Atlantic Coast Line R. Co. v. St. Joe Paper Co.

• Decision Date: 03 April 1950
• Docket Number: No. 12821.,12821.
• Citation: 179 F.2d 538
• Parties: ATLANTIC COAST LINE R. CO. et al. v. ST. JOE PAPER CO. et al.
• Court: U.S. Court of Appeals — Fifth Circuit

179 F.2d 538 (1950)

ATLANTIC COAST LINE R. CO. et al. v. ST. JOE PAPER CO. et al.

No. 12821.

United States Court of Appeals Fifth Circuit.

January 17, 1950.

Writ of Certiorari Denied April 3, 1950.

Edward W. Bourne, Edgar G. Crossman, New York City, Charles Cook Howell, Wilmington, N. C., Charles Cook Howell, Jr., Jacksonville, Fla., Charles H. Murchison, and Herman Ulmer, Jacksonville, Fla. and Washington, D. C., for appellants.

Sidney S. Alderman, and Edward J. Hickey, Jr., Washington, D. C., Clifton S. Thomson, New York City, Miller Walton, Miami, Fla., Robt. R. Milam, Jacksonville, Fla., Willard P. Scott, New York City, Howard P. Macfarlane, Tampa, Fla., James F. Byrnes, Spartanburg, S. C. Giles J. Patterson, Jacksonville, Fla., Harold J. Gallagher and Walter H. Brown Jr., New York City, James B. McDonough, Jr., Norfolk, Va., G. W. Botts, Jacksonville, Fla., Donald S. Russell, Spartanburg, S. C., for appellees.

Before HUTCHESON, Chief Judge, HOLMES, and RUSSELL, Circuit Judges.

Writ of Certiorari Denied April 3, 1950. See 70 S.Ct. 627.

HUTCHESON, Chief Judge.

Entered, in the Florida East Coast Railroad Company debtor proceeding, for the reasons given in his accompanying opinion,¹ and on the record made before the Interstate Commerce Commission,² supplemented by additional testimony³ taken before the trial judge, the order appealed from: disapproved a plan⁴ of reorganization which had been modified, adopted, and approved by the Interstate Commerce Commission, and certified by it to the court; and referred the proceedings back to the commission for further effort to make a proper plan.

Appellants are the Coast Line Co., an unsecured creditor and the proposer of the plan, who takes the laboring oar in its defense, and its small but faithful ally, the Deposit Committee.⁵ Here, by brief and oral argument, they insist: that on the record made, none of the reasons given by the trial judge are valid; that, in rejecting the plan, the trial judge exceeded the authority conferred upon him by statute; and that in the reasons given he grievously erred.

Appellees, who have appeared by briefs and oral argument, are: all of the bond holders⁶ (except those represented by the Deposit Committee and the owners of about $8,000,000 in principal amount, who, except as the trustees under the mortgage securing their bonds may be said to represent them, have made no appearance); the mortgage trustees; two railroad companies, the Southern Railway System Lines and Seaboard Airline Railroad Company; and Railway Labor Executive Association.

Making common cause against appellants, in support of the particular reason or reasons given by the judge which each espouses, all are equally insistent that, in disapproving the plan, the judge acted within the scope of his authority and rightly, and that his order must, and should be, affirmed.

Appellants citing the Western Pacific, the Milwaukee, and the Denver cases,⁷ take an exceedingly small and dim view of the powers and functions accorded to the trial judge by Section 77, sub. e of the Bankruptcy Act, 11 U.S.C.A. § 205, sub. e, a very large and generous one of the powers of the commission, under Section 77, sub. d. They take an equally large and generous view of the powers of this court as an appellate court. Citing in support Sec. 24, sub. a of the Bankruptcy Act, 11 U.S.C.A. § 47, sub. a, and In re Chicago, R. I. & P. Ry. Co., 7 Cir., 160 F.2d 942, they invoke those powers to bring to a speedy end in this court, by a judgment approving the plan, a proceeding which, in the commission and the courts, has been dragging its slow length along since 1941.

Appellees, on their part, invoking the same authorities relied on by appellants, and, in addition, the authorities cited in the margin,⁸ and pointing to the clear and unambiguous language of Sec. 77, sub. e of the Bankruptcy Act, take large and generous views of the powers of the trial judge, and, quoting from the Milwaukee case, 318 U.S. at page 564, 63 S.Ct. at page 748, 87 L.Ed. 959,⁹ the Denver case, 322 U.S. at page 533, 66 S.Ct. at page 1302, 90 L.Ed. 1400,¹⁰ and the case of Comstock, 8 Cir., 163 F.2d 350, at page 357,¹¹ dim and meager views of our power to reverse him. Pointing to the limitations imposed by Rule 52 (a), Federal Rules of Civil Procedure, 28 U.S.C.A., upon our power of review, they insist that, if, as ought not to be the case, we should not fully agree with them, circumscribed and limited as our function is, it is our duty upon this record to affirm the finding and order of the trial judge, that indeed, it is beyond our power to do otherwise.

