# Appendix — Brooks v. St. Louis-San Francisco Railway Co.

> Briefs, arguments, decisions, and more.

URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386416_0624%3A2

## Record

- **Collection:** Supreme Court brief
- **Document type:** Appendix
- **Published:** January 1, 1946
- **Citation:** 328 U.S. 867

## Text

Nee SE EM 2

App. A, p. 1

APPENDIX A

Section 73 of Bankruptcy Act (11 USCA See. 201)
ADDITIONAL JURISDICTION

In addition to the jurisdiction exercised in voluntary
and involuntary proceedings to adjudge persons bankrupt,
courts of bankruptey shall exercise original jurisdiction in
proceedings for the relief of debtors, as provided in sections
202, 203, and 205 of this chapter.

Excerpts from Section 77 of Bankruptcy Act

(11 USCA See. 205)

REORGANIZATION OF RAILROADS ENGAGED IN INTERSTATE
COMMERCE—PETITION FOR REORGANIZATION BY RAIL-

ROAD, SUBSIDIARY OR CREDITORS; VENUE; PROCEEDINGS
THEREON; JURISDICTION OF COURT OVER DEBTOR AND
PROPERTY ....

Plan of reorganization, contents; “securities”, “stock-

holders”, “creditors”, “claims” defined; suspension of statutes
of limitation.

(b) A plan of reorganization within the meaning of
this section (1) shall include provisions modifying or alter-
ing the rights of creditors generally, or of any class of
them, secured or unsecured, either through the issuance of
new securities of any character or otherwise; (2) may in-
clude provisions modifying or altering the rights of stock-
holders generally, or of any class of them, either through
the issuance of new securities of any character, or other-
wise; (3) may include, for the purpose of preserving such
interests of creditors and stockholders as are not otherwise
provided for, provisions for the issuance to any such cred-
itor or stockholder of options or warrants to receive, or
to subscribe for, securities of the reorganized company in
such amounts and upon such terms and conditions as may
be set forth in the plan; (4) shall provide for fixed charges
(including fixed interest on funded debt, interest on un-
funded debt, amortization of discount on funded debt, and
rent for leased railroads) in such amount that, after due

BI ha Nc a as

a
App. A, p. 2

consideration of the probable prospective earnings of the
property in light of its earnings experience and all other
relevant facts, there shall be adequate coverage of such
fixed charges by the probable earnings available for the
payment thereof; (5) shall provide adequate means for
the execution of the plan, which 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 corpora-
tion or corporations, the retention of all or any part of the
property by the debtor, the sale of all or any part of the
property of the debtor either subject to or free from any
lien at not less than a fair upset price, the distribution of
all or any assets, or the proceeds derived from the sale
thereof, among those having an interest therein, the satis-
faction or modification of any liens, indentures, or other
similar interests, the curing or waiver of defaults, the ex-
tension of maturity dates of outstanding securities, the re-
duction in principal and/or rate of interest and alteration
of other terms of such securities, the amendment of the
charter of the debtor, and/or the issuance of securities of
either the debtor or any such other corporation or corpora-
tions for cash, or in exchange for existing securities, or in
satisfaction of claims or rights or for other appropriate
purposes; and may deal with all or any part of the prop-
erty of the debtor; may reject contracts of the debtor which
are executory in whole or in part, including unexpired
leases; and may include any other appropriate provisions
not inconsistent with this section.

The adoption of an executory contract or unexpired
lease by the trustee or trustees of a debtor shall not pre-
clude a rejection of such contract or lease in a plan of re-
organization approved hereunder, and any claim resulting
from such rejection shall not have priority over any other
claims against the debtor because such contract or lease had
heen previously adopted. The term ‘‘securities’’ shall in-
clude evidence of indebtedness either secured or unsecured,
bonds, stock, certificates of beneficial interest therein, certi-
ficates of beneficial interest in property, options, and war-

—_7_

App. A, p. 3

rants to receive, or to subseribe for, securities. The term
‘stockholders’? shall include the holders of voting-trust
certificates. The term ‘‘ereditors’’ shall include, for all
purposes of this section all holders of claims of whatever
character against the debtor or its property, whether or
not such claims would otherwise constitute provable claims
under this Aet, including the holder of a claim under a con-

tract executory in whole or in part including an unexpired :
lease, F
é

The term ‘*claims’’ includes debts, whether liquidated :

or unliquidated, securities (other than stock and option :
warrants to subscribe to stock), liens, or other interests of é

