Converse v. Commonwealth of Massachusetts

• Decision Date: 16 January 1939
• Docket Number: No. 194.,194.
• Citation: 101 F.2d 48
• Parties: CONVERSE et al. v. COMMONWEALTH OF MASSACHUSETTS.
• Court: U.S. Court of Appeals — Second Circuit

101 F.2d 48 (1939)

CONVERSE et al. v. COMMONWEALTH OF MASSACHUSETTS.

No. 194.

Circuit Court of Appeals, Second Circuit.

January 16, 1939.

Edward O. Proctor, of Boston Mass., for appellant.

Fred N. Oliver and Willard P. Scott, both of New York City, for appellees Converse and others.

E. R. Brumley, of New York City, for trustees of the railroads.

Before L. HAND, SWAN, and AUGUSTUS N. HAND, Circuit Judges.

L. HAND, Circuit Judge.

This is an appeal from an order in bankruptcy in the joint reörganization under § 77, Bankr.Act, 11 U.S.C.A. § 205, of the Old Colony Railroad and the New York, New Haven & Hartford Railroad, which directed the trustees of these two roads to discontinue stops of passenger trains at some 88 stations in Massachusetts and five in Rhode Island; the greater part of these being stations upon the Old Colony. On December 28, 1937, the trustees of the New Haven applied to the Department of Public Utilities of Massachusetts for leave to abandon the 88 passenger stations in question; the Department entertained the petition and held 21 hearings upon it, beginning on February 23d and ending June 16th: these had not been completed, and might not be for a considerable time thereafter. The proceeding before us was begun on June 20, 1938, by the petition of a committee of the officers of savings banks which were holders of bonds of the New Haven. The trustees answered this petition and joined in its prayer; the judge directed that notice should be given to all persons interested; and the Commonwealth of Massachusetts appeared, denied the jurisdiction of the judge, and asserted that the only tribunal competent to pass upon the question was its Department of Public Utilities. The judge overruled the objection, took evidence, made findings of fact and conclusions of law, and entered the order appealed from on July 9, 1938. His findings were in substance as follows. Between October 24, 1935 and December 31, 1937, the Old Colony had a total operating deficit of $5,775,650; for the calendar year 1937 this had been $2,360,000 — made up of a freight service credit of $275,000 and a passenger service deficit of $2,636,000 — and for the first six months of 1938 it was proportionally even greater. Between 1925 and 1935 Massachusetts had greatly increased its expenditures for highways, paralleling every line of the Old Colony; the automobile registration had more than tripled; and the number of passengers carried by rail in and out of Boston had decreased from 29,000,000 to 14,000,000. By eliminating 93 passenger stations — 53 on the Old Colony in Massachusetts, five on the Old Colony in Rhode Island, ten on the Boston and Providence and 25 on the New England — and by an appropriate revision of the remaining passenger schedules, the deficit of the Old Colony could be reduced by nearly $660,000. The suggested operating changes on the Old Colony were impossible without including those on the Boston & Providence and the New England, but that might properly be done because those two roads were also failing to earn their operating expenses, and their deficits would be reduced. The conclusions of law may also be summarized as follows. The reörganization of the Old Colony could not go through without the proposed changes, because no plan could be confirmed unless the probable earnings of the road would adequately cover its fixed charges. The continuation of the passenger service would imperil the power of the Old Colony to keep up the freight service. The passenger service which was to be ended was not indispensible to the community served, though its discontinuance would cause some inconvenience. The public interest would in the long run be best served by securing the freight service, together with so much of the passenger service as experience had shown to be necessary. The failure to grant the relief asked would result in confiscation.

The Commonwealth does not question the facts found by the judge, and the petitioners and trustees do not dispute that the order must rest upon some power conferred upon a reörganization court. They recognize that the charter of the road is conditioned upon its serving the public; and that the measure of that service rests with the grantor — subject to constitutional limitations — through its Department of Public Utilities. They agree that ordinarily the Department alone would have power to say what service should be abandoned, and that the Interstate Commerce Commission has no such jurisdiction over a line or branch not wholly abandoned. (The Commission has itself several times so decided, on the theory that regulating the service upon a line or branch, is different from abandoning it, and that while Congress might perhaps have conferred upon it the larger power, it has not done so). The trustees rest their case first upon the argument that by § 77 of the Bankruptcy Act Congress intended to provide for the reörganization of an interstate railroad as a whole, and that in subdivision (f), 11 U.S.C.A. § 205(f), it specifically provided that a plan duly approved should prevail over all state laws and the orders of any state authority. Having so overridden all local authority, it would be absurd to suppose that Congress should be willing to allow all possible plans to be blocked in advance: that which is immune from local interference when it comes into existence, must surely be free to be born. We could feel some force in this argument, if the judge had found that it would defeat any plan which could be devised to let the deficit accumulate during the period while the Department might be considering the case, and while its order, if unfavorable, was being reviewed. But he did not so find: all he said was that no plan could go through which did not cut off the service in question; and that is quite different from saying that an added indebtedness at the rate of $660,000 a year, for what could scarcely be more than a year, would balk all possible plans. That is most unlikely, and if the trustees meant to assert it, they should have proved it. Nothing in the testimony of the expert, Cunningham, went so far; nor did the finding that "the emergency now existing on these lines will not permit of the delay and uncertainty inherent in such a programme."

The trustees next argue that there is really no question for the Department to determine, because the public convenience from continuing the service cannot possibly balance the losses entailed by it. An order which denied leave to abandon would be confiscatory and could not stand. If so, the stake is no more than the losses suffered while the properly constituted authority is considering the cause: these are no doubt serious, but they are inevitable in all inquiries, and certainly do not justify ousting the tribunal, even in favor of a more expeditious one. Possibly, if it refused to act at all, either expressly, or by such delays as showed that it was not proceeding in good faith, the judge might take over the matter himself. Conceivably such a tribunal may abdicate, and its abdication may be taken as an abandonment by the state of the enforcement of the charter conditions. Crawford v. Duluth St. Ry., 7 Cir., 60 F.2d 212, can be so explained, for the plaintiffs had pleaded that the city council would not entertain their petition to it; though it must be owned that the court did not put the result on that ground. However that may be, on July 9, 1938, there was as yet no warrant for saying that the Department had so delayed the proceeding before it as to show that it meant to evade any decision. Respect for it, and for the Commonwealth, required that it should be allowed to proceed as in other cases: only a power in substance the equivalent of the power to issue a writ of prohibition could justify prejudging the merits, however plain they may be.

Since there is therefore nothing in the particular situation to justify the order, it can stand only in case the judge in a railway reörganization is in general exempt from state statutes and the orders of state officers which would otherwise regulate and control the action of the corporate officers and shareholders. This the trustees assert, depending upon subdivision (c) (...