Petitioners Brief — St. Joe Paper v. The Atlantic Coast Line Railroad

Supreme Court brief1954

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Text

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1 MPa a Debtor, |

sae ~ Sr. = ae Parzen Co, ef al., Petitioners, 7

fo 3 Hise “h ae.

i ee a : yy.

- Amamnp Coist Lows Hanan Co, Respondent.

et a te

es ih SOUTHERN AND SEABOARD :

Bass Shake e waanl : ct

ae og Stowey 8. ALDERMAN, pe ee ie

; a Attorneys for’ Petitioners:

Sea e 2%» Southern’ Railway Company, °-

ar eo | Bley Com ama and Florida »

ee hee _ The Cinetnnati, ew Orleans and

Oh mexas Pati Reilwey

hone New ‘Orleans and Northeastern

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SUBJECT INDEX

Page

Opinions below ......------++eeeereeeeeeeeeeee res 1

Jurisdiction .........-eeee eee cece crete ee eereceees 1

Statutes involved ........-.-ee seer cree eete ee seeees 2

STATEMENT OF THE CASE .....--002ee reer errreeeeees 6

1. These petitioners—their interest and standing .. 7

9. This Court has limited its review to the one ques-

tion of statutory power ........6+-eeeee reer eres

3. How the question of statutory power has been

dealt with below ........-----eee eee eeeeeerreee

SumMMARY OF ARGUMENT .....------eeee reer rsrercets

ARGUMENT 2.0.2 scccsccceccseccserccecercesereseees

Section 77, as amended, on its face shows that

Congress intended to deny to the Commission the

compulsory power here asserted, as it had al-

ways been denied under the Interstate Com-

merce Act as amended .......-+-+++eeeeeerees

II. In writing the 1935 amendments to Section 77

Il.

of the Bankruptey Act, Congress did not write

on a clean slate, but as a postscript to a long

series of enactments dealing with railroad con-

solidations and mergers, throughout the whole

history of which, and even as late as 1940, it

had consistently refused to grant any power of

compulsion to the Commission .........+++--+-

The legislative history of Section 77, as enacted

in 1933 and as amended in 1935, makes it clear

that the ‘‘consistency clauses’’ were written into

the 1933 Act and combined and continued in the

Act of 1935 for the very purpose of denying to

the Commission the compulsory power which

had always been denied to it under the Interstate

Commerce Act ......-seeeeeeerreeeerreseeees

1. Intent of the draftsman ......----+++-eee5

2. Intent of the sponsor, Mr. Eastman ......--.

3 Intent of the legislators ......----+++++++++

4.The power claimed by the Commission can

not come from an absence of express pro-

Oe PPT TT Tere

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Subject Index Continued

Page

IV. The legislative history of the Act of 1935 makes

it clear that by the ‘‘cram-down’’ provision of

the provisos of subsection (e) Congress did not

intend to nullify the ‘‘consistency clause’’ and

to give to the Commission or to the courts the

compulsory power which it has always refused

to give under the Interstate Commerce Act .... 53

1. Reasons for enacting the ‘‘cram-down’’ pro-

SE bur ekdaenthaderdbawesen veabsntbaedseen 55

2.A limited application of the ‘‘cram-down”’

provision was intended .................... a7

We Siusvéncddcutwetseurbweavecoevers 63

TABLE OF CASES, TEXT BOOKS AND

STATUTES CITED.

CasEs

Aird et al., Trustees v. Atlantic Coast Line R. Co.,

SR FF BF rrr verre 8, 10

Atlantic Coast Line R. Co. v. St. Joe Paper Co., et al.,

2 1 Eee rere 12, 13, 14, 20, 62

Brown v. Allen, 344 U.S. 443; separate opinion by Mr.

TED og ccvcneccesedvececeadsbese 13

Consolidation of Railroads, 63 LC.C. 455 ............ 34

Consolidation of Railroads, 159 L.C.C. 522 ........... 35

Crowell v. Benson, 285 U.S. 22, 62 ..........ccsceeee 5d

Florida East Coast Railway Company Reorganization,

LC.C. Finance Docket No. 13170, 267 LC.C. "— P

16, 24

Florida East Coast Railway Company Reorganization,

LC.C. Finance Docket No. 13170, 267 L.C.C. 729

10, 22, 24, 46, 52

Florida East Coast Railway Company, In re, 81 F.

tt GED ccccvescecenncesavatess 11, 12, 20, 28, 46, 61

Florida East Coast Railway Company, In re, 103 F.

NN Freer rr 1, 9, 10, 14, 15

Florida East Coast Railway Company, In re, Atlantic

Coast Line R. Co., v. St. Joe Paper Co., et al., 201

Se Eo Shun saccandesanters 1, 15, 16, 17, 20, 55, 62

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Subject Index Continued iii

Page

Lauritzen v. Larsen, 345 U.S. 571 .............. 18, 28, 29

Lynch, et al. v. Atlantic Coast Line R. Co., No. 702,

ME, ET bs cn v0 den deus nade dua kked 8, 10

New York Trust Co. v. Eisner, 256 U.S. 345, 349 .... 40

Northern Securities Company v. United States, 193

Dt 6itibhntdnnwwitted sewdeekbnbacateoetnd a 32

Reconstruction Finance Corporation v. Denver & Rio

Grande Western R. Co., 328 U.S. 495 .......... 41, 42

St. Joe Paper Co., et al. v. Atlantie Coast Line R. Co.

Fs © BS eer: 8, 10

Schwabacher v. United States, 334 U.S. 182 . 19, 36, 39

United States v. Barnes, 222 U.S. 513 .............. 18, 29

United States v. Joint Traffie Association, 171 U.S. 505 32

United States v. Rumely, 345 U.S. 41, 46 ............. 5D

United States v. Southern Pacifie Company, 259 U.S.

hi Rab Sse en veRa dd eben dlabeed ah anne onie den 32

United States v. Sweet, 245 U.S. 563 ............ 18, 29, 30

United States vy. Trans-Missouri Freight Asso., 166

SE sv dea<assaeeecutcstéoneaeleadabedocses 32

United States v. Union Pacifie R. Co., 226 U.S. 61 .... 32

United States v. U. S. Smelting Co., 339 U.S. 186 .... 15

Welborn, et al. v. Atlantic Coast Line R. Co., No. 710,

RRR ERE ire pene nearer ene 8, 10

Text Books anp Law Reviews

Craven and Fuller, The 1935 Amendments of the Rail-

road Bankruptey Law, 49 Harv. L. Rev. (1936),

7) | GRRE SiR Re Ray am Het eens ire 59

Lie ER te Map eta BE REE ES a 59

ROPERS Aan Nai Ri ORES NIE Sea Sci 60

Fuller, Background and Techniques of Railroad Reor-

ganization, VII Law & Contemp. Prob. (1940),

er re ere ee 60

Law & Contemp. Prob., Vol. VIT (1940), Railroad

NE os ac a cols dale a dea e & eae os 61

Moulton, H. G., and Associates, The American Trans-

portation Problem (1933), p. xxvi .............. 35

Poor’s Manual of Railroads,

END ccccnceseeneteescisecouesers 40

Se . SO COED vce vcavcccveccescereucss 41

—_— AE MEO on * : ee Se ae tet ee ee

ED COPY

iv Subject Index Continued

Page

Robinson, Bird M., in Proceedings of the Academy of

Political Science, XIII 418 ..................... 31

Sharfman, I. L., The American Railroad Problem

Ces A RE os 00 8.459 hava nddaceeeeasecree 35

Pusiic DocuMENTs

Annual Reports, Interstate Commerce Commission,

Se Oe OE ws ces cacependedcvceeedeeuns 33

SA ME EE hives dncsueseeuseuen epee anaes 34

PO eT eee Perera ee 35

Conference Report on H. R. 10453, 66th Cong., pp.

Ws Peviciccncesenua'e sn sea ee esskeeuGlaeral 34

Congressional Record, ,

oO RS eerer rere or errr ere 33

RED: occ vic nwdccanoekerlenecnieun 44

Ve te EE aiaber tcceeueceuseaaedbanes 45, 46

Sb Be I REE vi siceurs conned sted eneaeere 51

Vol. 79, 13764-13765 (1935) ..........ccccccveses 51

Hearings Before Committee on the Judiciary on H. R.

6249, 74th Cong., Ist Sess. (1935),

OEE da tavnpsteresekesuripenee aes as eeseurn 47,48,49 ?

i Oe aces keen cecaccsvnckeohevaeNe ces cleeeanie 6 Cf

eh, Se wo gos. keus cabend sie cone cae a

OR: SE ska oieoubedas seus eccnwerssmeceeicidl 56,57

Hearings on S. 1310, S. 2016, S. 1869 and S. 2009, 76th

Cong., Ist Sess. (1939),

ME d0U res ce¥ees cena he Readete Meat eee eehen 37)

Uh MEE Ska ccna reek ec eeRenchnee ess menaneere tesaee 38

House Document No. 394, 74th Cong., 2d Sess.,

WG BD inves 045 6a ce vo ha eae 36

House Report No. 456 of November 10, 1919, pp. 6-7 .. 33

H. R. Rep. No. 1283, 74th Cong., Ist Sess. (1935) .... 51

Railroad Reorganization—Hearings Before the Special

Subcommittee on Bankruptey and Reorganization

of the Committee on the Judiciary, House of Repre-

sentatives—76th Cong., Ist Sess., on S. 1869, Serial

No. 11, Part 1 (1939), pp. 144 et seq. .......... 42, 43

Report of the Committee of Six, transmitted to Con-

gress by the President with his message of April

FE, SUE é kcepcicdcucesnabedevessdasseeinaracen 35

Report of the Committee of Three, House Document

No. 583, 75th Cong., 3d Sess., p. 39

> 4

“Bie

hie saa iia ae ‘ AG! ESOS LR ELS

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Subject Index Continued Vv

Page

Report of the Federal Coordinator of Transportation,

1934, H. R. Doc. No. 89, 74th Cong., Ist Sess.

(1935),

Le Tae chee res Teh Cee keMe Rew dae ny one 51

SM Shc rset ieee Ree ie wn sh ened dae aextoenesee 530

ea tia as bal Gab ones dm meu sone bn 50

Ne avn beeen ka caerema neon 49, 57, 58

ae a en a 49

IESE SEE ee en ee ea I eee 37

Senate Rep. No. 1336, 74th Cong., Ist Sess. (1935),

essere VANvekensie chu secataeexers 51, 58, 59

STATUTES

Bankruptcy Act. (See Section 77 of the

Bankruptcy Act.)

Emergency Transportation Act, 1933, Act of June 16,

SE > IRE a SE tee anne aan C re Pee 35

Interstate Commerce Act,

United States Code, Title 49 ......... 2, 3, 4, 13, 23, 24,

25, 30, 34, 37, 38,

39, 48, 44, 53

> Tale NSN ee are OE aA ESP SE 2, 39, 43-44

IE ROCMUNER crew ase denen cohen 2, 3, 23, 34, 38,

39, 43-44

ND sco vindkennwnk was Was vee 2, 3, 23, 34, 38,

39, 43-44

EE EE oid ote adx ede daiearuees 2, 4, 23, 34, 38,

39, 43-44

I eo ieee neces ce aan 2, 4, 23, 34, 38,

39, 43-44

I CEE nt cee cec eek edhe des 2, 4, 23, 34, 38,

39, {8 44

‘Cation 77 of the Bankruptcy Act, Act of March 3,

Oe rer errr rere 5, 13, 16, 17, 19,

20, 21, 22, 23. 30,

42, 44, 45, 47, 52, 53

RN HE ig bi ne Need kbe ene eken 5, 17, 19, 20, 21,

22, 23, 24, 42, 44

EE OND a Sa cavccdusneiwawn 5, 17, 19, 20, 21,

22, 93, 24, 42, 44

Page

Section 77 of the Bankruptey Act, Act of August 27,

1935, 49 Stat. 911, United States Code, Title 11,

ee eavaruweiiseelNierteeecieee d, 6, 8, 16, 17, 18,

19, 20, 21, 23, 24,

27, 28, 30, 31, 35,

38, 39, 40, 41, 42,

45, 46, 47, 49, 50.

02, 53, 57, 58, 59, 60, 61

ree CREED) noises decccussdeoeee 46

SN COE og eee vvbbw hedSbn 6, 18, 20, 23, 24,

20, 26, 27, 28, 30,

40, 53, 54, 55, 57,

08, 59, 60, 61

(aE o, 6, 13, 17, 18, +

19, 20, 24, 25, 26,

27, 28, 30, 42, 45,

46, 49, 53, 54, 57

Sherman Antitrust Act, Act of July 2, 1890, 26 Stat.

vi Subject Index Continued

CLL eau tinea ahese cienoweeer ete akon 18, 19, 32

The Act to Regulate Commerce, Act of February 4,

es a ae va hand cad ccccvabawono cen 32

Transportation Act, 1920, Act of February 28, 1920, ’

PE ices ge ernie s ohakuede et. 34

Transportation Act, 1940, Act of September 18, 1940,

NEE Ge sit eine ge oe go 16, 31, 35, 38, 39

United States Code, Title 11, § 205.

(See Section 77 of the Bankruptey Act, Act of

August 27, 1935, 49 Stat. 911.) \

United States Code, Title 28, Section 47 ............ 15

United States Code, Title 28, Section 1254(1) ........ 1

United States Code, Title 46 (Shipping Laws) ...... 28, 29

United States Code, Title 49.

(See Interstate Commerce Act.)

2 IIRC ENN RRS 00 —

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IN THE

Supreme Court of the Anited States

OcToBeR Term, 1953

No. 24

Ty THE Matter or Fioripa East Coast Rattway Co., Debtor,

St. Joe Paper Co., et al., Petitioners,

AtLantic Coast Live Rariroap Co., Respondent.

BRIEF ON BEHALF OF PETITIONERS

SOUTHERN AND SEABOARD

OPINIONS BELOW

The Opinion of the District Court for the Southern Dis-

trict of Florida (R. Vol. I, p. 127) is reported in 103 F.

Supp. 825.

The opinion of the Court of Appeals for the Fifth Cir-

euit (R. Vol. II, p. 717) is reported in 201 F. 2d 325.

JURISDICTION

The judgment of the Court of Appeals was entered

January 19, 1953. Our petition for certiorari and sup-

porting brief were filed in this Court on March 20, 1953.

Certiorari was granted on May 4, 1953, 345 U.S. 948.

Jurisdiction of this Court was and is invoked under Title

28, United States Code, § 1254(1).

_ —_——— ARENA L Ae IDR RY I geet WRAL RSET REE aera aerate

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STATUTES INVOLVED

The statutes involved are:

1. Section 1(18) of the Interstate Commerce Act as

amended, 49 U.S.C. §1(18):

(18) Extension or abandonment of lines; certificate re-

quired; contracts for joint use of spurs, switches,

ete.

