In re New York, NH & HR Co.

• Decision Date: 16 January 1939
• Docket Number: No. 16562.,16562.
• Citation: 26 F. Supp. 18
• Court: U.S. District Court — District of Connecticut
• Parties: In re NEW YORK, N. H. & H. R. CO.

26 F. Supp. 18

In re NEW YORK, N. H. & H. R. CO.

No. 16562.

District Court, D. Connecticut.

January 16, 1939.

W. W. Meyer, Gen. Counsel, and Hermon J. Wells, both of New Haven, Conn. (Fleming James, Jr., of New Haven, Conn., of counsel), for trustees, New York, N. H. & H. R. Co.

White & Case, Joseph M. Hartfield, and Fitzhugh McGrew, all of New York City, and Wiggin & Dana and Stewart H. Jones, both of New Haven, Conn., for Bankers Trust Co.

Malcolm Fooshee and John E. Masten, both of New York City, for the insurance group.

Bentley W. Warren and John Noble, Jr., both of Boston, Mass., appearing specially for Boston & Providence R. Corporation.

HINCKS, District Judge.

A proper appraisal of the jurisdictional objections raised by Boston and Providence Railroad Corporation (hereinafter referred to as B P) requires a statement of facts which includes a review of certain phases of the proceedings heretofore had in this matter. Such a statement I find accurately set forth in the brief of the Old Colony trustees which I borrow for purposes of this memorandum. It is as follows.

Upon approval on October 23, 1935 of the petition of the New Haven for reorganization there came into the custody of this Court not only the property owned by the New Haven but also the property which it had leased in 1893 from the Old Colony, including the property of the Boston and Providence which Old Colony had leased from that Company in 1888. By its initial order (R., p. 5) this Court provided, inter alia, for continued operation of the railroad subject to such supervision and control as the Court might exercise by further orders and for payment of all necessary current operating expenses. The order enjoined all interference with all property "belonging to, or in the possession of" the New Haven (R., p. 11). Thereafter, upon hearing duly noticed (R., p. 13) Trustees were appointed (R., p. 85) and upon their qualification entered upon the administration and operation of the property, including the property of the Boston and Providence in which the New Haven had a subleasehold estate.

On June 2, 1936 the New Haven Trustees rejected the Old Colony lease (R., p. 721) and the next day the Old Colony petitioned (R., p. 731) for reorganization herein and requested that the New Haven Trustees continue to operate the property of Old Colony. This petition was approved (R., p. 747) and after hearing duly noticed (R., p. 750) this Court by Order No. 75 (R., p. 875) appointed the same persons who were acting as Trustees of the property of the New Haven as Trustees also of the property of the Old Colony. The order provided, however, that until further order of the Court the property of Old Colony should be operated by the New Haven Trustees as an integral part of the system. This property, including the property of the Boston and Providence in which the Old Colony had a leasehold estate, has continued to be operated by the New Haven Trustees to the present time.

By paragraph 2, subparagraph (c), of Order No. 75, the New Haven Trustees were empowered and authorized to pay such sums as might be necessary to comply with the obligations of Old Colony under contracts or leases, subject however to the direction that such payments should not constitute affirmation of such contracts or leases or any of them, and by paragraph 7 of said Order it was provided that said Trustees, either as such or as Old Colony Trustees, should not intentionally make or permit any default in the performance of any contract or lease to which Old Colony was a party unless and except upon the advice and with the consent of the Court previously obtained after hearing duly noticed. By paragraph 9 of said Order the Old Colony Trustees were authorized at any time prior to November 15, 1936 or prior to such other day as might be provided by further order of the Court, and with the advice and consent of the Court after hearing duly noticed, to reject any of the existing contracts or leases of Old Colony; and it was further provided in said paragraph 9 that the performance by Old Colony, by the Old Colony Trustees or by the New Haven Trustees for the account of Old Colony, of such contract or lease within said period or future periods allowed for rejection should not constitute or be evidence of the adoption or acceptance of such contract or lease by Old Colony or by the Old Colony Trustees, or the waiver of the right to disaffirm or reject the same, and that in case payments were made pursuant to the authority granted by the terms of said order or of any other order in the proceeding, to comply with the obligations of Old Colony under leases and such leases should be subsequently disaffirmed or rejected by Old Colony or by the Old Colony Trustees or under a plan of reorganization, "the operation of the leased properties shall have been and said payments shall be deemed to have been made for the account of the lessor, and such payment shall be recovered, set-off, or made and charged, on the earnings and properties of the lessor, prior to any mortgage or other lien thereon by such method as the Court shall determine, and further reserving all rights and equities of the parties arising from such payments." The provisions that payments under leases should not constitute affirmation of such leases and for charging the earnings and properties of the lessor in case of subsequent rejection for the operation of the leased properties and said payments were similar to provisions previously entered with respect to leases under which the New Haven was lessee (Order No. 1, R., p. 5; Order No. 17, R., p. 131).

