Pennsylvania Steel Co. v. New York City Ry. Co.

• Decision Date: 08 October 1907
• Citation: 157 F. 440
• Parties: PENNSYLVANIA STEEL CO. et al. v. NEW YORK CITY RY. CO.
• Court: U.S. District Court — Southern District of New York

157 F. 440

PENNSYLVANIA STEEL CO. et al. v. NEW YORK CITY RY. CO.

United States Circuit Court, S.D. New York.

October 8, 1907

September 30, October 1, 1907.

Arthur H. Masten, for receivers.

J Parker Kirlin, for petitioner.

James Byrne, for complainants.

James L. Quackenbush, for defendant.

LACOMBE Circuit Judge.

Application is made by receivers for instructions of the court as to whether they should appear and participate in the investigation now being conducted by the Public Service Commission touching improvements to be made on the property and in the methods of its operation. It would seem unnecessary for them to do so. Their occupancy of the leased property is but temporary; presumably it will not extend-- at least for operation-- beyond a year, and it is to be hoped that it may be ended sooner. They are not practical street railroad men, have had only a few days' experience with this property, and could contribute nothing to the solution of the problem before the Commission. The former operators and owners of the roads are the persons from whom information as to existing conditions and the probable results of proposed changes is to be obtained. All books in the custody of the receivers and all persons in their employ, who may be called as witnesses, will of course be at the service of the Commission, and it is to be supposed that the owners will continue to be represented at the hearing and to conduct their side of the investigation because, to whatever extent the income from the property may enable the receivers to carry out the improvements called for by the Commission, the ultimate burden of them all will fall upon the property.

On application of Metropolitan Street Railway Company to be made party defendant.

LACOMBE, Circuit Judge.

The receivers are now in possession of the earning property of petitioner, and under the terms of the lease petitioner can avail of no default in payment of amounts stipulated within a year from such default. The property is an intricate combination of various roads, one or more of which might be cut out of the system by failure to pay the interest on some underlying mortgage, or some rental due the constituent road. It is of vital interest to petitioner that the property be kept intact. Under these circumstances there can be no doubt that a proper case for intervention is made out. The only question is whether petitioner should be brought in as a party plaintiff or a party defendant. The petition shows that by reason of the fact that all its earning property is held by receivers, who, it is apprehended, will not pay certain sums, which the lessee stipulated to pay to the lessor, the latter is without means to meet its obligations, being deprived of its income and unable, while its property is held by receivers for an indefinite period, to borrow on such property. Whatever may be the actual value of the property of petitioner, it appears to be in a condition of temporary insolvency, and should come in as a party defendant turning all its property over to receivers to be marshaled and its obligations paid. Central Trust Co. v. Wabash, etc., R. Co. (C.C.) 29 F. 618. Such a disposition of the matter seems to be greatly to the public interest. It is hardly to be supposed that any substantial sum could be borrowed on receivers' certificates bottomed only on a lessee's interest in a leasehold, which might be terminated in a year for failure to pay all that was stipulated. On the other hand, when receivers are in control of all the interests of both lessor and lessee, it may reasonably be expected (unless, indeed, the very growth of the system has reduced its value to a greater extent than is generally supposed) that they will be able, should occasion arise, to obtain the money necessary to pay for such replacements and improvements as may be required to secure efficient service.

The interests of lessor and lessee are different and, in a sense, diverse. Nevertheless, it seems practical to adjust all questions in a single receivership. In this circuit it is not the practice for receivers to concern themselves with plans for reorganization. Fowler v. Jarvis Conklin (C.C.) 63 F. 888. Their sole functions are to hold the property intact, operating it as efficiently for the public service as their resources will permit, to ascertain the liabilities, to marshal the assets, and eventually, unless in the meantime some entirely solvent concern able to liquidate all obligations and succeeding to owner's and lessee's interests shall appear to take it off their hands, to sell it to the best advantage, and apply the proceeds ratably to the payment of the liabilities. It is thought that the present receivers can do this as holders of the interests of both lessor and lessee. Should future experience seem to indicate that a separate trustee for one of the parties is required, some way to meet that difficulty will be found.

With assent of the sureties proper extension of the receivers' bonds should be had so as to cover the new situation.

On application to make receivers permanent.

James Byrne, for the motion. J. Parker Kirlin, for petitioner Metropolitan St. Ry. Co. Paul D. Cravath and Henry A. Robinson, for defendant New York City Ry. Co. Roger Foster, for Reisenberg & Gallagher, opposed. Henry Wollman, for Solomon Kohn, opposed. Hawes & Katchings, for tort creditors, opposed

LACOMBE Circuit Judge.

On September 24, 1907, a decree was entered on bill and answer appointing temporary receivers of the property of defendant, and October 7th was assigned as the date on which hearing should be had on the question whether the receivers should be continued with the usual powers exercised in such cases for operating and preserving the property, ascertaining the liabilities, marshaling the assets, and distributing the proceeds. It was announced that at such hearing not only the parties, but also any person in anywise interested, should be heard. Upon the hearing the court listened to argument from Mr. Byrnes, counsel for complainants, and Mr. Kirlin, for the Metropolitan Street Railway Company, from Mr. Foster, counsel for creditors in tort actions against the New York City Railway Company and against the Metropolitan, one of the former having obtained judgment before appointment of receivers, and from Mr. Hawes, representing tort creditors of the New York City Railway Company. The last two gentlemen appeared with petitions, the acceptance or consideration of which the court reserved till October 14th.

The suit at bar was brought by two general creditors of the New York City Railway Company to recover several thousand dollars for materials, and for work, labor, and services. Both complainants are residents of New Jersey, and defendant is a resident of New York. The bill, in the form usual in these cases, sets forth their claims, and asserts that the defendant is insolvent and unable to pay its present obligations, and is overwhelmed with heavy liabilities soon falling due, while its property consists of a leasehold of a system of street railroads composed of many component roads to whom or to whose bond holders payments are coming due default in the payment of which may interfere with the operation of the system. Answer was put in promptly after the filing of the bill, admitting all its allegations, and uniting in the application for appointment of receivers. Upon the facts thus presented to the court the complainants were entitled, under a multitude of precedents too well known to cite, to the appointment of receivers to marshal the property, ascertain the liabilities, and distribute what assets there might be among all entitled to them according to the rules and principles of equity. The complainants, it is true, did not have judgments for their respective claims with execution returned unsatisfied, but since Hollins v. Brierfield Coal Co., 150 U.S. 371, 14 Sup.Ct. 127, 37 L.Ed. 1113, it has always been understood by federal judges that in the opinion of the Supreme Court such prerequisites were solely for the benefit of the defendant, and when waived by him...