No carrier by railroad subject to this chapter shall

undertake the extension of its line of railroad, or the

construction of a new line of railroad, or shall acquire

or operate any line of railroad, or extension thereof,

or shall engage in transportation under this chapter

over or by means of such additional or extended line,

of railroad, unless and until there shall first have been

obtained from the commission a certificate that the

present or future public convenience and _ necessity

require or will require the construction, or operation,

or construction and operation, of such additional or

extended line of railroad, and no carrier by railroad

subject to this chapter shall abandon all or any por-

tion of a line of railroad, or the operation thereof, un- »—

less and until there shall first have been obtained from

the commission a certificate that the present or future |

publie convenience and necessity permit of such aban-

donment. Nothing in this paragraph or in section 5

of this title shall be considered to prohibit the making

of contracts between carriers by railroad subject to ,

this chapter, without the approval of the Commission,

for the joint ownership or joint use of spur, industrial,

team, switching, or side tracks.

2. Section 5(2)(a)(i), (b), (ec), (d), and (f) of the Inter-

state Commerce Act as amended, 49 U.S.C. §5(2)(a) (i),

(b), (e), (d), and (f):

(2) Unifications, mergers, and acquisitions of control.

(a) It shall be lawful, with the approval and author-

ization of the Commission, as provided in subdivision

(b) of this seetion—

~ fi me 5 - pod i ie

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(i) for two or more carriers to consolidate or merge

their properties or franchises, or any part thereof,

into one corporation for the ownership, management,

and operation of the properties theretofore in sepa-

rate ownership; or for any carrier, or two or more

carriers jointly, to purchase, lease, or contract to oper-

ate the properties, or any part thereof, of another; or

for any carrier, or two or more carriers jointly, to

acquire control of another through ownership of its

stock or otherwise; or for a person which is not a car-

rier to acquire control of two or more carriers through

ownership of their stock or otherwise; or for a person

which is not a carrier and which has control of one or

more carriers to acquire control of another earrier

through ownership of its stock or otherwise; or

* & *

(b) Whenever a transaction is proposed under sub-

paragraph (a) of this section, the carrier or ear-

riers or person seeking authority therefor shall present

an application to the Commission, and thereupon the

Commission shall notify the Governor of each State

in which any part of the properties of the carriers

involved in the proposed transaction is situated, and

also such carriers and the applicant or applicants

(and, in case carriers by motor vehicle are involved,

the persons specified in section 305 (e) of this title),

and shall afford reasonable opportunity for interested

parties to be heard. If the Commission shall consider

it necessary in order to determine whether the find-

ings specified below may properly be made, it shall set

said application for public hearing; and a public hear-

ing shall be held in all cases where carriers by railroad

are involved unless the Commission determines that

a public hearing is not necessary in the public

interest. If the Commission finds that, subject

to such terms and conditions and such modifications

as it shall find to be just and reasonable, the proposed

transaction is within the scope of subparagraph (a)

of this paragraph and will be consistent with the

public interest, it shall enter an order approving and

anthorizing such transaction, upon the terms and con-

ditions, and wi'h the modifications, so found to be just

and reasonable: * * *

the provisions of this paragraph, the Commission shall

give weight to the following considerations, among |

others: (1) The effect of the proposed transaction

upon adequate transportation service to the public;

(2) the effect upon the public interest of the inclusion,

or failure to include, other railroads in the territory

involved in the proposed transaction; (3) the total

fixed charges resulting from the proposed transaction; ,

and (4) the interest of the carrier employees affected.

(d) The Commission shall have authority in the

ease of a proposed transaction under this paragraph

involving a railroad or railroads, as a prerequisite to

its approval of the proposed transaction, to require,

upon equitable terms, the inclusion of another raiiroad 5

or other railroads in the territory involved, upon peti-

tion by such railroad or railroads requesting such in-

clusion, and upon a finding that such inclusion is con-

sistent with the public interest.

(f) As a condition of its approval, under this para-

graph, of any transaction involving a carrier or car-

riers by railroad subject to the provisions of this

chapter, the Commission shall require a fair and equi- |

table arrangement to protect the interests of the rail- |

road employees affected. In its order of approval the —

Commission shall include terms and conditions pro-

viding that during the period of four years from the

effective date of such order such transaction will not

result in employees of the carrier or carriers by rail-

road affected by such order being in a worse position

with respect to their employment, except that the pro-

tection afforded to any employee pursuant to this sen-

tence shall not be required to continue for a longer

period, following the effective date of such order, than

the period during which such employee was in the

employ of such carrier or carriers prior to the effective

date of such order. Notwithstanding any other provi-

sions of this chapter and chapters 8 and 12 of this

title, an agreement pertaining to the protection of the

interests of said employees may hereafter be entered

into by any carrier or carriers by railroad and the

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duly authorized representative or representatives of

its or their employees.

3. Section 77 of the Bankruptcy Act, as originally en-

acted by the Act of March 3, 1933, 47 Stat. 1474, so as to

make the Bankruptcy Act apply to the reorganization of

railroads; and particularly the two ‘‘consistency clauses’’

thereof, as contained in subdivisions (b) and (e) thereof,

requiring mergers or consolidations of railroads provided

for in a reorganization plan to be approved thereunder to

be consistent with the provisions of Sections 1 and 5 of

the Interstate Commerce Act and with the purposes of that

entire Act, as follows:

(b) A plan of reorganization within the meaning of

this section * * * (3) shall provide adequate means

for the execution of the plan, which may, as far as

may be consistent with the provisions of sections 1

and 5 of the Interstate Commerce Act as amended,

include the transfer or conveyance of all or any part

of the property of the debtor to another corporation

or to other corporations or the consolidation of the

properties of the debtor with those of another railroad

corporation, or the merger of the debtor with any other

railroad corporation * * *. (Italics ours.)

and

(e) * * * Upon acceptance of the plan in accordance

with the provisions of this subdivision (e) the com-

mission may, without further proceedings, grant au-

thority for the issue of any securities, assumption of

obligations, transfer of any property, or consolidation

or merger of properties, to the extent contemplated by

the plan consistent with the purposes of the Interstate

Commerce Act as amended. * * * (Italics ours.)

4. Section 77 of the Bankruptcy Act, as amended and

rewritten by the Act of August 27, 1935, 49 Stat. 911, 11

U.S.C. § 205, and particularly—

a TIN a ORE EE ELL GL TEIN LINE SERED DOL ENS OR

The combined ‘‘consistency clause’’ of subdivision (f)

thereof, as follows: 4

(f) * * * Upon confirmation of a plan the Commis-

sion shall, without further proceedings, grant author-

ity for the issue of any securities, assumption of

obligations, transfer of any property, sale, consolida- |

tion or merger of the debtor’s property, or pooling of :

traffic, to the extent contemplated by the plan and not,

inconsistent with the provisions and purposes of the —

Interstate Commerce Act as now or hereafter amend-

ed.* * * (Italics ours.)

(Nore: The above is copied from 49 Stat. 911. In 11

U.S.C. § 205, the wording of the last clause is changed,

without change of meaning, to read: ‘‘ * * * and not incon- '

sistent with the provisions and purposes of chapter 1 of

Title 49 as on August 27, 1935, or thereafter amended.’’)

and the so-called ‘‘ecram-down’’ clause of subdivision (e)

thereof, as follows:

* * * Provided, That, if the plan has not been so

accepted by the creditors and stockholders, the judge

may nevertheless confirm the plan if he is satisfied

and finds, after hearing, that it makes adequate provi-

sion for fair and equitable treatment for the interests

or claims of those rejecting it; that such rejection is

not reasonably justified in the light of the respective ,

rights and interests of those rejecting it and all the

relevant facts; and that the plan conforms to the re-

quirements of clauses (1) to (3), inclusive, of the

first paragraph of this subsection (e). * * * (Italics |

ours.)

“>

STATEMENT OF THE CASE

To avoid duplication, these petitioners adopt all details

of the statement of the case made in the separate brief of

petitioners, St. Joe Paper Co., et al., not here set out.

This separate statement in this brief undertakes to make

clear: (1) who these petitioners are and their interest and

standing in the case; (2) that the question to which the

Le RS ithe ae Dat US. Sak oe

Ba E ia ne

Pie: sti

Se Se ee OO me STFS ID RAEN Biege: Bera ie

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writ of certiorari limits review in this Court is the ques-

tion which these petitioners have principally pressed upon

the courts below; and (3) how the courts below have dealt

with that question.

1, These Petitioners—Their Interest and Standing

Southern Railway System and Affiliated Lines (being

the separate but affiliated railroad corporations listed

below,’ herein and throughout this litigation referred to

as ‘‘Southern’’) are interstate railroads in the Southeast

in competition with respondent, Atlantic Coast Line, and

in competition with their co-petitioner ‘‘Seaboard.”’

Seaboard Air Line Railroad Company (herein and

throughout this litigation referred to as ‘‘Seaboard’’) is

an interstate railroad in the Southeast in competition with

respondent, Atlantic Coast Line, and in competition with

its co-petitioner ‘‘Southern.”’

Southern, Seaboard and Atlantic Coast Line each con-

nects with debtor’s railroad, Florida East Coast, at its

northern terminus at Jacksonville, Florida, at which point

the three—Southern, Seaboard, and Atlantic Coast Line—

vigorously compete with each other for the interchange of

interstate traffic with Florida East Coast both northbound

and southbound.

Neither Southern nor Seaboard has sought to acquire

the properties of debtor, Florida East Coast, a railroad

whose main line runs between Jacksonville on the north

along the east coast of Florida and a point a little south

of Miami. But throughout this litigation Southern and

Seaboard have opposed the acquisition of the Florida East

Coast Railroad by respondent, Atlantic Coast Line, and

particularly have opposed, before the Commission and be-

?Southern Railway Company; Georgia Southern and Florida

Railway Company ; The Cincinnati, New Orleans and Texas Pacific

Railway Company; New Orleans and Northeastern Railroad Com-

pany; The Alabama Great Southern Railroad Company; and St.

Johns River Terminal Company.

SEVERE AS HEL BOLAND SANGRE TMT LOIOIGIS SUE IIE CR IR Ra

fore the courts below, the foreed merger or consolidation

of Florida East Coast with respondent, Atlantic Coast

Line, under the guise of a plan for reorganization of that

‘‘debtor’’ under Section 77 of the Bankruptcy Act, as

amended by the Act of August 27, 1935, 49 Stat. 911, and

specifically have contended, before the Commission and

the courts below, that Section 77, as so amended, gives no

power to the Commission, or to the courts below, or to

the Commission ‘‘brigaded’’ with the said courts, to coerce

such an involuntary merger or consolidation over the op-

position of the great majority of the equitable owners of

the debtor.

Neither Southern nor Seaboard owns any of the securi-

ties of the debtor, Florida East Coast, and neither has,

therefore, had standing in this litigation to attack the

fairness or equitableness of the various plans for its re-

organization, a question not now under review by this

Court, under the writ of certiorari which it has granted.’

But Southern and Seaboard, both of whom will be seri-

ously injured in their respective competitive positions at

Jacksonville if the Commission’s forced merger plan is

approved, have intervened before the Commission and be-

fore the District Court below to protect their said com-

petitive positions and to challenge the basic statutory

power to certify and approve the forced merger plan, which

would give the Florida East Coast to their competitor,

Atlantie Coast Line, a plan by which Southern and Sea-

board would suffer grave damnum as well as injuriam if

the plan is, as they contend, illegal for want of statutory

power.

At no stage of the litigation has respondent, Atlantic

Coast Line, challenged the right of Southern or of Sea-

2 St. Joe Paper Co. et al. v. Atlantic Coast Line Railroad Co., No.

670; Lynch et al. v. Atlantic Coast Line Railroad Co., No. 702:

Aird et al., Trustees v. Atlantic Coast Line Railroad Co., No. 705;

Welborn et al. v. Atlantic Coast Line Railroad Co., No. 710, 345

U.S. 948-949.

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board to intervene for this purpose or to present this

contention.

The damnum to Southern and Seaboard if the decision

of the Court of Appeals is affirmed and if the forced

merger plan is approved, is sufficiently shown by the fol-

lowing finding by Circuit Judge Strum in the District

Court below, who had before him the most up-to-date evi-

dence on this question, and whose factual finding quoad

hoc is unchallenged :*

‘‘Seaboard Air Line Railway and Southern Railway

are competing carriers with Atlantic Coast Line from

Jacksonville to the north, east, and central west. These

roads now compete with A.C.L. for the interchange

business of Florida East Coast at Jacksonville,

through the Jacksonville ‘open gateway’ to and from

the east coast of Florida. The public now enjoys the

benefit of this competition. Seaboard parallels A.C.L.

from many Florida points to Jacksonville, also from

Jacksonville to Richmond, with the same connections

to the north and east. Seaboard and Southern, one or

both, serve substantially the same principal cities as

A.C.L. to the north and west of Jacksonville. From

the interchange traffic at Jacksonville, Southern Rail-

way received in 1949 a total revenue of $5,900,000.

The Seaboard received $3,300,000. These two lines

aggregated $9,200,000, about 57% of the total inter-

change revenue, the Coast Line and its affiliates hav-

ing received a total of approximately $7,450,000.

“It is obvious that the addition of Florida East

Coast to its system would give A.C.L. a tremendous

advantage—to say the least of it—over its competi-

tors, the Seaboard and Southern, as to passenger and

freight traffic originating along, or destined to, the

east coast of Florida and in Cuba. It would effectively

close the ‘open gateway,’ which now exists at Jack-

sonville, and give A.C.L. a virtual monopoly over the

interchange business at Jacksonville. Apparently the

Commission saw no ‘grave consequences’ for the pub-

lic in this situation. But it finds that because the

duPonts control extensive banking resources in Flor-

ida—an advantage, it would seem, in operating a rail-

8 In re Florida East Coast Ry. Co., 103 F. Supp. 825, 845-846.

————e PEON TLL PETE CIE LOL IES, LE TIER OSE LORETO APES ATE

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road—their control over the operation of the F.E.C.

would be incompatible with the public interest.

‘It may be that the coercive possibilities which

would accompany absorption of F.E.C. into the Atlan-

tic Coast Line, along with sole ownership of P & O

S/S Company, and the potential influence of that

set-up upon passengers and shippers as to the carrier

they would select to the nerth, east, or west of Jack-

sonville, served by A.C.L. and L. & N., would have ,

consequences less ‘grave’ on the public interest than

to entrust continued independent control to the pres-

ent equitable owners of Florida East Coast, whose

only disqualification is that some of them own a chain

of Florida banks, but such a conclusion is wholly un-

supported by evidence in this record. It should here ,

be mentioned again that there are $20,000,000 of mi-

nority 5% bondholders who do not own any Florida

banks, but who will nevertheless be penalized by the

Commission’s apprehensions as to the public interest.

‘‘With some exceptions, a shipper has the theoret-

ical privilege of routing his shipment as he wishes.

As to broken lot shipments, this is a privilege rarely

exercised. As to carload shipments, it will hardly be

doubted that a shipper who endeavors to procure —

empty ears from one earrier to be loaded with ship- |

ments to be routed over the lines of a competing car-

rier will find his path beset with difficulties.”’

