has acted within the time limit, and the ICC is relegated to the position of a mere advisor whose views can be ignored.

In the area of abandonments, the issues presented are essentially transportation matters within the particular expertise of the Interstate Commerce Commission. They involve questions of the carrier's capacity to continue operations as well as the public need for service, the adequacy of alternative service, and various other economic, social, and environmental considerations. Our long experience in handling abandonment cases has given us a greater understanding of national and regional transportation issues than the district courts and thus a better view of how any given abandonment affects the local, regional, or national transportation system. Since abandonments involve matters which the Congress has specifically delegated to the ICC, we believe that we should play the same role in the processing of abandonments of bankrupt carriers that we play with regard to abandonments by other rail carriers.

SECURITIES

The proposal would also change the law with respect to the issuance of securities by the debtor or trustee. Under present section 77 (c)(3) of the Bankruptcy Act, ICC approval is required before the judge may authorize their issuance. Under section 7-106 of the bill the debtor or trustee could issue certificates upon the approval of the Administrator (who, pursuant to section 9-102, would be the district court judge) without the approval or advice of the ICC. The Report of the Bankruptcy Commission gives no rationale for this change, providing, in effect, that entering into bankruptcy suspends section 20a of the Interstate Commerce Act, which was intended to protect both present and prospective investors in the carrier. Again, the bill would remove the ICC from participation in an area where we have developed a special expertise which should be put to use, and revert to the approach which proved unsatisfactory years ago.

APPOINTMENT AND COMPENSATION OF TRUSTEES

The legislation also alters the process for the appointment of trustees who assume responsibility for the operation of the railroad, the preservation of the debtor's estate, and the protection of the creditors rights. The responsibilities require an extensive knowledge of transportation matters. Under current bankruptcy procedure, the appointments must be submitted to the ICC for ratification. The method provided by section 9-301 of H.R. 31 would omit this ratification and would give the ICC the same status as any interested party testifying at the hearing on the appointment. The report suggests that this change in the interests of eliminating another duplicative function and thereby expediting the process. However, ICC approval of trustees is not a time-consuming procedureit is usually done in a matter of days. And, ICC ratification does carry with it the safeguard that the appointees' competence in transportation matters will be scrutinized by a body with a special expertise in the area. Reliance solely on the bond requirement of section 9-302 of H.R. 31 is not an adequate substitute. Again, the Bankruptcy Commission's recommendation is a reversion to pre-section 77 days when criticism of the quality of trustees led to the requirement of ICC approval.

The method for determining the compensation of trustees which is now set forth in section 77 (c) (2) of the Bankruptcy Act, would also be changed by this bill. Under current law the ICC sets the maximum limits for compensation and the judge allows payments to be made to the trustees from within this range. Section 4-404 of H.R. 31 would authorize the court to set the compensation for trustees and other persons, with the ICC acting in an advisory role. We have no objection to this change. The courts should be generally able to rule on compensation applications, and the Commission could use its recommendation to provide assistance to the court on the value of transportation-related services.

TRANSFER AND CONSOLIDATION OF CASES

One feature of Chapter IX which we believe has considerable merit is the liberal provision for transfer and consolidation of rail bankruptcy cases. Section 9-303 provides that such transfers shall be made by the judicial panel on multidistrict litigation upon initiation of a proceeding by any party in. interest, the panel itself, the trustee, or the judge handling one of the cases. The consolidation may occur if there is a dispute between two or more debtors, one or more common questions of fact, or a possible merger or common plan or two or more debtors.

Under the present system, there has been considerable delay engendered by the failure to consolidate closely related proceedings. For example, while the New York, New Haven and Hartford Railroad was in reorganization in the 1960's, one of its lessors (Boston & Providence Railroad) was also in reorganization. The New Haven trustees were continually shuttling back and forth between the United States District Court for the District of Connecticut, which possessed jurisdiction over the reorganization of the New Haven, and the United States District Court for the District of Massachusetts, which had jurisdiction over the B&P reorganization. Moreover, each of these courts' orders were appealable in a separate Circuit Court. This split of jurisdiction undoubtedly caused delay and unnecessary efforts on the part of the parties involved.

