Gross v. Missouri & A. Ry. Co.

• Decision Date: 10 November 1947
• Docket Number: Civil Action No. 194.
• Citation: 74 F. Supp. 242
• Parties: GROSS et al. v. MISSOURI & A. RY. CO.
• Court: U.S. District Court — Western District of Arkansas

74 F. Supp. 242

GROSS et al. v. MISSOURI & A. RY. CO.

Civil Action No. 194.

District Court, W. D. Arkansas, Harrison Division.

November 10, 1947.

Claude I. Depew, of Wichita, Kan., Harry Goldman, of Rochester, N. Y. and Jacob I. Goodstein, of New York City, for plaintiffs.

Virgil D. Willis, of Harrison, Ark., for receivers.

Eugene R. Warren, Sp. Atty. for State, of Little Rock, Ark., and Guy E. Williams, Atty. Gen., for State of Arkansas.

Williams, Boesche & McDermott, of Tulsa, Okl., for Cities of Eureka Springs and Berryville, Ark.

Lee Cazort, Jr., of Little Rock, Ark., for Richard R. Thompson and Mays Mfg. Co.

JOHN E. MILLER, District Judge.

On February 14, 1947, the plaintiffs filed a petition praying for the appointment of a receiver to take charge and possession of the property of the defendant corporation and to hold the same intact and to continue the prosecution and defense of any and all actions pending by or against the corporation in any courts, and any procedure pending before the Interstate Commerce Commission of the United States or any other governmental body. It was alleged that the defendant corporation was not insolvent but was unable to pay its creditors with funds on hand or obtainable; that many of the creditors were threatening to file suits and would do so unless some action be taken to prevent such filing; and that in order to prevent the threatened multiplicity of suits in various jurisdictions it was necessary for a receiver to be appointed to hold intact the property pending action by the Interstate Commerce Commission on the application for a certificate of public convenience and necessity permitting abandonment filed with that body by the defendant. The petition further alleged that on or about September 6, 1946, the defendant ceased to operate its line of railroad when its trainmen and enginemen went on a strike because the corporation refused, on account of inability, to meet their demands for increased wages; that the corporation was not receiving sufficient revenues to meet operating expenses, and had not for several months prior to the cessation of operations; and unless a receiver be appointed that the creditors, all of them unsecured, would not receive full payment of their debts, and that the investment of the stockholders in the corporation would be lost. Through its attorney the defendant filed its consent to the relief requested in the plaintiff's petition. Thereupon an order was entered appointing Messrs. C. C. Alexander and W. S. Walker, Harrison, Arkansas, as receivers.

On May 14, 1947, the State of Arkansas was permitted to file an intervention alleging a lack of good faith on the part of the plaintiffs to operate the railroad or make any disposition thereof beneficial to the best interests of all concerned. A hearing was held on June 6, 1947, on the issues raised by the intervention and an additional receiver, Mr. J. B. Lambert of Helena, Arkansas, was appointed. Instructions were issued to the receivers directing them (1) to request the Interstate Commerce Commission to refrain for a period of 90 days from rendering a decision on defendant's action for a certificate of convenience and necessity to abandon the railroad, (2) to receive and consider plans for resumption of operation, and (3) to consider any offer to purchase or lease the whole or any part of said railroad.

No attempt has been made to disguise the true interest of the plaintiffs in the defendant corporation. The railroad ceased to operate on September 6, 1946. A short time after that date the defendant corporation commenced an action before the Interstate Commerce Commission to obtain a certificate of convenience and necessity to abandon, and subsequently plaintiffs purchased the majority of the capital stock of the corporation. The State of Arkansas intervened in the proceeding before the Interstate Commerce Commission. A hearing has been held by said Commission on the question of abandonment, but a decision has been withheld. Even though the court recognizes the true position of the plaintiffs, such cannot alter the disposition that must be made of the questions presented by the pleadings and by the reports of the receivers.

The receivers have filed their report as directed, recommending that operation of the railroad be resumed, and in addition numerous plans and suggestions have been submitted by interested third parties. It is apparent from an examination of this material that a resumption of operation would entail the procurement of a large capital outlay and an enormous amount of work and planning. In order to place this corporation on a sound financial and profit making basis, the railroad will have to be completely rehabilitated, but a thorough consideration of these problems is not within the province of this court at the present time.

