Chicago, R. I. & P. R. Co., Matter of
| Decision Date | 03 August 1976 |
| Docket Number | Nos. 75--1738,s. 75--1738 |
| Citation | 537 F.2d 906 |
| Parties | In the Matter of CHICAGO, ROCK ISLAND AND PACIFIC RAILROAD COMPANY, Debtor-Cross-Appellee. William GIBBONS, Trustee-Appellant, Cross-Appellee, v. ATCHISON, TOPEKA AND SANTA FE RAILWAY COMPANY, et al., Intervenors-Appellees,Cross-Appellants, Interstate Commerce Commission, Cross-Appellant. to 75--1741. |
| Court | U.S. Court of Appeals — Seventh Circuit |
Norman H. Nachman, Nicholas G. Manos, Martin L. Cassell, Chicago, Ill., for Chicago, R.I. & P.R. Co.
Martin M. Lucente, Chicago, Ill., for Atchison, Topeka & Santa Fe.
Charles H. White, Jr., Atty., Interstate Commerce Commission, Washington, D.C., for Interstate Commerce Commission.
Before HASTINGS, Senior Circuit Judge, SWYGERT, Circuit Judge, and EAST, Senior District Judge. *
The Chicago, Rock Island and Pacific Railroad Company filed a petition for reorganization under Section 77 of the Bankruptcy Act, 11 U.S.C. § 205, on March 17, 1975. William Gibbons was appointed trustee by the reorganization court, and his appointment was approved by the Interstate Commerce Commission. The Atchison, Topeka and Santa Fe Railway Company, and 22 other interline railroads, were granted leave to intervene in the reorganization proceedings.
Section 77 proceedings contemplate the continued operation of the bankrupt railroad by the trustee pending adoption by the Interstate Commerce Commission of a reorganization plan generally acceptable to shareholders, creditors and the court. Railroad operations during the reorganization period remain subject both to the supervision of the reorganization court and to the jurisdiction of the Commission. At issue in this appeal are certain orders of the court governing the Rock Island's operation during this reorganization period prior to the adoption of the reorganization plan.
The orders here in issue concern the trustee's payment and collection of various interline accounts maintained between the Rock Island and the intervening railroads. Interline accounts are kept by the nation's railroads in order to allocate the costs and revenues from certain joint operations and to account for amounts owed as a result of various mutual services which all railroads must provide for each other on a regular basis. All railroads keep accounts which cover through service in passengers and freight, switching, loss and damage, overcharge, trailer rentals, car repair, and per diem.
The interline railroads and the Interstate Commerce Commission appeal from the ruling of the reorganization court governing the trustee's payment of the per diem interline account. The trustee appeals from the ruling of the reorganization court governing the trustee's collection of interline accounts generally. We consider each ruling, and the facts relevant thereto, seriatim.
We first consider the reorganization court's ruling that it had the power to permit the trustee, within his discretion, to defer payment of amounts owed by the Rock Island on pre-reorganization per diem accounts. The interline railroads and the Commission appeal from that decision. We reverse.
The per diem account represents charges which each railroad must pay for the use of another railroad's cars. The Commission has statutory authority to comprehensively regulate all aspects of car service to assure both adequate supply and efficient allocation of the national pool of rail cars. 1 Under that authority, it has set mandatory per diem rates and has adopted mandatory rules governing the settlement of per diem accounts. Per diem charges include a 'basic per diem' rate paid by the car-user to the car-owner to compensate the car-owning railroad for the average cost of purchasing and maintaining its cars. 2 The Commission has also adopted an 'incentive per diem' charge which operates to encourage the prompt return of equipment found to be in short supply. 3
Since 1930, the Commission has adopted and made mandatory the rules of the Association of American Railroads (AAR) governing the settlement of per diem accounts. 4 These per diem rules provide for each railroad to supply a monthly statement within forty days of the end of each calendar month, setting out the number of days each car has been in its possession during that month. This statement is forwarded to the car-owning road, which may make an immediate draft for any amount in its favor after subtracting the amount which it, in turn, owes the other carrier for use of its cars.
