limit the impact of labor protection that is provided either in the collective bargaining agreements or by statute. The recently enacted Railroad Revitalization and Regulatory Reform Act provides for minimum labor protection for both mergers and abandonments to the so-called Amtrak conditions which I believe has 5 years labor protection.

We think this committee should give consideration to the granting of power to limit that labor protection to the extent it would affect the viability of the reorganized entity.

Mr. BUTLER. Do you have draft language in that regard?

Mr. MCCAFFREY. I do not. But I would be glad to supply it. Mr. BUTLER. We would appreciate that. Mr. Sharfman, will you tell us the problems you had with your agreement?

Mr. SHARFMAN. Yes, Mr. Butler.

It is a difficult problem, let me say, because to the extent that you have existing collective bargaining agreements which usually govern wages, working conditions, et cetera, those usually come up for rebargaining every couple of years. And I do not think the problem-although I am not a labor expert-I do not think the real problem has been in not being able to have the legal power to terminate those. The problem has been the difficulty of renegotiating them perhaps in a successful way. And I do not know whether, if you merely give the court a power to undo things, you necessarily solve that kind of problem. It is really a problem of labor negotiation.

And that is why we came to the conclusion that perhaps as to existing agreements, it really would be fruitless to try to merely give the judge power to undo them.

Now, on the other hand, where you are trying

Mr. BUTLER. Well, excuse me, the power to reject executory contracts is the power that the bankruptcy court has in every other bankruptcy situation, is it not?

Mr. SHARFMAN. I think it does, yes.

Mr. BUTLER. Well, why a distinction with reference to railroads? Mr. SHARFMAN. I am not advocating it. All I am saying is that I do not know whether you would achieve a tremendously different result; because as I understand it, under the Railway Labor Act, there is a power to change agreements even that have not expired.

If you will recall, Mr. Butler, in the case of Penn Central, the trustees wanted to change the work rules. And they can initiate action under the Railway Labor Act to try to do that. Now, they cannot do that immediately. They have to go into negotiations. If the negotiations fail, there is mediation; and that is a process that takes some time. I am not certain how long it takes. And if it is too long, perhaps it should be shortened. But they went through that process in Penn Central. And they did not resolve it.

The trustees came out and said, we need these work rules changed, and we are going to change them. Eventually under the Railway Labor Act, you can do that, if all else fails. And they announced a day on which they were going to change it, which was some time, I think, in March 1973.

At that time, there was a strike by the unions, and the Congress came in the first day of the strike and passed a joint resolution forcing the trustees to abrogate their changes of the work rules, and, in a sense, capitulate to labor.

So I do not know that you could blame section 77 that something was not done there. It seems that Congress did not want it.

Mr. BUTLER. Can you visualize the Congress of the United States bailing out the Podunk County Railroad under similar circumstances? The answer is, no; it is the size of the Penn Central that put that situation in that context. But I judge it is your recommendation, if practical, that the bankruptcy court should have the power to approve the rejection of executory contracts in the same situation as it does under other bankruptcy law. Is that true?

Mr. MCCAFFREY. Well, if you are saying that, do I feel that bankruptcy courts or judges ought to have the power to undo these labor contracts to this extent-I think what we are saying is that we do not think that it is a necessary power, that in any event labor and rail management are going to have to come to an agreement. And that agreement will provide the basis for reorganizations.

So we are not, I think, in the position of recommending that kind of change. We do recommend, however, that with respect to labor protection-where in some cases some very onerous labor protection provisions have been included in the collective bargaining agreements, or in particular, the statute, while I am not saying that those are onerous, they could present very difficult costs to the reorganized entity-the court should have the power to consider whether those should be limited to the extent that it affects the viability of the reorganization.

Mr. SHARFMAN. In the case of Penn Central, there we had a very unusual contract that was entered into at the time of the Penn Central merger, which guaranteed all the employees at the time, job protection for life, if they should lose their jobs. And what the Penn Central trustees found, really, was a millstone around their neck, which was a significant factor in preventing a successful reorganization.

They went back to the ICC to try to get the ICC to remove that protective condition, which it had power to do; and they were never able to get the ICC to do that.

Now, that kind of thing, we think should be allowed

Mr. BUTLER. That kind of thing should be in the control of the bankruptcy court, like any other creditor-debtor relationship? Mr. SHARFMAN. Yes.

