, other benefits, and such additional cash as is needed to bring the total to the level of just compensation.

We are not certain that this would be so even if we were to accept the premise that the Act was simply an exercise of eminent domain under the commerce power. It is not apparent, as a matter of principle, why, when there is such uncertainty as to the value of what the owner gives, there must be absolute precision concerning the value of what he gets. The classic statement in Monongahela Navigation Co. v. United States, supra, 148 U.S. at 326, 13 S.Ct. at 526, said only that the compensation "must be a full and perfect equivalent for the property taken", without reference to its form. While in later cases the Court, citing Monongahela Navigation as authority for the proposition, has used such phrases as "the market value of the property at the time of the taking contemporaneously paid in money", Olson v. United States, 292 U.S. 246, 255, 54 S.Ct. 704, 708, 78 L.Ed. 1236 (1934); "the full and perfect equivalent in money of the property taken", United States v. Miller, 317 U.S. 369, 373, 63 S.Ct. 276, 279, 87 L.Ed. 336 (1943); and the "full monetary equivalent of the property taken", United States v. Reynolds, 397 U.S. 14, 16, 90 S.Ct. 803, 805, 25 L.Ed.2d 12 (1970), see also Almota Farmers Elevator Warehouse Co. v. United States, 409 U.S. 470, 473-474, 93 S.Ct. 791, 35 L.Ed.2d 1 (1973), no Supreme Court case has ever turned on the question whether compensation other than money is an adequate form of compensation Indeed, a contrary position is arguably inherent in the decisions that any special benefits to a property owner's other holdings should be taken into account in determining just compensation. In Bauman v. Ross, 167 U.S. 548, 584, 17 S.Ct. 966, 980, 42 L.Ed. 270 (1896), the Court, answering an argument that compensation may not be made in such "contingent and speculative benefits to arise in the future," pointed out that the damage done to the condemnee is similarly speculative, and that he is only entitled to be made whole. 167 U.S. at 584-587, 17 S.Ct. 966. See also Chesapeake Ohio Canal Co. v. Key, 5 Fed.Cas. 563, 564 (No. 2649) (C.C.D.C.1829) ("the Constitution does not require that value should be paid, but that just compensation should be given."); United States v. 1000 Acres of Land, More or Less, in Plaquemines Parish, La., 162 F. Supp. 219, 221 (E.D.La. 1958) ("[T]he Fifth Amendment does not require payment in money."); United States ex rel. TVA v. Indian Creek Marble Co., 40 F. Supp. 811, 819 (E.D.Tenn. 1941) ("[T]he constitutional requirement has no reference to the form in which compensation shall be paid, whether in cash or in benefits incident to the use to which the property taken is put by the condemnor.")

In any case, we do not find it necessary to decide this question since we see no reason to disagree with the contention of the Government parties that in formulating a reorganization plan Congress may draw on both the bankruptcy and the commerce power to require a reorganization wherein the compensation investors receive consists of Conrails securities, USRA obligations and other benefits up to their full value and need depend on eminent domain, with concomitant cash payment, only for any shortfall. While the reorganization process provided in the Act goes beyond previous bankruptcy concepts, notably by not requiring voting by investor interests, the language of Continental Bank v. Chicago, Rock Island P. Ry., 294 U.S. 648, 668, 671, 55 S.Ct. 595, 604, 79 L.Ed. 1110 (1935), and the decision upholding the cram-down provision of § 77, RFC v. Denver Rio Grande Western R.R., supra, 328 U.S. at 531-533, 66 S.Ct. 1282, go far toward justifying this. Moreover, decisions sustaining § 11(b)(1) and (2) of the Public Utility Holding Company Act show that Congress can require what amounts to a reorganization under the commerce power alone without awarding any compensation so long as investors receive fair and equitable treatment. North American Co. v. SEC, 327 U.S. 686, 707-710, 66 S.Ct. 785, 90 L.Ed. 945 (1946); American Power Light Co. v. SEC, 329 U.S. 90, 106-107, 67 S.Ct. 133, 91 L.Ed. 103 (1946).

We would not wish, however, to rest our decision on what may seem to be semantics. The gravamen of the investors' complaint is that, regardless of the label attached to these processes and no matter how carefully this court attempts to arrive at a fair and reasonably accurate estimate of the value of the compensation provided under the Act, there will inevitably be some measure of uncertainty. Hovering behind the table is the ghost of the ICC's $87.50 per share projection of the likely postmerger value of the Penn Central stock that was exchanged for the New Haven Railroad's assets. See New Haven Inclusion Cases, supra, 399 U.S. at 483-487, 90 S.Ct. 2054.

Despite the understandable fears engendered by that unhappy experience, there appears to be no doubt that a bankruptcy court can constitutionally be vested with power to resort to its informed judgment in determining what constitutes satisfaction of the claims of creditors. Perhaps most in point is Wright v. Union Central Life Ins. Co., supra, 311 U.S. 273, 61 S.Ct. 196, 85 L.Ed. 184, upholding the Frazier-Lemke Act, as amended, (§ 75(s)(3)), which authorized farmers who defaulted on their mortgages to remain on the property for three years and then to have the opportunity to buy the land, free of the lien, at its appraised value. In Consolidated Rock Products Co. v. DuBois, 312 U.S. 510, 529-530, 61 S.Ct. 675, 687, 85 L.Ed. 982 (1941), which concerned a reorganization under then § 77B of the Bankruptcy Act, the Court, though reaffirming the absolute priority rule of Northern Pacific Ry. Co. v. Boyd, 228 U.S. 482, 33 S.Ct. 554, 57 L.Ed. 931 (1913), and Case v. Los Angeles Lumber Products Co., 308 U.S. 106, 60 S.Ct. 1, 84 L.Ed. 110 (1939), stated:

So long as the new securities offered are of a value equal to the creditors' claims, the appropriateness of the formula employed rests on the informed discretion of the court.

And in RFC v. Denver Rio Grande Western R.R. Co., supra, 328 U.S. at 517-524, 66 S.Ct. at 1294, the Court sustained a reorganization plan even though the Commission "did not make a finding that the cash value of the securities awarded the senior claimants as of the effective date of the plan equalled the face of the claims" since it gave what were deemed to be sufficient reasons for concluding that the compensation flowing to the various classes of bondholders for the rights surrendered by them was adequate in light of the full priority rule. Furthermore our valuation of the Conrail securities will not have to be made until Conrail has had some years of operating experience, see note 53 supra, and the Court of Claims might be free, see note 109 supra, to look at still later figures.

For these reasons, as well as the implications of Bauman v. Ross, supra, we thus reject the contention that the Act would be defective because the value of the consideration consisting of securities of Conrail (including USRA obligations) and other benefits would be the subject of estimate, even though any shortfall could be recovered in cash.

B.

Investors in several of the smaller lines argue that whether or not the foregoing analysis would be sound if Congress had here been dealing with only a single railroad, it does not justify compelling them to take, as total or partial compensation, securities of Conrail, which they expect to be essentially a continuation of Penn Central under another name. Although, except for the Reading, the loss situation of the smaller roads is worse than Penn Central's, the investors evidently believe their prospects of selling part or all of the lines to public authorities or other railroads to be sufficiently promising that they would prefer that course to inclusion in the Conrail System.

While these investors place great reliance on St. Joe Paper Co. v. Atlantic Coast Line R.R., 347 U.S. 298, 74 S.Ct. 574, 98 L.Ed. 710 (1954), we find scant relevance in that case. Both the majority opinion and the dissenting opinion of Mr. Justice Douglas for three justices conceived the issue to be the proper construction of § 77 of the Bankruptcy Act as applied to a proposal that reorganization should take the form of a merger with another railroad. Neither opinion questioned that Congress had the power to authorize the ICC to force such a merger as part of a plan of reorganization. Something is sought to be made of Mr. Justice Douglas' statement, 347 U.S. at 332, 74 S.Ct. at 592, that if only 1% of the security holders approved of the proposal, it was "difficult even to imagine a case where it would be proper" to apply the cram-down provision of § 77(e). But we think the Justice was speaking of the statutory qualification that the cram-down could be invoked only when the court found rejection was "not reasonably justified in the light of the respective rights and interests of those rejecting it and all the relevant facts . . ." rather than making a constitutional point.

We see no reason to doubt the power of Congress to compel a unification of properties of insolvent railroads if it finds that course necessary to serve the public interest in continued rail service, provided that the security holders receive fair compensation. As Mr. Justice Douglas wrote in RFC v. Denver Rio Grande Western RR., supra, 328 U.S. at 535-536, 66 S.Ct. at 1303, investors "by their entry into a railroad enterprise assumed the risk that in any depression or any reorganization the interests of the public would be considered as well as theirs." They may fairly be taken to have assumed the Further risk that future events might require that parts or all of their enterprise might have to be joined with other rail lines. In reporting the bill that became the Rail Reorganization Act, the House Committee noted that one of the causes of railroad bankruptcies in the northeast was the existence of a rail system with "duplicated lines" and "far greater capacity than is needed." House Report at 27. At least a partial solution or their problems thus might lie in abandoning mileage with less favorable physical characteristics or heavy deferred maintenance, and concentrating traffic on more efficient track. Often this could not be done without consolidation. As the Committee indicated there were six railroads in bankruptcy in the northeast "and no one Court can restructure the entire system under Section 77." Hence the Act was designed "to accomplish a reorganization for the entire area, supplementing Section 77 of the Bankruptcy Act." Id. at 29.

The principle that a particular railroad may be required to make sacrifices in the interest of the railroad system as a whole goes back as far as the notable opinions of Mr. Justice Brandeis in The New England Divisions Case, 261 U.S. 184, 190-192, 43 S.Ct. 270, 67 L.Ed. 605 (1923), and of Chief Justice Taft in Dayton-Goose Creek Ry. v. United States, 263 U.S. 456, 44 S.Ct. 169, 68 L.Ed. 388 (1924). Two more recent lines of decision also furnish strong analogical support for the conclusion that Congress may constitutionally compel a union of assets of the bankrupt railroads in the northeast provided just compensation is afforded. The first is based on the holding in Group of Institutional Investors v. Chicago, M., St. P. P. R. R., 318 U.S. 523, 558, 63 S.Ct. 727, 87 L.Ed. 959 (1943), that owners of divisional mortgage bonds may be required to divest themselves of their separate liens and accept system mortgage bonds or even stock. This case is very much in point; indeed divisional mortgages often are the result of the previous union of railroads that were separately incorporated. The other line of decision consists of cases under the Public Utility Holding Company Act. There the courts not only sustained plans representing a distribution of a holding company's assets, e.g., In re Standard Gas Electric Co., 151 F.2d 326 (3rd Cir. 1945), cert. denied, 327 U.S. 796, 66 S.Ct. 820, 90 L.Ed. 1022 (1946) (cancellation of notes and debentures of holding company in exchange for cash and common stock in five of the company's operating subsidiaries), but also plans whereby stock of a former holding company was exchanged for cash and stock in one operating subsidiary. Phillips v. SEC, 153 F.2d 27 (2d Cir. 1947) (preferred stock of holding company for common stock of subsidiary plus cash).

C.

Although we believe that the assurance of a remedy under the Tucker Act would render the processes of the Act fair and equitable, we are not sure we can give that assurance. In discussing this issue we will begin as if the Connecticut General case had not been decided and introduce that decision at an appropriate point.

We start from the general proposition that a federal court, in this instance the Court of Claims, has not only the power but the duty to examine its own jurisdiction, whether or not the issue has been raised by the parties and even when they affirmatively consent to have the court consider the merits of the controversy. See Mansfield, Coldwater Lake Michigan Ry. v. Swan, 111 U.S. 379, 4 S.Ct. 510, 28 L.Ed. 462 (1884); Mitchell v. Maurer, supra, 293 U.S. at 244, 55 S.Ct. 162. It might seem to follow that although our decision on the applicability of the Tucker Act would estop the Government from questioning the jurisdiction of the Court of Claims, it could not prevent that court from itself raising the issue and deciding as it saw fit, subject, of course, to Supreme Court review.

In opposition to this, the Government parties point to Hurley v. Kincaid, supra, 285 U.S. at 104, 52 S.Ct. 267, Larson v. Domestic Foreign Commerce Corp., 337 U.S. 682, 697 nn. 17 18, 703 n. 27, 69 S.Ct. 1457, 93 L.Ed. 1628 (1949), and Malone v. Bowdoin, 369 U.S. 643, 647 n. 8, 82 S.Ct. 980, 8 L.Ed.2d 168 (1962). In these cases the Supreme Court reversed judgments against Government officials because of the availability of a remedy against the United States in the Court of Claims. It is contended that these decisions would be in error if the Court of Claims were free to deny the existence of the remedy when the issue was presented to it. Of course, the Court of Claims would not do that in a case where the Supreme Court had spoken. However, the Government parties argue that the Court, in the cases cited, was expounding a general principle that equitable or other non-monetary forms of relief should be denied whenever, in the view of the court seized of the case, adequate compensation could be obtained in the Court of Claims. See e. g., Western v. McGehee, 202 F. Supp. 287, 293 (D.Md. 1962). If the Government has successfully relied on its suability in the Court of Claims to block an otherwise meritorious action, it cannot be allowed to take a contrary position in the Court of Claims in view of the manifest injustice that would be involved; and it would be inappropriate to invoke a concept of "jurisdiction", "a verbal coat of too many colors", United States v. Tucker Trunk Lines, Inc., 344 U.S. 33, 39, 73 S.Ct. 67, 70, 97 L.Ed. 54 (1952) (dissenting opinion of Mr. Justice Frankfurter), when the real issue — whether the Government has consented to be sued — has already been decided by a competent tribunal.

