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

• Decision Date: 23 September 1913
• Docket Number: 2-149,2-23,Equity 2-9,3-37.
• Citation: 208 F. 168
• Parties: PENNSYLVANIA STEEL CO. et al. v. NEW YORK CITY RY. CO. et al. FARMERS' LOAN & TRUST CO. v. METROPOLITAN ST. RY. CO. et al. (two cases). GUARANTY TRUST CO. OF NEW YORK v. METROPOLITAN ST. RY. CO. et al.
• Court: U.S. District Court — Southern District of New York

208 F. 168

PENNSYLVANIA STEEL CO. et al. v. NEW YORK CITY RY. CO. et al. FARMERS' LOAN & TRUST CO. v. METROPOLITAN ST. RY. CO. et al. (two cases). GUARANTY TRUST CO. OF NEW YORK v. METROPOLITAN ST. RY. CO. et al.

Equity 2-9, 2-23, 2-149, 3-37.

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

September 23, 1913

[Copyrighted Material Omitted] [Copyrighted Material Omitted]

The order in this proceeding provides for the filing of type claims for preference by claimants, whose claims have heretofore been allowed, or are pending, against the New York City Railway Company, in the distribution of the assets of the estate of that company, and for the filing of similar claims for preference by the same claimants, and also by other claimants, whose claims have heretofore been allowed or are pending against the Metropolitan Street Railway Company in the distribution (1) of the assets of the estate of that company, or (2) out of the proceeds of the sale of any of its property, or (3) out of the income thereof, whether or not covered by mortgage or other lien. Discretion is given to hear and report on one or more claims so filed, as well as to allow to the claimant filing the distributive share payable out of either estate. Types of claims have been filed, and proof thereon taken accordingly, and they are intended to and doubtless do, suggest all grounds of preference which may be urged by any claimant whose claim has been allowed or is pending against either estate. A reservation in the order protects claimants not filing preference demands whose claim comes within the type to which a preference may be accorded. A single report will be made, therefore, on all claims for preference against both estates now dated, and the way will thus be cleared for a final determination by the court of the principles upon which the claims against both estates are to be disposed of. None of the claimants so filing asks that his distributive share be now reported on, for the reasons doubtless, that claims duly filed against each estate and against the receivers are still in process of adjustment, and because the assets belonging to each estate have not yet been fully ascertained by the accounting between the receiverships necessary for that purpose. It can be said, however, at this time that there is in possession of the receiver of the New York City Railway Company unmortgaged assets, consisting of cash on hand at the beginning of the receivership, materials and supplies of an ascertained value, for which the Metropolitan receivership has to account under the decree in the so-called 'termination of lease' proceeding (198 F. 723, 117 C.C.A. 503), and its right to share under the decree in the apportionment proceeding in assets recovered in the action at law and suit in equity therein apportioned, which are not subject to the demands of a particular class of creditors (198 F. 778, 117 C.C.A. 560). It has, in addition, its right to a share in the proceeds of the action at law under the latter decree for expenditures for construction purposes prior to the receivership, subject to the claims of construction creditors under the decision of the court in the Hugh Thomas claim, which is now before the Circuit Court of Appeals. The general assets of the Metropolitan estate, with the exception of the proceeds of sale of certain unpledged bonds, consist wholly of the amount allowed the Metropolitan Company, by such decree and the amount, if any, to be allowed on its claim against the City Company for damages for breach of the covenants in its lease to that company. Other assets are the proceeds of sale of its properties, subject to such equities as may exist against them.

In addition to claims for preference against the City estate, of which the four claims of supply creditors and the four claims of tort creditors suggest the types relied upon by such classes of creditors as entitling to a preference in the distribution of the City estate, 11 claims for preference against that estate were filed under the order, and exhaust all claims so filed against it. They are: Metropolitan stockholders, claim which has been withdrawn (198 F. 761, 117 C.C.A. 503); Central Crosstown claim (198 F. 756, 117 C.C.A. 503); Montague as receiver of Fulton Street Railway Company; Guaranty Trust Company, as trustee under the mortgage made by the Fulton Street Railway Company; receiver of the Metropolitan Company; Farmers' Loan & Trust Company as trustee, successor of Morton Trust Company; Central Park North and East River Company; Metropolitan Express Company (198 F. 735, 117 C.C.A. 503); National Conduit & Cable Company (198 F. 747, 117 C.C.A. 503); City of New York (191 F. 216); and New York Railways Company as holder of bonds of Metropolitan Street Railway Company.

