Guaranty Trust Co. v. Seaboard Air Line Ry. Co., 213

• Citation: 53 F. Supp. 672
• Decision Date: 15 December 1943
• Docket Number: 214,228,No. 213,172-174,229,238.,237,213
• Court: U.S. District Court — Eastern District of Virginia
• Parties: GUARANTY TRUST CO. OF NEW YORK et al. v. SEABOARD AIR LINE RY. CO. et al., and eight other cases.

53 F. Supp. 672

GUARANTY TRUST CO. OF NEW YORK et al.

v.

SEABOARD AIR LINE RY. CO. et al., and eight other cases.

Nos. 213, 214, 228, 229, 172-174, 237, 238.

District Court, E. D. Virginia.

December 15, 1943.

COPYRIGHT MATERIAL OMITTED

W. R. C. Cocke, of Norfolk, Va., Willkie, Owen, Otis, Farr & Gallagher, Harold J. Gallagher, and Lewis F. Carroll, all of New York City, for Receivers.

F. P. Fleming, of Jacksonville, Fla., for receivers in Fifth Judicial Circuit.

Venable Baetjer & Howard and Joseph France, all of Baltimore, Md., for Underlying Bondholders' Committee.

Sullivan & Cromwell and DeLano Andrews, all of New York City, for First and Consolidated Bondholders Committee.

Davis, Polk, Wardwell, Sunderland & Kiendl and Edwin S. S. Sunderland, all of New York City, for Guaranty Trust Co. of New York and Merrel P. Callaway.

Van Vorst, Siegel & Smith, and Arthur B. Brenner, all of New York City, for Refunding Mortgage Bondholders Committee.

Humes, Buck, Smith & Stowell and Irwin L. Tappen, all of New York City, for New York Trust Co.

Baird, White & Lanning and George M. Lanning, all of Norfolk, Va., for Seaboard Refunding Mortgage Trustee.

Niles, Barton, Morrow & Yost and Carlyle Barton, all of Baltimore, Md., for Maryland Trust Co.

Eugene J. Conroy, of Newark, N. J., for Prudential Life Ins. Co.

Root, Clark, Buckner & Ballantine and Lyman M. Tondel, Jr., all of New York City, for New York Life Ins. Co. Williams, Mullen & Hazelgrove, Lewis C. Williams, and Ralph T. Catterall, all of Richmond, Va., for Equitable Life Assur. Soc. and other holders of Atlanta-Birmingham bonds.

Davies, Auerbach, Cornell & Hardy and H. C. McCollom, all of New York City, for Irving Trust Co.

Mitchell, Capron, Marsh, Angulo & Cooney and Edward E. Watts, Jr., all of New York City, for City Bank Farmers Trust Co.

Jennings & Watts and Olin E. Watts, all of Jacksonville, Fla., for Barnett Nat. Bank.

A. Mitnovetz, of New York City, and Harry O. Levin, of Baltimore, Md., for Protective Committee, Georgia & Alabama 5s 1945.

Piper, Watkins & Avirett and James Piper, all of Baltimore, Md., for Baltimore Nat. Bank.

Smith & Cross and Eben J. D. Cross, all of Baltimore, Md., for Mercantile Trust Co.

Edmund S. Ruffin & Sons and Robert D. Ruffin, all of Norfolk, Va., for trustees under underlying mortgages of Raleigh & Gaston and others.

Meredith & Meredith and Bernard Meredith, all of Richmond, Va., for Mercantile Trust Co.

Paul R. Kach, of Baltimore, Md., for Mercantile Trust Co.

Clarence K. Bowie, of Baltimore, Md., for the Bondholders' Committee of Tampa & Gulf Coast R. R. 1st 5s of 1953.

Marshall, Carey & Doub and R. E. Lee Marshall, all of Baltimore, Md., for Bondholders Committee of Tampa Northern R. R.

Chadbourne, Hunt, Jaeckel & Brown and Alfred H. Phillips, all of New York City, for Seaboard-All Florida Bondholders Committee.

Joseph S. Nye, Chairman of Georgia, Florida & Alabama (6s, 1952) Committee.

J. Paul Schmidt, of Baltimore, Md., and Philip B. Wershil, of New York City, for Adjustment Bondholders Group.

Wm. H. B. Simpson, of Greenville, S. C., for himself and other security holders.

Chalmers E. Wessinger, for himself and other common stockholders.

CHESNUT, District Judge.

