Appeal from an order of the United States District Court for the District of Connecticut (Robert C. Zampano, Judge), approving a plan of reorganization for the Debtor. Affirmed.
Before Mulligan and Van Graafeiland, Circuit Judges and Mishler,*fn* District Judge.
This is an appeal from an order entered by District Judge Robert C. Zampano of the District Court of Connecticut on April 10, 1980, approving a consensual plan of reorganization ("Compromise Plan") for the New York, New Haven and Hartford R.R. ("New Haven" or "Debtor"). Since we find that the Compromise Plan provides for a fair and equitable distribution of the New Haven's assets we affirm its approval. With the disposition of this appeal we trust that the proceedings involving the New Haven's reorganization, various aspects of which have been before the Federal courts over a dozen times for almost two decades, have reached the end of the line.
The New Haven was at one point the largest railroad in New England and the sixth largest in the Northeast region. During the early part of this century it was beset with severe financial problems and found itself running deeply in the red. In 1935, it petitioned for reorganization under section 77 of the Bankruptcy Act, 11 U.S.C. § 205, and emerged 12 years later a newly reorganized company with a vastly simplified debt structure. As part of its new capitalization, the New Haven issued two series of bonds: $95,703,700 principal amount of first and refunding mortgage bonds bearing interest at the rate of 4 percent per year ("Mortgage Bonds"), and $87,881,500 principal amount of general income mortgage bonds bearing interest at the rate of 41/2 percent per year ("Income Bonds").
Despite this reorganization, the New Haven was still unable to operate as a profitable enterprise and by 1961 it was saddled with a deficit of $36 million and was losing cash at the rate of $18 million a year. On July 7, 1961, it again petitioned for reorganization under section 77 of the Bankruptcy Act in the United States District Court for the District of Connecticut ("Reorganization Court"). Judge Robert P. Anderson, then Chief Judge of the District Court, approved the petition and appointed three trustees to administer the railroad during its second reorganization.
The New Haven trustees, aware that the railroad could not continue to function independently, hoped to find a larger and more financially secure railway that would be able to absorb the New Haven's lines as part of its system. The opportunity came in March of 1962 when the Pennsylvania Railroad and the New York Central Railroad filed a merger application with the Interstate Commerce Commission ("Commission"). Within three months, the trustees sought inclusion in the proposed Penn Central system both through private negotiations and by formal petition filed with the Commission. Four years later, the Commission gave its approval to the proposed merger under the condition that the New Haven's lines be included and it directed the parties to negotiate privately as to how this was to be accomplished. Pennsylvania R.R.-Merger-New York Central R.R., 327 I.C.C. 475 (1966). On April 21, 1966, a Purchase Agreement was executed in which the representatives of the Penn Central agreed to buy all of the assets of the New Haven in exchange for cash and stocks and bonds of the Penn Central.
In October 1966, the New Haven trustees filed with the Commission a "two-step" plan of reorganization ("Plan"). "Step I" of the Plan covered the sale of New Haven's assets to the Penn Central and "Step II" detailed what the rights of New Haven's creditors inter se would be once Step I had been carried out. The Commission, after reviewing the terms of the Purchase Agreement, concluded that $125 million was a fair price to pay for New Haven's assets and it certified Step I of the Plan to the Reorganization Court for review. The Commission's valuation of the assets was then challenged by several classes of New Haven's bondholders before the Reorganization Court and in a separate proceeding brought before a three-judge district court in the Southern District of New York. Both courts independently concluded that New Haven's assets were worth substantially more than $125 million and remanded the issue of valuation back to the Commission. New York, N.H. & H.R.R. First Mortgage 4% Bondholders Committee v. United States, 289 F. Supp. 418 (S.D.N.Y.1968); In re New York, N.H. & H.R.R., 289 F. Supp. 451 (D.Conn.1968). On December 2, 1968, the Commission reevaluated the assets at $140 million and also reviewed Step II of the Plan which it certified to the Reorganization Court.
