Court Opinion

ID: 9424348
Source: CourtListenerOpinion
Date Created: 2023-08-02 23:11:19.777895+00
Date Added: 2024-06-11T17:22:49.831330
License: Public Domain

Mr. Justice Black,
with whom Mr. Justice Harlan joins,
dissenting.
The central issue in these cases, easily lost I fear in the 98-page opinion of the Court, can in my judgment be briefly and simply stated. After this Court’s decision in the Penn-Central Merger Cases, 389 U. S. 486, the Interstate Commerce Commission assumed its difficult statutory task of determining the liquidation value of the assets of the New Haven Railroad, a determination which if upheld by the courts would decide the purchase price *496Penn Central would have to pay for the bankrupt New Haven. The Commission made that valuation determination, and the question before this Court is whether, under the appropriate standards of court review, the Commission’s valuation of the New Haven’s properties should have been sustained or rejected by the reviewing courts. This question comes here from two federal district courts, both of which were called upon to review the Commission’s valuation of the New Haven properties, (1) a bankruptcy court convened under § 77 of the Bankruptcy Act, 11 U. S. C. § 205, to consider the reorganization of the New Haven, and (2) a three-judge merger court convened under 28 U. S. C. §§ 1336 (a), 2321-2325, to review the Commission’s merger and inclusion orders. Both district courts had jurisdiction under these statutes to examine the Commission’s valuation decisions. And the proper scope for each court’s review was the same: were the Commission’s findings supported by substantial evidence and consistent with applicable statutory requirements? Yet the reception the Commission’s determination received from the two courts on the final round of review was dramatically different. The bankruptcy court took issue with several of the Commission’s important findings as to the New Haven’s liquidation value and, substituting its own ideas of the proper method of appraising the railroad’s properties, increased by over $28,000,000 the value the Commission had placed on the assets of the New Haven. 304 F. Supp. 793. In sharp contrast, the three-judge merger court noted the “severe limitations” on the scope of its review of valuation matters, 305 F. Supp. 1049, 1053, and, after carefully examining the Commission plan, sustained the agency’s determinations.1 Judge Friendly, writing for the three-*497judge merger court, stated the fundamental reason for that court’s disagreement with the bankruptcy court:
“Essentially, we think our disagreements . . . reflect a difference in view concerning how far we are at liberty to substitute our own notions for the decisions the Commission has taken in what we regard as a sincere effort to comply with the tasks both courts assigned it on remand.” 305 F. Supp., at 1065.
I
Both district court decisions are now properly before this Court for our review, and, contrary to the position taken by the Court today, it is my view that the Court has an obligation to pass upon both those judgments, not just one. As the quoted passage from Judge Friendly’s opinion for the three-judge merger court indicates, the answer to the question whether this Court should follow the three-judge court and sustain the Commission’s valuation of the New Haven properties turns largely on the proper scope of judicial inquiry into the agency determination. Our previous cases make it clear that the scope of judicial review of the Commission’s appraisal of such properties is narrowly limited to ensuring that the agency findings are supported by material evidence and consistent with statutory standards. The federal courts, this Court included, should defer whenever possible to Commission expertise on complex questions of valuation. It is my position, elaborated in what follows, that the application of this test to the record before the Commission in these cases can only lead to the conclusion that the Commission did not abuse its discretion in valuing the New Haven and, accordingly, that the three-judge court was correct in sustaining its determinations and the bankruptcy court wrong in rejecting them. The three-judge court’s excellent opinion is, in my view, compelling support for the idea that a reasonable reviewing court exer*498cising the proper scope of review would find that the Commission acted wholly within its discretion., Moreover, I find myself in agreement with Judge Friendly that the bankruptcy court greatly exceeded its reviewing authority and in so doing improperly substituted its own views on valuation for those of the Commission.2
The Court today reaches conclusions completely at odds with those stated above and affirms the decision of the bankruptcy court. I do not think the Court could reach the result it does but for its mistaken assumption that the bankruptcy court was somehow the more appropriate of the two courts to review the Commission’s valuation determinations and that, accordingly, the excellent opinion of the three-judge court could be simply ignored on the ground that that court should have abstained in favor of the bankruptcy court. Congress has granted jurisdiction to review the Commission findings to both courts under the peculiar circumstances presented in these cases, and the Court offers only makeweight arguments to support its holding that the three-judge court should have abstained from reaching the valuation questions. In my view, both courts were obligated to fulfill their statutory mandate to review the Commission’s valuation findings, and this Court has an obligation to treat with equal dignity the decisions of each of those courts. For this reason I cannot agree that the Court is justified in proceeding as if Judge Friendly’s opinion for the three-judge merger court simply did not exist. *499Nor can I accept the Court’s position that in reviewing the conclusions of the bankruptcy court it should apply a standard of review that attaches great weight to the conclusions of that court rather than to those of the Commission. Our prior cases indicate that the correct rule is just the opposite. In sum, the Court first disposes of the three-judge court’s opinion by assuming that that court should have abstained, and it then adopts a deferential posture toward the conclusions of the bankruptcy court. In so doing the Court clears the way for its affirmance of the bankruptcy court. The Court’s approach and the result it reaches are intimately related, and I regret that I cannot agree with either.