Against this suggestion that notions of "jurisdiction" should not prevent a federal court which itself has jurisdiction from making a definitive decision that an action can be maintained in the Court of Claims, the indenture trustee, the bondholders and the § 77 trustee in the CNJ case claim there is Supreme Court authority to the contrary, to wit, United States v. United States Fidelity Guaranty Co., supra, 309 U.S. at 514-515, 60 S.Ct. 653. In that case the Choctaw and Chickasaw Nations of Indians had filed a claim for royalties due on certain leases in § 77B bankruptcy proceedings of Central Coal and Coke Company in the District Court for the Western District of Missouri; the debtor filed an answer and a cross-claim; and the bankruptcy court, without objection having been made on the issue of jurisdiction, awarded judgment for the debtor with respect to its cross-claim. When the United States subsequently sued on behalf of itself and the Nations on the same claim in the District Court for the Eastern District of Oklahoma against the surety on the Company's royalty bond, the bankruptcy trustee and the Company's successor intervened and pleaded the Missouri judgment both as a bar and as a basis for recovery. The district court concluded that the Missouri judgment barred the claim against the surety and entitled the intervenors to recovery for the amount of the prior judgment. This holding was affirmed on appeal, 106 F.2d 804 (10th Cir. 1939). Before the Supreme Court, the Government conceded the correctness of the decisions below that the Missouri judgment barred recovery by the Nations but challenged their conclusion that it supported the grant of affirmative relief against them. The Court sustained the Government, saying:

Consent alone gives jurisdiction to adjudge against a sovereign. Absent that consent, the attempted exercise of judicial power is void. The failure of officials to seek review cannot give force to this exercise of judicial power. Public policy forbids the suit unless consent is given, as clearly as public policy makes jurisdiction exclusive by declaration of the legislative body. Chicot County Drainage District v. Baxter State Bank is inapplicable where the issue is the waiver of immunity.

* * * * *

309 U.S. at 514, 60 S.Ct. at 657.

We doubt that the United States Fidelity case eliminates the application of collateral estoppel when the suability of the sovereign is at issue. The Missouri bankruptcy court simply had made the erroneous assumption that it had jurisdiction to award judgment against the Nations; the prevailing party was seeking to enforce the judgment in another action; and this could not be done since the court that rendered the judgment had no competency to do so. ALI, Restatement of Judgments § 7 (1942). It is not certain that the result would have been the same if a challenge to the jurisdiction of the Missouri court had been made and erroneously overruled and the decision had not been appealed. See id. § 7 comment e and § 10 and comment thereon, and Durfee v. Duke, 375 U.S. 106, 114 n. 12, 84 S.Ct. 242, 11 L.Ed.2d 186 (1963). Even assuming that it would have been, it still does not follow that a decision by us in favor of applicability of the Tucker Act would not prevent a later contrary decision by the Court of Claims. Congress has vested the reorganization courts and this court on review with the duty of determining whether the processes of the Act are fair and equitable. Determination of the availability of the Tucker Act remedy is part of that task, and there is no reason to think that Congress intended a second bite on the issue of sovereign immunity.

Here, however, we have the contrary decision with respect to the Tucker Act by the Connecticut General court. This is at once a puzzlement and the hope of a solution. The puzzlement is that, subject to some qualifications we need not now develop, the Connecticut General court may also have estopping powers. The hope for a solution is this: If the Supreme Court on its review of Connecticut General should agree with our Tucker Act holding, the Court of Claims will abide by its ruling, and it is immaterial whether such observance would be a matter of collateral estoppel or respect for a binding precedent. If the Supreme Court should agree with the Connecticut General court, the Court of Claims would likewise be bound to follow the Supreme Court decision. As previously explained, we are molding our judgment so as to enable us to conform it to the Court's action. Only if the Court should not determine the Tucker Act issue would it be necessary for us to decide whether our ruling would have preclusive effect.

For the reasons stated in this opinion and in the opinions of Judges McGowan and Thomsen dealing with other points, this court orders as follows:

(1) The orders in the matters of Penn Central Transportation Company, The United New Jersey Railroad and Canal Co. and other Secondary Debtors of Penn Central Transportation Company, Lehigh Valley Railroad Co., The Central Railroad Company of New Jersey, and The Lehigh and Hudson River Railway Company, that the Regional Rail Reorganization Act of 1973 does not provide a process which would be fair and equitable to the estate of the railroad in reorganization be and they hereby are reversed and the causes are remanded for the entry of orders consistent with our opinions providing for reorganization under the Act;

(2) The orders in the matters of Reading Company and The Ann Arbor Railroad Company directing that reorganization shall proceed under the Regional Rail Reorganization Act of 1973 be and they hereby are affirmed;

(3) The effective date of paragraphs (1) and (2) is stayed until a further order of this court, to be made after final determination by the Supreme Court of United States Railway Association et al, v. Connecticut General Ins. Corp. et al., Richard Joyce Smith, Trustee of the Property of The New York, New Haven and Hartford Railroad Co. v. United States Railway Association, and Blanchette v. Connecticut General Ins. Corp., Nos. 167, 166 and 165 [jurisdiction noted, ___ U.S. ___, 95 S.Ct. 9, 42 L.Ed. 2d 32], provided, however, that during the period of the stay the reorganization courts whose decisions are cited in paragraph (1) of this order shall not dismiss the respective proceedings under § 77 of the Bankruptcy Act, and, notwithstanding the stay, such decisions shall not have the effect of causing the respective railroads not to be "a railroad in reorganization" as defined in § 102(12) of the Act; and

(4) This court reserves jurisdiction to modify its opinion and this order in light of the decision of the Supreme Court of the United States on the appeals cited in Paragraph (3).

APPENDIX A Appellants, Appellees, Amici Curiae and their counsel

In re Penn Central Transporation Co., No. 74-8

Carla A. Hills, Asst. Atty. Gen., Earl J. Silbert, U.S. Atty., David J. Anderson, Special Litigation Counsel, and James F. Dausch, Dept. of Justice, Washington, D.C. (Rodney E. Eyster, Gen. Counsel, Jerome E. Sharfman, Stuart G. Meister, Michael T. Haley, Dept. of Transp., Washington, D.C., of counsel), for appellant United States of America.

Fritz R. Kahn, Gen. Counsel, and Theodore C. Knappen, I. C. C., Washington, D.C., for appellant Interstate Commerce Commission.

Lloyd N. Cutler, Marshall Hornblower, William R. Perlik, and Louis R. Cohen, Washington, D.C. (Wilmer, Cutler Pickering, Barry E. Carter, William T. Lake, and J. B. Stephens, Washington, D.C. of counsel), for appellant United States Railway Ass'n.

Jordan J. Hillman, Senior Legal Counsel, United States Railway Ass'n, Washington, D.C. for appellant United States Railway Ass'n.

William F. Hyland, Atty. Gen., of N. J. and Kenneth S. Levy, Deputy Atty. Gen., of N. J., for appellant State of New Jersey.

Edward J. Hickey, Jr., William J. Hickey, and Geoffrey N. Zeh, Washington, D.C. (Mulholland, Hickey Lyman, Washington, D.C., of counsel), for appellant Railway Labor Executives' Ass'n.

James L. Highsaw, and William G.Mahoney, Washington, D.C. (Highsaw Mahoney, Washington, D.C., of counsel), for appellant Congress of Railway Labor Unions.

Albert D. Brandon, Utility Counsel, and Mead J. Mulvihill, Jr., City Sol., City of Pittsburgh, Pittsburgh, Pa., for appellant City of Pittsburgh.

Charles A. Horsky, Brice M. Clagett, and W. Crosby Roper, Jr., Washington, D.C. (Covington Burling, Washington, D.C., of counsel), and Paul R. Duke, and John F. DePodesta, Penn Central Transp. Co., Philadelphia, Pa., for appellees Penn Central Trustees.

Louis A. Craco, New York City (Willkie, Farr Gallagher, Walter H. Brown, Jr., Thomas L. Bryan, Michael B. Targoff, Cornelius T. Finnegan III, and Rebecca T. Halbrook, New York City, of counsel), for appellee Institutional Investors Penn Central Group.

Frederic L. Ballard, Philadelphia, Pa. (Ballard, Spahr, Andrews Ingersoll and Alan S. Fellheimer, Philadelphia, Pa., of counsel), for appellees Institutional Investors Penn Central Group and Certain Indenture Trustees.

Joseph Auerbach, Morris Raker, and Charles W. Morse, Jr., Boston, Mass. (James Wm. Moore, New Haven, Conn., and Sullivan Worcester, Boston, Mass., of counsel), for appellee New Haven Trustee.

Charles C. Parlin, Jr., New York City (Shearman Sterling, Robert H. MacKinnon, and David L. Bleich, New York City, of counsel), for appellee First National City Bank, as Agent and Pledgee.

David Berger, Gerald J. Rodos, and Edward H. Rubenstone, Philadelphia, Pa. (David Berger, P.A., Philadelphia, Pa., of counsel), for appellee Penn Central Co.

Israel Packel, Atty. Gen., of Pa., Harrisburg, Pa., and Gordon P. MacDougall, Spec. Asst. Atty. Gen., Washington, D.C., for appellee Commonwealth of Pennsylvania.

Brock Adams, Washington, D.C., and 29 Other Members of Congress, as amici curiae.

Joseph C. Davidson, Jr., New York State Dept. of Transp., Albany, N.Y., for New York State Dept. of Transp., as amicus curiae.

In re The United New Jersey Railroad and Canal Co. and Other Secondary Debtors of Penn Central Transportation Co., No. 74-12

Appellants United States, USRA, ICC, and New Jersey.

Appellee Commonwealth of Pennsylvania.

Richard G. Elliott, Jr., Wilmington, Del. (Richards, Layton Finger, Wilmington, Del.; Proskauer, Rose, Goetz Mendelsohn, and White Case, New York City, of counsel), for appellee Michigan Central Railroad Co., secondary debtor.

William H. Ewing, Joseph J. Connolly, and Mitchell L. Bach, Philadelphia, Pa. (Goodman Ewing, Philadelphia Pa., of counsel), for appellees The Connecting Railway Co., Fairfax Leary, Trustee of the property of The United New Jersey Railroad and Canal Co., John C. Kohl, Trustee of the properties of the Delaware Railroad Co. and The Philadelphia, Baltimore, and Washington Railroad Co.

Mark Willcox, Jr., and Herbert G. Schick, Philadelphia, Pa. (MacCoy, Evans Lewis, Philadelphia, Pa., of counsel), for appellees Fairfax Leary, Trustee of the properties of The Philadelphia and Trenton Railroad Co., The Northern Central Railway Co., and Union Railroad Co. of Baltimore, Douglass Campbell, Trustee of the property of The Michigan Central Railway Co., and Robert Hellawell, Trustee of the property of The Pittsburgh, Youngstown Ashtabula Railway Co.

Jerome K. Walsh, and E. Roger Frisch, New York City (Walsh Frisch, New York City, of counsel), for appellees George W. Betz, Jr., Trustee of the properties of Beech Creek Railroad Co., The Cleveland and Pittsburgh Railroad Co., Erie and Pittsburgh Railroad Co., and Penndel Co., Albert B. Huttig, Trustee of the property of The Cleveland, Cincinnati, Chicago and St. Louis Railway Co., and Robert W. Valimont, Trustee of the property of Pittsburgh, Fort Wayne and Chicago Railway Co.

William T. Finley, Jr., and Peter J. Levin, Washington, D.C. (Sharon, Pierson, Semmes, Crolius Finley, Washington, D.C., of counsel), for appellee Pennsylvania Co.

Donald M. Wilkinson, Jr., New York City (White Case, P. B. Konrad Knake, Robert L. Clare III, and Edmond C. Gregorian, New York City, Chatz, Sugarman Abrams, Chicago, Ill., Proskauer, Rose, Goetz Mendelsohn, New York City, Morgan, Lewis Bockius, Wolf, Block, Shorr Solis-Cohen, Ballard, Spahr, Andrews Ingersoll, Philadelphia, Pa., Winthrop, Stimson, Putnam Roberts, Kelley, Drye, Warren, Clark, Carr Ellis, New York City, Reed, Smith, Shaw McClay, Pittsburgh, Pa., and Richards, Layton Finger, Wilmington, Del., of counsel), for appellees Bankers Trust Co., American National Bank and Trust Co., of Chicago, The Bank of New York, The Fidelity Bank, First Pennsylvania Banking and Trust Co., Girard Trust Bank, Irving Trust Co., Manufactures Hanover Trust Co. of New York, Mellon Bank, N.A., and Wilmington Trust Co., secondary debtor indenture trustees and creditors.

In re Lehigh Valley Railroad Co., No. 74-11

Appellants United States, USRA, State of New Jersey, RLEA, and CRU.

Louis G. Feldmann, Hazelton, Pa., for appellants Greater Hazelton Community-Area New Development Organization, Inc., and Railroad Task Force for Northeast Region.

Appellee Commonwealth of Pennsylvania.

Oliver C. Biddle, Philadelphia, Pa. (Ballard, Spahr, Andrews Ingersoll, Philadelphia, Pa., Cravath, Swaine Moore, Kelley, Drye, Warren, Clark, Carr, Ellis, New York City, Morgan, Lewis Bockius, Philadelphia Pa., and Sherman Sterling, New York City, of counsel), for appellees Girard Trust Bank, Chemical Bank, Manufacturers Hanover Trust Co., The Fidelity Bank, and First National City Bank, as indenture trustees.

In re The Central Railroad Co. of New Jersey, No. 74-6

Appellants United States, USRA, State of New Jersey, RLEA, CRU, and ICC.

Appellee Commonwealth of Pennsylvania.

Roger C. Ward, Newark, N.J. (Pitney, Hardin Kipp, Newark, N.J., of counsel), for appellee Manufacturers Hanover Trust Co., Indenture Trustee of the General Mortgage Bonds.

Jacob I. Goodstein, New York City, for appellee Bondholders Protective Committee (of the 3 1/4% General Mortgage Bonds).

Stanley Weiss, Newark, N.J. (Dean R. May, Newark, N.J., on the brief; Richard B. Wachenfeld, Newark, N.J., of counsel), for appellee R. D. Timpany, Trustee of the Property of The Central Railroad Co. of New Jersey.

In re The Lehigh and Hudson River Railway Co., No. 74-10

Appellants United States, USRA, State of New Jersey, RLEA, CRU, and ICC.

Appellee Commonwealth of Pennsylvania.

In re Reading Co., No. 74-7

Appellant Commonwealth of Pennsylvania.

Edward Roberts, III, and William F. Sorin, New York City (Kelley, Drye, Warren, Clark, Carr Ellis, and G. Clark Cummings, New York City of counsel), for appellant Manufacturers Hanover Trust Co. as Indenture Trustee. Appellees United States, USRA, and ICC.

Howard H. Lewis, Philadelphia, Pa. (Obermayer, Rebmann, Maxwell Hippel, and Barry J. Hart, and Alfred W. Hesse, Jr., Lockwood W. Fogg, Jr., and William C. Jamouneau, Reading Co., Philadelphia, Pa., of counsel) for appellees Trustees of Reading Co.