All throughout this period the New Haven line was being operated at a deficit. In December 1968, Judge Anderson, concerned that the continuing erosion of the New Haven's assets could amount to an unconstitutional taking, ordered that the assets be immediately transferred to the Penn Central and left the exact form and amount of consideration to be paid by Penn Central for a later determination. In re New York, N.H. & H.R.R., No. 30226 (D.Conn. Dec. 24, 1968) (Order Directing Inclusion of Debtor in Penn Central Company). After the assets had been conveyed, New Haven bondholders again sought to challenge the Commission's valuation determination before both the Reorganization Court and the three-judge district court in New York. On May 28, 1969, Judge Anderson reviewed Step I of the Plan. In re New York, N.H. & H.R.R., 304 F. Supp. 793 (D.Conn.1969), aff'd in part, vacated in part sub nom. New Haven Inclusion Cases, 399 U.S. 392, 90 S. Ct. 2054, 26 L. Ed. 2d 691 (1970). He again disagreed with the Commission and concluded that New Haven's assets, now in the hands of Penn Central, were worth $175 million. Three weeks later, the three-judge district court, in its decision on valuation, approved the figure of $140 million reached by the Commission. New York, N.H. & H.R.R., First Mortgage 4% Bondholders Committee v. United States, 305 F. Supp. 1049 (S.D.N.Y.1969), vacated sub nom. New Haven Inclusion Cases, 399 U.S. 392, 90 S. Ct. 2054, 26 L. Ed. 2d 691 (1970).
On July 28, 1969, Judge Anderson filed his opinion on Step II-the distributive aspects-of the Plan. In re New York, N.H. & H.R.R., 304 F. Supp. 1121 (D.Conn.1969). In it he decided, inter alia, that the Mortgage Bondholders, whose claims were senior to those of the Income Bondholders, should be entitled to interest on their claims up to the effective date of the Plan, which at that time was December 2, 1968. Although Judge Anderson had hoped at this point to enter his formal approval of the entire Plan, he recognized that a final decision would have to await the outcome of the still-unsettled issue of the valuation of New Haven's assets. Id. at 1123-24.
In the New Haven Inclusion Cases, 399 U.S. 392, 90 S. Ct. 2054, 26 L. Ed. 2d 691 (1970), the Supreme Court reviewed the conflicting decisions of the two district courts. The Court held that primary jurisdiction over the pricing issue lay with the Reorganization Court, and it affirmed Judge Anderson's valuation of New Haven's assets. Eight days prior to the Court's decision, however, the Penn Central itself petitioned for reorganization under section 77 of the Bankruptcy Act. Since Penn Central securities, which were to make up the bulk of the consideration for New Haven's assets, substantially declined in value, the Court remanded the case to the Commission and the appropriate federal courts for further proceedings. On remand, Judge Anderson attempted to impose an equitable lien on the assets that the New Haven had already transferred to the Penn Central, but his decision was vacated by this court for lack of subject matter jurisdiction, and the case remanded to the Commission. In re New York, N.H. & H.R.R., 457 F.2d 683 (2d Cir.), cert. denied, 409 U.S. 890, 93 S. Ct. 106, 34 L. Ed. 2d 147 (1972). Efforts by the New Haven trustee*fn1 to proceed on the reorganization were then held up by the Commission pending a resolution of the Penn Central reorganization.
During late 1975, representatives of the Penn Central met with its creditors in order to work out a compromise of the various claims against the Penn Central estate. As a settlement with the New Haven estate, the Penn Central trustee agreed to transfer $12.8 million in cash, plus the securities which we describe hereafter.
On April 18, 1978, the New Haven trustee filed an amended plan of reorganization ("Amended Plan") which primarily dealt with the distribution of the estate's assets. The Amended Plan reflected both that there had been a reduction of some $60 million in administrative claims as a result of settlements made since 1968 and that the consideration received from the Penn Central was of a different nature and value than that originally anticipated.
Hearings on the Amended Plan commenced on October 12, 1978 before Judge Robert C. Zampano, who became the presiding judge of the New Haven Reorganization Court after Judge Anderson had died on May 2, 1978. Both the Income Bondholders and the Mortgage Bondholders had serious objections to the Amended Plan. The Income Bondholders' main contention was that the Mortgage Bondholders should only be entitled to interest on their bonds up to December 2, 1968, and not until whatever date the plan of reorganization was finally approved by the Reorganization Court as proposed by the Amended Plan. The Mortgage Bondholders argued that the Amended Plan greatly overvalued the assets held by the estate by failing to look to the market price in assessing the value of the Penn Central securities. Judge Zampano, who recognized that continued litigation over the features of the reorganization plan would probably take ...