In re Missouri Pac. R. Co., 6935.

• Decision Date: 29 July 1943
• Docket Number: No. 6935.,6935.
• Citation: 50 F. Supp. 936
• Parties: In re MISSOURI PAC. R. CO.
• Court: U.S. District Court — Eastern District of Missouri

50 F. Supp. 936

In re MISSOURI PAC. R. CO.

No. 6935.

District Court, E. D. Missouri, E. D.

July 29, 1943.

Alexander & Green, of New York City, for Bankers Trust Co. and others.

Chadbourne, Wallace, Parke & Whiteside, of New York City, for Manufacturers Trust Co.

Jeffries, Simpson & Plummer, of St. Louis, Mo., for Benj. F. Edwards.

W. Lloyd Kitchel, of New York City, for Bondholders Protective Committee.

White & Case, of New York City, for Bankers Trust Co.

Larkin, Rathbone & Perry, of New York City, for Central Hanover Bank & Trust Co.

Cravath, de Gersdorff, Swaine & Wood, of New York City, for Bondholders Protective Committee, New Orleans, T. & M. Ry. Co. first mortgage.

T. M. Pierce and S. Mayner Wallace, both of St. Louis, Mo., for Mississippi Valley Trust Co. and Bondholders' Protective Committee, New Orleans, T. & M. Ry. Co. First Mortgage.

Cassius M. Clay, of Washington, D. C., for Reconstruction Finance Corporation.

Ernest S. Ballard, of Chicago, Ill., and Marion B. Pierce, of New York City, for Missouri Pac. R. Co., debtor.

Shearman & Sterling, of New York City, for Bondholders Protective Committee, Missouri Pacific Railroad Co. General Mortgage.

Root, Clark, Buckner & Ballantine, of New York City, for Commercial Nat. Bank & Trust Co. of New York.

Milbank, Tweed & Hope, of New York City, for City Bank Farmers Trust Co., and another.

Davis, Polk, Wardwell, Gardiner & Reed, of New York City, for Guaranty Trust Co. of New York.

Miller, Owen, Otis & Bailly, of New York City, for New York Trust Co.

Bryan, Williams, Cave & McPheeters, of St. Louis Mo., for St. Louis Union Trust Co., and another.

Wright, Gordon, Zachry & Parlin, of New York City, for Chemical Bank & Trust Co.

Winthrop, Stimson, Putnam & Roberts, of New York City, for Bankers Trust Co.

A. L. Rittenberg, of Chicago, Ill., for M. Ernest Greenebaum, Jr., and another.

Oliver & Donnally, of Washington, D. C., for Savings Bank Trust Co. Daniel Willard, Jr., of Washington, D. C., for Railroad Credit Corporation.

Luther M. Walter, of Chicago, Ill., for Protective Committee for holders of Missouri Pacific common stock.

Emmet D. Borden, of Washington, D. C., for Missouri overcharge claimants.

Kurzman & Frank, of New York City, for executors of estate of J. F. Dewald.

Lord, Day & Lord, of New York City, for Corn Products Refining Co. et al.

John S. Burchmore, of Chicago Ill., for R. W. Higgins.

Chas. H. Griffiths, of New York City, for Cornelius C. Kroll et al.

Hennings, Green, Henry & Hennings, of St. Louis, Mo., for Reconstruction Finance Corporation.

Russell L. Dearmont, of St. Louis, Mo., for Guy A. Thompson.

Davies, Auerbach, Cornell & Hardy, of New York City, for Irving Trust Co., as trustee under the New Orleans, Texas & Mexico Railway First Mortgage.

Donovan, Leisure, Newton & Lumbard, of New York City, for Alleghany Corporation.

MOORE, District Judge.

The plan for the reorganization of the Missouri Pacific Railroad Company and its subsidiaries is before this Court for the second time. On July 12, 1941, we entered an order approving the plan which had been certified by the Interstate Commerce Commission and overruling objections to the plan which had been duly presented here. The dissatisfied interests thereupon took appeals to the Circuit Court of Appeals for the Eighth Circuit.

On October 9, 1941, the Commission ordered the plan submitted to a vote, as is contemplated by subsection e of Section 77 of the Bankruptcy Act, 11 U.S.C.A. § 205, sub. e. which governs these proceedings. Votes were cast by creditors on November 19, 1941, and on March 28, 1942, the Commission certified the results of the balloting, showing that not every class of creditors approved the plan by a favorable vote of at least two-thirds in amount of allowed claims of each class. In fact, in each of six of the total of sixteen classes voting, a majority voted against the plan.