Furthermore, there may be open conflict between courts having jurisdiction over related railroads. An example of this conflict is the dispute between the New Haven Court and the United States District Court for the Eastern District of Pennsylvania. The latter had jurisdiction over the reorganization of the Penn Central Transportation Company, which then owned and operated the former New Haven lines. See New Haven Inclusion cases, 399 U.S. 392 (1970). The New Haven Court entered an "equitable lien" and a "constructive trust" on the former New Haven properties to protect the New Haven interests. The Pennsylvania Court responded by enjoining the New Haven trustees and their counsel from seeking to enforce such lien or trust. The New Haven Court thereupor appointed special counsel apparently to record the lien in each of the States in which the former New Haven properties were found. The New Haven Court's action was reversed by the United States Court of Appeals for the Second Circuit on the ground that the district court lacked subject matter jurisdiction under section 77(a), since the property affected was within the exclusive jurisdiction of the Penn Central Court.

Certainly, no purpose is served by this kind of dispute, and section 9-303 seems precisely designed to avoid such situations. We believe that emphasis on early consolidation, which would be encouraged by this section, could produce substantial reductions in delay and unnecessary litigation. It could also lead to more comprehensive consideration of the broad transportation issues involved in multiple rail reorganizations.

H.R. 32

The second bill before your Subcommittee, H.R. 32, is the recommendation of the National Conference of Bankruptcy Judges, and the provisions of section X of that bill revise the procedures to be followed in rail reorganizations. Essentially, this bill takes the same approach to rail bankruptcies as does H.R. 31, and transfers many of the administrative functions involved from the ICC to the courts. Thus, our comments of H.R. 31 are largely applicable to H.R. 32. There are, however, some differences between the two versions which should be noted.

First, while H.R. 31 would leave jurisdiction over rail reorganizations in the district courts, H.R. 32 would place jurisdiction in the bankruptcy courts, which are created pursuant to Chapter II of that bill. We believe that the problems created by overjudicialization of rail reorganizations are essentially the same whether their jurisdiction is in the district courts or in a more specialized tribunal. The disadvantages we foresee in enactment of H.R. 31, with respect to increased involvement of the judiciary, are equally inherent in H.R. 32.

Another difference between the two bills is the absence in H.R. 32 of the provisions found in section 9-303 of H.R. 31 which permit the transfer and consolidation of rail bankruptcy proceedings. As previously indicated, we believe that these provisions are beneficial and should be included in some form.

Further, section 10-104 (b) of H.R. 32 would preserve the right of the Interstate Commerce Commission to appeal decisions of the bankruptcy court. The Bankruptcy Commission's proposal, on the other hand, provides in section 9-105(b) that the ICC may not appeal from any judgment entered in a bankruptcy case. The approach of H.R. 32 is obviously preferable, particularly in view of the diminished role assigned to the ICC in the earlier stages of the process. The Bankruptcy Commission's proposal would relegate the ICC to an advisory position, provide that its advice could be ignored, and preclude it from taking an appeal from a decision made by the court. This effectively removes from the rail reorganization process the benefits of ICC expertise in the areas of rail financing and operation and does not assure that there will be adequate consideration of the public interest. The approach of H.R. 32 is preferable in that it at least allows the ICC to appeal from judgments of the court and present its views to the reviewing court.

ALTERNATIVE PROPOSALS

Although we do not support the general direction of H.R. 31 and H.R. 32, we do agree that changes should be made in section 77. The purpose of these changes should be to provide a more efficient process and one that leads to a reorganized railroad that provides optimal service to the public while meeting the rights of creditors and stockholders.

To accomplish this result, it is important to eliminate some of the duplication of Functions between the courts and the ICC. But we propose accomplishing this by giving the ICC the primary role in transportation and procedural aspects of rail reorganizations while giving the courts essentially a review function. Our reasons for this approach are two-fold. First, a great deal has been heard recently about how overburdened our court system is. In view of the clogged court dockets, it is likely that the assignment of more responsibility in complex rail reorganization cases to the courts will produce even greater delays in the processing of these cases. The Commission, too, is busy; however, the nature of rail reorganizations is such that they can be integrated rather well with the Commission's other rail regulatory functions. Also, pursuant to section 309 of Public Law 94-210, the Rail Services Planning Office has been established as a permanent office within the Commission. This Office, which originally served to evaluate the rail plans developed under the Regional Rail Reorganization Act of 1973, has a general mandate to conduct an ongoing analysis of national rail transportation needs and to evaluate programs to meet those needs. It would be available to the Commission to assist in carrying out any new functions having to do with future rail reorganizations.

Second, rail reorganization cases involve primarily transportation issues; that is, determinations of what level of rail service is really essential and how much and what type of service can be retained consistent with the private rights of stockholders and creditors. These are decisions that the Commission is best qualified to make since they involve many of the same factors that are part of the Commission's day-to-day adjudications in rail abandonment, merger, and rate

cases.

