Commission of Department of Public Utilities of Commonwealth, of Massachusetts v. New York, N.H. & H.R. Co

178 F.2d 559, 1949 U.S. App. LEXIS 3864

• Court: Court of Appeals for the Second Circuit
• Decided: December 13, 1949
• Docket: 40, Docket 21392
• Status: Published

Opinions

CHASE, Circuit Judge.

This appeal is another phase of the reorganization under Section 77 of the Bankruptcy Act, 11 U.S.C.A. § 205, of the New York, New Haven and Hartford Railroad Company. The Commission of the Department of Public Utilities of the Commonwealth of Massachusetts has appealed from an order of the reorganization court restraining it from interfering with the reorganized New Haven’s curtailing passenger service, as of March 1, 1949, on what used to 'be the lines of the Old Colony Railroad Company but what now, as a result of the reorganization, are the lines of the Old Colony division of the reorganized New Haven, appellee herein. As the principal question is one of construction of the provisions of the plan of reorganization relating to passenger service on the Old Colony lines, a review of the manner in which those provisions were arrived at is necessary.

On October 23, 1935, the New Haven, which was operating the Old Colony lines under a 99 year lease, filed its petition for reorganization. In June, 1936, when the New Haven trustees rejected the Old Colony lease, the Old Colony Railroad Company filed a petition for reorganization in the New Haven proceedings, and subsequently the New Haven trustees, who were appointed as trustees for the Old Colony, continued to operate the latter’s lines on its account.

On June 20, 1938, some of the New Haven’s creditors petitioned the district court to direct the trustees to discontinue stops of passenger trains at numerous stations in Massachusetts, most of which were on the Old Colony line. The district court granted the petition and so ordered the trustees, but we reversed, Converse v. Commonwealth of Massachusetts, 2 Cir., 101 F.2d 48, and the Supreme Court affirmed on the ground that “ * * * it would violate the traditional respect of Congress for local interests and for the administrative process to imply power in a single judge to disregard state law over local activities of a carrier the governance of which Congress has withheld even from the Interstate Commerce Commission, except as part of a complete plan of reorganization for an insolvent road.15” Palmer v. Massachusetts, 308 U.S. 79, 88, 60 S.Ct. 38, 84 L.Ed. 93. Footnote fifteen in the opinion quoted in pertinent part, subdivision f of Section 77.¹ The Court then went on to say that: “Perhaps it is no less true that amenability (to state laws will serve as an incentive to the formulation of reorganization plans which, on approval by the Commission, do supplant state authority.” 308 U.S. at page 89, 60 S.Ct. at page 39, 84 L.Ed. 93.

In attempting to formulate a plan of reorganization for the New Haven, Division 4 of the Interstate Commerce Commission originally determined that the reorganized New Haven “would not be financially justified in acquiring the properties of the Old Colony and assuming the burden of their operation as presently conducted, nor could the Old Colony successfully operate as an independent carrier.” 239 I.C.C. 337, 380-82. It also rejected the proposal of the Old Colony that the reorganized New Haven acquire all of the Old Colony lines except the so-called “Boston group,” a portion of the lines including those between Boston and Middleboro and Plymouth, the deficits in operating which had been considerably larger than those incurred with respect to the so-called “Western” and “Cape” groups. Ibid. Accordingly, the Commission omitted from the plan of reorganization for the New Haven any provision with respect to acquisition of the Old Colony lines, and operation of them continued by the trustees, as before.

Subsequently, however, the Commission reopened the proceedings, and, in its first supplemental report and order, dated February 18, 1941, in response to the petition of the Commonwealth of Massachusetts and various other interests, and over the New Haven’s objection, modified the plan so as to make it provide for acquisition by the reorganized New Haven of the Old Colony properties, and, in partial payment therefor, issuance by the reorganized company of certain of its first and refunding bonds, income bonds and preferred and common stock to the Old Colony trustees. 244 I.C.C. 239. Contending that it had the power, under subdivision f of Section 77 and Palmer v. Massachusetts, supra, to authorize, as part of a complete plan of reorganization for an insolvent road, “a matter * * * such as the complete or partial discontinuance of passenger service,” in addition to abandonment by the railroad of all its property, the Commission determined that, while the record did not justify it in making it an immediate condition of the acquisition of the Old Colony properties “that passenger service on the Old Colony as a whole or in the Boston group be discontinued,” nevertheless it should be a condition of the plan that, upon request by the New Haven or its successor, the Commission should estimate the average yearly loss and yearly savings for the years 1941 and 1942, or 1941 to 1945, if the Old Colony properties had not been operated as a part of the New Haven system, and that if the estimate as to the average yearly savings did not exceed the average yearly loss by an amount equal to the annual contingent interest charges on the income bonds issued in acquisition of the Old Colony properties, then “the principal debt- or or its successor shall thereafter be under no obligation to continue passenger service on the Boston group of the Old Colony * * * ” 241 I.C.C. 239, 263-65. In this connection, significantly, the Commission noted “that the public authorities and the communities concerned are now keenly alive to the danger that service may be discontinued, in whole or in part * * Id. at 264.

