328 U.S. 134 (1946), 42, Thompson v. Texas Mexican Railway Co.

Docket Nº:No. 42
Citation:328 U.S. 134, 66 S.Ct. 937, 90 L.Ed. 1132
Party Name:Thompson v. Texas Mexican Railway Co.
Case Date:April 29, 1946
Court:United States Supreme Court
 
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Page 134

328 U.S. 134 (1946)

66 S.Ct. 937, 90 L.Ed. 1132

Thompson

v.

Texas Mexican Railway Co.

No. 42

United States Supreme Court

April 29, 1946

Argued October 9, 1945

CERTIORARI TO THE COURT OF CIVIL APPEALS

FOR THE FOURTH SUPREME JUDICIAL DISTRICT OF TEXAS

Syllabus

1. By contract between two interstate railroads, both of which were subject to the authority of the Interstate Commerce Commission, one obtained trackage rights over the lines of the other at a specified rental. The contract was terminable by either party upon twelve months' notice. The grantee railroad subsequently petitioned for reorganization under § 77 of the Bankruptcy Act, a trustee was appointed, and stay orders pursuant to § 77(j) were entered. Thereafter, the grantor gave notice that it was exercising its right to terminate the contract. After the date when, by its terms, the contract would thus have been terminated, the trustee continued to operate trains over the lines of the grantor, and refused to pay more than the rental specified in the contract. Thereupon, the grantor brought suit in a state court to enjoin the grantee and its trustee from using the tracks of the grantor without the grantor's consent, and to recover $500 a day damages for such use or, alternatively, the reasonable value of the use. The state court denied an injunction, adjudged that the contract had been terminated, and awarded damages.

Held: that maintenance of the suit in the state court was not precluded by the stay orders issued by the bankruptcy court, nor by § 77 of the Bankruptcy Act, but that the state court should have stayed its hand and remitted the parties to the Interstate Commerce Commission for determination of the administrative phases of the questions involved. Pp. 138, 151.

(a) So far as the suit involved a money claim against the estate for acts of the trustee in operating trains over the grantor's tracks, it was maintainable in the state court under § 66 of the Judicial Code, which authorizes suits against the trustee, without leave of the bankruptcy court, "in respect of any act or transaction of his in carrying on the business." P. 138.

(b) Maintenance of the suit in the state court is not inconsistent with the provisions of § 77 granting the reorganization court exclusive jurisdiction over the debtor and its property. P. 139.

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(c) The exclusive jurisdiction of the bankruptcy court is determined by the "main purpose" of the suit, which, in this case, evidently was an attempt on the part of the grantor to obtain a more favorable rental. P. 139.

(d) The principle that the exclusive jurisdiction of the bankruptcy court extends to the adjudication of questions affecting title is inapplicable here, since the trackage agreement created only a personal obligation, and did not purport to grant any estate in the property of the grantor. P. 140.

(e) The general rule in bankruptcy that the trustee takes the contracts of the debtor subject to their terms and conditions is applicable to proceedings under § 77 by virtue of the provisions of § 77(l). P. 141.

(f) The qualification in 77(l) that the rule of bankruptcy be "consistent with the provisions" of § 77 made premature an adjudication by the court that the contract was terminated prior to a determination by the Interstate Commerce Commission that that step was consistent with the reorganization requirements of the debtor. P. 141.

2. Prior to rendition of judgment on the merits, the decision of the Interstate Commerce Commission was necessary on certain phases of the controversy:

(1) Whether termination of the trackage agreement would interfere with the plan of reorganization to be formulated by the Commission under § 77 of the Bankruptcy Act. P. 142.

(2) Whether the Commission should issue a certificate under § 1(18) of the Interstate Commerce Act that "the present or future public convenience and necessity" would permit abandonment of operations under the trackage agreement. P. 144.

(3) What would be a reasonable rental to be allowed, under § 5(2)(a) of the Transportation Act of 1940 if the Commission decided that the trackage arrangement should be continued. P. 149.

3. Until determination by the Interstate Commerce Commission of the administrative phases of the questions involved is had, it cannot be known with certainty what issues for judicial decision will emerge, and, until that time, judicial action is premature. P. 151.