In re Ann Arbor Railroad Co., No. 74-9

William T. Finley, Jr., Peter J. Levin, and William C. Lieblich, Washington, D.C. (Sharon, Pierson, Semmes, Crolius Finley, Washington, D.C., of counsel), and Frederick C. Nash, Detroit, Mich. (Bodman, Longley, Bogle, Armstrong Dahling, Detroit, Mich., of counsel), for appellant Detroit, Toledo and Ironton Railroad Co.

Edward Roberts, III, and William F. Sorin, New York City (Kelley, Drye, Warren, Clark, Carr Ellis, New York City, of counsel), for appellant Manufacturers Hanover Trust Co.

Appellees United States, USRA, and UCC.

Frank J. Kelley, Atty. Gen. of Mich., Robert A. Derengoski, Solicitor Gen. of Mich., and Robert J. Taube, Asst. Atty. Gen. of Michigan, Lansing, Mich., for appellees State of Michigan and Michigan Pub. Service Comm'n.

Robert W. Warren, Atty. Gen. of Wis., and George B. Schwahn, Asst. Atty. Gen. of Wis., Madison, Wis., for appellees State of Wisconsin, Wisconsin Department of Trans., and Public Service Comm'n.

James F. Schouman, Dearborn, Mich., for appellee United Trans. Union.

Daniel J. Sweeney, Washington, D.C. (Belnap, McCarthy, Spencer, Sweeney, Harkaway, Washington, D.C. of counsel), for appellee Green Bay Western Ry.

APPENDIX B

UNITED STATES RAILWAY ASSOCIATION

2100 Second Street, S.W. Office of Public and Washington, D.C. 20595 Governmental Affairs Contact: (202) 426-4250 FOR IMMEDIATE RELEASE August 22, 1974 CONTACT: Bob O'Rourke

STRATEGIC OPTIONS (ALTERNATE INDUSTRY CONCEPTS)

I. Concept: CONRAIL

Description: Merger of all bankrupt carriers into a unified system.

Major Justification: Follows the strict interpretation of the law; and the major thrust of the legislation to merge, then rehabilitate the bankrupt carriers. Offers the best potential for eliminating duplicative facilities and services of present bankrupt carriers.

II. Concept: EASTERN SEABOARD "FEEDER" SYSTEMS

Description: Conrail is organized and operated as a major regional line haul carrier, except that facilities along the eastern seaboard are spun off and formed into one or more terminal districts, or companies. This company(ies) would originate and terminate traffic for Conrail and the solvent carriers.

Major Justification: The eastern seaboard, especially the metropolitan areas of Philadelphia, Newark and New York represent a unique operating environment because (a) it is here that nearly all duplicative services and facilities of the potential Conrail carriers are located, (b) the freight operations of PC, RDG [Reading], and CNJ are interwoven with passenger services and (c) the Northeast Carridor [sic] passenger improvement program will restrict current patterns of through freight operations. These unique conditions indicate that perhaps the structure employed along the eastern seaboard should differ from that applied to the bankrupt lines elsewhere.

III. Concept: MODERATE SIZED CARRIERS (Multi Conrail)

Description: Existing bankrupt properties and services are restructured into a number of moderate sized firms (one billion or less in revenue).

Major Justification: Economies in railroading are not dependent on firm size but upon joint use of track, terminals, run through train operations, etc. Bigger is not necessarily better, and competition is enhanced by having a number of smaller firms rather than one giant Conrail. The risk of a huge federally financed entity dominating the region is avoided. Also avoided is the creation of another Penn Central situation where the collapse of one firm undermines the region's rail transportation.

IV. Concept: CONTROLLED LIQUIDATION

Description: The solvent carriers assume most of the essential services presently provided by the bankrupt carriers. Other essential services (i. e., passenger, commuter, east coast terminals, etc.) are taken over by existing entities such as Amtrak, commuter authorities, or port authorities. USRA and other federal programs fund necessary transfers, rehabilitation and modernization so that solvent carriers can assume essential services that are financially weak and in order to preclude restricting services to those that can be privately financed.

Major Justifications: Head on competition between the present solvent carriers and a quasi-public carrier with access to government funding is unstable in the long term, especially since the quasi-public corporation will be the dominant carrier in the region.

V. Concept: SEPARATE FIXED PLANT ENTITY

Description: The fixed plant is separated from the operating company in (1) ownership, and (2) financing. In certain structures, the control of use of the fixed plant may also rest outside the operating company.

Major Justification: The major rehabilitation funding and the asset value of the bankrupts is in the fixed plant. The level of rehabilitation (repayment of past costs avoided) required and the possible payment of "real" money for the assets at some point in time makes Conrail viability uncertain. To protect government funding against this risk of default the law already sets up Presidential appointments as the majority of the Conrail Board for an unspecified (but lengthy) period of time. The more federal funding required, (the major uncertainty is creditor claims) the greater the risk of a permanent federal role. The objective of a fixed plant solution is to minimize (or eliminate) the government role in the operating company while still recognizing that substantial federal funding will require some "quid pro quo" public role in asset ownership.

It seems impossible at this juncture to determine how much of the Ex parte 305 catch-up maintenance expenditure will be reflected in increased expense for maintenance of way and equipment and how much in additions to capital. There is the further uncertainty how much of this increase may be eaten up by inflationary cost increases before a further rate increase is granted.

McGOWAN, Judge:

This opinion is addressed to the pending appeals in respect of the so-called secondary debtors of the Penn Central system. The orders appealed from are those entered by the Section 77 reorganization court (Eastern District of Pennsylvania, Fullam, D. J.) under the second sentence of Section 207(b) of the Regional Rail Reorganization Act of 1973 (P.L. 93-236, 93rd Cong.), which became effective January 2, 1974, and which is hereinafter referred to as the "Act."

The secondary debtors are 15 corporations owned or controlled by Penn Central. The rail properties owned by them are under long-term lease to Penn Central and are operated by it as a significant part of its system, constituting, as they do, nearly 50% of the total route mileage operated by Penn Central. No payments have been made by Penn Central to the secondary debtors under their respective lease agreements since Penn Central came under the jurisdiction of the Section 77 bankruptcy court on June 21, 1970. Neither have the Penn Central Trustees acted since that time either to affirm or to disaffirm the leases in question, as they are authorized by Section 77 to do, the reorganization court having extended indefinitely the time within which such an election is to be made.

In July of 1973, the secondary debtors each filed separate petitions for reorganization under Section 77(a) of the Bankruptcy Act, seeking reorganization as a part of or in connection with the plan of reorganization of Penn Central. Such petitions were approved, and the secondary debtors have been under the jurisdiction of the bankruptcy court since that time. These actions by the secondary debtors followed upon the filing by Penn Central, earlier in 1973, of a reorganization proposal premised upon the termination of all rail operations and the disposition of all rail properties — a proposal which evoked subsequent congressional response in the form of the Act.

I

A. The 120-day Proceedings

Section 207(b) of the Act provides in its first sentence that, within 120 days after its enactment, the reorganization court shall decide whether the railroad in its charge "is reorganizable on an income basis within a reasonable time under Section 77 of the Bankruptcy Act (11 U.S.C. 205) and that the public interest would be better served by continuing the present proceedings than by a reorganization under this Act." In response to this mandate, the reorganization court having the secondary debtors in its care held hearings on these issues. Thereafter, in early May of this year, it made separate findings of fact as to each of the secondary debtors, and entered separate orders with respect to each.

In the case of 12 of such debtors, the order concluded that (1) the debtor is reorganizable on an income basis within a reasonable time under Section 77, and (2) the evidence available does not preponderate in favor of a finding that the public interest would be better served by continuing the present reorganization proceedings than by a reorganization under the Act. In the case of the three remaining secondary debtors, the orders stated only that "the record as a whole does not permit a decision at this time as to whether or not the debtor is reorganizable on an income basis within a reasonable time under Section 77" within the meaning of Section 207(b) of the Act.

The reorganization court filed a separate memorandum on May 2, 1974, in which it discussed the considerations prompting its orders. It rejected a contention by the Government that the finding of non-reorganizability which had been made as to Penn Central dictated a similar finding as to the secondary debtors. It concluded that it had jurisdiction to make the determination as to the public interest called for by Section 207(b). With respect to the issue of reorganizability, the court found the burden of proof to be on the opponents of reorganizability; approaching the matter in this way, it said that its approval of the secondary debtors' petitions for reorganization necessarily reflected a belief that they were probably reorganizable, and it purported to see differences between a lessor railroad and an operating lessee that held out special possibilities of reorganization on an income basis for the former — possibilities which there had not yet been adequate time to explore. No appeals were sought to be taken from these so-called "120-day orders" involving the secondary debtors.

B. The 180-day Proceedings

The second sentence of Section 207(b) of the Act calls for a further determination by the reorganization court. It provides that within 60 days after the report, elsewhere required in the Act, of the Secretary of Transportation (which means within 180 days from enactment of the Act), the reorganization court shall decide whether its ward "shall be reorganized by means of transferring some of its rail properties" to the private corporation (Conrail) elsewhere created in the Act to operate the rail network contemplated by the final system plan. Section 207(b) goes on to say that, because of the "strong public interest" in the provision of rail service pursuant to such system plan, the reorganization court shall order reorganization under the Act "unless it (1) has found that the railroad is reorganizable on an income basis within a reasonable time under section 77 of the Bankruptcy Act (11 U.S.C. 205) and that the public interest would be better served by such a reorganization than by a reorganization under this Act, or (2) finds that this Act does not provide a process which would be fair and equitable to the estate of the railroad in reorganization in which case it shall dismiss the reorganization proceeding."

The reorganization court for the secondary debtors responded to this further mandate by again holding hearings within the required time. Thereafter it entered separate orders in the case of each of the secondary debtors reciting that the Act does not provide a fair and equitable process, and that reorganization shall not be carried out under the Act. Each order was stayed pending final determination by the Special Court. As in the case of the 120-day proceedings, Judge Fullam again filed a separate memorandum, on July 2, 1974, which he described as in support of the findings and orders pursuant to the second sentence of Section 207(b). In that memorandum he referred first to his memorandum filed concurrently in the Penn Central proceeding stating the reasons why he had found the process of the Act not to be fair and equitable visa-vis the estate of that debtor. Those same reasons were said to justify the entry of similar orders in respect of each of the secondary debtors.

The memorandum went on, however, to discuss certain issues which it characterized as "uniquely applicable" to the secondary debtors. The first of these was the contention by the secondary debtors that because they had earlier been found to be reorganizable under Section 77, they no longer met the Act's definition (§ 102(12)) of a "railroad in reorganization." Judge Fullam rejected this on the ground that the finding of reorganizability had not been accompanied by a finding that the public interest would be better served by reorganization outside the Act. The absence of such a finding made it necessary, in his view, to proceed to a determination as to the fairness and equity of the process.

The constitutional issues centering around the requirement that the secondary debtors take stock in payment for their properties were said to be substantially the same as in the Penn Central case, although Judge Fullam went on to note that to the extent a secondary debtor can show present profitability, or potential independent reorganizability, it might be entitled to have higher values for its properties recognized by the Special Court. This, however, was said to be a matter for the latter tribunal.

Judge Fullam next referred to a problem which he characterized as not directly before him, namely, the possibly differing treatment of non-bankrupt lessors of rail properties to Penn Central. He commented, however, that there appeared to be nothing in Section 303(c)(1)(A) of the Act necessarily requiring the application of different valuation standards to the properties of the secondary debtors, on the one hand, and the non-bankrupt lessors, on the other.

Lastly, Judge Fullam referred to the Act's provisions relating to the "Northeast Corridor" between Boston and Washington. He noted that certain of the secondary debtors own most of this trackage, and that the government in the proceedings before him had, on the question of Conrail's viability, alleged that it would be able to raise $500 million in cash by acquiring such properties and selling them to Amtrak. Absent any eminent domain power in Amtrak, Judge Fullam purported to "find it difficult to accept the theory that it is constitutionally permissible for the government to achieve that result by means of the [Act], without providing the present owners with cash or its equivalent." He concluded by saying that this particular aspect of the Act supplied a further reason, over and above those given in his Penn Central memorandum, for finding the process of the Act deficient in fairness and equity in the case of the affected secondary debtors.

C. Appeals from the 180-day Orders

Notices of appeal from the orders entered in the 180-day proceedings affecting the secondary debtors were filed by the United States of America and the United States Railway Association ("USRA"); the Interstate Commerce Commission; and the State of New Jersey, this last appeal being limited to the secondary debtor known as the United New Jersey Railroad and Canal Company.

In none of these three appeals was any challenge made to the findings by the reorganization court of the reorganizability under Section 77 of the twelve secondary debtors so found to be reorganizable. The errors claimed are directed to issues bearing upon the finding by the reorganization court that the Act does not provide a fair and equitable process — issues which the reorganization court purported to decide by reference to its resolution of them in the Penn Central case.

There is some limited reference to issues said to be peculiarly applicable in the case of one or more of the secondary debtors. The State of New Jersey asserted that, to the extent that the court determined that the acquisition by Conrail and subsequent sale to Amtrak of the northeast corridor properties would violate the constitutional rights of UNJ, the court erred; and the notice of appeal of the United States and USRA makes the same claim. The notice of appeal of the latter appellants disclaimed any contention that non-bankrupt lessors of rail properties to Penn Central can constitutionally be compelled to transfer such properties to Conrail on other than an eminent domain theory. They added, however, that the reorganization court was in error to the extent that "it be taken to have endorsed the argument that the treatment of Penn Central and secondary debtors under the Act must take into account the treatment of Penn Central non-bankrupt rail subsidiaries."

The briefing in this court of these appeals reflects the recognition by the parties of the significant degree to which issues raised by them are common to the Penn Central case and have now been resolved in Judge Friendly's opinion. The appellants relied mainly on their joint brief filed in the Penn Central appeal. As for the appellees, one brief was filed on behalf of all the secondary debtors, together with Pennsylvania Company, a Penn Central subsidiary holding debt and equity interests in certain of such debtors. Another brief was filed by trustees under mortgage indentures of the secondary debtors.

Each of these appellees' briefs in terms relied heavily, and without further discussion, on the joint brief filed in the Penn Central case on behalf of the institutional investors. Each did, however, go on to discuss questions that were conceived of as being peculiar to the secondary debtors. In like fashion, we do not in this opinion retrace the ground covered by Judge Friendly's opinion, issued simultaneously herewith. We turn, therefore, to the identification and disposition of those issues affecting the secondary debtors that are not disposed of by that opinion.

