In Re Florida East Coast Ry. Co.

• Decision Date: 02 March 1953
• Docket Number: No. 14163.,14163.
• Citation: 201 F.2d 325
• Parties: In re FLORIDA EAST COAST RY. CO. ATLANTIC COAST LINE R. CO. v. ST. JOE PAPER CO. et al.
• Court: U.S. Court of Appeals — Fifth Circuit

201 F.2d 325 (1953)

In re FLORIDA EAST COAST RY. CO. ATLANTIC COAST LINE R. CO. v. ST. JOE PAPER CO. et al.

No. 14163.

United States Court of Appeals Fifth Circuit.

January 19, 1953.

Rehearing Denied March 2, 1953.

Edward W. Bourne, New York City, Charles Cook Howell and R. B. Gwathmey, Wilmington, N. C., Charles Cook Howell, Jr., Jacksonville, Fla., for appellant.

Giles J. Patterson, Jacksonville, Fla., Miller Walton, Miami, Fla., Howard P. Macfarlane, Tampa, Fla., Donald Russell, Spartanburg, S. C., Clifton S. Thomson, New York City, Sidney S. Alderman and Edward J. Hickey, Jr., Washington, D. C., Cyril C. Copp, Chester Bedell, Henry P. Adair, David Russell and Clarence G. Ashby, Jacksonville, Fla., J. R. Turney, Washington, D. C., Guy W. Botts, Jacksonville, Fla., Henry L. Walker, Washington, D. C., H. P. Osborne, Jacksonville, Fla., Walter H. Brown, Jr., and Harold J. Gallagher, New York City, for appellees.

J. Turner Butler, Jacksonville, Fla., and Fred N. Oliver and Willard P. Scott, New York City, for Lynch Interests.

Russell L. Frink, Jacksonville, Fla., for debtor's trustees.

Before HUTCHESON, Chief Judge, and HOLMES, BORAH, RUSSELL, and RIVES, Circuit Judges.

HUTCHESON, Chief Judge.

On the former appearance of this case here, all the controlling questions of law presented on this appeal were considered and determined, and what we write with respect to them this time will be but a rethreshing of old straw. Because this is so, and particularly because the judgment appealed from and the reasons given in support of it in the trial judge's opinion¹ run counter to, indeed, if given effect would rewrite, the law of the case as we have declared and established it, a brief résumé of what has gone before will go far to dispose of this appeal.

When the cause was here before on an appeal from an order disapproving a plan of reorganization adopted by a six to five vote and referring the proceedings back to the commission for further effort to make a proper plan,² this court, one judge dissenting, ordered the judgment affirmed.

As will appear from even the most cursory reading of the three opinions³ written in this court, while only one of the judges agreed with the trial judge throughout, the other two did agree with his view of the relation of commission and court in a Section 77 reorganization proceeding. This was: that the congress had by statute brigaded commission and court, with the commission in the lead; that to the informed discretion of the commission it had confided the determination of the question of compatibility of the plan with the public interest; and that, except as to the question of unconstitutional taking, it had also confided to the commission the question of valuation.⁴

The two judges who voted for affirmance of the judgment agreed that on the record then made, the trial judge was right, in characterizing the plan, as having been determined upon without a sufficient showing of a due recognition of the rights and equities of the bondholders, and in determining that the plan was not fair and equitable, but was one which, if carried out, would result in depriving them of their property without just compensation. It was on this ground, with which we agreed, that agreement to affirm the judgment was reached.

Two of the judges, the writers of the prevailing and dissenting opinions, were in general agreement with each other that under subsection (b), expressly providing for a merger, the commission, without the consent, indeed over the opposition, of substantially all of the 5 percent bondholders, could lawfully propose and approve a plan providing for what the trial judge called a "forced merger", that is a merger of East Coast and Coast Line. They were, therefore, united in disagreeing with the view advanced by the trial judge that the commission could not do so.

