Boston and Maine Corp., Matter of

• Decision Date: 05 April 1979
• Docket Number: No. 78-1444,78-1444
• Citation: 596 F.2d 2
• Parties: , Bankr. L. Rep. P 67,144 In the Matter of BOSTON AND MAINE CORPORATION, Debtor. Appeal of STATE OF NEW HAMPSHIRE.
• Court: U.S. Court of Appeals — First Circuit

Page 2

596 F.2d 2

5 Bankr.Ct.Dec. 118, Bankr. L. Rep. P 67,144

In the Matter of BOSTON AND MAINE CORPORATION, Debtor Appeal of STATE OF NEW HAMPSHIRE.

No. 78-1444.

United States Court of Appeals First Circuit.

Argued Jan. 2, 1979.

Decided April 5, 1979.

Anthony E. Battelle, Boston, Mass., with whom John T. Collins, and Sherburne, Powers & Needham, Boston, Mass., were on brief, for appellant.

Robert G. Parks, Boston, Mass., with whom Charles W. Mulcahy, Jr., and Mulcahy & Mulcahy, Boston, Mass., were on brief, for appellees.

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

LEVIN H. CAMPBELL, Circuit Judge.

In 1970 the United States District Court for the District of Massachusetts ("reorganization court") approved a petition for the reorganization of the Boston and Maine Corporation (B&M) pursuant to § 77(a) of the Bankruptcy Act, 11 U.S.C. § 205(a), and appointed trustees of its property, 11 U.S.C. § 205(c) (1). Later in 1970, upon the petition of the B&M trustees, the reorganization court under 11 U.S.C. § 205 (O ) authorized the trustees to apply to the Interstate Commerce Commission (ICC) for certificates of public convenience and necessity permitting the abandonment of certain railroad lines in New Hampshire. In March 1972 the ICC, pursuant to the Interstate Commerce Act, 49 U.S.C. §§ 1(18) (amended 1976) and 1(20) (repealed 1976) (current version at 49 U.S.C. § 1a), issued certificates authorizing the requested abandonments. Pursuant to the ICC's certificates, service on the two lines involved herein the Cheshire Branch, which is approximately 18.5 miles long, and the Conway Branch, which is approximately 10.6 miles long was stopped in August 1972.

Despite approval for abandonment by both the reorganization court and the ICC, the State of New Hampshire sought to prevent the trustees from dismantling the railroad tracks on these two lines. The New Hampshire Public Utilities Commission (PUC) in December 1972 issued an order under N.H.Rev.Stat.Ann. § 365:24, prohibiting the trustees from "tearing up and removing . . . any of the rail or tracks" on the two abandoned lines, "until authority for such is issued by this Commission." ¹ Following the issuance of this order, the State of New Hampshire filed suit in New Hampshire Superior Court seeking injunctive relief against removal of railway properties from the abandoned lines and determination of the State's rights with respect to such lines and the railway properties thereon. The trustees appeared specially to deny the jurisdiction of the state court, whereupon the court entered a temporary restraining order enjoining such removal. According to the record before us, the state court has not yet ruled on its jurisdiction.

The trustees petitioned the reorganization court for relief from the State's actions. The trustees contended that the PUC's order and the state court's restraining order conflicted with the ICC's jurisdiction over abandonments, as well as the specific ICC certificates permitting abandonment here, and unlawfully interfered with the reorganization court's exclusive jurisdiction under § 77(a) of the Bankruptcy Act, 11 U.S.C. § 205(a). ² On July 19, 1978 the reorganization court issued a memorandum and order in which it (1) declared the PUC's order to be "null and void and of no effect," and enjoined any attempts by New Hampshire officials to enforce the PUC's order; and (2) found the rail, track, and ties on the two abandoned lines to be personalty owned by the railroad, authorized the trustees to utilize those items on active B&M lines in New Hampshire, and restrained New Hampshire officials from prosecuting any further actions, other than those brought in the reorganization court, seeking to adjudicate the issue of jurisdiction of the State of New Hampshire over the railway properties. It is from the reorganization court's order that the State appeals.

I.

We consider first the power of the New Hampshire PUC to restrain the trustees from dismantling the rail, track, and ties on the abandoned lines. We hold the PUC was without jurisdiction by virtue of federal preemption.

