In re Grafton Gas & Elec. Light Co.

• Decision Date: 16 November 1918
• Docket Number: 594.
• Citation: 253 F. 668
• Parties: In re GRAFTON GAS & ELECTRIC LIGHT CO. In re GRAFTON TRACTION CO. In re GRAFTON LIGHT & POWER CO.
• Court: U.S. Court of Appeals — Fourth Circuit

253 F. 668

In re GRAFTON GAS & ELECTRIC LIGHT CO. In re GRAFTON TRACTION CO. In re GRAFTON LIGHT & POWER CO.

No. 594.

United States District Court, N.D. West Virginia.

November 16, 1918

T. S Riley and John J. Coniff, both of Wheeling, W. Va., and Warder & Robinson, of Grafton, W. Va., for bankrupts.

G. W Ford and A. W. Burdett, both of Grafton, W. Va., and Geo. W McClintic, of Charleston, W. Va., for opposing creditors.

DAYTON District Judge.

These three local corporations have each filed petitions and been adjudicated voluntary bankrupts.

The first named was incorporated for the purpose of manufacturing and supplying electricity for light, heat, and power; the second for the purpose of operating a city street railway and the third to (1) acquire, lease, own, maintain, build, and operate lines of street and interurban railways; (2) acquire water, coal, oil, gas, electric, steam, and other light, heat, water, and power plants; (3) acquire, own, and operate telephone and telegraph lines and exchanges; (4) acquire coal, oil, gas, and other mineral lands, and manufacture, ship, and sell their products; (5) produce light, water, steam, heat, electricity, oil, gas, and power of all kinds, and sell the same; (6) lease and purchase easements over streets, etc., lay and erect poles, lines, and pipes to transport light, heat, oil, etc., and to operate telephone and telegraph lines, and street and interurban railways for transportation of passengers, mail, freight, and express matter; and (7) to acquire, lease, and own property, real, personal, and mixed.

This latter company by deeds has taken over and into its possession the property of the first two named companies. Its principal stockholder assumed payment of their debts, but has not paid them.

Judgments have been rendered against the first named for an aggregate of more than $27,000, and it acknowledges itself to owe unsecured debts aggregating more than $116,000; against the second named company judgments have been rendered aggregating more than $71,000, and unsecured debts are outstanding against it of over $173,000; while against the third judgments have been rendered for an aggregate of over $21,000, a bond issue of $300,000 is outstanding, and over $17,000 of unsecured debts. In addition to all this an unsecured debt of over $3,000 exists against the three companies jointly and over $2,300 of taxes are in arrear upon the properties. These facts are disclosed by the schedules filed, which state the assets of the first and second companies to be nothing, by reason of their conveyances of February 28, 1914, to the third, and those of the third to be $400,000, consisting of its electric plant, something over six miles of electric street railway in the city of Grafton, its equipment, etc., and of certain real estate in that city.

The Allis-Chalmers Manufacturing Company, a judgment creditor in a sum of over $900, has instituted its equity suit to enforce its lien against the property of the first company (the Gas & Electric), conveyed by it to the third, and the city of Grafton, a judgment creditor in a sum in excess of $4,000, the Citizens' National Bank of Charleston, a judgment creditor in a sum in excess of $11,000, and the Ferris Bridge Company, whose interest is not disclosed by the petitions and schedules, have instituted like suits against the second company (the Traction). These four suits have been consolidated, are pending in the circuit court of Taylor county, and receivers have been appointed therein, and placed in possession of the properties now vested in the third company since the conveyance of February 28, 1914. The order of adjudication entered in the third named cause enjoined these creditors from the prosecution of their suits until this court's further order, and the referee to whom the causes were referred has appointed a trustee to take charge of the properties from the custody of the state court receivers. To vacate the injunction granted by the court, and the appointment of the trustee by the referee, petitions have been filed and motions made by the state court receivers, the Citizens' National Bank of Charleston, and the city of Grafton.