Specifically, we propose that the process for the submission and approval of the reorganization plan be substantially revised. First, something must be done to eliminate the long periods of time during which all the parties sit back and wait for someone else to come up with a plan while neither court nor Commission can compel action. We suggest requiring the trustee, rather than the debtor, to file a plan of reorganization within six months of approval of the petition. This would solve the problem of having the debtor, which is invariably oriented to the equity interests, having the least rank, delay development of a plan or come up with a totally unrealistic plan from the standpoint of the public and the creditors."

There should still be an opportunity for extensions, but the statute should make it clear that such extensions will be granted only for good cause specificaly shown. Moreover, the Commission should have the responsibility for granting the extension since the Commission, with its greater familiarity with the subject matter, is best able to determine whether the complexity of the issues involved warrant extensions.

Furthermore, in order to ensure that the plan is developed in a businesslike manner, the Commission should be given the jurisdiction to direct the trustees to take, within periods of time set by the Commission, certain actions such as analyses leading to a determination of which properties are essential to the production of vital services, which services are likely to run on a breakeven or better basis, which services are likely to produce a deficit, and which services and facilities could or should be eliminated; and of how the debt should be restructured to a kind and amount capable of being serviced under the railroad's revised physical configuration giving due regard to the rights of creditors, the public need, and the prospects for achieving a reorganization plan. This authority would enable the Commission to ensure the expeditious development of a plan and would put before the court, the Commission, and the parties information needed to judge the validity of a plan.

The next step is to eliminate the duplicative review functions that are so instrumental in delaying the process. At present, there must be a Commission

2 We note that section 7-304 of H.R. 31 does place the primary requirement for develonment of a plan on the trustee and we support this change from section 77 (d), which places this requirement on the debtor.

hearing and decision followed by a court hearing and decision, after which comes referral back to the Commission for submission to the creditors and stockholders for their vote on the plan, which vote is followed by certification of the vote back to the court which then confirms the plan. This process is further delayed by the fact that both the court's approval and confirmation are appealable and can be even further drawn out if the court does not approve the plan but refers it back to the Commission. We believe that this process can be greatly streamlined by having the Commission decide on the final plan and the court review that decision, rather than rendering its own de novo decision, and by ensuring that the creditors' and stockholders' views are considered on the record before the Commission, rather than requiring separate submission of the plan to them after court approval.

We propose that after the submission of the required plan by the trustees, all interested parties, including the Department of Transportation, be allowed a limited statutory period of time to submit alternate plans or to comment on the trustee's plan. Then the Commission should conduct extensive conferences between the parties, analogous to informal conferences held pursuant to the promulgation of proposed rules under the APA. After these conferences, the Commission would be required to promulgate a proposed plan, which then would be the subject of a formal hearing and a final decision by the Commission. This procedure would have several advantages. The Commission and the parties would have available to them the underlying factual information and the basic positions of the parties involved. The informal conference and discussion period would allow for the resolution or minimization of differences before inflexible positions are drawn in formal hearings. It would also allow the Department of Transportation, which has certain new authority under Public Law 94-210 to distribute rail rehabilitation funds and to conduct national rail planning, to present its views and proposals as to how the reorganization should be accomplished to best fit into a national rail system. The information-gathering and conference approach is patterned after section 401 of Public Law 94-210 which authorizes the Secretary of Transportation to perform similar functions for the purpose of making merger proposals to the ICC. Just like a reorganization plan under section 77, these proposals are intended to produce a more efficient system. By utilizing similar techniques in reorganization cases, it appears to us that an acceptable reorganization plan can be more efficiently and expeditiously developed.

Once the proposed plan is issued, the Commission would hold a hearing on it after which the Commission's decision would be issued. We note that the Bankruptcy Commission indicates concern about delays at the Commission, and we have already shown that with regard to development and approval of the plan, it is certainly not the Commission which is primarily responsible for such delays. Moreover, Public Law 94-210 includes provisions designed to expedite decisions in cases such as these. Section 303 contains deadlines for Commission decisions and eliminates unnecessary levels of appeal within the Commission. Moreover, that section specifically provides that in important rail cases, the Commission may dispense with the usual initial decision by an Administrative Law Judge or other official and consider the case itself in the first instance. Consideration of reorganization plans would be likely candidates for this expedited procedure, particularly if extensive informal procedures have taken place. Also, the Commission will have RSPO personnel at its disposal to aid in the expeditious development of a plan. The sum of all this is that the Commission is the most likely candidate to produce a workable plan quickly and efficiently. Once the Commission has rendered its decision on the plan, we believe that the court should perform essentially a reviewing function, rather than the present practice of conducting a de novo hearing and rendering an entirely separate decision. The substantive standards for the court's decision as set forth in the present section 77(e) are whether the plan meets the appropriate legal standards and is fair and equitable. This is quite similar to the standard applied by courts reviewing other Commission decisions, and thus we believe that the court should be required to process these cases on an appeal basis rather than as de novo hearings with all of the attendant delays. We see no reason why judicial review of the Commission's decision on a reorganization plan should be any more lengthy or complex than review of a Commission decision with regard to a rail merger case.

