Boston and Maine Corp., Matter of

• Decision Date: 15 June 1979
• Docket Number: Nos. 78-1516,s. 78-1516
• Parties: In the Matter of BOSTON AND MAINE CORPORATION, Debtor (4 cases). Appeal of MAINE CENTRAL RAILROAD COMPANY. Appeal of CHESAPEAKE AND OHIO RAILWAY COMPANY et al. Appeal of TRAILER TRAIN COMPANY. Appeal of The ATCHISON, TOPEKA AND SANTA FE RAILWAY COMPANY et al. to 78-1519.
• Court: U.S. Court of Appeals — First Circuit

Page 307

600 F.2d 307

In the Matter of BOSTON AND MAINE CORPORATION, Debtor (4 cases) Appeal of MAINE CENTRAL RAILROAD COMPANY Appeal of CHESAPEAKE AND OHIO RAILWAY COMPANY et al. Appeal of TRAILER TRAIN COMPANY Appeal of The ATCHISON, TOPEKA AND SANTA FE RAILWAY COMPANY et al.

Nos. 78-1516 to 78-1519.

United States Court of Appeals First Circuit.

Argued April 5, 1979.

Decided June 15, 1979.

Paul B. Galvani, Boston, Mass., with whom H. Reed Witherby, Boston, Mass., and Ropes & Gray, Boston, Mass., were on brief, for appellant in 78-1516.

John T. Collins, Boston, Mass., with whom Sherburne, Powers & Needham, Boston, Mass., was on brief, for appellants in 78-1517.

William P. Quinn, Philadelphia, Pa., with whom Fell, Spalding, Goff & Rubin, Philadelphia, Pa., was on brief, for appellant in 78-1518.

W. Charles Hogg, Jr., Philadelphia, Pa., with whom William R. Glendon, Moline, Ill., Donald F. Luke, New York City, Edward C. Toole, Jr., Stephen W. Miller, Philadelphia, Pa., Rogers & Wells, New York City, and Clark, Ladner, Fortenbaugh & Young, Philadelphia, Pa., were on brief, for appellants in 78-1519.

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

Joseph H. B. Edwards, Boston, Mass., with whom Paul J. Lambert, and Bingham, Dana & Gould, Boston, Mass., were on brief, for appellees, The First National Bank of Boston, et al., etc.

Before COFFIN, Chief Judge, CAMPBELL and BOWNES, Circuit Judges.

COFFIN, Chief Judge.

This is an appeal in a railroad reorganization case from a district court's refusal to order immediate payment of pre-reorganization freight car per diem charges to appellant railroads prior to payment of all other unsecured pre-reorganization claims. We affirm.

The facts of this case are ably set forth in the district court's opinion, Matter of Boston & Maine Corp., 456 F.Supp. 412 (D.Mass.1978). We provide here only a brief outline of the controversy.

Since before the turn of the century, railroad companies have made a practice of "interlining" freight cars, i. e., loaning cars to one another rather than loading and unloading freight every time a shipment passes onto rails belonging to a different road. Passage of the Interstate Commerce Act made this practice mandatory. Since 1930, the rules of the Association of American Railroads (AAR) for determining net rental balances for freight car rentals (per diem charges) have had the sanction of the Interstate Commerce Commission. Rules for Car Hire Settlements, 160 I.C.C. 369, 165 I.C.C. 495 (1930). The various roads are required to keep records of foreign car use on their lines and present a monthly tally of such use by the tenth day of the second month following the month being accounted for (the forty day rule).

While the mechanics of settlement have long been established, the proper level of per diem payments has been a continuing subject of dispute. In 1953, the debtor Boston and Maine Railroad objected to an increase in the AAR-established rate, backed out of the rate setting agreement, and paid only the pre-1953 rate in its monthly settlements.

The breakdown of the AAR agreement setting interline per diem charges resulted in a court suit and an ICC proceeding. See Baltimore & Ohio R.R. Co. v. N.Y., N.H. & Hartford R.R. Co., 196 F.Supp. 724 (S.D.N.Y.1961); Chicago, B. & Q. R.R. Co., 332 I.C.C. 176 (1968). The ICC proceeding resulted in a declaration of reasonable per diem rates for the period from 1953 through August 1, 1969, and an order that interlining railroads pay specific per diem charges from August 1, 1969 onward. Court challenges to the rate-prescribing order ended in January of 1970. See Boston and Maine R.R. v. United States, 297 F.Supp. 615 (D.Mass.), Aff'd, 396 U.S. 27, 90 S.Ct. 196, 24 L.Ed.2d 142 (1969), Reh'g denied, 396 U.S. 1030, 90 S.Ct. 548, 24 L.Ed.2d 527 (1970). The ICC ultimately set the effective date of the rate-prescribing order at June 1, 1970, retroactive for resettlement purposes to August 1, 1969. The petition for reorganization in this case was filed March 12, 1970.

