Boston and Maine Corp., In re

• Decision Date: 06 October 1980
• Docket Number: 79-1231,Nos. 79-1230,s. 79-1230
• Parties: In re BOSTON AND MAINE CORPORATION, Debtor, Appeal of CHESAPEAKE AND OHIO RAILWAY COMPANY et al., In re BOSTON AND MAINE CORPORATION, Debtor, Appeal of MAINE CENTRAL RAILROAD COMPANY et al., In re BOSTON AND MAINE CORPORATION, Debtor, Appeal of PENN CENTRAL CORPORATION, In re BOSTON AND MAINE CORPORATION, Debtor, Appeal of CANADIAN PACIFIC, In re BOSTON AND MAINE CORPORATION, Debtor, Appeal of EASTERN ASSOCIATED COAL CORPORATION. , and 79-1234 to 79-1236.
• Court: U.S. Court of Appeals — First Circuit

Page 1359

634 F.2d 1359

In re BOSTON AND MAINE CORPORATION, Debtor,

Appeal of CHESAPEAKE AND OHIO RAILWAY COMPANY et al.,

In re BOSTON AND MAINE CORPORATION, Debtor,

Appeal of MAINE CENTRAL RAILROAD COMPANY et al.,

In re BOSTON AND MAINE CORPORATION, Debtor,

Appeal of PENN CENTRAL CORPORATION,

In re BOSTON AND MAINE CORPORATION, Debtor,

Appeal of CANADIAN PACIFIC,

In re BOSTON AND MAINE CORPORATION, Debtor,

Appeal of EASTERN ASSOCIATED COAL CORPORATION.

Nos. 79-1230, 79-1231, and 79-1234 to 79-1236.

United States Court of Appeals, First Circuit.

Argued Sept. 14, 1980.

Decided Oct. 6, 1980.

John T. Collins, Boston, Mass., with whom Sherburne, Powers & Needham, Boston, Mass., was on brief, for Chesapeake and Ohio Railway Company, Baltimore and Ohio Railway Company and Western Maryland Railway, appellants.

Paul B. Galvani, Boston, Mass., with whom Reed Witherby and Ropes & Gray, Boston, Mass., were on brief, for Maine Central Railroad Company and Portland Terminal Company, appellants.

George W. McLaughlin, Boston, Mass., for Canadian Pacific, appellant.

Philip Burling, Boston, Mass., with whom Peter A. Fine and Foley, Hoag & Eliot, Boston, Mass., were on brief, for Eastern Associated Coal Corporation, appellant.

Robert M. Gargill, Boston, Mass., with whom Zdislaw W. Wieckowski, Choate, Hall & Stewart, and Charles W. Mulcahy, Boston, Mass., were on brief, for Trustees of the Boston and Maine Corporation, Debtor, appellees.

Joseph H. B. Edward, Boston, Mass., with whom Bingham, Dana & Gould, Boston, Mass., was on brief, for First National Bank of Boston and Malcolm W. Hall, Successor Trustees, under First Mortgage Indenture Dated December 1, 1919 of Boston and Maine Corporation, appellees.

Before KUNZIG, ^* Judge, U.S. Court of Claims, BOWNES, Circuit Judge, DOOLING, ^** Senior District Judge.

DOOLING, District Judge.

The present appeals ¹ in this railroad reorganization case challenge the district court's order, 468 F.Supp. 996 (D.Mass.1979), determining the priorities of the creditors and stockholders in the reorganization of the Boston and Maine Corporation. Railroads which, as required by the Interstate Commerce Act and the cases decided under it, have interlined freight cars with the Boston & Maine appeal from the district court's refusal to accord their claims for per diem charges for cars furnished in the periods August 1, 1953, to July 31, 1969, and August 1, 1969, to March 12, 1970, such a priority in the classification of creditors as would assure full payment of the claims. The interlining railroads and Eastern Associated Coal Corporation appeal also from the district court's refusal to establish a separate class of creditors, to be accorded priority as "six months creditors," for the railroads' claims for per diem car hire, car repair, loss and damage, and freight overcharges for the six months preceding the filing of the involuntary petition against the Boston and Maine on March 12, 1970, and for the Coal Corporation's claim for diesel fuel furnished in the same six months period.