whatever character. For all purposes of this section un-
secured claims, which would have been entitled to priority
if a receiver in equity of the property of the debtor had
heen appointed by a Federal court on the day of the ap-
proval of the petition, shall be entitled to such priority
and the holders of such claims shall be treated as a separate
class or classes of creditors. In case an executory contract
or unexpired lease of property shall be rejected, or shall
not have been adopted by a trustee appointed under this
| section, or shall have been rejected by a receiver in equity
| in a proceeding pending prior to the institution of a pro-
ceeding under this section, or shall be rejected by any plan,
any person injured by such nonadoption or rejection shall
for all purposes of this section be deemed to be a creditor
of the debtor to the extent of the actual damage or injury
determined in accordance with principles obtaining in
equity proceedings. The provisions of section 96 of this 3
title shall apply to a proceeding under this section. For
all purposes of this section any creditor or stockholder may
act in person or by an attorney at law or by a duly au-
thorized agent or committee subject to the provisions of
subsection (p) of this section. The running of all statutes
of limitation shall be suspended during the pendency of a
proceeding under this section. :

PADI ° BIOWARE PRI PE

App. A, p. 4

Proceedings after approval of petition.
| ore
} 3 ge

The trustee or trustees so appointed, upon filing such
bond, shall have all the title and shall exercise, subject to
the control of the judge and consistently with the provisions
of this section, all of the powers of a trustee appointed pur-
suant to section 72 or any other section of this title, and, to
the extent not inconsistent with this section, if authorized
by the judge, the powers of a receiver in an equity proceed-
ing, and, subject to the control of the judge and the juris-
diction of the Commission as provided by chapter 1 of Title
49 as on August 27, 1935, or thereafter amended, the power
to operate the business of the debtor. Prior to the appoint-
ment of a trustee, the debtor on behalf of the court shall
continue in the possession of the property and shall oper-
ate the business thereof during such period, and shall have
all the title to the property and shall exercise all power con-
sistent with the provisions of this section subject at all
times to the control of the judge, and to such limitations,
restrictions, terms, and conditions as he may from time to
time impose and prescribe... .

(10) The judge may direct the debtor or the trustee
or trustees to keep such records and accounts, in addition to
the accounts prescribed by the Commission, as will permit
of such a segregation and allocation, as the necessities of
the case may require, of the earnings and expenses between
and to the divisions and parts of the railroad or other
property of the debtor which are separately subject to the
liens of the various mortgages or deeds of trust, or are
separately subject to lease, and may refer to the Commis-
sion for its recommendations after hearings thereon if the
parties shall so request and/or the Commission determine
necessary or desirable, as to the method or formula by
which such segregation and allocation shall be made; and
thereafter such segregation and allocation may be made at
the expense of the debtor’s estate. ...

App. A, p. 5

Court hearing after approval by Commission; acceptance
of plan by creditors and stockholders; confirmation of plan by
court; valuation of property.

(e) Upon the certification of a plan by the Commis-
sion to the court, the court shall give due notice to all par-
ties in interest of the time within which such parties may
file with the court their objections to such plan, and such
parties shall file, within such time as may be fixed in said
notice, detailed and specific objections in writing to the
plan and their claims for equitable treatment. The judge
shall, after notice in such manner as he may determine to
the debtor, its trustee or trustees, stockholders, creditors,
and the Commission, hear all parties in interest in support
of, and in opposition to, such objections to the plan and such
claims for equitable treatment. After such hearing, and
without any hearing if no objections are filed, the judge
shall approve the plan if satisfied that: (1) it complies with
the provision of subsection (b) of this section, if fair and
equitable, affords due recognition to the rights of each class
of creditors and stockholders, does not discriminate un-
fairly in favor of any class of creditors or stockholders, and
will conform to the requirements of the law of the land re-
garding the participation of the various classes of creditors
and stockholders; (2) the approximate amounts to be paid
by the debtor, or by any corporation or corporations ac-
quiring the debtor’s assets, for expenses and fees incident
to the reorganization, have been fully disclosed so far as
they can be ascertained at the date of such hearing, are
reasonable, are within such maximum limits as are fixed
by the Commission, and are within such maximum limits to
be subject to the approval of the judge; (3) the plan pro-
vides for the payment of all costs of administration and all
other allowances made or to be made by the judge, except
that allowances provided for in subsection (¢), paragraph
(12) of this section, may be paid in securities provided
for in the plan if those entitled thereto will accept such
payment, and the judge is hereby given power to approve
the same.