181 S.W.2d 895 reversed.

The respondent railroad company brought suit in a state court against the petitioner railroad company (which was a debtor in a reorganization proceeding under § 77 of the

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Bankruptcy Act) and its trustee, and was awarded damages. The Court of Civil Appeals affirmed. 181 S.W.2d 895. The Supreme Court of Texas refused an application for a writ of error. This Court granted certiorari. 324 U.S. 838. Reversed, p. 151.

DOUGLAS, J., lead opinion

MR. JUSTICE DOUGLAS delivered the opinion of the Court.

Brownsville (The St. Louis, Brownsville and Mexico Railway Co.) and Tex-Mex (The Texas Mexican Railway Co.) are interstate carriers by railroad, and subject to the provisions of the Interstate Commerce Act. 24 Stat. 379, 41 Stat. 474, 49 Stat. 543, 54 Stat. 899, 49 U.S.C. § 1 et seq. On November 1, 1904, they entered into a written contract whereby, for payment of specified rentals, Tex-Mex granted Brownsville the right to operate its trains over the tracks of Tex-Mex between Robstown and Corpus Christi, Texas, and to make use of terminal facilities of Tex-Mex at Corpus Christi. The contract provided that it was to continue for a term of 50 years from its date unless sooner terminated by the parties. And it contained the following provision:

It is further agreed that this contract may be terminated, without giving any reason therefor, by either party upon giving twelve months' notice of such intent to terminate the lease.

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In 1933, Brownsville filed its petition for reorganization under § 77 of the Bankruptcy Act.1 The petition was approved, and petitioner Thompson was appointed as [66 S.Ct. 941] trustee in the proceeding. Shortly thereafter, the bankruptcy court entered stay orders to which we will later refer. In October, 1940, Tex-Mex notified petitioners that it was exercising its right to terminate and cancel the trackage contract, effective twelve months after November 1, 1940. The trustee, however, continued to operate over the Tex-Mex, and to use the Tex-Mex facilities after November 1, 1941. Tex-Mex informed him that a charge of $500 per day would be made for the use of these facilities -- an amount in excess of the rental under the contract. The trustee refused to pay any rental other than that specified in the contract.

Thereupon, this suit was instituted by Tex-Mex in the Texas courts to enjoin Brownsville and its trustee from using the tracks or other facilities without the consent of Tex-Mex, and to recover $500 a day damages for such use or, alternatively, the reasonable value of the use of the property. The trial court overruled pleas to its jurisdiction, and tried the case on the merits. It denied an injunction. It held that the 1904 contract had been terminated, and awarded Tex-Mex damages in the amount of $184,929.85. The Court of Civil Appeals affirmed.2 181 S.W.2d 895. The Supreme Court of Texas refused an application for a writ of error. The case is here on a petition for a writ of certiorari which we granted because of the importance of the problems in the administration of the Interstate Commerce Act and of the Bankruptcy Act.

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First. It is contended here, as it was in the state court, that the maintenance of the present suit is precluded by the stay orders, issued by the bankruptcy court and by § 77 of the Bankruptcy Act.

Sec. 66 of the Judicial Code, 28 U.S.C. § 125, authorizes suits against the trustee, without leave of the bankruptcy court, "in respect of any act or transaction of his in carrying on the business."3 In McNulta v. Lochridge, 141 U.S. 327, 332, this statute was said to grant an "unlimited" right "to sue for the acts and transactions" of the estate. Operation of the trains is plainly a part of the trustee's functions. Claims which arise from their operation -- whether grade crossing claims, as in McNulta v. Lochridge, supra, or claims for the use of the tracks of another, as in the present case -- are claims based on acts of the trustee in conducting the business. Hence, this suit, so far as it involves only a money claim against the estate for acts of the trustee in operating trains over respondent's tracks, could be maintained in the state courts against the trustee.4 And the stay orders entered were wholly consistent with this course.5

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It is argued, however, that this suit cannot be maintained consistently with the provisions of § 77 which grant the reorganization court exclusive jurisdiction [66 S.Ct. 942] over the debtor and its property.6 The theory is that the suit interferes with the...

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