2. This Court Has Limited Its Review to the One Question i

of Statutory Power

By the certiorari which it granted in these cases, 345

U.S. 948-949, this Court has limited its review to the one

question of statutory power, which Southern and Seaboard

have stressed before the Commission and before the courts

below.

3. How the Question of Statutory Power Has Been

Dealt With Below

The specific question of statutory power here under re-

view, having been decided against these petitioners twice

by the Commission,‘ was by them presented twice in the

* 267 I.C.C. 295, 338-339 ; 267 I.C.C. 729, 730-735. |

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a ——

District Court below and twice in the Court of Appeals

below.

Our contention as to this question was fully sustained

by Cireuit Judge Sibley, sitting as judge designate in the

Dist

rict Court, in his opinion in 81 F. Supp. 926, 932,

where he said:

‘It is very earnestly argued that Subsection b

which gives the specifications for a plan, in saying it

‘may include the transfer of any interest in or control

of all or any part of the property of the debtor to

another corporation or corporations, the merger or

consolidation of the debtor with another corporation,’

ete., does not mean a forced merger, which the Inter-

state Commerce Act, 49 U.S.C.A. $1 et seq., has never

permitted the Commission to compel, though Congress

has often considered the matter. The history of the

legislation in adopting Section 77 in 1933, is pointed

to as showing that Congress was then concerned that

no such thing was to be done under Section 77; and

so again in 1935 when the section was revised; and

that the reference to the Interstate Commerce Act in

Subsection f which the Commission thinks applies only

to its actions after confirmations of a plan, was in-

tended to apply throughout and became accidentally

misplaced in redrafting the Act. Without reciting the

history, I think this contention is true. Of late years

courts have perhaps gone too far in using legislative

history in a very loose way to supplement or change

an Act as written. If this question related directly

to the liberties or property of the people I would be

loath to do it now. But it relates to the extent of the

power granted by Congress to its own agent. And

the Interstate Commerce Act can be construed with

Section 77 to ascertain what Congress really meant

by a railroad ‘merger or consolidation,’ and whether

it meant one consented to by both parties to it. No

one would contend that the Coast Line could he forced.

But the Commission argues that this debtor has also

consented, hecause its stockholders have not appeared

to object. T think that does not follow. It is expressly

fonnd that the debtor’s insolvenev is such that the

stockholders are not interested parties. The debtor,

its property and affairs now belong in equity to the

creditors, and more specifically to the refunding bond-

holders. The full jurisdiction and control over them

is in this court. The refunding bondholders by an

overwhelming majority do not consent. If the court

has the power as a court of bankruptcy to consent for

them, under the cireumstances of this case it should

refuse to do so. I do not think Congress intended to

force a merger undesired by the majority in amount

of the affected parties by permitting a merger to be

part of a plan. This conclusion makes it unnecessary

to determine whether the court’s power in bankruptcy

could be extended to force a merger consistently with

the Fifth Amendment. It also ends this plan. * * *”’

POEL ORE OER a

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On appeal from Judge Sibley’s decision, a majority of

the Court of Appeals affirmed his disapproval of the plan

as unfair and inequitable and specifically said, ‘‘We agree

with the trial judge that upon the facts of record and his

findings, and in the light of the determination of the com-

mission, such a forced merger as is now proposed is con-

trary to the statute.’’ (Italics ours.) This was the

holding of Chief Judge Hutcheson, the author of the opin-

Rr ef

ion, joined in by Judge Russell in his special concurring ‘

opinion. 179 F. 2d 538, 544. Ly

However, a different majority of the Court of Appeals,

this time Judges Hutcheson and Holmes, Judge Russell :

disagreeing in his special concurring opinion, held against

our contention on the question of statutory power, saying: ‘

‘‘We are in no doubt, however, that a plan provid~-

ing for what the trial judge broadly called a ‘forced Ee

merger’, that is, a merger over the objection of the

debtor and all its creditors, might be lawfully certified =~

to the court and lawfully approved and confirmed by a

it.’’ (P. 544.)

and further saying:

‘‘In remanding the case, however, for further pro-

ceedings, we remand it for the purpose of working

out a really fair and equitable plan and without preju-

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dice in doing so to the due consideration of any fair

and equitable plan for bringing this matter to an end,

including such a plan providing for a merger with, or

sale to, the Coast Line either with or without the ap-

proval of the security holders.’’ (P. 544.) (Italies

ours.)

This holding, by Judges Hutcheson and Holmes, who

interestingly enough completely disagreed with each other

as to whether the then pending plan was unfair and in-

equitable, was made without any analysis of Section 77,

without any consideration of the ‘‘provisions and pur-

poses’’ of the Interstate Commerce Act or of the consist-

eney clause of Section 77 requiring consistency with those

provisions and purposes, and without any consideration at

all of the illuminating legislative history of Section 77,

upon which Judge Sibley had based his holding that Con-

gress never intended to give to the commission the power

to coerce a merger or consolidation. For all Judge Hutche-

_ son’s opinion shows, this holding by him and Judge Holmes

was mere ipse dixit based on nothing more than the fact

that they sat on a higher court with power to overrule

Judge Sibley quoad hoc.5

Judge Kussell vigorously disagreed with this ipse dizit,

saying:

“‘T concur in the judgment of affirmance, and think

that in most respects the decision ably demonstrates

the reasons why this should be so. However, since T

am in complete accord with the conclusions reached,

and expressed in his opinion, by the very able and

distinguished Cireuit Judge Sibley, who sat in the

District Court as United States Judge Designate, I

can not accept such contrary views as are expressed

in the present fi. e., Judge Hutcheson’s] opinion.’

(P. 545.)

_——

*Cf., Mr. Justice Jackson, separate opinion in Brown v. Allen,

344 U.S. 443, 540, decided February 9, 1953, ‘‘We are not final

because we are infallible, but we are infallible only because we are

final.”

= oer

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The queer result was that the Court of Appeals, with its

swing-shifting and alternating two-to-one majority, at the

same time affirmed Judge Sibley’s disapproval of the plan

as unfair and inequitable but, with a shifted majority,

overruled Judge Sibley on the basic question of statutory

power and held that a forced merger was authorized.

At that stage, two Circuit Judges had held with us and

two Circuit Judges had held against us on the question of

statutory construction on which this Court has now granted

certiorari.

When the fourth amended plan of reorganization, ap- |

proved by the majority of the Commission, went back to |

the District Court, still providing for the forced merger , —

or consolidation of the Florida East Coast with the Atlan.

tic Coast Line, over the objection of the great majority of

the equitable owners of the debtor, Florida East Coast, +

and over the objections of these petitioners, we again pre-

sented to Circuit Judge Strum, sitting as District Judge,

pro hoc vice, our same contention that Section 77 of the

Bankruptey Act, as amended by the Act of August 27, |

1935, 49 Stat. 911, had conferred no power on the Commis-

sion or on the court to approve a plan of reorganization

providing for a forced merger of debtor, Florida East |

Coast, with the respondent here, Atlantic Coast Line. We

recognized that Judge Strum might refuse to decide that

question, feeling bound by the decision of the majority of

the Court of Appeals against our contention in 179 F. 2d

538. Nevertheless, we presented our contention of want

of statutory power as strongly as we could, as raising a

serious question as to validity of the fourth plan, properly

to be considered by Judge Strum in exercising his judicial

discretion as to whether he would approve or disapprove

that plan, even if he felt he could not decide the question

of statutory power himself.

In his decision in 103 F. Supp. 825, 834, Judge Strum

merely held, on our point, that it was the ‘‘settled law of

this case’’ that a forced merger plan might lawfully be

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certified to the court by the Commission and might law-

fully be approved and confirmed by the court, citing Judge

Hutcheson’s language to that effect in 179 F. 2d 538, 544.

But he sustained other objections to the fourth amended

plan, held it to be unfair and in uitable and, indeed, held

that it was just as unfair and inequitable as the previous

plan which Circuit Judges Sibley, Hutcheson and Russell

had disapproved.

He went further and, in accordance with the specific au-

thorization of Section 77, subdivision (e) and subdivision

(g), dismissed the Section 77 bankruptcy proceeding and

directed the restoration of all property and records of the

debtor to equity receivership.

At that stage, Judge Strum not having decided our

question himself but only having held himself bound on it

by the ‘‘law of the case,’’ of four Circuit Judges who had

passed on our contention of want of statutory authority

for a forced merger plan, two had held with our contention

and two had held against it.

When respondent, Atlantic Coast Line, appealed from

Judge Strum’s decision to the Court of Appeals below,

that court, on its own motion ® and, apparently, because of

its previous sharp divisions in this case, ordered that the

appeal be heard before it sitting en banc, so that the appeal

was heard before the full membership of the Court of

Appeals below, with the exception of Circuit Judge Strum,

from whom the appeal came and who was disqualified,’

to-wit, before Circuit Judges Hutcheson (Chief Judge),

Holmes, Borah, Russell and Rives, see 201 F. 2d x, 325.

In view of this enlarged personnel of the Court of Ap-

peals sitting below, and invoking the holding by this Court

in United States v. U.S. Smelting Co., 339 U.S. 186, 199,

that, unlike res judicata which is a binding rule of judg-

ment, the rule of ‘‘the law of the case”’ is ‘‘only a discre-

— _.*See Western Pacific Railroad Case, 345 U.S. 247, decided April

| 6, 1953.

728 U.S.C. 47. eet

PRE RENN PTE IER NIT TA TTS OTR ENR AEA

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VPC PO RAISER

tionary rule of practice,’’ we earnestly urged the Court of

Appeals below to reexamine and redecide the fundamental

question of statutory power as to forced merger and re-

quested and secured permission to file with the court en

banc, and did file with it, our brief before the Court of

Appeals on the previous appeal (179 F. 2d 538), in which

we had presented a full study of the legislative history of

Section 77 of the Bankruptcy Act, as originally enacted

in 1933 and as amended in 1935, supporting our contention

that Congress not only had no intention but affirmatively ,

denied any intention to confer on the Commission the com-

pulsory merger or consolidation power which it had always

denied and had since, in 1940, again denied to the Commis-

sion under the Interstate Commerce Act and its amend-

ments.

The majority of three of the five Judges of the court

below, in the opinion by Chief Judge Hutcheson, joined in

by Judges Holmes and Rives, in 201 F. 2d 325-331, gave

our contention on this basic question short shrift. They

did not reconsider the question de novo, as we had urged, |

but held against our contention on the ground that the

previous concurrence against us on the same question by

Judges Hutcheson and Holmes (Judge Russell contra), in

179 F. 2d 538, had established the law of the case against

our contention.

Circuit Judges Russell and Borah dissented, Judge Rus-

sell’s opinion, joined in by Judge Borah, saying, as to our

contention:

‘¢* * * The bald proposition established by the ma-

jority opinion is that the court’s power in bankruptcy

authorizes the taking, against the wishes of the over-

whelming majority of the refunding bondholders [of —

the debtor, Florida East Coast], of their existing ,—

rights, requiring acceptance by them of an entirely .

different and unrelated security which they do not

desire. This holding poses a serious constitutional

question as to whether the court’s power in bankruptcy

could thus be extended to force a merger consistent —

gar nn

a .

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with the Fifth Amendment. However, in my view of

the case I do not reach the constitutional question

because here it is clear from the history of the legis-

lation of Section 77, that the Commission has under-

taken to exercise a power which the Congress never

intended to confer on the Commission. This was well

pointed out by Judge Sibley in his decision while sit-

ting as District Judge in a former proceeding in this

matter. In re Florida East Coast Railway Co., D.C.,

81 F. Supp. 926. This view was expressly approved

by the writer in his special concurrence upon the for-

mer appeal of this case. Atlantic Coast Line v. St.

Joe Paper Co., 5 Cir., 179 F. 2d 538, 545. It is re-

affirmed today.’’

It results that, as the writs of certiorari bring this same

question, and it alone, to this Court for review, it is a

question of first impression here, on the merits of which

three Circuit Judges, Sibley, Russell and Borah, have held

with us, and two Circuit Judges, Hutcheson and Holmes,

have held against us. Two other Circuit Judges, Strum,

in the District Court, and Rives, in the Court of Appeals,

have not passed on the merits of the question at all, but

have merely bowed to the previous decision by Judges

Hutcheson and Holmes as establishing the ‘‘law of the

ease,’’ binding upon them as to this question.

SUMMARY OF ARGUMENT

Section 77, as Amended, on Its Face Shows That Congress In-

tended to Deny to the Commission the Compulsory Power

Here Asserted, as It Had Always Been Denied Under the

Interstate Commerce Act as Amended

The two ‘‘consistency clauses’’ of subdivisions (b) and

(e) of Section 77 as enacted in 1933 clearly denied this

compulsory power to the Commission.

The amendatory Act of 1935 combined those two ‘‘con-

sistency clauses’’ of 1933 into one clause in subdivision

_ (f), expressly requiring any Commission-approved plan

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for merger or consolidation to be consistent not only with

the ‘‘provisions’’ but also with the broad ‘‘purposes’’ of

the entire Interstate Commerce Act as then or as later ~

amended. ;

The ‘‘cram-down’’ provision of subdivision (e), written }—

into Section 77 by the amendatory Act of 1935, gave no

power whatsoever to the Commission, but only gave an

ultimate procedural power to the district judge to make

effective a Commission-approved plan, required by the

‘‘consistency clause’’ to be voluntary on the part of both , —

railroads to be consolidated.

The ‘‘eram-down clause’’ cannot be held to negative the

prohibition of the consistency clause denying to the Com-

mission the compulsory power here claimed.

If all this be not clear from the face of Section 77, then

we have a highly ambiguous situation, with glaring con-

flict between the ‘‘consistency clause’’ and the ‘‘cram-down

clause,’’ inviting, indeed requiring, resort to legislative

history to ascertain the real intent of Congress.

Pt, Pa ee eS

RE I

ot EER en er

In Writing the 1935 Amendments to Section 77 of the Bank- ,;

ruptcy Act, Congress Did Not Write on a Clean Slate, But

as a Postscript to a Long Series of Enactments Dealing

With Railroad Consolidations and Mergers, Throughout the

Whole History of Which, and Even as Late as 1940, It Had

Consistently Refused to Grant Any Power of Compulsion

to the Commission

Section 77 must be construed in the light of the long |

history of the separate enactments constituting the Inter- |

state Commerce Act. United States v. Barnes, 222 U.S. | —

513, 520; United States v. Sweet, 245 U.S. 563; Lauritzen

v. Larsen, 345 U.S. 571, decided May 25, 1953.

Prior to the enactment of the Sherman Act in 1890

laissez faire was the federal governmental policy regard-

ing consolidation of railroads, and that was the great era

of free consolidations. Thereafter, far from attempting

PP : PRISE RL ERB MOR EY PIER LTRS OLE LE PL ELSI IRS IW RELL 2H

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ai ccnttaatinlied

to force consolidations, the federal government prevented

them, by suits under the Sherman Act, where they would

result in the elimination of competition.

