Sakis v. United States

Decision Date21 February 1952
Docket NumberNo. 763-51.,763-51.
Citation103 F. Supp. 292
PartiesSAKIS et al. v. UNITED STATES et al.
CourtU.S. District Court — District of Columbia

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Donald S. Caruthers and Albert C. Borghi, Washington, D. C., for plaintiffs.

John J. Donnelly, Jr., Special Asst. to the Atty. Gen. and Vincent A. Gorman, Attorney, Department of Justice, Washington, D. C. (H. G. Morison, Asst. Atty. Gen. and James E. Kilday and Newell A. Clapp, Special Assts. to the Atty. Gen., of counsel), for the United States.

Robert J. Fletcher and Richard Jackson, Boston, Mass., John L. Sullivan, John E. Shea, James G. Boss, and Sullivan, Bernard, Shea & Kenney, all of Washington, D. C., for Boston & M. R. R.

Edward M. Reidy, Associate Chief Counsel, Washington, D. C. (Daniel W. Knowlton, Chief Counsel, Washington, D. C., of counsel), for Interstate Commerce Commission.

John Lord O'Brian, Howard C. Westwood and Covington & Burling, all of Washington, D. C. (Neil Leonard and Bingham, Dana & Gould, all of Boston, Mass., of counsel), for Old Colony Trust Co.

Richard H. Wilmer, John H. Pickering and Wilmer & Broun, all of Washington, D. C. (Moses & Singer, and Cravath, Swaine & Moore, all of New York City, of counsel), for Goldman, Sachs & Co. and L. F. Rothschild & Co.

Henry B. Weaver Jr. and Thomas M. Cooley, II, Washington, D. C., and R. Sturgis Ingersoll, Philadelphia, Pa., for Pennroad Corp.

Mechlin, Marshall & Smith and Sidney V. Smith, Washington, D. C., for Eugene D. Hopper, Ernest E. Swartswelter and Marian M. Swartswelter.

Before CLARK, Circuit Judge, and MORRIS and TAMM, District Judges.

TAMM, District Judge.

Factual Background.

This is an action invoking the functions of a statutory three-judge court under Section 2321 of Title 28 of the United States Code to enjoin, suspend, set aside and annul an order of the Interstate Commerce Commission (hereafter called the Commission). The plaintiffs ask also that the Court declare Section 20b of Title 49 of the United States Code Annotated (known as the Mahaffie Act) unconstitutional. The order challenged in this action had its genesis in a proceeding before the Commission entitled Finance Docket No. 16250. The order authorized the Boston and Maine Railroad (hereafter called the Railroad) to put into effect a plan of security modification.

The plaintiffs in this action are Mabel Benson Sakis, an individual, and Mabel Benson Sakis and Byron J. Harrill, a Committee of Stockholders (hereafter called the Committee) representing certain other shareholders. Both the individual plaintiff and the members of the Committee held stock of the Boston and Maine Railroad at the time of the proceedings before the Commission as they do at present. The plaintiffs participated as intervenors in the Commission proceedings and opposed the plan.

The United States appears as party defendant as it is required to do under the provisions of Title 28 of the United States Code, Sections 2321, 2322. The statutory defendant has confessed error as to certain of the allegations made by the plaintiffs. Joined with the United States as a defendant is the Boston and Maine Railroad.

The Commission intervened in this action under the provisions of Title 28 of the United States Code, Section 2323. Other intervenors before the Court were the Old Colony Trust Company of Boston, Mass., the independent depository approved by the Commission to receive and tabulate the assents of shareholders to the security modification plan; L. F. Rothschild & Company; Goldman Sachs & Company; The Pennroad Corporation; and a group of three individual stockholders of the Railroad.

The Railroad filed an application with the Commission on August 25, 1948, to modify its security structure under the provisions of Section 20b of the Interstate Commerce Act, 49 U.S.C.A. § 20b. This statutory provision, popularly known as the Mahaffie Act, was enacted April 9, 1948, to relieve the financial distress of railroads that are not in need of reorganization under Section 77 of the Bankruptcy Act, 11 U.S.C.A. § 205, or by way of an equity receivership. It provides for a binding plan of modifying a railroad's capital structure when a stated percentage of those stockholders affected approve, with power to bind the dissenters. Before any proceedings were taken with respect to the original application, the Railroad submitted its Supplemental Application No. 1 on January 24, 1949. The Commission entered an order on February 8, 1949, setting the matter for hearing. Pursuant to this order, a hearing was held before an Examiner in Boston during a five-day period commencing March 28, 1949. The plaintiffs before this Court, as well as certain other intervenors, appeared, offered evidence, submitted a brief, and cross-examined witnesses supporting the proposed modification plan. At the hearing, 778 pages of testimony and twenty-seven exhibits were adduced. The Examiner released his proposed report under date of August 17, 1949, and exceptions thereto were filed, all pursuant to statutory authority, by the Railroad, the plaintiffs and certain of the other intervenors. Thereafter, on October 24, 1949, the proceeding was argued before Division 4 of the Commission.

