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In re Chicago

decided: February 13, 1981.

IN THE MATTER OF: CHICAGO, MILWAUKEE, ST. PAUL AND PACIFIC RAILROAD COMPANY, DEBTOR; APPEAL OF: MONTANA DEPARTMENT OF AGRICULTURE AND MONTANA WHEAT RESEARCH AND MARKETING COMMITTEE; POTLATCH CORPORATION AND ST. MARIE'S RIVER RAILROAD COMPANY, INTERVENING APPELLEES.


Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 77-B-8999 #28 -- Thomas R. McMillen, Judge.

Before Pell and Wood, Circuit Judges, and Spears, Senior District Judge.*fn*

Author: Wood

This case involves the appeal of the Montana Department of Agriculture and the Montana Wheat Research and Marketing Committee ("Montana") from a district court decision*fn1 rendered in the course of the bankruptcy reorganization of the Chicago, Milwaukee, St. Paul and Pacific Railroad ("Milwaukee Road"). That decision authorized the trustee of the Milwaukee Road to sell certain abandoned property of the Milwaukee Road to Potlatch Corporation and St. Marie's River Railroad Company ("Potlatch"). The decision also denied Montana's motion to reconsider three earlier district court orders*fn2 that authorized the trustee to abandon certain rail lines and that gave preliminary approval to the trustee's sale of certain lines to Burlington Northern, Inc. ("Burlington Northern"), granting it authority to operate interim service over those lines as a common carrier. We dismiss as moot Montana's appeal from the sale to Potlatch. We affirm the remaining portions of the district court's decision.

I.

In 1979, this court authorized the termination of service by the Milwaukee Road over certain rail lines and established a deadline for the termination. In re Chicago, Milwaukee, St. Paul & Pacific Railroad Company, 611 F.2d 662 (7th Cir. 1979). The present case involves the district court's actions in overseeing the trustee's efforts to terminate service as required by that decision in a way that would minimize disruption of existing service and benefit the Milwaukee Road estate.

Montana became involved in this case when it learned that the trustee was negotiating with Burlington Northern for the sale of certain rail lines. The trustee broke off those negotiations when Montana indicated its desire to purchase a portion of those lines. As the deadline for termination of rail service approached and no assurance of ability to finance a purchase was forthcoming from Montana, the trustee sought the district court's preliminary approval of the previously negotiated sale to Burlington Northern. The district court gave its approval and directed Burlington Northern to promptly file a purchase application with the Interstate Commerce Commission ("ICC"). Under the court's order, the ICC was to make a determination on the application within 90 days of the date of filing.

Montana asked the district court to reconsider its decision on the sale to Burlington Northern and on a later order that authorized the abandonment of certain other rail lines. The request was based on newly-presented documents that Montana said showed the sale would violate protective provisions imposed by the ICC when it approved the merger creating the present Burlington Northern system. Montana also claimed that some of the documents undercut the district court's factual findings as to the revenue potential of the abandoned rail lines at issue here. Montana wanted the abandonment orders vacated "to permit further progress on a purchase proposal by the State of Montana." Order 331 at 2-3.

In the meantime, the trustee asked for authority to sell to Potlatch certain of the Milwaukee Road's abandoned property located in Idaho. Potlatch wanted to operate the line as a private rail service. Montana objected to the Potlatch sale, citing potentially disruptive effects on Montana commerce of terminating public use of the Idaho rail lines.

The district court heard the trustee's motion along with Montana's motion for reconsideration. The court denied Montana's motion, saying that the new documentary evidence would more properly be considered by the ICC in making its final determination on Burlington Northern's purchase request. The court noted that the documents did not bear on Montana's apparent inability to finance a purchase of the desired rail lines, so vacating the abandonment orders would not solve Montana's (and the trustee's) basic problem. The court also found that the trustee had fulfilled his obligation "to fully pursue all possibilities for the sale of portions of these lines for continued rail operation or other public use." Order 331 at 5.

The district court granted the trustee's motion and approved the sale to Potlatch of the abandoned lines. Montana did not request a stay of the sale. The sale was closed soon afterward, and rail operations began following the ICC's approval of service.

II.

The trustee has moved to dismiss as moot Montana's appeal of the sale to Potlatch. The trustee argues that dismissal is required under Bankruptcy Rule 8-703(a)(6), which provides that unless an order approving a sale of property is stayed pending appeal, the sale to a good faith purchaser "shall not be affected by the reversal or modification of such order on appeal."*fn3 As noted, Montana did not request a stay. Since Montana seeks relief through the district court's ultimate determination on reconsideration that the sale is void, the trustee contends that under Rule 8-703 neither we nor the district judge are able to grant relief and thus the issue of the sale is moot. We agree.*fn4

The parties have not cited, and our research has not uncovered, any decision applying Rule 8-703 to a reorganization trustee's sale of property. This circuit has, however, considered the Rule's application to the issuance of trustee's certificates in the course of a railroad reorganization. Matter of Chicago, Rock Island and Pacific Railroad Co., 545 F.2d 1087 (7th Cir. 1976). The court concluded that under the facts of that case the issue was not moot, even though the appellants failed to obtain a stay.*fn5 The court noted that the trustee had not drawn down all the money advanced under the certificate arrangement, and so the outcome of the appeal would have a practical effect on unpaid sums. In addition, the Federal Financing Bank was not a "holder" in regard to funds not yet advanced.

Here, by contrast, the sale to Potlatch has been closed and service commenced over the rail lines. Nothing remains to ...


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