These petitions have given rise to questions which I have studied long and earnestly, and which have perplexed me greatly. In the conclusion I have reached I desire frankly to say that I still entertain grave doubt, and regret we have no provision of federal law whereby such questions could be certified direct to the appellate court for its authoritative determination. I desire to express my appreciation of the labor and industry incurred by counsel on both sides in the preparation and presentation of the very admirable briefs filed by them to aid me in the decision.

The first question that arises is: Did I err in adjudicating these companies, either one of them, and especially the last one, bankrupt? The Bankruptcy Act (Act July 1, 1898, c. 541, Sec. 4a, 30 Stat. 547 (Comp. St. 1916, Sec. 9588)) provides: 'Any person, except a municipal, railroad, insurance, or banking corporation, shall be entitled to the benefits of this Act as a voluntary bankrupt.'

The business of the first company was unquestionably that of operating a plant to generate and sell electricity; that of the second, to construct and operate a street railway; that of the third, to combine and operate both. In addition to the above provision of the Bankruptcy Act, and before its amendment in 1910, it had been held that in involuntary proceedings an electric light corporation could be adjudged bankrupt. In re Charles Town Light & Power Co. (D.C.) 183 F. 160, affirmed by the Circuit Court of Appeals for this circuit in Charles Town Light & Power Co. v. Delone, 184 F. 986, 106 C.C.A. 488. There can be no question, therefore, that the first company was properly adjudicated.

As to the second, the trouble comes here: Is a 'street railway' operated by electricity within the meaning and intent of the word 'railroad' used by the Bankruptcy Act? If so, then it is clear the second named company was improperly adjudicated. Finally, if a company manufacturing and selling electricity can be adjudicated, while a company operating a street railway by electricity cannot, what is to be done with a company like the third here, which is doing both? I can find no answer to these questions in any adjudicated case construing this particular section of the Bankruptcy Act. As to the question whether the word 'railroad,' by legal construction generally applied, shall include street railways, the authorities, state and federal, are in hopeless confusion. I am therefore left, so far as I can see, to construe the meaning of this word 'railroad,' as used in this section, as a question of first impression. Doing so, I hold it does not include electric street railways.

I am led to this conclusion (a) because I believe Congress, by the amendment of this section in 1910 (Act June 25, 1910, c. 412, 36 Stat. 839), in clause 'b,' whereby it cut out the words 'corporation engaged principally in manufacturing, trading, printing, publishing, mining or mercantile pursuits' (Act Feb. 5, 1903, c. 487, Sec. 3, 32 Stat. 797), allowing such to be adjudicated involuntary bankrupts, and substituting the words 'moneyed, business or commercial corporation except a municipal railroad, insurance or banking corporation,' and by its amendment of clause 'a' of this section, whereby it removed the inhibition of any corporation to be adjudged voluntary bankrupt, and provided, instead, that all could be 'except municipal, railroad, insurance or banking' ones, had two purposes in view: First, to obliterate all distinctions between voluntary and involuntary proceedings in their relation to the liability of corporations, other than the ones excepted, to be declared bankrupt; second, to broaden out and more clearly define the application of the Bankruptcy Act, so as to include all corporations, as to which there were no special reasons for exception. Special reasons why municipal, insurance, and banking ones should be so excepted are obvious. So, too, such reasons can easily be conceived why the ordinary railroad transportation lines should also be excepted. They, as said by Justice Lamar in Omaha Street Ry. v. Int. Com. Comm., 230 U.S. 336, 33 Sup.Ct.

891, 57 L.Ed. 1501, 46 L.R.A. (N.S.) 385, 'are constructed on the companies' own property. The tracks extend from town to town and are usually connected with other railroads, which themselves are further connected with others, so that freight may be shipped, without breaking bulk, across the continent. Such railroads are channels of interstate commerce.'

These special reasons for exception do not ordinarily exist in the case of street railways. The vast majority of them are purely local institutions, like the one here, not in any way concerned with interstate commerce. Such are, again quoting Justice Lamar, 'laid in streets as aid to street traffic and for the use of a single community, even though that community be divided by state lines, or under different municipal control. When these street railroads carry passengers across a state line, they are, of course, engaged in interstate commerce, but not the commerce which Congress had in mind when legislating in 1887. Street railroads transport passengers from street to street, from ward to ward, from city to suburbs;...