If the judge shall not approve the plan, he shall file an

bes REP PET Re re eae IP ae?

a hac ae)

App. A, p. 6

opinion, stating his conclusions and the reason therefor,
and he shall enter an order in which he may either dismiss
the proceedings, or in his diseretion and on motion of any
party in interest refer the proceedings back to the Commis-
sion for further action, in which event he shall transmit to
the Commission a copy of any evidence received. If the
proceedings are referred back to the Commission, it shall
proceed to a reconsideration of the proceedings under the
provisions of subsection (d) of this section. If the judge
shall appreve the plan, he shall file an opinion, stating his
conclusions and the reasons therefor, and enter an order
to that effect, and shall send a certified copy of such opinion
and order to the Commission. The plan shall then be sub-
mitted by the Commission to the creditors of each class
whose claims have been filed and allowed in accordance
with the requirements of subsection (¢) of this seetion, and
to the stockholders of each class, and/or to the committees
or other representatives thereof, for acceptance or rejec-
tion, within such time as the Commission shall specify, to-
gether with the report or reports of the Commission thereon
or such a summarization thereof as the Commission may
approve, and the opinion and order of the judge: Provided,
That subinission to any class of stockholders shall not be
necessary if the Commission shall have found, and the
judge shall have affirmed the finding, (a) that at the time
of the finding the corporation is insolvent, or that at the
time of the finding the equity of such class of stockholders
has no value, or that the plan provides for the payment in
cash to such class of stockholders of an amount not less
than the value of their equity, if any, or (b) that the inter-
ests of such class of stockholders will not be adversely and
materially affected by the plan, or (c) that the debtor has
pursuant to authorized corporate action accepted the plan
and its stockholders are bound by such aeceptance: Pro-
vided further, That submission to any class of creditors
shall not be necessary if the Commission shall have found,
and the judge shall have affirmed the finding that the in-
terests of such class of creditors will be adversely and ma-
terially affected by the plan, or that at the time of the find-

face

App. A, p.7

ing the interests of such class of creditors have no value,
or that the plan provides for the payment in eash to such
class of creditors of an amount not less than the value of
their interests. For the purpose of this section the ac-
ceptance or rejection by any creditor or stockholder shall be
in writing, executed by him or by his duly authorized at-
torney, committee, or representative. If the United States
of America, or any agency thereof, or any corporation
(other than the Reconstruction Finance Corporation) the
majority of the stock of which is owned by the United
States of America, is a creditor or stockholder, the inter-
ests or claims thereof shall be deemed to be affected by the
plan, and the President of the United States, or any officer
or agency he may designate, is hereby authorized to act in
respect of the interests or claims of the United States or of
such ageney or other corporation. The expense of such
submission shall be certified by the Commission and shall
be borne by the debtor’s estate. The Comission shall
certify te the judge the results of such submission.

Upon receipt of such certification, the judge shall con-
firm the plan if satified that it has been accepted by or on
behalf of creditors of each class to which submission is re-
quired under this subsection holding more than two-thirds
in amount of the total of the allowed claims of such class
which have been reported in said submission as voting on
said plan, and by or on behalf of the steckholders of each
class to which submission is required under this subsection
holding more than two-thirds of the stock of such class
which has been reported in said submission as voting on
said plan; and that such acceptances have not been made

If the judge shall confirm the plan, he shall enter an
order and file an opinion with a statement of his conclusions
and his reasons therefor. If the judge shall not confirm
the plan, he shall file an opinion, with a statement of his
conclusions and his reasons therefor, and enter an order
in which he shall either dismiss the proceedings, or, in
his diseretion and on the motion of any party in inter-
est, refer the case back to the Commission for further

App. A, p. 8

proceedings, including the consideration of modifica-
tions of the plan or the proposal of new plans. In the
event of such a reference back to the Commission, the pro-
ceedings with respect to any modified or new plan shall be
governed by the provisions of this section in like manner
as in an original proceeding hereunder.

If it shall be necessary to determine the value of any
property for any purpose under this section, the Commis-
sion shall determine such value and certify the same to the
court in its report on the plan. The value of any property
used in railroad operation shall be determined on a basis
which will give due consideration to the earning power of
the property, past, present, and prospective, and all other
relevant facts. In determining such value only such effect
shall be given to the present cost of reproduction new and
less depreciation and original cost of the property, aad the
actual investment therein, as may be required under the
law of the land, in light of its earning power and all other
relevant facts.

Binding effect of confirmation; discharge of debtor from
liabilities; issuance of securities.