II

The salient difference between the secondary debtors and the operating railroads involved in the 180-day proceedings is the finding or reorganizability as to most of the former. That difference is the pivot of most of the contentions made by appellees and which they characterize as presenting issues unique to the secondary debtors.

A. The "Public Interest" Provision of Section 207(b)

1. The nature of the "public interest" finding.

Both the indenture trustees and the secondary debtors press arguments directed at the first sentence of Section 207(b) and asserting that the finding of reorganizability in the 120-day decision, without more, ended the proceedings under that section and left the secondary debtors free to pursue their Section 77 reorganizations. In the case of the indenture trustees, the argument is formulated in terms of the allegedly legislative nature of the determination contemplated by the "public interest" clause of the first sentence — the kind of determination that, so it is said, is foreclosed to Article III courts by the constitutional separation of powers. If, so the argument goes, the reorganization court was thereby lacking in jurisdictional power to make that determination, the "public interest" clause drops out of the picture, leaving the finding of reorganizability standing alone. That being so, the terms of Section 207(b) with respect to the 180-day proceeding are such that the reorganization court cannot under that section proceed further, and the issue of the fairness and equity of the Act's process is not reached.

It will be readily seen that, so articulated, this argument is the same as the jurisdictional challenge dealt with by Judge Friendly in his opinion; and the disposition he made of it there, adverse to the contention as presented, is dispositive of it here.

The secondary debtors themselves, although endorsing the position of the indenture trustees in this regard, pursue an alternative theory. This is that, properly construed, the "public interest" clause of Section 207(b)'s first sentence is not to be taken as a separate substantive determination that the court must make, but is, rather, a legislative finding to the effect that, if reorganizability under Section 77 is found, continuation of that proceeding will better serve the public interest than reorganization under the Act. Appellees remind us that the reorganization court in its memorandum of May 2, 1974, recognized that the literal phrasing of the Act lends itself to this interpretation. Although that court went on to reject this reading, it is said to have erred in doing so, and to have missed the opportunity provided by that interpretation to lay to rest the serious constitutional problems otherwise created by the Act. These are the allegedly irrebuttable presumption that the public interest mandates reorganization under the Act, and the asserted violation of the uniformity requirement of the bankruptcy power caused by the statutory directive that Section 77 proceedings be dismissed unless reorganization is to take place under the Act.

The shaping of statutory construction to avoid an inconsistency with the uniformity requirement is, of course, rendered unnecessary by the treatment of this issue in Judge Friendly's opinion. As we conclude below, we do not think that the public interest presumption is in fact irrebuttable. We therefore do not see any necessity to read the language as appellees would have us do.

The secondary debtors make one further point, however, which is that their interpretation is the only means by which Section 207(b) can be squared with Section 102(12) of the Act. The latter section defines "railroad in reorganization" as "a railroad [in reorganization] which is subject to a bankruptcy proceeding and which has not been determined by a court to be reorganizable or not subject to reorganization pursuant to this Act as prescribed in Section 207(b) . . . ." We are told that a close and careful reading of this definition inescapably leads to the conclusion that a secondary debtor found to be reorganizable is no longer a "railroad in reorganization". Since 12 of the secondary debtors were so found to be reorganizable under the first sentence of Section 207(b), they could not be subject to the Act insofar as the latter is restricted by its own terms to "railroad[s] in reorganization."

This approach is said to reflect a patent congressional purpose to leave opportunities for reorganization under Section 77 unimpeded. Any reorganization plan under Section 77 must itself be found in the public interest, so the argument runs, and it could not be so if it was at odds with the final system plan under the Act. If Penn Central is itself reorganized under the Act, Conrail will have the power to acquire Penn Central's interest in the leased properties irrespective of whether the secondary debtors are reorganized under the Act or under Section 77. The goal of efficient rail service will not, therefore, be injured by the secondary debtors continuing under Section 77.

We believe that this interpretation of the Act, although perhaps making grammatically consistent what is otherwise an inelegant exercise in draftsmanship, does violence to the logic and purposes of the Act.

The House version of the bill, as submitted to the Senate and, eventually, to the conference committee, stated:

Within sixty days after the date of enactment of this Act, each United States district court having jurisdiction over a railroad in reorganization shall make a finding as to whether or not, based on the financial condition and prospects for such railroad, it can be reorganized on an income basis under section 77 of the Bankruptcy Act. With respect to a railroad which is found not to be reorganizable on an income basis under section 77 of the Bankruptcy Act, the court shall enter an order to the effect that such railroad shall be reorganized in accordance with the provisions of this Act and those provisions of such section 77 not inconsistent with this Act, or the court may entertain a motion to dismiss the section 77 proceedings. In any case in which a United States district court does not make the finding referred to in the first sentence of this section with respect to any railroad in reorganization within the sixty-day period referred to in such sentence, such railroad shall be presumed to be a railroad with respect to which there is a reasonable likelihood that it can be reorganized on an income basis under section 77 of the Bankruptcy Act.

H.R. 9142 § 301, 93rd Cong., 1st Sess. (as passed by the House of Representatives November 8, 1973) [hereinafter House Bill].

The House Bill defined "railroad in reorganization" as any railroad undergoing reorganization in a Section 77 proceeding. It then divided this category into "bankrupt railroads" (which were to receive Conrail common stock with a possible supplement of other securities), and "nonbankrupt railroads" (which had an absolute right to refuse to convey their properties, and which could only receive obligations other than common stock, in case they chose to convey). House Bill § 303(d).

"Nonbankrupt railroads" were defined as:

. . . any railroad in reorganization which, pursuant to section 301 of this Act, is determined or presumed to have a reasonable likelihood of being reorganized on an income basis under section 77 of the Bankruptcy Act.

House Bill § 102(6).

"Bankrupt railroads" were defined as those found to be not reorganizable under Section 77.

It thus is clear that the House version of the bill contemplated exactly what appellees argue is the meaning of the present Act — that a railroad should be reorganized under the Act only if it was found to be not reorganizable under Section 77.

The bill as adopted by the Senate and sent to conference distinguished only between "railroad[s] in reorganization" and "profitable railroad[s]." "Railroad in reorganization" followed the House definition of "bankrupt railroad" in stating that:

"Railroad in reorganization" means a railroad which is subject to a bankruptcy proceeding and which has not been determined by a court to be reorganizable on an income basis within a reasonable time pursuant to Section 207(b) of this Act.

H.R. 9142 § 103(12), 93rd Cong., 1st Sess. (as passed by the Senate, with amendments, Dec. 13, 1973) [hereinafter Senate Bill].

Section 207(b) of the Senate Bill provided:

Within 90 days after the adoption and release by the Association of the preliminary system plan pursuant to subsection (a) of this section, each United States district court or other court having jurisdiction over a railroad in reorganization shall decide whether or not such railroad shall be reorganized by means of transferring some of its rail properties to the Corporation pursuant to the provisions of this Act. Because of the strong public interest in the continuance of rail transportation in the region pursuant to a system plan devised under the provisions of this Act, each such court shall order that reorganization be proceeded with pursuant to this Act unless it finds (1) that the railroad is reorganizable on an income basis within a reasonable time under section 77 of the Bankruptcy Act (11 U.S.C. 205) and that the public interest would be better served by such a reorganization than by a reorganization under this Act, or (2) that reorganization under this Act is not possible on terms which would be fair and equitable to the estate of the railroad in reorganization. [emphasis added]

The Senate Report on the bill described the section as follows:

[The district] court shall direct reorganization under S. 2767 unless (1) it finds that the railroad is reorganizable on an income basis under section 77 of the Bankruptcy Act "within a reasonable time" and if it is reorganizable, that the public interest would be better served by an independent section 77 reorganization than by reorganization under this legislation or (2) it finds that "reorganization under this Act is not possible on terms which would be fair and equitable to the estate of the railroad in reorganization."

S.Rep. No. 93-601, 93rd Cong., 1st Sess. 28 (1973), U.S. Code Cong. Admin. News, 1973, pp. 3242, 3268, (emphasis in the original).

On the floor of the Senate, Senator Hartke, Chairman of the Senate Committee on Commerce, which drafted the bill, stated the meaning of this provision of Section 207 as follows:

Within 90 days after release of the preliminary system plan, a reorganization court will order a railroad in reorganization in the region to proceed in reorganization under the bill unless it finds; One, that such railroad is capable of income reorganization — if it would be in the public interest — or two, that such reorganization under the bill is not possible on terms which would be fair and equitable . . ."

Cong.Rec. S. 22481 (daily ed. Dec. 11, 1973).

It is thus clear that the Senate introduced the public interest provision with the deliberate intent of requiring a separate determination over and above the capacity of the debtor to be reorganized on an income basis within a reasonable time.

The conference report, which describes the bill as it was finally adopted by both houses, makes no mention of the insertion (at conference) of the public interest determination into the definition of a "railroad in reorganization." It describes the compromise wording of Section 207 as follows:

[T]he timing for decisions by the reorganization or other courts with regard to whether a railroad is reorganizable on an income basis or whether the "this Act does not provide a process which would be fair and equitable to the estate of the railroad in reorganization" has been modified. The conference substitute provides that, within 120 days after date of enactment, the reorganization or other court must decide whether a railroad in reorganization is reorganizable on an income basis within a reasonable period of time and that the public interest would be better served by continuing the present reorganization proceedings than by a reorganization under this bill. If the court decides that a railroad is not so reorganizable, the court is then required to order the railroad to proceed with reorganization pursuant to the bill.

S.Rep. No. 93-664; H.R. Rep. No. 93-774, 93rd Cong., 1st Sess. 52 (1973), U.S. Code Cong. Admin.News, 1973, pp. 3306, 3315 (emphasis added).

The wording of the conference report indicates that, as in the Senate version, mere reorganizability was not sufficient to create exemption from reorganization under the Act. The reorganization necessary for exemption had also to be in the public interest, a determination separate from the determination of mere reorganizability.

We find ourselves unable, therefore, to accept, for any of the reasons advanced by appellees, their contention that the finding of "public interest" must necessarily follow on a finding of reorganizability. We note also that such an interpretation would contravene the basic rule of statutory construction that language should not be treated as superfluous if a reasonable meaning is possible. See e. g., United States v. Menasche, 348 U.S. 528, 538-539, 75 S.Ct. 513, 99 L.Ed. 615 (1955); Platt v. Union Pacific R.R. Co., 99 U.S. 48, 25 L.Ed. 424 (1878); Parker v. United States, 448 F.2d 793 (10th Cir. 1971); Montgomery Charter Service, Inc. v. Washington Metropolitan Area Transit Commission, 117 U.S.App.D.C. 34, 325 F.2d 230 (1963); Tabor v. Ulloa, 323 F.2d 823 (9th Cir. 1963).

We believe that the proper interpretation of the Act is as follows:

1. Section 102(12), which defines a "railroad in reorganization," should be read in light of the House and Senate versions from which it came, and must be found to define a "railroad in reorganization" as a railroad subject to a bankruptcy proceeding that has not been determined by a court to be

a. "reorganizable" pursuant to the 120-day decision under 207(b) — which would include both the income basis and the public interest criteria; or

b. not subject to the Act, pursuant to the 180-day decision under 207(b), because the Act would fail to provide a process that is fair and equitable.

2. The requirement in the 180-day order that certain reorganization proceedings be dismissed if the Act is found to be unfair and inequitable should be read as applying only to those railroads found not reorganizable on an income basis. In thus interpreting the Act, we note that the Senate bill makes no mention of possible dismissal of proceedings. The dismissal provision, added in conference, is clearly an incorporation of the House language, which originally read:

With respect to a railroad which is found not to be reorganizable on an income basis under section 77 of the Bankruptcy Act, the court shall entertain an order to the effect that such railroad shall be reorganized in accordance with the provisions of this Act and those provisions of such section 77 not inconsistent with this Act, or the court may entertain a motion to dismiss the section 77 proceedings.

House Bill § 301.

2. The merits of the "public interest" finding.

There remains for consideration the correctness of Judge Fullam's resolution of the public interest issue in his 120-day decision. That decision was separated into three components: individual orders entered in each case, findings of fact in each case, and a memorandum opinion covering all of the cases together.

In the individual orders entered in each case involving a secondary debtor found to be reorganizable, Judge Fullam stated:

That the evidence available does not preponderate in favor of a finding that the public interest would be better served by continuing the present reorganization proceedings than by a reorganization in accordance with the Regional Rail Reorganization Act of 1973; that the presumptions established by § 207(b) of said Act have not been overcome; and that therefore, until further Order of this Court, the reorganization of the above-named Secondary Debtor shall be conducted pursuant to the Regional Rail Reorganization Act of 1973 as well as the pertinent provisions of § 77 of the Bankruptcy Act.

These orders were presumably based upon the findings of fact in the individual cases. In those findings, Judge Fullam reviewed the conclusions of the Trustees of Penn Central, and, in some instances, the Report by the Secretary of Transportation, "Rail Service in the Midwest and Northeast Region." The Trustees' conclusions and, where mentioned, the Report were evidently viewed by Judge Fullam as tending to show the nature of the final system plan. They stated that at least some properties of each secondary debtor were expected or intended to be included in the final system. The Secretary's Report estimated "potential excess" trackage among the reorganizable railroads as ranging from about 50% for Connecting Railway's western lines to no potential excess for the Union Railroad Company of Baltimore. All of the Trustees' projections contemplated inclusion of at least 50% of the trackage of each secondary debtor.

Judge Fullam's findings also noted possible alternative uses of the trackage. For example, in the case of the Philadelphia, Baltimore Washington Railroad Company, he stated:

PBW's western rail lines could be a potentially attractive acquisition for some railroads operating west of Chicago and St. Louis because of the access these lines provide to the Pittsburgh gateway. Similarly, southern carriers may favorably consider the possible lease or acquisition of PBW's western lines because of their access to the Chicago gateway.

It thus appears that at the time he made his finding that "the evidence available does not preponderate in favor of a finding that the public interest would be better served by continuing the present reorganization proceeding than by a reorganization in accordance with the Regional Rail Reorganization Act of 1973," Judge Fullam had considered both the utility of the lines to the final system plan, and possible alternative uses of those lines.

