In re Denver & RGWR Co.

• Decision Date: 03 May 1938
• Docket Number: No. 8669.,8669.
• Citation: 23 F. Supp. 298
• Parties: In re DENVER & R. G. W. R. CO.
• Court: U.S. District Court — District of Colorado

23 F. Supp. 298

In re DENVER & R. G. W. R. CO.

No. 8669.

District Court, D. Colorado.

May 3, 1938.

Byron G. Rogers, Atty. Gen., State of Colorado, Henry E. Lutz, Asst. Atty. Gen., State of Colorado, Thomas H. Gibson, Asst. City Atty. of City and County of Denver, Colo., Jerome A. Paul, Co. Atty. of Ouray County, of Ouray, Colo., and J. Fred Schneider, Co. Atty. of Grand County, of Denver, Colo., for County Treasurers.

Henry McAllister and Thomas R. Woodrow, both of Denver, Colo., for Trustees of Denver & R. G. W. R. Co.

SYMES, District Judge.

The court has before it the petition of the trustees filed March 5, 1938, relative to the assessment and taxes levied against the debtor's property in Colorado for 1937. The trustees ask the court to hear and determine certain questions in respect thereto and that in the meantime they be authorized to refrain from paying any taxes in Colorado for 1937.

The petition sets forth that the power to assess all railroads in Colorado is vested solely in the Colorado Tax Commission, '35 C.S.A. c. 142, § 107, which is required to certify to the several county assessors, on or before June 15th of each year, the amount and value of the debtor's property assessed by the Commission and the amount thereof within each county. That the Commission thus determined the true and full cash value of the debtor's property within the state for 1937 at $28,927,770. The method followed by the Commission is recited in detail. That the evidence considered was the average of the market value of the debtor's capital stock and bonds for the five-year period 1932 to 1936, inclusive, allocating to Colorado the proportion of the average value the railroad's mileage in Colorado bore to its total mileage; that it also took into account the net earnings of the system for the five-year period capitalized at seven per cent.; and after considering all the factors required and permissible under the statute, the Commission arrived at a valuation of $21,062,669, which the trustees say is the true and actual value. That the Commission, however, without right of law considered the average assessed valuation of the debtor's property for the said five-year period, to wit, $35,440,418, and averaged this with the twenty-one million odd thousand dollar figure (supra), and arrived at $28,251,533, which, with some minor adjustments, gave $28,927,770. That said assessment was protested, but after a hearing the same was denied and said amount was distributed and certified to the various counties.

Reference is then made to section 15, art. 10 of the Colorado Constitution creating the Board of Equalization, consisting of five elective state officers, empowered to adjust, equalize, raise, or lower the valuation of real and personal property, or the valuation of any item or items of the various classes of such property, etc. That the said Board of Equalization duly met and over the protest of the trustees raised the assessment as returned by the Tax Commission 20 per cent., to $34,713,324 and certified the same to the respective county treasurers; and that said county treasurers will endeavor to collect taxes on said increased valuation. That the said 20 per cent. increase increases the tax demanded of the debtor from $938,632.71 to $1,126,358.44, an increase of $187,725.73.

The trustees represent to the court that they have been advised by counsel that the action of the State Board of Equalization increasing the assessment against their trust estate is illegal, unconstitutional, and invalid for the following reasons:

1. That the Board of Equalization has no jurisdiction whatever over utilities. That the Tax Commission is the sole authority as respects them.

2. That the Board of Equalization in effect made an original assessment without authority.

3. That the assessment is more than the full cash value.

4. That the Board acted without proper knowledge or information.

5. That the Board's action results in casting a greater burden than a fair and equitable share of taxation on petitioner and violates section 3, art. 10 of the State Constitution, and the Constitution of the United States, article 1, § 8, cl. 1.

The trustees represent that the interests of the debtor and creditors require the amount of taxes payable for 1937 be determined without delay. That the amount in dispute, $187,725.73, constitutes a cloud upon the debtor's estate, the removal of which is a necessary step to reorganization, etc.

Upon the filing of this petition an order was made directing service thereof upon the treasurers of the 33 different counties affected. A joint motion to dismiss the petition on behalf of 27 counties was filed by the Attorney General and a like motion by Ouray county. The counties have not sought to intervene, are not parties to the proceeding, so strictly speaking, the motions are not before the court. At the special request of the court, however, Mr. Lutz, for the Attorney General, and Mr. Paul of Ouray, have appeared, made arguments, and filed exhaustive briefs.

Section 77 of the Bankruptcy Act, as amended, 11 U.S.C.A. § 205, provides that if a petition filed by a railway debtor is approved — (a) "the court * * * shall, during the pendency of the proceedings under this section and for the purposes thereof, have exclusive jurisdiction of the debtor and its property wherever located, and shall have and may exercise in addition to the powers conferred by this section all the powers, not inconsistent with this section, which a Federal court would have had if it had appointed a receiver in equity of the property of the debtor for any purpose." And (l) "In proceedings under this section and consistent with the provisions thereof, the jurisdiction and powers of the court, the duties of the debtor and the rights and liabilities of creditors, and of all persons with respect to the debtor and its property, shall be the same as if a voluntary petition for adjudication had been filed and a decree of adjudication had been entered * * *."

See, also, section 77A, Bankr.Act, 11 U.S.C.A. § 206.

This language, though a new and further extension of the bankruptcy power, is well within the constitutional grant of bankruptcy power. Const.U.S. art. 1, § 8, cl. 4.

The one branch of federal jurisdiction that is all-embracing and exclusive is bankruptcy. Such has always been the holding of the Supreme Court. Its latest expression is Continental Illinois Nat. Bank & Trust Co. v. Chicago, Rock Island & P. R. Co., 294 U.S. 648, 55 S.Ct. 595, 79 L. Ed. 1110. It states (page 605): "That section 77, in its general scope and aim, is within the power conferred by the bankruptcy clause of the Constitution." And that the mere fact that Congress under this clause may deal with new subjects and new conditions arising in the body politic in a new way is immaterial because the bankruptcy power is adaptable to new conditions and the interpretation of the power has been progressively liberal. Further, that section 77, bringing railroads within the operation of bankruptcy for the first time with the object of reorganizing or selling them as a unit and as a going concern, is only a step in the direction of liberalizing the bankruptcy law. This because their continuous uninterrupted operation is necessary in the public interest, and a reorganization as contemplated by this section is not distinguishable in principle from a composition with creditors. That section 77, like other provisions of the act, contemplates an adjustment of a failing debtor's obligations and, "although actual bankruptcy may not supervene in either, they are none the less laws on the subject of bankruptcies."

Section 64(a) of the Bankruptcy Act, as amended, 11 U.S.C.A. § 104(a), is one of the administrative provisions. It directs the court to order the trustee to pay all taxes legally due by the bankrupt to the United States, state, county, district, or municipality, etc., "and in case any question arises as to the amount or legality of any such tax the same...