Appeals from the United States District Court for the Northern District of Illinois, Eastern Division. No. 75 B 2697 Frank J. McGarr, Judge.
Fairchild, Chief Judge, Swygert and Sprecher, Circuit Judges.
This is an appeal from an order of the district court sitting in a railroad reorganization proceeding under Section 77 of the Bankruptcy Act, granting two petitions presented by the Trustee of the Debtor. The issue presented is whether the district court may, consistent with the Fifth Amendment and Section 77 of the Act, authorize the Trustee of a railroad in reorganization, pending submission of a plan, to incur long-term debt and lease obligations without making a determination that reorganization is likely within a reasonable time and without a showing of compelling need. The district court granted both petitions and intervenors-appellants brought this appeal.
The Debtor, Chicago, Rock Island and Pacific Railroad Company (hereinafter Rock Island) is a railroad carrier engaged in interstate transportation in thirteen states. On March 17, 1975 it filed a petition for reorganization pursuant to Section 77 of the Bankruptcy Act, 11 U.S.C. § 205. The district court approved the petition and on March 28, 1975 appointed William M. Gibbons as Trustee.
On July 30, 1975 the Trustee petitioned in the district court for authority to issue Trustee's certificates in the amount of 22.6 million dollars for repairs, rehabilitation and maintenance of the railroad.*fn1 The certificates, if and when issued, would be accorded the status of an expense of administration with the highest lien on the Debtor's property and priority in payment pursuant to the Bankruptcy Act. The Trustee also requested authority to file an application with the United States Secretary of Transportation for a guarantee of nineteen million dollars for the certificates, as provided for in the Emergency Rail Services Act of 1970, 45 U.S.C. §§ 661, et seq.*fn2 In addition, he sought authority to file an application with the Interstate Commerce Commission under Section 20a of the Interstate Commerce Act for its approval of issuance of the certificates. The district court authorized the submission of both applications.
Subsequently, on October 28, 1975, the Trustee filed a separate petition for authority to lease fifty-six new diesel locomotives for fifteen years at an annual rental of $2,562,000. The acquisition was to be financed in part by trading or selling a similar number of obsolete locomotives. The leases would also be accorded the status of an expense of administration and be entitled to priority in payment over other creditors.
The Debtor railroad supported the Trustee's petition for authority to issue certificates but initially opposed the petition concerning the locomotives. It later modified its response with a statement that it would be prudent if the Trustee were authorized to lease substantially fewer than fifty-six new locomotives. Both petitions were opposed by several intervenors: The Crown intervenors, holders of substantial blocks of Rock Island common stock, first mortgage bonds, and income debentures; The First National Bank of Chicago, as Trustee under the First Mortgage Indenture for first mortgage bondholders; and Continental Illinois Bank and Trust Company of Chicago, as Trustee under the Income Debenture for unsecured income debentureholders. Claimant Pullman Transport Leasing Company also opposed the Trustee's petition to issue certificates.*fn3
On September 10, 1975 the district court held the first hearing on the issuance of certificates. After considering extensive oral testimony and written evidence, the district court granted both Trustee's petitions in a memorandum opinion and order entered January 16, 1976.
On April 20, 1976 the Secretary of Transportation issued written findings pursuant to Section 3(a) of the Emergency Rail Services Act of 1970, 45 U.S.C. § 662(a) and determined that he, as secretary, would guarantee certificates to be issued by the Trustee in the sum of 17.5 million dollars. On June 1, 1976 the Interstate Commerce Commission approved the issuance of the Trustee's certificates.
The Trustee petitioned the district court for an order implementing the January 16, 1976 order authorizing the issuance of Trustee's certificates on June 1, 1976; on June 4 the district court granted the petition. On July 26 the Trustee petitioned the court for an order implementing the order of January 16, 1976 authorizing the lease of fifty-six new diesel locomotives and the trade-in or sale of fifty-six obsolete diesel locomotives.
The intervenors Crown, et al., on July 26 presented the district court with a motion for stay of proceedings to stay its January 16, 1976 order. The motion was denied. On the same day the intervenors filed a similar motion before our court. On August 5 we also denied the motion.
On August 1, 1976 the Bankruptcy Rules applicable to Chapter VIII proceedings (Interstate Railroad Reorganizations) took effect. Rule 8-703(a)(6) provides:
The following shall be added to Rule 62: Effect of Appeal on Unstayed Order. Unless an order approving a sale of property or issuance of a certificate of indebtedness is stayed pending appeal, the sale to a good faith purchaser or the issuance of a certificate to a good faith holder shall not be affected by the reversal or modification of such ...