The dispute over the correctness of Judge Fullam's public interest findings stems from language in his memoran. sum of May 2, in which he considered all of the secondary debtors together. [n that memorandum, Judge Fullam correctly noted that the comparison to be made "is between a § 77 proceeding without resort to the Act, and a proceeding under § 77 as supplemented by the Act," at 8 n. 2. He then stated:

Perhaps the clearest indication of Congressional intent lies in its allocation of the burden of proof on this issue. In the first place, if the Court finds that the public interest would be equally well served under either method of reorganization, the procedures of the 1973 Act must be chosen. The same result follows if the Court is unable to make a decision on the subject. Other portions of § 207(b) provide:

". . . Because of the strong public interest in the continuance of rail transportation in the region pursuant to a system plan devised under the provisions of this Act, each such court shall order that the reorganization be proceeded with pursuant to this Act unless it (1) has found the railroad is reorganizable on an income basis within a reasonable time under § 77 of the Bankruptcy Act (11 U.S.C. § 205) and that the public interest would be better served by such a reorganization than by reorganization under this Act . . . . If a court does not enter an order or make a finding as required by this subsection, the reorganization shall be proceeded with pursuant to this Act. . . ."

Unquestionably, by this language, and by all of the provisions of the Act, including its preamble, Congress has expressed a decided preference for proceeding under the Act, rather than continuation of the § 77 proceedings.

Stated otherwise, by placing the burden of proof upon those who argue for continuation of the § 77 proceedings, while simultaneously failing to provide any standard by which a court might adjudge that course to be preferable, Congress has effectively deprived the court of any power to decide in favor of the § 77 proceeding. [Id. at 8-9].

Appellees argue that Judge Fullam was in error when he stated that "by placing the burden of proof upon those who argue for continuation of the § 77 proceedings, while simultaneously failing to provide any standard by which a court might adjudge that course to be preferable, Congress has effectively deprived the court of any power to decide in favor of the § 77 proceeding." Appellees imply that a proper interpretation of "public interest," if applied by the district court, would have resulted in a finding that the public interest favored their reorganization outside of the Act.

As stated in Judge Friendly's opinion, the concept of "public interest" is not without meaning. We therefore find ourselves obliged to disapprove Judge Fullam's decision insofar as it rests upon his interpretation of the Act as discussed in the memorandum. Having made this determination, we would normally be inclined to reverse and remand for reconsideration in light of the correct standard. This Act contains, however, special time constraints, and because we find upon review of all the evidence that application of the correct standards would have resulted in the same ultimate result, we believe that the appropriate course is to affirm the 12 individual orders in which Judge Fullam stated that "the evidence available does not preponderate in favor of a finding that the public interest would be better served by a continuation of the present reorganization proceedings than by reorganization under the Regional Rail Reorganization Act of 1973."

In determining the proper criteria for the public interest decision, we are aided by reference to the Senate Bill, in which the public interest decision was first set forth. In that bill, the district court was to review the "preliminary system plan" and then order reorganization pursuant to the Act unless it found that the railroad was reorganizable on an income basis within a reasonable time and that the public interest would be better served by a reorganization under Section 77 than under the Act or unless it found that the Act did not provide a process that was fair and equitable. It appears that under this procedure the district court was to weigh the value of the railroad to Conrail (as evidenced by the preliminary system plan) against the value to the public of having the railroad reorganized separately (such value including, for example, maintenance of competition and preservation of certain lines).

We believe that the determination required by the Act as adopted is the same as that contemplated in the Senate Bill, with the one modification that the district judge does not have, under the present Act, the "preliminary system plan" to guide his decision on the usefulness of the railroad to Conrail. This lack, however, merely places a greater burden on the railroads; it does not require a finding in favor of the Act. It is perhaps helpful to enunciate, by way of illustration, a situation in which the district judge would be justified in finding that the public interest favors reorganization solely under Section 77.

Where, for example, a railroad (1) is reorganizable on an income basis so as to be competitive with Conrail (maintenance of competition is one of the goals of the final system plan, see § 206(a)(5)). (2) it trackage is duplicative of trackage available to Conrail from other, non-reorganizable railroads; and (3) those parts of the railroad that would be abandoned should reorganization take place under the Act are essential or important to certain interests in the affected areas, then we believe that the district court would be fully justified in ordering that reorganization take place outside of the Act.

We note that the situation described above is very like that found in the case of the Erie Lackawanna, in which the district court found that the public interest mandated reorganization outside of the Act, from which order no appeal has been taken. Most of the Erie's trackage is closely paralleled by lines belonging to Penn Central (or, occasionally, by tracks belonging to other roads, such as the Lehigh Valley, that were found to be not reorganizable). As to the need for competition, the Report of the Secretary of Transportation made it amply clear that, in several important areas, an operating, competing Erie would be highly desirable. See, e. g., Secretary's Rept. pp. 41, 53. The district court in the Erie reorganization heard extensive evidence on the public interest question from a wide range of parties, including the United States Department of Transportation, all of whom concluded that the public interest would best be served by a reorganization not under the Act. In such circumstances it seems obvious that a district court would be justified in finding that reorganization solely under Section 77 would better serve the public interest.

As Judge Friendly notes in his opinion, we agree with Judge Fullam's statement that the presumption of the public interest being better served by reorganization under the Act is a strong one. We also note, however, that the evidence introduced in the secondary debtor cases to show that the public interest requires reorganization solely under Section 77 is insufficient to rebut even a slight presumption. In seven of the nine cases in which the public interest finding is appealed, no evidence whatever was introduced to show that reorganization outside the Act would be in the public interest. The only public interest argument that might be held to cover those cases was made during argument by the lawyer for the trustees, when he maintained that the possibility of reorganization outside of the Act was preferable because it would continue rail operations without requiring any compensation by Conrail — thus presumably saving the taxpayers' money, strengthening Conrail, and leaving the secondary debtors in a more secure position. (Transcript of hearings before Judge Fullam, 11,355) We find this argument unpersuasive because it is clearly in the taxpayers' (and Conrail's) interest to have a viable system, and evidence has been introduced (in the Trustee's proposed plan and the Secretary of Transportation's Report) showing that a viable Conrail would be benefited by inclusion of these roads. As we have noted above, at least 50% of the trackage of each secondary debtor was slated for inclusion in the 15,000 mile system. Further, the secondary debtor investors are constitutionally guaranteed that their position will not be unduly weakened.

In two of the cases (Delaware and PBW), affidavits were introduced containing public interest arguments. We set out the relevant portions of these affidavits in full in the margin. In addition, in the hearing on the Delaware there was testimony to the effect that the Delmarva peninsula would be better served by a reorganization outside the Act, because a road outside of Conrail would be more responsive to the interests of the community.

In reference to the arguments made in the Delaware case it appears to us that:

In the affidavit, points (a) and (b) are equally well satisfied by a Conrail based on the 15,000-mile system plan with the option (as USRA surely has) to take only the leasehold interest from the Penn Central rather than the fee from the leased line. Points (c), (d), and (e) simply state that it would be nice if the massive restructuring of the northeastern railroads were not necessary. The Delaware is, however, a railroad in reorganization, and Congress has determined that Conrail is the preferable means of solving an extremely serious problem. We believe that the reasons offered provide little support for the argument in favor of reorganization outside of the Act. We are slightly more impressed by the testimony of Mr. Love (Tr. 11,679) that a "short-line" would be more responsive to community needs. This single opinion, however, unsupported by empirical data, seems to us totally insufficient to overcome the Congressional preference, expressed in the Act, for reorganization under the Act.

Similarly, in the affidavit concerning the PBW, arguments (a) through (e) are no less applicable to the results under the Act, and arguments (f) through (h) simply deplore the need for the Act. By way of contrast, without passing on its sufficiency or insufficiency, we quote the summary of the public interest evidence introduced in the Erie Lackawanna proceeding:

The unanimous consensus of all interested parties, including 48 major business concerns appearing at the hearing, the United Transportation Union, Eastern District, the Brotherhood of Locomotive Engineers, the Port Authority of New York and New Jersey, the Mayor of Hornell, New York speaking on behalf of himself and 13 other municipalities in New York State, representatives of the Delaware Hudson Railroad, representatives of the Pittsburgh Lake Erie Railroad, the Chairman of the Board of Public Transportation of Morris County, New Jersey, representatives of the States of Pennsylvania and New Jersey, the Detroit, Toledo and Ironton Railroad Company, together with counsel for the United States Department of Transportation was that the public interest would best be served if EL were permitted to pursue its present reorganization under the Bankruptcy Act.

In conclusion, we find that the importance of these twelve lessors to a viable Conrail, and the Congressional preference for reorganization through Conrail, have not been outweighed by the extremely limited evidence offered in these cases to show a public interest in reorganization outside the Act. We therefore leave undisturbed Judge Fullam's finding that the evidence does not preponderate in favor of a finding that reorganization under Section 77 would better serve the public interest.

B. Fairness and Equity of the Ultimate Transfer

The fact that the financial health of the secondary debtors may be superior to that of Penn Central also forms the basis of claims that the transfer of rail properties contemplated in the Act will be particularly unfair to them. There are really two contentions.

The indenture trustees assert that some of the secondary debtors (they do not make clear precisely which) are profitable in the sense that income attributable to their leased properties is sufficient to support their existing capitalizations. The trustees of the secondary debtors themselves make the more modest claim that, as Judge Fullam found, they are reorganizable on an income basis. The Penn Central, with respect to which we have found the Act fair and equitable, is admittedly neither profitable nor reorganizable on an income basis. However, for the reasons developed below, we do not consider that these alleged distinctions call for a different result in the case of the secondary debtors.

1. Profitability.

The indenture trustees maintain that the secondary debtors are "profitable," and that application of the Act to such debtors is not within the bankruptcy power granted by Article I, Section 8, Clause 4 of the Constitution. This argument has as its legal base the district court opinion in In Re Missouri Pacific R. R., 93 F. Supp. 832 (E.D.Mo. 1950), aff'd sub nom. State of Texas v. Group of Institutional Investors, 191 F.2d 265 (8th Cir., 1951), cert. denied, 342 U.S. 904, 72 S.Ct. 293, 96 L.Ed. 676, 342 U.S. 918, 72 S.Ct. 364, 96 L.Ed. 686, 343 U.S. 929, 72 S.Ct. 757, 96 L.Ed. 1339 (1952).

In Missouri Pacific, the district court was concerned with a plan of reorganization for the Missouri Pacific Railroad Company, the New Orleans, Texas Mexico Railway Company (NOTM), and the International-Great Northern Railroad Company (I-GN). NOTM was a subsidiary of the Missouri Pacific. After seventeen years in bankruptcy, NOTM petitioned for discharge. It argued that there were five adverse factors influencing the status of NOTM, namely, "[the] bankruptcy of the debtor, bankruptcy of the parent, the length of the proceedings, the fact that NOTM credit is not generally eligible for investments by banks, trust and insurance companies, and the fact that credit agencies for rating railroad securities will not rate obligations of bankrupt railroads as eligible for bank investments." It offered a witness who testified that, if these adverse factors were removed, he would form a group to bid on $60 million of NOTM "refunding" bonds (to refund $40 million of existing debt and to provide $20 million of new debt). There was testimony that sale of the refunding issue would make NOTM able to meet its debts as they matured, and testimony disputing that conclusion.

The district court, considering the petition to have NOTM dismissed, stated that:

There is no doubt that the court has jurisdiction to dismiss the proceedings if it finds that the NOTM can pay or otherwise satisfy its matured obligations and be able to meet its debts as they mature.

The court's jurisdiction to dismiss the reorganization proceedings is not predicated on any specific provision of Section 77, but upon the inherent powers of the court, as a court possessing full equity powers to dismiss the proceedings when their purpose has been achieved.

* * * * * *

To keep a debtor which is able, or which can be become able by refunding, to meet its debts as they mature in a Section 77 proceeding would not be in accord with the policy of that Section and would be in violation of the Fifth Amendment.

The court held, however, that the testimony left too many uncertainties to constitute sufficient proof that NOTM, if discharged from bankruptcy, would in fact be able to meet its debts as they matured. The court emphasized both that the purported bid on the $60 million issue was rendered virtually meaningless by the condition that the "adverse" circumstances be eliminated, and that no other witness had been brought forth to state unequivocally that he would be willing to purchase the bonds.

The Missouri Pacific case appears to stand for the proposition that when a company properly in bankruptcy proposes a plan under which it would be able, without reorganization, to pay its debts as they mature, it is within the power of the bankruptcy court, as a court of equity, to dismiss the reorganization and allow the debts to be satisfied under the alternative plan. Stated otherwise, when the purposes of the statute have been satisfied, there is no reason to continue with the statutory mode of resolution.

Whatever the teaching of Missouri Pacific may be as to the reach of the bankruptcy power, the argument of the indenture trustees depends on the fact of "profitability." The reorganization court, however, made no findings of "profitability," and neither the findings of fact made by it nor any other evidence of record establishes "profitability. "The approach founded upon Missouri Pacific is, therefore, unavailing.

The financial health of the secondary debtors may conceivably be relevant to the fairness of the treatment they eventually receive in the final system plan. This court, accordingly, may perhaps be called upon at that time to deal with issues not unlike those tendered now. But the state of the present record does not admit of a conclusion by us that Missouri Pacific, or any other principle of law, requires us to gratify the desire of appellees to remove the secondary debtors here and now from the operation of the Act.

2. Reorganizability.

The principal thrust of the argument made by the secondary debtor trustees is that the finding of their reorganizability "highlights the condemnatory nature of the Act." Br. 15. As should be clear from Judge Friendly's opinion, we do not think it necessary in order to uphold the fairness of the Act to find that it will necessarily effect no compensable taking. Foreseeing a recovery for such a taking in the Court of Claims, we have found in the case of the Penn Central that there is not sufficient certainty of a substantial taking to make resort to the Court of Claims unfair. We therefore construe the secondary debtor trustees' arguments as attempting to establish that there is such a sufficient certainty in their cases. We take their assertions of "condemnation" to be claims either than they must be paid for their properties entirely in cash, or that the transfer of such properties cannot fairly be effected except through normal condemnation proceedings.

It is first argued that the Act would certainly work a "condemnation" if the secondary debtors had in fact already proposed plans of reorganization, it being the trustees' further contention that if they will be able to do so in the future, they should not be treated any differently. We doubt that if the secondary debtors had happened to submit a reorganization plan to Judge Fullam prior to the Act's passage, this fact would significantly strengthen their claim of compensability only in cash. Suffice it to say that they did not do so, and that we must consider the case as it stands.

