St Joe Paper Co v. Atlantic Coast Line Co Lynch v. Atlantic Coast Line Co Aird v. Atlantic Coast Line Co Welbon v. Atlantic Coast Line Co

• Decision Date: 05 April 1954
• Docket Number: Nos. 24,33,37,36,s. 24
• Citation: 347 U.S. 298,74 S.Ct. 574,98 L.Ed. 710
• Parties: ST. JOE PAPER CO. et al. v. ATLANTIC COAST LINE R. CO. LYNCH et al. v. ATLANTIC COAST LINE R. CO. AIRD et al. v. ATLANTIC COAST LINE R. CO. WELBON et al. v. ATLANTIC COAST LINE R. CO
• Court: U.S. Supreme Court

347 U.S. 298

74 S.Ct. 574

98 L.Ed. 710

ST. JOE PAPER CO. et al.

v ATLANTIC COAST LINE R. CO.

LYNCH et al.

v. ATLANTIC COAST LINE R. CO.

AIRD et al.

v. ATLANTIC COAST LINE R. CO.

WELBON et al.

v. ATLANTIC COAST LINE R. CO.

Nos. 24, 33, 36, 37.

Argued Oct. 15, 1953.

Decided April 5, 1954.

Mr.

William D. Mitchell, New York City, for petitioners.

Mr. Edward W. Bourne, New York City, for respondent.

Mr. Justice FRANKFURTER delivered the opinion of the Court.

The sole question for decision in this case is whether the Interstate Commerce Commission has the power under § 77 of the Bankruptcy Act to submit a plan of reorganization to a district court whereby a debtor railroad would be compelled to merge with another railroad having no prior connection with the debtor. Answer to this problem depends on understanding of a long legislative history. First, however, it is necessary to put the problem into its relevant context.

In August of 1931, the Florida East Coast Railway was thrown into equity receivership. It operated in this manner until January of 1941, when a committee representing the owners of a substantial portion of the debtor's principal bond issue filed a petition for reorganization under § 77 of the Bankruptcy Act in the United States District Court for the Southern District of Florida. The petition was approved by the court, and, as provided in the statute, proceedings were initiated before the Interstate Commerce Commission for hearings on a plan of reorganization formulated by the bondholders' committee. In re Florida East Coast Ry. Co., D.C., 103 F.Supp. 825.

In the course of the next ten years, many proposals have been considered by the Commission. Most of them were rejected for one reason or another, but three have in turn been certified by it to the District Court. None has as yet been confirmed by that court. The initial plan provided for a simple internal reorganization. It was rejected by the court, and the case was remanded to the Commission with directions to take account of an intervening improvement in the debtor's cash position. D.C., 52 F.Supp. 420. Atlantic Coast Line Railroad, the present respondent, first appeared on the scene in November 1944 when, after the Commission's hearings for the purpose of devising a second plan had been closed, one Lynch, joined by other bondholders of the debtor, sought to reopen the proceedings for the purpose of proposing a new plan whereby each recipient of stock in the reorganized debtor would be required to sell 60% of his interest at par to Atlantic, a connecting carrier, thereby giving that railroad operating control of the debtor. On November 30, 1944, Atlantic was allowed to intervene before the Commission in support of the Lynch proposal. The St. Joe Paper Co., on the other hand, which had by that time acquired a majority interest in the debtor's principal bond issue, opposed the Lynch plan. The Commission re- jected the Lynch proposal, indicating that, in view of Atlantic's operating deficits over the past years, combining the two railroads would not be in the public interest at that time. 261 I.C.C. 151, 187.

The subsequent struggle for control of the debtor has been largely between these two interests—the St. Joe Paper Co., owner of the major interest in the debtor, and Atlantic, a connecting carrier anxious to acquire the debtor's coveted Florida east coast traffic from Jacksonville to Miami. Shortly after the Commission's rejection of the Lynch plan, Atlantic proposed its own plan providing for the merger of the debtor into Atlantic in return for the distribution of cash and various types of Atlantic's securities to the debtor's bondholders. St. Joe again opposed, as did various other bondholders, two competitors of Atlantic, an association representing the debtor's employees, and other interested parties. The matter was referred to an Examiner who, after a lengthy investigation, found that such a merger would not be in the public interest, and that the Atlantic plan would not constitute 'fair and equitable' treatment for all the unwilling bondholders who were in substance the owners of the debtor railroad.¹ The Commission, however, by a sharply divided decision overruled the Examiner and sanctioned a 'forced merger.'² 267 I.C.C. 295.³ Circuit Judge Sibley, sitting in the District Court, set the plan aside on the ground that the Commission had no power under the statute to force a merger; in addition, he held the plan not 'fair and equitable'. 81 F.Supp. 926, 933. On appeal to the Court of Appeals for the Fifth Circuit, two judges sustained the Commission's authority to propose such a plan while the third agreed with Judge Sibley; but a majority agreed with the District Court that the plan was not 'fair and equitable'. 179 F.2d 538, 541.

