Regional Rail Reorganization Act Cases
419 U.S. 102 (1974)

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U.S. Supreme Court

Regional Rail Reorganization Act Cases, 419 U.S. 102 (1974)

Regional Rail Reorganization Act Cases*

Argued October 23, 1974

Decided December 16, 1974

419 U.S. 102

Syllabus

As a comprehensive solution to a national rail crisis precipitated by the entry into reorganization proceedings under § 77 of the Bankruptcy Act of eight major railroads in the northeast and midwest region of the country, Congress supplemented § 77 with the Regional Rail Reorganization Act of 1973 (Rail Act). Each railroad under a § 77 reorganization must proceed under the Rail Act unless its reorganization court within specified times finds (a) that the railroad is reorganizable on an income basis within a reasonable time under § 77 and that the public interest would be better served by a § 77, rather than a Rail Act reorganization or (b) that the Rail Act does not provide a process that is fair and equitable to the estate of the railroad in reorganization (hereafter railroad). § 207(b) of the Rail Act. Appeals from § 207(b) orders are provided to a Special Court, whose decision is final. The Rail Act establishes a Government corporation, the United States Railway Association (USRA), which is directed to formulate a "Final System Plan" (Plan) by July 26, 1975, for restructuring the railroads into a "financially self-sustaining rail service system." The Plan must provide for transfer of designated railroad properties to the Consolidated Rail Corp. (Conrail), a private state-incorporated corporation, in return for Conrail securities, plus up to $500 million of federally guaranteed USRA obligations and the other benefits accruing to the railroad from the transfer. The Plan, which becomes effective if neither House of Congress disapproves it within 60 days, must be transmitted to the Special Court, which has exclusive jurisdiction of all proceedings concerning the Plan. § 209. Within 10 days after deposit

Page 419 U. S. 103

with it of Conrail securities and USRA obligations, the Special Court must order the railroad trustee to convey forthwith to Conrail the railroad's properties designated in the Plan. § 303(b). The Special Court then determines under § 303(c), with an appeal extending to this Court, whether the conveyance is fair and equitable to the railroad's estate under § 77 standards, or whether the transfer is more fair and equitable than a constitutional minimum requires (in which case necessary adjustments must be made). If the Special Court finds the conveyance not fair and equitable, the court must reallocate, or order issuance of additional Conrail securities and USRA obligations, enter a judgment against Conrail, or combine such remedies. Railroads may discontinue service and abandon properties not designated for transfer under the Plan, but, until the Plan becomes effective, may only discontinue service or abandon any line with USRA consent and absent reasonable state opposition. § 304(f). Parties with interests in Penn Central Transportation Co. (Penn Central) brought suits attacking the constitutionality of the Rail Act, contending that the Act violates the Fifth Amendment by taking Penn Central property without just compensation, on the grounds (1) that the Conrail securities and USRA obligations and other benefits would not be the constitutionally required equivalent of the rail properties whose transfer is compelled by § 303(b) (the "conveyance taking" issue), and (2) that § 304(f) compels continuation of rail operations pending the Plan's implementation even if erosion, beyond constitutional limits, of Penn Central's estate occurs during the interim period (the "erosion taking" issue). While rejecting the "conveyance taking" issue as premature in view of a number of decisional steps required before the final conveyance, the District Court held that the "erosion taking" issue was not premature, and rejected the contention of the United States, USRA, and the Penn Central Trustees that, if the constitutional limit of permissible uncompensated erosion should be passed, the plaintiffs would have an adequate remedy at law under the Tucker Act, which gives the Court of Claims jurisdiction to render judgment "upon any claim against the United States founded either upon the Constitution, or any Act of Congress . . . ," the District Court finding that the Rail Act precluded a Tucker Act remedy. The court therefore declared § 304(f) invalid as violating the Fifth Amendment

"to the extent that it would require continued operation of rail services at a loss in violation of the constitutional rights of the owners and creditors of a railroad,"

and the court declared § 303 invalid to the extent

Page 419 U. S. 104

it failed to compensate for interim erosion pending final implementation of the Plan. In addition to other injunctive relief, the District Court enjoined USRA from certifying the Plan to the Special Court under § 209(c). The court further determined that the provision of § 207(b) requiring dismissal of certain reorganization proceedings is constitutionally invalid as a geographically nonuniform law on the subject of bankruptcies.

Held:

1. The issue of the availability of a Tucker Act remedy if the Rail Act effects an "erosion taking" is ripe for adjudication in view of the distinct possibility that compelled continued rail operations by Penn Central, which in the past several years has sustained great losses and is not "reorganizable on an income basis within a reasonable time under [§ 77]," would injure plaintiffs below without any assurance before the Plan is implemented of their being compensated. Pp. 419 U. S. 122-125.

2. The Tucker Act remedy is not barred by the Rail Act, but is available to provide just compensation for any "erosion taking" effected by the Rail Act. Pp. 419 U. S. 125-136.

