In re Boston & Providence Railroad Corporation

• Decision Date: 08 November 1966
• Docket Number: No. 62413.,62413.
• Parties: In the Matter of BOSTON & PROVIDENCE RAILROAD CORPORATION, Debtor.
• Court: U.S. District Court — District of Massachusetts

260 F. Supp. 415

In the Matter of BOSTON & PROVIDENCE RAILROAD CORPORATION, Debtor.

No. 62413.

United States District Court D. Massachusetts.

November 8, 1966.

COPYRIGHT MATERIAL OMITTED

Charles W. Bartlett, Boston, Mass., for Charles F. Mulcahy.

Robert W. Blanchette, New Haven, Conn., and James Garfield, Boston, Mass., for N. Y. N. H. & Hartford R. Corp.

Benjamin H. Lacy, Boston, Mass., for B. & P. R. Corp. Stockholders' Committee.

Laurence M. Channing, Boston, Mass., for Debtor Corp.

Armistead Rood, Washington, D. C., and Joseph B. Hyman, Alexandria, Va., for B. & P. Development Group.

Paul A. Sweeney, Sp. Asst. Atty. Gen., Dept. of Justice, Washington, D. C.

In Proceedings for the Reorganization of a Railroad

OPINION

FRANCIS J. W. FORD, District Judge.

On August 4, 1938 the Provident Institution for Savings in the Town of Boston, then the holder of the fifteen-year, five percent, gold debenture bonds of the Boston & Providence Railroad Corporation (debtor), issued in the aggregate amount of $2,170,000 and payable on July 1, 1938, instituted proceedings, No. 62413, in the United States District Court for the District of Massachusetts for reorganization of the debtor in accordance with the provisions of section 77 of the Bankruptcy Act (11 U.S.C. § 205). In the ensuing years, the Commission has thrice approved plans for reorganization of the debtor. The last occasion was on January 5, 1954, 290 I.C.C. 363, petition for modification denied, 290 I.C.C. 404. And this plan survived challenge in the courts. In re Boston and Providence Railroad Corp., 143 F.Supp. 866 (D.Mass.1956), affirmed insofar as reorganization plan is concerned sub nom., Freeman v. Mulcahy, 250 F.2d 463 (1st Cir. 1957), cert. denied sub nom., Boston & Providence Railroad Corp. v. New York, New Haven & Hartford Railroad Co., 356 U.S. 939, 78 S.Ct. 781, 2 L.Ed.2d 813 (1958). The matter of reorganization of the debtor is again before the Commission by virtue of findings the Commission made on March 7, 1960, after petition of the Boston & Providence Railroad Corporation Group of Stockholders (Development Group) pursuant to 11 U.S.C. § 208, that developments had occurred since approval of the plan, not provided for therein, requiring reexamination and reconsideration of the plan. In view of these findings this Court remanded the plan to the Commission.

As a result of events occurring since the remand of the plan, a proposed plan of reorganization of the debtor, dated October 10, 1963, with subsequent amendments, was submitted by Gerald P. Kynett, C. Shelby Carter, and Enos Austin, as the Boston & Providence Railroad Corporation Stockholders Committee. The Stockholders Committee represents 16,244 shares of the 20,770 shares of stock of the debtor in the hands of the public, as distinguished from those held by the New York, New Haven & Hartford Railroad Company (New Haven). Public hearings on the basic plan were held before the examiner from April 27 through May 1, 1964. The record was then closed. However, as a result of the filing of second and third amendments to the plan, the Commission, Division 3, by orders of September 23, 1964 and February 19, 1965, reopened the record and directed that further hearing be held restricted to adducing evidence concerning these amendments. Such hearing was held March 9 and 10, 1965. On March 11, 1966 the Commission issued its Seventh Supplemental Report and entered an order approving the proposed plan, 327 I.C.C. 10.

The plan now before the court provides in substance for the transfer of substantially all the debtor's assets, properties and franchises to the New Haven and the ultimate liquidation of the debtor, a mutual cancellation by the debtor and its trustees and the New Haven and its trustees of their claims against one another (except for the debtor's debentures discussed below) and for compensation of the creditors and stockholders. Also the plan provides for an amendment of the debtor's charter to relieve it from any obligation to use or pay for the use of the South Station in Boston. The plan provides for the acquisition by New Haven of the 50% interest of Boston & Providence Railroad Corporation in the Union Freight Railroad Company. The plan further provides for the appointment of four reorganization managers to carry out the plan, one by the Government, one by the Boston and Providence Railroad Corporation Stockholders Committee, one by New Haven Trustees and one by the Boston & Providence Trustee. (See 327 I.C.C. 37 as to powers of managers.) The plan provides for the payment of $110 a share to each holder of the publicly-owned stock.

