Palmer v. Webster Atlas Nat Bank of Boston
| Decision Date | 03 February 1941 |
| Docket Number | No. 120,120 |
| Citation | 85 L.Ed. 642,61 S.Ct. 542,312 U.S. 156 |
| Parties | PALMER et al. v. WEBSTER & ATLAS NAT BANK OF BOSTON |
| Court | U.S. Supreme Court |
See 312 U.S. 714, 61 S.Ct. 728, 85 L.Ed. —-.
Mr. Herman J. Wells, of New Haven, Conn., for petitioners.
Mr. Robert H. Davison, of Boston, Mass., for respondent.
Mr. Robert H. Hopkins, of Boston, Mass., for City of Boston, amicus curiae.
In proceedings for the reorganization of the New York, New Haven and Hartford Railroad under § 77 of the Bankruptcy Act,1 the District Court, in response to a petition of the trustees, ordered them to withhold payment of taxes assessed upon the property of Boston Terminal Company and franchise taxes and bond interest owed by the same company.2 The Circuit Court of Appeals reversed on the ground that statutes of the United States compelled payment by the trustees.3 The importance of the questions involved, and a conflict of decision,4 moved us to grant certiorari. 311 U.S. 624, 61 S.Ct. 14, 85 L.Ed. —-
In 1888 Boston and Providence Railroad Corporation leased its property to Old Colony Railroad Company for a term of 99 years. In 1893 Old Colony leased its property, including its leasehold interest in the Boston and Providence property, to New Haven for a term of 99 years. Boston was then served by four railroads entering the city from the South and West: the two lessors, New England Railroad Company, and Boston and Albany Railroad Company.
In 1896 Massachusetts, by a special act, incorporated the Boston Terminal Company,5 with power to construct and maintain a union passenger station in the southerly part of Boston, and to provide and operate terminal facilities 'for the several railroad companies' by the act 'authorized to hold the stock' of the company. The Act sets the capital stock at $500,000, and provides that Boston and Albany, New England, Boston and Providence, Old Colony, 'and the New York, New Haven and Hartford Railroad Company, being lessee of the Old Colony Railroad Company, may each subscribe for and hold' one-fifth thereof.
The management of the company's affairs is vested in five trustees, one to be appointed by each of the five stockholding companies.
All the named railroads, including the New Haven, are required to use the terminal for all their terminal possenger business in Boston. They are to pay to the terminal company for such use the amounts needed to cover the company's expenses, including interest upon its bonds, and taxes. Each railroad is required to pay in proportion to its use, as agreed amongst them, or, in default of agreement, according to the proportion determined by the railroad commissioners (now the Department of Public Utilities).
The real estate of the terminal company 'required by this act to be used by said railroad companies shall be assessed to and the taxes thereon shall be paid by said railroad companies, and in the assessment of franchies taxes upon said railroad companies each of them shall be deemed to be the owner of said real estate in the proportion in which it then has the use thereof under this act.'
In 1905 New England was merged into New Haven.6 Later Boston and Albany leased its property to the New York Central. Thereafter, in 1921, the Massachusetts Act of June 9, 1896, was amended7 to give the New York Central, as lessee, the right to hold stock of the terminal company and, during the term of the lease, to exercise all the powers by the Act conferred on Boston and Albany. The total use of the terminal thereafter was by New York Central, as lessee of Boston and Albany, by New Haven, as lessee of Old Colony, and by New Haven, as owner of the New England line. During the period involved in this case there was no use of the terminal by the New Haven trustees on behalf of the New England line.8
In 1931 the Department of Public Utilities of Massachusetts determined that the proportion of use of the union station and facilities was seventy per cent. by New Haven and thirty per cent. by New York Central. No reapportionment has since been made.
