Full opinion text
FRIENDLY, Presiding Judge: I. Introduction Section 303(c)(1)(A) and (2) of the Regional Rail Reorganization Act of 1973 as amended (the Rail Act) directs this court to determine whether the transfers and conveyances which took place on April 1, 1976, were for a consideration more or less than the constitutional minimum “taking into consideration compensable unconstitutional erosion, if any, which the special court finds to have occurred in the estate of each such railroad, during the bankruptcy proceeding with respect to such railroad”. Section 306(c)(4) provides that one item to be included in the base value of each series of certificates of value (CV’s) authorized by § 306 shall be “such amount, if any, as the special court may determine shall be required after taking into consideration compensable unconstitutional erosion, if any, in the estate of a railroad in reorganization, or of a railroad leased, operated, or controlled by such a railroad, which the special court finds to have occurred during any bankruptcy proceeding with respect to such railroad”. These provisions appeared for the first time in the amendments made by the Railroad Revitalization and Regulatory Reform Act of 1976 (RRRRA), evidently in response to indications in our opinion of September 30, 1974 (180-Day Appeals), In re Penn Central Transportation Co., 384 F.Supp. 895, 918-26, and the Supreme Court’s opinion in Regional Rail Reorganization Act Cases, 419 U.S. 102, 122-25, 95 S.Ct. 335, 42 L.Ed.2d 320 (1974), that the process provided by the Rail Act might involve what the Supreme Court called an “erosion taking” of property of the transferors for which the Fifth Amendment would require just compensation. Because of the limited powers accorded us by the original Rail Act with respect to securities issuable to the transferors, those opinions envisioned that the task of determining the existence and amount of such erosion would devolve primarily upon the Court of Claims under the Tucker Act, 28 U.S.C. § 1491; the effect of the 1976 amendments was to transfer that task, or at least the bulk of it, to this court. The claims are large; an approximation of the claim of the Penn Central Trustees for pre-conveyance erosion runs to nearly $900 Million. In our Memorandum and Order of June 16, 1976, Directing Preliminary Proceedings for the Determination of General Principles under §§ 303 and 306 of the Act (June 16 Memorandum), we identified “three sets of legal issues” with respect to compensable unconstitutional erosion (CUE) which we thought could be presently “determined without awaiting the completion of detailed studies on the subject”. 425 F.Supp. 276, 284-85. These were: (1) The date when the transferors contend that valid erosion claims began; (2) Any date later than March 31,1976 to which the transferors contend that erosion continued; (3) The categories (and some approximation of the amounts) of erosion claims. Consideration of the briefs and arguments has led us to conclude that it would be best to defer decision on the item of post-conveyance erosion claims, identified above as (2). These claims fall into three categories — interest on loans made pursuant to § 211(h); alleged inadequacy of rentals for property subject to rail service continuation payments under § 304(c)(2); and erosion with respect to properties designated as “suitable for use for other public purposes” and required to be temporarily retained under § 304(b)(2). The nature of these claims is altogether different from pre-conveyance CUE claims; their amount, if any, is not now determinable; decision with respect to some (notably the second) may be dependent on later decisions in the valuation phase of the case; and failure to pass upon them at this time will not delay the progress of these proceedings. Both the Government parties and those transferors who spoke on the matter indicated a willingness to have us postpone consideration of these issues. We shall thus defer decision on them, with the proviso that at any time this court may, or any party may request us to, restore all or some of these questions to the active list, with proper notice and such further opportunity, if any, for additional briefing and argument as we may think appropriate. We shall therefore deal in this opinion only with pre-conveyance CUE claims. As was suggested at the argument, we shall treat the brief of the Government parties as a motion for summary judgment that, subject to certain reservations hereafter noted, there are no valid claims. Further we shall deal in this opinion only with the issue of when, if ever, such claims began to accrue. The organization of the balance of this opinion shall be as follows: In Section II, after a brief statement of the general nature of the claims, we shall set forth the history giving rise to the claim of the Penn Central Trustees. This will be followed by Section III in which we shall analyze the authorities. In Section IV we shall state our general conclusions in regard to the accrual of pre-conveyance CUE and apply these to the Penn Central. A further Section V shall deal with the claims of other bankrupt estates for pre-conveyance CUE, and in a final Section VI we shall make some concluding remarks, II. The Nature of the Claims and the History Giving Rise to the Claim of the Penn Central Trustees The term “compensable unconstitutional erosion” is a newcomer to the legal lexicon. As recognized in our previous opinions, June 16 Memorandum, 425 F.Supp. at 284-85; see In re Penn Central Transportation Company, D.C., 384 F.Supp. 895, 923 (1974), “erosion” of estates such as those of the railroads here before us falls into two major categories. Financial erosion arises from the creation of claims such as administration expenses, trustees’ certificates, and taxes which have priority over the claims of pre-bankruptcy creditors, and use for operations of cash or property held as security for liens. Physical erosion consists of the depletion of property through such means as loss of nonescrowed cash and deterioration of physical plant, which result in the property having a lesser value at the end of the period than at the beginning. Erosion as such has no constitutional implications; it is suffered in some forms by many losing businesses outside bankruptcy as well as within it and by commercial or manufacturing enterprises as well as by public utilities. Unconstitutional erosion arises only when a losing business has been required to continue to operate against its will for more than a reasonable period. It is not clear just what Congress considered it was adding by the adjective “compensable”. Perhaps it was of the view that even unconstitutional erosion was not always compensable, but if so, it did not state what the critical factors were deemed to be. In the preceding paragraph we deliberately used the passive voice “has been required” and did not elaborate on the meaning of the verb “require”. By adding the word “compensable” Congress may have meant to emphasize the importance of two elements that are implicit in the concept of “unconstitutional” erosion itself, namely, that the claimant should have made manifest its desire to quit operating and should have applied for authorization necessary to that end, and that some identifiable agency of government having power to do so should have thwarted its desires. The principle underlying the claims for CUE derives from three Supreme Court decisions