The Special Court was created under the Regional Rail Reorganization Act of 1973 (signed January 2, 1974) for the purpose of adjudicating conflicting claims arising out of the act-mandated transfer of viable properties of six bankrupt railroad systems to a new government-funded entity to be called the Consolidated Rail Corporation (Conrail). The act created an independent agency, the United States Railway Association, to plan the transfer and establish by means of traffic criteria, which part of the rail network would be self-sustaining and eligible for transfer to Conrail.

The six railroads were the Penn Central Transportation Company (by far the largest), the Erie Lackawanna Railway Company, the Reading Company, the Lehigh Valley Railroad Company, the Central Railroad Company of New Jersey, and the Lehigh and Hudson River Railway Company (the smallest). In addition, there were numerous subsidiary companies that still owned rail property in their own names. The Three R Act had been passed because all of the companies had suffered such erosion of traffic and deferred maintenance that they could not be reorganized under the standard procedures of the bankruptcy laws, which were based upon reducing fixed charges to a level that could be supported by earnings. However, each of the companies remained in the hands of trustees appointed in bankruptcy proceedings begun before passage of the act.

Once the Railway Association had determined the viability of a particular rail line, transfer to Conrail was mandatory. As might be expected, the bankrupts sought to maximize, and the government to minimize, the amounts to be paid in compensation for this involuntary transfer of property. The former argued for something close to actual historical cost or replacement value, and the latter for scrap value. Even by the latter reckoning, the sums were quite large, so the matter was hotly contested, with large legal teams representing each party. Creation of the Special Court allowed these claims to be adjudicated by experts without clogging the regular federal court system.

The entire process took almost a decade. Penn Central agreed to settle its claim at $2.11 billion on January 15, 1981, and on January 24, the Special Court issued a blanket ruling sustaining the government’s contention that, while many route-miles retained rail use potential, the limited number of potential buyers meant that their value was close to scrap value. However, the last holdout, the Central Railroad Company of New Jersey, did not settle until July 1984. Of the six bankrupts, three were liquidated, and the other three used the sale proceeds and their non-rail assets to transform themselves into industrial or real estate holding companies or conglomerates. The Penn Central Transportation Company became the Penn Central Corporation and later American Premier Underwriters. The Reading Company eventually became an entertainment concern under its old name but based in Los Angeles, and the Central Railroad Company of New Jersey became Central Jersey Industries, Inc., which was subsequently merged into a French multinational conglomerate.

The Special Court Reporter was created by the Special Court's rule 17C3 to publish all papers filed with the clerk in proceedings under Sec. 303 (c) (the valuation case), a summary of proceedings, the rules of the Court, and all orders and opinions subsequent to December 1, 1975. It was published by a commercial law printing company, the Corporate Reorganization Reporter, Inc., (renamed CRR Publishing Co. in 1976) in a limited subscription printing for use by the attorneys engaged by all parties to the litigation and as part of the Court's official record.