Appeals from the United States District Court for the Northern District of Illinois, Eastern Division. No. 77 B 8999 -- Thomas R. McMillen, Judge.
Wood and Eschbach, Circuit Judges, and Swygert, Senior Circuit Judge.
SWYGERT, Senior Circuit Judge.
This appeal represents yet another installment in the sage of the Chicago, Milwaukee, St. Paul and Pacific Railroad's ("Milwaukee Road") reorganization proceedings.*fn1 The shareholders seek a declaration that nearly sixty million dollars in certificates of indebtedness held by the Milwaukee Road are invalid. According to the shareholders, these certificates are invalid because they were issued pursuant to a federal statute which violates the constitutional requirement of uniform bankruptcy laws, art. I, § 8, cl. 4, and due process, equal protection, and separation-of-power principles. Because important facts will not be known until there are further proceedings below, we dismiss this appeal because the action is not ripe for review.
The facts pertinent to the shareholders' claims begin in the spring of 1979 when the Special Master concluded that the entire Milwaukee Road system would never be reorganized as a single system. The Special Master determined that some parts could be reorganized as a viable rail carrier and other segments could be sold for continued rail operation to third parties. In August 1979 the court-appointed Trustee ("Trustee"), aided by the Special Master's report, concluded that a midwestern "core" system consisting of three thousand miles of rail track (approximately one-third of the entire Milwaukee Road system) could be reorganized into a viable rail carrier. The balance of the Milwaukee Road's tracks was dubbed the "non-core" lines.
In the fall of 1979 the district court ("Reorganization Court") found that the Milwaukee Road was approaching a condition of cashlessness -- a condition which exists if a railroad has insufficient funds to pay its employees and suppliers, thus preventing an orderly liquidation. If such funds are not available under terms fair to the estate, the railroad simply cannot operate. Matter of Chicago, Milwaukee, St. Paul and Pacific Railroad, 611 F.2d 662, 669 (7th Cir. 1979) (per curiam) (" Embargo Decision "); In re Valuation Proceedings, 439 F. Supp. 1351, 1375-77 (Sp. Ct. 1977). Because of the Milwaukee Road's impending cashlessness, the Reorganization Court, on September 27, 1979, ordered that operations on the Milwaukee Road's non-core lines be embargoed as of November 1, 1979.
The partial embargo order authorized the Trustee to borrow funds to support continued operations on the core lines. On October 10, 1979 the Trustee sought guarantees from the federal government of $30 million in loans, pursuant to the Emergency Rail Services Act of 1970 ("ERSA"), 45 U.S.C. §§ 661 et seq.
Here we must present a brief legislative history of the oft-amended ERSA which authorizes the Secretary of Transportation ("Secretary") to issue guarantees of loans necessary for continued operations of railroads. As originally enacted ERSA provided that the Secretary could not guarantee the loans unless he found, inter alia, "that the probable value of the assets of the railroad in the event of liquidation provides reasonable protection to the United States." 45 U.S.C. § 662(a)(6) (1976). ERSA also required that repayment of these loans "must be treated as an expense of administration of the reorganization and receive the highest lien on the railroad's property and priority in payment under the Bankruptcy Act." 45 U.S.C. § 662(c) (1976). The high priority requirement, section 662(c), was repealed as part of the Bankruptcy Act of 1978. Pub. L. 95-598, Title III, § 333, Nov. 6, 1978, 92 Stat. 2679, 45 U.S.C. § 662 (Supp. II 1978). The repeal "permit[s] the United States to finance an insolvent railroad on less than a first lien position. [It] is not intended to mean that the U.S. Government should bail out insolvent railroads. Rather, in the event the Secretary desires to finance an insolvent railroad in a case in which a first lien would be disasterous [sic] to efforts to reorganize the railroad, the Secretary is given discretion to accommodate the public interest." Statements by the Hon. Don Edwards, Chairman of the Subcommittee on Civil and Constitutional Rights of the House Committee on the Judiciary, and the Hon. Dennis DeConcini, Chairman of the Subcommittee on Improvements in Federal Machinery of the Senate Committee on the Judiciary, upon introducing the [final version of the Bankruptcy Act of 1978], 124 Cong. Rec. 32411, 34011 (1978), reprinted in 1978 U.S. Code Cong. & Ad. News 6486, 6555-56. A month later, on November 8, 1978, Congress further eased ERSA restrictions by permitting the Secretary to waive the finding that the probable value of the assets would provide reasonable assurance of repayment. Pub. L. 95-611, § 3(b), 92 Stat. 3089, 45 U.S.C. § 662 (Supp. II 1978).
This was how the law stood on October 10, 1979 when the Trustee sought ERSA guarantees for loans for core lines' operations after November 1. It is unclear from this record whether the Secretary would have issued these ERSA guarantees at a priority below a first lien. It is reasonably clear, however, that the ERSA guarantees (for core lines' operations) would have had a priority senior to the shareholders' interests.
One consequence of the partial embargo was that it prematurely curtailed the opportunity of two bidders (an association of Milwaukee Road employees and a coalition of employees, shippers, and states) for the railroad's non-core assets. Once a portion of the Milwaukee Road was embargoed, it could not be revived. The embargo meant, therefore, that there was insufficient time for completion of the lengthy Interstate Commerce Commission ("ICC") proceedings considering the bidders' proposals.
On October 12, 1979 the President approved H.J. Res. 412, Pub. L. No. 96-86, 93 Stat. 656 (1979), which required the Secretary to provide ERSA funds to support the operations of both the core and non-core lines. Section 115(a) permitted the Secretary to waive many of the ERSA restrictions and to issue certificates "with such priority in payment as the Secretary deems appropriate to secure repayment[.]" The Trustee immediately commenced negotiations with the Secretary concerning the priority of the debt necessary to operate the entire railroad. The Secretary, however, refused to issue the guarantees unless they had a priority senior to the interests of secured and unsecured creditors because in his judgment a lower priority would not assure repayment. On October 26, 1979 the Reorganization Court concluded that guarantees at this high priority would injure the interests of the creditors and, therefore, could not be authorized.
The Reorganization Court's order specifically discussed what congressional action would permit authorization of loans to operate the non-core lines. The court indicated that such debt must be subordinate to the interests of secured and unsecured creditors. Unpublished Order No. 220E at 2 (Oct. 26, 1979). Additionally, the court expressed its concern for the shareholders' interests, indicating that government grants were more appropriate than federally-guaranteed loans. Id. at 5. The embargo of the non-core lines began on November 1, 1979.
Responding directly to the crisis of the embargo, to the premature curtailment of the two bidders' opportunity to acquire the non-core lines (a possibility seemingly beneficial to the Milwaukee Road estate), and to the Reorganization Court's concerns for the creditors and shareholders, Congress enacted the Milwaukee Road Restructuring Act ...