Powell v. Link, 4633.

• Citation: 114 F.2d 550
• Decision Date: 16 September 1940
• Docket Number: No. 4633.,4633.
• Parties: POWELL et al. v. LINK et al.
• Court: U.S. Court of Appeals — Fourth Circuit

114 F.2d 550 (1940)

POWELL et al. v. LINK et al.

No. 4633.

Circuit Court of Appeals, Fourth Circuit.

September 16, 1940.

W. R. C. Cocke, of Norfolk, Va., for appellants.

James H. Price, of Greenville, S. C., and Alexander W. Parker, of Richmond, Va. (Price & Poag and W. A. Bull, all of Greenville, S. C., J. Moore Mars, of Abbeville, S. C., and Richard McDearmon and Christian, Barton & Parker, all of Richmond, Va., on the brief), for appellees.

Before PARKER, SOPER, and DOBIE, Circuit Judges.

DOBIE, Circuit Judge.

We adopt the statement of the facts of this case contained in the brief of appellants (pp. 1-3), which reads as follows:

"This is an appeal from an order entered on February 28, 1940, by the District Court of the Eastern District of Virginia in the Seaboard Air Line Railway Receivership Proceedings allowing priority to the claims of Appellees Link and Moore. The claims are evidenced by judgments obtained by the claimants against the Railway Company prior to the receivership in suits for personal injuries received in the course of their employment. Link recovered a judgment for $15,000. in a South Carolina State Court on April 26, 1929, and Moore a judgment for $4,000. in a Georgia State Court on November 7, 1930.

"The District Court held the claims to be entitled to preference and payment out of receivership assets by reason of the amendment approved August 11, 1939, to Subsection n of Section 77 of the Bankruptcy Act, 11 U.S.C.A. § 205, sub. n which provides as follows:

"`(n) In proceedings under this section, and in equity receiverships of railroad corporations now or hereafter pending in any Court of the United States, claims for personal injuries to employees of a railroad corporation, claims of personal representatives of deceased employees of a railroad corporation, arising under State or Federal laws, and claims now or hereafter payable by sureties upon supersedeas, appeal, attachment, or garnishment bonds, executed by sureties without security, for and in any action against such railroad corporation or trustees appointed pursuant to this section, shall be preferred and paid out of the assets of such railroad corporation as operating expenses of such railroad.' "In so holding the Court ruled that it was controlled by the recent decision of the Supreme Court of the United States in Carpenter v. Wabash Ry. Co., 309 U.S. 23, 60 S.Ct. 416, 84 L.Ed. 558, decided January 29, 1940, which upheld the amendment to Subsection (n) of Section 77 as constitutionally applying to equity receiverships.

"In holding the claims entitled to priority, however, the order appealed from directed payment not only of the principal amounts but of interest at the rates provided by the state statutes for interest on judgments from the dates of the rendition of the judgments until the date of payment when made by the Receivers."

Two questions are presented for our consideration on this appeal:

(1) Did Congress have the power, under the Fifth and Tenth Amendments to the Constitution of the United States, to make the claims of the appellees prior to existing lien obligations of the Railway Company, particularly the mortgages constituting liens upon the properties of the Railway Company and the receivers' certificates issued under previous decrees of the District Court which provided that such certificates should be secured by a paramount lien upon all the fixed properties of the Railway Company and also upon all its surplus earnings and income not used in maintenance and operation of its properties?

(2) If Question 1 be answered in the affirmative, did Judge Way err in allowing not only the principal amounts of the claims of appellees but also interest thereon, until the date of payment by the receivers, at the rates provided by the statutes of the states wherein the judgments of appellees were obtained?

The first question, we think, requires no extended discussion on our part. As did Judge Way, so do we think this question has been quite definitely decided in favor of the appellees by the United States Supreme Court in Carpenter v. Wabash Railway Co., 309 U.S. 23, 60 S.Ct. 416, 84 L.Ed. 558. This case passed on the very statute now before us; the claim there, as here, was a judgment for personal injuries received by an injured employee of the railroad. Said Chief Justice Hughes, (309 U.S. at pages 27-29, 60 S.Ct. at page 418, 84 L.Ed. 558) in the Carpenter case:

"We are of the opinion that the amended statute is applicable to this proceeding. The statute applies to `equity receiverships of railroad corporations now * * * pending in any court of the United States'. This is such a case. The statute applies to `claims for personal injuries to employees of a railroad corporation'. This is such a claim. The statute says that a claim of that sort `shall be preferred and paid out of the assets of such railroad corporation as operating expenses of such railroad'. This is a direct requirement governing the action of the court in this cause.