The claims for preference filed against the Metropolitan estate find their types in the identical four claims of supply creditors above mentioned, and in three of the four claims of tort creditors so mentioned. In addition three other claims for preference are urged by tort creditors, of which one is asserted in the proceeds of the refunding foreclosure of the junior Metropolitan mortgage, and one in the proceeds of the Guaranty Trust Company foreclosure of its senior mortgage, both based on torts committed by the City Company, the third being based on a tort committed by the Metropolitan Company prior to its lease to the City Company. The other claims for preference against this estate are a construction supply claim and the claims of the Central Park North & East River Railroad Company, the Central Crosstown Company and the receiver of and trustee under the mortgage of the Fulton Street Railroad Company; these latter claims being for rent or payments in the nature of rent, and for waste arising out of breaches of its covenants in leases to the Metropolitan Company.

Except as to claims asserted by the four supply creditors to a preference in the distribution of the unmortgaged assets of the City Company it is clear that each and every other such claim above named must be denied. With reference to three of the claims for torts committed by the City Company prior to its receivership, suggested as types of claims entitled to a preference in such assets, it is sufficient to say that the court has said that they rank with general unsecured claims, and must be so classified. Penn. Steel Co. v. New York City Ry. (C.C.) 165 F. 457. Counsel for the tort creditors committee concedes this, reserving the contention for disposition by the Circuit Court of Appeals by appropriate exceptions. He does ask, however, that the fourth tort claim be accorded a preference over the Metropolitan receivers' claim against the city estate for breach of the Metropolitan city lease, and over so-called derivative claims based on the clause in such lease assuming liabilities of the Metropolitan Company under leases to it from the subsidiary companies above named, and all 'subsequent' claims, which mean only the above-mentioned 'Metropolitan Express' and 'National Conduit' claims. This demand, it is said, is based on facts suggesting a legal conclusion not yet presented to the court for its decision, and it will be passed on after the disposition of the other questions suggested by the record has been indicated. It may be said of claims against the City estate other than the Metropolitan and the so-called derivative claims that the New York Railways Company, while stated on the record to be such, is not even a claimant for a preference, as it has filed no claim; that the claim of the city of New York for preference has already been decided adversely to it by the court itself ((C.C.) 191 F. 216); that the National Conduit claim is based on an award of damages for breach of an executory contract to take cable, which was never delivered nor accepted before or after the receivership, and which did not contribute to the operation of the demised system of street surface roads in either period, and that it therefore does not come within the reason of the rule according preference to claims for supplies essential to operation; and that the Metropolitan Express Company claim, not being for such supplies, but for damages for failure to continue to accord to it the privilege of moving its freight over tracks and in cars furnished by the Metropolitan or City Companies, likewise fails to come within those rules, since a failure to furnish such facilities to this particular claimant did not of necessity tend to prevent their enjoyment by the public.

The remaining claims for preference against the City estate are claims of the Metropolitan receiver and the Farmers' Loan & Trust Company as successor to the Metropolitan mortgagee the Morton Trust Company, for damages for waste and failure to make payments, such as taxes, arising under the Metropolitan City lease (both of which are regarded by counsel for these claimants as claims for rent), and the so-called derivative claims on behalf of the subsidiary companies, to wit, the Central Crosstown, the Fulton street and the Central Park companies for payments of taxes or interest which were undoubtedly rentals due from the Metropolitan Company under leases and contracts with it which the City Company became liable to pay by that lease. As counsel for the Metropolitan receiver insists that this claim is entitled to preference in payment out of any operating revenue of the City Company in the hands of its receiver as an operating claim pari passu with other such claims, and as such a principle also affects these claims of subsidiary companies, it may conveniently be disposed of in this connection, since supply creditors are insisting that it must be determined as a fact that a very considerable sum in the hands of the City...