New Haven filed its petition for reorganization in the District Court for Connecticut October 23, 1935. At that time the lines of Old Colony and Boston and Providence came into the custody of the court as a part of the New Haven system. The court directed continued operation of the system and appointed trustees. Old Colony filed its petition for reorganization in the New Haven proceeding June 3, 1936, and the court appointed the same persons trustees as had been appointed upon the New Haven petition. Boston and Providence initiated a reorganization proceeding in the District Court for Massachusetts August 5, 1938, and trustees of its property were appointed by that court. The New Haven trustees disaffirmed and rejected the Old Colony lease June 2, 1936, and the trustees of Old Colony rejected the Boston and Providence lease July 19, 1938. Under orders of the District Court for Connecticut, made pursuant to the provisions of § 77(c)(6), the New Haven trustees have continued to operate both Old Colony and Boston and Providence railroads for the account of the former lessors.9 The trustees have kept their accounts covering the operations of the two lines according to a segregation and allocation of expenses and revenues approved by the Interstate Commerce Commission and by the District Court and confirmed by the Circuit Court of Appeals.10 In the accounting, the seventy per cent. of the use of the terminal facilities formerly charged to New Haven as lessee is charged by the trustees to Old Colony and Boston and Providence operations in proportion to use.
The trustees' operation of Old Colony and Boston and Providence properties has resulted in losses exceeding $20,000,000 in the period between October 23, 1935, and December 31, 1939. This excess of expenditures over receipts is secured by liens on the properties. Payment of the taxes and bond interest of Boston Terminal Company has required cash advances increasing the accumulating deficit at the rate of approximately $800,000 per annum. The trustees believe that the properties of the lessors are insufficient to secure repayment of further cash advances by the New Haven estate and that to make them will jeopardize the claims of New Haven's own secured creditors. In a petition of October 17, 1939, they set forth the facts and stated their view that they should not make further advances for payment of Boston Terminal taxes and bond interest for the account of the Old Colony and Boston and Providence estates. Notice of hearing was given and a number of interested parties appeared. The District Court announced its opinion and entered an order, October 30, 1939, directing the trustees to withhold the payments in question. Old Colony Trust Company, the trustee under the mortgage of the terminal company, appealed. The appeal was prosecuted in the Circuit Court of Appeals by its successor trustee, Webster and Atlas National Bank, the respondent in this court.
The District Court overruled the contention that § 77(c)(6) imposes an obligation on the trustees of New Haven in behalf of creditors of the lessors. The court held that the section requires the continued operation of the lessors' property, if the lessors are unable to operate, in the interest of the public. It called attention to the fact that the section provides that the operation is to be 'for the account of the lessor' and that no claim was made that failure to pay the interest or taxes in question would result in the suspension of operation of Old Colony and Boston and Providence lines. The court further held, on an analysis of the Massachusetts statute creating the terminal company, that any direct obligation on the part of New Haven to pay interest and taxes terminated with the rejection of the Old Colony lease which related back to the date of the petition for reorganization, since which time the trustees have not operated for their own account but for that of the former lessors. The court thought that upon plain principles of equity it ought not to jeopardize the interests of New Haven's secured creditors by imposing the probable loss upon the New Haven estate.
The Circuit Court of Appeals declined to pass upon the question whether § 77(c)(6), of its own force, requires the New Haven trustees to make the payments as operating expenses of the former lessors, though payment is not indispensable to the continuance of railroad operations, and declined to decide whether the direct obligations imposed by the Massachusetts statute upon New Haven bound the trustees of New Haven after rejection of the leases. The court based its reversal of the District Court's order upon two federal statutes.
It held that the Act of June 18, 1934,11 which provides that 'Any receiver, liquidator, referee, trustee, or other officers or agents appointed by any United States court who is authorized by said court to conduct any business, or who does conduct any business, shall, from and after June 18, 1934, be subject to all State and local taxes applicable to such business the same as if such business were conducted by an individual or corporation * * *', lays upon the trustees the obligation to pay the taxes in question. We are unable to agree.
The question is whether the trustees, who are officers or agents appointed by the court to conduct the business of New Haven, are also, within the intendment of the statute, agents who are conducting the business of Old Colony. Stated otherwise, the inquiry is whether, in adopting the statute, Congress had in view an enforced operation of a lessor's property by the trustees of the lessee under § 77(c)(6) to prevent stoppage of railroad transportation. We think Congress had no such intent.
The legislative history of the Act discloses its purpose. The committee reports accompanying the bill which became the Act of 1934 st...
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