In re Central of Georgia Ry. Co.

Decision Date28 October 1944
Docket NumberNo. 4829.,4829.
Citation57 F. Supp. 419
PartiesIn re CENTRAL OF GEORGIA RY. CO.
CourtU.S. District Court — Southern District of Georgia

T. M. Cunningham and George O'Donnell, both of Savannah, Ga., for Merrel P. Callaway, trustee of debtor.

Adams, Douglas & Brennan, of Savannah, Ga., for Citizens & Southern Nat. Bank, trustee of Oconee Division Mortgage.

Debevoise, Stevenson, Plimpton & Page, of New York City, and Hitch, Morris & Harrison, of Savannah, Ga., for trustee of First Mortgage.

Alexander & Green and Edward W. Bourne, all of New York City, and McLaws, Brennan & Zeigler, of Savannah, Ga., for trustee of Consolidated Mortgage.

LOVETT, District Judge.

The question now to be decided is the one reserved in the opinion of this court of January 12, 1942, Document No. 151, viz., What contribution, if any, shall be made by the bondholders of the Oconee Division of the debtor railway for taxes paid and outlays made in the conservation and preservation by debtor's trustee of that portion of the Oconee line which has been abandoned and sold, the proceeds still being under the control of this court. See In re Central of Georgia Ry. Co. (Farlee & Co., Intervenors), D.C., 42 F. Supp. 940, 947 (9, 10).

There have been many developments looking to the reorganization of the debtor since the hearing in January 1942. The debtor and its creditors presenting no plan of reorganization, by direction of the court debtor's trustee has prepared and filed a plan. Hearings have been held by the Interstate Commerce Commission, and the plan is being considered by that body at this time. An effort to abandon more mileage of this division has been withdrawn. A formula for segregation and allocation of earnings and expenses of the divisions subject to the different mortgages was referred to the Interstate Commerce Commission and as recommended has been approved by this court. The plan of reorganization as now written allocates to the Oconee bondholders new common and preferred stock of the aggregate par value of $180,000 ($135,000 preferred, $45,000 common). Debtor's trustee now seeks authority to withdraw his claim against the fund for 1937 and 1938 ad valorem taxes of the abandoned line unpaid in 1942 but now paid by him, saying he informed the I.C.C. on the hearing on the plan he would ask for such authority, being advised the claim is of doubtful validity. He joins the Mortgage Trustee of the Oconee divisional bonds in an application to disburse to the bondholders the balance of the fund arising from the sale of the abandoned line.

The Oconee division is a deficit line. Under the segregation formula the losses from operations from May 1, 1934 to June 30, 1943 were $616,303. The traffic contributed to the system for the same period was $732,074. If it be assumed that the cost of handling this contributed traffic was 50%, the net loss would exceed $250,000. The lines covered by the First Mortgage and by the Consolidated Mortgage of the debtor have had large earnings during this period. Their Mortgage Trustees have appeared and object to the disbursement of the balance of the proceeds of the sale of the abandoned line of approximately $28,000, and urge that it be turned over to debtor's trustee to reimburse him for the taxes and operating losses of the Division, and that it become a part of the trust estate to be administered as other assets.

The Mortgage Trustees who object to the fund being disbursed have little financial interest in it. As to them the doctrine of de minimis perhaps might be invoked. They represent bond issues of $7,000,000 and $18,500,000 respectively. Where this $28,000 goes affects them very little. Some of the arguments advanced before me on this hearing in my opinion are more properly for the consideration of the Interstate Commerce Commission initially in determining the plan of reorganization that shall have its approval, and particularly as to the allocation of new securities to deficit lines.

It was held in this case in January 1942 that Congress in enacting Sec. 77 of the Bankruptcy Act, 11 U.S.C.A. § 205, did not intend that any operating loss of a mortgaged division, made good through earnings of other profitable mortgaged divisions where the system was operated by the debtor's trustee as a whole, was entitled as of right to have priority in payment (through reimbursement of the trustee) over the claims of the bondholders of the unprofitable division. 42 F.Supp., at page 944. Therefore, if the proceeds of sale of the abandoned line are to be returned to the railway's trustee,...

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