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70-347

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Case Summary: In the Matter of Penn Central Transportation Company, 355 F. Supp. 1346 (E.D. Pa. 1973)

Factual and Procedural Background

The Trustees under reorganization proceedings for Penn Central sought to sell approximately ten parcels of real estate in Pittsburgh, Pennsylvania, pursuant to Order No. 602, which implements procedures for "minor" sales of real estate (proposed sale price not exceeding $100,000). Paragraph 6 of Order No. 602 required written notice of proposed sales to lienholders, with an opportunity to file objections.

In November 1972 the Trustees gave notice to various lienholders. On November 24, 1972, two judgment creditors of the Debtor — Francis X. O'Donnell and Richard A. Bauer — filed objections to the proposed sales. The objectors had previously recovered judgments against the Debtor on September 1, 1972, in the United States District Court for the Western District of Pennsylvania, Civil Action No. 69-896 in Admiralty (reported 121 Pittsburgh L.J. 1), awarding damages for personal injuries sustained in a 1967 accident.

The Trustees moved for relief from the objections and for authorization to consummate the sales. The court invited the objectors to file a pleading detailing their objections; they did so, and the Trustees filed a response. The court found no factual dispute and concluded no further hearing was necessary.

Legal Issues Presented

Whether the objectors' judgments (for personal injuries) represent "liabilities for willful and malicious injuries to the person or property of another" such that they are nondischargeable under § 17(a)(8) of the Bankruptcy Act (11 U.S.C. § 35(a)(8)), thereby preventing the Trustees from proceeding with sales of the debtor's real estate pending payment of those judgments.
Whether the procedures and authority set forth in Order No. 602 and the provisions of railroad reorganization law (specifically § 77 of the Bankruptcy Act) permit the Trustees to sell the property free and clear of liens, or otherwise permit the sales to proceed notwithstanding the objectors' claims.

Arguments of the Parties

O'Donnell and Bauer (Objectors)

The objectors did not challenge the merits of the proposed sales themselves but contended that the sales could not occur until their judgments were paid.
Their contention rested on the theory that their judgments represent "liabilities for willful and malicious injuries to the person or property of another" and therefore are nondischargeable in bankruptcy under § 17(a)(8) of the Bankruptcy Act (11 U.S.C. § 35(a)(8)).

The Trustees

The Trustees sought authorization to proceed with the sales under the procedures established by Order No. 602 for "minor" sales of real estate.
The Trustees' position, as reflected in the court's memorandum, included: (a) railroad reorganization discharges are governed by § 77(f) of the Bankruptcy Act (11 U.S.C. § 205(f)), not § 17; (b) even if the judgments were nondischargeable, § 77(o) (11 U.S.C. § 205(o)) authorizes sales free and clear of liens with the liens transferring to the proceeds from such sales; and (c) the judgments at issue do not arise from "willful and malicious injuries," because liability was imposed under an absolute-liability/exclusive-control theory and only compensatory damages were awarded.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Order No. 602 (reported at 340 F. Supp. 851)	Establishes procedures for "minor" sales of real estate in these proceedings, including notice to lienholders and opportunity to object.	The court relied on Order No. 602 as the authority under which the Trustees were authorized to effect the sales in their discretion and as the procedural framework for notifying lienholders and handling objections.
Judgment in U.S.D.C. W.D. Pa., Civil Action No. 69-896 (reported 121 Pittsburgh L.J. 1)	Factual/prior judgment awarding compensatory damages to objectors for injuries sustained in a 1967 accident; provided the underlying basis for their claims against the Debtor.	The court referenced this judgment as the source of the objectors' claim and as the basis for their argument that their judgments were nondischargeable; the court evaluated the nature of liability reflected in that judgment when considering whether it constituted "willful and malicious" injury.

