In re Chicago, M., St. P. & PR Co.
| Citation | 124 F.2d 754 |
| Decision Date | 12 January 1942 |
| Docket Number | No. 7590,No. 7610-7617,No. 7686.,7590,7610-7617,7686. |
| Parties | In re CHICAGO, M., ST. P. & P. R. CO. CHICAGO, M., ST. P. & P. R. CO. v. GROUP OF INSTITUTIONAL INVESTORS et al., and nine other cases. |
| Court | United States Courts of Appeals. United States Court of Appeals (7th Circuit) |
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F. C. Nicodemus, Jr., and A. Perry Osborn, both of New York City, Henry A. Gardner and Helen W. Munsert, both of Chicago, Ill., Robert H. McRoberts, of St. Louis, Mo., Walter S. Underwood, Wendell J. Brown, Meyer Abrams, Edward R. Johnston, and Albert K. Orschel, all of Chicago, Ill., Edwin S. S. Sunderland and T. O'G. FitzGibbon, both of New York City, Henry F. Tenney, Roger R. Leech, Roy O. West, Wm. A. McSwain, Wm. H. King, Jr., Wm. S. Warfield, III, Wm. F. Peter, Frederic Burnham, Irving Goldsmith, Donald M. Graham, E. S. Ballard, Minier Sargent, Frederick Secord, and John H. Boord, all of Chicago, Ill., Robert V. Massey, Jr., of Philadelphia, Pa., Joseph E. Nolan, of Chicago, Ill., Reese D. Alsop, of New York City, Wm. B. Hale and Sidney K. Jackson, both of Chicago, Ill., W. A. W. Stewart, McCready Sykes, Frederick J. Moses, and Guido Pantaleoni, all of New York City, and Malcolm Mecartney, of Chicago, Ill., for appellants.
Lee Walker, of Chicago, Ill., Cassius M. Clay, of Washington, D. C., Kenneth F. Burgess, Douglas F. Smith, Geo. Ragland, Jr., and Walter H. Jacobs, all of Chicago, Ill., Sanford H. E. Freund, of New York City, Anthony Michel, Irving Herriott, A. J. Pflaum, and Cobert EtsHokin, all of Chicago, Ill., Boykin C. Wright, and Robert M. Becket, both of New York City, Jesse L. Cook, of Chicago, Ill., Julius Weiss, John B. Marsh, and Edward E. Watts, Jr., all of New York City, A. N. Whitlock, C. S. Jefferson, and M. L. Bluhm, all of Chicago, Ill., Fred N. Oliver, Willard P. Scott, and George J. Miller, all of New York City, and Daniel Knowlton, Chief Counsel, Interstate Commerce Commission, of Washington, D. C., for appellees.
Before EVANS and KERNER, Circuit Judges, and LINDLEY, District Judge.
These numerous appeals, save one, present attacks on a proposed plan of reorganization of the Chicago, Milwaukee, St. Paul and Pacific Railroad, hereinafter called the Debtor. Errors are assigned, which may be divided into two groups, legal and factual. Both the I. C. C. and the District Court have approved the proposed plan of reorganization. As yet, however, the plan has not been submitted to the creditors.
All parties seemingly agree that there must be a reorganization of the Debtor. The crux of the criticisms of the different groups of bondholders, represented by the various appellants, is that the old mortgage bondholders are not given enough securities in the new company, and to meet this objection, it is argued there must be a larger mortgage indebtedness placed on the new company. Larger mortgages will permit of distribution of more bonds to the present bondholders. The fact that they will be of less value is ignored.
At the bottom of all the criticisms of the new plan is the appraisal of old securities, and the allocation of the new securities to such old security holders. The legal questions are raised to prevent the present plan from being approved and made effective, in case we are satisfied that the plan is fair and equitable.
Generally speaking, the objecting bondholders contend that their securities were undervalued in the reorganization and that some other mortgage on another section of the property, was overvalued.
Because the factual and legal questions are so interrelated, it is necessary to make a somewhat lengthy statement of facts, even though abbreviated because of the full and complete story found in the report of the I. C. C., 239 I. C. C. 485, and 240 I. C. C. 257, and in the decision of Judge Igoe of the District Court in 36 F.Supp. 193.
The Debtor is a large railroad system, operating 9,906 miles of solely owned track, through twelve states. It has several sections, each being the basis of a separate mortgage indebtedness. Chief among these sections are the western half (from Mobridge, South Dakota, to the Pacific Ocean) acquired in 1909; the eastern half (the main part of the road); the Gary line, which joined Debtor in 1922; the Milwaukee and Northern, acquired in '93; and the Terre Haute, included by virtue of a 999 year lease, executed July 1, 1922.
Debtor was born of the Federal equity receivership of the former Chicago, Milwaukee & St. Paul Railroad, which terminated in January, 1928. There, as here, the mortgage trustees and groups of bondholders, demanded new securities in amounts similar to those outstanding, the load of which the predecessor debtor could not carry.
The creditors there took a position which ignored the long view future of the Debtor, ignored its public obligation character and sought a reorganization which served only the demands of the hour, which were met at the sacrifice of the future.
The court, unfortunately, was helpless. So was the I. C. C., which protestingly approved the plan which the narrow-visioned mortgage trustees and their advisers, set up. The present proceedings are the direct result of the ill-advised 1928 plan of reorganization. The road was forced to seek the aid of Section 77 of the Railroad Reorganization Bankruptcy Act, 11 U.S.C.A. § 205, shortly after it was made available.
Debtor submitted, with its petition, a plan, which was moratorium in nature. The doors of the I. C. C. were open and the Commission ready and anxious to go forward with its reorganization work, but no effort was made by any of the groups of investors, nor by the debtor, to formulate a reorganization plan until many months had passed. The situation seemed hopeless. Finally, the Institutional Investors, one of the Groups here interested, submitted a plan. It represented much thought and study. Its plan was a forerunner to a more complete one submitted by the I. C. C. Hearings were had and closed, only to be reopened and further hearings had. Modifications of the I. C. C. plan were made, and it, as modified, was finally approved by the I. C. C. It was later presented to the District Court, counsel were heard for and against the plan, and finally the court approved it. These appeals followed.
The facts are complicated and, in the hope that they might be more clearly and concisely presented, we have tabulated some of them in the form of a chart herewith set forth.
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Group of Institutional Investors v. Chicago St Co 8212 19, 32
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