In re New York, NH & HR Co.

• Decision Date: 15 September 1936
• Docket Number: No. 16562.,16562.
• Court: U.S. District Court — District of Connecticut
• Parties: In re NEW YORK, N. H. & H. R. CO.

16 F. Supp. 504

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

No. 16562.

District Court, D. Connecticut.

September 15, 1936.

Edwin A. Krauthoff, of Washington, D. C., and Arthur B. Weiss and Frederick E. Morgan, both of Bridgeport, Conn., for petitioner.

W. W. Meyer, Gen. Counsel, of New Haven, Conn. (H. J. Wells, of New Haven, Conn., of counsel), for debtor.

HINCKS, District Judge.

The petitioner alleges that he is the holder for value of convertible debentures issued by the debtor having an aggregate face value of $700, and that he files his petition in behalf of himself "and of all persons similarly situate who may elect to become parties hereto and contribute to the cost hereof." The petition assails the constitutionality of section 77 of the Bankruptcy Act, as amended (11 U.S.C.A. § 205), and of numerous of its provisions separately stated. It prays that these proceedings be dismissed, or, in the alternative, that the court declare the rights and other legal relations of this petitioner and of all other parties hereto.

The debtor filed a motion to dismiss this petition on the ground that it did not state any justiciable case or controversy; that it did not show that the petitioner has been or will be injured by these proceedings; and that the petitioner is not a party to these proceedings.

The debtor's motion to dismiss must be denied.

To be sure, the petitioner is not a formal party to these proceedings. Nevertheless, he states a sufficient interest in the res which is under administration in this court to entitle him to a hearing. Moreover, subdivision (c) (13) of section 77, as amended (11 U.S.C.A. § 205 (c) (13) provides that any creditor "shall have the right to be heard on all questions arising in the proceedings."

Nor can I sustain the debtor's contention that the petition fails to state any "controversy" within the meaning of the Declaratory Judgment Act, Jud.Code § 274d, as amended, 28 U.S.C.A. § 400. To me it seems clear that the petitioner has an interest in the debtor's estate and in so far as the act has actually affected the petitioner's rights with respect to that res, he is to that extent entitled to a judicial declaration of the validity of the act.

I turn, therefore, to consider the petition on its merits. And at the outset, it is necessary to consider the scope of the decision in the case of Continental Bank v. Rock Island Railway Co., 294 U.S. 648, 55 S.Ct. 595, 602, 79 L.Ed. 1110. In this case the Supreme Court was called upon to determine a question relating to the power of the Bankruptcy Court under section 77 as enacted by the Act of March 3, 1933, 47 Stat. 1474 and before the amendments contained in the Act of August 27, 1935, 49 Stat. 911 (11 U.S.C.A. § 205). In the Rock Island Case, to be sure, the Supreme Court specifically pointed out that the validity of section 77 "in its general scope and application is not assailed." "Nevertheless," the court went on to say, "grave doubt has been expressed in respect of that question; and since the question is inherently fundamental, we deem it necessary to consider and dispose of it in limine," etc. Thereupon the court concisely stated the source and history of the bankruptcy power under the Constitution, and proceeded to the broad conclusion "that section 77, in its general scope and aim, is within the power conferred by the bankruptcy clause of the Constitution; and we so hold." Clearly there is nothing in the amendatory act of 1935 to alter that conclusion. And that the same holding is equally applicable to the amended act is tacitly conceded by the petitioner here, for he makes no contention that the general scope and aim of the act transcends the powers conferred by the bankruptcy clause of the Constitution (article 1, § 8, cl. 4).

Instead, it is here contended that the means employed by Congress to accomplish its objective offend the Constitution in several particulars. I proceed, therefore, to consider seriatim the specific provisions which the petitioner has challenged.

In paragraphs 6, 9, and 11 of the petition, it is charged that subdivisions (a) and (e), 11 U.S.C.A. § 205 (a, e) violate article 3, section 1 of the Constitution in that they purport to vest specified judicial powers in a "judge" rather than in a court. But ever since 1800, in the enactment of the bankruptcy laws, Congress has spoken of the bankruptcy judges and the bankruptcy courts indiscriminately. In the act of 1898, it is plain that the frequent references to the "judge" were intended merely to signify the "court acting through the judge" as distinguished from judicial action by the referee. The references in section 77 must be similarly construed. In re United States, 194 U.S. 194, 24 S.Ct. 629, 48 L.Ed. 931. Thus construed, the act leaves no room for the petitioner's contention.

The petition, also in paragraph 6, challenges the validity of that provision of section 77, subdivision (a) (11 U.S.C.A. § 205 (a) which requires the judge to approve the filing of a petition "if satisfied that such petition complies with this section and has been filed in good faith." It is charged that this provision is void because the act fails to set up any ascertainable standard whereby to determine the existence of "good faith." The contention might well be disposed of by the observation that the record fails to disclose any injury to the petitioner herein arising from the application of the phrase to the pending matter.