They particularly insist that whatever may be said of the first two reasons the trial judge gave for not approving the plan, the third, his overall finding and decision, that the plan was not fair and equitable, and did not give due and just consideration to the claims of the bondholders, is fully supported on the record and any other judgment would do violence to both the letter and the spirit of applicable constitutional and statutory principles.

To support their varying views, appellants and appellees have labored mightily, producing together more than 1000 pages of briefs and citing and quoting many cases. The Coast Line contributed 511 pages, its small but earnest ally 13, while appellees have been responsible for 575 pages. In addition they have submitted a printed record of 1000 pages and the vast record of the proceedings before the commission.

It might be supposed that, as presented to us, the case would seem intricate and greatly complicated, and that for us to set it out in its essence and make our determination upon it would require a long and wordy opinion. The contrary is, however, true. What is material in the case, as it comes to and stands before us, and what we should do and say about it, may be set down in comparatively small compass.

Florida East Coast, the debtor, has a principal line between Jacksonville and Miami, and other branches or extensions. The railroad lines of the Atlantic Coast Line include a double track main line between Richmond and Jacksonville, and main lines extending from Jacksonville to Miami, Birmingham, and Atlanta. The Coast Line, long before it began to view the debtor with a covetous eye and to go about to possess it, had close relations with the Florida East Coast, whose main line from Jacksonville to Miami is geographically an extension of the Coast Line. Of the East Coast interchanges at Jacksonville, almost 100 percent of the passenger interchanges and about 50 percent of the freight interchanges are with the Coast Line.

If, therefore, the plan, in addition to being acceptable to Coast Line and to the majority of the Commission, were acceptable to the bondholders, approval of it would be a matter of course, its consummation would be natural and reasonable, and there would be no difficulty in law or in fact in the way of the proposed merger.

But the exact contrary is the case. Less than 2 percent of the bondholders have appeared in favor of the plan, the mortgage trustees for all of the bondholders vigorously oppose it, and all of the appearing bondholders violently oppose it. In addition, the plan is opposed to the proposed findings of the examiner, based upon his long and carefully considered report,¹² is a complete reversal of the unanimous finding and order of the commission of January 8, 1945, and is opposed by five of the eleven commissioners and by the findings of the trial judge.

If, then, the case, as it comes here, presented the ordinary picture of a plan for internal reorganization, consented to by some and opposed by others of the owners of the property to be thus internally reorganized, a clear case would have to be made against the trial judge's findings, and we should hesitate long before disagreeing with him.

But this is not at all the picture the record presented.

The case we have here is that of one railroad company coveting, and pressing to possess, a competing debtor railroad company, against the wishes of 98 percent of the equitable owners of the debtor and over their violent objections, that consummation of the plan will result in depriving them of their property without just compensation. In pressing these objections, some of the bondholders contend that an internal reorganization would better protect their interests, while all of them insist that questions of internal reorganization, as opposed to a forced merger, aside, the amount the covetous one agrees to pay for the forced expropriation is neither fair nor equitable.

Such a picture certainly suggested to the trial judge the necessity for a thorough understanding of the real nature and purpose of the plan and its effects upon the objecting bondholders, that is as to whether it is as fair and equitable to them as an internal reorganization would be, and, therefore, really protects them. It suggested, too, the necessity for a full understanding of the pressures back of, and the reasons for, forcing such a plan over the objections of those whose property was being taken for the benefit of the Coast Line. Indeed, when the concern of the Congress, to protect those owning and interested in the debtor, evidenced in the emphasis, in Sec. 77, sub. e, the "cram down" section, as appellants call it, upon consulting with the creditors of the debtor and obtaining the acceptances of more than two-thirds, is considered, it may be said that such understanding was demanded of him. When, too, the concern of the courts with the interests of the owners and creditors of the debtor, evidenced by the "absolute priority" rule, the rule of the Boyd case (Boyd v. Northern Pac. R. Co.), 228 U.S. 482, 33 S.Ct. 554, 57 L.Ed. 931, is taken into consideration the conclusion becomes inescapable that where, as here, it appears that substantially all the creditors are arrayed against the plan, the act, requiring the judge to be satisfied before approving the plan,...