I

The railroads' per diem claims, aggregating $8,582,000, are described in Chief Judge Coffin's opinion for this court, 600 F.2d 307 (1st Cir. 1979), affirming the district court's refusal, 456 F.Supp. 412 (D.Mass.1978), to order immediate payment of the per diem charges before payment of all other unsecured pre-reorganization claims. ² On that appeal this court rejected the contention that because the trustees' operation of the Boston and Maine is subject to the jurisdiction of the Interstate Commerce Commission, see former Bankruptcy Act § 77(c)(2), 11 U.S.C. § 205(c)(2) (1976), and because the ICC has ordered payment of specific per diem rates at specific settlement times, neither the trustees nor the court have discretion to defer payment of the pre-petition per diem charges. 600 F.2d at 308. This court concluded that the ICC had not exercised its statutory power, 49 U.S.C. § 1(14)(a) (1976), to fix the rates for per diem settlements for the period August 1, 1953, to August 1, 1969, and that, so far as concerned the period after August 1, 1969, following the ICC's entry of a per diem rate order, the general power of the ICC to supervise the trustees' operation of the railroad did not outweigh the fundamental power of the reorganization court to set priorities for payment of pre-reorganization claims, Bankruptcy Act §§ 77(b), (c)(7), (l ), and to schedule payment of such claims consistent with the need to conserve assets for rehabilitation of the debtor. 600 F.2d at 309-10. The court added that the 1968 ICC order that interlining railroads pay specific per diem charges, Chicago, B. & Q. R. R. v. New York, S. & W. R. R., 332 I.C.C. 176, 241, 333 (1968), was an order of general application, and that, since non-payment of the per diem claims violated no specific order directed to the reorganization trustees, the remedial provisions of Section 1(17)(a) of the Interstate Commerce Act ³ could not be invoked. 600 F.2d at 312. The court observed that, fundamentally, the specific duty to pay the per diem charges due for the pre-reorganization period had been a duty of the railroad, and, after the filing of the petition, those charges became claims against the debtor, not claims against the trustees; the specific duty of the trustees, as operators of the railroad, to pay per diems was limited to the per diems incurred by the trustees in their operation of the road. ⁴ The court rejected the contrary reasoning of In re Chicago, R. I. & P. R. R., 537 F.2d 906 (7th Cir. 1976), cert. denied, 429 U.S. 1092, 97 S.Ct. 1102, 51 L.Ed.2d 537 (1977), and indicated agreement with the result reached in In re Penn Central Transportation Co., 486 F.2d 519 (3rd Cir. 1973), cert. denied, 415 U.S. 990, 94 S.Ct. 1588, 39 L.Ed.2d 886 (1974), and which the Third Circuit reaffirmed in the different circumstances of In re Penn Central Transportation Co., 553 F.2d 12 (3rd Cir. 1977). See 600 F.2d at 310-12.

On this appeal the interlining railroads argue, first, that since the interlining of freight cars is mandatory under the Interstate Commerce Act, 49 U.S.C. §§ 1(4), (10), (11), (14), (15), and (17), equity and considerations of national transportation policy unite to require that the roads receive just and reasonable compensation for the compelled loan of freight cars; it is argued that the rail car fleet cannot be maintained at the level essential to adequate rail service unless payment of car hire is assured even in the case of the railroads that are in reorganization. The argument is essentially that made on the earlier appeal, and, so far as concerns the per diem claims for the period 1953 to August 1, 1969, is disposed of by what was then decided: the per diem claims for that sixteen year period were not based on an ICC order fixing rates and ordering payment at those rates; the ICC in Chicago, B. & Q. R. R. v. New York, S. & W. R. R., 332 I.C.C. 176, 183, 244-57 (1968), ⁵ did, indeed, make findings as to the reasonableness of the rates charged for the preceding fifteen years, but those findings, it stated, were "of significance only as an aid to the courts in settling the amount of damages in the pending lawsuits" (id. at 183). ⁶

The unpaid per diem charges for car use during the period August 1, 1969, to March 12, 1970, the date on which the reorganization proceeding commenced, aggregated $564,000; they were imposed at the rate determined by the order of the ICC, Chicago, B. & Q. R. R. v. New York, S. & W. R. R., supra, 332 I.C.C. at 259; that order became final upon the Supreme Court's affirmance of the district court decisions dismissing the railroads' actions to set the order aside, ⁷ and it was made effective August 1, 1969. This court's decision on the earlier appeal is dispositive of all the contentions raised on the present appeal as to this portion of the per diem claims except the constitutional argument. While Chief Judge Coffin's opinion was occasioned by the "immediate payment" contention of the railroads, it dealt directly and necessarily with the underlying issues of statutory interpretation and with the contention that a priority in reorganization for per diem claims would, by furnishing to the railroads an incentive for overcoming the chronic shortage of freight cars, better serve the interest of national transportation policy than would denying the priority in the interest of preserving the public service viability of bankrupt roads.

The railroads argue, on the constitutional issue, that since Congress has mandated the interline loan of cars and the ICC has fixed the per diem rates to be paid for the cars lent, denying to the car-owning railroads such a priority as will assure payment of the per diem claims in reorganization effects a taking of their property without due process of law, an unconstitutional taking akin to that found in Chicago, R. I., & P. Ry. v. United States, 284 U.S. 80, 96-100, 52 S.Ct. 87, 92-93, 76 L.Ed. 177 (1931); there a divided court invalidated that part of the ICC order in Rules for Car-hire Settlement, 160 I.C.C. 369, 386-395, 445 (1930), that granted to the short line railroads two days of free time for interchanged loaded cars and denied compensation altogether in the case of cars received for return loading with coal from mines customarily dependent upon connecting carriers for car supply. The Court put the decision on the ground that, since the ICC had found that the owning roads were entitled to receive reasonable compensation in the form of a daily rental for the use of their general-service freight cars when on foreign lines, and that the $1 per car day charge then in effect was such reasonable compensation, the ICC could not, without inconsistency, relieve one class of railroads of the duty to pay that reasonable compensation: "The use of railroad property is subject to public regulation, but a regulation which is so arbitrary and unreasonable as to become an infringement...