On April 19, 1950, the Commission issued its first report in this case. It approved with some minor changes the plan of security modification submitted by the Railroad. Briefly, this plan calls for a reduction in the number of classes of the Railroad's stock, as well as the aggregate par value of its capital stock; authorizes the issuance of new stock; and cancels dividend arrearages on certain classes of the Railroad's stock. Following this decision of Division 4, certain of the intervenors filed a petition for reconsideration and modification of the report. In response thereto, the entire Commission issued a supplemental report on July 10, 1950. In this report the Commission stated: "Upon consideration of the entire record in this proceeding and of the petitions and reply thereto filed herein, we find that there has been presented no error of fact or law in the report and order by division 4 herein dated April 19, 1950. We further find that no showing has been made warranting reargument or vacation of the order and entry of an order denying the application herein, or modification of the report and order as requested by the petitioners. We further find that the report and order should be affirmed in all respects and that the petitions, except so far as they ask reconsideration, should be denied."

Thereafter, the plaintiffs, on July 14, 1950, filed objections to the material proposed to be sent to stockholders of the Railroad in connection with the solicitation of assents under the Plan. Division 4 ruled that the objections were not timely. Petitions were then filed for hearing and review by the full Commission of the action of Division 4. The Commission denied the petitions on August 15, 1950.

The Railroad conducted its campaign to solicit assents; and on December 15, 1950, by appropriate publication, announced the end of the submission period upon the ground that sufficient assents had been received to comply with the requirements laid down by Division 4 in the order of April 19, 1950. Thereupon, the Railroad filed Supplemental Applications Nos. 2 and 3 (December 27, 1950) which sought a final order permitting the consummation of the plan. The plaintiffs filed a reply to these supplemental applications, raising certain questions which the Commission discussed in its third report and order issued January 23, 1951. The Commission in this report found that the Railroad had obtained the required number of assents to the plan and authorized the Railroad to execute the plan.

On February 20, 1951, the plaintiffs filed a further petition with the Commission on behalf of a committee of stockholders for reopening of the proceeding. The Commission on the next day, February 21, 1951, denied this petition. That same day, the plaintiffs filed in this court a complaint challenging the proceedings before and order of the Commission and obtained a restraining order from this court, which order stayed the Commission's final order placing the plan in operation.

Subsequently, on February 28, 1951, the plaintiffs filed a supplemental and amended complaint alleging that the Commission's order was invalid because: (1) of some procedural errors in the Commission proceedings which constituted arbitrary and unlawful conduct on the part of the Commission; (2) there was no evidence in the record before the Commission to support certain of its findings, and (3) Section 20b of the Interstate Commerce Act is unconstitutional and void.

The pleadings in this case have raised many and varied questions of law. Of necessity, the Court's opinion is a longer one. The several challenges of the plaintiffs to the order of the Commission will be considered individually.

Classes of Stock.

The Mahaffie Act, under which the modification plan was proposed and considered, requires: "If the Commission shall find that as a result of such submission the proposed alteration or modification has been assented to by the holders of at least 75 per centum of the aggregate principal amount or number of shares outstanding of each class of securities affected thereby (or in any case where 75 per centum thereof is held by fewer than twenty-five holders, such larger percentage, if any, as the Commission may determine to be just and reasonable and in the public interest), the Commission shall enter an order approving and authorizing the proposed alteration or modification upon the terms and conditions and with the amendments, if any, so determined to be just and reasonable." 49 U.S. C.A. § 20b (2) (d).

It thus appears that the Commission must determine how many classes of securities are involved in a carrier's capital structure. The Commission found that...

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3 cases
  • Public Service Commission of Utah v. United States, Civ. A. No. C-8-56.
    • United States
    • U.S. District Court — District of Utah
    • 25 de maio de 1956
    ...466, 38 S. Ct. 141, 62 L.Ed. 400; State of New York v. United States, 331 U.S. 284, 335, 67 S.Ct. 1207, 91 L.Ed. 1492; Sakis v. United States, D.C., 103 F.Supp. 292, appeal dismissed 344 U.S. 801, 73 S.Ct. 4, 97 L.Ed. 625. The record in the State proceeding is irrelevant and the objection t......
  • City of New York v. United States
    • United States
    • U.S. District Court — Eastern District of New York
    • 20 de janeiro de 1972
    ...in a proceeding such as this is only to review the decision of the Commission in light of the record before it. See Sakis v. United States, 103 F.Supp. 292, 313 (D.D.C.) (three-judge court), appeal dismissed by stipulation, 344 U.S. 801, 73 S.Ct. 4, 97 L.Ed. 625 (1952). It is consistent wit......
  • Wood v. United States
    • United States
    • U.S. District Court — Southern District of New York
    • 13 de junho de 1955
    ...prompt removal of arrearages were good. But in Boston & Maine R. Securities Modification, 275 I.C.C. 397, affirmed Sakis v. United States, D.C., 103 F.Supp. 292, 304, where arrearages could be expected to last for 74 years, and further accumulations could be expected for 17 years, a modific......

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