The effective date of the plan is to be December 31, 1963. Taxes due from the debtor for 1963 and prior years will be paid from cash presently belonging to the debtor. Taxes for 1964 and subsequent years will be paid by the trustees of the New Haven. Debts of the debtor's trustee, proved and allowed claims against the debtor and costs of administration will be paid from a cash fund of $550,000, made up of cash remaining after payment of taxes by the debtor, and, if necessary, of funds to be contributed to the extent of $150,000 by the New Haven trustees. As of June 30, 1966 debtor's trustee had cash and temporary cash investments in the approximate amount of $2,059,612 which does not include $119,000 in the sinking fund. Real estate taxes through December 31, 1963 amount to $1,013,748.07 plus interest of $225,715 (total of $1,239,463.07). These provisions will dispose of all claims except those of the debenture holders and stockholders.

The debtor's obligation on its 5 per cent debentures, due January 1, 1938, as of December 31, 1963 aggregated $4,991,000, comprised of $2,170,000 principal amount and $2,821,000 in accrued interest. The New Haven is now the owner of all these debentures and they have all been pledged to the United States as collateral security for so-called "flood loans" made to the New Haven. Under the plan the existing debentures are to be cancelled. In exchange therefor new bonds will be issued, maturing in 15 years from December 31, 1963 and bearing interest at 4½ per cent. The New Haven will be the sole obligor on these bonds which will be secured by a first mortgage on the debtor's real estate. This lien will be subject, however, to the equitable charge described below. As part of the plan the United States and the New Haven have agreed to cancellation of $1,491,000 of the new bonds and payment of the remaining $3,500,000 by the New Haven in annual installments of specified amounts.

The outstanding stock of the debtor consists of 15,918 shares owned by the New Haven, 3272 shares in the debenture sinking fund, 40 shares in the debtor's treasury, and 20,770 shares held by members of the public other than the New Haven. Under the plan the treasury shares and the sinking fund shares will be assigned to the New Haven.

In addition Certificates of Contingent Beneficial Interest (CCBIs) are to be issued (one CCBI for each share of stock) to all stockholders of the debtor, the New Haven receiving CCBIs for its own stock and for the treasury and sinking fund shares assigned to it. Each CCBI entitles its holder to a proportionate share of the net proceeds of any conveyance (including a lease or taking by eminent domain) by debtor's trustee, or by the New Haven or its successors, of real estate of the debtor in a transaction involving a gross sales price or award of $500,000 or more, made on or before December 31, 1978. These payments are to be secured by an equitable charge on the debtor's real estate, to be given by debtor's trustee by indenture to a charge trustee to be appointed by the court. Provision is made for the charge trustee to retain a Director of Development to promote sales of the debtor's real estate in transactions involving $500,000 or more. The proceeds accruing to the New Haven from CCBIs held by it are to be devoted to retirement of the bonds held by the United States.

This plan is now before the court after approval by the Interstate Commerce Commission. Approval of the court is requested by the debtor, its trustee, the New Haven, the United States, and Boston and Providence Railroad Corporation Stockholders Committee.

The only objector to the plan is the Boston & Providence Railroad Development Group. The question has been raised, both before the Commission and in this court, whether counsel for the Development Group in opposing the approval of the plan actually represent the wishes of any party entitled to be heard. On the basis of the testimony at the hearing on the plan of one individual owner of 123 shares, the court finds that counsel for the Development Group represent at least his interest and therefore are entitled to be heard. At most, the Development Group claims to represent five or six shareholders owning a total of about 2500 of the 20,770 shares held by the general public.

The first two of the Development Group's objections are directed against the provisions incorporated in the plan with respect to the CCBIs. These provisions were included because of the potential value of certain portions of the debtor's real estate, based on the price which would be received for this land if it should be sold or taken for highway or rapid transit purposes. There is, of course, no certainty that any of this land can be so disposed of and hence no firm basis for including this contingent value as an element in the compensation to be paid by the New Haven for the debtor's estate. Therefore the plan includes the CCBI provisions as a device for assuring the public stockholders of the debtor of their fair share of any "windfall profit" should any of these potential values materialize within the reasonably immediate future.

Development Group in general objects that the CCBI provisions are too loosely drawn and leave open the possibility that the New Haven may defeat possible sales of the property or by various...