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In re Penn Central Transportation Co.

February 26, 1979

IN THE MATTER OF: PENN CENTRAL TRANSPORTATION CO., DEBTOR; WILMINGTON TRUST CO., ETC., APPELLANT; IN THE MATTER OF: PENN CENTRAL TRANSPORTATION CO., DEBTOR; MANUFACTURERS NATIONAL BANK OF DETROIT, ETC., APPELLANT


{Q}Opinion{/Q} ON PETITION FOR REHEARING AND REHEARING EN BANC

Present: ALDISERT, GIBBONS and HIGGINBOTHAM, Circuit Judges*fn*

Per Curiam

We have before us petitions for panel rehearing and rehearing en banc filed by the Wilmington Trust Company, indenture trustee for the Michigan Central Collateral Bonds, and Manufacturers National Bank of Detroit, indenture trustee for the Lake Shore Collateral Bonds. While their arguments differ in their details, the thrust of the claims is identical. Both indenture trustees rely upon the holding of this court in the R & I appeal that rental income from the Park Avenue properties which had been diverted to pay operating expenses during the reorganization remained subject to the lien of the R & I mortgage and must therefore be recognized in the Plan's allocation of reorganization securities to R & I bondholders. That holding, the indenture trustees contend, increases by approximately $60,000,000 the value of the assets that are subject to their senior mortgages on the same properties. The effect of this substantial increase in the value of those assets, they argue, is to increase the likelihood that the assets securing their claim would have survived a litigated liquidation. Therefore, under the logic of our opinion in the Irving Trust Appeals, the distributions to them under the Plan must be increased to meet the requirements of the absolute priority rule.

We have no occasion to consider the merits of these claims. In this appeal neither the Wilmington Trust or Manufacturers National Bank made any objection in their briefs or at oral argument to the diversion of the Park Avenue rentals, even to the extent of adopting by reference the arguments made by the Bank of New York on behalf of the R & I bondholders. Nor did either indenture trustee rely upon the availability of such assets in the extensive liquidation analyses presented to this court. Manufacturers National Bank of Detroit argues that the failure to raise or even hint at the indenture trustees' objection to the diversion of the Park Avenue rentals was intended to avoid wasteful duplication of argument on appeal. Our examination of the Reorganization Court record, however, discloses that even in that court neither trustee objected to the treatment of the Park Avenue rentals or mentioned their relevance to their proposed liquidation analyses either in their final statement of objections to the Plan or in the briefs which they filed in opposition to the Plan. Having failed to raise this ...


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