Mr. BUTLER. I think I have your opinion on it. I yield to the gentleman from Massachusetts.

Mr. DRINAN. Thank you. Gentlemen, I'm sorry. It was the airlines and not the railroads that made me a bit tardy. I wonder how you would respond to what the ICC told us the other day. You seem to say very categorically here that you do not want dual proceedings. I am reading from your testimony. As you know, the ICC took an opposite point of view for reasons that I am sure you are familiar with. I wonder if you would just restate, or answer what you think is the best argument that the ICC had the other day against what you call "the streamlined procedure."

As you may recall, I am sure you are much more familiar with it than we are, they say that the ICC should not be placed in a secondary category and that-this is on your point one or point two-we should have the concurrence of both the ICC and the courts.

How do you respond to that? I have your material here. But how would you try to satisfy the ICC? I am sure that we did not do it the other day.

Mr. MCCAFFREY. I am not familiar with exactly each detail of their defense of their position. In our view, as we have stated, there is no reason for the duplicative proceedings presently provided under section 77, and we think this is one reason why the reorganization proceedings are so protracted.

Moreover, we do not find there to be any special expertise within the Interstate Commerce Commission that could not be brought forth in the court. They could give the court their views on what the public interest provides with respect to the reorganization plan of this particular debtor, or any other issues presented. We feel that that is adequate, that it is completely consistent, not only with their existing statutory powers, but also with our role. In other words, both the Interstate Commerce Commission and the Department are responsible for establishment of policies with respect to railroad transportation. The ICC has economic regulation. We provide financial assistance to railroads and States and local governments for continuing rail services. We have many planning and merger powers, as well, and in that respect, we should be proponents and defenders of the public interest in respect to this proceeding, but it is up to the court finally to determine how that should break out as a matter of the plan.

Mr. SHARFMAN. May I add a few things?

Mr. DRINAN. Yes.

Mr. SHARFMAN. Based on some of the things I have seen, Mr. Congressman, in my years of experience in this field, for one thing, as I said to the Chairman-I am not sure if you were here at the time-you do get a lot of bureaucratic delay within an agency like the Commission, going from an administrative law judge maybe, to a division of the Commissioners and then to the full Commission itself. That does tend to eat up time.

When you are before a reorganization judge-and I am sure the same would be true with a bankruptcy judge-one man knows that he is responsible, and when one man knows that he is responsible, he really tends to try and move things along. When you have a huge organization that is responsible, nobody in particular is responsible, and it tends to lag. That is just human nature, I think. That is one reason. Mr. DRINAN. Yes. Well, the argument of the ICC was, in part, that they have to protect the public interest, and that the role of the bankruptcy judge is slightly different. He is trying to make the company solvent, if possible, or get the best deal for the creditors, and that he does not disregard the public interest, but that the ICC is charged by Congress with looking after the public interest; therefore, in bankruptcy cases, they should not be excluded.

Mr. SHARFMAN. Well, that is an interesting point because, under section 77, it was divided up that way. Under section 77 (d), in order to approve a plan, the ICC has to make a finding that is consistent with the public interest. The court has to make a lot of findings too, under 77(e), but not that one. It does not have to make a public interest finding.

Under H.R. 31 and 32, the court is required to make a public interest finding, and that function is transferred. Now, I do not think that

courts are incapable of making public interest findings, especially where you provide that the Government agencies that do have special expertise in the field are allowed to come in as a matter of right as parties and present evidence as to what the public interest is and litigate the issue of public interest.

Mr. DRINAN. That addition, however, of the concept of public interest to a bankruptcy statute is very novel.

Mr. MCCAFFREY. Well, the Regional Rail Reorganization Act has the special court making findings for the public interest.

Mr. DRINAN. Yes, that is different. But in bankruptcy, the concept of the public interest has not been there. This is a private transaction between the creditors and the debtor, presided over by a judge. I just raise a speculative question. I am not opposed to its inclusion, and by its inclusion, presumably the ICC is isolated, or given a secondary role. But it is an anomaly, it seems to me, in bankruptcy law.

