City of Palestine, Tex. v. U.S.
| Citation | 559 F.2d 408 |
| Decision Date | 19 September 1977 |
| Docket Number | Nos. 76-2689 and 76-3507,s. 76-2689 and 76-3507 |
| Parties | CITY OF PALESTINE, TEXAS, et al., Petitioners, v. UNITED STATES of America, Interstate Commerce Commission and Missouri Pacific Railroad Company, Respondents. William M. GIBBONS, Trustee of Chicago, Rock Island and Pacific Railroad Company, Debtor, Petitioner, v. The UNITED STATES of America and the Interstate Commerce Commission, Respondents. |
| Court | United States Courts of Appeals. United States Court of Appeals (5th Circuit) |
John O. Davis, City Atty., William R. Green, County Atty., Palestine, Tex., James D. Smullen, Houston, Tex., for petitioners.
William J. Hickey, Edward J. Hickey, Jr., Washington, D. C., for Railway Employes' Dept., AFL-CIO.
Donald C. McDevitt, Rock Island Railroad, Chicago, Ill., for William M. Gibbons.
Griffen B. Bell, U. S. Atty. Gen., U. S. Dept. of Justice, Washington, D. C., William R. McDowell, Dallas, Tex., for intervenor-appellee-Missouri Pacific Railroad Co. et al.
Hanford O'Hara, Assoc. Gen. Counsel, Charles H. White, Jr., Assoc. ICC Gen. Counsel, Mark L. Evans, Gen. Counsel, Washington, D. C., Lloyd John Osborn, Atty., Donald I. Baker, Asst. Atty. Gen., App. Section, Dept. of Justice, Washington, D. C., for respondents.
J. Barnwell Phelps, New Orleans, La., Mark M. Hennelly, St. Louis, Mo., for Missouri Pacific Railroad Co.
On Petitions for Review of an Order of the Interstate Commerce Commission. (Texas Cases)
Before COLEMAN, Circuit Judge, KUNZIG, Judge, * and GEE, Circuit Judge.
We are called upon to review certain collateral aspects of an Interstate Commerce Commission (ICC) order granting authority to merge under section 5(2) of the Interstate Commerce Act, 49 U.S.C. § 5(2), to Missouri Pacific Railroad Company (MoPac) and its principal subsidiaries, the Texas and Pacific Railway Co. (T&P) and Chicago & Eastern Illinois Railroad Co. (C&EI). The merger was unopposed, but two controversies surrounding the petition for merger concern us here. The first involves an agreement between MoPac and the City of Palestine, Texas, to maintain a specified number of employees at Palestine. The second involves the intervention by the Trustees of the bankrupt Chicago, Rock Island and Pacific Railroad Company (Rock Island), who requested indemnity for alleged traffic losses due to the merger or, alternatively, for inclusion in the merger. The ICC relieved MoPac of its agreement with Palestine and denied Rock Island's request for indemnity or inclusion. We reverse the ICC's first action, but affirm the second.
An understanding of the MoPac-Palestine conflict requires a review of the history of the 1954 Palestine agreement. On March 15, 1872, Galusha Grow, President of the Houston & Great Northern Railroad Company (H&GN), entered into an agreement with Judge John H. Reagan to extend H&GN's railroad line to Palestine, to establish a depot within one-half mile of the courthouse, and to commence running cars regularly to Palestine by July 1, 1873. H&GN also agreed to locate and establish and forever thereafter keep and maintain the general offices, machine shops and roundhouses of H&GN in the City of Palestine. In consideration of these promises from H&GN, Judge Reagan agreed to induce the electorate of Anderson County, in which Palestine is located, to issue interest-bearing bonds on the credit of the county in the sum of $150,000 and to deliver those bonds to H&GN. The voters of Anderson County approved the bonds, and H&GN fulfilled its part of the agreement.
International Railroad Company (IRC) also possessed a railroad line to Palestine running from Hearne, Texas. In September of 1873, the stockholders of IRC and H&GN agreed to a merger of the two companies into one corporation. The International & Great Northern Railroad Co. (I&GN). This merger was approved in 1874 by the Texas Legislature as required by state law at that time. The legislative approval expressly provided that all acts done in the name of either of the companies should have the same binding force and effect upon the merged company. In 1875, then, I&GN agreed to establish its offices, machine shops and roundhouses at Palestine. The consideration for this agreement was again the $150,000 in interest-bearing bonds given to H&GN plus an agreement by the citizens of Palestine to construct, at their own cost and expense, housing for the officers and employees of the company.