of the early 1920’s, Brooks-Scanlon Company v. Railroad Commission of Louisiana, 251 U.S. 396, 40 S.Ct. 183, 64 L.Ed. 323 (1920); Bullock v. Florida ex rel. Railroad Commission of Florida, 254 U.S. 513, 41 S.Ct. 193, 65 L.Ed. 380 (1921); and Railroad Commission of Texas v. Eastern Texas Rail road, 264 U.S. 79, 44 S.Ct. 247, 68 L.Ed. 569 (1924). All three involved small railroads whose business had become so unprofitable that they could not continue operations except at a loss. The Supreme Court held they could not constitutionally be compelled to do so. The most important single statement in these cases was Mr. Justice Holmes’ in Brooks-Scanlon, 251 U.S. at 399, 40 S.Ct. at 184: If the plaintiff [railroad] be taken to have granted to the public an interest in the use of the railroad it may withdraw its grant by discontinuing the use when that use can be kept up only at a loss. Efforts to distinguish these cases as inapplicable to large railway systems important to the public or to dismiss them as outmoded were rejected by the lower courts in the New Haven Inclusion Cases, see New York, New Haven and Hartford Railroad First Mortgage 4% Bondholders’ Committee v. United States, 289 F.Supp. 418, 440-41 (S.D.N.Y.1968); In re New York, New Haven and Hartford Railroad, 304 F.Supp. 793, 802-04 (D.Conn.1969), modified and aff'd sub nom. New Haven Inclusion Cases, 399 U.S. 392, 90 S.Ct. 2054, 26 L.Ed.2d 691 (1970); New York, New Haven and Hartford Railroad First Mortgage 4% Bondholders’ Committee v. United States, 305 F.Supp. 1049, 1055 (S.D.N.Y.1969), vacated on other grounds sub nom. New Haven Inclusion Cases, 399 U.S. 392, 90 S.Ct. 2054, 26 L.Ed.2d 691 (1970); by the Third Circuit in the Columbus Option case, In re Penn Central Transportation Company, 494 F.2d 270, 278-82, cert. denied, U.S. v. Bankers Trust Co., 419 U.S. 883, 95 S.Ct. 147, 42 L.Ed.2d 122 (1974); by this court on the 180-Day Appeals, 384 F.Supp. at 918-19; and most importantly, by the Supreme Court in Regional Rail Reorganization Act Cases, 419 U.S. 102, 122, 95 S.Ct. 335, 42 L.Ed.2d 320 (1974). The transferors claim to be entitled to pre-conveyance CUE from the date of “accrual” of their “Brooks-Scanlon rights”; the serious issues are whether these ever did “accrue” prior to conveyance and, if so, when. The Penn Central Trustees contend that this accrual occurred on October 1, 1973, some three months before the Rail Act was enacted. They base their claim on the history of the Penn Central reorganization proceedings. In extended summary this history was as follows: The Trustees contend that Penn Central was in danger of collapse almost from the time it entered bankruptcy on June 21, 1970. On December 22,1970, faced with an imminent total depletion of working cash, due in part to a retroactive wage increase mandated by Congress on December 10, 1970 in order to halt a nationwide strike, the Trustees petitioned the reorganization court, 325 F.Supp. 302 (E.D.Pa.1971), for authority to issue $100 million of trustees’ certificates to be guaranteed by the United States under the then proposed and shortly thereafter enacted Emergency Rail Services Act of 1970 (ERSA), 84 Stat. 1975. The petition was opposed by the Trustee of the New Haven, who had become a large creditor and stockholder as a result of the inclusion of the New Haven in the Penn Central, see New Haven Inclusion Cases, 399 U.S. 392, 90 S.Ct. 2054, 26 L.Ed.2d 691 (1970), the indenture trustees of various mortgages, and stockholder interests. One of the § 77 Trustees testified there was a reasonable prospect that within three to five years the PC would be restored to “viability” in the sense of having some income available for the payment of fixed charges, 325 F.Supp. at 304. The Secretary of Transportation had likewise found, as required by ERSA, that “the railroad can reasonably be expected to become self-sustaining.” Id. The reorganization court (Judge Fullam) granted the Trustees’ petition. He found that this was “not a situation of attempting to require the railroad to be operated permanently at a loss,” citing Brooks-Scanlon, although “[fjundamental statutory and administrative changes, affecting such matters as rate-making, abandonments or subsidization of uneconomical lines, and labor arrangements, will undoubtedly be required if continued viability of railroads, especially Eastern railroads, is to be assured.” In a report dated February 10, 1971, the Trustees affirmed that the Penn Central could be successfully reorganized if (a) the passenger service was handled in accordanee with the principles of the National Railway Passenger Service Act of 1970; (b) the freight service plant was rationalized; (c) changes were made in the regulation of freight rates; and (d) employment and labor policies were significantly modified. If such “rational terms” were provided, Penn Central could be viable; to the extent they were not, provision must “be made for some different form of compensation for any extra costs incurred for reasons beyond the control of those responsible for the enterprise.” The report did not indicate just how, as a practical matter, this largely unprecedented and halcyon solution was to be achieved. Further reports were made in March and September 1971; in the latter the Trustees professed satisfaction “with the time schedule of the reorganization effort thus far,” noting they had not yet completed their projections of future traffic levels, which studies were necessary to assess the railroad’s viability, asking six more months to test “whether a rational labor pattern can be established,” and reporting “substantial progress” in alleviating deficits from passenger service and the launching of an “active abandonment program.” The Trustees made a more comprehensive report on February 15, 1972. They announced that in their judgment “Penn Central can be successfully reorganized.” (Emphasis in original). They conditioned this prophecy, however, on the attainment of certain forecasts of traffic volume and freight revenues and “the accomplishment of three basic changes in the Penn Central situation which will require action beyond the sole competence of the management, the Trustees, or this Court: rationalization of the Penn Central plant, removal of unnecessary labor costs, and full compensation for continuing passenger service losses.” They stressed the importance of consummating a plan before continued operations “so erode the Debtor’s estate as to be either practically or constitutionally impermissible.” They concluded by saying: It should be possible for Federal, state and local governments and all interested parties to analyze the situation as presented in this Report and to come to conclusions as to whether they are prepared to cooperate in achieving the changes necessary to allow the Penn Central to continue as a private enterprise. If an adequate response should not be forthcoming, the Trustees will be prepared to advise the Court that this reorganization proceeding is producing a result for which Section 77 was not intended and could not constitutionally have been intended. We do not expect that default. The Chairman of the Interstate Commerce Commission wrote the reorganization judge that the report constituted in effect, clear notice to the public that the Penn Central cannot be reorganized successfully in the manner normally contemplated by section 77 of the Bankruptcy Act. What the trustees are telling us, in short, is