Benton v. United States

• Citation: 114 F. Supp. 37
• Decision Date: 24 August 1953
• Docket Number: Civ. No. 1028.
• Parties: BENTON et al. v. UNITED STATES et al.
• Court: U.S. District Court — Middle District of Georgia

114 F. Supp. 37

BENTON et al. v. UNITED STATES et al.

Civ. No. 1028.

United States District Court M. D. Georgia, Macon Division.

August 24, 1953.

COPYRIGHT MATERIAL OMITTED

Charles J. Bloch, and Denmark Groover, Jr., of Bloch, Hall, Groover & Hawkins, Macon, Ga., for the plaintiffs.

John H. D. Wigger, Special Asst. to Atty. Gen., Washington, D. C., Frank O. Evans, U. S. Atty., Milledgeville, Ga., for the United States.

C. H. Johns, Asst. Chief Counsel, Interstate Commerce Commission, Washington, D. C., for Interstate Commerce Commission.

A. R. Lawton, T. M. Cunningham, George O'Donnell, John B. Miller, of Lawton & Cunningham, Savannah, Ga., Gen. Walter A. Harris, Harris, Russell, Weaver & Watkins, Macon, Ga., for Central of Georgia Railway Co.

W. Walter Douglas, Douglas, McWhorter & Adams, Savannah, Ga., for Savannah Widows Society, et al.

Before RUSSELL, Circuit Judge, and DAVIS and CONGER, District Judges.

CONGER, District Judge.

The plaintiffs in this case are stockholders of the Southwestern Railroad Company. The defendants are the Interstate Commerce Commission and the United States of America. The plaintiffs are relatively few in number and possess a comparatively small amount of stock. As a matter of fact, the statement was made, in the argument, and uncontroverted, as far as I recall, that the plaintiffs consist of only eight of the more than five hundred shareholders, and own less than two (2%) per cent of the capital stock. By this statement, there is no intention to infer, or even intimate, that the plaintiffs did not have a perfect, absolute right to institute and maintain all litigation, which they deemed appropriate, in both the State and the Federal courts, including the instant suit, and resist, to their utmost, any illegal encroachments against their property and any rights or interest therein.

This is an action seeking to set aside, annul, declare invalid and enjoin the enforcement of an order and report of the Interstate Commerce Commission dated March 2, 1953, which approved an application filed by the Central of Georgia Railway Company under Section 5(2) of the Interstate Commerce Act, as Amended, 49 U.S.C.A. § 5, par. (2), for authority to acquire control of the Southwestern Railroad Company through the purchase of a majority of the latter's capital stock, at a price of $75 per share.

While not necessary to a clear understanding of the issues here involved, a brief resumé of the high lights of the history of the Southwestern Railroad Company, and its long and intimate relation to the Central of Georgia Railway, and the court house battles and the long and arduous litigation, of which the present case ought to be a climax, is somewhat significant and intriguingly interesting.

The Southwestern Railroad Company is an ancient organization, as we regard financial institutions in this section, and has been for many years, and is now, valuable property. It was incorporated by an Act of the Legislature of the State of Georgia under date of December 27, 1845. Its record and prosperity have kept step with the condition of the time through which it has passed.

The Southwestern Railroad Company came into existence and began operations before the hot and acrimonious debates, and the flare of tempers, with reference to the question of slavery, which utlimately resulted, indirectly, at least, in secession, and finally the War between the States. It operated successfully as an independent railroad until June 24, 1869, when the economic conditions resulting from the War between the States, and the reconstruction period following, made it mandatorily advisable to cease operations, and on that date, its properties were leased to the Central Railroad & Banking Company, for the existence of its charter. About twenty-five years later, the Central Railroad & Banking Company was placed in the hands of a receiver, out of which receivership, the Central of Georgia Railway Company emerged, and on October 17, 1895, the Southwestern Railroad Company leased its road and properties to the Central of Georgia Railway Company for the term of one hundred and one years, with renewal on like terms forever. The lease agreement required the lessee to pay the lessor $259,500 annually, which was equal to five (5%) per cent dividend on the par value of Southwestern stock.

This arrangement was kept in force and effect until June 19, 1940, notwithstanding the Central of Georgia had been placed in the hands of a receiver on December 19, 1932. On the former date, to-wit, June 19, 1940, the Central of Georgia Railway Company filed a petition in the District Court of the United States, alleging and admitting its inability to pay its debts, and desired to file a plan for reorganization, under Section 77 of the Bankruptcy Act, 11 U.S.C.A. § 205. Thereupon, trustees were appointed. On the date of the bankruptcy, lessee was in arrears with its lease obligations, which were ordered paid, in installments, by the Bankruptcy Court.