The State appropriately concedes that the reorganization court and the ICC have exclusive authority over the abandonment of railroad lines. See Colorado v. United States, 271 U.S. 153, 164, 46 S.Ct. 452, 70 L.Ed. 878 (1926); Village of Mantorville v. Chicago Great Western Railroad, 8 F.Supp. 791, 794-95 (D.Minn.1934). The State argues, however, that this exclusive federal regulatory authority over abandonments does not include authority over the disposition of track and other materials on abandoned lines, so that state regulation of such disposition is permissible. The State, in so arguing, assumes that an "abandonment" as affirmatively permitted by a reorganization court and the ICC can encompass only discontinuation of rail service, and not disposition of rail property as well.

The State's view of what constitutes an abandonment is overly narrow and incomplete. Former § 1(18) of the Interstate Commerce Act, 49 U.S.C. § 1(18) (amended 1976), under which the certificates permitting the abandonment of the Cheshire and Conway branches were issued, provides,

"no carrier by railroad subject to this chapter shall Abandon all or any portion of a line of railroad, or the operation thereof, unless and until there shall first have been obtained from the Commission a certificate that the present or future public convenience and necessity permit of such abandonment." (Emphasis added).

The highlighted language would seem to contemplate abandonment "of a line of railroad" as something distinct from abandonment of "the operation" of a line of railroad. It is interesting, and supportive of this interpretation, that § 77(O ) of the Bankruptcy Act, 11 U.S.C. § 205(O ), uses the term railroad "lines" when referring to railroad "property" that may be "sold" as well as abandoned. It provides in part,

"The trustee or trustees, from time to time, shall determine What lines or portions of lines of railroad and what other property of the debtor, if any, should be Abandoned or sold during the pendency of the proceedings in the interest of the debtor's estate and of ultimate reorganization but without unduly or adversely affecting the public interest, and shall (petition the court) for authority To abandon or to sell any such property. . . . ." (Emphasis added).

Clearly under § 77(O ), what is meant by a railroad "line" is not merely the service being provided but the physical properties and interests belonging to the debtor that constitute the line.

Thus, under the former § 1(18), we believe the ICC not only could authorize abandonment of rail service on a line, but also had power to regulate abandonment of the line itself (I.e., the rail properties). These two types of abandonments are differentiated even more explicitly in the current provision of the Interstate Commerce Act regarding abandonments, 49 U.S.C. § 1a, which speaks in terms of both "abandonment" of lines of railroad and "discontinuance" of the operation of rail service over such lines, apparently intending to distinguish the two. See also 45 U.S.C. § 744(b).

The jurisdiction of the ICC to permit disposition of railroad property on abandoned lines in addition to discontinuance of service is consistent with the Commission's role in railroad abandonments, a role which cannot be too narrowly confined. The Commission exercises a "fostering guardianship and control" over the nation's railroad systems, and is broadly empowered

"to supervise their issue of securities, their car supply and distribution, their joint use of terminals, their construction of new lines, their abandonment of old lines, and by a proper division of joint rates, and by fixing adequate rates for interstate commerce, and in case of discrimination, for intrastate commerce, to secure a fair return upon the properties of the carriers engaged."

Dayton-Goose Creek Railway v. United States, 263 U.S. 456, 478, 44 S.Ct. 169, 172, 68 L.Ed. 388 (1924). The financial condition of railroads is of central concern to the Commission, because it directly impacts upon their ability to meet their federal duty to provide rail service in the public interest. Thus, in deciding whether or not to authorize an abandonment, the Commission properly considers the financial consequences to the railroad of abandonment Vel non. See Colorado v. United States, 271 U.S. at 162-63, 46 S.Ct. 452. The salvage of rails and other materials from an abandoned line, either for use on operating lines or for sale, can provide a significant economic benefit to a railroad. In re Penn Central Transportation Co., 366 F.Supp. 62, 63 (E.D.Pa.1973). Given the ICC's appropriate concern with the economic performance of railroads, its authority to permit abandonment of a railroad line as such, not just discontinuance of service, and its power to condition abandonment on "such terms and conditions as in its judgment the public convenience and necessity may require," 49 U.S.C. § 1(20) (repealed 1976); See Reed v. Meserve, 487 F.2d 646, 649 (1st Cir. 1973), we believe it was within the Commission's power to regulate and authorize the dismantling of the rail, track, and ties on the Cheshire and Conway branches.

In granting the trustees permission to apply to the ICC for certificates of public convenience and necessity allowing abandonment, the reorganization court also authorized the trustees, upon issuance of the certificates, to "salvage such material as may profitably be recovered and . . . to sell or otherwise dispose of any property included in the lines or portions of lines authorized to be abandoned." The ICC thereafter, in considering whether abandonment was appropriate, extensively evaluated the salvage value of the rail and ties in determining the financial benefit of the abandonments. It also considered New Hampshire's request that, if abandonment were authorized, the actual...