that assistance must be forthcoming from the National government, from State and local governments, from shippers and receivers of freight, from passengers, from railroad employees, and from all others who will benefit by continued Penn Central operation if the railroad is to survive. We agree, and we commend the trustees for their candor and for their realistic approach. On April 1,1972, the Trustees filed a plan of reorganization expected to become realizable in 1976. This plan proceeded on the assumption that PC’s earned income available for fixed charges would reach $275 million by 1976, failing which the plan would be withdrawn. On the effective date of the plan, PC was to be authorized to abandon any uneconomic lines whose operating losses had not by then been covered through contractual arrangement or a subsidy policy, and to terminate any passenger service for which it was not fully compensated; in addition, the plan noted the importance of meeting the railroad’s projected increase in freight revenues and in reducing labor expenses. The Trustees defended their proposed abandonment program against the complaints of some creditors by noting that 11,000 miles of track had been identified as the “freight core” of a reorganized system; these lines had generated 80 percent of the PC’s freight operating revenues in 1970, although studies of the projected operating results of such a cut-down system for 1972-1976 were expected to take until September 1972. Noting the New Haven Trustee’s criticism of the reorganization plan, that [e]ven if an income plan could be devised which carried the hope of some interim success by 1976, the adverse characteristics of the Penn Central system service area . . . flash all the signs of the New Haven’s own prior experience. The New Haven was “successfully” reorganized in 1947 after a proceeding which began in 1938, only to become bankrupt again in 1961. the Trustees replied that they believed that given reasonable time and help from others . . viability will be established, and Penn Central will emerge as a strong carrier, with sufficient earning power to operate with confidence in the future. On October 1,1972, the Trustees reported that their studies indicated that a 15,000 mile freight core system could produce $243 million income available for fixed charges in 1976, assuming the usual four requisites were substantially attained; this larger system seemed more profitable than an 11,000 mile system because of labor expenses which could be only gradually reduced. The Trustees also discussed possible alternatives to a conventional private income-based reorganization, including public assistance to supply operating costs or capital needs, but noted that this discussion was “not a position of pessimism but one of prudence so that the Court, the public and all interested parties may begin to consider the alternatives.” The Trustees’ Interim Reports of January 1 and February 1, 1973 struck a new note. In addition to the three types of outside assistance outlined in the report of February 15, 1972, the Trustees now considered that the Penn Central would require government aid in the range of $600-$800 million. This need was due to two principal factors — delays in realizing some of the goals set in the Trustees’ earlier reports, with consequent increase in priority claims, and realization that attainment of the traffic and revenue projections required larger expenditures for modernization of plant. The February 1 report again took note of the large savings that would result from changing the existing 20,000 mile railroad (with gradual abandonments down to 15,000 miles) to an 11,000 mile railroad, and acknowledged that “[sjtrong arguments can and will be made that immediate action to relieve Penn Central of the foregoing excessive service and labor obligations is the best course to follow.” The Trustees rejected these arguments as impractical, instead looking to the projected but wholly unpromised government aid. In early February 1973 the Trustees, having exhausted procedures under the Railway Labor Act, made a reduction in the size of train crew consists. This resulted in a strike of operating employees on February 8. Congress stepped in with a Joint Resolution, P.L. 93-5, 87 Stat. 5, approved February 9, 1973. Taking note of the Trustees’ views that “a massive infusion of Federal financial assistance would be needed” in any event and that cessation of PC’s operations even for a short period “may make it financially impossible to resume operations,” Congress imposed a three-month freeze on the implementation of crew consist changes and directed the Secretary of Transportation to submit, within the short period of 45 days, a report which “provides a full and comprehensive plan for the preservation of essential rail transportation services in the Northeast section of the Nation . . . .” These developments led the reorganization court to issue a Memorandum and Order on March 6, 1973, In re Penn Central Transportation Company, 355 F.Supp. 1343 (E.D.Pa.1973), “charting a future course for the reorganization proceeding which will be consistent with legal and constitutional requirements.” Dealing with the question of erosion, the court said, id. at 1344, the record justifies the conclusion that post-reorganization deferrals and unpaid administration claims have already eroded the Debtor’s estate to the extent of about $500 million. . . . Under any view of the matter, it seems clear that the point of unconstitutionality is fast approaching, if it has not already arrived. Judge Fullam concluded, id. at 1346, I take judicial notice of the fact that the legislative and executive branches are now addressing themselves to these problems. ... It would obviously be premature, therefore, for this Court to make final determinations as to the future course of this reorganization proceeding on the basis of the existing legislative and regulatory framework. The legal and constitutional rights of the parties to this reorganization should be evaluated in the light of whatever changes Congress sees fit to enact. By the same token, however, this Court cannot ignore the realities of the Debtor’s situation. On the basis of the record to date, it appears highly doubtful that the Debtor could properly be permitted to continue to operate on its present basis beyond October 1, 1973. Under the circumstances, I have concluded . . . that a further hearing should be held on July 2,1973, to permit a careful and realistic re-evaluation of the situation in the light of intervening events. At that hearing, the Trustees will be required to file either a feasible plan for reorganization of the Debtor, or their proposals for liquidation or other disposition of the enterprise. Under the legislative prod of the Joint Resolution of February 9 and the judicial prod of Judge Fullam’s opinion of March 6, 1973, Secretary of Transportation Brinegar submitted his report to Congress on March 26, 1973. It was a remarkable document, containing the gist of what was to become the Rail Act some nine months thereafter. The report proposed sweeping legislative reforms that would permit identification of necessary core rail services in the Northeast, streamlined procedures for abandonment of unnecessary lines, and formation of a new corporation to operate the redesigned system. The report stressed that “the time for action is short,” calling attention to the hearing set by Judge Fullam for