On September 13, 1940, the trustees of the Central of Georgia Railway Company agreed with the officials of the Southwestern Railroad Company with respect to the operation of the latter's property, under a plan promulgated by the Interstate Commerce Commission and approved by the court, and generally referred to as the segregation or bankruptcy formula. This formula superseded the rental agreement and provided for rental payments, on a net income basis set forth in the plan. This operational arrangement under the agreed plan and formula continued until July 1, 1943. During the period under which this plan was in effect, the operations were very successful. Money was plentiful and business was good.

On July 1, 1943, the lease payments under the bankruptcy formula of September 13, 1940, were terminated, and the relationship between the lessor and the lessee reverted to the fixed rental plan of 1895.

On June 25, 1946, the Bankruptcy Court approved a plan of reorganization which was authorized by the Interstate Commerce Commission. The plan provided that the Central of Georgia Railway Company acquire the properties and assets of the Southwestern Railroad Company, and in payment therefor would deliver to the Southwestern Railroad Company $2,200,000 First Mortgage four (4%) per cent Bonds, Series A, and $1,770,000.00 of four and one-half (4½%) per cent Bonds, Series B, to be issued by the reorganized Central of Georgia Railway Company.

On March 13, 1947, the directors of the Southwestern Railroad Company accepted the proposed plan of reorganization of the Central of Georgia Railway Company, subject to the assent of a majority of the Southwestern stockholders. Thereupon, the plaintiffs in this case, and others, filed a suit in Bibb County, Georgia, Superior Court, seeking to temporarily restrain and permanently enjoin the officers of the Southwestern Railroad Company from conveying the railroad properties to the Central of Georgia Railway Company, in exchange for the bonds offered. The basis of the injunctive relief sought, in that case, was predicated on the assertion that, under the charter of the Southwestern Railroad Company its properties could not be sold, except by unanimous affirmative vote of its stockholders. On March 28, 1947, while the injunction suit was pending in the State Superior Court, the stockholders of the Southwestern Railroad Company voted 30,000 to 9,000 to accept the reorganization plan.

On April 18, 1947, Judge Scarlett, of the Bankruptcy Court, enjoined the plaintiffs in the State court proceedings from prosecuting that action. Six days later, Judge Atkinson, of the State court, enjoined the Southwestern Railroad Company and its officers from conveying its properties to the Central of Georgia Railway Company. August 15, 1947, Judge Scarlett annulled and set at naught the injunction granted by State Court Judge Atkinson, and enjoined the State court from further proceeding in the premises. From this order and judgment, an appeal was made to the Fifth Circuit Court of Appeals, where, on January 13, 1948, the judgment of the District Court was reversed and the injunction was dissolved, Benton v. Callaway, 165 F.2d 877. On certiorari to the Supreme Court of the United States, the Fifth Circuit Court of Appeals was affirmed on February 7, 1949, 336 U.S. 132, 69 S.Ct. 435, 93 L.Ed. 553. While the issues involved in the Federal Court were being litigated and determined, the State court proceedings remained on the docket, but dormant.

After the decision of the United States Supreme Court, Judge Atkinson, of the State court, on December 5, 1949, entered an order permanently enjoining the officers of the Southwestern Railroad Company from selling its properties to the Central of Georgia Railway Company. On appeal, the State Supreme Court affirmed, South Western R. Co. v. Benton, 206 Ga. 770, 58 S.E. 2d 905, and certiorari to the United States Supreme Court was denied October 9, 1950, 340 U.S. 815, 71 S.Ct. 44, 95 L.Ed. 599. Thus endeth that feature of the litigation.

In the meantime, the properties of the Southwestern had continued to be operated by the Central. The operation was under the fixed lease and agreed formula up to, and through, June 30, 1948. On March 5, 1948, the United States District Court for the Southern District of Georgia passed an order rejecting the lease of the Southwestern Railroad Company as of the consummation date of the reorganization plan. Among other things, the order provided that "On and after the consummation date, the reorganizing Company shall operate the lines of the Southwestern for the account of the Southwestern, subject to the jurisdiction of this court." No dividends have been paid the stockholders since that date.

January 16, 1951, the Central of Georgia Railway Company applied to the Interstate Commerce Commission for authority to acquire control of the Southwestern Railroad by purchase of a majority of its stock at $75 per share, on the...