In re Chicago & NW Ry. Co.

• Decision Date: 11 September 1940
• Docket Number: No. 60448.,60448.
• Parties: In re CHICAGO & N. W. RY. CO.
• Court: U.S. District Court — Northern District of Illinois

35 F. Supp. 230

In re CHICAGO & N. W. RY. CO.

No. 60448.

District Court, N. D. Illinois, E. D.

September 11, 1940.

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Charles M. Thomson, of Chicago, Ill., trustee of property of debtor, pro se.

Luther M. Walter, of Chicago, Ill., for debtor.

Sidley, McPherson, Austin & Burgess, of Chicago, Ill. (by Kenneth F. Burgess, of Chicago, Ill.), and Douglas F. Smith, and George Ragland, Jr., all of Chicago, Ill., for Life Insurance Group Committee.

Oliver & Donnally, of New York City (by Fred N. Oliver, of New York City), and E. E. Boyner, of Washington, D. C., for Mutual Savings Bank Group Committee.

Meyer Abrams and Norman Asher, both of Chicago, Ill., for Interveners Helen S. Asher and others.

Lee Walker, of Chicago, Ill., and Russell L. Snodgrass and A. Marvin Braverman, both of Washington, D. C., for Reconstruction Finance Corporation.

John M. MacGregor, of New York City, and Knapp, Allen & Cushing, of Chicago, Ill., for Harry W. Harrison and others, preferred stockholders.

Edward C. Kohlsaat, Harry N. Wyatt, and Richard H. Levin, all of Chicago, Ill., for Protective Committee for Holders of Common Stock.

Cravath, deGersdorff, Swaine & Wood, of New York City (by Leonard D. Adkins, of New York City), and Mayer, Meyer, Austrain & Platt, of Chicago, Ill. (by Herbert A. Friedlich, of Chicago, Ill.), for George W. Bovenizer and others, a committee representing holders of collateral notes.

Sullivan & Cromwell, of New York City (by Robert E. Houston, Jr., of New York City), and Poppenhusen, Johnston, Thompson & Raymond, of Chicago, Ill. (by Anan Raymond, of Chicago, Ill.), for Bank of New York & Trust Co., mortgage trustee.

Winthrop, Stimson, Putnam & Roberts, of New York City and Charles O. Rundall, of Chicago, Ill., for Bankers Trust Co., mortgage trustee.

Larkin, Rathbone & Perry, of New York City, and Babcock, Gilruth, Beck & McConnell, of Chicago, Ill. (by Irwin T. Gilruth and Milton S. Applebaum, both of Chicago, Ill.), for Central Hanover Bank & Trust Co., mortgage trustee.

Chadbourne, Hunt, Jaeckel & Brown, of New York City (by Alfred H. Phillips, of New York City, and William D. Kerr, of Chicago, Ill.), for Chemical Bank & Trust Co., mortgage trustee.

Mitchell, Taylor, Capron & Marsh, of New York City (by John B. Marsh, of New York City), and Winston, Strawn & Shaw, of Chicago, Ill. (by Anthony L. Michel, of Chicago, Ill.), for City Bank Farmers Trust Co., mortgage trustee.

Davis, Polk, Wardwell, Gardiner & Reed, of New York City, and Tenney, Harding, Sherman & Rogers, of Chicago, Ill. (by Henry F. Tenney, of Chicago, Ill.), for Guaranty Trust Co. of New York, mortgage trustee.

Davies, Auerbach, Cornell & Hardy, of New York City (by Orrin G. Judd and Herbert A. Heerwagen, both of New York City), and Isham, Lincoln & Beale, of Chicago, Ill. (by James P. Dillie, of Chicago, Ill.), for Irving Trust Co., mortgage trustee.

Beekman, Bogue, Stephens & Black, of New York City (by Leslie B. Soper, of New York City), and Pope & Ballard, of Chicago, Ill. (by Ferris E. Hurd, of Chicago, Ill.), for New York Trust Co., mortgage trustee.

Stewart & Shearer, of New York City, and Wilson & McIlvaine, of Chicago, Ill. (by William B. Hale, of Chicago, Ill.), for United States Trust Co., mortgage trustee.

Edward G. Buckland, of New Haven, Conn., for Railroad Credit Corporation.

Sterling Pierson, of New York City, for Equitable Life Assur. Soc. of United States.

Paul E. Blanchard, Walter C. Kirk, and Scott M. Hovey, all of Chicago, Ill., for trustees of Leland Stanford, Jr., University, and Armour & Co. Employes' Pension Fund.

S. C. Murray, of Chicago, Ill., for New York Cent. R. Co.

M. J. Haberkorn, of Chicago, Ill., for Pennsylvania R. Co.

BARNES, District Judge.