(a) The correct issue is whether Congress intended to prevent recourse to the Tucker Act, and not, as the District Court held, whether the Rail Act affirmatively manifests a congressional intent to permit such recourse. Pp. 419 U. S. 126-127.

(b) Rail Act provisions relied on as evincing a congressional determination that no federal funds beyond those expressly committed by the Act were to be paid for the rail properties, equally support the inference that Congress felt that the Rail Act provided at least the minimum compensation and gave no consideration to withdrawal of the Tucker Act remedy. Pp. 419 U. S. 127-129.

(c) Section 601 of the Rail Act, which specifically deals with other statutes inconsistent with the Rail Act, does not mention the Tucker Act. P. 419 U. S. 129.

(d) There is no legislative history supporting the argument that the Rail Act should be construed to withdraw the Tucker Act remedy. Pp. 419 U. S. 129-133.

(e) Applicable canons of construction fortify the conclusion that the Rail Act does not withdraw the Tucker Act remedy. Pp. 419 U. S. 133-136.

3. Certain basic "conveyance taking" issues are now ripe for adjudication. Pp. 419 U. S. 136-148.

(a) Since, after the District Court's opinion, the Special Court reversed the Penn Central reorganization court's determination that the Rail Act did not provide a process that would be fair

Page 419 U. S. 105

and equitable to the estate, some of the "conveyance taking" issues must now be decided. Pp. 419 U. S. 138-140.

(b) Implementation of the Rail Act will now lead inexorably to the final conveyance, though the exact date cannot now be determined, and the Special Court must order the conveyance of rail properties included in the Plan; since the conveyance is inevitable it is not relevant to the justiciable controversy issue that there will be a delay before the transfer occurs. Pp. 419 U. S. 140-143.

(c) Several factors militate against the Court's deferring resolution of the constitutional issues here until a time closer to the occurrence of the disputed event and the Court will be in no better position later than it is now to determine the validity of basic final conveyance issues. However, resolution of other issues, such as those involving valuation, should be postponed. Pp. 419 U. S. 143-148.

4. For the same reasons as obtained with respect to the "erosion taking" issue, a suit in the Court of Claims is available under the Tucker Act for a cash award to cover any shortfall between the consideration that the railroads receive for their rail properties finally conveyed under the Rail Act and the constitutional minimum. P. 419 U. S. 148.

5. The Tucker Act guarantees an adequate remedy at law for any taking that might occur as a result of the final conveyance provisions of the Rail.Act. Pp. 419 U. S. 148-156.

(a) Plaintiffs' argument that the Tucker Act remedy is inadequate because the "conveyance taking" is an exercise of the eminent domain power and requires full cash payment for the rail properties is without merit. The Rail Act, coupled with the Tucker Act, is valid as a reorganization statute, and does not constitute an eminent domain statute by virtue of its provisions for federal representation on Conrail's board of directors (which does not constitute Conrail a federal instrumentality) and the provisions for conveyance and continuation of services pending the Plan's formulation; or because of any defects in the Act's provisions for judicial review. Pp. 419 U. S. 152-155.

(b) Though the Rail Act differs from other reorganization statutes by mandating conveyance without any prior judicial finding that there will be adequate resources in the reorganized company to compensate the debtor estates and, eventually, their creditors, recourse to a Tucker Act suit for any shortfall provides adequate assurance that any taking will be compensated. Pp. 419 U. S. 155-156.

Page 419 U. S. 106

(c) The Tucker Act also assures that the railroad estates and their creditors will eventually be made whole for the assets conveyed, and thus the Rail Act doe not deprive plaintiffs of procedural due process. P. 419 U. S. 156.

6. The Rail Act does not contravene the uniformity requirement of the Bankruptcy Clause. Pp. 419 U. S. 156-161.

(a) This Court's holding that the Tucker Act remedy is available for any uncompensated taking under the Rail Act obviates the possibility that the Penn Central reorganization court will ever confront the provision for dismissal of a § 77 proceeding under § 207(b) of the Rail Act, which the District Court held violative of the bankruptcy uniformity requirement. Pp. 419 U. S. 156-158.

(b) Plaintiffs' argument that constitutional bankruptcy uniformity is violated because the Rail Act is restricted to a single statutorily defined region lacks merit, since the uniformity requirement does not preclude Congress from fashioning legislation to resolve geographically isolated problems, and here Congress acted consistently with that requirement when it dealt with the national rail crisis centering in the problems of rail carriers in the region defined by the Rail Act and applied the Rail Act to every railroad in reorganization throughout the United States. Pp. 419 U. S. 158-161.

383 F.Supp. 510, reversed.

BRENNAN, J., delivered the opinion of the Court, in which BURGER, C.J., and WHITE, MARSHALL, BLACKMUN, POWELL, and REHNQUIST, JJ., joined. DOUGLAS, J., filed a dissenting opinion, post, p. 419 U. S. 161. STEWART, J., filed a dissenting statement, post, p. 419 U. S. 161.

Page 419 U. S. 107

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