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In re New York

decided: December 19, 1946.

IN RE NEW YORK, S. & W. R. CO.


Author: Biggs

Before BIGGS, EDGERTON and McLAUGHLIN, Circuit Judges.

BIGGS, Circuit Judge.

The appeal at bar presents the question whether the trustee of New York, Susquehanna and Western Railroad Company, the debtor, appointed pursuant to the provisions of Section 77 of the Bankruptcy Act, 11 U.S.C.A. ยง 205, may disaffirm two trackage agreements dated respectively April 6, 1904 and April 1, 1911. The court below held that the attempted disaffirmance by the trustee was invalid.The trustee and certain bondholders, constituting the so-called "Insurance Group", have appealed.

The court below found that The New York Central Railroad Company, by way of one of its subsidiaries, possessed a vested interest under the contracts sought to be disclaimed in certain trackage known as the "Edgewater Section" in and near Edgewater, New Jersey; that the trustee in 1942 expressly had assumed the contracts as an incident of the recovery by him of the Edgewater Section,*fn1 that the contracts were not executory in whole or in part and were not burdensome; that therefore the contracts might not be disaffirmed. But if The New York Central Failroad Company's subsidiary acquired no vested interest in the Edgewater Section trackage and if the contracts of 1904 and 1911 were executory, the provisions of Section 77, sub. b*fn2 might permit and certainly would not preclude a rejection of the contracts in a plan of reorganization approved pursuant to the provisions of Section 77, sub. e.

A plan of reorganization was proposed by the debtor and was submitted to the Interstate Commerce Commission pursuant to Section 77, sub. d. This plan was the subject of two reports*fn3 by the Commission, was approved by it and may now be ready for submission to the court below.

The Insurance Group requested the Commission to insert in the plan the following provision for conditional disaffirmance pursuant to Section 77, sub. b: "However, in the event that it is adjudicated by the highest court to which the question is presented, or it otherwise appears from the decision of such court that the agreement dated April 6, 1904, between the Edgewater and Fort Lee Railroad Company and the New Jersey Shore Railroad Company, or any agreement supplemental thereto, may not be rejected by the trustee of the debtor, but may be rejected in its plan of reorganization, the plan rejects any of said agreements as to which such a decision shall have been reached and the reorganized company shall not be deemed to have assumed them." See 257 I.C.C. at p. 667. The Commission by Division 4 refused this request, stating, "Considering all elements of the public interest, the interests of the particular railroads involved, and the interests of shippers in the immediate vicinity and of the public generally, we are of the opinion and find that the plan with the inclusion therein of the requested disaffirmance provision would not be compatible with the public interest." See 257 I.C.C. at p. 668.Later the question came before the full Commission which affirmed the conclusion of Division 4 and rejected a disaffirmance of the contracts as against the public interest. See 261 I.C.C. pp. 115-117.

The trustee and the Insurance Group expressed their intention of pressing their objections to the Commission's elimination of the provision for conditional disaffirmance of the contracts at the hearing on the plan of reorganization to be held by the District Court.

We think it clear that the contracts did not vest such an interest in The New York Central Railroad Company's subsidiary as to prohibit their rejection. The right given was only a trackage right and the contracts did not run with the land or impose any lien upon the property or convey either title or easement. Baker v. Central Trust Co., 6 Cir., 235 F. 17; General Finance Corporation v. New York State Rys., 2 Cir., 54 F.2d 1008. For analogy see Chicago, M., St. P. & P.R. Co. v. Chicago, R.I. & P. Ry., 8 Cir., 138 F.2d 268, certiorari denied 320 U.S. 804, 64 S. Ct. 437, 88 L. Ed. 486. It may be noted that the very location proposed for the trackage in the 1904 agreement was altered drastically by the terms of the 1911 agreement.

That both agreements are executory in part is demonstrated by the provisions for the sharing of the burdens of interest, of maintenance, of taxes and of assessments and for the payment by The New York Central Railroad Company's subsidiary of a reasonable switching charge to get cars across the Edgewater Terminal.

That the provisions of the contracts run for the benefit of the debtor is demonstrated by the provisions of paragraph "Sixth" of the 1911 contract whereby the debtor was in effect made a party to both agreements.

We cannot say that the court below erred in finding that the trustee assumed the 1904 and 1911 contracts when he acquired title to the Edgewater Section. See note 1, supra. There is sufficient evidence in the record to support this finding.

The court below found that the 1904 and 1911 contracts were not burdensome. This is a conclusion of law. It is a fact that New York, Susquehanna and Western Railroad Company is compelled by the terms of the 1911 agreement to switch the New York Central Railroad Company's cars across the Edgewater Terminal "for a reasonable switching rate or charge" and without the benefit of a division of the revenue. The Commission in its report, 261 I.C.C. at p. 115, stated in respect to this matter, "We see no reason why the situation cannot be adequately remedied without the disaffirmance of the basic contracts, by the termination of the existing switching agreements and the publication by the Susquehanna of just and reasonable rates which would cover all the movements of the Central's cars here discussed. The point may be raised that the Susquehanna would not be justified in publishing switching rates for movements which appear to be under trackage rights of another carrier. But the situation here in due to the historic reasons for its development, the congested fieled of operations, the crossing of the terminal, the expense and economic consequences of expanding the present facilities on ground already used for the industries feeding the railroad, which, taken as a whole, clearly indicate that no change should be made in the general method of physical operations now employed. Moreover, the switching rates would apply over the tracks of the Susquehanna even though the movements be related to preexisting rights therein held by the Central."

As we understand it, what the Commission has proposed for the benefit of the debtor is the substitution of a reasonable switching rate or charge, as required by the 1911 contract, to be imposed on The New York Central Railroad Company in lieu of the present rate provided by switching contracts subsequent to 1911 for the benefit of The New York Central Railroad Company, the present rate being in reality a "cost" rate. The rearrangement of rates can be effected within the framework of the 1904 and 1911 contracts since, as we have pointed out, the 1911 contract speaks of a reasonable switching rate or charge and authorizes only such to be made. We conclude that the 1904 and 1911 contracts may be considered, as the court below considered them, apart from the later switching agreements based upon them and the fact that the Commission, in the exercise of its expert administrative judgment, finds a readjustment of costs between the debtor and The New York Central Railroad Company necessary, demonstrates only that the agreements subsequent to 1911 are burdensome. The debtor's switching of The New York Central Railroad Company's cars at cost and without a division of revenue may be corrected by the Commission in the exercise of the functions granted to it by Congress. We cannot find, therefore, that the court below was in error in finding the 1904 and 1911 contracts not to be burdensome.

We have expressed our views respecting the findings and conclusions of the court below for the sake of clarity but it was not necessary to do this. Other factors and circumstances are decisive in the ...


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