July 2 “to hear proposals either for a workable plan or the trustee’s blueprint for liquidation,” which would be “the Court’s only legal recourse” if no plan was forthcoming. On the other hand, the Secretary thought that if Congress “acts expeditiously along the lines outlined in this report, we believe that the Court will have an alternative to liquidation that is better for all concerned and for the Nation as a whole.” The Secretary promised promptly to submit proposed legislation. Congress speedily initiated hearings to consider proposals made by the Secretary and others. On June 21, 1973, Senator Magnuson, Chairman of the Senate Commerce Committee, Senator Hartke, Chairman of the Subcommittee on Surface Transportation, and Representative Staggers, Chairman of the House Interstate and Foreign Commerce Committee, joined in a letter advising Judge Fullam that the appropriate Congressional committees had “begun consideration of a number of legislative proposals which would, if enacted into law, provide relief to the railroads in bankruptcy proceedings in the Northeast” including “varying degrees of federal assistance in solving the crisis which now exists.” The legislators expected action by Congress “sometime this summer or early fall.” On July 2, no legislation having been adopted, the PC Trustees requested authority from the reorganization court to submit to the ICC what was called a plan of reorganization. Under the plan, if aid from the federal or local governments or other sources to compensate for continued erosion was not forthcoming by October 1, all freight and passenger service was to cease on a schedule estimated at 10 weeks. The Trustees would temporarily preserve all assets which might be required if provision for continued rail services were to be made. During the first six months after approval of the plan, the Trustees would consider only those offers to purchase or lease rail properties that committed the offeror to continue or resume rail service; acceptance of any such offer was subject to approval by the court and the ICC. After the end of the six-month period, rail asáets for which no such offers had been made or for which such offers had been disapproved, would be scrapped and underlying real estate sold or otherwise disposed of, “unless the Court shall find that a particular sale can reasonably be expected to impair the ability of the Commission to approve the Completed Plan of reorganization for the Debtors.” The Trustees might dispose of non-rail assets at any time, subject to the same condition. Thereafter, on a date nine months from approval of the plan, the Trustees and the Debtors shall be relieved of all common carrier obligations in respect of all rail lines and operations of the Debtors, any state law or regulation to the contrary notwithstanding, including operations over all lines of railroad leased from corporations whether or not 50 percent of the voting stock is controlled directly or indirectly by the Debtors. The liquidation was subject to a proviso, noted above, that, If the Court shall, prior to October 1, 1973, have approved arrangements pursuant to which relief is forthcoming from the United States, other government authorities, or other sources to stop the erosion of the Debtors’ estates, Penn Central shall continue to provide rail services in the manner approved by the Court for a period not to exceed 12 months from the date of such approval. Overruling objections of stockholder interests and others which sought a 90-day extension of referral of the plan to the ICC in view of the pending legislative consideration, the court authorized submission of the Trustees’ plan, and requested the ICC “to certify an approved plan of reorganization, or a preliminary step thereof” not later than October 1, 1973. In re Penn Central Transportation Company, 363 F.Supp. 1263, 1267 (E.D.Pa.1973). On September 28, 1973, the ICC filed its report rejecting the Trustees' and other plans. Penn Central Transportation Company Reorganization, 347 I.C.C. 45. A principal ground, probably erroneous, was that a plan which provided for the sale of rail properties without assuring continued rail service was not cognizable under § 77. Id. at 79-85. On the other hand, the Commission was correct in pointing out that rejection of the plans left the court free to dismiss the reorganization proceeding pursuant to § 77(g). Id. at 85. At a hearing before the reorganization court on October 12, the Interstate Commerce Commission, the Under Secretary of Transportation and, in a later submission, the Department of Justice urged that in view of the progress being made in Congress to develop new legislation, the court should not dismiss the reorganization proceedings, as the New Haven Trustee had requested, but should fix a date for a later hearing. Although expressing some impatience at the delay, Judge Fullam deferred action on the proposals to dismiss the proceedings “pending action by Congress on the Rail Act.” See In re Penn Central Transportation Company, 382 F.Supp. 856, 861 (E.D.Pa.1974). The latter became law on January 2, 1974. The scheme of the Act is described in detail in our opinion' on the 180-Day Appeals, 384 F.Supp. at 904-10, and there is no need to repeat that here. It suffices at this point to say that the Rail Act required that the United States Railway Association (USRA) submit to Congress within 450 days a final system plan (FSP) providing for the conveyance to the Consolidated Rail Corporation (ConRail) or to solvent railroads of designated rail properties of those bankrupt estates which were not reorganizable on an income basis; that the FSP should be deemed approved by Congress unless within 60 calendar days of continuous session after submission, either house of Congress passed a resolution of disfavor (in which event USRA was to submit a revised plan to which similar procedures would apply); and that conveyances should take place within 110 days after the FSP became effective. This expeditious program was altered in only two significant respects. Because of delay by President Nixon in appointing the board of USRA, Congress extended the date for the submission of the FSP from 450 to 570 days, 88 Stat. 1464. The FSP, a most impressive document on any view, was submitted on July 26, 1975. Neither house of Congress exercised a veto, and the FSP became effective on November 9, 1975. Meanwhile it had become apparent that the Rail Act required amendment in many particulars. Congress embodied these amendments in Title VI of the Railroad Revitalization and Regulatory Reform Act of 1976, 90 Stat 31. This approved the FSP as modified by USRA’s supplemental report dated September 18, 1975 and the official errata supplement dated December 1, 1975; permitted certain further designations to be made within 20 days; and fixed March 12, 1976 as the date for delivery by USRA to this court of a certified copy of the FSP with a resulting conveyance date of April l. The conveyances were made effective as of 12:01 a. m. on April 1,1976; concededly any erosion of the conveyed properties ended at that time. III. The Authorities The recent recognition of the continued vitality of Brooks-Scanlon and its two companion cases, to which we have referred, should not obscure how limited those holdings were. The sole issue was the right of a railroad conceded to be a hopelessly losing one to cease operations rather than be obliged to continue indefinitely. There was