Thereafter, I&GN fell upon hard times. In 1911, after a number of financial machinations none of which are relevant here , I&GN faced foreclosures of mortgages on all of its corporate holdings. Certain creditors undertook a reorganization of I&GN by the creation of a new corporation that would succeed to all of the rights and liabilities purchased by the creditors at the foreclosure sale. This new company was also called International & Great Northern Railroad. Its corporate charter filed with the Secretary of State of the State of Texas provided that the offices of the new company would be in Houston, Texas.
Anderson County and the City of Palestine responded to the indicated change of corporate headquarters with a suit for an injunction to enforce the 1872 agreement. A spirited legal battle followed involving two Texas courts of civil appeals, see International & Great Northern Railway Co. v. Anderson County, 174 S.W. 305 (Tex.Civ.App. Texarkana 1915, writ ref'd); International & Great Northern Railway Co. v. Anderson County, 150 S.W. 239 (Tex.Civ.App. Galveston 1912, writ granted); the Texas Supreme Court, see International & Great Northern Railway Co. v. Anderson County, 106 Tex. 60, 156 S.W. 499 (1913); and the United States Supreme Court, see International & Great Northern Railway Co. v. Anderson County, 246 U.S. 424, 38 S.Ct. 370, 62 L.Ed. 807 (1918). 1
I&GN's primary argument against the injunction action was that it was a new corporation not bound by the contractual obligation of the old company. The Texas cases construing these facts clearly indicate that I&GN was correct if the only obligation to maintain its offices, shops and roundhouses in Palestine derived from the 1872 contract. The contract alone was a personal obligation that would not have bound the new company. See International & Great Northern Railway Co. v. Anderson County, 150 S.W. 239, 251 (Tex.Civ.App. Galveston 1912, writ granted); International & Great Northern Railway Co. v. Anderson County, 106 Tex. 60, 156 S.W. 499, 502 (1913). Nevertheless, each court found the new company impressed with the obligation of maintaining its offices, shops and roundhouses in Palestine because of a Texas statute. That statute provided, in pertinent part, that a railroad company chartered by the state without charter-designated office location
shall keep and maintain its general offices at such place within this state where it shall have contracted or agreed, or shall hereafter contract or agree, to locate its general office for a valuable consideration. . . . And such railroads shall keep and maintain their machine shops and roundhouses, or either, at such place or places as they may have contracted to keep them for a valuable consideration received; and, if said general offices and shops and roundhouses, or either, are located on the line of a railroad in a county which has aided said railroad by an issue of bonds in consideration of such location being made, then said location shall not be changed; and this shall apply as well to a railroad that may have been consolidated with another as to those which have maintained their original organization.
Tex.Rev.Civ.Stat.Ann. art. 6423 (1911) (). Because the previous company had contractually agreed to maintain its offices, shops and roundhouses at Palestine, the statute had the effect of making this agreement a continuing obligation on the part of the new company. See International & Great Northern Railway Co. v. Anderson County, 106 Tex. 60, 156 S.W. 499, 503-05 (1913). The United States Supreme Court refused to overturn the state court's interpretation of the effect of the statute and also ruled the statute constitutional. See International & Great Northern Railway Co. v. Anderson County, 246 U.S. 424, 432-34, 38 S.Ct. 370, 62 L.Ed. 807 (1918). Thus, the 1914 judicial decree of the District Court of Cherokee County forever bound I&GN to maintain its general offices, machine shops and roundhouses in Palestine.
Subsequent to this decree, I&GN was acquired by Missouri Pacific (MoPac). Unfortunately, MoPac suffered bankruptcy shortly thereafter, and on March 31, 1933, MoPac and its subsidiaries filed petitions in bankruptcy requesting approval of a proposed plan of reorganization under section 77 of the Bankruptcy Act. The proposed plan of reorganization filed with the ICC provided for a consolidation of the subsidiaries of MoPac, including I&GN, into a united company. The 1914 decree proved an impediment to this consolidation. Subsection (n) of section 77 of the Bankruptcy Act protected the 1914 judicial decree from the power of the bankruptcy court:
No reorganization effected under this title and no order of the court or Commission in connection therewith shall relieve any carrier from the obligation of any final judgment of any Federal or State court rendered prior to January 1, 1929, against such carrier or against one of its predecessors in title, requiring the maintenance of offices, shops, and roundhouses at any place, where such judgment was rendered on account of the making of a valid contract or contracts by such carrier or one of its predecessors in title.
11 U.S.C. § 205(n) (1970). In light of this proscription, the bankruptcy court held out the possibility that I&GN could be operated as a separate company but preferred that MoPac secure a modification of the 1914 decree so that the planned unification could be complete.
Thus, in 1954, MoPac entered into negotiations with the City of ...
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