Nevertheless, it may be observed that the courts for generations have made findings on questions involving the presence of good faith, without specific instructions from the Legislature. The same words were used, for example, in section 60c of the Bankruptcy Act, 11 U.S.C.A. § 96 (c). Their meaning in that context the courts found readily ascertainable. Kaufman v. Tredway, 195 U.S. 271, 25 S.Ct. 33, 49 L. Ed. 190. The same words, in the context of section 77B (11 U.S.C.A. § 207), have already received copious, though not wholly consistent, judicial construction. By the use of the familiar aids to statutory construction, and especially by testing the meaning of the questioned phrase against the background of the history of the act, as was done in Duparquet Huot & Moneuse Co. v. Evans, 297 U.S. 216, 56 S.Ct. 412, 80 L.Ed. 591, its meaning in the context of section 77 may be ascertained. The constitutional objection is left without supporting substance.

The petition in paragraph 7 charges that subdivision (d) of the act (11 U.S.C.A. § 205 (d) includes an unconstitutional delegation of the legislative function in so far as it purports to confer upon the Interstate Commerce Commission power to determine certain facts "upon which the operation of the law depends without prescribing a definite rule of action or ascertainable standard for the ascertainment of such facts." The charge is expressly confined to an alleged violation of article 1, section 1, of the Constitution.

It is, to be sure, fundamental that under the Constitution, Congress cannot delegate powers "strictly and exclusively legislative." Wayman v. Southard, 10 Wheat. 1, 42, 6 L.Ed. 253; Panama Refining Co. v. Ryan, 293 U.S. 388, 55 S.Ct. 241, 79 L.Ed. 446.

Here the questioned delegation relates only to the power to approve specific plans for the reorganization for railroads under administration under the bankruptcy laws. Each exercise of the power of approval thus delegated to the Commission is by the act conditioned upon the concurrence of numerous expressly stated facts, viz.: (1) That the plan be not prima facie impracticable; (2) that it complies with the provisions of subdivisions (b) and (e) of section 77 (11 U.S.C.A. § 205 (b, e); and (3) that it is compatible with the public interest. The power, necessarily implied, to ascertain the presence of these factual prerequisites, is not a power exclusively legislative. Its delegation, therefore, cannot offend article 1, section 1, of the Constitution.

The books are replete with cases in which the validity of similar acts of congressional delegation has been directly and impliedly recognized. Interstate Commerce Commission v. Goodrich Transit Co., 224 U.S. 194, 32 S.Ct. 436, 56 L.Ed. 729; Inter-Mountain Rate Cases, 234 U.S. 476, 34 S.Ct. 986, 58 L.Ed. 1408; Federal Radio Commission v. Nelson Brothers Co., 289 U. S. 266, 53 S.Ct. 627, 77 L.Ed. 1166, 89 A.L. R. 406; Union Bridge Co. v. United States, 204 U.S. 364, 27 S.Ct. 367, 51 L.Ed. 523; St. Louis, I. M. & S. Ry. Co. v. Taylor, 210 U.S. 281, 28 S.Ct. 616, 52 L.Ed. 1061; U. S. v. Grimaud, 220 U.S. 506, 31 S.Ct. 480, 55 L.Ed. 563; Avent v. United States, 266 U. S. 127, 45 S.Ct. 34, 69 L.Ed. 202; Interstate Commerce Commission v. Brimson, 154 U. S. 447, 14 S.Ct. 1125, 38 L.Ed. 1047; Id., 155 U.S. 3, 15 S.Ct. 19, 39 L.Ed. 49; New York Central Securities Corporation v. United States, 287 U.S. 12, 53 S.Ct. 45, 77 L.Ed. 138; Louisville & N. R. Co. v. Interstate Commerce Commission (C.C.) 184 F. 118, affirmed 190 U.S. 273, 23 S.Ct. 687, 47 L.Ed. 1047; Railroad Commission v. Southern Pacific Co., 264 U.S. 331, 44 S. Ct. 376, 68 L.Ed. 713. And to follow the thought expressed in Buttfield v. Stranahan, 192 U.S. 470, at page 496, 24 S.Ct. 349, 48 L.Ed. 525, if Congress lacks the power to delegate such powers as are here involved, it would follow that Congress could not exert its plenary power under the bankruptcy clause to make efficacious legislative provision for the reorganization of railroads. The petitioner's contention on this feature of the act I therefore hold to be utterly without merit.

Paragraph 8 of the petition charges that subdivision (d) of section 77 (11 U.S. C.A. § 205 (d), in that it provides that no plan shall be approved or confirmed by the judge, "unless the plan shall first have been approved by the Commission and certified to the court," is void because "it attempts to limit the judicial power of the court vested therein by article 3, section 1, to the previous action of a...