no issue whether the railroad must first comply with applicable regulatory procedures before it became constitutionally entitled to stop operating. Still less was there any suggestion that the railroads, or others like them, were entitled to be paid by the respective states for losses suffered between the time when they first manifested a desire to cease operations because of their losses and the date when operations ceased. The decisions simply upheld the claims of the railroads that they were entitled to cease operations as against the claims of state administrative agencies which were insisting on their continuance with attendant penalties for refusal to obey; the evident thought was that the owners’ remedy for any wrongful action by administrative bodies lay in the courts. Neither Brooks-Scanlon nor the two later cases raised a question concerning another related factor present in these proceedings — the responsibility of a bankruptcy court to bring a reorganization proceeding to an end if all hope of success has faded. Here the seminal case is Judge Frank’s opinion in In re Third Avenue Transit Corp. v. Lehman, 198 F.2d 703 (2 Cir. 1952). This dealt with an application by the trustees of a local transit company in reorganization under Chapter X of the Bankruptcy Act to compel an indenture trustee to turn over proceeds from the sale of mortgaged assets for use in continuing operations. The court of appeals held that, in deciding to grant the application, the district court had not imposed sufficiently stringent tests of the necessity of obtaining the funds and their unavailability from other sources, and of the likelihood of successful reorganization so that the secured creditors would not suffer harm merely to benefit junior claimants. The court said, 198 F.2d at 707: There are strict limits to the extent to which, in reorganization proceedings, the interests of creditors (or of a particular class of creditors) may be sacrificed to the public interest; to exceed those limits is (to say the least) to come dangerously close to the edge of unconstitutional taking of property, a line from which courts should keep away if possible. The reorganization judge should not compel a marked sacrifice of that kind, without first deciding, on substantial evidence, whether the interest of the creditors who would be affected by the sacrifice does not demand that prompt steps be taken to bring about abandonment of the utility’s operations, including steps to procure the consent of those public authorities (if any) whose consent to abandonment is required. (Footnote omitted.) There was no suggestion that the Chapter X trustees could ignore public authorities “whose consent to abandonment was required,” still less that anyone was bound to pay for losses incurred while this was being obtained. The more recent line of cases begins with a statement in Penn Central Merger and N & W Inclusion Cases, 389 U.S. 486, 510-11, 88 S.Ct. 602, 614, 19 L.Ed.2d 723 (1968). The Court there rejected a contention of some New Haven bondholders that because of the erosion of the property of the New Haven, the Penn Central merger should be permitted to be consummated only if the New Haven were fully protected against further erosion. Mr. Justice Fortas said: While the rights of the bondholders are entitled to respect, they do not command Procrustean measures. They certainly do not dictate that rail operations vital to the Nation be jettisoned despite the availability of a feasible alternative. The public interest is not merely a pawn to be sacrificed for the strategic purposes or protection of a class of security holders whose interests may or may not be served by the destructive move. New Haven Inclusion Cases, 399 U.S. 392, 90 S.Ct. 2054, 26 L.Ed.2d 691 (1970), is the only case prior to the Rail Act in which a claim of entitlement to payment for something resembling unconstitutional erosion was pressed. While both sides rely heavily on this decision, in our view its import for these proceedings is considerably less than asserted by either. While the Supreme Court denied the claim of the New Haven bondholders that the price to be paid by the Penn Central must include erosion of the New Haven’s property for the five years before the valuation date, December 31, 1966, or at least for the two years between that date and actual inclusion, 399 U.S. at 492-93, 90 S.Ct. 2054, and some language in the opinion is favorable to the Government parties, the circumstances were quite different than here. The claim was being asserted not against the United States as having compelled continued operations but against a private company. Whoever was responsible for the New Haven’s continuing in reorganization for seven years before inclusion in the Penn Central system, it was surely not the components of the Penn Central, which would have been pleased at all stages of the proceeding if the New Haven had simply gone away. Indeed no one had been responsible for the New Haven’s continued operation in any blameworthy sense. The reorganization judge, Judge Anderson, had been acutely conscious of his responsibility to prevent a wastage of the assets of the New Haven security holders and had manifested his displeasure at the failure of state governments to be more constructive, see In re New York, New Haven and Hartford Railroad, 304 F.Supp. 793, 800-01 (D.Conn. 1969); New Haven Inclusion Cases, 399 U.S. at 465 n. 72, 90 S.Ct. 2054; he later stated that but for the prospects of inclusion of the New Haven in the Penn Central, he would have ordered abandonment applications to be filed in late 1963, 304 F.Supp. at 801. The trustee of the New Haven and almost everyone concerned with it had seen the Penn Central merger as both a peril and a promise, see In re New York, New Haven and Hartford Railroad, 378 F.2d 635, 636 (2 Cir. 1967), a peril because the merger would cause substantial diversion of traffic from the New Haven to the Penn Central and a promise because § 5(2)(d) of the Interstate Commerce Act empowered the ICC to insist on the New Haven’s inclusion as a condition to approving the merger. The prospect of receiving marketable securities of what was widely heralded as a railroad with prospects of high financial success was far more attractive than the uncertainties of liquidation in a region deprived of what had been its major rail carrier. Moreover, as the Supreme Court noted, 399 U.S. at 493, 90 S.Ct. at 2110, no application to the reorganization court to dismiss the reorganization proceedings and thus permit foreclosure of the mortgage liens was made until April 1967. As the Court said: [T]he failure of the bondholders to press for early liquidation of the New Haven meant that their initial application for a dismissal of the reorganization proceedings came just as the objective of salvaging the New Haven appeared possible to achieve. As the reorganization court noted, only two of the several bondholder groups made that initial application; it was not joined by the trustees, nor was it endorsed by other representatives of the bondholders and creditors; and it came just as the Commission was about to certify a feasible plan of reorganization to the court. Thus, the Supreme Court’s approval of the erosion burden placed on the New Haven’s estate would not be conclusive in a situation in which it was determined that the railroad or its bondholders had sought early dismissal of the reorganization proceeding or applications