In the instant reorganization proceedings, the trustee's payment of interline accounts, including per diem accounts, is governed by the court's Order No. 1 as substantially modified by its Order No. 7. Order No. 1, entered on March 17, 1975, authorized the trustees to pay all interline accounts, but did not require him to do so. That provision was amended by Order No. 7, entered on April 9, 1975. The amended order required the trustee to pay all interline freight and passenger accounts. It further required payment of interline accounts, other than passenger and freight, presented for payment or due to be stated under AAR rules after May 1, 1975. With respect to per diem, these 'post-reorganization' accounts represented the Rock Island's car use after the filing of its reorganization petition. Those interline accounts, other than passenger and freight, presented for payment or due to be stated before May 1, 1975, could be paid or deferred at the discretion of the trustee. These 'pre-reorganization' per diem accounts are accounts presented for payment during the reorganization period for car use before the reorganization petition was filed.
Pursuant to these orders, all post-reorganization interline accounts have been paid regularly under normal procedures, as have passenger and freight accounts for both the post-reorganization and pre-reorganization periods. The trustee, however, has declined to pay at this time the other pre-reorganization interline accounts, including the per diem account, for the months of January, February and March 1975. Payment of these accounts is within the trustee's discretion under the applicable court orders. The interline railroads have acquiesced in the deferred payment of all pre-reorganization interline accounts except the per diem account.
On April 25, 1975, the interlines petitioned the reorganization court to modify its Orders Nos. 1 and 7 to require mandatory payment by the trustee of all pre-reorganization per diem accounts. This petition was supported by a memorandum of the Interstate Commerce Commission. The interline railroads and the Commission contended that ICC regulations governing the amount, manner and timing of settlement of per diem accounts could not be overruled or modified by the reorganization court. The court rejected this argument and denied the interlines' petition. Memorandum Opinion and Order, June 23, 1975 (Unreported). The court concluded that, although ICC regulations conclusively establish the existence of the pre-reorganization per diem debt, the court, under its general powers in a bankruptcy proceeding, could establish the priority of that debt in relation to other debts incurred by the Rock Island prior to filing its reorganization petition. The court thus declined to modify its order leaving to the trustee's discretion whether to pay pre-reorganization per diem accounts or to postpone payment pending a determination of priority among creditors.
The appeal of the interline railroads and of the Commission from that decision presents a conflict between the statutory authority of the reorganization court and that of the Commission over the affairs of a railroad in Section 77 reorganization.
The trustee, in support of the decision of the reorganization court, relies on those provisions in Section 77 which establish the authority of the reorganization court over the determination of rights and liabilities of creditors. Section 77(a) confers on the court exclusive jurisdiction over the debtor railroad and its property and grants the court all powers over that property traditionally exercised by an equity receiver. Section 77(l) grants the court the jurisdiction and power of an ordinary bankruptcy court to the extent that grant is not inconsistent with the provisions of Section 77. Section 77(b) makes expressly applicable Section 60 powers to avoid preferential transfers. Section 77(c)(7) provides for the court to determine provable and allowable claims and classes of creditors and shareholders.
The broad power of the reorganization court in matters affecting the claims of creditors is essentially undisputed. In In re Chicago & North Western Railway Co., 7 Cir., 121 F.2d 791 (1941), we resolved a conflict between the authority of the Commission and that of the reorganization court, stating:
To equitably adjust debts of the debtor, provide priorities to creditors, make provision for (the railroad's) future successful operation--these are the objects sought by the debtor railroad when it comes into court under Sec. 77 of the Bankruptcy Act. * * * (I)n order to carry this out the debtor must apply to the court which has not a divided, but an exclusive jurisdiction over it and its property.
Id. at 797. The trustee contends that the pre-reorganization per diem accounts merely represent a debt which the Rock Island owed to creditor railroads at the time it filed its petition and that control over payment of the debt is within the authority which the reorganization court exercises over the estate of the debtor and the pre-reorganization claims of creditors.
The interline railroads and the Commission, however, contend that payment of per diem accounts is controlled, not by provisions governing claims of creditors, but rather by provisions governing the operation of the railroad in reorganization. They rely on Section 77(c)(2) which provides that during the...
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