Derailed by Bankruptcy

Howard H. Lewis

Description

What happened when the US government stopped investing in railroads and started investing in highways and air travel? By the late 1970s, six major eastern railroads had declared bankruptcy. Although he didn't like trains, Howard H. Lewis became the primary lawyer for the Reading Railroad during its legendary bankruptcy case. Here, Lewis provides a frank account of the high-intensity litigation and courtroom battles over the US government's proposal to form Conrail out of the six bankrupt railroads, which meant taking the Reading's property, leaving the railroad to prove its worth. After five grueling years, the case was ultimately settled for $186 million—three times the original offer from the US government—and Lewis became known as a champion defender of both the railroad industry and its assets.

Foreword by John C. Spychalski
List of Abbreviations
List of Important Names
Introduction
1. The Age of Innocence
2. The Gathering Storm
3. A Time of Waiting
4. The Beginning
5. The Plot Thickens
6. Fear and Exhaustion
7. Detailed Case Preparation
8. The Times That Try Men's Souls
9. The Rail Use Case: Ours and the Government's
10. The Government's Case
11. End Game
Epilogue
Notes

Sujets

• Railroads
• Transportation
• Urban economics
• Region
• Rail transport
• Regional
• History
• Reading

Informations

• Publié par: Indiana University Press
• Date de parution: 04 janvier 2016
• Nombre de lectures: 0
• EAN13: 9780253018717
• Langue: English

