Thompson v. Texas Mexican Ry Co

• Decision Date: 29 April 1946
• Docket Number: No. 42,42
• Citation: 328 U.S. 134,66 S.Ct. 937,90 L.Ed. 1132
• Parties: THOMPSON et al. v. TEXAS MEXICAN RY. CO
• Court: U.S. Supreme Court

328 U.S. 134

66 S.Ct. 937

90 L.Ed. 1132

THOMPSON et al.

v TEXAS MEXICAN RY. CO.

No. 42.

Argued Oct. 9, 1945.

Decided April 29, 1946.

[Syllabus from pages 134-136 intentionally omitted] Mr. Robert H. Kelley, of Houston, Tex., for petitioners.

Mr. John P. bullington, of Houston, Tex., for respondent.

Mr. Justice DOUGLAS delivered the opinion of the Court.

Brownsville (The St. Louis, Brownsville and Mexico Railway Co.) and Tex-Mex (The Texas Mexican Railway Co.) are interstate carriers by railroad and subject to the provisions of the Interstate Commerce Act. 24 Stat. 379, 41 Stat. 474, 49 Stat. 543, 54 Stat. 899, 49 U.S.C. § 1 et seq., 49 U.S.C.A. § 1 et seq. On November 1, 1904, they entered into a written contract whereby, for payment of specified rentals, Tex-Mex granted Brownsville the right to operate its trains over the tracks of Tex-Mex between Robstown and Corpus Christi, Texas, and to make use of terminal facilities of Tex-Mex at Corpus Christi. The contract provided that it was to continue for a term of 50 years from its date unless sooner terminated by the parties. And it contained the following provision, 'It is further agreed that this contract may be terminated without giving any reason therefor, by either party, upon giving twelve months notice of such intent to terminate the lease.'

In 1933 Brownsville filed its petition for reorganization under § 77 of the Bankruptcy Act, 11 U.S.C.A. § 205.¹ The petition was approved and petitioner Thompson was appo nted as trustee in the proceeding. Shortly thereafter the bankruptcy court entered stay orders to which we will later refer. In October, 1940 Tex-Mex notified petitioners that it was exercising its right to terminate and cancel the trackage contract, effective twelve months after November 1, 1940. The trustee, however, continued to operate over the Tex-Mex and to use the Tex-Mex facilities after November 1, 1941. Tex-Mex informed him that a charge of $500 per day would be made for the use of these facilities—an amount in excess of the rental under the contract. The trustee refused to pay any rental other than that specified in the contract.

Thereupon this suit was instituted by Tex-Mex in the Texas courts to enjoin Brownsville and its trustee from using the tracks or other facilities without the consent of Tex-Mex and to recover $500 a day damages for such use or alternatively the reasonable value of the use of the property. The trial court overruled pleas to its jurisdiction and tried the case on the merits. It denied an injunction. It held that the 1904 contract had been terminated and awarded Tex-Mex damages in the amount of $184,929.85. The Court of Civil Appeals affirmed.² 181 S.W.2d 895. The Supreme Court of Texas refused an application for a writ of error. The case is here on a petition for a writ of certiorari which we granted because of the importance of the problems in the administration of the Interstate Commerce Act and of the Bankruptcy Act. 324 U.S. 838, 65 S.Ct. 1023.

First. It is contended here, as it was in the state court, that the maintenance of the present suit is precluded by the stay orders, issued by the bankruptcy court and by § 77 of the Bankruptcy Act.

Sec. 66 of the Judicial Code, 28 U.S.C. § 125, 28 U.S.C.A. § 125, authorizes suits against the trustee, without leave of the bankruptcy court, 'in respect of any act or transaction of his in carrying on the business.'³ In McNulta v. Lochridge, 141 U.S. 327, 332, 12 S.Ct. 11, 13, 35 L.Ed. 796, this statute was said to grant an 'unlimited' right 'to sue for the acts and transactions' of the estate. Operation of the trains is plainly a part of the trustee's functions. Claims which arise from their operation—whether grade crossing claims as in McNulta v. Lochridge, supra, or claims for the use of the tracks of another as in the present case—are claims based on acts of the trustee in conducting the business. Hence this suit, so far as it involves only a money claim against the estate for acts of the trustee in operating trains over respondent's tracks, could be maintained in the state courts against the trustee.⁴ And the stay orders entered were wholly consistent with this course.⁵