Appeals were argued and briefs submitted to the Circuit Court of Appeals, but no ruling on the merits of the objections was made by that Court. The Supreme Court had granted certiorari in the matters of the reorganization of the Western Pacific Railroad Company, Ecker v. Western Pacific Railroad Co., 316 U.S. 654, 62 S.Ct. 1038, 86 L.Ed. 1734, and the Chicago, Milwaukee, St. Paul and Pacific Railroad Company, Group of Institutional Investors v. Chicago, M., St. P. & P. R. Co., 316 U.S. 659, 62 S.Ct. 1302, 1303, 1304, 86 L.Ed. 1737. While the Missouri Pacific matter was pending in the Circuit Court of Appeals, the two above mentioned cases were argued and submitted to the Supreme Court, which handed down its decisions on March 15, 1943, Group of Institutional Investors et al. v. Chicago, Milwaukee, St. Paul & Pacific Railroad Co., et al., 63 S.Ct. 727, 87 L. Ed. ___; Ecker et al. v. Western Pacific Railroad Corp., et al., 63 S.Ct. 692, 87 L.Ed. ___. It was then deemed expedient to have the Missouri Pacific matter reconsidered here, and the Circuit Court of Appeals, by its order of May 8, 1943, remanded the appeals to this Court. Further specific objections were then filed in this Court and a hearing on those objections was had on July 16, 1943.

Our opinion on our first disposition of the plan, reported at In re Missouri Pac. R. Co., 39 F.Supp. 436, contains a brief historical survey of this matter from the time debtor's petition was filed, March 31, 1933, to the date of the opinion, June 20, 1941, as well as a discussion of the debtor's affairs and the features of the plan, none of which need be repeated here; nor do we find it necessary to retract any of our former views in order to conform to the opinions of the Supreme Court in the Western Pacific and Milwaukee decisions, supra. The matters now before the Court result from intelligence gained since our first disposition of the matter and were not before us at that time.

Section 77 of the Bankruptcy Act, 11 U.S.C.A. § 205, subsection e, provides: "Upon the certification of a plan by the Commission to the court, the court shall give due notice to all parties in interest of the time within which such parties may file with the court their objections to such plan, and such parties shall file, within such time as may be fixed in said notice, detailed and specific objections in writing to the plan and their claims for equitable treatment. The judge shall, after notice in such manner as he may determine to the debtor, its trustee or trustees, stockholders, creditors, and the Commission, hear all parties in interest in support of, and in opposition to, such objections to the plan and such claims for equitable treatment. After such hearing, and without any hearing if no objections are filed, the judge shall approve the plan if satisfied that: (1) It complies with the provisions of subsection (b) of this section, is fair and equitable, affords due recognition to the rights of each class of creditors and stockholders, does not discriminate unfairly in favor of any class of creditors or stockholders, and will conform to the requirements of the law of the land regarding the participation of the various classes of creditors and stockholders; (2) the approximate amounts to be paid by the debtor, or by any corporation or corporations acquiring the debtor's assets, for expenses and fees incident to the reorganization, have been fully disclosed so far as they can be ascertained at the date of such hearing, are reasonable, are within such maximum limits as are fixed by the Commission, and are within such maximum limits to be subject to the approval of the judge; (3) the plan provides for the payment of all costs of administration and all other allowances made or to be made by the judge, except that allowances provided for in subsection (c), paragraph (12) of this section, may be paid in securities provided for in the plan if those entitled thereto will accept such payment, and the judge is hereby given power to approve the same."

The first objection is based on the rule announced by Mr. Justice Douglas in the Milwaukee case, supra, that where a senior lienor receives securities in reorganization, including junior securities, of the face amount of his former lien, and junior lienors likewise participate in the reorganization plan, then the senior lienor must be given something additional to fully compensate him for his loss of seniority. And it was further held that it is the duty of the Interstate Commerce Commission and the District Court to weigh the value of the new securities given the senior lienor and determine whether in the matter of increased participation in earnings, assets or control, they yield valuable new rights which are sufficient to compensate the senior lienor for his loss of seniority. Under the old equity practice which antedates Section 77, the "full priority" rule was announced in the case of Northern Pacific Ry. Co. v. Boyd, 228 U.S. 482, 33 S.Ct. 554, 57 L.Ed. 931. This rule was incorporated in Section 77B of the Bankruptcy Act, 11 U.S.C.A. § 207; Consolidated Rock Products Co. v. Du Bois, 312 U.S. 510, 61 S.Ct. 675, 85 L.Ed. 982; Case v. Los Angeles Lumber Products Co., 308 U.S. 106, 60 S. Ct. 1, 84 L.Ed. 110. In the Milwaukee opinion, supra, Mr. Justice Douglas stated, loc. cit. 751 of 63 S.Ct., 87 L.Ed. ___:

"The rule of the Boyd case `protects the rights of senior creditors against dilution either by junior creditors or by equity interests.' Marine Harbor Properties, Inc. v. Manufacturer's Trust Co., supra (317 U.S. 87, 63 S.Ct. 98, 87 L.Ed. ___). That view has not been contested here. Hence, as we indicated in the Consolidated Rock Products case, where junior interests participate in a plan and where the senior creditors are allotted only a face amount of inferior securities equal to the face amount of their claims, they `must receive, in addition, compensation for the senior rights which they are to surrender.' 312 U.S. 529, 61 S.Ct. 686, 84 L.Ed. 110. And we stated that whether they should `be...