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

• Citation: 182 F. 155
• Parties: PENNSYLVANIA STEEL CO. v. NEW YORK CITY RY. CO. et al.
• Decision Date: 21 September 1910
• Court: U.S. District Court — Southern District of New York

182 F. 155

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

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

September 21, 1910

This is an application for an order directing the receiver of the New York City Railway Company to pay out of the funds in his possession all contract claims, with interest thereon, which have been allowed or may hereafter be allowed against the New York City Railway Company for supplies, materials, or services furnished or rendered in or about the operation of the Metropolitan-Third Avenue street railway system by the New York City Railway Company, or for any new construction undertaken or carried on by the New York City Railway Company prior to September 25, 1907, the date when receivers were appointed.

Byrne &amp Cutcheon, for complainants.

James L. Quackenbush, for defendant.

Masten & Nichols, for receiver Metropolitan St. Ry. Co.

Dexter Osborn & Fleming, for receiver New York City Ry. Co.

LACOMBE Circuit Judge.

These claims amount in all to about $1,250,000, of which nearly $1,130,000 has been allowed by the master, but without any distribution as between 'operating' and 'construction' claims. The application is based upon the proposition that in equity the receiver has funds in his hands which are properly applicable to the payment of these contract creditors' claims to the exclusion of all other claimants, and that such funds are greatly in excess of the amount of such contract creditors' claims.

It is now nearly three years since the New York City Railway Company was placed in receivers' hands, and its receivers have collected large sums of money. It would be a great gratification to the court if, without further substantial delay, all preferred creditors could be paid in full, or could at least receive a dividend on their respective claims and it was hoped, when notice of this application was given, that some such relief might now be granted. But the various answers of other parties interested and the report of the present receiver indicate quite clearly that it would not be safe to make any such direction as is prayed for until several questions, as yet undisposed of, shall be finally determined. It is thought, however, that these questions have reached such a stage that they can be thus disposed of with reasonable expedition. They may be here briefly formulated:

1. The application is made on behalf of creditors to the amount of about $1,250,000 who claim to be entitled to a preference over all other creditors. But there are other creditors who insist that they are equally entitled to a preference in payment out of the funds in receiver's hands.

In the first place, there are tort claims, for personal injuries, aggregating nearly $1,850,000. Contention has been made that such claims for damages resulting from accidents which happened before the appointment of receivers through negligent operation of the railway by defendant should rank with claims for labor and materials supplied for operating the road. This contention came up incidentally over two years ago upon an application to adopt certain rules and classification, contained in some books relating to street railway accounting, as the basis for classification of claims, and to direct receivers to follow such classification.

The court treated the application as directed really to obtain a ruling as to the status of such claims. Reference was had to conflicting decisions in the federal courts, and the opinion of the Circuit Court of Appeals in the Eighth Circuit (St. Louis Trust Co. v. Riley, 70 F. 32, 16 C.C.A. 610, 30 L.R.A. 456) was concurred in and followed. The application was denied, and it was held that such tort claims accruing prior to receivership rank with general unsecured claims and should be so classified. Penn. Steel Co. v. New York City Ry. (C.C.) 165 F. 457. It was supposed that this decision would be reviewed on appeal, but no appeal was ever taken, possibly because the application was a summary one, and it was thought better to secure final determination on some testimony. Subsequently, upon request, the court, on April 27, 1909, filed a memorandum instructing the special master that he should, 'upon notice and after hearing, report what, if any, claims should be classified as preferred. ' Whether or not any test case as to the status of personal injury claims has been made up before the special master the court is not advised; but it certainly would seem that this question might speedily be submitted to him and put in condition for securing a decision of the Circuit Court of Appeals, which would finally dispose of it.

It appears that the only committee of tort creditors of which the court has any knowledge expresses, by counsel, its assent to the pending application; but how many such creditors it represents does not appear, and the assent is guardedly expressed as follows:

'The tort creditors will probably consent to the proceeding and are fully protected by the remaining funds.'

Under all these circumstances, it cannot be assumed to be finally settled that the preferred claims will not be increased in the amount of $1,850,000.

In the next place, there are claims filed by the city of New York for car license fees amounting to nearly $200,000, which the city claims are preferred. It is stated in a brief filed in support of this motion that this question was determined adversely to the city by the Circuit Court of Appeals in the Third Avenue-American Surety Co. Case, 180 F. 710. But that case was complicated with a question of subrogation. Another appeal, which involves the point, has been taken, but is not yet argued.

The city has also filed claims for upwards of $4,500,000 percentage of gross earnings and upwards of $9,000,000 for penalties, on all of which it insists that it is entitled to a preference. The brief above referred to asserts that the city has agreed to withdraw these claims; but it has not yet done so, and so far as the record shows there are now upwards of $15,000,000 of claims on which a preference is claimed, irrespective of those of the contract creditors who make this application. These might be disposed of expeditiously (as to their status); but, until that has been done, it would not be wise to undertake to pay a dividend to any claimant of a preference.

2. The petitioners show that the receiver has collected over $6,500,000 on two choses in action of the New York City Railway Company recently settled. See memorandum of July 1910. Of this sum, however, $3,500,000 cannot now be disturbed. On March 30, 1908, that amount of receivers' certificates was authorized. 161 F. 787. Inasmuch as the proceeds thereof were to be devoted exclusively to the improvement, acquisition, and preservation of property of the Metropolitan Street Railway covered by both mortgages, this court directed that the certificates should be a lien only on that property. 165 F. 455. The Court of Appeals reached a different conclusion. It did not determine definitely or finally how much should be redeemed by the estate of either company, nor even whether the New York City Company's estate should redeem any part of them; all such questions being reserved. 163 F. 242, 245, 90 C.C.A. 188. And in the decision of that court, affirming decree of foreclosure in Guaranty Trust Company v. Met. St. Ry. Co., 177 F. 925, provision was made for a fund in cash ($10,000,000) abundantly sufficient to provide for these certificates and for all other claims against that company. Nevertheless, it was ordered that this issue...