for abandonment and their claim for compensation lay against the government rather than an acquiring railroad. On the other hand, we do not consider the Supreme Court’s rejection of the proposal made by the ICC in its Fourth Supplemental Report, 334 I.C.C. 25, 58-60 (1968), that the liquidation value of the New Haven as of December 31, 1966, should be reduced by custodial costs, real estate taxes and discount for a year, which the Commission assumed would have been required to obtain a certificate of abandonment, to be so helpful to the transferors’ claims to pre-conveyance CUE as they contend. Indeed, it cuts rather the other way. The Court said of the dispute between the Commission and PC on the one hand and the bondholders on the other, 399 U.S. at 461, 90 S.Ct. at 2094: It does not draw into question the right of the Commission to insist that New Haven obtain permission to abandon its operations: no one here quarrels with the proposition that in the event of a liquidation, New Haven would have been obliged to obtain a certificate from the Commission pursuant to § 1(18) of the Interstate Commerce Act. The parties agree that since a delay occasioned by abandonment proceedings before the Commission, followed by judicial review, inheres in the liquidation process, the Commission may exercise its expertise in gauging the extent and expense of such a delay, and Penn Central need not pay for the consequent diminution in the value of the assets of the debtor. The Court rejected the proposed adjustment essentially because it amounted to double counting. The Court accepted, 399 U.S. at 463, 90 S.Ct. 2054, Judge Anderson’s finding that the valuation date, December 31, 1966, represented not the date when he would have authorized the New Haven Trustees to seek a certificate of abandonment but the date when they would have had one, since he would have directed application to be made late in 1963 if the solution of inclusion in the Penn Central, far preferable in the public interest, had not been available. Here there is no showing that anyone before 1973 asked the PC reorganization court to require the Trustees to seek abandonment or sale of the PC; nor was there any point before 1973 when the reorganization judge concluded, as did Judge Anderson in 1963, that the railroad was not reorganizable on an income basis and that the reorganization proceeding would be continued solely to allow alternative arrangements to be worked out. Continuing with the authorities, we next encounter In re Central Railroad of New Jersey, 485 F.2d 208 (3 Cir. 1973) (en banc), cert. denied, Timpany v. New Jersey, 414 U.S. 1131, 94 S.Ct. 870, 38 L.Ed.2d 755 (1974). Dealing with a railroad that had been in reorganization since 1967 with substantial operating losses in each year, see 485 F.2d at 222 n.18 (dissenting opinion) and a continuing erosion of assets estimated at $1 million per month, id. at 226, the court put the following question, id. at 209: May a district judge presiding over a railroad reorganization, pursuant to Section 77 of the Bankruptcy Act, permit the Trustees of the railroad to discontinue a loss-producing service or must he withhold his authorization until the Trustees have applied to federal or state regulatory agencies for permission to terminate the service? (Footnote omitted.) The majority answered that the Trustees must at least apply. “There having been no application made, there can be no showing that delay or frustration would be the inevitable result,” 485 F.2d at 213 (footnotes omitted). In our decision on the 180-Day Appeals, we said that while the Brooks-Scanlon doctrine remained unimpaired, it had been qualified in two ways. We described the qualification here pertinent as follows, 384 F.Supp. at 919: This is that liquidation cannot commence until public bodies, acting under statutory authority, have had a reasonable opportunity to consider and act upon the proposed abandonment, as § 77(o) prescribes with respect to the ICC. This is true even when the Constitution requires that a certificate of abandonment must ultimately issue, since such proceedings give other parties, notably public authorities, a final opportunity to come up with plans that may prevent serious injury to the public interest. Finally, there is the brief discussion in Regional Rail Reorganization Act Cases, 419 U.S. at 122-25, 95 S.Ct. 335. The discussion was directed mainly to showing the need for determining the applicability of the Tucker Act. It says only that the processes of the Rail Act, especially the possibility noted in the Government’s reply brief in the Supreme Court, that “Congress could, in theory, successively disapprove several proposed final system plans,” 419 U.S. at 123, 95 S.Ct. at 348, might result in an erosion taking, not that they would. It scarcely needs to be added that enactment of the RRRRA, which authorizes this court to take account of compensable unconstitutional erosion, carried no implication that Congress thought this had occurred and affirmatively desired us to make a pre-conveyance CUE award. Such thoughts as Congress had, while of course not binding us with respect to constitutional questions, were to the contrary. See Senate Conference Rep. No. 595, 94th Cong., 2d Sess. 205 (1976), as corrected 122 Cong.Rec. S749 (daily ed., January 28, 1976) (clerical corrections), U.S.Code Cong. & Admin.News 1976, p. 220: Considering substantial benefits conferred by the Rail Act it seems unlikely that any alleged compensable unconstitutional erosion arising from the operation of the Rail Act will be provable . There is no intention even remotely to imply that there may be merit in a claim for pre-Act erosion, or indeed for any erosion. IV. When did CUE begin to accrue — in general and with respect to the Penn Central The PC Trustees do not dispute that the mere fact that a railroad, even one in reorganization, is in a hopelessly losing position does not entitle it to quit operations immediately in the face of statutes requiring approval of such cessation by federal or state regulatory agencies; they concede there is no “taking” until government has had a reasonable opportunity to make alternative arrangements for the carrying on of such public service as is found to be needed. Their position rather is that government— both federal and state — was placed on notice of the PC’s plight as early as the Trustees’ report of February 10, 1971; that the period of some 32 months from then until October 1, 1973, was more than a reasonable time for government to develop solutions; and that an erosion taking began on that date. The Government parties answer that the early reports of the PC Trustees were nowhere so foreboding as they now assert; that the Trustees made few proposals sufficiently definite to call for action by an agency of the Government and did not pursue the proposals in appropriate proceedings; that despite all the general talk about need for rationalization of plant the PC Trustees made no applications to the ICC for large-scale abandonments; that no application to dismiss the reorganization proceedings was ever made by them and no such application was made by anyone else until the New Haven Trustee’s application of October 9, 1973; that the first clear intimation that the reorganization of PC on an income basis would require infusion of federal funds was not made until January 1,1973 and not quantified until February 1, 1973; and that even if the events of February