Court's Reasoning and Analysis

The court's analysis proceeded in several discrete steps, tied closely to statutory provisions and to the factual record before it:

Scope of Order No. 602 and purpose: The court explained that Order No. 602 establishes procedures to carry out minor sales of real estate (sales not exceeding $100,000) and authorizes the Trustees to make such sales in their discretion without separate court approval for each sale. Paragraph 6 of that order requires written notice to lienholders and affords them an opportunity to object; the procedural protection is intended to give interested parties an opportunity to challenge the terms of sale or a Trustees' discretionary determination that the property is surplus. The order is not meant to require lienholder consent as a precondition to sale.
Procedural posture: After notice, the objectors filed objections claiming their judgments prevented sale until paid. The court found no factual dispute and no need for further hearing.
Applicability of Bankruptcy provisions: The court rejected the objectors' reliance on § 17(a)(8) (11 U.S.C. § 35(a)(8)) as the governing provision on discharge in this context, explaining that the discharge of debts in a railroad reorganization is governed by § 77(f) of the Bankruptcy Act (11 U.S.C. § 205(f)), making § 17 inapplicable to the present reorganization proceedings.
Effect of nondischargeability (even if assumed): The court reasoned that even if the judgments were nondischargeable, that fact would not prevent the court from authorizing sales under § 77(o) (11 U.S.C. § 205(o)). Under § 77(o) the court may authorize sales free and clear of liens, with any liens being transferred to the proceeds of the sale. Thus nondischargeability would not bar the Trustees from selling the property.
Nature of the judgments — willful and malicious? The court examined the nature of the liability imposed by the judgment underlying the objectors' claim. Liability rested on absolute liability principles connected with hazardous substances and the exclusive-control doctrine; it was not based on evidence that railroad employees caused the accident. Only compensatory damages were awarded and punitive damages were not sought. The court concluded that imposition of absolute or imputed liability under those doctrines does not amount to a finding of "willful and malicious injuries."

Holding and Implications

Core Ruling: The court overruled the objections of Francis X. O'Donnell and Richard A. Bauer and authorized the Trustees to consummate the proposed sales of the ten parcels in Pittsburgh in accordance with Order No. 602.

Direct implications for the parties:

The Trustees are authorized to proceed with the sales under the procedures of Order No. 602.
The court made clear that railroad reorganization discharge provisions are governed by § 77(f) (not § 17) and that even claims characterized as nondischargeable would not prevent sales under § 77(o), since liens attach to proceeds.
The court explicitly found that the particular judgments at issue were not for "willful and malicious injuries" and thus did not qualify for nondischargeability on that basis under the theory advanced by the objectors.

Broader precedent: The opinion does not purport to establish a broader new rule beyond the direct application of the Bankruptcy Act provisions (§ 77(f) and § 77(o)) and the court's factual determination regarding the nature of the objectors' judgments. The decision's practical effect was to permit the Trustees to complete the identified sales; the opinion did not announce new, sweeping legal principles beyond those conclusions.

Disposition

The objections of Francis X. O'Donnell and Richard A. Bauer are overruled, and the Trustees are authorized to consummate the sales in accordance with Order No. 602.

This summary is limited to and based exclusively on the information appearing in the provided opinion.

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In the Matter of PENN CENTRAL TRANSPORTATION COMPANY, Debtor. Re:Objections of O'Connell and Bauer to Proposed Sales of Real Estate.

355 F.Supp. 1346 (E.D.Pa. 1973) In the Matter of PENN CENTRAL TRANSPORTATION COMPANY, Debtor. Re:Objections of O'Connell and Bauer to Proposed Sales of Real Estate. No. 70-347. United States District Court, E.D. Pennsylvania. March 1, 1973

James E. Howard, Philadelphia, Pa., for Trustees.

Robert A. Lebovitz, Lebovitz & Lebovitz, Pittsburgh, Pa., for O'Connell & Bauer.

MEMORANDUM AND ORDER NO. 1131

FULLAM, District Judge.

Order No. 602 in these proceedings, 340 F.Supp. 851, sets forth the procedures to be followed in carrying out "minor" sales of real estate ( i. e., where the proposed sale price does not exceed $100,000). In general, the Trustees are thereby authorized to effect such sales in their discretion, without the necessity of obtaining separate court approval for each such transaction. In order to insure that lienholders are accorded due process, however, paragraph 6 of Order No. 602 requires the Trustees to give written notice of such proposed sales to all persons having liens against the property proposed for sale. Thereafter, such lienholders are afforded an opportunity to file objections, and, in that event, the Trustees may not consummate the proposed transaction unless specifically authorized to do so by further order of this Court.