"We have no doubt that Congress has constitutional power to impose this requirement. We have held that earnings, while a railroad is in possession of the court and operated by its receivers, `are not necessarily and exclusively the property of the mortgagees' but are subject to the payment of claims which have superior equities as these may be found to exist. Fosdick v. Schall, 99 U.S. 235, 25 L.Ed. 339; Hale v. Frost, 99 U.S. 389, 392, 25 L.Ed. 419. Claims having such equities may be accorded priority in payment although they arose prior to the receivership. Miltenberger v. Logansport C. & S. W. Railway Co., 106 U.S. 286, 1 S.Ct. 140, 27 L.Ed. 117; Burnham v. Bowen, 111 U.S. 776, 4 S.Ct. 675, 28 L.Ed. 596; Union Trust Co. v. Illinois Midland R. Co., 117 U.S. 434, 6 S.Ct. 809, 29 L.Ed. 963. It is manifest that the reasonable classification of claims as entitled to priority because of superior equities may be the subject of determination by Congress in providing for the distribution of assets in bankruptcy proceedings. See Kuehner v. Irving Trust Co., 299 U.S. 445, 451, 452, 57 S.Ct. 298, 301, 81 L.Ed. 340. In this view, the provision of subsection (n) of Section 77 of the Bankruptcy Act 11 U.S.C.A. § 205, as it stood prior to the amendment of August 11, 1939, was sustained by the Circuit Court of Appeals of the Seventh Circuit in Wise v. Chicago, R. I. & P. R. Co. 7 Cir. 90 F.2d 312, 113 A.L.R. 487, with respect to certain unsecured surety bonds, and by the Circuit Court of Appeals of the Eighth Circuit with respect to claims for injuries to railroad employees. Central Hanover Bank & Trust Co. v. Williams 8 Cir. 95 F.2d 210; Thompson v. Siratt 8 Cir. 95 F.2d 214.

"We see no ground for a different conclusion with respect to the power of Congress to enact the amendment in relation to the distribution of assets in the case of an equity receivership. And the fact that the provision as to the latter is included in a section of the bankruptcy statute does not derogate from its controlling authority as an expression of the will of Congress. The Circuit Court of Appeals of the Eighth Circuit has recently held this provision as to equity receiverships to be applicable and valid in relation to claims for personal injuries sustained by employees of this railroad corporation. American Surety Co. v. Wabash Railway Co. 8 Cir. 107 F.2d 685. We think the conclusion is sound."

Counsel for appellants strongly urge that, as far as the instant decision is concerned, the Carpenter decision is largely dictum. We are not impressed by that contention. In Paramino Lumber Co. v. Marshall, 309 U.S. 370, 60 S.Ct. 600, 84 L.Ed. 814, the Carpenter case was expressly approved, when Mr. Justice Reed (309 U.S. at page 379, 60 S.Ct. at page 603, 84 L.Ed. 814) said: "In Carpenter v. Wabash Railway Co., we upheld as valid and applicable an act granting priority to railroad employees for damages for personal injuries over other claimants in equity receiverships."

The opinions of the Supreme Court in the Carpenter and Paramino cases, we think, definitely control the constitutionality of the federal statute and the applicability of this statute to the claims of the appellees. Upon the strength of those two cases, then, we affirm Judge Way and answer the first question in the affirmative.

Question number two is of less importance but of greater difficulty. The statute gives preference and priority to "claims"; it is silent on the subject of interest on these claims. Nor does the opinion in the Carpenter case even mention the subject of interest. However, the report of the Carpenter case in the Circuit Court of Appeals reveals that the claim was for judgment and interest. Carpenter v. Wabash R. Co., 8 Cir., 103 F.2d 996, 998. The closing statement of the Supreme Court would thus appear to recognize the preference and priority of the interest as well as the principal sum (309 U.S. at page 30, 60 S.Ct. at page 419, 84 L.Ed. 558): "The judgment of the Circuit Court of Appeals is vacated and the cause is remanded to the District Court with directions to allow petitioner's claim in accordance with the statutory provision."

In all events, if interest be allowable here, and we think it is, it would seem (as Judge Way held) the proper rate would be that fixed by the applicable statute of the state in which the judgment of the claimant was obtained.

In his opinion in the District Court, Judge Way had this to say on the subject of interest: "As I view the Statute, Congress did not undertake to determine the amounts of such claims or the interest that was properly allowable where the claim was reduced to judgment prior to the receivership, but merely took such claims out of the general, unsecured class and elevated them to a class entitled to priority of payment out of the assets of the railroad. That, it seems to me, is the substance of the Act. I do not find in the Act anything that authorizes the Court to say that it...