When this part of the plan was rejected by the district court as of doubtful validity and effectiveness in protecting the reorganized New Haven against unreasonable losses resulting from Old Colony passenger operations, the Commission again considered the problem, but in the light of a joint report agreed upon 'by various of the parties in interest. In its third supplemental report and order, dated October 6, 1942, 254 I.C.C. 63, the Commission determined that the reorganized New Haven, as well as the Old Colony, should be relieved of any statutory or franchise obligations “to operate passenger service on Old Colony lines,” but that the reorganized company should “undertake a contractual obligation to operate for its own account passenger service on Old Colony lines if and so long as the losses therefrom do not exceed the critical figures provided below.” Section N(2) (a) of the Plan of Reorganization. The Commission then went on to provide, in subsection (3). (a) of that Section that: “Passenger service on Old Colony’s lines may be discontinued if during any of the periods described below passenger losses on Old Colony’s lines shall exceed the critical figure at the time in effect. The critical figure for any 12 consecutive calendar months, all of which are within the period of 2 years following the consummation of the plan, shall be $850,000. The critical figure for any 24 consecutive calendar months, all of which shall be after the end of the 2 year period, shall be $500,-000.” And, after referring to a segregation formula under which the amount of passenger loss on Old Colony lines should be computed for purposes of determining whether the critical figures had been reached, it was provided in subdivision (b) of subsection (3) that: “The result of such computation shall determine whether or not the critical figure has been met, unless the Department of Public Utilities of Massachusetts (or its successor) be aggrieved by a proposed discontinuance of passenger service on Old Colony lines pursuant to the authority contained in the plan and claim that the computations of the reorganized company are inaccurate; in which case it may apply to the District Court for the District of Connecticut for the appointment of a master to audit such computations.”

The Attorney General and the Special Railroad Commission of Massachusetts then filed petitions for modification of the plan so as, among other things, to permit the Commonwealth to have the option of purchasing the portion of the Old Colony Boston group lines extending from Boston to Braintree at the salvage value thereof less the depreciated amount of subsequent oapital improvements agreed to by the Commonwealth; to provide that there should be no discontinuance of service so long as the Old Colony properties’ earnings were sufficient to pay the interest on the fixed-interest bonds to be issued in acquisition o'f those properties; and to “Permit no more discontinuance of passenger traffic on the Old Colony properties than is needed to reach the critical figures.” 254 I.C.C. 405, 421-23. In its fourth supplemental report and order, dated July 13, 1943, the Commission refused the Commonwealth’s latter two requests but accepted, and incorporated into Section N(3) (a) of the plan, a provision giving the Commonwealth the option sought for, on the ground that in the event of discontinuance of Old Colony passenger service upon the critical figures’ being reached, the Commonwealth might be obliged to furnish transportation to the patrons accustomed to using the Boston group lines and consequently should not be in a disadvantageous bargaining position with respect to the acquisition of them. While the Commission did not say whether the option was to be exercisable upon election by the New Haven partially to discontinue service, or only upon an election to discontinue service altogether, it did, not insignificantly, note that in this connection, “The Commonwealth also points out that the plan approved by our third supplemental report does not confine relief from passenger operations to the Boston group, as did the plan approved by our report of February 18, 1941, but under it, apparently curtailments could be made on all the Old Colony lines.” Id. at 421-22. That is to say, the Commonwealth of Massachusetts then recognized that curtailment, or partial discontinuance, as well as total discontinuance, of passenger service was permissible under the plan.