Throughout the long history of federal legislation regu-

lating railroads, since the enactment of the original Act

to Regulate Commerce in 1887, Congress has always and

consistently denied to the Commission any compulsory

power to force railroad consolidations or mergers. It

denied such power in 1920, in 1933, and again in 1940, five

years after Section 77 was amended in 1935, and still the

Commission has no such compulsory power under the In-

terstate Commerce Act and has only the power to approve

or disapprove consolidations or mergers voluntarily agreed

to and proposed by both railroad parties. Schwabacher v.

United States, 334 U.S. 182, 193.

It cannot be held that by oversight, and with no discus-

sion or mention of the matter in the legislative proceed-

ings, Congress had given to the Commission in 1935 the

very compulsory power which it had always denied to it

theretofore and again denied to it in 1940, five years later.

III

The Legislative History of Section 77, as Enacted in 1933 and

as Amended in 1935, Makes It Clear That the “Consistency

Clauses” Were Written Into the 1933 Act and Combined

and Continued in the Act of 1935 for the Very Purpose of

Denying to the Commission the Compulsory Power Which

Had Always Been Denied to It Under the Interstate Com-

merce Act

The ‘‘consistency clauses’’ of both acts originated with

Mr. Joseph B. Eastman, Chairman of the Legislative Com-

mittee of the Commission, and were proposed by him for

the very purpose of avoiding the possibility that the

merger and consolidation powers of the Commission under

the Interstate Commerce Act might be expanded by the

enactment of, and under, Section 77.

It is clear from the legislative history of Section 77, as

originally enacted in 1933 and as amended in 1935, that

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OR SRI SHAS ICIS oD ORE Tie A ORR GRO » ee T Tess SRC SEP SF AL INS

Congress adopted the ‘‘consistency clause’’ for the very

intent and purpose suggested by Mr. Eastman. The intent

of Mr. Eastman, the intent of his counsel who drafted the

legislation, and the intent of the legislators are all shown

to have concurred in this purpose. ‘

The compulsory power claimed by the Commission can-

not be derived from an absence of express prohibition in

the Interstate Commerce Act itself. The fact that Con-

cress refused to grant that power under that Act in 1920,

in 1933, and in 1940 is controlling.

The Legislative History of the Act of 1935 Makes It Clear That

by the “Cram-Down” Provision of the Provisos of Sub-

section (e) Congress Did Not Intend to Nullify the “Con-

sistency Clause” and to Give to the Commission or to the ,

Courts the Compulsory Power Which It Has Always Re-

fused to Give Under the Interstate Commerce Act

The ‘‘cram-down clause’’ gives no power at all to the

Commission. It only gives an ultimate coercive power to

the judge, on final confirmation, to prevent a dissident

minority of the debtor’s security-holders from blocking,

without reasonable justification, or from ‘‘highjacking”’

for ulterior motives, a fair and reasonable plan approved

by the majority.

Any other construction of the ‘‘cram-down clause”’

would raise a serious constitutional question under the

Fifth Amendment and should, hence, be avoided.

The legislative history, showing the reasons for enact-

ing that provision and the limited application intended to

be given to it, confirms the construction of it for which we

contend.

The decision by Circuit Judge Sibley in this regard, in

81 F. Supp. 926, 932, concurred in by Circuit Judge Russell

in 179 F., 2d 538, 545, and by Circuit Judges Russell and

Borah in 201 F. 2d 325, 331-332, should be followed by this

Court.

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——

Conclusion

This Court should reverse the judgment of the court

below.

ARGUMENT

Section 77, as Amended, on Its Face Shows That Congress In-

tended to Deny to the Commission the Compulsory Power

Here Asserted, as It Had Always Been Denied Under the

Interstate Commerce Act as Amended

There were two ‘‘consistency clauses’’ in the original

Section 77, amending the Bankruptcy Act so as to make it

apply to reorganization of railroads, as enacted by the

Act of March 3, 1933, 47 Stat. 1474.

The first was in subdivision (b) of Section 77 and it

limited Commission-approved plans for reorganization of

debtor railroads providing for their merger or consolida-

tion with another railroad or other railroads to plans

consistent with the provisions of the Interstate Commerce

Act, in the following terms:

‘*(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,

inelude the transfer 01 conveyance of all or any part

of the property of the debtor to another corporation

or to other corporations or the consolidation of the

properties of the debtor with those of another rail-

road corporation, or the merger of the debtor with

any other railroad corporation and the issuance of

securities of either the debtor or any such corporation

or corporations, for cash, or in exchangesfor existing

securities, or in satisfaction of claims or rights, or

for other appropriate purposes; * * *.’’ (Italics ours.)

— semi Lets

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Tee Mn oe

The second ‘‘consisteney clause’’ was contained in sub-

division (e) of the 1933 Act, requiring consistency with

the ‘‘purposes’’ of the Interstate Commerce Act, as

follows:

‘*(e) * * * Upon acceptance of the plan in accordance

with the provisions of this subdivision (e) the com-

mission may, without further proceedings, grant au-

thority for the issue of any securities, assumption

of obligations, transfer of any property, or consolida-

tion or merger of properties, to the extent contem-

plated by the plan consistent with the purposes of the

Interstate Commerce Act as amended, * * *’’ (Italics

ours.)

Obviously the requirement of subdivision (e) of consist-

ency with the ‘‘purposes’’ of the entire Interstate Com-

merce Act was broader than the requirement of subdivi-

sion (b) of consistency with the ‘‘provisions’’ of only two

sections of that Act. Yet the later and broader ex-

pression fortified the earlier and narrower, and the fact

that Congress was at pains in 1933 to require consistency

twice, in two subdivisions of Section 77, emphasized the

requirement that consolidation or merger plans must be

consistent, not only with the literal ‘‘provisions’’ but also

with the broad ‘‘purposes’’ of the Interstate Commerce

Act.

It has never been contended by respondent that Section

77 as enacted in 1933 conferred any compulsory power on

the Commission with reference to consolidation or merger

of debtor railroads. In fact, in his argument to the Com-

mission in the proceeding culminating in its Fourth Sup-

plemental Report, 267 I.C.C. 729, Mr. Edward W. Bourne,

then and now leading counsel for respondent, expressly

declared to the Commission that at the time the 1933 Act

was passed, Congressman Rayburn was entirely right in

stating that nobody intended to extend the power to have

compulsory consolidations; that ‘‘the whole 1933 Act was

a consent Act’’; that there was no grant of any compulsory

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power by the 1933 Act; but that it was the 1935 amendatory

Act that brought in the provision for asserted compulsory

power upon which he and respondent relied* (7.¢., the

‘‘eram-down’’ provision of subdivision (e) of the Act of

1935, upon which respondent, the Commission, and appar-

ently the Court of Appeals below have solely relied).

But the two consistency clauses of the Act of 1933 were,

in the amendatory Act of August 27, 1935, 49 Stat. 911,

combined into one clause containing both the narrower

requirement of consistency with the ‘‘provisions’’ and the

broader requirement of consistency with the ‘‘purposes”’

of the Interstate Commerce Act, and, as a matter of drafts-

manship, this new, combined consistency clause was placed

in subdivision (f) of Section 77, as follows:

shall, without further proceedings, grant authority for

the issue of any securities, assumption of obligations,

transfer of any property, sale, consolidation or merger

of the debtor’s property, or pooling of traffic, to the

extent contemplated by the plan and not inconsistent

with the provisions and purposes of the Interstate

Commerce Act as now or hereafter amended. * * *”’

(Italics ours.)

As Section 77, as amended in 19335, is carried in 11 U.S.C.

205(f) the combined and reiterated consistency clause is

in exactly the same words as in 49 Stat. 911, save for a

purely technical change in the statutory reference, involv-

ing no change in meaning, to make it read:

‘‘and not inconsistent with the provisions and pur-

poses of chapter 1 of Title 49 as on August 27, 1935,

or thereafter amended.”’

Thus, in the amending Act of 1935, Congress made it

clear that it was requiring consistency both with the ‘‘ pro-

visions’? and the ‘‘purposes’’ not merely of Sections 1

and 5 of the Interstate Commerce Act, but of that entire

®See Transcript I.C.C. Finance Docket 13170, pp. 5202-3, not

printed but lodged with the Clerk of this Court.

EOL AAEM ALTE EE HS “ ~ — er ee ee

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Act, and not merely of that Act as amended up to August

27, 1935, but as it might be ‘‘hereafter amended.’’ The

combining and repetition of the two ‘‘consistency clauses”’

of the original Act of 1933 and the care with which Con-

gress made that requirement for consistency extend to any

future amendments of the Interstate Commerce Act con-

stitute an express declaration of legislative intent than

which nothing could have been clearer. 3

However, because the Congress, in the amendatory Act

of 1935, wrote into subdivision (e) of Section 77, as one of

a number of provisos in that long, procedural subdivision,

a clause generally referred to by the expressive term ‘‘the

cram-down clause,’’ the respondent contends, the Commis-

sion held® (and frankly we do not know what was the

basis of the holding to the same effect by Judges Hutche-

son and Holmes in the Court of Appeals below), that that

‘‘cram-down clause’’ nullifies the later ‘‘consistency

clause’’ of subdivision (f) of that Act and expresses a

congressional intent to grant to the Commission and the

courts a forced merger or consolidation power which, ©

otherwise, the ‘‘consistency clause”’ clearly negatives, The

broad catholicity of language of that ‘‘cram-down clause”’

is as follows:

‘«* * * Provided, That, if the plan has not been so

accepted by the creditors and stockholders, the judge

may nevertheless confirm the plan if he is satisfied

and finds, after hearing, that it makes adequate pro-

vision for fair and equitable treatment for the inter- !

ests or claims of those rejecting it; that such rejec-

tion is not reasonably justified in the light of the

respective rights and interests of those rejecting it

and all the relevant facts; and that the plan conforms

to the requirements of clauses (1) to (3), inclusive, of —

the first paragraph of this subsection (e). * * *’”° '

® 267 I.C.C. 295, 338-339 ; 267 1.C.C. 729, 730-735.

1° 49 Stat. 911, 11 U.S.C. 205, subdivision (e).

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It will at once be observed that, while the ‘‘consistency

clause’’ of subdivision (f) is in direct and express term a

limitation on the power of the Commission in formulating

and approving any plan involving a merger or consolida-

tion, the ‘‘cram-down clause’’ of the preceding subsection

(e) does not refer to or purport to confer any power on

the Commission, but only applies to ‘‘the judge’’ and gives

him a power, to be exercised only in the latest stage of the

proceeding, after the Commission has approved a plan and

certified it to the District Court, after that court has ap-

proved the plan, after all judicial review has been ex-

hausted and the plan stands finally approved by the court,

after the approved plan has been sent back by the court

to the Commission for the purpose of its polling the

security-holders of the debtor, after that poll has been

taken, and after the Commission has certified back ‘‘to the

judge the results of such submission.’’

Then, and then only, after all the quasi-judicial and all

the merely ministerial functions of the Commission have

been completed, the ‘‘cram-down clause’”’ gives to ‘‘the

judge,’’ not to the Commission, a power to ‘‘cram”’ the

plan down the throat of some recalcitrant somebody.

Quaere: down whose throat?

Respondent has argued and undoubtedly will argue that

this ultimate coercive power granted only to the judge in

this final confirmation stage of the Section 77 proceeding,

reflects back, by some strange misapplication of the laws

of physics or logic, to relieve the Commission of the ex-

press limitation on its power, in the early stage of the

proceeding, requiring any plan involving merger or con-

solidation approved by it to be consistent with the provi-

sions and purposes of the Interstate Commerce Act as

amended on August 27, 1935, or as it might be thereafter

amended.

It was on just such a queer theory of a power given to

the judge, in the latest stage, reflected backward in space

and time to shine on the Commission in the earliest stage,

) COPY

that the Commission held" that it had the power to force

a merger or consolidation, in spite of the ‘‘consisteney

clause’’ of subdivision (f) which was expressly written by

Congress as a limitation on the powers of the Commission

itself, and in spite of the faet that the great majority of

the equitable owners of Florida East Coast were before

the Comission as parties vigorously opposing the plan

for a imerger of its properties with Atlantic Coast Line.

If we may try to give our opponent’s argument its fair-

est extent, why should it not be held that the Commission

has the coercive power to impose a non-voluntary merger

or consolidation in its original formulation and approval

of a plan, since, in any event, Congress has given to the

judge in the last stage a power of compulsion to cram the

plan down the throats of recalcitrants?

There are a number of clear and short answers.

First: It is one thing for Congress to give an ultimate

power of compulsion to a federal district judge. It is quite

another thing to give such a power of compulsion orig-

inally to a quasi-legislative, quasi-judicial, bipartisan

Commission.

Second: Congress has the power, under constitutional

limitations, to give a power to a federal district judge which

it denies to an administrative Commission. It clearly

denied the power to the Commission by the ‘‘consistency

clause’’ of subdivision (f), whatever be the exact power of

compulsion it may have given to the judge by the ‘‘cram-

down clause’’ of subdivision (e). The Commission cannot

elaim and exercise a power expressly denied to it merely

because Congress saw fit to give such a power to the district

judge,

Third: As a very practical answer, we say that, assum-

ing that Congress by the ‘‘consisteney clause’’ intended, as

we think it clearly did, to deny to the Commission any com-

pulsory power to force a merger or consolidation, then the

"Tn 267 L.C.C. 295, 338-339 ; and in 267 I.C.C. 729, 730-735.

PEAS PPL SEE IRS IG OR NE Pg ONE REET RY TS FRE IIE DIT

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‘ommission could not, in a case like this, approve a plan

or a merger or consolidation over the vigorous objection

f a great majority of the owning security-holders of a

ebtor. Therefore, no such ab initio forced merger plan

suld ever reach the judge in the final confirmation stage

nd the judge could never have an opportunity to apply

is “‘eram-down’’ power under subdivision (e) to such a

lan.

The third answer must have been in the minds of Con-

ress when it denied compulsory power to the Commission

nd granted it to the judge. As we shall show in Point TI,

ongress has always denied the compulsory power over

ergers and consolidations to the Commission in the Inter-

‘rate Commerce Act. Quoad railroad mergers and con-

nlidations, Section 77 as amended is exactly in pari

ateria. ‘‘Consistently’’ Congress denied the compulsory

ower to the Commission by the ‘‘consistency clause’’ of

ection 77. It must have had some other purpose in mind

1 giving a certain compulsory power to the judge by the

cram-down clause.”’

The legislative history of Section 77 will give the clear

nswer as to what that purpose was. It will make clear,

ee Point ITI, that the ‘‘consisteney clause’’ was written

1 for the very purpose of denying to the Commission the

ompulsory power always denied to it in the Interstate

‘ommerce Act; that thereby Congress intended to deny to

he Commission any power to approve a plan for merger

r consolidation over the objection of the great majority

f the debtor’s equitable owners and that no such plan

ould ever get to a judge; that the ‘‘cram-down clause’’ was

nserted to give to the judge, on final confirmation, the

ower to coerce recalcitrant minorities who might trv to

xercise ‘‘hold-up”’ tactics in the final stage to block, with-

ut any reasonable justification, a plan including merger

r consolidation agreed to by the majority of the security-

wners. See Point IV, infra.