Well, on another point on the phasing out of subsidiary lines, I can see your point on this, but my mind goes both ways. I do not have to tell you gentlemen that this is a very inflamatory thing, a very controversial thing. Why does the ICC insist, as you say on page 12, on separate, piecemeal proceedings, on a line-to-line basis with regard to these uneconomical branch lines? Is that simply by a regulation? Could it be changed? Is that the source of the delay?

Mr. SHARFMAN. That could be changed, and as a matter of fact, I do not even see why you would need an amendment to the statute to change it. But the issue was raised within the last couple of years. I think it was in the Boston and Maine Railroad reorganization. There the trustees proposed a whole system of restructured lines.

I think the Penn Central posed it even more radically. They said, "Look, if we are going to reorganize at all, we have got thousands of miles of lines that we have got to cut out. Here they all are. Here is the evidence. Let's have a consolidated proceeding and consider it." The Commission refused to do it.

I do not think the Commission lacks the statutory power to do it. They just did not want to do it. It is not the way they have done it before, and it would require a new way of looking at the problem, or looking at the problem in the context of reorganizing the whole rail

road.

Traditionally-and this is one of the problems that we see as an evil here-traditionally, the Commission has only looked at a line in the same way that they look at a line abandonment if the railroad were solvent, and they have not really considered the special circumstancesthat you have got an insolvent railroad, and it is important to reorganize it, and you may be trying to save a system, and you have got to do something about that system.

By transferring into the court, we would be hopeful that it is not merely a change of venue, but that the court would be mindful of the problem of the railroad as a whole and see where this line or other lines might fit in.

Now, we are not saying that you should just abandon lines willynilly. We did say in our statement that we do think there ought to be some sort of program, as there is under the RRRA statute, for a possible subsidization of lines

Mr. MCCAFFREY. There is a program, and there is a national program that was brought out by the recent act. Of course, now, any line that would be abandoned would be eligible for continuation by a State or locality, with funds provided pursuant to that program on a sharing basis.

Mr. DRINAN. Gentlemen, I cannot pretend to be objective, because all these lines that you are talking about criss-cross through my congressional district. The ICC put out three volumes of fascinating reading about what they propose to do. People, frankly, and perhaps myself, felt that this was a more satisfactory solution than having some Federal judge in faraway New Haven or Boston resolve this matter. However, it is a difficult question.

But do you really mean the word, "plenary," when you say, on page 13 at the bottom, "the bills would give the court plenary power to decide abandonment petitions"? Do H.R. 31 and 32 really give the court plenary power, or do you mean that it has the ultimate power, having consulted with the ICC? Plenary is a very strong word.

Mr. MCCAFFREY. Probably more in the sense of ultimate.

Mr. DRINAN. Ultimate might be

Mr. MCCAFFREY. Right.

Mr. DRINAN. But would you say that the power of the ICC to advise in these cases is just as strong as the power of the ICC to advise in the other matter that we just discussed; in other words, your point 2, here? Is there any difference?

Mr. SHARFMAN. Under the bills, the ICC must first hold a proceeding

Mr. DRINAN. In each case, on the abandonment.

Mr. SHARFMAN [continuing]. On the abandonment. So that is something that we disagree with. We think the court should hold the hearing and the ICC should come in in an advisory fashion. But under these bills, the ICC first has the jurisdiction as it does now, to hold a hearing. The court can only ultimately take over if the Commission delays and does not hold a hearing.

Mr. DRINAN. Well, would you spell that out again, why you feel that the ICC should not hold a hearing? After all, they are in possession of the facts. What does a Federal judge know? They have people who have been involved in all of this. Why are you rather strongly, I take it-opposed to the ICC even holding that preliminary hearing.

Mr. SHARFMAN. Well, one of the things I think might be misconception, and that is that the ICC in these kinds of cases sits very much like a court sits. They appoint an administrative law judge, and he goes out and takes testimony, and then he makes findings and recommends a decision, or he makes an initial decision. A court would act the same way. It would go out and get the evidence.

The Commission, in most of these cases, does not just sit there, having all the information. It goes out like a court and tries to get the evidence, and then makes a judgment.

It seems to us that you might get an even greater exercise of the Commission's expertise by putting the burden on them of getting into the act very early and marshaling evidence, and then bringing it into the court than you do with having them sitting back there and being able to merely judge what the parties present to them. In that sense, you might get a greater participation by the ICC through this method,