The District Court on December 21, 1943 approved that part of the plan relating to Old Colony passenger service, with presently unimportant modifications, but construed the option provision to apply only to such of the facilities in the Boston to Braintree lines as might reasonably foe required by the Commonwealth for its passenger operations, subject to a right of joint use in the New Haven, and reserved jurisdiction to determine what facilities would reasonably be required. In re New York, N. H. & H. R. Co., D. C., D. Conn., 54 F.Supp. 595, 614-617. The Commission, in its fifth supplemental report and order, dated February 8, 1944, agreed to the court’s modifications and construction of the option provision and accordingly modified the plan. 257 I.C.C. 9. The plan was then approved in its entirety by the district court. In re New York, N. H. & H. R. Co., D. C., D. Conn., 54 F.Supp. 631.

On appeal we approved that part of the plan which related to Old Colony passenger service, and, citing subdivision f of Section 77 and Palmer v. Massachusetts, supra, said that: “Whether the curtailment of service is required in the public interest was a matter for the Commission to decide. The general public interest of keeping an interstate railroad running must override the local public interest of Massachusetts if the Commission thinks the two incompatible. The contention is not persuasive that the Commission lacks the power by means of a plan of reorganization to amend the charters of New Haven and Old Colony or to relieve them of performing passenger service unless the state authorities give consent.” In re New York, New Haven & Hartford R. Co., 2 Cir., 147 F.2d 40, 51, certiorari denied 325 U.S. 884, 65 S.Ct. 1577, 89 L.Ed. 1999, rehearing denied 326 U.S. 805, 66 S.Ct. 16, 90 L.Ed. 490.

Finally, in its sixth supplemental report and order of May 14, 1925, 261 I.C.C. 195, 202-04, the Commission adhered to that part of the plan relating to Old Colony passenger service as modified in its fifth supplemental report and order. The district court approved, and we affirmed. Old Colony Bondholders v. New York, N. H. & H. R. Co., 2 Cir., 161 F.2d 413. On September 11, 1947, the Consummation Order and Final Decree was entered by the district court and on its effective date, one week later, the Old Colony property was acquired and paid for by the New Haven under the plan of reorganization’.

Operation by the New Haven of the Old Colony passenger service was undertaken as provided in the plan, but it became clear that the critical figure of $850,000 for any 12 consecutive calendar months within the first two years after the consummation of the plan would be reached by October 1, 1948. Pursuant to the request of the Governor of the Commonwealth of Massachusetts, however, the reorganized New Haven determined not to exercise its election to discontinue the service at least until March 1, 1949, on the understanding that the company’s rights under the plan would remain unimpaired. On February 8, 1949, however, it issued a public statement that commencing on March 1, it would discontinue operation of 45 Monday to Friday, 41 Saturday only, and 28 Sunday only, trains then operating on the Old Colony division, leaving in operation trains handling over 80% of the train-travelling public in the Old Colony area. On the last day in February, appellant issued a stop order, requiring the New Haven to continue the service then being furnished on the Old Colony division, pending investigation by it and a public hearing. That same day the New Haven obtained a temporary restraining order against appellant and the following day, March 1, 1949, petitioned for construction of the plan and for a permanent injunction. The district court construed the plan so as to permit the curtailment of service and granted the injunction.

Any construction of a plan of reorganization by the district judge who is familiar with every phase of it is necessarily entitled to great weight. This is particularly true where, as here, that judge has previously dealt with, in some detail, the very provisions in question. But we need not rest decision on the ground that matters of construction fall within the scope of district court discretion, no abuse of which has here been shown. A majority of the court considers the construction put upon the plan by the court below plainly correct.

The pertinent parts of Section N (2) (a) and (3) (a) of the plan in its final form respectively provide — as they did as a result of the Commission’s third supplemental report and order — that the reorganized New Haven shall “undertake a contractual obligation to operate for its own account passenger service on Old Colony lines if and so long as the losses therefrom do not exceed the critical figures provided below,” and that “Passenger service on Old Colony’s lines may be discontinued if during any of the periods described below passenger losses on Old Colony’s lines shall exceed the critical figure at the time in effect.” The Commonwealth of Massachusetts now makes the rather startling contention that these provisions mean that the New Haven must either discontinue all of the Old Colony passenger service or not discontinue any of it, that is, that the words “may be discontinued” do not mean “may be curtailed.” To give such a meaning to them, however, would be unreasonable. Either the .reorganized company would have to operate the lines at a loss greater than necessary or the train-travelling public in the area served by them would be without any service whatsoever except as the Commonwealth of Massachusetts exercised its option to purchase, an option which covers not all those lines, but only that portion of the Boston group lines extending from Boston to Braintree. Such a manifestly unreasonable construction should be avoided if possible. Here, moreover, ample considerations weigh against it.