At any event, if our contention as to the construction of

the statute be not clearly right on the face of the language

of Section 77, then we have a most ambiguous statutory

situation, a clear conflict between the ‘‘consistency clause”’

and the ‘‘cram-down clause,’’ which invites, nay demands,

a careful examination of the legislative history to ascertain

the true congressional intent.

In Writing the 1935 Amendments to Section 77 of the Bank-

ruptcy Act, Congress Did Not Write on a Clean Slate, But

as a Postscript to a Long Series of Enactments Dealing

With Railroad Consolidations and Mergers, Throughout the 4

Whole History of Which, and Even as Late as 1940, It Had

Consistently Refused to Grant Any Power of Compulsion

to the Commission

As Judge Sibley. well said,’? ‘‘the Interstate Commerce ,

Act can be construed with Section 77 to ascertain what

Congress really meant by a railroad ‘merger or consolida-

tion’, and whether it meant one consented to by both

parties to it.’’

This Court very recently had occasion to construe and

apply the broad eatholicity of ‘‘all-comprehending words”

: of a 1920 amendment to the shipping laws, a long, historical '

series of enactments quite comparable to the Interstate

; Commerce Act, and it held that such a partial or amenda-

; tory Act must be construed in the light of the long history

: of that legislative patchwork of separate enactments,

Lauritzen v. Larsen, 345 U.S. 571, 577, decided May 25, 1953,

where it was said:

‘*But Congress in 1920 wrote these all-comprehend-

ing words, not on a clean slate, but as a postscript to

a long series of enactments governing shipping. All

were enacted with regard to a seasoned body of mari-

time law developed by the experience of American

courts long accustomed to deal with admiralty prob-

lems in reconciling our own with foreign interests and

1281 F. Supp. 926, 932.

Ee gh ysoeie. a ee es eae Se Mak renee es . ~ m : . ee

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_ —

in accommodating the reach of our own laws to those

of other maritime nations.

‘The shipping laws of the United States, set forth

in Title 46 of the United States Code, comprise a patch-

work of separate enactments, some tracing far back in

our history and many designed for particular emer-

gencies.”’

Accordingly this Court construed the 1920 Act in the

light of that long patchwork of separate enactments on

the same subject-matter.

Lauritzen v. Larsen was a very recent application of an

old and well-settled rule of construction. In United States

y. Barnes, 222 U.S. 513, 520, this Court said:

‘‘Much of our national legislation is embodied in

codes, or systematic collections of general rules, each

dealing in a comprehensive way with some general

subject, such as the customs, internal revenue, public

lands, Indians, and patents for inventions; and it is

the settled rule of decision in this Court that where

there is subsequent legislation upon such a subject it

carries with it an implication that the general rules

are not superseded, but are to be applied in its en-

forcement, save as the contrary clearly appears.’’

In United States v. Sweet, 245 U.S. 563, this Court had

to construe a statute in which Congress granted to the

then new State of Utah certain designated sections of

public lands. The Act contained no reservation of mineral

lands to the United States. But the whole course of con-

eressional legislation with reference to public lands showed

that the settled policy of Congress was for the United

States to retain title to mineral lands. Holding that min-

eral lands did not pass to Utah under the statute making

the grant, this Court said:

‘‘Although couched in general terms adequate to

embrace such lands if there were no statute or settled

policy to the contrary, it contains no language which

explicitly or clearly withdraws the designated sections,

where known to be mineral in character, from the oper-

ation of the mining laws, or which certainly shows that

Congress intended to depart from its long prevailing

policy of disposing of mineral lands only under laws

specially including them. It therefore must be taken

as neither curtailing those laws nor departing from

that policy.’’ (Pp. 572-573.)

These cases are squarely applicable here. Section 77 of

the Bankruptey Act, as enacted in 1933 and as amended in

1935, was not written on a clean slate, but as a postscript

to a long series of enactments for the regulation of rail-

roads and, since 1920, specifically governing mergers and !

consolidations of railroads. It will not do to say that it

was not a postscript to the long series of enactments com-

prising the Interstate Commerce Act merely because it was

in form of an amendment of the Bankruptcy Act rather

than of the Interstate Commerce Act. Section 77 was ,

squarely in part materia with the ‘‘patchwork of separate

enactments’’ comprising the Interstate Commerce Act as

amended, a ‘‘code,’’ or systematic collection of general

rules dealing with a general subject. Section 77 took the ,

form of an amendment to the Bankruptcy Act, rather than |

that of an amendment to the Interstate Commerce Act,

merely because by it Congress was using its bankruptey |

power under the Constitution to implement and supple-

ment its general regulation of railroads under the com-

merce power.

Manifestly, Section 77 must be construed in the light of

the long history of the enactments comprising the Inter-

state Commerce Act. The broad and general language of

the ‘‘eram-down clause’’ cannot properly be construed to

set aside and reverse the historical policy against compul-

sory railroad consolidations, especially since Congress, by

the ‘‘consistency clause’’ of Section 77 as amended, obvi-

ously intended to reaffirm that policy.

Tf the Commission was given the power it claims and

now claimed for it, by the 1935 amendment of Section 77,

it is passing strange that no mention of that fact was made

Be hae a TORE ae oe ae IS BRE SIR UIT Se sa POSPNO LORY LEN TIO RB I AS EEN ER ste Te Eg NARS

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n all the plenitude of discussions of railroad mergers and

.onsolidations prior to and during the enactment of Trans-

nortation Act, 1940. In that enactment, five years after the

imendment of Section 77 in 1935, Congress again rejected,

is it always had done, all suggestions that it give to the

‘ommission any compulsory power to force railroad

nergers or consolidations.

If the Commission, as now contended, already had that

power by virtue of the 1935 amendment to the Bankruptcy

Act, the Commission, the Federal Coordinator of Railroads

(Mr. Eastman), railroad labor, railroad management, and

the Congress itself were all strangely ignorant of the fact.

The subject of railroad consolidations has long been one

of intense interest to Congress, the courts, and students of

transportation. Through the years Congress had deliber-

ately, and after fullest discussion and debate, matured the

present federal policy concerning railroad consolidation.

That policy has always been formulated under the com-

merce power—not under the bankruptcy power. It is now

set out in carefully detailed provisions of the Interstate

Commerce Act. <A study of the evolution of the policy

powerfully reinforces the argument we have already made,

that Congress did not, by the 1935 amendment to the Bank-

ruptey Act, undertake to make the major change in federal

law relating to railroad consolidations which a majority

of the Commission in this ease has held that it did, and upon

which the Coast Line now insists. __

Most of the railroads of the United States originally

were local enterprises, designed to accommodate the im-

mediate commercial needs of the communities they served.

Their local character was reflected in the large number of

separate companies; there once were more than 6,000 sep-

arate railroad companies."* From the 50’s of the last cen-

tury on. there was an accelerated tendency of the railroads

to consolidate into larger units. This process resulted in

18 Bird M. Robinson, in Proceedings of the Academy of Political

Science, XIII 418.

OPY

the formation of the existing large railroad systems. Until

almost the end of the century, there were no restrictions

in federal law upon this process of consolidation. The fed-

eral policy was laissez faire.

In 1887 Congress made a profound change in its policy

with regard to railroads generally when it enacted the Act

to Regulate Commerce, 24 Stat. 379, thereby for the first

time subjecting carriers by railroad to federal regulation.

But that Act, although it prohibited certain cooperative

arrangements between competing carriers, known as pool-

ing contracts, did not undertake to prohibit or regulate

consolidations.

In 1890 Congress enacted the Sherman Antitrust Act

prohibiting contracts, combinations and conspiracies in

restraint of trade and commerce, 26 Stat. 209. It was

widely believed at the time that this Act did not apply to

railroads. This view was dispelled in 1897 and 1898 by the

decisions of this Court in United States v. Trans-Missouri

Freight Asso., 166 U.S. 290, and United States v. Joint

Traffic Association, 171 U.S. 505, which held that railroads

were subject to the Sherman Act and that agreements

among competitive railroads fixing rates were unlawful.

In a series of subsequent cases it was held that the con-

solidation of railroads between which any substantial com-

petition existed was violative of the Sherman Act. North-

ern Securities Company v. United States, 193 U.S. 197;

United States v. Union Pacific Railroad Company, 226 US.

61: United States v. Southern Pacific Company, 259 US.

214. This drastic change in federal policy towards con-

solidations, from one of complete laissez faire to one of

virtual interdiction, put an end to the era of consolidations.

Tn 1919 and 1920 Congress exhaustively considered legis-

lation to terminate the wartime federal control of the rail-

roads, to return the railroads to their owners and to revise

the Act to Regulate Commerce. No subject was given more

extensive consideration at that time than that of railroad

consolidation. At the request of the Senate Committee on

Pas. «

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Interstate Commerce, Commissioner Clark presented a

statement of the Commission’s views with respect to the

proposed legislation. In this statement it was said:

‘*Klimination of wasteful or unduly expensive com-

petition in rates or service is desirable and * * *

carriers might well be permitted and encouraged to

coordinate their activities and merge or consolidate

their lines to such an extent as is, after thorough in-

vestigation and full hearing, sanctioned by the regu-

lating body.’’*

Congress was confronted with three possible policies in

dealing with consolidations. It could: (1) continue the

existing stringent prohibition; or (2) provide for voluntary

consolidation subject to the approval of the Interstate Com-

merece Commission; or (3) authorize consolidations to be

required by public authority. The bill which passed the

Senate created a Board of Transportation having certain

regulatory functions. One of these functions was to pre-

pare a plan for the consolidation of all the railroads in the

country into twenty to thirty-five systems. The Senate bill

provided that if the railroads failed voluntarily during a

period of seven years to consolidate in conformity with the

plan, the Board of Transportation should have authority

to compel them to do so. Congressional Record, Vol. 59,

3326-3327. The House rejected the principle of compulsory

consolidation. Its committee reported a bill which per-

mitted voluntary consolidation when authorized by the

Commission. (House Report No. 456 of Nov. 10, 1919, pp.

6-7.) The committee said:

‘‘The pending bill favors permissive consolidation

subject to approval by the Interstate Commerce Com-

mission. * * * In our opinion, the interests of the

public will be better served where the consolidations

are voluntarily entered into, upon approval by the

Interstate Commerce Commission, * * *.’?

—————_

1433 Ann. Rep. Interstate Commerce Comm. (1919) 4.

) COPY

The House passed the bill in the form recommended by its

committee, and in conference ‘‘the Senate receded from the

provisions for compulsory consolidation”’ in its bill. Con-

ference Report on H.R. 10453, 66th Congress, pp. 63-64.

As finally enacted, the Transportation Act, 1920 (41 Stat.

456, 481), provided, in what became Section 5 of the Inter-

state Commerce Act, that the Commission should as soon

as practicable prepare and adopt a plan for the consolida-

tion of the railroads into a limited number of systems (par-

agraph 4). It provided that two or more railroads might,

with the authority of the Commission, consolidate their

properties into one corporation for ownership, manage-

ment and operation, but that such consolidation must be

in harmony with the Commission’s plan for general con-

solidation (paragraph 6). It also provided that a railroad

might acquire control of another railroad by lease or pur-

chase of stock ‘‘or in any other manner not involving the

consolidation of such earriers into a single system for

ownership and operation,’’ with the approval of the Com-

mission (paragraph 2). Thus after full consideration of

the subject Congress in 1920 deliberately rejected the prin-

ciple of compulsory consolidation, and in its stead adopted

a policy which ‘‘favors permissive consolidation subject to

the approval by the Interstate Commerce Commission.”

Subsequent history shows that this policy, although often

assailed by proponents of compulsory consolidation, has

been steadfastly maintained and reaffirmed.

Pursuant to the requirement of paragraph (4) of See-

tion 5, the Commission in 1921 promulgated a tentative

plan for the consolidation of all the railroads into a limited

number of systems. Consolidation of Railroads, 63 L.C.C.

455. However, the Commission was of the opinion that

the requirement of paragraph (4) of an over-all plan for

consolidation was impracticable. In its Annual Report

for 1925 and for each of the three following vears, the

Commission recommended that it be relieved of the duty of

prescribing such a plan. But the law was not changed, and

PRESS EE CPB aco eee, SYRIA ION: Neat SS as es PPR ORG PEER:

nails

SORIA PAR eS se SR ea eae =e ‘5

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in 1929 the Commission formulated a final plan for con-

solidation of the railroads into a limited number of systems.

Consolidation of Railroads, 159 LC.C. 522. The Commis-

sion said of this plan in its Annual Report for 1938 (p. 15)

that ‘‘it evidently has not been attractive enough to

managements and controlling interests to impel much

voluntary action, and hence it has never been carried to

fruition, although there has been some measure of accom-

plishment.”’

Many students of the subject thought that the Commis-

sion should be empowered to compel railroad consolida-

tions. See, for examples, I. L. Sharfman, The American

Railroad Problem (1921), pp. 237-238; H. G. Moulton and

Associates, The American Transportation Problem (1933),

p. xxvi. Although in the Emergency Railroad Transporta-

ton Act, 1933 (48 Stat. 217), Congress extensively over-

hauled the consolidation provisions of the Interstate

Commerce Act, it failed to make any provision whatever

with respect to compulsory consolidations; instead, it re-

tained intact the policy of permissive consolidations.

In its Annual Report for 1938, the Commission gave a

thoughtful discussion of the whole subject of railroad con-

solidation (pp. 14-17, 22-23). It stated its belief that

further progress toward consolidation was desirable. But

it did not recommend that it be given power to compel

consolidations, nor did it suggest that it already had that

power in the case of the large number of railroads then

being reorganized under Section 77 of the Bankruptey Act.

In 1939-1940, Congress undertook an extensive revision

of the Interstate Commerce Act, which eventually resulted

in the Transportation Act, 1940 (54 Stat. 898, 905). When

considering this legislation Congress had before it the re-

port of a committee known as the ‘‘Committee of Six’’

which had heen appointed by the President in 1938 to study

railroad problems. This committee consisted of three

leaders of railroad labor and three railroad executives. Its

OLE i ; FUG RAPE TL, SCO ee RS aa ttt

report considered and rejected the idea of compulsory

consolidation.” It said:

‘“‘We do not think the country is ready for any

compulsory system of consolidations. Whether

ultimate resort must be had to the principle of com-

pulsion is a question which we think it better to defer

until after there has been an opportunity to see what

ean be accomplished if the railroads are relieved

from these limitations and restrictions. In our opin-

ion the best results will be achieved by leaving all

initiative in the matter to the railroads themselves |

* * aDadad (p. 31).