A more plausible alleged distinction from Penn Central rests simply on the secondary debtors' undisputed reorganizability: conversion into Conrail and USRA securities of the interests of investors in a railroad otherwise headed for liquidation is said to be less clearly a "condemnation" than a similar conversion of the interests of investors in a railroad which would otherwise continue on a reorganized basis. A difference is apparent; that it cuts in the trustees' favor is not so apparent. If anything, it might seem that the expectation of Penn Central investors of receiving cash from an imminent liquidation suffers a greater defeat under the Act than the expectation of investors in reorganizable railroads of receiving new securities in an ongoing entity.

The railroad trustees make the further argument that there will be unfair disparity between the treatment of the secondary debtors, on the one hand, and solvent lessors whose property is ordered transferred to Conrail, on the other. They assert that, as the government concedes, the only constitutional basis for transfers in the latter case is "condemnation under the Commerce Power," and apparently conclude that Congress must therefore have intended that the solvent lessors receive cash and they, securities. Even if we took this to be Congress's intent, and we need not now decide that it was, ample justification for a difference in treatment appears in the fact that only the secondary debtors have found it necessary to seek a reorganization and forgiveness of past debts under Section 77.

III

The position of the government parties is that the estates of the secondary debtors consist primarily of the right to receive from Penn Central either the rent stipulated in the leases or, in the event of their disaffirmance, an accounting for profits attributable to the leased assets. It it then concluded that no erosion of the value of these rights is occurring; and that, if anything, the opposite is true, since the chances of affirmance of the leases are improved by the prospect of what amounts to Penn Central's rehabilitation under the Act.

On this question of whether some erosion of the secondary debtors may be occurring, we think the Penn Central trustees have the better of the argument. They point out that physical erosion of leased assets may be taking place, reducing the value of the lessors' reversionary interests and also their more immediate prospects in the event of disaffirmance. They add that with disaffirmance may come a claim by Penn Central against the secondary debtors for any loss attributable to leased assets. Most important, they emphasize that, to the extent that the estates of the secondary debtors consist of claims against Penn Central, for rent or otherwise, such claims will suffer the same reduction in value as do those of other creditors, all of whose claims must be satisfied out of the same "system assets."

In our view so much of that dispute as concerns the money claims of the secondary debtors is somewhat beside the point. Charges of the erosion of the value of these claims should perhaps have been made by the secondary debtors as creditors of Penn Central and in the course of the appeal in that case. Substantially identical claims were of course made there very ably by those creditors who did participate. In any event, insofar as the secondary debtors rely on the erosion of creditor claims against Penn Central, they fail to distinguish themselves in any way from the creditors with respect to whom the Act has been found in that appeal to be fair.

We think the question for us is whether erosion is unfairly caused by subjecting the secondary debtors to the process of the Act. The one brief that seems to have focused on this question is that of the secondary debtor trustees. They assert that "the Act appears to force [the secondary debtors] to await the disposition in the Final System Plan," suggesting that they would be better off if the Act did not prevent them from acting sooner, as by going forward with the sale or lease of their properties to profitable railroads. They overlook the fact that, even in the absence of the Act, such a redisposition of their properties would require the approval of the ICC, see 49 U.S.C. § 5, and that this might not be forthcoming without considerable delay. And there is a greater obstacle here. In order to withdraw their assets from Penn Central's hands, the secondary debtors would have to secure permission on its behalf to abandon the leased lines. Thompson v. Texas Mexican Ry. Co., 328 U.S. 134, 144-145, 66 S.Ct. 937, 90 L.Ed. 1132 (1946); Smith v. Hoboken R. R. Whse., S. S. Connecting Co., 328 U.S. L23, 129-130, 66 S.Ct. 947, 90 L.Ed. 1123(1946). Abandonment by Penn Central is, however, barred by the Act pending the issuance of the final system plan, unless such abandonment is unopposed by any State or regional or local transportation authority and also gains the approval of USRA. § 304(f).

IV

The secondary debtor trustees point out an apparent discrepancy in the treatment afforded under the Act to those secondary debtors who do, and who do not, own properties which form part of the Northeast Corridor ("NEC"). Those that do are assertedly subject to a forced transfer of their properties to Conrail solely to allow Conrail to re-sell or lease the same properties to the National Railroad Passenger Corporation (Amtrak). Unfairness is charged in that, for no apparent reason, railroads whose properties are thus destined under the final system plan for Amtrak are denied the opportunity to deal directly with potential purchasers, as those whose properties are destined for other profitable purchasers may do.

It seems clear that title to the NEC properties must pass through Conrail's hands even if it is on its way directly to Amtrak. The enumerated kinds of transfers which the final system plan may "designate" to be made by railroads in reorganization are transfers (1) to Conrail, (2) to a "profitable railroad" (a statutory term which does not include Amtrak), and (3) from Conrail to Amtrak (or a State or local transportation authority). § 206(c). Transfers from railroads in reorganization directly to Amtrak are thus not among those contemplated by the Act. A reading of the statute which would neatly resolve the NEC problem would be one which allowed transfers directly to Amtrak simply to be omitted from the final system plan. We have rejected this possibility, however. Apart from the fact that such an omitted transfer would remain subject to the formidable ICC barriers which it is one purpose of the Act to bypass, see § 304, we think it was clearly Congress's intent that all sales of the bankrupts' properties be encompassed within the plan. Only in that case could the overall fairness of outcome for the various estates be evaluated in the orderly fashion provided for in § 303 of the Act. See also H.R. Rep. No. 93-620, 93rd Cong., 1st Sess. 33 (1973) ("Rail properties of bankrupt railroads not conveyed to the corporation or another railroad are to be abandoned.")

The formality of the route which title takes will, however, be of less concern to the owners of NEC property than the answers to two more practical questions: (1) how are the terms of the sale of their property to be negotiated, and (2) what form of compensation will they receive?

As to the first of these questions, the statute explicitly makes Conrail the negotiator of any sales to Amtrak. § 601(d)(1). Owners of properties going to profitable railroads are not necessarily better off in this respect, however. The statute is ambiguous, but apparently contemplates that offers made to other railroads will be controlled by USRA through the final system plan. Whether it represents a significant discrepancy in treatment or not, we think the substitution of Conrail for USRA as the negotiator of sales to Amtrak is adequately justified by Congress's wish to protect Amtrak, its creation and ward, from being forced to pay too dearly for the NEC properties.

A distinct question is whether any cash attributable to sales to Amtrak might not pass through to the original transferors. Conceivably, the legislative intent might be fully satisfied by the special negotiation provisions described above, allowing the sales to Amtrak to be otherwise carried out in the same way as are the sales to other profitable railroads. In fact, however, there seems little escape from § 206(d), which provides in relevant part as follows:

(d) Transfers. — All transfers or conveyances pursuant to the final system plan shall be made in accordance with, and subject to, the following principles:

(1) All rail properties to be conveyed to the Corporation [Conrail] . . . shall be transferred in exchange for stock and other securities of the Corporation (including obligations of the [United States Railway] Association). . . .

(2) All rail properties to be conveyed to a profitable railroad . . . shall be conveyed in exchange for compensation from the profitable railroad.

As noted above, we do not see any possibility of a "transfer or conveyance" to Amtrak which does not take place "pursuant to the final system plan" and after the intermediate step of a transfer to Conrail. It thus appears that while the compensation paid by other profitable railroads passes through to the transferors, what the transferors of property ultimately going to Amtrak receive must be encompassed within the phrase "stock or other securities of the Corporation (including obligations of the Association)."

Before further examining the difference of treatment mandated by § 206(d), it might be well to inquire into the possible justifications for it. The most obvious purpose of the interposition of Conrail between NEC owners and purchasers is the one that the government has itself claimed for it in arguing the likelihood of Conrail's viability, namely, that the sale to Amtrak will provide Conrail with badly needed cash. There are clear indications in the legislative history that Congress had this, among other things, in mind. We wish to emphasize that we do not consider this a sufficient justification for the asserted discrepancy in treatment, nor do we consider the process of the Act "fair and equitable" insofar as the discrepancy rests solely on this justification. Conrail's need for cash does not in itself demonstrate why the cash should be raised uniquely out of the pockets of the NEC owners.

On the other hand, NEC and Amtrak itself are matters of particular and legitimate congressional concern, and there certainly are good reasons why Congress may have wished to interpose Conrail between the present and future owners of the NEC. Incorporating by reference the Secretary of Transportation's 1971 "Recommendations for Northeast Corridor Transportation," the Act makes it the duty of both Conrail and Amtrak to undertake improvements of the NEC properties "in order to meet the goal . . . [of] . . . improved high-speed passenger service by the earliest practicable date." Congress might well have thought it necessary, in order for Conrail to discharge this duty, that it become at least temporarily the owner of the properties in question.

Moreover, Conrail may not be merely a temporary owner. It may be found that a lease of the properties by Amtrak is to its best advantage. Indeed, the original House bill did not provide for purchase from Conrail at all, but only for lease from it. One can see why Congress might prefer Conrail to the bankrupt railroads as Amtrak's landlord. A third and perhaps most likely possibility is that in view of the heavy multiple use of the NEC facilities, the best solution will be found to be some form of joint ownership by Conrail and Amtrak. If this is to be the outcome, and if the relationship between the two entities is to be at all complex, time constraints upon USRA would alone seem to justify leaving the matter to subsequent resolution between Conrail and Amtrak, rather than attempting to dictate in the final system plan what joint interests Conrail is to take from the various present lessors and lessees and what is to be left for sale by them.

It might be objected that Conrail's interposition as owner of the NEC properties does not mean that the cash which it receives when it does dispose of them cannot be passed on to the original owners. The determination of how much is to be passed through would be complicated by any substantial delay in the disposition, however, as well as by any improvements Conrail had made in the interim. Furthermore, the interest which Amtrak ultimately takes — if it is, for example, some kind of joint interest with Conrail — may be totally dissimilar from the various lessor and lessee interests which have to be compensated.

If Amtrak remains a lessee, of course, there will never be a lump sum to be passed through. A pass-through of rent is conceivable, but the transferors could be put in the same or better positions as recipients of Conrail securities. Indeed, the all-encompassing nature of the latter term prevents us from concluding that the Act in fact prohibits a pass-through, for Conrail could give as "securities" its obligations to pass through whatever are the proceeds of its disposition to Amtrak. Assuming, as we do, that Congress meant to pass a fair statute, we do not hesitate to construe the term "securities" in such a way that fairness is achieved.

We are handicapped in this matter, as in others, by our inability to predict the contents of the final system plan. It may be, of course, that USRA or Conrail will use the authority to take and reconvey NEC properties purely to raise cash and without any such justifications as we have described being applicable. Still, we conclude that the process of the Act is not unfair to the NEC owners, and for these reasons:

First, as we have suggested, the inability of the NEC owners to receive cash for property which is actually sold to other railroads is really a matter of discretion with the USRA planners, who will specify what "securities" the NEC owners will receive. To some extent, all railroads under the Act are subject to that same discretion. There is no limit on what may be initially transferred to Conrail, and though the statute might be thought to prohibit such transfers for resale or lease to other profitable railroads, it specifically allows such transfers for re-sale or lease to "a State or a local or regional transportation authority." § 206(c)(1)(D). In short, virtually any railroad could be thus made the victim of Conrail's need for cash.

Second, we anticipate that if USRA does in fact subject the NEC owners to what we consider an unjustified disadvantage, we will have the power to undo that unfairness in our review of the final system plan. We are given the power at that time to reallocate existing Conrail "securities," as well as to create new ones, and, as we have said, we are inclined to construe the term "securities" quite broadly in this context. We have the further power, moreover, to "enter a judgment against the Corporation" if unfairness is not otherwise curable. This may be the best use to which we can put this "curious" power, as Judge Friendly has called it. Should the final system plan contemplate Conrail's immediate resale of NEC properties to Amtrak, for example, we do not doubt our power to enter a judgment in favor of the NEC owners and against Conrail in the amount of the proceeds of such resale.

V

A final challenge to the fairness of the Act is made on the ground that the early date of the 120-day hearing denied the secondary debtors "an adequate opportunity to develop a complete record on the issues considered therein." Once again, the claim of unfairness is cast in terms of unconstitutionality. The secondary debtors contend that they will be denied due process by reason of the prejudice ( i. e., reorganization under the Act), flowing from adverse findings on the issues of reorganizability and the public interest, when the lack of time makes a "meaningful" hearing on these issues impossible.

Judge Fullam made no specific reference to this matter in discussing his 180-day finding that the Act was unfair to the secondary debtors. He did state in the memorandum issued in connection with his 120-day finding of reorganizability, and apparently in answer to a claim that the Constitution required an affirmative finding, that he was "inclined to agree with the contention . . . that requiring a finding on reorganizability by May 2, 1974 represents a violation of due process of law." (p. 25). Judge Fullam proceeded with the reorganizability finding, however, partly on the ground that his findings would in fact be affirmative.

The claim of inadequate time is made only by the secondary debtors. They allege that the statutory timetable is unfair as to them because: (1) they did not enter bankruptcy until July of 1973, whereas Penn Central had been in bankruptcy since 1970; (2) trustees were not appointed for the secondary debtors until March of 1974; (3) at the time of the 120-day hearing no action had been taken by Penn Central on the rejection or adoption of its leases from the secondary debtors; and (4) no severance studies with respect to the leased properties had been completed at that time. Br. Secondary Debtor Trustees 21.

The secondary debtors, so it seems to us, have somewhat overstated their difficulties. The absence of appointed trustees, for example, can hardly have prevented the various creditors from undertaking whatever preparation may have been necessary to protect their interests. Appellees have been tactful enough to complain of the delayed trustee appointments in the brief of the secondary debtor trustees, rather than in the brief submitted by the indenture trustees themselves, but the fact remains that in this and every other 207(b) appeal the creditors have been ably and independently represented. The secondary debtor trustees' brief is itself joined in by Connecting, which remains without a trustee by agreement of all interested parties. May 2 Memorandum, 835 p. 4, 382 F. Supp. 821 (E.D.Pa. 1974).

A somewhat stronger point is that the secondary debtors, unlike Penn Central, have not been in reorganization long enough to develop the kind of information that would be necessary in order for them to argue the issues of reorganizability and public interest effectively. We point out that, although Penn Central has been in reorganization longer, no one had notice prior to the passage of the Act of what exactly would be the content of the 120-day findings. The secondary debtors were in reorganization well before that date. On the question of whether the public interest would be served by exclusion from the Act, no analogous question would have been addressed in the course of a reorganization proceeding no matter how long it had been going on, so that the secondary debtors do not in that respect appear to have been at all handicapped by their late arrival within the shelter of Section 77.