The first difficulty encountered in these proceedings, that of the propriety of the appointment of receivers, may be passed without the necessity of an extensive discussion. The basic jurisdiction of the court, diversity of citizenship and jurisdictional amount, is present, and the appointment of receivers in a proper case is within the scope of the extraordinary powers of a court sitting in equity. Generally an equity receiver is appointed for the purpose of either preserving, liquidating or operating the property involved pending final disposition of a case before the court. In this regard the appointment of receivers is within the sound discretion of the court, and the receivership is ancillary to the main object of the suit. It has frequently been described as a means to an end and may not serve as an end in itself. See: Kelleam et al. v. Maryland Casualty Co. of Baltimore, 312 U.S. 377, 61 S.Ct. 595, 85 L. Ed. 899; Gordon v. Washington, 295 U.S. 30, 55 S.Ct. 584, 79 L.Ed. 1282. In this case all interested parties, the plaintiffs on behalf of the stockholders and creditors, the defendant corporation, and the public, represented herein by the State of Arkansas, have joined in the request for receivers. With this state of facts before it, the court will not, of its own motion, enter into an examination of whether or not the original appointment of receivers was an abuse of its discretion as a court of equity.

A candid consideration of the law and the admitted facts defines with certainty the course that the court must follow. Basically there are but two possibilities: (1) That the road continue to operate or (2) that it be abandoned. Of course, the components of these two are numerous. Among such are: that it be abandoned only in part; that it be leased or sold to another carrier; that it be expanded to cover more territory and thereby obtain more revenue; or that it be reorganized. It is the sole province of the Interstate Commerce Commission to determine such questions as these and any action by the court prior to a submission of these issues to that Commission is unwarranted.

The Congress early realized that it was essential to protect the interest of the public in the oporation or abandonment of railroads. The duty of affording such protection was entrusted to the Interstate Commerce Commission. That body is especially qualified to examine and consider all questions respecting the operation and abandonment of railroads and the responsibility for making the initial determination has been lodged with it. As expressed by Mr. Justice Frankfurter in Board of Trade of Kansas City et al. v. United States et al., 314 U.S. 534, at page 546, 62 S.Ct. 366, at page 372, 86 L.Ed. 432:

"Congress has therefore delegated the enforcement of transportation policy to a permanent expert body and has charged it with the duty of being responsive to the dynamic character of transportation problems."

49 U.S.C.A. § 1(18), provides:

"No carrier by railroad subject to this chapter shall undertake the extension of its line of railroad, or the contruction of a new line of railroad, or shall acquire or operate any line of railroad, or extension thereof, or shall engage in transportation under this chapter over or by means of such additional or extended line of railroad, unless and until there shall first have been obtained from the commission a certificate that the present or future public convenience and necessity require or will require the construction, or operation, or construction and operation, of such additional or extended line of railroad, and no carrier by railroad subject to this chapter shall abandon all or any portion of a line of railroad, or the operation thereof, unless and until there shall first have been obtained from the commission a certificate that the present or future public convenience and necessity permit of such abandonment."

Section 1(19) provides for notice and hearing in the event of an application for such a certificate.

Paragraph (20) of the same Section provides:

"The commission shall have power to issue such certificate as prayed for, or to refuse to issue it, or to issue it for a portion or portions of a line of railroad, or extension thereof, described in the application, or for the partial exercise only of such right or privilege, and may attach to the issuance of the certificate such terms and conditions as in its judgment the public convenience and necessity may require. From and after issuance of such certificate, and not before, the carrier by railroad may, without securing approval other than such certificate, comply with the terms and conditions contained in or attached to the issuance of such certificate and proceed with the construction, operation or abandonment covered thereby. Any construction, operation, or abandonment contrary to the provisions of this paragraph or of paragraph (18) or (19) of this section may be enjoined by any court of competent jurisdiction at the suit of the United States, the commission, any commission or regulating body of the State or States affected, or any party in interest."

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