Extrait

RAILROADS PAST AND PRESENT
George M. Smerk and H. Roger Grant, editors
A list of books in the series appears at the end of this volume.
INDIANA UNIVERSITY PRESS Bloomington Indianapolis
This book is a publication of
INDIANA UNIVERSITY PRESS Office of Scholarly Publishing Herman B Wells Library 350 1320 East 10th Street Bloomington, Indiana 47405 USA
iupress.indiana.edu
2015 by Howard H. Lewis All rights reserved
No part of this book may be reproduced or utilized in any form or by any means, electronic or mechanical, including photocopying and recording, or by any information storage and retrieval system, without permission in writing from the publisher. The Association of American University Presses Resolution on Permissions constitutes the only exception to this prohibition.
The paper used in this publication meets the minimum requirements of the American National Standard for Information Sciences-Permanence of Paper for Printed Library Materials, ANSI Z 39.48-1992.
Manufactured in the United States of America
Library of Congress Cataloging-in-Publication Data
Lewis, Howard H., [date]
Derailed by bankruptcy : life after the Reading Railroad / Howard H. Lewis.
pages cm. - (Railroads past and present)
Includes bibliographical references
ISBN 978-0-253-01866-3 (cl : alk. paper) - ISBN 978-0-253-01871-7 (eb) 1. Reading Company. 2. Railroads-United States-Finance. 3. Railroads-United States-Management. 4. Bankruptcy-United States. 5. Railroads and state-United States. I. Title.
HE 2791. R 27 L 49 2016
385.06 57481-dc23
2015014883
1 2 3 4 5 20 19 18 17 16 15
To my family, my wife and children who bore with me while I did the work which is the subject of this book .
CONTENTS
Foreword by John C. Spychalski
List of Abbreviations
List of Important Names
Introduction
1 The Age of Innocence
2 The Gathering Storm
3 A Time of Waiting
4 The Beginning
5 The Plot Thickens
6 Fear and Exhaustion
7 Detailed Case Preparation
8 The Times That Try Men s Souls
9 The Rail Use Case: Ours and the Government s
10 The Government s Case
11 End Game
Epilogue
Notes
FOREWORD
Financial failure enveloped most of the rail network in the northeastern United States and adjacent territory during the first half of the 1970s. By 1973, seven companies operating a total of 25,160 route miles of line in this area were conducting business under bankruptcy law protection. Historically, most railroads that suffered bankruptcy were returned to solvency by so-called income-based reorganizations that reduced the claims of security holders to levels that could be sustained by existing and estimated future levels of revenue. However, the situation in 1973 was different. By then it had become apparent that the existing and foreseeable earnings of most if not all of the seven bankrupt companies had fallen too low to support a reorganized structure of debt and equity securities of any magnitude. Consequently, liquidation of the companies assets and termination of most of the rail service in the Northeast became a real threat, thus posing the specter of serious collateral negative economic consequences, locally, regionally, and nationally.
This grim scene sets the stage for attorney Howard H. Lewis s autobiographical portrayal of his involvement with the bankruptcy proceedings of the Reading Company. 1 As operator of 1,149 route miles of line comprising 4.5 percent of the aforementioned total of 25,160 miles, the Reading ranked third in size among its bankrupt counterparts. Although dwarfed by the 19,300-mile Penn Central Transportation Company, largest of the bankrupt carriers, the Reading served customers for whom continued availability of rail freight service was either absolutely essential or highly preferable vis- -vis motor freight service. In addition, the Reading operated heavily used commuter passenger service in portions of the greater Philadelphia area, where diversion to private automobile usage was generally considered unacceptable from a net public benefit perspective. Perhaps more importantly from the perspective of rail industry competitive structure and rail freight service users, Reading formed a key link in connection with the Central of New Jersey (51 percent owned by Reading) and the Baltimore Ohio portion of the Chessie system that countered the post-1967 dominance of Penn Central in the Northeast, particularly in the New York metropolitan area.
Three events beyond the Reading Company s entry into bankruptcy law protection (on December 28, 1971) were pivotal in setting the course of professional and personal events that dominated Mr. Lewis s life through the almost decade-long progression of the Reading Company s bankruptcy case. First was the engagement of Mr. Lewis s Philadelphia-based law firm, Obermayer, Rebmann, Maxwell and Hippel (ORM H), as counsel for the Reading s bankruptcy proceedings. Second was Mr. Lewis s ascendance to partner in ORM H in 1972. Third was an evaluation of the performance of ORM H s work for the Reading from the time of its start that Mr. Lewis performed at the request of the firm s managing partner. When presented with the finding that the Reading needed more hands-on legal representation, the managing partner immediately reassigned leadership of the firm s Reading engagement to Mr. Lewis. Mr. Lewis accepted the assignment, albeit after first protesting in vain that he hated trains. He anticipated that he could fulfill it without a large commitment of time by forming a team of subordinates who, in consort with members of the Reading s in-house legal staff, would fully meet the company s legal service needs.
Subsequent realities ultimately proved otherwise. In 1974, during the early phase of his involvement with the Reading case, Mr. Lewis s other duties grew with his appointment as head of ORM H s Corporate Department. That position carried the responsibility for assigning and supervising work on all of the firm s corporate law-related engagements. Simultaneously, his Reading-related work continued on an upward trajectory. Constraints on available resources forced him to take and maintain a direct hands-on leadership role throughout the duration of the Reading case. The demand on his time and energy that it imposed rose to a level that overshadowed his efforts on behalf of his other duties within ORM H well before the closure of the Reading Company s bankruptcy case in 1981. His personal time was also virtually eliminated. Regular presence at family meals and other activities became impossible, communication with his children and spouse diminished, family vacations were foregone, and in one instance almost all of a Christmas Day (1980) was even consumed by his frantic effort to meet an urgent Reading case work deadline in lieu of participating in long-standing traditional family activities.
At the heart of the book are the author s revelations about the many conditions and problems he dealt with, the personalities he encountered, and the actions he took throughout his years of work on the case. The impossibility of bringing the Reading out of bankruptcy by means of an income-based reorganization obviously made it impossible for the company to continue to exist as a provider of rail transport service. This left only one objective for the company s bankruptcy trustees and their legal counsel to pursue: to obtain funds from the sale of the company s assets that in the aggregate would (hopefully) enable the settlement of creditors claims and the distribution of any residue funds to shareholders. Howard Lewis s inside story of how this objective was ably achieved should be instructive and even entertaining for readers interested in corporate bankruptcy law, railroad financial and managerial history, and government transport policy.
John C. Spychalski
Professor Emeritus of Supply Chain Management
The Pennsylvania State University
ABBREVIATIONS
CERL
Combined Erie, Reading, and Lehigh Valley Railroads (existed only in the mind of the US government)
Chessie
Chesapeake and Ohio Railway and affiliated companies, including the Baltimore and Ohio Railroad and the Western Maryland Railway
CNJ
Central Railroad of New Jersey
CMV
constitutional minimum value
Conrail
Consolidated Rail Corporation
CUE
compensable unconstitutional erosion
Erie
Erie Lackawanna Railway
FRA
Federal Railroad Administration
ICC
Interstate Commerce Commission
IPO
initial public offering
NRO
net railway operating income
OCLDD
original cost less depreciation and deterioration
P E
Peoria and Eastern Railway
PG N
Philadelphia, Germantown and Norristown Railroad
Rail Act
Regional Rail Reorganization Act of 1973
RCNL
reproduction cost new less depreciation
Reading
Reading Railroad
SEPTA
Southeastern Pennsylvania Transportation Authority
USRA
United States Railway Association
IMPORTANT NAMES
Arthur Baylis provided testimony as to the valuation of the Reading Railroad
Isabel Benham valuation expert for the Reading Railroad
Charles Bertrand president of the Reading Railroad
John Brennan chief financial officer for the Reading Railroad
John Bunting CEO of First Pennsylvania Bank
Joseph (Joe) L. Castle trustee of the Reading Railroad (succeeding Richardson Dilworth upon Dilworth s death)
Lloyd Cutter lawyer representing the Penn Central Railroad
Richardson (Dick) Dilworth trustee of the Reading Railroad
William (Bill) Dimeling attorney for the Reading Railroad
Will