After the court has approved the Commission decision, there should not be the further delay caused by referral of the case back to the Commission for the votes of stockholders and creditors and then transmittal back to the

court for confirmation of the plan. The stockholders and creditors will have had full opportunity to air their views in the proceedings both before the Commission and the court. Since under the present procedure, the court may confirm the plan upon a determination that it provides fair and equitable treatment and that its rejection is not reasonably justified even if more than one-third of the creditors or stockholders disapprove, the formal vote has little effect beyond the presentation of views that the creditors and stockholders have already made. Plainly, the court must retain the authority to require implementation of the plan if it is fair and equitable whether or not it is favored by most creditors. But separate submission of the plan for formal vote by the creditors and stockholders takes up unnecessary time and should be eliminated. What is needed is a procedure, such as we have proposed, that ensures the full airing and consideration of the stockholders' and creditors' views during the formulation of the plan.

Another important change relating to the development of the plan that we recommend is the addition of a provision authorizing Commission approval of a plan which includes merger of two debtors or a debtor with another railroad, or the joint use of rail properties, without the express approval of the debtor. Present section 77(b) states that such a merger can be part of the plan but pursuant to the Supreme Court decision in St. Joe Paper Co. v. Atlantic Coast Line Railroad Co., 347 U.S. 298 (1954), the merger must be approved by "those who in the absence of section 77 would yield the corporate merger powers." By this, the court clearly meant the shareholders of the debtor.

We do not believe that any single person or interest should have veto power over a reorganization proposal. It is conceivable that a debtor's position might be such that its stockholders would have no opportunity, no matter what kind of reorganization of liquidation plan was ultimately carried out, to receive any compensation for their holdings. In such a case they should not be permitted to block a plan otherwise in the interests of the public and secured creditors. We believe that the statute should permit adoption of a reorganization plan which includes a provision for merging the debtor railroad with a willing merger partner, or which involves the joint use of rail property, even in the face of opposition by the debtor or its creditors, provided that appropriate findings are made to the effect that whatever legal or Constitutional rights such parties may possess have been properly considered and protected.

Increasingly, mergers and consolidations are being viewed as vital to the maintenance of a viable nationwide railroad system. The entire process carried out under the Regional Rail Reorganization Act of 1973 involves the consolidation of six bankrupt railroads in the Northeast into one regional railroad, the Consolidated Rail Corporation. The Railroad Revitalization and Regulatory Reform Act of 1976, Public Law 94-210, contains an entire title (Title IV) which is intended to facilitate merger planning at the ICC and the Department of Transportation and to expedite Commission consideration of rail merger applications. Moreover, section 309 of that Act assigns the Commission's Rail Services Planning Office the specific function of assisting the Commission in studying and evaluating mergers and related proposals. Because of the growing importance of mergers as a means of rationalizing our rail system, it is essential that parties be authorized to propose mergers as the basis for a reorganization plan and for the Commission to approve such a merger as part of a plan without the consent of the debtor, if such merger is clearly in the public interest.

Turning to the subject of abandonments by rail carriers in reorganization, we believe that the way to eliminate duplication in decision making in this area is to have the court review the Commission's abandonment decisions in the same way that it reviews Commission decisions involving abandonment of lines by railroads not in reorganization. This should speed up the process since, rather than having to make an independent judgment on a line abandonment, the court would only have to review the record before the Commission to determine whether "substantial evidence" existed to support the Commission's decision. This approach is clearly the most appropriate since essentially the same balancing of public and private interest are involved in an abandonment whether or not the railroad is in reorganization.

Abandonments are important to the reorganization process since it is likely that in any successful reorganization, there will have to be some pruning of light density lines and redundant facilities. Here again, Public Law 94-210 should be of considerable assistance to the Commission in ascertaining what lines of a