These two judges differed with each other only in this. The dissenting judge thought and said: that the commission could do this, and in this case had properly done so; and that the trial judge was wrong in disapproving the plan. The writer of the prevailing opinion, though in full agreement with the dissenting judge, that the commission could propose and approve such a plan, thought and said: that the trial court's judgment disapproving the plan should be affirmed not because the plan provided for such a merger, but because, on the record showing that substantially all the bondholders opposed it, it did not sufficiently appear that the constitutional right of the bondholders to receive the equivalent of what they were required to surrender was fully accorded. He was of the opinion, in short: that the record showed that the plan had been arrived at without that due consideration of the rights of the bondholders which would assure that they would certainly receive the equivalent of what they were to surrender; and that this was due to the too intense preoccupation on the part of a bare majority of the commission with the merger feature of the plan.

Because there were so many areas of agreement existing not only between him and the dissenting judge, but between all of the judges, including the trial judge, the writer of the prevailing opinion undertook to point up and make them clear.

Because, too, it was claimed by the appellees that the trial judge had broadly decided that what he called a "forced merger" of the debtor with Coast Line would not be lawful under the statute merely because it frustrated the plans of some of the bondholders to reorganize in their own interest and run East Coast, the writer of the prevailing opinion took the greatest pains to point out that, and why, this was not so.⁵

Finally, to make assurance doubly sure that there could and would be no basis for a misunderstanding, by the commission and the trial judge on the return of the plan to the district court, of the purport and effect of our decision, after pointing out that the commission's decision was based too much upon considerations of the public interest, too little upon an independent consideration of the interest of the bondholders, the opinion went on to say:

"We agree with the trial judge that * * * such a forced merger as is now proposed is contrary to the statute.

"In remanding the case, however, for further proceedings, we remand it for the purpose of working out a really fair and equitable plan and without prejudice in doing so to the due consideration of any fair and equitable plan for bringing this matter to an end, including such a plan providing for a merger with, or sale to, the Coast Line either with or without the approval of the security holders."

Returned to the commission, the matter was again fully heard in public hearings, which lasted for thirteen days and at which 2241 pages of testimony and 157 exhibits were added to the record. This time, upon the record as thus supplemented and in the light of our opinion, from which it quoted and to which it deferred, the commission handed down its fifth and sixth supplemental reports,⁶ with an accompanying order approving by a vote of seven to three a fourth proposed plan of reorganization, and certified it to the district court for its consent.

This plan, similar in type to the third plan which was the subject of the prior opinions of this and the trial court dealt with above, provided that, with certain important exceptions, all the estate of East Coast should be vested in the Coast Line by merger, consolidation or transfer in exchange for cash to be paid and securities to be issued by the Coast Line of an amount and value found by the commission upon full and careful consideration to be at least equal to that of the securities to be exchanged therefor.

Following the certification of the plan to the district court and the filing of exceptions thereto, a hearing was had, and, on March 11, 1952, the trial judge entered an order in support of a plan proposed by him to end all commission plans. This plan was that the order, in addition to disapproving the commission's fourth plan, should dismiss the reorganization proceedings and, with the declared purpose of effecting a reorganization through a foreclosure in equity, direct the return to the equity receivership in which the properties of the debtor had been administered from August 31, 1931, to January 25, 1941.

In the opinion which formed the basis of his order, the trial judge declared himself to be in agreement with the expressed opinion of Judge Sibley and this court, that the determination of the public interest was not for the district court but was exclusively for the commission. Nevertheless, upon the basis of findings of his own, that an internal reorganization would not be contrary to the public interest and that there was no evidence to support the commission's finding that the merger as proposed by it was in the public interest and an internal reorganization as proposed by the bondholders was not, he rejected and refused to follow the commission's finding. In addition, he made findings of his own on the issue of valuation directly contrary to the findings of the commission.

On the basis of these findings, the opinion went on to declare in effect: that it was evident that the commission intended to persist in approving and presenting its plan for a merger; that, as trial judge, he could not and would not approve such a plan; that an impasse had therefore resulted; and that, because it had, the reorganization proceedings must be dismissed and a reorganization effected under the leadership of the district court in the equity receivership.

Appealing from this order, Atlantic Coast Line is here vigorously complaining of it. One of its complaints is that, in rejecting the commission's findings as to the public interest and as to valuations, and in substituting his own opinion therefor, and thus failing and refusing to accord to the findings of the commission in these two respects the weight and authority accorded...