Congress also had before it at this time a report of a

committee of three members of the Interstate Commerce

Commission whom the President had requested to study

and make recommendations with reference to railroad

legislation. This report was transmitted to Congress by «

the President with his message of April 11, 1938. In its

report this committee referred to the fact that the Federal

Coordinator of Transportation in his fourth report had

presented a draft of legislation designed to correct certain

weaknesses in the law regulating railroads as it then

existed (House Document No. 394, 74th Cong., 2d Sess.,

App. C). The Committee of Three’s report said with '

reference to the Coordinator’s draft:

*‘It would also give the Commission authority,

through resort to the power of eminent domain, to

require a unification, where it is sought by at least one

earrier. * * *’’? (House Document No. 583, 75th Cong.,

3d Sess., p. 39.)

It will be noted that the Coordinator proposed that

Congress give the Commission the specific authority which

it has assumed to exercise in the case at bar—the power

15 This report ‘‘is considered part of the legislative history of the

Transportation Act of 1940.’’ Schwabacher v. United States, 334

U.S. 182, 193 (footnote 12) (1948).

TRAN NE SR RPGS EI ALT ENN Yytiog eyes ht

write

REMY RETO ey SMPTE PELE CSS eg gt y se

RIiIrecnm rue arieokli

—_

“to require a unification, where it is sought by at least

one earrier,’’ as the Coast Line here seeks to force a uni-

fication against the will of the owners of the East Coast.

But the Committee of Three failed to recommend enact-

ment of this proposal, and Congress did not enact it.

The bill which was considered by the Senate Committee

on Interstate Commerce (S. 2009, 76th Cong.) contained

a provision eliminating the requirement then contained in

Section 5 of the Interstate Commerce Act that the Com-

mission must promulgate a master consolidation plan for

all the railroads, to which any specific consolidation sub-

sequently approved by it must conform. This followed the

repeated suggestions of the Commission for elimination

of this provision, as being impracticable and unworkable.

At the hearings before the Senate Committee, a spokes-

man for the Brotherhood of Railroad Trainmen stated the

opposition of his organization to any amendment that

would compel consolidations. The Chairman of the Com-

mittee, Senator Wheeler, reassured him:

‘‘Of course, as you well know, some people maintain

that we ought to give the Interstate Commerce Com-

mission the power to foree consolidations.

‘‘There is a very strong sentiment on the part of a

great many people that consolidation should be com-

pelled. They say that nothing will be done until such

time as that happens.

‘“‘The railroad executives do not want forced con-

solidation; they are opposed to it. The railroad men

are opposed to it, generally speaking.

* * *

‘‘After all, when you speak of that, the Interstate

Commerce Commission has studied it for years, and

no consolidation can take place under this bill until

such time as it is a voluntary consolidation.’’ (Hear-

ings on S. 1310, S. 2016, S. 1869, and S. 2009, 76th

Cong., 1st Sess., 1939, p. 391).

2 COPY

Again, the Chairman said:

‘*As a matter of fact, much of the objection to this

bill on the part of a number of people has been that

it has not got some provision in it making it easier for

consolidations; as a matter of fact, foreing consolida-

tions and coordinations, or at least setting up in the

Interstate Commerce Commission a committee that .

will go ahead and suggest how consolidations ought to

be made.

‘*T have repeatedly said that you could not get a

bill to force consolidations, or to have in here a pro-

vision that the Commission should have an opportunity + —

of carrying on investigations of the subject to try to

force consolidations, and so forth. So, as far as this

committee is concerned, with reference to this bill, you

are just wasting our time in talking about consolida- .

tions, because that subject is out the window.” (Jd. |

at 395.)

» ae

It is evident that Senator Wheeler, the Chairman of the

Senate Committee on Interstate and Foreign Commerce,

who so emphatically opposed authorizing the Commission

even to investigate the subject of forced consolidations,

would have been shocked at any suggestion that the Com-

mission already possessed plenary power to force the con- ;

solidation of the large number of railroads then under- _

going reorganization under Section 77 of the Bankruptey

Act as amended in 1935.

As finally enacted, the Transportation Act, 1940, re-

pealed those provisions of Section 5 of the Interstate

Commerce Act which directed the Commission to prepare

and adopt a plan for the consolidation of railroads into a

limited number of systems, and to determine whether any

particular proposed consolidation was in harmony with

such plan. Section 5, as amended in 1940, retains and

strengthens the policy of permissive consolidation which

had been adopted in 1920. Indeed, the new policy was

even more permissive than the old, because henceforth

EE Bes ee ial or ee te ee LVR NRRL AS EIN RR mime te aI

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consolidations were freed from the hobble of having to

conform to a predetermined master plan of consolidation.

The Commission was to be free to pass upon the merits of

any unification which might be voluntarily submitted to it

by the interested railroads. This Court has said of the

1940 amendment to Section 5, that ‘‘it authorized the

approval by the Commission of carrier-initiated, voluntary

plans of merger or consolidation.’’ Schwabacher v. United

States, 334 U.S. 182, 193 (1948).

Here again, as in 1920, Congress was confronted with

the alternatives of compulsory or permissive consolidation.

The subject had been under discussion for years. The

advantages and disadvantages of compulsory consolidation

were fully canvassed in reports to Congress and in the

hearings. Yet Congress deliberately rejected the principle

of compulsion, and reaffirmed the policy of permissive

consolidation, which is now embodied in Section 5 of the

Interstate Commerce Act. And, of the utmost significance,

this was five years after the enactment of the 1935 amend-

ment to Section 77 of the Bankruptey Act, which it is now

claimed had already substantially impaired the policy

against compulsory consolidation.

The foregoing history of federal legislation with

reference to railroad consolidations leads irresistibly, we

submit, to these conclusions:

(1) Congress had given full and careful study to such

legislation during the twenty years prior to 1940.

(2) That study resulted in the enactment of the policy

concerning railroad consolidation which is now embodied

in Sections 1 and 5 of the Interstate Commerce Act.

(3) The policy so adopted is one which authorizes the

Commission to approve consolidations voluntarily sub-

mitted to it by the affected carriers, which it finds to he

in the publie interest.

(4) Although it has frequently been asked to authorize

the Commission to compel compulsory consolidations,

COPY

Congress has on three separate occasions, in 1920, in 1933,

and in 1940, refused to do so, but on the contrary has con-

sistently adhered to the policy of permissive consolidation.

Mr. Justice Holmes’s oft-quoted dictum has it that ‘‘a

page of history is worth a volume of logie.’?’ New York

Trust Co, v. Eisner, 256 U.S. 345, 349. Here both history

and logic make it apparent that Congress did not, in enact-

ing a purely procedural amendment to Section 77{e) of

the Bankruptey Act in 1935, reverse its well-settled policy

with reference to railroad consolidations and authorize

the Commission to force the consolidation of nearly all the

railroads in the country. While the construction relied

on by the Commission and here urged by Coast Line would

give the Commission power to compel consolidations only

where one of the carriers involyed is in bankruptey, over

one quarter of the railroad mileage in the country was in

bankruptey in 1935, when Congress is supposed to have

conferred this sweeping power on the Commission. Poor’s

Manual of Railroads, 1936, p. 110 (blue). By combining

bankrupt with solvent roads, it is obvious that consolida-

tion could have been forced on a large part of the nation’s

railroad mileage, if the Commission’s present construction

of the 1935 amendment to the Bankruptcy Act is correct.

If this result was accomplished, it was accomplished

without debate, without consideration, and by indirection.

It cannot be -supposed that Congress would thus have

reversed in large part its policy against compulsory con-

solidation, a policy favored by railroad labor and by

railroad management, through any _ such _ back-door

method, without hearings and without the careful study

that it always gave to the subject when it dealt with it

directly in the Interstate Commerce Act.

Nowhere. in all those discussions was there the slightest

intimation that the Commission already possessed the

power to foree ‘the consolidation of every railroad then

being reorganized under Section 77 of the Bankruptey Act.

By this time, a third of the railroad mileage was in that

aaa seeoeieiaiea- delat reno

BLEED THROUGH te

Ms BLURRE!

status."° Hence, if the Commission is correct in the present

ease in holding that the 1935 amendment to Section 77 gave

it that power, it already had a far-reaching power of com-

pulsory consolidation. But apparently in 1940 the Com-

mission didn’t know it; the Federal Coordinator, Mr. Kast-

man, didn’t know it; railroad labor didn’t know it; rail-

road management didn’t know it; and Congress itself

didn’t know it.

Such widespread ignorance by those who should have

known is incredible, yet it must be believed if we accept

the Commission’s and the Coast Line’s premise that such

power was given the Commission by the 1935 amendment

of Section 77. But of course there was no such ignorance

by all concerned, and it would be absurd to presume it.

Instead, it is perfectly obvious that all were silent about

the alleged power because it simply did not exist. Not

until 1945, and in this case, did anyone ever suggest that

Congress in 1935—ten years earlier—had sub silentio re-

versed its long-settled policy that railroad consolidations

should be voluntary, and had vested the Commission with

the far-reaching compulsory power here claimed. However

ingenious that claim may be verbally, it cannot stand in

the light of history and settled congressional policy.

III

The Legislative History of Section 77, as Enacted in 1933 and

as Amended in 1935, Makes It Clear That the “Consistency

Clauses” Were Written Into the 1933 Act and Combined

and Continued in the Act of 1935 for the Very Purpose of

Denying to the Commission the Compulsory Power Which

Had Always Been Denied to It Under the Interstate Com-

merce Act

In demonstrating that Congress never intended to grant

to the Commission and the courts a power to force mergers

or consolidations, we have recourse, as this Court did in the

Denver Case, to ‘the purposes of Congress as expressed

® Poor’s Manual of Railroads (1940) 184-185 (blue).

a PET CREAN I IR TORT RAR SO BT mem aR

COPY

in the words of § 77 read in the light of the contempora-

neous discussion in Congress.’’”

Although respondent has admitted (supra, pp. 22-23) that

the original Section 77, as enacted in 1933, conferred no such

compulsory power, yet since the ‘‘consistency clause’’ of

subdivision (f) of Section 77, as amended in 1935, had its

origin in the two ‘‘consistency clauses’’ of subdivisions (b)

and (e) of Section 77, as originally enacted in 1933, our

study of the ‘‘econtemporaneous discussion in Congress’”’

must begin with the 1933 version of Section 77.

The ‘‘consistency clauses,’’ as written into subdivisions

(b) and (e) of the Act of 1933, originated with Mr. Joseph

B. Eastman, Chairman of the Legislative Committee of the

Interstate Commerce Commission. Senator Hastings had

written the Chairman of the Commission on December 20,

1932, sending him a proposed amendment to the bankruptcy

law which would so enlarge it as to include railroads and

asking the Chairman to comment on the bill if he cared to

do so. The Chairman referred this request to Mr. Eastman,

as Chairman of the Commission’s Legislative Committee.

Thereafter, Mr. Eastman had received a new draft of the

bill pending before Senator Hasting’s committee, the Sen-

ate Judiciary Committee, known as ‘‘Committee Print No.

1,’’ and also a copy of a like bill in the House and referred

to the House Committee on the Judiciary as H.R. 14359.

On January 31, 1933, Mr. Eastman wrote Senator Hastings

a long letter reviewing the condition of the railroads of

the country and the problems involved in railroad reorgani-

zation and commenting in detail on the two bills.’®

17 Reconstruction Finance Corporation v. Denver & Rio Grande

Western Railroad Co., 328 U.S. 495, 512 (1946).

18 This correspondence is available in a much later publie docu-

ment, Railroad Reorganization—Hearings Before the Special Sub-

committee on Bankruptcy and Reorganization of the Committee on

the Judiciary, House of Representatives—Seventy-sizth Congress,

First Session, on S. 1869, Serial No. 11, Part 1 (1939), see pages

144, et seq.

Mr. Eastman appended to that letter, as Appendix A, his

‘‘Proposed Amendments to H.R. 14359,’’ in which he quoted

in Roman the language of the bill and inserted in italics

language he suggested be added. He suggested insertion of

the ‘‘consistency clause”’ in the bill by the following amend-

ment (first italicized clause) and gave his reason therefor

by the following explanation:

‘*Clause (3) subdivision (b), page 26:

‘¢(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 Com-

merce Act, as amended, include the transfer of all or

any part of the property of the debtor to another

railroad corporation or to other railroad corporations

or the consolidation of the properties of the debtor with

those of another railroad corporation, or the merger of

the debtor with any other railroad corporation, and the

issuance, so far as may be consistent with the provi-

sions of section 20a of the Interstate Commerce Act, as

amended, of securities of either the debtor or any such

railroad corporation or corporations, for cash, or in ex-

change for existing securities, or in satisfaction of

claims or rights, or for other appropriate purposes;

“*Explanation.—This act ought not to authorize rail-

road mergers or consolidations or the transfer of rail-

road properties or the issuance of railroad securities

which are inconsistent with the applicable provisions

of the Interstate Commerce Act, particularly the con-

solidation plan provisions. These amendments are in-

tended to avoid that possibility.’’®

Thus the ‘‘consistency clause’’ was written into the bill

that became the Act of 1933 at the express recommendation

of Mr. Eastman as Chairman of the Commission’s Legis-

lative Committee and for the very purpose of making it

clear that no power as to merger or consolidation of rail-

roads would be vested in the Commission by that Act in-

consistent with or going beyond its power under Sections

1 Td. at 155,

a a a a a

—_ ~~ es

1 and 5 of the Interstate Commerce Act, which gave no

power of compulsory merger or consolidation but was con-

fined to empowering the Commission to authorize only a

voluntary merger or consolidation.

That this was the intention of the Congress is inescap-

able from the debates on the 1933 Act. In the House, Con-

gressman Horr was concerned lest the consolidation pro-

visions of clause (3) of subdivision (b) of the bill might give

the Commission enlarged powers as to consolidations. The

following colloquy between him and Mr. Hatton Sumners,

Chairman of the Committee on the Judiciary and in charge

of the bill on the floor, occurred:

‘‘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 consoli-

dated in violation of the interstate commerce act.

‘‘Mr. Horr: They would first have to go through

that?

‘‘Mr. Sumners of Texas: They would first have to go

through that.’’”°

After a number of other Congressmen had expressed

the fear that the legislation would increase the Commis-

sion’s consolidation power, Congressman Rayburn took the

floor to allay that fear. He was Chairman of the Committee

on Interstate and Foreign Commerce charged with respon-

sibility for the Interstate Commerce Act. He said:

‘‘Fear has been expressed that with the enactment of

this bill the powers of the Interstate Commerce Com-

mission and the courts over consolidations and mer-

gers would be expanded. It is my firm conviction that

this proposal in specific provisions safeguards the pres-

ent consolidation and merger provisions of the inter-

state commerce act and gives no additional authority

2076 Cong. Ree. 2909 (1933).

Se ee NEES TN ME RATE’

BLURRED

BLEED THROUGH

—

to the Commission or the courts in these matters.’’2!

(Italics ours.)

The positive intent of Congress, in passing the Act of

1933, not to extend or enlarge the Interstate Commerce Act

powers of the Commission over mergers and consolidations,

and not to give it any compulsory power, could not have

been made more clear. That was the very purpose of writ-

ing in the ‘‘consistency clause’’ and the very reason Mr.

Eastman suggested to Senator Hastings that it be written

in.