Appellant railroads now seek an order from the reorganization court compelling the trustee to pay immediately the difference between what Boston & Maine actually remitted for per diem charges and what should have been paid under the rates computed by the ICC. Approximately 4 million dollars are involved. Appellants reason that because the trustee's operation of the Boston and Maine is subject to the jurisdiction of the ICC, 11 U.S.C. § 205(c)(2), ¹ and because the ICC has ordered payment of specific per diem rates at specific settlement times, neither the trustee nor the reorganization court has discretion to defer payment of pre-reorganization per diem charges, even though they look like garden variety unsecured claims against the estate. The district court rejected this argument on the grounds that there is no statutory basis for distinguishing pre-reorganization per diem claims from any other pre-reorganization claims and that, even if ICC jurisdiction might affect the court's control over the priority of pre-reorganization creditors, such jurisdiction has not been exercised. We agree.

As the court below noted, the claims involved here belong in three logically distinct groups. First, there are the claims for per diem charges for car use between 1953 and August 1, 1969, the latter being the effective date of the ICC's prospective order fixing future rates. Second, there are the claims for charges accrued after August 1, 1969 and presented in settlement accounts prior to the commencement of reorganization, March 12, 1970. Finally, there are the charges for February and March of 1970, which came due on April 10 and May 10, respectively, after reorganization began.

Like the district court, we have little problem in dealing with the first group, which makes up the bulk of the charges involved. Even assuming Arguendo that a general ICC order relating to payment of interline accounts controls a reorganization court's scheduling of payment of pre-reorganization claims, the first group of claims involved here simply is not the subject of any ICC order. Contrary to appellants' assertion, initial ICC adoption of the private AAR rules for per diem settlement in 1930 did no more than adopt the timing and mechanism for payment of per diem rates. It did not fix rates. See Rules for Car Hire Settlements, supra. Nor did subsequent proceedings invoke the full power of ICC jurisdiction to order payment at a specific level. Chicago, B. & Q. R.R. Co., 297 I.C.C. 291 (1955). In 1955, the Commission stated that it had "never undertaken to establish a general basis of per diem charges under (its) authority in section 1(14)(a) of the Act . . . ." Id. at 295.

When the Commission did act with reference to the 1953-1969 period, it was solely to advise the district court for the Southern District of New York in establishing the proper level of Quantum meruit damages against those railroads that had backed out of the AAR agreement in 1953. Chicago, B. & Q. R.R. Co., 332 I.C.C. 176, 183 (1968). Indeed, the portion of the case before the ICC dealing with past rates was dismissed without an order, only an advisory opinion being needed. ² Finally, we note that the character of the ICC's 1968 ruling on past rates was recently considered by the Second Circuit in Seaboard Coast Line R.R. Co. v. Long Island R.R. Co., 595 F.2d 96 (1979). The court concluded that suits seeking recovery of the pre-1969 rates announced in the 1968 ICC decision are governed by the statute of limitations for contract and not the statute for collection of public carrier tariffs. The Second Circuit held, as we do, that the 1968 ICC decision, as it applied to the 1953-1969 period, was not an exercise of the power to set rates under section 1(14)(a) of the Interstate Commerce Act. ³

We come now to the core issue in this appeal: appellants' assertion that the Commission's general exercise of jurisdiction to fix by order rates and terms of settlement after August 1, 1969, eliminates the reorganization court's discretion as to the timing of payment of pre-reorganization debts. We examine first the statutory basis of that claim.

Section 77(c)(2) of the Bankruptcy Act, 11 U.S.C. § 205(c)(2) ⁴ gives the reorganization trustee all the powers of a trustee in bankruptcy, including the power to operate the business of the debtor railroad, "subject to the control of the judge and the jurisdiction of the Commission." Section 1(14)(a) of the Interstate Commerce Act, 49 U.S.C. § 1(14)(a), ⁵ gives the Commission power to set the rates for car hire. Section 1(17)(a) of the Act ⁶ subjects all railroad operators, including operating trustees, to fines for violation of a Commission order relating to car service. Thus, appellants reason, the jurisdiction of the commission extends to ordering a trustee to pay per diem charges Immediately, including pre-reorganization charges; and such jurisdiction has been exercised and controls the trustee in this case.

Appellees rely upon sections 77(c)(7) and 77(L ) of the Bankruptcy Act, 11 U.S.C. §§ 205(c)(7) & (L ), ⁷ which together set forth the fundamental rule of railroad reorganization: the reorganization court establishes the rights and priorities of creditors presenting claims against the estate and determines when those claims shall be paid. It is conceded that the pre-reorganization charges involved here are "claims" within the meaning of section 77(b) of the Act. ⁸ Such claims would, absent some special treatment, be paid according to the priorities established by the reorganization court. Finally, the pre-reorganization per diem claims do not qualify for any of the express special priorities created by the Act. See, e. g., 11 U.S.C. §§ 205(j), 205(n).

There is no specific provision in either the ...