and March 1973 were to be taken as starting the clock running for a responsible governmental answer — and they insist that no earlier date could reasonably be found— the federal government acted with speed that was not merely reasonable but remarkable in light of the complexities of the situation, with the result that PC was relieved of its common carrier responsibilities far sooner, and on a much more advantageous basis, than if the Trustees had filed applications for abandonment or sales in the winter of 1973 and ultimately had to endeavor to dispose of PC’s rail properties. Our first observation is the obvious one that a § 77 trustee is as much subject to § 1(18) [now slightly amended as § la(l)] of the Interstate Commerce Act forbidding abandonment of a line of railroad or the operation thereof without approval of the ICC as the railroad itself would have been. Smith v. Hoboken Railroad, W&S Connecting Company, 328 U.S. 123, 130, 66 S.Ct. 947, 90 L.Ed. 1123 (1946). We assume the same is true under most state regulatory statutes. Cf. Palmer v. Massachusetts, 308 U.S. 79, 60 S.Ct. 34, 84 L.Ed. 93 (1939). A second observation is that § 1(18) requires Commission approval for a voluntary cessation of all operations which is intended to be permanent and not merely for the tearing up of a line. The statute speaks of abandonment either of “all or any portion of a line of railroad” or “the operation thereof”; if the disjunctive language left any room for doubt that voluntary cessation of all operations on a basis intended to be permanent constitutes an abandonment, Smith v. Hoboken Railroad, W&S Connecting Company, supra, 328 U.S. at 130, 66 S.Ct. 947, and Thompson v. Texas Mexican Railway, 328 U.S. 134, 144-45, 66 S.Ct. 937, 90 L.Ed. 1132 (1946), would remove it. A third proposition is that § 1(18) does not cease to be applicable merely because serious erosion of the property of a railroad is taking place. As indicated, the railroads in Brooks-Scanlon, Bullock, and Eastern Texas had been through all administrative processes that were required. Despite the desperate situation of the New Haven, which had experienced net operating losses for four and a half years before invoking § 77, see New York, New Haven, and Hartford Railroad Discontinuance of Trains, 327 I.C.C. 151, 166 (1966), and by 1963 had no prospect for a successful reorganization on the basis of capitalized earnings, see In re New York, New Haven and Hartford Railroad, 289 F.Supp. 451, 456 (D.Conn.1968), Judge Anderson considered that authorization to abandon would have had to be obtained from the Interstate Commerce Commission, In re New York, New Haven and Hartford Railroad, 304 F.Supp. at 801; as shown above, the Supreme Court rejected the Commission’s proposal to take account of an additional year to obtain such authority not because it thought that this was not needed, but because Judge Anderson had already taken into account a reasonable period for obtaining it. 399 U.S. at 463, 90 S.Ct. 2054. Again, as noted in Section III of this opinion, our own decision on the 180-Day Appeals held that the Brooks-Scanlon principle had been qualified by requiring compliance with reasonable requirements for administrative approval; perhaps it would have been more accurate to say that the BrooksScanlon doctrine needed no such qualification since the administrative process had been exhausted in that case and its two early companions. See also New York, New Haven and Hartford Railroad First Mortgage 4% Bondholders’ Committee v. United States, 305 F.Supp. at 1055; In re Central Railroad of New Jersey, 485 F.2d at 215. The validity of this third proposition is in no way impaired by decisions, stemming from the Third Avenue Transit case, supra, 198 F.2d 703, that a reorganization court cannot properly impair liens by such measures as approving the issuance of trustees’ or receivers’ certificates or authorizing use of the proceeds of sale of mortgaged properties for operations when the prospect of successful reorganization has disappeared, but instead must direct a trustee to apply for abandonment. Apart from authority we see no basis in principle for holding that application of the abandonment provisions of § 1(18) to a debtor for whom a successful § 77 reorganization is no longer possible constitutes a taking of the portion of the estate eroded during a reasonable period required to obtain the needed abandonment authority in a proceeding which enables the Government to explore and develop alternative solutions. Although there is “no set formula to determine where regulation ends and taking begins,” Goldblatt v. Town of Hempstead, 369 U.S. 590, 594, 82 S.Ct. 987, 990, 8 L.Ed.2d 130 (1962), see Pennsylvania Coal Company v. Mahon, 260 U.S. 393, 416, 43 S.Ct. 158, 67 L.Ed. 322 (1922); Michelman, Property, Utility, and Fairness: Comments on the Ethical Foundations of “Just Compensation” Law, 80 Harv.L.Rev. 1165, 1249 (1967); Ackerman, Private Property and the Constitution 244 (1977), we have no doubt that requiring even a hopelessly losing railroad to obtain administrative permission for abandonment falls on the regulatory side. The building and operation of a railroad are not merely an added service to persons already on the scene so that its withdrawal would leave them no worse off than they were before. The railroad attracts more people and more investment on the justified expectation that service will continue. As was eloquently said in The Minnesota Rate Cases, 230 U.S. 352, 452, 33 S.Ct. 729, 761, 57 L.Ed. 1511 (1913), in a somewhat different context: The railroad has long been established; to it have been linked the activities of agriculture, industry and trade. Communities have long been dependent upon its service, and their growth and development have been conditioned upon the facilities it has provided. The uses of property in the communities which it serves are to a large degree determined by it. The values of property along its line largely depend upon its existence. It is an integral part of the communal life. Those who invest in a railroad in the face of statutes prohibiting abandonment without administrative approval do so with the knowledge that operation cannot cease immediately merely because it has become unprofitable and the investors might be better off if the railroad were liquidated forthwith. To be sure, no matter how profitable it may have been in the past, a railroad cannot be compelled to operate indefinitely at a loss. But Congress may constitutionally require, without thereby engaging in a taking, that operations continue until a certificate of abandonment has been obtained through proceedings conducted by an administrative agency with reasonable promptness. A fourth proposition is that when Congress has specified a particular procedure, namely, application to the ICC, for obtaining authority to abandon, a railroad or its trustee cannot opt out from the statutory requirement in favor of other procedures which they consider just as good. We therefore reject the argument that interim reports of the PC Trustees, some more gloomy, some less so, served the office of applications to abandon and started the running of the clock for the Government to make an effective response. An application to abandon all or a large part of the operations of the Penn Central would have constituted sharp notice both to the tribunal designated by Congress to exercise “fostering guardianship and control” over the