As we have shown, Congress not only wrote the ‘‘consist-

ency clause’’ into subdivision (b) of the Act of 1933 but

repeated it in broader terms in subdivision (e) of that Act

so as to require consistency not only with the ‘‘provisions”’

but also with the ‘‘purposes”’ of the Interstate Commerce

Act.

But, as we have further shown, the whole substance and

effect of both those ‘‘consistency clauses’? was combined by

Congress into one clause, as a matter of draftmanship

dropped down to and written into subdivision (f) of the

amendatory Act of 1935, expressly requiring consistency

‘‘with the provisions and purposes of the Interstate Com-

merce Act as now or hereafter amended.”’

There stands in the Act of 1935, in one clause, the whole

substance and effect of the two ‘‘consistency clauses’’ of

the Act of 1933 which were so meaningful in 1933 as for-

bidding to the Commission any compulsory power to en-

force involuntary merger or consolidation. The only dif-

ference is one of purely mechanical draftsmanship as to

the subdivision into which the combined clause of the Act

of 1935 was placed, subdivision (f) instead of subdivisions

(b) and (e) as in the Act of 1933.

The reason for that mechanical shift of the position of

the ‘‘consistency clause’’ in Section 77 is not disclosed by

the legislative history of the 1935 Act. But that legisla-

*1 Td, at 2917-2918.

LIOR I AI OLN E EARNS LEARY ON A OLY ID

ED COPY

SEN

tive history does clearly disclose that Congress intended

by that clause in 1935 just what it intended by the predeces-

sor clauses in 1933.

The Commission, in its Fourth Supplemental Report in

this case, 267 I.C.C. 729, 731 (R. Vol. IV), seized upon this

shifting of the position of the ‘‘consistency clause’’ as

creating a profound revolution in reorganization law, so

as to give it the compulsory power to enforce involuntary

merger or consolidation which the like clauses of the 1933

Act were expressly intended to forbid. The majority of

only six members of the eleven-member Commission there

said:

‘¢ * * Tt would be strange for Congress, after giving

us express authority to do certain things under the

Bankruptcy Act in order to rehabilitate an insolvent

carrier,” to thereafter®* limit our authority by the ex-

press provisions of the Interstate Commerce Act.’’

As we have shown (supra, pp. 11-12), Cireuit Judge

Sibley specifically disapproved this reasoning.

We point out that the Commission majority, in asserting

it to be ‘‘strange’’ that Congress would limit the Commis-

sion’s authority ‘‘by the express provisions of the Inter-

state Commerce Act,’’ completely overlooked the fact that

Congress went even further and expressly limited its au-

thority also to consistency with the ‘‘purposes’’ of that Act.

And we would further suggest that it would be far

stranger for Congress, by this mechanical shift of the po-

sition of the consistency requirements to subdivision (f) of

the Act of 1935, to have intended a major revolution in

railroad reorganization law never mentioned or suggested

in the course of the legislative history, the granting of the

22 Obviously referring to the merger and consolidation provisions

of subdivision (b) (5) as they now stand in Section 77, not imme-

diately connected with the ‘‘consistency clause’’ of subdivision (f).

23 Obviously referring to the ‘‘consistency clause’’ as it now

stands in subdivision (f).

_———

power to enforce compulsory merger or consolidation,

which power Congress ever theretofore and thereafter was

so careful to deny to the Commission.

We now turn to the ‘‘contemporaneous discussion in Con-

gress’’ leading to the amendatory Act of 1935 to show that

by that Act, as by that of 1933, there was no enlargement

of the Commission’s powers as to mergers and consolida-

tions.

1. InTENT oF THE DRAFTSMAN.

Mr. Leslie Craven, the author of the bill in its original

form, was personally in favor of forced consolidations of

railroads and was the author of a plan for such consolida-

tions to include the use of the reorganization device. It is

clear, however, from his testimony at hearings on H.R.

6249, that no such change in the Commission’s power was

intended by this bill. There he was testifying as counsel

for the Federal Coordinator, Mr. Eastman, who said of

Mr. Craven at the opening of his own statement:

‘*T shall not speak at length this morning, gentlemen,

because I want most of the talking to be done by my

counsel, Mr. Leslie Craven, who has made an intensive

study of this matter and is much better equipped to

deal with the details than I am.’’

Thus vouched for, Mr. Craven made an extended state-

ment. In the course of it he was discussing the provisions

of subsection (0) of the bill which were intended to make

clear the power to permit the voluntary sale or abandon-

ment of a non-profitable branch line of a debtor, in view of

doubts which existed as to whether the Frisco, in reorgani-

zation, could be allowed to sell the Fort Worth & Rio

Grande to the Santa Fe. Thereupon, there occurred the

following colloquy, into which we have inserted in brackets

** Hearings Before Committee on the Judiciary on H.R. 6249,

74th Cong., Ist Sess. (1935) 13.

OER I OTST AIRE NEY BP ESN EN AED TPES SENN ARB HE TPN ay .

the text of the Committee Print of April 12, 1935, to which

Mr. Craven referred by page and line references. Without

the text of the Committee Print to which Mr. Craven re-

” ferred, his references to pages and lines of it are meaning-

~ less to the reader. This is the colloquy:

‘The Chairman: Mr. Craven, where is the provision

in this bill which limits the right to sell, by the rules

and regulations prescribed by the Interstate Commerce

Commission? Where is that jurisdiction in the Inter-

state Commerce Commission retained in this bill?

‘‘Mr. Craven: The jurisdiction of the Interstate

Commerce Commission as to abandonments and sales?

‘““The Chairman: Sales and consolidations. This

would amount to a consolidation, would it not?

‘‘Mr. Craven: There might not be a consolidation.

They might simply sell the property and not consoli-

date it.

‘‘Ts your question directed to the bill that we propose

here?

‘“‘The Chairman: Yes, sir.

“Mr. Craven: You will find it in line 19, page 34.

[‘** * * only with the approval and authorization of

the Commission when required by the Interstate Com-

merce Act, as amended, the trustee or trustees shall

take all steps and earry out all proceedings necessary

for the consummation of any such abandonment or

sale in accordance with the order of the judge.’’]

‘‘There is another provision with reference to the

jurisdiction of the Commission as to sales and consoli-

dations. I do not know that I can lay my finger on it

this minute, but it has the same provision which was in

the previous act. We have not disturbed it.

‘“‘The Chairman; It does not modify this power,

does it?

‘“‘Mr. Craven: No, sir.

‘‘The Chairman: Anyhow, it is in the law, and you

say that it is in this bill?

‘‘Mr. Craven: Yes.

‘‘The jurisdiction of the Commission with reference

to the issuance of securities, or with reference to sales,

25 The discussion in hearings on H.R. 6249 was based on the Com-

mittee Print of April 12, 1935, id. at 175, 190.

RAMON PR

° LTE TEE ATION

ERR ES SS CELE, SA

BLEED THROUGH

wee

consolidations or mergers of debtors’ property, is in

lines 1 to 8 on page 26.’’6

[‘‘Upon such final confirmation of a plan in accord-

ance with the provisions of this subdivision, the Com-

mission shall, without further proceedings, grant au-

thority for the issue of any securities, assumption of

obligations, transfer of any property, sale, consolida-

tion or merger of the debtor’s property, or pooling of

traffic, to the extent contemplated by the plan and not

inconsistent with the provisions and purposes of the

Interstate Commerce Act as amended.’’] (Italies ours.)

Thus Mr. Craven referred the Committee Chairman

(Mr. Hatton Sumners) to the ‘‘consistency clause,’’ which

read in the Committee Print of April 12, 1935, ‘‘not in-

consistent with the provisions and purposes of the Inter-

state Commerce Act as amended.’’ That language was

changed in the final enactment, without change of meaning,

to read ‘‘not inconsistent with the provisions and purposes

of chapter 1 of Title 49 as on August 27, 1935, or thereafter

amended. ’’??

2. INTENT oF THE Sponsor, Mr. Eastman

The recommendation that Section 77 be revised was

made in the 1934 Report of the Federal Coordinator of

Transportation.** Mr. Eastman outlined the defects in the

1933 Act and suggested remedial changes. Attached to

this report was the text of a proposed bill drafted by Mr.

Craven embodying these recommended revisions.2° This

bill was the basis of the 1935 revision of Section 77.

In a separate part of the same report, Mr. Eastman re-

-viewed the subject of consolidations and unifications. Com-

6 Td. at 59.

2711 U.S.C. 205(f).

*8 H.R. Doe. No. 89, 74th Cong., Ist Sess. (1935) 100-103.

*9 Td. at 229-243.

eee ETS SM BTEC NIELS LID INR SEY YR ARES MA LIS IRR EAE EIU Ym

menting on the weaknesses of the Interstate Commerce

Act, Mr. Eastman said:

‘¢Consummation [of consolidation plans] is depend-

ent wholly upon the voluntary action of the carriers.

No matter how good a plan it may be, it can only be

made effective to the extent that it is to their liking.’’*°

In concluding the section of the report dealing with

consolidations, Mr. Eastman said:

‘‘Under present financial conditions, however, it

seems unlikely that there will be immediate need for

these changes in the statutory provisions relating to

consolidations or other unifications of carriers, and

for that reason, and in view of the extent and com-

plexity of the other transportation legislation which

is herein recommended, these changes will not now be

recommended. ’”**

In the light of the above, it is clear that Mr. Eastman

considered the lack of power in the Commission to force

consolidations, if a defect, to be a defect in the Interstate

Commerce Act and not a defect in Section 77. In recom-

mending changes in Section 77 and not in the consolidation

provisions of the Interstate Commerce Act, Mr. Eastman

did not intend that the suggested revision of Section 77

should have the effect of enlarging the Commission’s power

over consolidations. In fact he expressly disclaimed such

an intention.

3. INTENT oF THE LEGISLATORS

The changes in Section 77 effected by the 1935 Act were

summarized in detail on the following occasions, and a

change in the Commission’s power over consolidations was

never referred to as a feature of the bill.

80 7d. at 41.

317d. at 43.

—

1. By Mr. Leslie Craven, author of H.R. 6249 and coun-

sel to the Coordinator of Transportation in hearings be-

fore the House Judiciary Committee.”

2. By Mr. Eastman in ‘‘Report of the Federal Coordi-

nator of Transportation, 1934,’’ pp. 100-103, incl. It was

in this report that Mr. Eastman referred to the lack of

power in the Commission to force consolidations as being

a defect in the Interstate Commerce Act and that he rec-

ommended that no remedial legislation be considered at

that time.**

3. Report of the Senate Committee on Interstate Com-

merce, to accompany S. 1634.4

4. Report of the House Committee on the Judiciary, to

accompany H.R. 8587.

5. By Mr. Wheeler on the Senate floor in debate on S.

1634.%¢

6. By Mr. McLaughlin of the Judiciary Committee on

the House floor in debate on H.R. 8587.%"

The bill revising Section 77 was a bill of specific and

enumerated remedies for acknowledged defects in the orig-

inal Section 77. In each of the instances above set out,

when the bill was summarized for the benefit of the Con-

gress, the summary was limited to an enumeration of the

shortcomings of the 1933 Act and the proposed remedies

for them found in the Report of the Coordinator, 1934.

*° Hearings Before Committee on the Judiciary on H.R. 6249,

74th Cong., Ist Sess. (1935) 23-63, 304-330.

38 Report of the Coordinator, 1934, H.R. Doe. No. 89, 74th Cong.,

Ist Sess. (1935) 40-43.

34 Sen. Rep. No. 1336, 74th Cong., Ist Sess. (1935).

35 H.R. Rep. No. 1283, 74th Cong., ist Sess. (1935).

3679 Cong. Ree. 13764-5 (1935).

3779 Cong. Rec. 13301 (1935).

— STELLATE RNA SORT EST NIE ae NTR ANI MEO TARR TIN ON ENNIS ae ge

In none of them was there any suggestion that a drastic

power to force consolidation of unwilling debtors with out-

side railroads was to be conferred on the Commission.

4. Tue Power CLAIMED By THE Commission Can Not Come

From an ABSENCE OF Express PROHIBITION

In the holding by the majority of six members of the

Commission, in 267 I.C.C. 731-732, which was expressly

disapproved by Circuit Judge Sibley, that majority made

the novel argument that a plan calling for a forced merger

was not inconsistent with the Interstate Commerce Act for

the reason that ‘‘ * * * There is nothing in the Interstate

Commerce Act to prohibit us from approving such a trans-

action.’’

This propounds a wholly new theory of administrative

law—that an administrative body possessing only dele-

gated powers may exercise any power not specifically pro-

hibited to it by the delegating statute. This is not the law.

Moreover, controlling considerations are that Congress

has consistently, in 1920, 1933 and 1940, declined to grant

to the Commission the power to force mergers or consoli-

dations, although it has often been urged to grant such

power, and that the legislative history of Section 77, as

originally enacted in 1933 and as amended in 1935, posi-

tively discloses the consistent intent of Congress to deny

such compulsory power under Section 77.

To say that in 1935 Congress reversed this historic policy,

without any discussion or mention of such intention, as

applied to 30 per cent of the country’s railroad mileage

then insolvent, is to ignore realities.

The Legislative History of the Act of 1935 Makes It Clear That

by the “Cram-Down” Provision of the Provisos of Sub-

section (e) Congress Did Not Intend to Nullify the “Con-

sistency Clause” and to Give to the Commission or to the

Courts the Compulsory Power Which It Has Always Re-

fused to Give Under the Interstate Commerce Act

As we have seen under Point I, the ‘‘ecram-down’’ provi-

sion of subsection (e), written into Section 77 by the

amendatory Act of 1935, gives no power at all to the Com-

mission. Whatever power it confers is given only to the

district judge, as one of the provisos of that long, proce-

cural subdivision, and it is a power to the judge to be

exercised only in the final confirmation stage of a Com-

mission-approved plan which has previously been ap-

proved by the judge and by all judicial review of his

approval.

We have also seen that, if we are right in the contention

that the ‘‘consistency clause’’ of the subsection (f) of the

amendatory Act of 1935, read in the light of the corre-

sponding ‘‘consistency clauses’’ of the Act of 1933 and in

the light of the long history of the Interstate Commerce

Act, denies to the Commission the compulsory power to

enforce mergers or consolidations always denied to it

under the Interstate Commerce Act, then no plan for a

forced merger or consolidation of railroads not voluntarily

consented to by the majority of the owners of each such

railroad could ever be approved by the Commission and

by it certified to the district court or could, therefore, ever

reach the judge at the confirmation stage to be subjected

to his power under the ‘‘cram-down’’ provision.

It will be further recalled that Section 77 nowhere gives

the district court, or the judge thereof, any power to in-

itiate and adopt, or initially to approve, any plan of re-

organization, that function being wholly committed to the

Commission, the only power of the judge being to approve

or disapprove a plan initiated or adopted by the Commis-

a REWER KS Oe AR TRO KNEE We TFN

“7

sion and by it certified to the district court and finally to

confirm or to refuse to confirm such a plan, after the

Commission has polled the security-holders.