II
On the question of valuing the New Haven’s assets, the tasks which the three-judge merger court and the bankruptcy court were called upon to perform in these cases were virtually identical, and for both courts that task was a narrowly circumscribed one. The statutes governing review in both courts provide the same flexible standard: under § 77(e) of the Bankruptcy Act the bankruptcy court was to determine if the terms for the sale of the New Haven’s assets were “fair and equitable,” and under §§5(2)(b) and (d) of the Interstate Commerce Act the three-judge court was to ensure that the terms of the merger and inclusion were “just and reasonable” and “equitable.” More important, our previous cases leave no doubt that the two district courts and, accordingly, this Court are permitted only a limited scope for their review of the Commission’s valuation findings. In Ecker v. Western Pacific R. Co., 318 U. S. 448, 472, this Court emphasized that under § 77 (e) of the Bankruptcy Act, “Valuation is a function limited to the Commission, without the necessity of approval *500by the [bankruptcy] court.” The Court elaborated its holding this way:
“The function of valuation thus left to the Commission is the determination of the worth of the property valued, whether stated in dollars, in securities or otherwise. One of the primary objects of the bill was the elimination of obstructive litigation on the issue of valuation and the form finally chosen approached as near to that position as seemed to the draftsmen legally possible. Judicial reexamination was not considered desirable .... The language chosen leaves to the Commission, we think, the determination of value without the necessity of a reexamination by the court, when that determination is reached with material evidence to support the conclusion and in accordance with legal standards.” 318 U. S., at 472-473.
See also Reconstruction Finance Corp. v. Denver & R. G. W. R. Co., 328 U. S.. 495, 508-509; Group of Institutional Investors v. Chicago, M., St. P. & P. R. Co., 318 U. S. 523, 536-542. These cases make it clear that Congress delegated the valuation function to the Commission and that the Commission’s determinations can be reviewed by the federal courts under § 77 (e) only to determine whether they are supported by substantial evidence and conform to the applicable statutory standards.
The scope of review of the three-judge merger court under § 5 of the Interstate Commerce Act is virtually identical to that of the reorganization court under § 77. The function of the three-judge court is only to determine if the Commission’s actions “are based upon substantial evidence and to guard against the possibility of gross error or unfairness.” Penn-Central Merger Cases, 389 U. S. 486, 524. If a court finds the Com*501mission’s “conclusions to be equitable and rational,” it should not, as it seems to me this Court does today, “second-guess each step in the Commission’s process of deliberation.” Ibid.
The reasons compelling such judicial restraint lie not only in the accumulated expertise of the Commission but also in the inherent uncertainty of the valuation process itself. “An intelligent estimate of probable future values . . . , and even indeed of present ones, is at best an approximation. . . . There is left in every case a reasonable margin of fluctuation and uncertainty.” Dayton Power & Light Co. v. Public Utilities Comm’n, 292 U. S. 290, 310. These inevitable uncertainties of a complex valuation were greatly magnified in this case, for here the Commission was called upon to determine what values the New Haven properties would have, as the three-judge court put it, in “a liquidation that never happened, that in the world as we know it scarcely could have happened, and that, if it had happened, could have happened in any one of a number of equally imaginary ways . . . .” 305 F. Supp., at 1056. Given the extremely hypothetical context in which the Commission made its determinations, it is impossible for any reviewing court to know if the Commission’s findings even approximated the true liquidation value of the railroad. Because of this enhanced uncertainty, the area in which the Commission was required to exercise its judgment in this case was unusually wide, and a reviewing court could properly upset its conclusions in only the clearest instances of abuse.
