In re Boston and Providence Railroad Corp.

• Decision Date: 24 July 1956
• Docket Number: No. 62413.,62413.
• Parties: In the Matter of BOSTON AND PROVIDENCE RAILROAD CORPORATION, Debtor.
• Court: U.S. District Court — District of Massachusetts

143 F. Supp. 866

In the Matter of BOSTON AND PROVIDENCE RAILROAD CORPORATION, Debtor.

No. 62413.

United States District Court D. Massachusetts.

July 24, 1956.

COPYRIGHT MATERIAL OMITTED

James Garfield, Boston, Mass., for New York, New Haven & Hartford R. R.

Donald C. Starr, Boston, Mass., for debtor corporation.

Armistead B. Rood, Washington, D. C. (Casius Clay, Joseph B. Hyman, New York City, of counsel), for Boston and Providence Development Group.

Paul E. Troy, Boston, Mass., for Charles W. Mulcahy, Boston, Mass., Trustee of debtor corporation.

Nutter, McLennen & Fish, Boston, Mass., Ralph Montgomery Arkush, Lewis M. Dabney, Jr., New York City (Jacob J. Kaplan, Boston, Mass., of counsel), for stockholders (Freeman) committee.

Donald T. Field, Boston, Mass., for stockholders (Field) committee.

FORD, District Judge.

On January 15, 1954, the Interstate Commerce Commission (hereinafter called the Commission) filed in this court its Fourth Supplemental Report dated January 5, 1954, approving an amended and modified plan for the reorganization of the Boston and Providence Railroad Corporation (hereinafter called B & P).

Objections to the plan within the time appointed by the court (March 21, 1956) were filed by various groups of stockholders (Freeman Committee, Boston and Providence Development Group, Field Group),¹ and counsel for the debtor. Hearings on the plan were held May 15 and 16, participated in by all parties in interest.²

The plan approved by the Commission in its Fourth Supplemental Order of January 5, 1954 is the third plan certified to this court. The plan approved March 22, 1940 and that of July 13, 1943 were disapproved by the court and referred back to the Commission on February 12, 1942, D.C., 43 F.Supp. 327, and on February 25, 1948, D.C., 76 F.Supp. 185, respectively.

B & P is an old corporation, chartered in 1831. On April 7, 1888, the debtor executed a lease of its properties to the Old Colony Railroad Company for a term of 99 years beginning April 1, 1888, and the debtor has not carried on any railroad operations since April 11, 1888. On February 15, 1893, Old Colony leased all its properties which included its leasehold interest in B & P's properties to the New York, New Haven and Hartford Railroad Company (hereinafter called New Haven) and since that time the New Haven, its trustees, or the reorganized New Haven have operated the debtor's properties.

New Haven filed a petition for reorganization on October 23, 1935 and Old Colony on June 3, 1936, the latter's lease to New Haven having been rejected on this date by New Haven, filed its petition in the Connecticut court in the same proceedings. The New Haven trustees paid the lease rental to B & P from 1935 until July 19, 1938, at which time the Connecticut court instructed New Haven's trustees and Old Colony's trustees to reject the B & P lease, which they did. B & P had appeared generally in the New Haven proceedings on May 27, 1937 and opposed the rejection of the lease. See Palmer v. Warren, 2 Cir., 108 F.2d 164, 168. After the rejection of B & P's lease the New Haven trustees operated B & P's properties, see Palmer v. Warren, supra, 108 F.2d at page 165, until the consummation of the New Haven reorganization and since then for the account of B & P under the provisions of § 77, sub. c(6) of the Bankruptcy Act, 11 U.S.C.A. § 205, sub. c(6). New Haven's proceedings were consummated on September 18, 1947.³

The plan dated July 13, 1943 and disapproved by this court February 25, 1948 provided that the consideration to be paid by New Haven for the property of B & P should consist of (1) $3,039,213 principal amount of New Haven first and refunding 4% fixed interest bonds, (2) $1,467,520 principal amount of New Haven 4½% income bonds and (3) $1,467,520 par value of New Haven preferred stock.⁴ There were further provisions, among them, the assumption by New Haven of the reorganization expenses of the B & P, current liabilities incurred by it prior to the institution of its reorganization, current liabilities of debtor's trustee, and all taxes due from debtor or its trustee. Also, the plan provided for the cancellation of all claims held by New Haven or its trustee or the Old Colony trustees against B & P or its trustee and all claims held by B & P or its trustee against New Haven or the Old Colony or their trustees.