The Seaboard Air Line Railway Company has been in receivership in this court for nearly thirteen years. Ancillary receivership proceedings have similarly been pending in the District Court of the United States for the Southern District of Florida. During this period several efforts have been made by the court to effect a plan of reorganization. In 1935 the court instructed the Receivers (Messrs. Legh R. Powell and Col. Henry W. Anderson) to prepare a plan for reorganization. Extended studies and tentative proposals were made by the Receivers but the then relatively poor earnings of the railroad caused the principal secured creditors to oppose further procedure along this line at that time; and the Receivers then were excused by the court from further activities in that respect. But on October 27, 1939 the court entered an order appointing Tazewell Taylor, Esq., a highly competent member of the Bar having had special experience in railroad matters and with the affairs of the particular railroad, to prepare and submit a plan of reorganization, after careful study and hearings of all parties in interest and development of all relevant evidence and other data pertaining to the subject. The appointment was made pursuant to Rule 53 of the Rules of Civil Procedure of the District Courts of the United States, 28 U.S.C.A. following section 723c. The master was given very full power and authority to hold hearings pursuant to notices, to receive evidence and to consider plans of reorganization submitted by any parties in interest. Somewhat similar orders with respect to the special master's authority and procedure were passed in the ancillary Florida proceedings. After very full direct notice to all parties in interest who had appeared in the proceedings from time to time, and frequent published notices, special master Taylor conducted hearings, took evidence, received statistical studies over a period of more than three years, considered various plans of reorganization submitted by parties in interest and finally on July 20, 1943, submitted his report. This consists of a printed document of 283 large pages, to which are appended numerous tabulations and exhibits.

After the receipt of the report, Judge Way entered an order notifying the parties in interest to file any objections or exceptions that they wished to make to said report, and setting the date for hearing the same on October 18, 1943. By reason of the subsequent illness of Judge Way (followed later by his most regrettable death) the case has been referred to the writer of this opinion for further judicial attention. On October 25, 1943, pursuant to further direct and published notices, all parties in interest were heard for a period of two weeks. At that time further evidence was submitted at a joint hearing held by the writer and United States District Judge Akerman of the Southern District of Florida, presiding Judge in the ancillary proceedings. At the adjournment of these hearings the court appointed a Conference Committee of certain representative secured creditors to consider and propose modifications of the plan of reorganization. This Committee, after further intensive study of the plan for a period of ten days and hearing certain interested parties objecting to the plan, submitted its report for substantial modification of the allocation of the new securities. A further hearing, after notice, has been held on these proposed modifications. The matter now stands for determination by the court with respect to the confirmation, rejection or modification of the plan submitted by the special master.

The master's printed report contains a table of contents which shows the vast scope of the studies made by him and his careful consideration of the extended evidence, oral and documentary, submitted at the hearings. It includes (1) the corporate history of the Seaboard Air Line Railway Company and its subsidiaries; (2) a general description of its property and assets; (3) its present debt and capital structure; (4) the properties to be dealt with in the reorganization; (5) data pertaining to its physical value and other capitalizable assets; (6) the earnings experienced and forecast of the earnings; (7) the proposed capitalization of the new company; (8) classifications of creditors, security holders and stockholders; (9) claims not affected by the plan; (10) consideration of conflicting liens; (11) the amount of interest on past due instalments of interest; (12) studies incident to the allocation of the securities of the new company; (13) the proposed allocation of such securities; (14) consideration of certain other factors in the method of consummating the plan; and (15) method of putting the plan into effect. And finally, the ultimate conclusions of the special master with respect to the whole plan.

Rule 53 of the F. R. C. P. deals with the procedure relating to appointments of special masters by the court. Subsection (e) (2) provides in part:

"In an action to be tried without a jury the court shall accept the master's findings of fact unless clearly erroneous. * * * The court after hearing may adopt the report or may modify it or may reject it in whole or in part or may receive further evidence or may recommit with instructions."

In passing upon the very numerous exceptions which have been filed to the master's report, it will be impracticable in an opinion of any reasonable length to review in meticulous detail either each and all of the numerous exceptions, or to restate all the facts and figures with regard to the Railway Company which have been so fully considered and are treated at such length in the master's printed report. It must be assumed, therefore, that the reader of this opinion is familiar with the main features of the report. An effort will be made here to simplify the statement of the rulings now to be made, as far as possible. A brief description of the Seaboard Air Line Railway Company will show the great complexity of the problem of its reorganization.

Brief Description of the Seaboard System

The present Seaboard Air Line Railway Company is the fourth corporation of the similar name. It is a consolidated corporation under the laws of Virginia, North Carolina, South Carolina, Georgia and Florida, and is also qualified to do business in Alabama. It was organized in 1915 and is the successor to three successive companies, each known as Seaboard Air Line Railway. It owns and operates more than 4,000 miles of railroad. The main stem of the Seaboard System extends from Richmond, Virginia, on the north, to Homestead on the east coast of Florida, and Naples on the west coast of Florida. From the main stem lines extend from Norlina, North Carolina, to...