I indicated previously that when these criteria for judicial review are taken into account, it becomes impossible for me to believe that the Commission abused its discretion in deciding as it did the exceedingly complex and difficult valuation issues discussed at length in the Court’s opinion. The three-judge merger court con-*502eluded that the Commission’s findings in this regard were supported by substantial evidence and consistent with relevant principles, and, after reviewing the record and the opinion of the Commission, I find myself in wholehearted agreement with the three-judge court’s conclusion. Judge Friendly’s fine opinion leaves no doubt in my mind that the court for which he wrote was fully aware of both the limited scope of its reviewing power and also its obligation within those limits to scrutinize carefully each of the significant decisions of the Commission. Thus, the court assumed that “[i]f the Commission made demonstrable errors, it is our duty to correct these . . . ,” but, unlike the Court today, it refused “to re-examine every judgment made by the Commission and to substitute our own whenever we think it better.” 305 F. Supp., at 1056. The three-judge court’s opinion sets out fully and adequately the reasons why the Commission should be affirmed on each of the disputed points, and there is nothing to be gained from my repeating those reasons here.
Ill
The Court’s opinion affirming the bankruptcy court attempts to avoid the force of the foregoing considerations by first holding that the three-judge court should have abstained from reaching the valuation issue and then assuming for some reason which is not clear to me that this Court should apply a limited scope of review to the valuation findings of the bankruptcy court rather than to the Commission’s findings. This approach is, I submit, premised on erroneous assumptions.
A
There can be no question but that under relevant federal statutes both the three-judge merger court and the bankruptcy court had jurisdiction to review the Commission’s determination of the New Haven’s liqui*503dation value. See 11 U. S. C. §205; 28 U. S. C. §§ 1336 (a), 2321-2325. The Court today does not really dispute this conclusion, but argues instead that the bankruptcy court might have had “primary jurisdiction” to decide the valuation issues, citing to support this idea several quite inapposite cases dealing with in rem jurisdiction, and, alternatively, that the three-judge court should have “abstained” because the only remaining issue was “the value to be accorded the assets transferred, and resolution of that issue was the essence of the § 77 process.” Ante, at 428. Actually, the only “primary jurisdiction” involved here was the primary jurisdiction of the Commission to decide questions of valuation. Moreover, the question of the New Haven's value may well have been central to the § 77 proceedings, but, in ordering the New Haven's inclusion in Penn Central, the Commission exercised authority under both § 5 of the Interstate Commerce Act and § 77 of the Bankruptcy Act. The question of the New Haven's value was equally central to the requirement under § 5 that the Commission determine before issuing an inclusion order that the terms of the inclusion are “equitable.” 49 U. S. C. §5(2)(d). Review of the Commission’s valuation was therefore as appropriate on the merger and inclusion side as on the bankruptcy side, and the Court’s argument to the contrary is completely con-clusory. Accordingly, I think the three-judge merger court was correct when it decided that, “unfortunate as the duplicitous system of review may be, we see no basis on which we can properly decline to exercise the jurisdiction conferred upon us . . . .” 289 F. Supp. 418, 425.
B
The Court also errs, I think, when it assumes that it should defer to the findings of the bankruptcy court rather than to those of the Commission. The reasoning *504behind this novel approach is never clearly stated. At times, the Court seems to take the view that the proper role of the bankruptcy court on valuation questions lies somewhere between that of a trial court charged with the responsibility of making a fair estimate of the value of the New Haven properties and an appellate court whose responsibility is limited to reviewing the Commission’s valuation. The adoption of this hybrid role for the bankruptcy court is strenuously urged upon us in some of the briefs in this case., Such a theory arguably justifies a deferential attitude on the part of this Court toward the reorganization court’s determinations and also provides at least a partial justification for the bankruptcy court’s de novo valuation estimates. However, the notion that the bankruptcy court has special powers in reviewing Commission valuations and in weighing the public interest is completely untenable in light of Western Pacific and the cases following it. Those cases make it clear that while the bankruptcy court does have certain special functions in § 77 reorganizations, the role of the bankruptcy court in the areas of concern here is simply that of an appellate court. As we said in Reconstruction Finance Corp. v. Denver & R. G. W. R. Co., 328 U. S. 495, 508:
“[T]he experience and judgment of the Commission must be relied upon for final determinations of value and of matters affecting the public interest, subject to judicial review to assure compliance with constitutional and statutory requirements.”
To like effect was the conclusion reached in Chicago, R. I. & P. R. Co. v. Fleming, 157 F. 2d 241, 245, a case following Western Pacific:
“[T]he Commission is allowed wide discretion in reaching its conclusions, and if its findings are supported by substantial evidence and follow *505legal standards they must be affirmed by the courts . . .