railroads, Dayton-Goose Creek Railway v. United States, 263 U.S. 456, 478, 44 S.Ct. 169, 68 L.Ed. 388 (1924), and to Congress itself, altogether different in nature and probable effect from reports of the PC Trustees to the reorganization court even though the reports were fully known to the Interstate Commerce Commission. The Commission is legally bound to act on applications filed with it, not on conditions made known to it, however desirable that might be. It simply will not do to say that the condition of the bankrupt railroads in the Northeast had reached such a pass that the ICC was no longer a factor. Section 1(18) of the Interstate Commerce Act stood in the early 1970’s as it had since 1920, and the PC Trustees were not relieved of compliance by their view that the crisis called for action beyond the Commission’s powers. We reaffirm the statement in our opinion in the 180-Day Appeals that “even when the Constitution requires that a certificate of abandonment must ultimately issue, such proceedings give other parties, notably public authorities, a final opportunity to come up with plans that may prevent serious injury to the public interest.” 384 F.Supp. at 919. Among such “public authorities” is the Government of the United States. If the PC Trustees had applied to the Commission for authority to abandon in 1971 or 1972, the Rail Act might have been enacted and the conveyances consummated much sooner. They are not entitled to be treated as if they had done what, for one reason or another, they failed to do. Passing for the moment the important issue of “cashlessness,” we therefore cannot accept the oft-iterated claims of the PC and other trustees that, as they put it, their “Brooks-Scanlon rights” had “accrued” by October 1,1973, and a fortiori by January 3, 1974, so that despite the absence of proceedings seeking authority to abandon, any further Operations must be deemed to have been for the account of the federal government. The error in this contention is that nothing in Brooks-Scanlon or any other decision of the Supreme Court or of this court indicates that a right to cease operations “accrues” to a losing railroad until it has complied with reasonable requirements for obtaining administrative approval of abandonment. On the other hand, we believe enactment of the Rail Act should be taken as relieving the various trustees from any further obligation to apply for leave to abandon. As we pointed out in our decision on the 180-Day Appeals, 384 F.Supp. at 920-21 § 304(f) [now § 304(h)] prohibited abandonments unless authorized by USRA and “unless no affected State or local or regional transportation authority reasonably opposes such action,” a standard which would permit few, if any, abandonments. Indeed, we think there is justification for placing somewhat earlier the date when the various trustees (other than those of the Erie Lackawanna, see Section V(F) infra) should be treated prima facie as if they had applied for abandonment. The Trustees argue with force that the prospect of federal legislation during the last three quarters of 1973 made it idle for them to seek authority to apply for extensive abandonments and for reorganization courts to act on such petitions for leave to cease service as were presented to them, and also had an adverse impact on plans to make other dispositions of the properties. See New York, New Haven and Hartford Railroad 4% Bondholders’ Committee, 305 F.Supp. at 1055-56. To be sure, there is some inconsistency in the Trustees’ saying on the one hand that Congress had a duty to act with respect to the railroad problem in the Northeast and on the other that its doing this in a careful and responsible way enhanced the liability of the United States for erosion claims. It could hardly be expected that the Rail Act would spring, like Athena, from the head of Zeus. The adverse effects of the nine months of legislative discussion, surely not an unduly long period for a measure as complex as the Rail Act, can be viewed as simply the price which the security holders of the bankrupt railroads must pay for living in a democratic society. However, the law does not compel the doing of a futile act and we are convinced that after Congress, on February 9, 1973, called on the Secretary of Transportation promptly to submit a report which “provides a full and comprehensive plan for the preservation of essential rail transportation services in the Northeast section of the nation,” it was unrealistic to expect that a reorganization court would have authorized an application for large-scale abandonment — although Judge Fullam’s order authorizing the PC Trustees to submit their reorganization plan to the ICC came close to that, or that the Commission would have devoted its resources to the processing of such an application. However, this means only that the PC Trustees and, in the absence of evidence pointing to a contrary conclusion, the trustees of other lines are to be treated as if they had applied for abandonment in February 1973 — not as if during 1973 they had been denied permission to abandon or been forced to operate despite such permission. We are convinced that in the case of the Penn Central it would have been impossible to complete abandonment proceedings before April 1, 1976, even if applications for all of Penn Central’s trackage had been filed in February 1973 and the Commission had treated the applications, as it should have, as deserving the highest priority. Here was a railroad of more than 19,000 miles, operating in 14 states and the District of Columbia and having 1972 transportation revenues of $1,825,000,000. In our opinion on the 180-Day Appeals we reviewed the practical obstacles to the swift obtaining of permission for any large-scale abandonments, including those resulting from the need for the Commission’s staff to prepare environmental impact statements, and concluded that “the chance of favorable action by the Commission on any large-scale abandonments within 620 days would have been exceedingly poor.” 384 F.Supp. at 922. We now know that the situation would have been far more complex than we had envisioned in 1974 since it appears from the submissions made to us in other phases of this case that the PC Trustees would have sought approval of sales to other railroads and to state transportation authorities, as well as abandonments. Sales to other railroads would have given rise to considerations of competitive effect which, with the best will in the world, would have taken many months of hearings and briefings to explore. We thus are confident that even if an application for permission to abandon had been filed in February 1973, it would have been impossible for the PC Trustees to have obtained authority to dispose — not to speak of actually disposing — of a major portion of the rail properties conveyed on April 1, 1976 prior to that date. The fact that formulation of the Rail Act and elaboration and consummation of the FSP took the time that they did is almost sufficient proof of this. Neither Congress nor USRA was obliged to comply with NEPA or the Administrative Procedure Act, as the Commission would have been. Our concern in the 180-Day Appeals with respect to erosion was not over such a period, but over what then seemed a very real probability that at least one house of Congress would veto the initial version of the FSP, with consequent long delay while a revised plan was being formulated and resubmitted, 384 F.