It is argued, however, that this suit cannot be maintained consistently with the provisions of § 77 which grant the reorganization court exclusive jurisdiction over the debtor and its property.⁶ The theory is that the suit interferes with the administration of the estate, adjudicates the trustee's interest in property in his possession, and indeed seeks to disrupt the operating schedule of trains. It is clear that the issuance of an injunction against operation of the trains over respondent's tracks would have been an interference with the exclusive jurisdiction of the reorganization court. The fact that no injunction was granted is not a decisive answer. In Ex parte Baldwin, 291 U.S. 610, 618, 54 S.Ct. 551, 555, 78 L.Ed. 1020, the Court held that the exclusive jurisdiction of the bankruptcy court is determined by the 'main purpose' of the suit. In that case suit had been brought in the state courts to have a railroad right of way declared forfeited and in addition to recover damages. The claim for damages was held to be 'merely an incident' to the suit for a forfeiture and did not save the suit from the defense that it was of the type which sought to interfere with the exclusive jurisdiction of the bankruptcy court. We do not construe the present bill as having as its main object the stoppage of the movement of petitioner's trains over respondent's tracks. The main purpose of the suit seems to be an attempt on the part of respondent to obtain a more favorable rental.

The fact, however, that respondent's suit does not have as its main purpose the ouster of petitioners from possession is not a complete answer to the plea to the state court's jurisdiction. As Ex parte Baldwin, supra, 291 U.S. at p. 616, 54 S.Ct. 554, held, the exclusive jurisdiction of the bankruptcy court is not limited to protecting the possession of the trustee; it 'extends also to the adjudication of questions respecting the title.' See White v. Schloerb, 178 U.S. 542, 20 S.Ct. 1007, 44 L.Ed. 1183; Whitney v. Wenman, 198 U.S. 539, 25 S.Ct. 778, 49 L.Ed. 1157. Petitioners argue that the present case comes within that principle. It is pointed out that this suit seeks the cancellation of the trackage agreement. It is argued that the rights granted Brownsville under that agreement are property rights; and that a suit to cancel the agreement and collect amounts other than the specified rentals is a suit which interferes with and adjudicates title to the property. If we were dealing here with a lease, a suit to effect its forfeiture could not be maintained in another court without consent of the reorganization court. But the trackage agreement created only a personal obligation and did not purport to grant Brownsville any estate in the property of Tex-Mex. See Des Moines & Ft. Dodge R. Co. v. Wabash, St. Louis & P. Ry. Co., 135 U.S. 576, 583, 10 S.Ct. 753, 755, 34 L.Ed. 243; Union Pacific Ry. Co. v. Chicago, Milwaukee & St. P. Ry. Co., 163 U.S. 564, 582, 583, 16 S.Ct. 1173, 1180, 41 L.Ed. 265. It was an executory contract subject to termination on a specified notice. The exclusive jurisdiction of the reorganization court was a barrier to any action by any other court which would disturb the possession of the trustee or interfere in any way with his operation of the business. But, apart from the qualification to which we will later refer, litigation restricted to the amount due under a contract, express or implied, for the use by the trustee of another's property no more interferes with the administration of the estate than suits to determine his liability under contracts calling for the delivery of coal or other supplies. In each the claim is reduced to judgment and may then be presented to the bankruptcy court for proof and allowance. Cancellation of a contract pursuant to its terms alters, of course, rights and duties of the trustee. But the bankruptcy rule is that he takes the contracts of the debtor subject to their terms and conditions. Contracts adopted by him are assumed cum onere.⁷ The general rule is (1) that if the other party had a right to terminate the arrangement, that right survives adoption of the contract by the trustee; and (2) that the incidence of termination, except as it interferes with the exclusive jurisdiction of the bankruptcy court, may be litigated in any court where the trustee may be sued. That rule of bankruptcy is applicable to proceedings under § 77 by reason of § 77, sub. l which provides:

'In proceedings under this section and consistent with the provisions thereof, the jurisdiction and powers of the court, the duties of the debtor and the rights and liabilities of creditors, and of all persons with respect to the debtor and its property, shall be the same as if a voluntary petition for adjudication had been filed and a decree of adjudication had been entered on the day when the debtor's petition was filed.'

But, as we shall see, the qualification in § 77, sub. l that the rule of bankruptcy be 'consistent with the provisions' of § 77 made premature an adjudication by the court that the contract was terminated, prior to a determination by the Interstate Commerce Commission that that step was consistent with the reorganization requirements of the debtor.

Second. Prior to the rendition of judgment on the merits the decision of the Interstate Commerce Commission was necessary on two phases of the controversy—one under § 77 of the Bankruptcy Act, the other under provisions of the Interstate Commerce Act.

(1) As we have said, the right to terminate a contract pursuant to its terms survives the bankruptcy of the other contracting party. And that general bankruptcy rule is applicable in § 77 proceedings by reason of § 77 sub. l, which, as we have said, incorporates into § 77 the rules...