In my opinion these and other cases preclude the notion that the bankruptcy court has special factfinding and interest-weighing functions sufficient to justify this Court’s viewing it as a quasi-trial court.
Alternatively, the majority’s position might be that even though the reorganization court had no special review powers, this Court should still give great weight to its conclusions concerning the Commission’s price determinations. This position might have some force were there grounds for confidence that the bankruptcy court in this ease applied the correct scope of review in examining the Commission determinations, but no such grounds for confidence exist here. This Court has an obligation to examine carefully the opinion of the bankruptcy court to determine if that court did in fact apply the correct scope of review. Such an inquiry necessarily involves the Court in determining if the agency’s decisions are consistent with applicable law and supported by substantial evidence. As I indicated earlier, the record in this case simply does not support the conclusion that the reorganization court stayed within its proper scope of review of the Commission determinations. Since the reorganization court applied the wrong reviewing standard, there is no justification for this Court’s giving any deference to the valuation determinations of that court.
The Court’s opinion is thus poised between two equally unsatisfactory alternatives. Its conclusions must either rest on the theory that the reorganization court has extraordinary reviewing powers, a theory which I think is precluded by Western Pacific and the cases which follow it, or the Court must take the position that the reorganization court correctly applied the Western Pacific standard, a conclusion which seems to me untenable in *506light of the record in these cases and the opinion of the three-judge merger court.
IV
Today’s decision will have the effect of greatly burdening the Penn Central by increasing the amount that company owes to the New Haven bondholders by an additional $28,000,000. The imposition of this additional burden can only bring about a further deterioration of the Penn Central’s already seriously compromised financial position3 and will further reduce the ultimate chances of success of this venture in which the public has a considerable stake. The public interest in these cases certainly lies in establishing and maintaining the Penn Central as a viable private enterprise with reasonable rates and efficient services. Here the Commission had a duty “to plan reorganizations with an eye to the public interest as well as the private welfare of creditors and stockholders.” Reconstruction Finance Corp. v. Denver & R. G. W. R. Co., 328 U. S. 495, 535. See also the Penn-Central Merger Cases, 389 U. S. 486, 510-511. Because Penn Central’s economic soundness will be vitally affected by the price it has to pay for the New Haven assets, the Commission had an obligation, which I think it fulfilled in these cases, to prevent an overvaluation of the New Haven assets which might unnecessarily jeopardize the newly merged Penn Central system. If the Commission resolved close and fairly debatable issues of valuation in favor of Penn Central rather than the New Haven bondholders, the agency’s actions were wholly justifiable in terms of its statutory mandate to protect the public. Although the courts must review Commission determina*507tions of value to guarantee that those valuations are “fair and equitable” to the bondholders, that reviewing authority does not permit a court to substitute its views for those of the Commission. Judicial review of Commission valuations must be exercised in light of the fact that “Congress has entrusted the Commission, not the courts, with the responsibility of formulating a plan of reorganization which 'will be compatible with the public interest.’ § 77 (d).” Group of Institutional Investors v. Chicago, M., St. P. & P. R. Co., 318 U. S. 523, 544. Here the Commission struck a balance between public and private interests that was clearly within its discretion, and I think it is both improper and unwise for this Court to upset that balance and place an additional $28,000,000 burden on the Penn Central, a burden that I fear may ultimately be borne by the consumers of the Penn Central’s services or by the Federal Treasury.
For the reasons stated above, I would affirm the judgment of the three-judge merger court on the valuation issue and would reverse the judgment of the bankruptcy court to the extent that it is inconsistent with the three-judge court.

 The three-judge merger court corrected the Commission's findings on minor valuation points which are not relevant here. The Commission has subsequently made findings consistent with the three-judge court opinion on these questions. 334 I. C. C. 528.

 Of course, the bankruptcy court and the three-judge merger court agreed on many of the issues that were presented to them, some of which were questions of valuation and some of which were not. Apart from the question of the underwriting plan, ante, at 488-489, the Court today affirms both district courts on those issues on which both agreed, and I concur in that result. I differ with the Court, however, on its handling of all those questions of valuation over which the two district courts disagreed.

 As the Court notes in a footnote to its opinion, ante, at 399, the Penn Central Transportation Company has filed a petition for reorganization under § 77 of the Bankruptcy Act in the United States District Court for the Eastern District of Pennsylvania.