Railway Steel Spring Co. v. Chicago & E.I.R. Co.

• Decision Date: 01 November 1919
• Docket Number: 57.
• Court: U.S. District Court — Northern District of Illinois
• Parties: RAILWAY STEEL SPRING CO. v. CHICAGO & E.I.R. CO.

261 F. 690

RAILWAY STEEL SPRING CO. v. CHICAGO & E.I.R. CO.

No. 57.

United States District Court, N.D. Illinois.

November 1, 1919

Will H Lyford, of Chicago, Ill., for receiver.

Arthur H. Van Brunt, of New York City, and Howard M. Carter, of Chicago, Ill., for Central Trust Co. of New York.

Roberts Walker, of New York City, and Mitchell D. Follansbee and M C. Bragdon, Jr., both of Chicago, Ill., for Bankers' Trust Co.

Donald F. McPherson (representing Cutting, Moore & Sidley), of Chicago, Ill., for Equitable Trust Co. of New York.

Edward H. Blanc, of New York City, and F. B. Johnstone, of Chicago Ill., for Farmers' Loan & Trust Co.

Brode Davis, of Chicago, Ill., for Metropolitan Trust Co. of City of New York.

S. O Levinson, of Chicago, Ill., for stockholders' committee.

CARPENTER District Judge.

Upon reading and filing the petition of Thomas D. Heed, receiver, heretofore appointed and now acting in the above-entitled cause, for instructions as to further procedure to secure just compensation for the use of Chicago & Eastern Illinois Railroad under federal control, and the report of negotiations on behalf of said receiver with the Director General of Railroads, relating to such compensation; upon motion of counsel for the receiver, and it appearing that counsel representing all parties to this proceeding had due notice of the hearing on said petition, and that the general counsel to the Director General of Railroads also had notice of this hearing and declined to appear; and the court having taken proofs of the facts and circumstances set forth in said petition and in said report, and being now satisfied that the prayer of said petition ought to be granted, and that it is a proper exercise of the court's discretion and power in the premises to enter an order herein, adjudging whether or not $3,280,000.88, the amount of annual compensation offered by the Director General to the receiver, would constitute just compensation for the possession, use, and operation of the Chicago & Eastern Illinois Railroad during federal control, and to direct the receiver to accept such amount of compensation nd proceed with the negotiation of a contract with the Director General of Railroads based upon such compensation, or to reject such amount of compensation and to proceed in accordance with the third section of the Federal Control Act (Act March 21, 1918, c. 25, 40 Stat. 454 (Comp. St. 1918, Sec. 3115 3/4c)), and the court having heard arguments of counsel for the receiver and of counsel for the stockholders and for the trustees under each of the mortgages which have been foreclosed in this cause, and for the bondholders' committees which represent the majority in amount of the bonds secured by such mortgages, to the effect that the said amount of compensation is inadequate and unjust, and should not be accepted by the receiver; and due deliberation being had, the court finds the following facts and conclusions of law:

The Chicago & Eastern Illinois Railroad, comprising sundry railroad lines in the states of Illinois and Indiana, on the 28th day of December, 1917, was in the possession and custody of this court, through its receiver, William J. Jackson. On said date, the President of the United States, acting through the Secretary of War and under the authority conferred upon him by the act of Congress approved August 29, 1916, took possession and assumed control of said railroad, together with other railroads, under a formal proclamation, in which the President declared that it had then--

'become necessary in the national defense to take possession and assume control of certain systems of transportation and to utilize the same, to the exclusion as far as may be necessary of other than war traffic thereon, for the transportation of troops, war material and equipment therefor, and for other needful and desirable purposes connected with the prosecution of the war.'

It was further stated in such proclamation that, for the purposes of accounting, such possession and control should date from 12 o'clock midnight on December 31, 1917.

By the first paragraph of section 1 of an act of Congress, approved March 21, 1918, called the Federal Control Act (Comp. St. 1918, Sec. 3115 3/4a), the President was authorized to agree with and to guarantee to any carrier making operating returns to the Interstate Commerce Commission that, during the period of such federal control, it should receive as just compensation an annual sum, payable from time to time in reasonable installments, for each year and pro rata for any fractional year of such federal control, not exceeding a sum equivalent as nearly as may be to its average annual railway operating income for the three years ended June 30, 1917.

The sixth paragraph of section 1 of the Federal Control Act was as follows:

'If the President shall find that the condition of any carrier was during all or a substantial portion of the period of three years ended June thirtieth, nineteen hundred and seventeen, because of nonoperation, receivership, or where recent expenditures for additions or improvements or equipment were not fully reflected in the operating railway income of said three years or a substantial portion thereof, or because of any undeveloped or abnormal conditions, so exceptional as to make the basis of earnings hereinabove provided for plainly inequitable as a fair measure of just compensation, then the President may make with the carrier such agreement for such amount as just compensation as under the circumstances of the particular case he shall find just.'

By an order entered in this cause April 27, 1918, the receiver's counsel was directed to negotiate, with he President of the United States or his duly authorized representative, an agreement for the maintenance and upkeep of said railroad during the period of federal control, for the determination of the rights and obligations of all parties to the agreement, arising from or out of federal control, including the compensation to be received or guaranteed, as in said federal act more fully provided. In such order counsel was directed, from time to time to make report of the result of such negotiations, and it was also ordered that no such agreement should be made or should become effective until it should have been approved by the court, on hearing, after notice to counsel for all parties to the record in this cause, and to the general counsel to the Director General of Railroads.

Pursuant to said order of the court, a report of negotiations with the Director General and his representatives was filed herein October 17, 1919, together with a petition by the receiver for instructions as to further procedure to secure just compensation for the use of said railroad while under federal control. On said last-mentioned date a hearing was had on such petition and report.

This railroad property was placed in the custody of this court to be operated and especially conserved for those most entitled to it, the security holders, the stockholders, and the creditors. It is the duty of the court to determine whether that has been done and would be done by accepting the Director General's offer of $3,280,000.88, as annual compensation for the possession, use, and operation of the said railroad during the period of federal control. The court must determine whether such amount constitutes just compensation, and, if it determines that the receiver ought to have compensation in a greater amount than is so offered, the court cannot, in good conscience, authorize him to accept the amount offered.

The ultimate determination of the amount of compensation which an owner shall receive for the use of his property, taken from him by the government...