The question, therefore, naturally arises as to what Con-

gress had in mind and intended by enacting, for the first

time in 1935, the ‘‘cram-down clause’’ of subdivision (e) ;

that is, Congress intended to give to the judge, and clearly

to him alone, the power to cram what down whose throat

and under what circumstances? Who was going to get

such forced feeding?

As we shall show, and as the legislative history of that

provision will, we think, make clear, it was certainly never

intended by the ‘‘cram-down clause’’ of subdivision (e) to

give to the Commission the very compulsory power denied

to it by the ‘‘consistency clause’’ of subdivision (f). It

was devised and intended as a procedural device given to

the judge for intramural application, at the final confirma-

tion stage, between and among the creditors and security-

holders of the debtor, within the household of the family

of those owning and directly interested in the debtor cor-

poration and its properties. It was a power only to pre-

vent dissident minorities within that household from block-

ing, without reasonable justification, from ‘‘highjacking”’

for ulterior motives, a plan fair and equitable as among

that family, and agreed to by the majority of the equitable

owners of the debtor and its railroad properties.

Such a device, with such a purpose, is in complete har-

mony with the ‘‘consistency clause’’ of subdivision (f) and

with the entire history of the ‘‘provisions and purposes’’

of the Interstate Commerce Act, whereas the ‘‘cram-down

clause,’’ if construed to give to the Commission the power

here claimed, is in direct conflict with the ‘‘consistency

clause’’ and with the history of the Interstate Commerce

Act.

The ‘‘cram-down clause’’ certainly was never conceived

or intended as a device to enable an outside railroad, the

respondent, to propose to the Commission and to have the

BLEED THROUGH

=~"

Commission approve a plan to enable the outsider to ac-

quire and absorb the debtor railroad and its properties, to

deprive the equitable owners of debtor of their legal in-

terests in the debtor and its properties without their con-

sent, and to force them, at a price to be fixed by the Com-

mission, to an unwilling exchange of their existing rights

for rights in another corporation and its properties which

they do not want.

That is the use the Commission has undertaken to make

in this case of the judicial ‘‘cram-down’’ device and the

majority of the Court of Appeals below has approved that

use. It amounts to expropriation and condemnation, at

a price fixed by an administrative tribunal, of the property

of the owners of the Florida East Coast. As Circuit

Judges Russell and Borah well said in their dissent below,

the gravest question of the constitutionality of the ‘‘cram-

down’’ provision is raised by the construction and use

here made of that clause by the majority of the Commis-

sion and approved by the majority of the Court of Appeals

below. Under the settled principle this Court should avoid

a construction that raises such question. Crowell Vv.

Benson, 285 U.S. 22, 62; United States v. Rumely, 345 U.S.

41, 46, decided March 9, 1953.

1, Reasons ror Enactine THe ‘‘Cram-Down”’ Provision

Experience under the 1933 Act revealed a power in mi-

nority groups, disproportionate to their size and impor-

tance, to obstruct a reorganization by rendering it impos-

sible to secure the two-thirds approval necessary to the

effectuation of a plan.

In his introductory remarks at hearings on the proposed

1935 Section 77, Mr. Eastman, a member of the Commis-

sion and then Federal Coordinator of Transportation,

pointed out this defect of the 1933 Act:

‘‘Notwithstanding these improvements which were

undoubtedly brought about by section 77 {of 1933], it

has developed in experience that there are certain

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defects in the act as it now stands. Perhaps the mos

serious defect is that it was not realized when the ac

was passed to what extent it put it in the power of th

non-assenting classes of security holders to prevent |

reorganization. Under the old equity practice the

could be brought in line by the sale of the property a

an upset price. Under the present plan, if it prove

impossible to secure the consent of two-thirds of an

class of security holders, that prevents a reorganiza

tion unless it can be shown that the company is inso!

vent and those particular securities have no value.’”

Mr. Leslie Craven, counsel to Mr. Eastman and drafts

man of the 1935 Act, similarly, in his explanatory remark

to the Judiciary Committee, pointed out why there ha

been so little progress in effecting reorganizations unde

the 1933 Act. He attributed the delay to the fact tha

small groups of ereditors could block a reorganization pla

by the inability to get two-thirds of each class thereof t

consent. This evil was particularly pronounced in thos

reorganizations in which there were many classes of cre

itors. He said:

‘«* * * unless the creditor is taken care of in othe

respects—that is, unless you protect him by a sa

subject to his lien which, of course, does not perm

the shaking of him loose, or a sale at an upset pric

with a transfer of his lien to the proceeds of the sal

in which case there is no reduction in his claim, «

payment in cash. That puts the creditor in a positio

where he is able to block the plan, because the pla

cannot be put through unless you take care of him i

cash or in the manners which I have just outlined.

‘‘The significance of that you will seen (sic) whe

you understand that in the Missouri Pacific case the:

were 72 different classes of stockholders and cred

tors. In the Missouri Pacific case they have the lars

loan of the Morgans to the Missouri Pacific, abo

$6,000,000, which they have put in a separate clas

88 Hearings Before Committee on the Judiciary on H.R. 624

74th Cong., Ist Sess. (1935) 15.

BLEED THROUGH

That means that you cannot put through a plan in

the Missouri Pacific case unless you pay the Morgans

the $6,000,000 or in some other manner meet their

terms. ’’®®

In his 1934 repori as Federal Coordinator of Transpor-

tation, Mr. Eastman pointed out the shortcomings of the

1933 Act, suggested changes and submitted the text of a

bill which as revised became the 1935 Section 77. There,

too, he pointed out the difficulties involved in obtaining

consents :

‘‘While it is not thought desirable to dispense with

the securing of consents from the creditors and share-

holders, it is clear that there should be provisions

whereby a court may, under some circumstances, make

effective a fair and equitable plan over the dissent of

minorities, under an arrangement insuring a full hear-

ing to all of the parties concerned and an adjudicaticn

by the Commission and the court establishing the fair-

ness of the plan.’*° (Italics ours.)

The result of these recommendations is what is referred

to as the ‘‘cram-down”’ provision. In this case, for the

first time, it is contended that the ‘‘cram-down’’ provision

gives the Commission and the court a power unrestricted by

the ‘‘consistency clause.’’ In the light of the intent of the

proponents of this clause, and in the light of its subsequent

interpretation, it is clear that this is not so.

2. A Limrrep APPLICATION oF THE ‘‘CRram-Down’’ Provision

Was InTenpDep

That the ‘‘eram-down”’ provision was intended to apply

only to dissenting minority creditors, and then only to the

extent that they were dissatisfied with their participation

3° Td. at 25-26.

*° Report of Coordinator 1934, H.R. Doc. No. 89, 74th Cong., 1st

Sess. (1935) 101.

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in the distribution of the debtor’s estate, is found in refer-

ences to these provisions by Mr. Eastman, by congressional

committee reports, and by the author of Section 77.

In recommending to Congress the enactment of remedial

legislation, Mr. Eastman pointed out the obstructive pow-

ers of minorities in reorganizations. After suggesting

that provision be made for approval of a plan ‘‘over the

dissent of minorities,’’ he said:

‘*Arbitrary compulsion of plans over the dissents

of the interested classes is not intended, nor is it be-

lieved that the courts will override strong dissents by

any large number of such classes, or by a single large

class, excepting where it is established that they have

no interest in the property. Rather, the purpose is to

prevent the obstruction of plans which are favored by

the larger classes of creditors or shareholders, but

which are obstructed by minorities in the smaller

classes in the attempt to secure unduly preferential

treatment. From a legal standpoint there are no ap-

parent objections to this course. It puts emphasis

upon the adjudication of these rights by providing for

hearings before the Commission and the courts under

prescribed principles of substantive law, whereby

there must be, among other things, a proper recogni-

tion of the priorities of the respective interests.’’!

When the bill of 1935 to amend Section 77 was presented

to the Senate for consideration, Senator Wheeler, in the

Committee report accompanying the bill, made clear the

origin and purpose of the ‘‘cram-down”’ provision. The

report said, at p. 2:

‘‘While section 77 is in general an admirable piece

of legislation, in certain respects it has been found

unworkable. The act was designed to prevent the

obstruction of reorganizations by minorities by pro-

viding that the approval of a reorganization plan by

two-thirds of any class of creditors or security holders

is binding upon the minority in a class. But, if not so

41 Td. at 101-102.

BLEED THROUGH

—

approved, a fair and equitable plan may be defeated.

Not only may one-third of the security holders of any

class prevent a fair plan from binding that class and

thus require that their securities be bargained for,

but the mere failure to vote upon a plan by those

holding one-third of the securities of a single class will

effectively block any reorganization. The formidability

of such obstructive possibilities appears clearly in the

pending reorganization of the Missouri Pacific, where

the claim is made that there are 72 different classes of

security holders. One bank loan from J. P. Morgan &

Co. is put in a separate class. Each of such classes of

creditors, if it does not agree to a plan, can drive a

bargain with those endeavoring to reorganize the com-

pany, and is in a superior bargaining position, * * *

‘‘In order to remedy these defects, §, 1634, as

amended, provides that two-thirds of those of each

class who vote upon a plan will bind the dissenters or

those failing to vote. But it also provides that the

court may make effective a fair plan where the parties

do not agree, * * * °%2

The ‘‘cram-down’’ provision of Section 77 as amended

in 1935 was discussed at some length by Mr. Leslie Craven,

draftsman of the bill, and by Mr. Warner Fuller, who par-

ticipated in its drafting, in a review of the 1935 Section

77.% Considerable space was devoted to the role of the

“eram-down’’ provision and to its constitutionality. The

following was given as the reason for its adoption:

‘“‘This provision was added in order to reduce the

power of minority holders to force inequitable adjust-

ments as the price of their acquiescence,’

In concluding their discussion of this provision, the au-

thors reiterated the contention that the ‘*cram-down’’

provision was of limited application:

* Sen. Rep. No. 1336, 74th Cong., Ist Sess. (1935) 2-3.

“Craven and Fuller, The 1935 Amendments of the Railroad

Bankruptcy Law (1936) 49 Harv. L. Rev. 1254.

Id. at 1277.

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‘‘These particular provisions of Section 77, as

amended, are primarily procedural provisions, needed,

on account of the multiplicity of claims arising in the

reorganization of a complex property, in order that

the substantive rights of the parties generally may

be fully protected against imposition from obstructive

minorities.’’**

In a symposium on railroad reorganization, in which

every phase of the problem was covered in detail by a

group of leading reorganization authorities, Mr. Warner

Fuller, who assisted Mr. Craven in the drafting of the 1935

Act, had this to say of the ‘‘erara-down”’ provision:

“‘It was expected that these provisions would be

used only in extraordinary situations. They were

added because it was thought that particular reor-

ganizations might be seriously impeded or prevented

through inability to raise the amount of cash which

would otherwise be necessary. While these provisions

provoked charges of unconstitutionality, they were

defended on the seemingly sound basis that the ac-

complishment of fair and sound reorganizations, which

are required both in the public and private interest,

would be rendered difficult if not impossible if cash

payment to dissenting classes were an invariable re-

quirement.’”**

It is thus seen that the ‘‘cram-down”’ provision was in-

tended to establish the relationship of classes of creditors

with relation to each other, not to force the submission of

a majority of the creditor classes to the wishes of outside

forces. Reorganizations have as their primary purpose the

revaluation and realignment of the interests ef creditors

of the insolvent carrier, and, if this revaluation and re-

alignment was to be made effective at all, the ‘‘cram-down”’

provision was required.

“5 Td. at 1283.

46 Fuller, Background and Techniques of Railroad Reorganization

(1940), VII Law & Contemp. Prob. 377, 390.

BLEED THROUGH

—

But to read into this ‘‘cram-down’’ provision a power

outside of the area of creditor participation is to read into

it a meaning never intended by anyone intimately associ-

ated with its drafting and enactment,

The Court is undoubtedly familiar with Duke University

Law School’s Law and Contemporary Problems. It is

unique among law journals in this country in that it does

not cover a variety of subjects in each issue. Each issue

undertakes to present a complete symposium covering

every facet of a particular subject-matter. It is, we

think, very important to note that the issue of that

publication from which above quotation from the War-

ner Fuller article was taken, Vol. VII, Summer,

1940, was such a symposium on the subject ‘‘Railroad

Reorganization.’’ It undertook to cover every important

aspect of that subject and especially the purposes and ef-

fects of the Act of 1935. It may be read from cover to

cover and nowhere in it will there be found any suggestion

that that Act gave to the Commission or the court the

power to enforce involuntary merger of the Section 77

debtor with an outside railroad.

We quote again what Circuit Judge Sibley said as to

the limited application to be given to the ‘‘cram-down

clause’’ in this case, in his opinion in 81 F. Supp. 926, 932:

‘“* * * The debtor, its property and affairs now

belong in equity to the creditors, and more specifically

to the refunding bondholders. The full jurisdiction

and control over them is in this court. The refunding

bondholders by an overwhelming majority do not con-

sent. If the court has the power as a court of bank-

ruptey to consent for them, under the circumstances

of this case it should refuse to do so. I do not think

Congress intended to foree a merger undesired by

the majority in amount of the affected parties by

permitting a merger to be part of a [Commission-

approved] plan. This conclusion makes it unnecessary

to determine whether the court’s power in bankruptcy

could be extended to force a merger consistently with

the Fifth Amendment. It also ends this plan. * * *”

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—

With that holding Circuit Judges Russell and Borah

wholly concurred in their dissent in the Court of Appeals

below, in 201 F. 2d 325, 331-332.

Circuit Judges Hutcheson, Holmes and Rives decided

the question of statutory power solely, so far as the pre-

vailing opinion below shows, on the previous holding by

Judges Hutcheson and Holmes, in 179 F. 2d 538, as having

established ‘‘the law of the case’’ in that regard. So the

majority decision here under review really stems from the

judgment of only two Circuit Judges, three Circuit Judges,

including the senior of them all, Judge Sibley, having held

to the contrary.

We submit that on the question here under review this

Court should follow Judges Sibley, Russell and Borah,

rather than the majority below which stems only from the

original holding by Judges Hutcheson and Holmes in 179

F. 2d 538.

BLEED THROUGH

Conclusion

We submit that this Court should reverse the judgment

of the Court of Appeals for the Fifth Circuit, with direction

to that court to return the case to the District Court below,

with instruction to disapprove the pending plan of reor-

ganization as illegal as being in excess of statutory power.

Respectfully submitted,

Henry L. WALKER,

Sipney S. ALperman,

Attorneys for Petitioners:

Southern Railway Company,

Georgia Southern and Florida

Railway Company,

The Cincinnati, New Orleans and

Texas Pacifie Railway Company,

New Orleans and Northeastern

Railroad Company,

The Alabama Great Southern

Railroad Company,

St. Johns River Terminal Company.

Haroip J. GALLacueEr,

Watrer H. Brown, Jr.,

James B. McDonoveu, Jr.,

Attorneys for Petitioner,

Seaboard Air Line Railroad Company.

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This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.