IN RE NEW YORK, NEW HAVEN, AND HARTFORD RAILROAD CO.

• Decision Date: 28 June 1973
• Docket Number: No. 30226.,30226.
• Citation: 360 F. Supp. 1155
• Parties: In the Matter of The NEW YORK, NEW HAVEN, AND HARTFORD RAILROAD COMPANY, Debtor.
• Court: U.S. District Court — District of Connecticut

360 F. Supp. 1155

In the Matter of The NEW YORK, NEW HAVEN, AND HARTFORD RAILROAD COMPANY, Debtor.

No. 30226.

United States District Court, D. Connecticut.

June 28, 1973.

Prof. James Wm. Moore, Counsel for Trustee, New Haven, Conn., Joseph Auerbach and Robert G. Bleakney, Jr., Sullivan & Worcester, Boston, Mass. for Trustee.

Robert K. Killian, Atty. Gen., Samuel Kanell, Special Asst. Atty. Gen., Ralph G. Murphy, Jack Rubin, Asst. Attys. Gen., for Connecticut.

Herbert F. De Simone, Atty. Gen., Rhode Island, G. John Gazerro, Jr., Special Asst. Atty. Gen., Avram Cohen, Special Counsel Rhode Island Div. of Taxation, for Rhode Island.

Walter H. Mayo, III, Asst. Atty. Gen., and Acting Chief, Administrative Division, for Massachusetts.

MEMORANDUM OF DECISION ON PETITION FOR ORDER #595

ROBERT P. ANDERSON, Circuit Judge (sitting by designation).

This petition concerns the question of whether or not there is any liability by the Trustee for gross earnings, utility franchise, or related taxes for the period of time subsequent to one minute before midnight on December 31, 1968 when the New Haven Railroad ceased to engage in the business for which it was organized and which it was authorized to conduct by the four states, Connecticut, New York, Rhode Island and Massachusetts, in which it had operated.

The relevant facts are set forth in paragraphs 2 through 10, inclusive, of the petition, and the court finds them to be true as therein stated.

This court has summary jurisdiction to hear and adjudge the matters presented by the petition and the answers. Although the four states concerned, and the City of New York all had due and timely notice of the hearing held on this petition on December 22, 1969, as found in the court's order of that date, the State of New York and the City of New York neither appeared or filed answers and were defaulted; and the court held on said date that so long as the Debtor continues in reorganization under § 77 of the Bankruptcy Act, neither the Debtor nor its Trustee will be liable to the State of New York or the City of New York for any gross earnings, utility franchise or related taxes, particularly such as those referred to in the petition.

Connecticut has raised a threshold question concerning this court's jurisdiction to pass upon the tax issue at the present time. Connecticut does not dispute the facts nor does it deny that this court may at some future time have jurisdiction over the subject matter of the petition. It does assert, however, that inasmuch as the State has not levied an actual tax assessment upon gross earnings pursuant to Conn.Gen. Stat. Chapter 210 § 12-249, a present effort by the Trustee to have the legality of such an assessment against the Debtor adjudicated is premature.

It argues that the court's jurisdiction is confined to actual pending claims. But the State's position gives no consideration to the express provisions of § 2a(2A) of the Bankruptcy Act enacted in 1966 which gives the court jurisdiction "to hear and determine . . . any question as to the amount or legality of any unpaid tax, whether or not previously assessed, which has not prior to bankruptcy been contested before and adjudicated by a judicial or administrative tribunal of competent jurisdiction . . .," 11 U.S.C. § 11a(2A). This section is applicable to proceedings under § 77. See Collier, Bankruptcy § 2:22A, p. 214 (14th ed.).

The court is therefore satisfied that it has jurisdiction in the premises. The bankruptcy court has power to "make such judgments as may be necessary for the enforcement of the provisions of the Bankruptcy Act. . . . The process of dealing with state tax assessment is one essential to the administration of a bankruptcy estate. . . ." California State Board of Equalization v. Goggin, 191 F.2d 726, 728 (9 Cir. 1951), cert. denied, 342 U.S. 909, 72 S.Ct. 302, 96 L.Ed. 680 (1952). The court's power to effectuate and protect its decrees clearly includes power to forestall attempts to impose taxes. 1A Moore, Federal Practice § 0.209 (2d ed.) That the State has this in mind is reiterated in its brief, p. 7, where it asserts, "the debtor is clearly subject to the tax imposed by Chapter 208, General Statutes of Connecticut for annual periods subsequent to December 31, 1968."

It is undisputed that the authority of state and local taxing bodies to levy taxes on the New Haven Railroad while it is in reorganization derives from 28 U.S.C. § 960 which provides:

"Any officers and agents conducting any business under authority of a United States court shall be subject to all Federal, State and local taxes applicable to such business to the same extent as if it were conducted by an individual or corporation."

The determining issue in the case, therefore, is whether the New Haven Railroad is now and has, since December 31, 1968, been conducting any business within the meaning of that phrase in § 960. The court concludes that it has not been and that it is not doing so at the present time.

The history of § 960, enacted in 1948, including its predecessor, Title 28 U.S.C. § 124a, enacted in 1934, shows that its purpose was to prevent receivers and trustees from operating tax free businesses in competition with tax burdened operators of businesses not in receivership or bankruptcy. H.R.Rep.No. 1138, 73rd Cong. 2d Sess.

This legislative intent to prevent an unfair competitive...