The Boston and Providence, its officers, agents and counsel have had knowledge of the terms of Order No. 75 continuously since its entry (Exh. 6 on hearing on Trustees' Report of Administration, June 2, 1938). On May 25, 1937, the Boston and Providence asked leave to intervene generally herein (R., p. 2635) and two days later their petition was granted (R., p. 2643). On April 19, 1938 the Trustees, having been directed by the Court so to do, filed herein a report of administration of the property of Old Colony and Providence, Warren & Bristol Railroad Company up to and including December 31, 1937 (R., p. 4221). By Order No. 300 entered July 18, 1938 (R., p. 4593) the Court approved the accounts as stated in that report in the amount of $11,789,730.22 (R., p. 4594) which amount included $3,955,298.93, purported to cover administration of the property of the Boston and Providence for the period June 4, 1936 to December 31, 1937, both dates inclusive. The Boston and Providence actively participated at the hearing on this report and the Court on its petition (R., p. 4529) held a supplemental hearing respecting these accounts.

On July 19th the Court entered Order No. 217 (R., p. 4597) directing the Old Colony Trustees to reject the Boston and Providence lease, and providing among other things as follows:

"5. Pending further order of Court the operation of the property of Boston and Providence for the account of that corporation shall be continued pursuant to subdivision (c) (6) of Sec. 77 of the Bankruptcy Act, and since the Old Colony Railroad Company, as lessee of Boston and Providence, and likewise the Old Colony Trustees, are wholly without any operating organization, the operation of Boston and Providence properties shall be conducted by the New Haven Trustees in behalf and for the account of the Old Colony estate but without expense to the New Haven estate.

"The Court reserves for further hearing the right to determine the existence and amount of any obligation of Boston and Providence arising out of operation of its property or payments made to it or on its behalf prior to the rejection of its lease, and the liability of the Boston and Providence therefor to the Old Colony estate and by way of subrogation to the New Haven estate. And pending such determination the Court will withhold its final ruling on Petition for Order No. 276."

On the same day the Old Colony Trustees did reject the Boston and Providence lease (R., pp. 4601, 4602). On July 27, 1938 the Old Colony and New Haven Trustees filed their Petition for Order No. 301 (R., p. 4621). In their petition they referred to Order No. 300 (R., p. 4593) reported that the sum charged against the earnings and property of Old Colony included $3,955,298.93 covering payments made under the Boston and Providence lease and expenditures incurred in the administration of the property described in that lease during the period from June 4, 1936 to December 31, 1937, both dates inclusive, and asked the Court to approve the account against the Boston and Providence in that amount and order that it "constitute a lien and charge on the earnings and property of Boston and Providence Railroad Corporation in the possession of this Court prior to any mortgage or other lien, charge or claim thereon and prior to any other indebtedness of said Company as an expense of administration of said property of said Company by the Trustees of the property of the Principal Debtor herein on behalf and for the account of the Trustees of the property of Old Colony Railroad Company, and may be recovered by said Trustees of the property of Old Colony Railroad Company or, in the alternative, by the Trustees of the property of the Principal Debtor out of the earnings and property of said Boston and Providence Railroad Corporation by such method as the court shall hereafter determine, and that to the extent that said amount is so recovered by said Trustees of the property of the Principal Debtor the like charge against the earnings and property of Old Colony Railroad Company heretofore allowed by Order No. 300 shall be correspondingly reduced, and that the Court reserve for later determination the amount of like charges covering administration of the property of said Boston and Providence Railroad Corporation from January 1, 1938 to the date of rejection of the...