The plan was rejected because (a) it was incapable of performance because of the continued accrual of interest on the B & P's debentures since the date when the Commission expected the plan to be put into effect; (b) the plan contained no provisions for dealing with claims ranking equally with the debentures which might be allowed after consummation; (c) the plan made inadequate provision for the claims of the Boston Terminal Company (hereinafter called Terminal); and (4) the plan provided for distribution of securities to B & P's stockholders without fully satisfying the claims of creditors.

Nothing was said in this court's opinion in respect of the value of the debtor's properties or the price to be paid by New Haven. This court did not disapprove of the unification of B & P with New Haven. It did suggest the Commission might consider, in further proceedings, whether any factors had arisen since 1940 that would affect the price to be paid B & P. The court also noted in a footnote that the price approved in the 1943 plan was the same as that offered by New Haven in its plan, 54 F.Supp. at page 618 and adopted by the Commission in its initial report and order of March 22, 1940 approving a plan for the reorganization of B & P, which, as stated, was disapproved because it could not be made effective except in conjunction with the New Haven plan which, at that time, had not been approved.

On the return of the plan to the Commission, further proceedings were had before the Commission on various petitions filed by the debtor's trustee against New Haven that need not concern us here. On June 5, 1950, the trustee filed proposed amendments to the plan and the Freeman committee also filed a proposed plan. Hearings on the B & P plans were reopened in 1951. After hearings before examiners, reports were filed and the 1943 plan with certain modifications was approved and the Commission, on January 15, 1954, filed its Fourth Supplemental Report approving the plan now before the court. The findings and conclusions of the Commission are set forth in this report. (290 I.C.C. 363).

The modified plan now before the court⁵ provides that New Haven shall acquire the assets of the debtor for the following securities: $3,039,213 face value of its first and refunding 4% bonds; $1,467,520 face value of its 4½% income bonds; and $1,467,520 par value of its new 5% preferred stock (the same price the Commission found was the value of the property since the inception of these proceedings; the price approved by Judge Hincks in the New Haven plan in the Connecticut court, 54 F.Supp. at page 618;⁶ also cash in an amount equivalent to the interest and dividends which would have been payable on the above securities as if these securities had been dated and issued to debtor's trustee as of January 1, 1940. As a further consideration the New Haven was to assume and pay all obligations and liabilities of the debtor or its trustee, except the claims represented by the debentures, including (a) reorganization expenses of the debtor; (b) liabilities of the debtor incurred prior to the institution of its reorganization proceedings; (c) current liabilities of its trustee; (d) any and all taxes; (e) all claims against B & P outstanding held by New Haven or its former trustees and all claims against New Haven or its former trustees or the Old Colony or its former trustees held by the debtor or its trustee shall be cancelled. The New Haven, if plan is accepted, has agreed to waive the claims of Terminal against the debtor which had been assigned to it in the Terminal Co., D.C., 99 F.Supp. 916. Terminal reorganization, In re Boston Since these claims come ahead of stockholders this would have the effect under the present plan of bettering the position of the stockholders. Terminal's claims are: (1) for use of its property by B & P and abrogation of B & P's statutory obligation to use; (2) Terminal's bondholders for deficiency on foreclosure of the Terminal mortgages; and (3) claim for services in Terminal's reorganization.

The holders of B & P's debentures are to receive $3,906,000 in full satisfaction of their claims.⁷ The 3,272 shares of capital stock of B & P held by its trustee in sinking fund account are to be cancelled. All other securities in sinking fund account at date of consummation are to be converted into cash which, together with all other cash on hand or in the sinking fund account, shall be applied, pro rata, to the purpose of making such payment. The balance of said $3,906,000 remaining after the application of the cash above referred to shall be paid by allotting, pro rata, to the holders of the debentures the securities of New Haven received in exchange for B & P's property. After payment to debenture holders, there is to be distributed, pro rata, to the debtor's stockholders (exclusive of the 3,272 shares in sinking fund account of the debtor, the 40 shares of debtor's capital stock held in its treasury and the 3,397 shares of the debtor's capital stock held by New Haven which are to be cancelled) all remaining cash received from New Haven and the proceeds, if any, from the sale of excess securities by the debtor's trustee, after payments to debenture holders.⁸

This plan approved by the Commission on January 5, 1954 in its Fourth Supplemental Report was reaffirmed in a Fifth Supplemental Report dated July 30, 1954, 290 I.C.C. 404, in the dismissal of a petition for modification of the plan.

The main objections to the plan are set forth in the Freeman committee's brief. (The other objections present substantially the same issues.) T...