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

• Decision Date: 28 March 1912
• Docket Number: 2-149,2-33,3-37.,2-9
• Parties: PENNSYLVANIA STEEL CO. et al. v. NEW YORK CITY RY. CO. et al.
• Court: U.S. District Court — Southern District of New York

195 F. 614

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

Nos. 2-9, 2-33, 2-149, 3-37.

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

March 28, 1912

Richard Reid Rogers and William M. Coleman, for petitioner.

Arthur H. Masten and Ellis W. Leavenworth, for receivers.

LACOMBE Circuit Judge.

This is an application by the New York Railways Company, assignee of the purchaser at foreclosure sale of the Metropolitan Railway System, for instructions to the Metropolitan Railway receivers to prorate certain charges against the property purchased and to pay to the new company, such proportion of those charges as covers the period to January 1, 1912. The items are for such things as taxes, mortgage interest on the bonds of constituent roads falling due subsequent to January 1st, and similar charges. It is understood that petitioner does not dispute that upon the face of the papers, the decree, etc., it is primarily liable to the creditor. The theory is that, had there been no sale, the receivers would have paid these charges to keep the property together as a going concern; that, according to well-recognized rules of railway bookkeeping, they are operating expenses to be prorated in all accountings. Therefore it is contended that, although by the terms of the decree the purchaser assumed liability, it is fair and equitable that out of the surplus in their hands resulting from operation until January 1, 1912, receivers should contribute the proportion of these charges which would cover the same period.

It may be remarked at the outset that this application, like the one recently considered as to tort claims (February 3, 1912), is founded on a misapprehension as to the existence of a surplus. It was stated on the argument that receivers have now about $1,300,000 in banks and trust companies, and, of course, have no longer any operating expenses to meet. But the court is by no means satisfied that the Metropolitan receivers have any real surplus resulting from operation. It will be remembered that immediately after the appointment of receivers of the New York City Railway Company and their taking possession of this system there fell due an installment of interest under the Metropolitan second mortgage, default in which would have been followed by the appointment of a receiver under mortgage pending foreclosure. Thereupon the Metropolitan Company itself asked to have the same receivers appointed as receivers of its property. This was done, and the court thereupon instructed them to pay the installment of interest then due. All this will be found discussed in 190 F. 609. The result was the creation of a dual receivership of the same property, the receivers operating it as conservators for all interests (in order that the franchises should not be imperiled by failure of public service); the question as to which road it was in whose interest such operation was conducted being left to be disposed of after the subject was more fully understood. In the case last above cited this court has found that on and after October 1, 1907, such operation was for the interest of the estate of the Metropolitan, and that the New York City estate was under no obligation to contribute thereto. The receivers kept on operating using any money they could get from whatever source it might come, to pay expenses of such operation. It is understood that in this way they used much cash and a very large amount of supplies, all the property of the estate of the New York City Company, which amounted to much more than $1,000,000. There are also pending before the special master claims against receivers by the Second Avenue Railroad Company and the Central Park North & East Railroad Company for use and occupation of their lines by receivers and for conversion of property. These claims aggregate several hundred thousand dollars, and have not yet been liquidated by the special master. It is quite possible therefore, that, when these three claims and such other smaller ones as there may be are liquidated and paid, they may exhaust the surplus from operation now in receivers' hands. It cannot safely be held now that the receivers have any money, free to respond to claims such as are made by this petitioner.

It is further suggested that receivers will receive a very large sum of money as the Metropolitan's distributive share of the proceeds of the two actions which were settled for...