As for reorganizability, we note that twelve of the fifteen secondary debtors prevailed on this point. Only the remaining three can claim that they were prejudiced by an inadequacy of time, therefore, and this claim is dramatically weakened by the fact that their twelve coappellees have apparently managed quite well under the time constraint.

There is no denying that the task of the secondary debtors in the 120-day hearing was made difficult by their uncertainty over the fate of their leases to Penn Central and by the unavailability of completed severance studies, which, of course, are necessary to evaluate accurately the secondary debtors' prospects in the event of disaffirmance. If due process requires that Congress wait until these uncertainties are removed, however, Congress may have a very long wait. Final action on the leases must apparently await approval of the final system plan. Even in the absence of the Act, immediate action on the leases would only be tentative, since Section 77 allows a bankrupt lessee to reject a lease, even one previously adopted, when the lessee's final reorganization plan issues. Moreover, it seems doubtful that severance studies, the objective of which is to estimate the profitability of leased lines if operated in competition with the lessee's remaining operation, could be completed prior to the release of the final system plan. We note finally that the debate over reorganizability is not likely to end with the completion of severance studies; the content and significance of these will no doubt be matters of considerable subsequent controversy.

We do not think that due process requires Congress to wait this long, or indeed any longer than it has waited in this Act. The question is whether Congress could provide, consistently with due process, that railroads in reorganization at the time of the Act's passage be reorganized under the Act unless their independent reorganizability, and the public benefit therefrom, could be made plain to the reorganization courts within 120 days. The answer must be found in the balance which due process always implies between the interests of those seeking a more "meaningful" hearing and the interests of the government in proceeding expeditiously with the action on which a hearing is sought.

On the one hand, it should be clear from other parts of these opinions that we do not consider an adverse § 207(b) finding and consequent inclusion in the Act to be as severe a burden as the secondary debtors apparently do. On the other hand, the government's interest in proceeding to a swift resolution of the rail crisis seems to us a peculiarly compelling one. This matter of paramount national concern has been in a state of critical uncertainty for too long already, and, as the proponents of erosion have labored to point out, the situation may be growing worse every day. We cannot think that under these circumstances due process requires that the secondary debtors be given more than 120 days to establish their eligibility for escape from the Act.

That Congress's purpose in the negotiation provision was to protect Amtrak from excessive financial burdens is further suggested by the fact that the bill which the Senate sent to conference spoke in each instance of sales by Conrail to Amtrak or to "a regional transportation authority," the latter being perhaps an even more likely candidate for this kind of congressional concern. S. 2767, 93rd Cong., 1st Sess. §§ 206(c)(1)(C) 701(d)(1).

THOMSEN, Judge:

In dealing with the cases of the railroads covered by this opinion, it is unnecessary to repeat what has been said in the opinions of Judge Friendly and Judge McGowan with respect to the proper construction and constitutionality of the Regional Rail Reorganization Act (RRRA).

A.

In re Lehigh Valley Railroad Company (LV).

The main line of LV extends from Buffalo, N. Y., to Jersey City, N. J., via Pennsylvania. Significant branch lines serve various areas near the main line, notably in northeastern Pennsylvania. LV interchanges with other railroads at many points. Penn Central Transportation Company (PC) owns 97% of the stock of LV. Banks in New York and Philadelphia are trustees for the holders of bonds issued and outstanding under various mortgages, executed by LV, under which the bondholders have liens on most of its assets. A petition for reorganization under § 77 of the Bankruptcy Act was filed by LV in the Eastern District of Pennsylvania and approved by that court on July 24, 1970.

On May 2, 1974, after a hearing, Judge Fullam of that court entered a memorandum, order and findings pursuant to the first sentence of § 207(b) of RRRA, sometimes referred to as the 120-day order, in which he found and concluded, for reasons stated in the memorandum, that LV is not reorganizable on an income basis within a reasonable time under § 77 of the Bankruptcy Act [11 U.S.C. § 205], within the meaning of § 207(b) of RRRA. Judge Fullam did not make a finding whether the public interest would be better served by continuing the present reorganization proceedings than by a reorganization under RRRA. Because of the failure to make such a finding, and from the finding that LV is not reorganizable on an income basis within a reasonable time under § 77, the Commonwealth of Pennsylvania appealed to this court. The Commonwealth also raised the question whether Congress had the power to delegate the "public interest" function to an Article III court. This court dismissed the appeal from the 120-day order, noting that review of decisions under the first sentence of § 207(b) would come if and when an appeal was taken from the 180-day order (or non-order) under the third and fourth sentences of § 207(b).

The reorganization court held a further hearing in June, and on July 1, 1974, entered its 180-day order, in which it found and ordered that RRRA does not provide a process which would be fair and equitable to the estate of the debtor (LV), and that the reorganization of its estate shall not be carried out pursuant to RRRA. In his memorandum accompanying the 180-day order, Judge Fullam stated that the reasons for this determination were essentially the same as those set forth in his corresponding memorandum in the PC case.

On appeal from the 180-day order in the LV case the government parties, joined by the labor parties, make the same arguments which the government and labor parties make in connection with their appeals in the PC case. They are opposed by the Commonwealth of Pennsylvania and by the Indenture Trustees.

The points raised by the government and labor parties are discussed in Judge Friendly's opinion. That discussion need not be repeated here.

(1)

The Commonwealth argues here, as it does in the PC and other cases, that the decision of the reorganization court should be affirmed, but for different reasons than those stated by Judge Fullam. The Commonwealth opposes the abandonment of unprofitable lines, arguing that a reduction in railroad capacity is not the solution to the problem, and contends that the railroads, including LV, are reorganizable on an income basis within a reasonable time under § 77 of the Bankruptcy Act. It cites no evidence which would support such a conclusion, and we find the arguments without merit in this case.

With respect to the point raised by the Commonwealth on appeal from the 120-day order and repeated on this appeal, that the reorganization court erred in not making a "public interest" finding, we conclude that since that court decided in its 120-day order that the debtor could not be reorganized on an income basis within a reasonable time, it correctly held that there was no need for a finding as to whether the public interest would be better served by continuing the existing reorganization proceeding than by a reorganization under RRRA. Moreover, after considering the evidence produced at the hearing on the 180-day order as well as the hearing on the 120-day order and the arguments presented at the hearing before us on appeal from the 180-day order, we conclude that the public interest would be better served by reorganization under RRRA. USRA will consider the various possibilities provided by § 206 of RRRA and select such one or more of them as it finds will best serve the public interest while preserving the legal rights of the bondholders and other creditors of the several debtors. The final system plan proposed by USRA will be reviewed by Congress and by this court.

The Commonwealth also argues that § 207(b) is unconstitutional as applied in certain situations, because of the delegation by Congress of public interest matters to reorganization courts. We find no merit in this contention, for reasons fully discussed in Part I of Judge Friendly's opinion.

It is unnecessary to discuss here the contention of the Commonwealth that so much of § 207(b) of RRRA as requires a reorganization court to dismiss proceedings under § 77 of the Bankruptcy Act, under certain circumstances set forth in § 207(b), violates the requirement of uniformity contained in Art. 1, § 8, cl. 4 of the Constitution. See Part III of Judge Friendly's opinion. Moreover, none of the reorganization courts ordered that the § 77 proceeding be dismissed, and the question is now moot. Finally, we find no substantial difference between the standard used in § 207(b) — "reorganizable on an income basis within a reasonable time under section 77" — and the standard — "undue delay" — used in § 77(g).

(2)

The Indenture Trustees argue that there has been unconstitutional erosion of the LV estate since June 1973, when a hearing was held on a petition filed by the Indenture Trustees in March 1973 for a cessation of operations and liquidation of the assets of LV. The law with respect to interim erosion has been fully covered in Part V of Judge Friendly's opinion. In answer to the Trustees' interim erosion argument, the government parties contend: (a) that there has been no interim erosion since June 1973; (b) that most of the erosion took place before the filing by LV in July 1970 of the original petition under § 77; (c) that there has been no unreasonable delay; and (d) that the reorganization court did not make any finding of unconstitutional erosion. They conclude that no justification for an immediate liquidation has been shown. We find that contentions (b), (c) and (d) of the government parties are correct and, with respect to (a), that no such interim erosion as would justify liquidation at this time has been shown. See opinion of Judge Friendly, referred to above, for a discussion of the applicable law.

(3)

At the hearing before the reorganization court in June 1974, faced with creditors' objections to receiving Conrail stock, possible USRA obligations and a deficiency judgment against Conrail as consideration for the transfer of the LV rail properties, the Trustee of the LV estate argued that the LV estate could be compensated exclusively in government-guaranteed USRA obligations, either as a result of the final system plan or an order of this court. The reorganization court expressed grave doubt: (1) whether § 303(c)(2)(A) of the Act permits the Special Court to reallocate USRA obligations from another railroad in reorganization, in the absence of a finding that the securities allocated in the plan to that railroad exceed the "constitutional minimum"; (2) whether, if USRA does not originally allocate all of the potential government-guaranteed obligations available to it, the Special Court may require that the unused obligational authority be exhausted, in the absence of congressional approval; and (3) whether the Special Court would do so. Those doubts are considered and answered in Parts VI, VII and VIII of Judge Friendly's opinion. Of course, both USRA and this court must follow the constitutional requirements of RRRA and other federal statutes, and cannot rob Peter to pay Paul.

(4)

Greater Hazelton Community-Area New Development Organization, Inc., and the Railroad Task Force for Northeast Region (of Pennsylvania) support the arguments made by the government parties, and argue that the public interest in implementing the Act outweighs any foreseeable burden on LV investors. They cite several provisions of RRRA in support of their argument, namely: (1) The reference in § 207(b) to "the strong public interest in the continuance of rail transportation in the region pursuant to a system plan devised under the provisions of this Act"; and (2) the statement in § 206(a) that "[t]he final system plan shall be formulated in such a way as to effectuate the following goals," including:

* * * * * *

"(2) the establishment and maintenance of a rail service system adequate to meet the rail transportation needs and service requirements of the region;

* * * * * *

"(4) the preservation, to the extent consistent with other goals, of existing patterns of service by railroads (including short-line and terminal railroads), and of existing railroad trackage in areas in which fossil fuel natural resources are located, and the utilization of those modes of transportation in the region which require the smallest amount of scarce energy resources and which can most efficiently transport energy resources;

* * * * * *

"(8) the minimization of job losses and associated increases in unemployment and community benefit costs in areas in the region presently served by rail service."

They call attention to the fact that LV serves an area in which fossil fuel natural resources, especially anthracite coal, are located, and to the efforts which community organizations have made to preserve and improve economic conditions in the northeast Pennsylvania area in the face of hurricane Agnes and other problems. The statutory provisions quoted above will, of course, be considered by USRA and Congress.

B.

In re Central Railroad Company of New Jersey (CNJ)

CNJ operates solely in New Jersey. Its operations are centered in the northern New Jersey metropolitan area, with lines running southerly and westerly. It provides freight service to industries in northern New Jersey and passenger service between Newark and Phillipsburg.

CNJ has wrestled with financial problems for decades and has been in reorganization before. Its present petition for reorganization under § 77 of the Bankruptcy Act, filed in the District of New Jersey, was approved in 1967. Losses have continued to mount and CNJ has had a negative net worth for some years. The State of New Jersey has subsidized the passenger operations, but not sufficiently to make those operations profitable.

On April 30, 1974, after a hearing, the reorganization court entered its 120-day order in which it made findings pursuant to the first sentence of § 207(b) of RRRA. The court found the conclusion "inescapable" that CNJ was not reorganizable on an income basis within a reasonable time. It, therefore, found it unnecessary to make a finding whether the public interest would be better served by continuing with proceedings for a reorganization of CNJ under § 77 rather than by a reorganization under RRRA.

The Commonwealth of Pennsylvania appealed from that order on the identical grounds that it appealed from the 120-day order in the LV case. This court dismissed that appeal, noting that review of decisions under the first sentence of § 207(b) would come if and when an appeal was taken from the 180-day order (or non-order) under the third and fourth sentences of § 207(b).

On June 28, 1974, after further hearings, the reorganization court entered its 180-day order, in which it concluded that RRRA does not provide a process which would be fair and equitable to the estate of CNJ. It construed § 304(f) as compelling the railroads to continue operations pending the final conveyance of rail properties to Conrail, and concluded that RRRA does not provide adequate assurance that the estate of CNJ would be reimbursed for operational losses incurred during this interim period. The court found funds available under RRRA "woefully inadequate" to compensate the railroads for the erosion which can be reasonably anticipated; that a suit against the United States in the Court of Claims under the Tucker Act is only a "mere possibility"; and, therefore, that § 304(f) mandates a taking of the Debtor's property without just compensation in contravention of the Fifth Amendment.

On appeal from the 180-day order in the CNJ case the government parties and the labor parties make the same arguments which they make in the PC case. They are opposed by the Indenture Trustees of the General Mortgage Bonds of CNJ, the Bondholders Protective Committee and the Trustee of the Property of CNJ, who argue: (1) that the reorganization court's disposition of the application of § 304(f) to CNJ was clearly correct; that any alternative disposition would have been improper, and, in any event, that appellants have not shown an abuse of discretion sufficient to justify reversal; and (2) that there was no assurance that CNJ's assets would not be unconstitutionally taken if CNJ were reorganized under RRRA.

The Commonwealth of Pennsylvania filed a brief in which it makes the same arguments it makes in the PC and LV cases. It also refers to Chesapeake O. Ry. Co. — Control — Western Maryland Ry. Co., 328 I.C.C. 684 (1967), as modified by order of February 23, 1968 (Finance Docket No. 23178), under which CNJ and Reading Company have each filed a petition seeking inclusion in the Chessie System.

The legal principles which this court should apply in considering the arguments which have been made by various appellees in support of the 180-day order in this case are set out in Judge Friendly's opinion, particularly in Parts IV-VIII. The conclusion reached in that opinion — that the process established by RRRA is fair and equitable, in that a Tucker Act remedy is available for any interim erosion which reaches unconstitutional proportions and for any compelled conveyance for a consideration found not to meet constitutional standards — destroys the legal basis upon which the 180-day order is based.