If we refer to the actual words themselves, “may be discontinued,” and give them their ordinary meaning, it would seem plain that they should be held to mean “may be discontinued in part” as well as “may be discontinued in its entirety”: the greater includes the lesser, unless something to the contrary appears. But nothing does appear. Indeed, the above recital of the background of this case shows that, when the Commission first made acquisition of the Old Colony properties a part of the plan, and first provided that the reorganized company should be under no obligation to continue passenger service on Old Colony lines, it noted that the public was “alive to the danger that service may be discontinued, in whole or in part * * 244 I.C.C. 239, 264. It further stated that it had the power to authorize as part of a complete plan of reorganization for an insolvent road “a matter * * * such as the complete or partial discontinuance of passenger service,” as well as power, under Section 1(18) of the Interstate Commerce Act, 49 U.S.C.A. § 1(18), to authorize abandonment of all of a given line. Ibid. Indeed, the Commission subsequently noted that the Commonwealth of Massachusetts itself considered that under the plan “apparently curtailments could be made on all the Old Colony lines.” 254 I.C.C. 405, 421. Thus, the word “discontinued” was thought from the beginning by all concerned to mean “discontinued in part” or “curtailed” as well as “discontinued in its entirety.” While it is, perhaps, not of great significance, we thought similarly, for in Re New York, New Haven & Hartford R. Co., supra, we referred to “the curtailment of service” allowed by the plan.

Appellant argues that the Commission expressly rejected the idea of a partial discontinuance of service, but apparently the only basis for this argument lies in its rejection of the Massachusetts^ proposal to “permit no more discontinuance of passenger traffic on the Old Colony properties than is needed to reach the critical figures.” But we do not perceive how the Commission’s refusal to impose such a qualification upon the right to discontinue lends support for a construction of the plan that would make the right to discontinue subject to the qualification that the service must be discontinued in its entirety.

Nor does the fact that the Commonwealth was given an option to purchase a portion of the Boston group lines in the event that the reorganized company “shall elect to discontinue passenger service on Old Colony’s lines * * * ” have any bearing. For this option was, as appellee has suggested, an afterthought of the Commission. That is to say, the option provision was inserted in the plan after the New Haven’s right to discontinue service had been fully crystallized. Moreover, the fact that the Commonwealth sought, and the Commission granted, an option relating only to the Boston group lines would seem to indicate, not that they were not interested in the public using the “Western” and “Cape” group lines, but, if anything, that they thought it likely that any discontinuance of service would take place, if at all, with respect to the segment of the lines which had in the past shown the largest operating deficits, and thus recognized that discontinuance could, and probably would, be a partial affair.

Finally, the fact that under this construction of the plan, there may be partial discontinuance of service without first obtaining approval of any regulatory body is, of course, irrelevant. For, whichever way the plan is construed, there may be discontinuance of passenger service without such approval and in neither event is such discontinuance made as a result of the Commission’s power over abandonments.

Thus, all things considered, it seems plain that the plan was properly construed to mean that, the critical figures having been reached, appellee could discontinue passenger service on the' Old Colony division in whole or in part. And, this being true, the rest of appellant’s arguments collapse.

The first of these is that a district court in a reorganization proceeding may not enlarge the powers reserved by it under a -reservation of jurisdiction. This is, of course, sound law, but wholly inapplicable, for here the court was simply construing the plan, which it had power to do both under Section 77, sub. f above, and under its Consummation Order and Final Decree.

The second of these is that the district court lacked the power to disregard the regulatory laws of Massachusetts relating to curtailment of service. Insofar as this argument is premised on the contention that the district court was enlarging or changing the plan, rather than merely construing it, it has been answered above. To the extent that the argument rests on the theory that state laws are to be complied with in arriving at a plan, w'e have answered it adversely in In re New York, New Haven & Hartford R. Co., supra.

Finally, appellant argues that the court was without jurisdiction of it, but this argument is also based on the contention that the district court was enlarging, and not construing, the plan, and without merit for the reasons above stated.

Order affirmed.

CLARK, Circuit Judge, dissents in separate opinion.

1 . “Upon, confirmation of the plan, the debt- or and any other corporation or corporations organized or to be organized for the purpose of carrying out the plan, shall have full power and authority to, and shall put into effect and carry out the plan and the orders of the judge relative thereto * * * the laws of any State or the decision or order of any State authority to the contrary notwithstanding.”