On December 19, 1939, there was filed in the office of the clerk of this court a copy of a report and order of the Interstate Commerce Commission, dated December 12, 1939, approving a plan of reorganization of Chicago and North Western Railway Company and, on April 8, 1940, there was filed in the office of the clerk of this court a supplemental report and order of the Commission, dated April 2, 1940, modifying the said plan of reorganization and approving said plan as modified. On April 15, 1940, this court made an order fixing the time within which objections to the plan, as approved by the Interstate Commerce Commission, might be filed and also fixing the time within which claims for administrative expenses might be filed and setting June 24, 1940, as the date for the hearing on the plan and on the claims for administrative expenses. On June 24, 25, 26 and 27 and July 22, 23, and 24, 1940, a hearing was held by this court on the plan of reorganization theretofore approved and reported by the Interstate Commerce Commission. The hearing on claims for administrative expenses was continued to July 22, 1940, for the reason that the maximum limits of allowances for administrative expenses had not been fixed by the Interstate Commerce Commission, and on July 24, 1940, the hearing on claims for administrative expenses was continued to September 7, 1940, for the reason that the report of the Commission on administrative expenses had not yet been filed in this court and counsel had not had opportunity to examine the report. On July 26, 1940, there was filed in the office of the clerk of this court a report and order of the Interstate Commerce Commission, dated July 23, 1940, fixing the maximum limits of allowances for administrative expenses. On September 7, 1940, a hearing was had in this court on the claims for administrative expenses.

The report of the Interstate Commerce Commission, dated December 12, 1939, was concurred in by Commissioner Eastman, Chairman, and Commissioners Aitchison, Porter, Lee, Mahaffie, Rogers and All-dredge. Commissioner Splawn in a separate report expressed his dissatisfaction with the amount of the capitalization approved and said that the estimate of future earnings is over-optimistic, so much so that the common stock provided for by the plan will have only a speculative value. Commissioner Miller dissented and said that the capitalization of the new company should be at least $100,000,000 more than that allowed, that this increased capitalization should be issued to present equity holders in no par value common stock, that such stock would be of little, if any, value while the company is operated in competition with other railroads but would be of substantial value when the railroads are consolidated, that consolidations are necessary, and that charges and dividend requirements prior to the common stock have been set too high. Commissioners Caskie and Patterson did not participate in the disposition of the case. The supplemental report of the Interstate Commerce Commission, dated April 2, 1940, was concurred in by Commissioner Eastman, Chairman, and Commissioners Aitchison, Porter, Lee, Mahaffie, Splawn, Rogers and Alldredge. Commissioner Miller stated that he concurred in the conclusions reached in the report except as to the total capitalization allowed and referred to his dissent from the prior report. Commissioner Patterson did not participate in the disposition of the case.

A statement, showing in tabular form the distribution of new securities and a summary of the plan, which is attached to the report of the Interstate Commerce Commission dated April 2, 1940, as Appendix 1, is hereto attached and marked "Exhibit A."

There are certain parties before the court who ask for the approval of the plan. The Life Insurance Group Committee and the Mutual Savings Bank Group Committee, who together represent $122,801,000 or 38.1% of $322,485,000 principal amount of certain issues of the debtor, Reconstruction Finance Corporation, that has a claim of $49,000,000 approximately, the Committee representing 2 year collateral notes of the debtor aggregating $5,000,000 approximately, United States Trust Company of New York as trustee under the debtor's General Mortgage of 1987 under which $132,000,000 approximately of bonds are outstanding, Guaranty Trust Company of New York as trustee under the First Mortgage of Des Plaines Valley Railway Company under which $2,500,000 bonds assumed by the debtor are outstanding, and the New York Trust Company as trustee under the First Mortgage of Sioux City and Pacific Railroad Company, under which $4,000,000 of bonds assumed by the debtor are outstanding, do not object to the plan and on the contrary ask for its approval.

Before taking up the objections that have been filed to the plan of reorganization as reported by the Interstate Commerce Commission it will be well to consider the charter of the court's powers on a hearing such as has been had in this proceeding. That charter is found in the statute, Section 77 subs. b and e of the Bankruptcy Act, as amended, 11 U.S.C.A. § 205, subs. b, e, and in the opinions of the Supreme Court of the United States. The statute is as follows:

"(b) A plan of reorganization within the meaning of this section (1) shall include provisions modifying or altering the rights of creditors generally, or of any class of them, secured or unsecured, either through the issuance of new securities of any character or otherwise; (2) may include provisions modifying or altering the rights of stockholders generally, or of any class of them, either through the issuance of new securities of any character, or otherwise; (3) may include, for the purpose of preserving such interests of creditors and stockholders as are not otherwise provided for, provisions for the issuance to any such creditor or stockholder of options or warrants to receive, or to subscribe for, securities of the reorganized company in such amounts and upon such terms and conditions as may be set forth in the plan; (4) shall provide for fixed charges (including fixed interest on funded debt, interest on unfunded debt,...