In Re Philadelphia Rapid Transit Co.

WELSH, District Judge

(dissenting).

I regret that I cannot concur in the opinion of my colleagues in the case. But I wish to thank them for their assistance' and cooperation in a case of such magnitude. I felt that the cause was of such a nature that instead of being passed upon by a single judge, it warranted the attention and consideration of the entire court. In filing this dissenting opinion, therefore, I am doing so because I feel that the purpose of the Congress in passing section 77B (11 USCA § 207) is being frustrated and that grave consequences may follow in the future if the course herein adopted is to be a precedent for our guidance in such matters arising under this salutary legislation.

There is no question that in this ease the petitioner has complied with all the technical requirements of the section in question. The only question for the determination by the court is the one of “good faith” within the meaning of the section. The act provides *56 that if the judge is convinced of the existence of “good faith,” he shall approve. To this extent I agree with the conclusion of my colleagues. But to my mind there is a wide distinction between the affirmative and the negative viewpoints as to what constitutes good faith. If the judge holds or finds in the affirmative that “good faith” does exist, it is clear that no hearing or taking of testimony is necessary. But before a judge can decide the question of “good faith” in the negative and find or hold that “bad faith” exists, proof should be required and permitted. I feel that it would be contrary to the act for the judge to decide that “bad faith” existed without giving the petitioning creditor an opportunity to prove his allegations. For the court to do so would be to decide such an important phase of the case without any evidence at all and later, perhaps, make it possible for the company to present a debtor petition thereby enabling them to clamp down the lid on the whole matter and only present such information and raise such issues as for their own peculiar reasons best suited them.

This entire legislation was passed by the Congress for the reorganization of our financial and industrial structure, without which we cannot hope to reach complete industrial and financial recovery. Inflation required deflation. This legislation permits' deflation on a major scale throughout the United States. Deflation by debtors when they desire to make use of it and by creditors when the debtor fails to act. And while the legislation takes the form of an amendment to the Bankruptcy Act, my feeling is that it permits us to do under the form of bankruptcy what we cannot now do in equity. But its purpose is equitable. The wording of the act, the duties, responsibilities, and absolute powers conferred by the statute are all in conformity with the plenary powers reposed in a chancellor. There is nothing savoring of or analogous to the bankruptcy statutes in the section and I feel that to interpret it as a bankruptcy statute and to attach to proceedings under it the atmosphere of a bankruptcy statute is contrary to the purpose of the Congress. In construing it, as in this ease, the court should look to the whole purpose behind the procedure as well as to the technical features involved. “Good faith” or “bad faith” in the actual, real, equitable sense should be our guide. The minds who brought this legislation into being had a clear conception of the magnitude of the problem to be solved. They put this matter squarely up to the judges of the federal District Courts. I believe that in doing so they did it with the thought that it would be applied along broad and comprehensive lines and not in strict conformity with either the letter or the spirit of the then existing bankruptcy laws with all their inadequacy to meet the big situation that now confronts the country.

What’ of the situation that now confronts us in the case before us? I agree with my colleagues as to the conclusions they have expressed concerning the malodorous past of the P. R. T. But the interrelations of underlies, finance, and politics that permeate the whole problem constitute such a stranglehold on the equities involved that it cannot be broken by any local or state court. Without section 77B (11 USCA § 207), the public, the city, the stockholders, and employees are powerless to work out a comprehensive plan on a basis of equity to all. The city controll- ' er, having charge of the accounts of the city of Philadelphia, which is a partner of the P. R. T., is the petitioner in this Case. As controller, he has a sworn duty to perform in a ease such as this. He has told the court that he is acting in his official capacity and not in his individual capacity and frankly admits that he obtained the necessary bonds in order to comply with the provisions of the act of Congress. The city solicitor has no authority to speak for the city controller in the performance of his official duty without his authorization or consent. For many years he has been most familiar with the transit situation and has actively participated in all major matters incident thereto. His “good faith” from a moral and practical standpoint has been established by his course of conduct in the past and for which, as a public officer, he has received many commendations. He has qualified as a petitioner under the act. Associated with him are two other persons, equally technically qualified. I cannot, therefore, hold that we would be justified in summarily ejecting him from this ease. The public and private interests are so vast that something of real equity, or the presence of “bad morals” should be present to warrant the court in so doing. A mere technicality, or a mere whimsical conclusion of counsel for de-' fendants, not based on evidence, is not sufficient.

■ It must also be borne in mind that there were creditors who desired to intervene. At the hearing over which I presided on June 29,1934, I refused to permit such persons to intervene as plaintiffs. Counsel for the P. R. T.. strenuously opposed such intervention and one of the reasons put forth by him was *57 that it would open the door to a multitude of plaintiffs and lead to confusion. Counsel for petitioner expressed similar views. The right to intervene as plaintiffs was denied, but it was expressly stated from the bench that later such creditors would have an opportunity to be present and be heard for or against any reorganization plans or proposals. This is stated to show that there is probably a very real objection on the part of dissatisfied creditors of the P. R. T. Just how strong this ohjeetion is should be inquired into and be a matter of proof. It does not seem to be fair and equitable to permit counsel for P. R. T. at one hearing to object to intervening creditors as plaintiffs and at a subsequent hearing to allege bad faith because there are only three on the petition.

Undoubtedly, under this statute (section 77B) we will be confronted with voters’ pools, voters’ trusts, and various other devices to show that on the face of things the petitioners constitute a more noisy minority—devices often conceived and brought into being with the idea of stifling criticism or objections to the plans of those who seek to manipulate or control corporate policy and destiny. But now that this whole matter is before the federal court for determination .and all the facts can be brought to light, I feel that in keeping with the spirit of the amendatory statute this should be done and under no circumstances should a judge or a court resolve against good faith on the part of a creditor-petitioner in advance of a hearing and the taking of testimony. This is especially true in view of the fact that a denying answer was filed to the bill on June 30, 1934, and two days later a motion to dismiss was filed by defendants. The bill and answer set up important disputed facts.

(1) Insolvency, in that the debtor is unable to meet its obligations as they mature; (2) that the debtor has committed acts of bankruptcy with intent to hinder and defraud its creditors, and wrongfully transferring certain of its property to persons and corporations named; (3) irregular and harmful acts in connection with the acquisition of Yellow ■Cab Company; (4) waste of the company’s assets in the amount of approximately $4,-000,000, and to the extent of $120,000 within the last four months; (5) loss by the operation of certain bus lines of more than $3,-000,000; (6) improper use of depreciation funds to meet its funded debt; (7) that the •company will be unable to pay off maturing bond issues and other matters of a grave and serious nature.

if the petitioning creditors should substantiate these facts by evidence, then, and not until then would the question of “good faith” arise. The question of “good faith” should not be disposed of without the taking of testimony.

For these reasons, I respectfully dissent from the opinion filed by my esteemed colleagues on this ease.