Court Opinion

ID: 9625722
Source: CourtListenerOpinion
Date Created: 2023-08-22 07:49:29.16774+00
Date Added: 2024-06-11T14:56:20.256514
License: Public Domain

WEINFELD, District Judge
(concurring):
I concur in the remand except that as to the operating losses of New Haven I would require Penn Central to absorb these from the date of merger to the date of inclusion.
The merger was approved and found to be in the public interest only if New Haven were included — thus, its inclusion was a sine qua non of the merger. In a true sense the merger should not have been permitted absent the simultaneous inclusion of New Haven, but practical difficulties and New Haven’s desperate financial plight, with the risk of irreparable injury to the public interest if the road became extinct, decreed otherwise. New Haven’s critical and rapidly deteriorating situation, aggravated by the unavoidable delays inherent in reorganization proceedings, led this Court to reject the bondholders’ application to stay the merger until actual inclusion. See ErieLackawanna R. R. v. United States, 279 F.Supp. 316, 333 et seq. (S.D.N.Y. 1967), aff’d with minor modifications, 389 U.S. 486, 88 S.Ct. 602, 19 L.Ed.2d 723 (1968). See also Oscar Gruss & Son v. United States, 261 F.Supp. 386 (S.D.N.Y. 1966), vacated and remanded on other grounds, 386 U.S. 776, 87 S.Ct. 1478, 18 L.Ed.2d 520 (1967); id., 261 F.Supp. at 395-96 (concurring opinion). But the issue remained as to conditions to protect New Haven against continuing and increased losses during the interim period between consummation of the merger and ultimate inclusion. Its resolution was vested in the Commission.
Pennsylvania and Central, in obtaining the Commission’s consent to the immediate merger without simultaneous inclusion of New Haven, agreed, absent an accord with the Trustees (subject to approval by the Reorganization Court), to abide by the terms and conditions imposed by the Commission. The Commission’s order, of course, was subject to judicial review upon application by Penn Central and other interested parties.
*449At first the Commission directed the New Haven Trustees and Penn Central to negotiate a lease to be “immediately available upon consummation of the Penn Central merger”; however, the lawyers were of the view that the lease proposal involved too many complex problems, some of an alleged insuperable nature, to permit its consummation within time to meet New Haven’s dire and worsening financial situation. Instead, the Trustees and Penn Central agreed upon, with subsequent Commission approval (with some modifications), the “loan loss” formula — a loan of $25 million by Penn Central to New Haven against Trustees’ certificates over a three-year period to be charged against the ultimate purchase price for New Haven’s assets with provisions whereby Penn Central, up to a limit of $5.5 million each year,1 was to absorb 100% of the losses the first year after the merger, 50% in the second year, and 25% in the third. Under this formula Penn Central gains the initial benefits of the merger while creditors assume year by year a larger proportion of rapidly mounting losses of operation, their application for abandonment of passenger service having been viewed as an unlikely eventuality by the Commission “in view of [its] findings * * * that the services of NH are essential.”
Had that which should have been done, been done at the time of the merger, New Haven then would have become a unit of Penn Central, with the latter necessarily absorbing operating losses from the date of the merger; to require Penn Central to do so now imposes no unjust or onerous terms upon it. Penn Central, as the beneficiary of the merger, would be assuming a burden which was part of a single transaction — this, entirely apart from the creditors’ claim that, constitutionally, they cannot be forced to bear the increased losses entailed by the continued operation of the New Haven pending inclusion.
I know of no businessman who would not readily absorb a unit operating at an estimated loss of $8.5 million a year (reducible by efficient operation and savings; by the merged lines) as a condition of gaining potential yearly savings of $81-million — a net gain in time of $72.5; million per year which, capitalized at 8%, the rate the Commission has consistently used in this case, reflects a value in excess of $900 million — no mere bagatelle' even in the instance of financial giants.. Cf. Erie-Lackawanna R. R. v. United States, 279 F.Supp. 316, at 338, 342 (S.D.N.Y.1967); Norfolk & Western R. R., 330 I.C.C. 780, at 801, 841 (1967).
In the light of the foregoing, I cannot accept that portion of the Court’s opinion which, based upon a capitalization of the estimated future loss of New Haven at $8.5 million a year after consolidation, adds $106 million to acquisition cost to Penn Central and finds the total cost to Penn Central will exceed $250 million. These losses, as noted, still leave ultimate annual savings of $72.5 million referred to in the previous paragraph.

. The Commission estimated the total loss at $9.1 million but reduced the amount chargeable to Penn Central to $5.4 million by eliminating $2.6 million for rent and interest and $1.1 million for retirement losses.