In the Matter of CHICAGO, ROCK ISLAND AND PACIFIC RAILROAD COMPANY, Debtor. Appeal of IOWA DEPARTMENT OF TRANSPORTATION

756 F.2d 517, 1985 U.S. App. LEXIS 31409
Court of Appeals for the Seventh Circuit·Decided February 28, 1985·No. 84-1148·Published·Cited by 16 cases

Opinion

POSNER, Circuit Judge.

This appeal by the State of Iowa in a railroad bankruptcy case requires us to consider the duty (if any) of a railroad which becomes bankrupt and ceases operations to place the highways that cross its abandoned rail lines in the condition they would have been in if there had never been a railroad.

In 1975 the Rock Island Railroad, serving areas in the Midwest, including Iowa, petitioned for reorganization under section 77 of the Bankruptcy Act of 1898, 11 U.S.C. § 205 (1976 ed.). In 1980 the district judge presiding over the reorganization proceeding ordered the trustee to liquidate the Rock Island’s railroad operations. The Rock Island is expected to emerge from the proceeding as a going concern — but a going concern in real estate rather than an operating railroad.

The trustee made a contract with a salvage company for the removal of the rails and ties and their sale as scrap, but the contract was explicit that the rails embedded in paved highway crossings would be left in place. Rails on a bridge or underpass would be removed within as well as on each side of the crossing but the bridge or underpass itself would be left in place. The district judge approved the contract in August 1981, after notice and a hearing at which the State of Iowa had objected to the dismantling of some of the rail lines covered by the contract but had not objected to the provision regarding crossings. The salvage operations began in the fall of 1981 (in Iowa as elsewhere) and are continuing, the delay in completing them being due to the fact that the trustee is still trying to sell some lines as operating rail lines. The record contains an estimate of the total revenues that the salvage operations will yield the Rock Island — $31 million — but not of the cost of the operations, so we do not know what their net value will be.

In February 1983 Iowa petitioned the district judge to order the Rock Island to take all steps necessary to put the highway crossings in Iowa in the condition they *519 would be in if there had never been a railroad. This would mean removing railroad bridges, filling in railroad underpasses, and taking up the rails and repaving the highways at grade crossings. All highway crossings would be affected, whether or not the highway was there before the railroad, provided only that the highway was a state highway rather than a local road. The record does not indicate the number of crossings that would be affected or the cost of removing them, although the state opined at argument that the net cost to the Rock Island (that is, the cost of removal minus the salvage value of any tracks and ties that are sold from the crossings) would be less than $1 million. The state is willing to do the work and bill the trustee for the expense, and argues that this would be an administrative expense just like the cost of carrying out the salvage operations themselves and would therefore be entitled to priority of payment from the bankrupt’s assets over the rest of the creditors. See 5 Collier on Bankruptcy ¶ 77.21, at pp. 611-14 (14th ed. 1978). As a matter of fact, the state has already restored a few of the crossings, and therefore also seeks reimbursement by the trustee for its expenses in doing so.

The district judge refused to order removal of the crossings or reimbursement of the state’s expense of removal and the state has appealed. The situation with regard to bankruptcy appeals has become extremely confusing as a result of developments culminating in last summer’s bankruptcy amendments, see In re Riggsby, 745 F.2d 1153 (7th Cir.1984), but none of these developments is pertinent to this case. Proceedings under section 77 of the Bankruptcy Act of 1898 were not transferred to the new bankruptcy courts established by the 1978 Act, see Bankruptcy Reform Act of 1978, Pub.L. 95-598, Title IV, § 409(a)(1)(A), 92 Stat. 2687, and thus the provisions relating to appeals from those courts are inapplicable to this case. Under section 24(a) of the old Act, 11 U.S.C. § 47(a) (1976 ed.), an order of a bankruptcy court (such as the district court in the present case) that rejects a claim against the bankrupt estate is appealable as a final order in a separable controversy. See In re UNR Industries, Inc., 725 F.2d 1111, 1116 (7th Cir.1984); In re Saco Local Development Corp., 711 F.2d 441, 444-45 (1st Cir.1983).

The state’s concern about the abandoned crossings is that if they are neither removed (with restoration of each crossing to the condition it would be in if there had never been a railroad) nor maintained, eventually they will deteriorate and become an obstruction or hazard to highway traffic; some of the crossings, the state adds, already have deteriorated to that point. The potential danger is most dramatically presented by the railroad bridges — which if not removed or maintained will eventually collapse onto the highways below — and underpasses: if they are not removed or maintained their roofs will eventually cave in and the highways above will collapse. The state does not see why it should have to bear an expense for removal or maintenance that it would not have borne had there never been any railroad tracks for state highways to cross.

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In the Matter of CHICAGO, ROCK ISLAND AND PACIFIC RAILROAD COMPANY, Debtor. Appeal of IOWA DEPARTMENT OF TRANSPORTATION, 756 F.2d 517, 1985 U.S. App. LEXIS 31409 (7th Cir. 1985).

756 F.2d 517 (In the Matter of CHICAGO, ROCK ISLAND AND PACIFIC RAILROAD COMPANY, Debtor. Appeal of IOWA DEPARTMENT OF TRANSPORTATION) — published by Counsel Stack Legal Research, free access to 12M+ legal documents.

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