Many of the arguments advanced by appellees are based upon legal premises which we have found not to be applicable. They also ignore important facts, e. g.: the long history of unprofitable operations both before and after the § 77 proceedings were instituted in 1967; the fact that the parties who support the decision have been negotiating and are continuing to negotiate with the State of New Jersey to persuade it to take over or subsidize adequately the essential freight and passenger operations; and that there is no likelihood that the petition filed with the ICC for inclusion in the Chessie system will result in any favorable action in the near future, if ever.

Negotiations for the inclusion of part or all of CNJ in the Chessie system may be worked out under § 206 of RRRA, apart from or in connection with the pending petition before the ICC. Such a sale to Chessie under § 206 would provide cash or securities which could be used for the benefit of CNJ security holders and creditors. If the final system plan is not fair to the bondholders and other creditors of CNJ, it can be disapproved by Congress or modified by this court, and, as Judge Friendly's opinion shows, adequate compensation can be obtained for any loss suffered as a result of interim erosion which exceeds constitutional limits or for a compelled conveyance under a plan which does not protect whatever constitutional rights CNJ security holders or creditors may have. The same is true of the negotiations with the State of New Jersey to take over or subsidize some or all of the operations. Those negotiations with various alternative possibilities can be continued pending the development of the final system plan by USRA. The suggestion that approval of abandonments could be more easily obtained from the ICC than under RRRA is disposed of in Part V of Judge Friendly's opinion.

Appellees object to the prospect of having the rail properties of CNJ subjected to a "forced merger" with other railroads to form Conrail. They cite St. Joe Paper Co. v. Atlantic Coast Line Railroad Co., 347 U.S. 298, 74 S.Ct. 574, 98 L.Ed. 710 (1953), and the decisions below in that case. This objection is carefully considered and disposed of in Part VIII-B of Judge Friendly's opinion.

Appellees argue that a government attorney conceded below that the level of assurances required by § 207(b) must rise to a certainty and that the CNJ case, therefore, differs from the other cases in which no such concession was made. We do not find that the statements made by the government attorney, considered as a whole, amounted to such a concession. Moreover, the reorganization court did not rely on the claimed concession, but stated that it was "satisfied that the Act does not provide assurance of adequate protection against interim losses over an uncertain and lengthy period". Its conclusion was that 304(f) mandates a taking of CNJ's property without just compensation in violation of the Fifth Amendment, and so does not provide a process which would be fair and equitable to the estate of CNJ.

The opinion of Judge Friendly herein shows that adequate protection against possible unconstitutional interim erosion or deficiency in consideration for the transfer of rail properties is provided by the Tucker Act. We conclude that RRRA does provide a process which is fair and equitable to the estate of CNJ.

C.

In re Lehigh and Hudson River Railroad Company (L H)

LH is the only Class II railroad (i. e., one with annual revenue less than $5 million) involved in these cases. It operates some 100 miles of track in New Jersey, New York and Pennsylvania, which, in addition to serving local industry, provides a connecting link for traffic moving to and from the New England area. The stock of LH is owned in varying amounts by LV and the Trustees of certain other railroads. LH has no bonds outstanding. On April 24, 1974, after a hearing in the § 77 proceedings now pending in the Southern District of New York, the reorganization court issued its 120-day order in which it found that LH is not reorganizable on an income basis within a reasonable time and that the public interest requires reorganization under RRRA.

The Commonwealth of Pennsylvania appealed from that order to the Second Circuit and to this court. As in the other cases, this court dismissed that appeal, noting that review of decisions under the first sentence of § 207(b) would come if and when an appeal was taken from the 180-day order (or non-order) under the third and fourth sentences of § 207(b).

On July 1, after a further hearing, the reorganization court entered its 180-day order, holding that for the reasons set forth in the decision of the three-judge court in the Connecticut General case, RRRA does not provide a process of reorganization which is fair and equitable to the LH estate.

The government parties (see n. 5above), the State of New Jersey and the Railway Labor Executives' Association appealed to this court, and make essentially the same arguments which the government parties make in their other appeals. The Commonwealth of Pennsylvania attacks the 120-day order and supports the 180-day order for essentially the same reasons it asserts in the PC, LV and CNJ cases.

For the reasons stated in the portion of this opinion dealing with LV, including the references therein to the opinions of Judge Friendly and Judge McGowan herein, we find no merit in the contentions of the Commonwealth with respect to LH

D.

In re Reading Company (Reading)

Reading operates 1,138 miles of track in eastern Pennsylvania and New Jersey, providing essential commuter and freight service.

Reading has been in reorganization under § 77 of the Bankruptcy Act, 11 U.S.C. § 205, since November 23, 1971. In each of the last five years its rail operation expenses have exceeded its rail operation revenues; these losses have been partially offset by non-operating income. Its financial situation is less desperate than that of some other railroads involved in these cases, but the reorganization court (Ditter, J.), found in the memorandum accompanying its 120-day order (the order called for by the first sentence of § 207(b) of RRRA) that the trustees of Reading have explored all reasonably possible alternatives which would permit reorganization under § 77 of the Bankruptcy Act, including: (1) the transfer of its commuter responsibilities and resulting losses to the Southeastern Pennsylvania Transportation Authority (SEPTA); (2) combination with other bankrupt carriers to create a profitable rail system, referred to for planning purposes as the Mid-Atlantic Railroad Company (MARC); (3) the abandonment of certain branch lines and marginal operations to create a "core" system that would be profitable; and (4) acquisition of Reading by an existing profitable rail system. See note 11, below. The court concluded, for reasons stated in that memorandum, that Reading is not reorganizable on an income basis within a reasonable time under § 77.

The reorganization court also found that if Reading is reorganized under RRRA, the advantages which that Act provides so far as funding employee benefits, permitting track abandonments, and interim financial support would be available to a consolidation of companies as envisioned by the MARC plan, or to rail systems such as Chessie or Norfolk and Western Railroad, which might acquire all or part of Reading.

The Commonwealth of Pennsylvania argues here, as it did below, that the Trustee has ignored the opportunity offered by the Interstate Commerce Commission for the merger of Reading into the Chessie system. The Commonwealth contends that Chessie is obligated to include Reading in its system and cites for its authority a decision by the ICC, Chesapeake O. Ry. — Control — Western M. Ry., 328 I.C.C. 684 (1967), as amended by order of February 23, 1968. That decision, however, does not support the Commonwealth's contention.

The Commonwealth also argues that the reorganization court erred in not making a "public interest" finding. We conclude, however, that since the reorganization court decided in its 120-day order that the debtor could not be reorganized on an income basis within a reasonable time under § 77 of the Bankruptcy Act, it correctly held that there was no need for a finding as to whether the public interest would be better served by reorganization under § 77 than by reorganization under RRRA. Moreover, after considering the evidence produced at the hearing on the 180-day order as well as the hearing on the 120-day order and the arguments presented at the hearing before us on appeal from the 180-day order, we agree that the public interest would be better served by reorganization under RRRA. As we noted in the LV opinion, the United States Railway Association (USRA) will consider the various possibilities provided by § 206 of RRRA and select such one or more of them as it finds will best serve the public interest while preserving the legal rights of the bondholders and other creditors of the several debtors. The final system plan proposed by USRA will be reviewed by Congress and by this court.

Whether Reading can be reorganized under § 77 if RRRA is ultimately held to be unconstitutional, or if for some other reason it is not included in the final system plan, need not be decided at this time. See Paragraph (3) of the order entered today by this court, which is set out at the end of Judge Friendly's opinion.

Manufacturers Hanover Trust Company (MHTCo.), the Indenture Trustee, argues that the reorganization court incorrectly concluded that the process of RRRA would not be fair and equitable in only two situations-where the § 77 proceedings have practically been completed and the bankrupt is in a position to operate on a profitable basis, or where it is in such precarious financial position that it is useless and impossible to continue any longer despite whatever interim assistance might be granted by RRRA. MHTCo. argues that the Act is unconstitutional and not fair and equitable because, among other reasons, it could not have been known by July 1, 1974, what rail properties of Reading are to be transferred to Conrail or the nature and value of the consideration to be received in return therefor. Although the stated premises of this argument are true, the conclusion does not follow. The matter is fully covered by Judge Friendly's opinion. That opinion also considers and finds unpersuasive the other constitutional arguments advanced by MHTCo., including the arguments raised by the Indenture Trustees in the PC case and adopted in this case by MHTCo.

After giving full consideration (a) to the argument of MHTCo. that Reading is in such hopeless shape despite the relief offered by RRRA that its reorganization proceeding should be dismissed, and (b) to the argument of the Commonwealth that Reading is in such good shape that despite potential competition with a revitalized PC, it can reorganize on an income basis within a reasonable period of time under § 77, we agree with the conclusions reached by Judge Ditter.

E.

In re Ann Arbor Railroad Company (AA)

AA operates a freight line which extends from Toledo, Ohio, in a northeasterly direction to the Lake Michigan port of Frankfort, Michigan. It also operates a rail car ferry service between the port of Frankfort and the Wisconsin ports of Kewaunee and Manitowoc. This cross-lake operation is AA's largest single source of gross revenue; it also constitutes the major source of its losses. Its only branch line is six miles long.

Manufacturers Hanover Trust Company is the indenture trustee for AA's outstanding First Mortgage 4% Gold Bonds. Detroit, Toledo and Ironton Railroad Company (DTI) owns virtually all of the outstanding common and preferred stock of AA. It also owns a substantial amount of the first mortgage bonds, and holds a second mortgage on certain AA property.

AA has suffered losses for many years and in 1973 petitioned the Eastern District of Michigan for reorganization under § 77 of the Bankruptcy Act. On May 1, 1974, after a hearing, the reorganization court issued its 120-day order in which it found that AA is not reorganizable on an income basis within a reasonable time. The court found it unnecessary to reach the issue whether the public interest would be better served by reorganization under § 77 than under RRRA. This interpretation is consistent with the view we expressed in Part (1) of our opinion in the LV case.

The reorganization court held a further hearing in June, and on July 1, 1974, entered its 180-day order. The court properly construed § 207(b) as placing on parties opposing the reorganization of AA under RRRA the burden of establishing that RRRA does not provide a process that is fair and equitable to the estate. "Not being convinced that a fair and equitable process is not afforded" by RRRA, Judge Pratt found and ordered that AA should be reorganized under that Act.

Appeals from the 180-day order were taken by the indenture trustee and by DT I; they are opposed by the government parties and by the State of Michigan, the State of Wisconsin, Green Bay Western Railroad Co. and United Transportation Union.

Appellants adopt the arguments made by the "Institutional Investor and Indenture Trustee Appellees" in the PC case. Those arguments are dealt with in Judge Friendly's opinion herein. Appellants also make several additional arguments.

They argue that "to the extent, if any, that the Act constitutionally imposed the burden of evidence at the `180-day determination' upon parties opposing reorganization of the Ann Arbor under the Act, the District Court erred in applying that burden too stringently and in failing to hold that it had been discharged". We find no error in the reorganization court's ruling that having found that the railroad is not reorganizable on an income basis within a reasonable time under § 77 of the Bankruptcy Act, § 207(b) of RRRA places the burden on the parties opposing reorganization under that Act to show that it does not provide a process which would be fair and equitable to the estate of the debtor. We also agree with his ruling that the parties opposing reorganization of AA under RRRA had failed to meet that burden.

Appellants argue that the "reorganization court erred in failing to deal with the constitutional issues raised by the `180-day determination' and in failing to properly consider the effect on these issues of the holdings of the three-judge district court in Connecticut General Insurance Corp. v. United States Railway Association and companion cases". It is true that the reorganization court did not decide the constitutional issues which were before the three-judge court in the Connecticut General case. Nor did it ignore them. The court stated that the order of the three-judge court "does not halt the operation of the Act, nor even hinder the preparation of plans nor the continuation of procedures. Actually, the sections determined to be unconstitutional can be remedied by legislative action either before or after the Supreme Court review". It further noted that the three-judge court "did not, however, decide several constitutional issues which could have invalidated the entire Regional Rail Reorganization Act, e. g., the Fifth Amendment and due process issue relating to a permanent taking without just compensation, holding such issues to be premature. Its major determination was its conclusion that the Tucker Act remedy was not available to creditors or the estate and that, therefore, Sections 304(f) and 303 were unconstitutional in failing to provide a remedy for interim erosion." These matters have been fully covered by Judge Friendly's opinion herein.

Appellants further argue that even if the process of the Act be viewed as a reorganization scheme rather than a taking, the Act fails to provide a constitutionally adequate prospect of reorganization which would justify further interim losses. As a subpoint, they argue that there is no assurance that all or even a substantial portion of the Debtor's estate will be included in Conrail, and thus, even if Conrail offered some prospect of viable reorganization, there is no assurance that Ann Arbor will not simply be required to sustain deficit operations for an indeterminate period pending the unveiling and approval of the final system plan, only to be left out of the new system altogether.

It has not been shown that there will be any greater erosion during reorganization under RRRA than there would be during reorganization under § 77, especially in view of the assistance which may be available under § 213 of RRRA; and, if there shall have been any unconstitutional interim erosion, an adequate remedy is available under the Tucker Act. For reasons stated in Judge Friendly's opinion, it is unlikely that approval of abandonments of unprofitable lines during the period required for adoption of the final system plan could be more easily obtained from the ICC than under RRRA.

In support of a general point that RRRA denies the estate and its claimants fundamental rights and protections essential to a constitutional "fair and equitable" reorganization procedure, appellants advance essentially the same arguments that were advanced in the PC case, as well as in some of the other cases, with respect to: interim erosion; the likelihood of successful reorganization; the claimed inadequacy of the consideration provided by RRRA by way of interim assistance and final compensation to remedy the claimed defects in its process; and the claimed failure of the Act to provide effective judicial supervision of the "reorganization process" and other safeguards essential to a fair and equitable reorganization process. These points have been adequately considered in Judge Friendly's opinion.

Finally, appellants argue that "[t]o the extent that Appellants may be required to accept a limited participation in Conrail in place of their specific investment in the property of the Debtor, the Act denies them a fair and equitable process". They cite St. Joe Paper Co. v. Atlantic Coast Line Railroad Co., 347 U.S. 298, 74 S.Ct. 574, 98 L.Ed. 710 (1953), and the decisions below in that case. Their argument is essentially the same as that made by the appellees in the CNJ case, and has been fully dealt with in Judge Friendly's opinion.