The Commission then formulated another plan, which likewise provided for a forced merger of the debtor and Atlantic, 282 I.C.C. 81, and Circuit Judge Strum, sitting in the District Court, while bound on the question of the Commission's power by the prior Court of Appeals decision, again set the plan aside as unfair and inequitable. 103 F.Supp. 825. The Court of Appeals was now convened en banc. Three of its judges, without further consideration of the Commission's power, reversed the District Court and found the plan fair and equitable. The other two judges dissented and adopted the reasoning of Judge Sibley in the earlier case, i.e., that the Commission had no power under the statute to propose such a compelled merger plan.⁴ 201 F.2d 325. Because of the importance of this question in the administration of § 77 of the Bankruptcy Act, we granted certiorari. 345 U.S. 948, 73 S.Ct. 866, 97 L.Ed. 1372.

The procedure by which the Commission is authorized to consider and approve a plan of reorganization and then submit it to the interested parties for acceptance, as well as the courts for judicial confirmation, is governed by an elaborate statutory scheme. See § 77 of the Bankruptcy Act, 47 Stat. 1474, as amended, 11 U.S.C. § 205, 11 U.S.C.A. § 205. Any question such as the one now here must be resolved by reference to this governing law and its underlying purpose, imbedded as that is not merely in the formal words of the statute but in the history which gives them meaning. If ever a long course of legislation is to br treated as an organic whole, whose parts are not disjecta membra, this is true of § 77.

The respondent relies on subsection b(5) to sustain the Commission's power to submit a forced merger plan of the type here involved.⁵ This was subsection (b)(3) of the original § 77 of the Bankruptcy Act as enacted in 1933, 47 Stat. 1474, 1475. It then read, insofar as here material,

'(b) A plan of reorganization within the meaning of this section * * * (3) shall provide adequate means for the execution of the plan, which may, so far as may be consistent with the provisions of sections 1 and 5 of the Interstate Commerce Act as amended, include * * * the merger of the debtor with any other railroad corporation * * *.'

The permissive merger provision in plans of reorganization was thus made expressly conditional on compliance with the requirements of §§ 1 and 5 of the Interstate Commerce Act, 49 U.S.C.A. §§ 1, 5. The reason for this proviso, commonly referred to as the 'consistency clause,' was stated as follows by Commissioner Joseph Eastman, Chairman of the Legislative Committee of the Interstate Commerce Commission and one of the weightiest voices before Congress on railroad matters:⁶

'Explanation.—This act ought not to authorize railroad mergers * * * which are inconsistent with the applicable provisions of the Interstate Commerce Act, particularly the consolidation-plan provisions. These amendments are intended to avoid that possibility.'

In the ensuing floor debates it was further made clear that the purpose of the consistency clause was to subject mergers under § 77 to whatever restrictions obtained for mergers under the Interstate Commerce Act. Representative Hatton Summers, Chairman of the Judiciary Committee which had reported out the bill and floor manager of the bill, gave this assurance:

'Mr. Horr. May I inquire whether or not, where the word 'reorganization' is used, the gentleman is of the opinion that this would encourage consolidations of railroads?

'Mr. Sumners of Texas. They could not be consolidated in violation of the interstate commerce act.

'Mr. Horr. They would first have to go through that?

'Mr. Sumners. They would first have to go through that.' 76 Cong.Rec. 2909.

And Congressman Rayburn, Chairman of the Committee on Interstate and Foreign Commerce, put it thus:

'Fear has been expressed that with the enactment of this bill the powers of the Interstate Commerce Commission and the courts over consolidations and mergers would be expanded. It is my firm conviction that this proposal in specific provisions safeguards the present consolidation and merger provisions of the interstate commerce act and gives no additional authority to the commission or the courts in these matters.' 76 Cong.Rec. 2917—2918.

In view of this deliberate and explicit incorporation of the restrictions attending mergers under the Interstate Commerce Act into § 77 of the Bankruptcy Act, it is necessary to give some consideration to the merger and consolidation provisions of the former, 49 U.S.C. § 5, 49 U.S.C.A. § 5. The history of these provisions is long and tortuous; its detailed summary is relegated to an appendix. Suffice it to say here that one clear thread which runs through a course of legislation extending over a period of twenty years, as well as through the various commentaries upon it, is that only mergers voluntarily initiated by the participating carriers are encompassed by that statute and sanctioned by it. From the initial enactment in the Transportation Act of 1920, 41 Stat. 456, 480, to the most recent comprehensive re-examination of these provisions in the Transportation Act of 19...