The primary purpose of this procedure is to insure that interested parties will have an opportunity to object to the terms of the proposed sale, or to challenge the Trustees' discretionary determination that the property is surplus and that the proposed sale would be in the best interests of the Debtor's estate. It should not be interpreted as suggesting that the consent of lienholders is required before such sales may be carried out.

Pursuant to Order No. 602, the Trustees determined to sell approximately 10 parcels of real estate in Pittsburgh, Pennsylvania, and, in November of 1972, duly notified various lienholders. On November 24, 1972, two judgment creditors of the Debtor, Francis X. O'Donnell and Richard A. Bauer, filed objections to the proposed sales (Document No. 4710). On January 22, 1973, the Trustees filed a motion for relief from said objections (Document No. 4998) and sought authorization to consummate the proposed sales. By Order No. 1081, I invited the objectors to file "a pleading setting forth, in sufficient detail to permit a response, the basis or bases of the objections to the proposed sales ..." This was done, on or about February 5, 1973, and the Trustees have filed their response.

On the basis of the record, it now appears that there is no factual dispute, and no necessity for a further hearing.

The objectors recovered judgments against the Debtor on September 1, 1972, in the United States District Court for the Western District of Pennsylvania, Civil Action No. 69-896 in Admiralty; opinion reported 121 Pittsburgh L.J. 1, awarding damages for personal injuries sustained in an accident on the Ohio River in 1967. They do not object to the merits of the proposed sales, but argue that the sales cannot take place unless and until their judgments are paid. This contention is based upon the theory that the judgments in question represent "liabilities for willful and malicious injuries to the person or property of another" and are thus not dischargeable in bankruptcy, under § 17(a)(8) of the Bankruptcy Act (11 U.S.C. § 35(a)(8)). The objections are plainly without merit.

In the first place, the discharge of debts in a railroad reorganization is governed by § 77(f) of the Bankruptcy Act (11 U.S.C. § 205(f)); the provisions of § 17 on that subject are inapplicable.

In the second place, even if it should be held that the judgments in question are non-dischargeable debts, this would have no effect upon the power of the court to authorize sales free and clear of all liens, under § 77( o) (11 U.S.C. § 205( o)) ; the liens, whatever their character, are transferred to the proceeds from the sales.

And finally, there is no basis for asserting that these judgments stem from "willful and malicious injuries." The objectors were injured by the explosion of a railroad "torpedo," which apparently fell from a railroad bridge as their pleasure craft was passing beneath the bridge on the Ohio River. The only evidence as to the nature of the device which exploded was expert testimony, based upon examination of the fragments. Liability was based, not upon proof of negligence, but upon the principle of absolute liability in connection with hazardous substances. Liability was imposed upon the railroad, not upon the basis of any evidence that its employees caused the accident, but upon a finding that the railroad was in substantially exclusive control of the bridge from which the device descended. Only compensatory damages were awarded; punitive damages were apparently not even sought. Imposition of absolute liability irrespective of negligence, and imputed to the defendant under the exclusive control doctrine, certainly cannot be regarded as a determination of "willful and malicious injuries."

ORDER NO. 1131

And now, this 1st day of March, 1973, upon consideration of the objections of Francis X. O'Donnell and Richard A. Bauer to the sale of real estate (Document No. 4710), the Trustees' motion for relief therefrom (Document No. 4998), and the respective responses and memoranda of the parties, it is ORDERED:

1. The objections of Francis X. O'Donnell and Richard A. Bauer are overruled.

2. The Trustees are authorized to consummate the transactions (the sales of 10 parcels of real estate in Pittsburgh, Allegheny County, Pennsylvania, referred to in the Trustees' motion for relief) in accordance with Order No. 602 herein.

In re Penn Central Transp. Co.