(f) Upon confirmation by the judge, the provisions
of the plan and of the order of confirmation shall, subject
to the right of judicial review, be binding upon the debtor,
all stockholders thereof, including those who have not, as
well as those who have, accepted it, and all crediters se-
cured or unsecured, whether or not adversely affected by
the plan, and whether or not their claims shall have been
filed, and if filed, whether or not approved, including cred-
itors who have not, as well as those who have accepted it.
Upon confirmation of the plan, the debtor and any other
corporation or corporations organized or to be organized
for the purpose of carrying out the plan, shall have full
power and authority to, and shall put into effect and carry
out the plan and the orders of the judge relative thereto,
under and subject to the supervision and the control of
the judge, the laws of any State or the decision or order of

—_

App. A, p. 9

any State authority to the contrary notwithstanding. The
property dealt with by the plan, when transferred and con-
veyed to the debtor or to the other corporation or corpora-
tions provided for by the plan, or when retained by the
debtor pursuant to the plan, shall be free and clear of all
claims of the debtor, its stockholders and creditors, and the
debtor shall be discharged from its debts and liabilities, ex-
cept such as may consistently with the provision of the plan
be reserved in the order confirming the plan or directing
such transfer and conveyance or retention, and the judge
may require the trustee or trustees appointed hereunder,
the debtor, any mortgagee, the trustee of any obligation of
the debtor, and all other proper and necessary parties, to
make any such transfer or conveyance, and may require
the debtor to join in any such transfer or conveyance made
by the trustee or trustees. Upon the termination of the
proceedings a final decree shall be entered discharging the
trustee or trustees, and making such provisions as may be
equitable, by way of injunction or otherwise, and closing
the case. Upon confirmation of a plan the Commission
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 con-
templated by the plan and not inconsistent with the provi-
sions and purposes of chapter 1 of Title 49 as on August
27, 1935, or thereafter amended. . . .

Dismissal of proceedings because of undue delay in re-
organization.

(gz) If in the light of all the existing circumstances
there is undue delay in a reasonably expeditious reorganiza-
tion of the debtor, the judge, in his discretion, shall, on mo-
tion of any party in interest or on his own motion, after
hearing and after consideration of the recommendation of
the Commission, dismiss the proceedings. Upon the filing
of such an order of dismissal, all right, title, or interest of
the trustee or trustees shall vest by operation of law
in the debtor unless otherwise provided by such order. . . .

App, A, p. 10

Restraining or staying commencement or continuation of
proceedings against debtor; removal of causes; owners’ rights
to equipment leased or conditionally sold unaffected.

(j) In addition to the provisions of section 29 of this
title for the staying of pending suits against the debtor,
the judge may enjoin or stay the commencement or con-
tinuation of suits against the debtor until after final de-
cree; and may, upon notice and for cause shown, enjoin
or stay the commencement or continuance of any judicial
proceeding to enforce any lien upon the estate until after

Certified copy of order confirming plan or directing con-
veyance of property as evidence.

(k) * . *
St. Louis-San Francisco:

Matured unpaid interest at Dec. 31, 1944...........2-..------eeeeeeceeeeeeeees 96
Amounts expended by the courts during the bankruptcy

proceedings to Dec. 31, 1944..................c.csessscseseeeeeesenenessnensesnnsenenenes 54
Decrease in long-term debt during bankruptcy to Dec. 31, 1944... 34
Net current assets as of Dec. 31, 1944, in excess of net current

assets at close of year preceding bankruptcy..................................-- 24
Postwar refund of excess-profits taxes as of Dec. 31, 1944............. a8
Total of preceding 4 items................................c.cccecseseseesneeeereeenecnsenssensneeses 112

Source: ICC, tables VII and VIII.

Even if the companies in section 77 proceedings would
not have been able to pay all matured interest, their situa-
tion is nevertheless so good that it calls for a business
rather than a court solution. If they were not now in court
hands, it is unlikely that their present condition would lead
their managements or their creditors to go to court for
receivership or section 77 proceedings. Their affairs are in
good shape, their past-due interest is, relatively speaking,
sufficiently within the range of reasonable arrangement,
and their present surplus and prospects for surplus in the
next few years available to meet the remainder of the over-
due interest are sufficiently good. Furthermore, the very
fact, above noted, that bondholders of such companies have
been receiving interest at rates fixed years ago instead of
at the much lower level which the current money market

IEE NOUN A NTT 6 OAR

App. B, p. 18

ealls for, would, if taken into consideration, help consider-
ably in solving the present financial problems of those
roads by ordinary business adjustments rather than by
court proceedings. In the case of such companies, it is fair
to say that their insolvency is what might be called of a
technical nature rather than genuine insolvency.

(Page 54)

The following figures, furnished by the Commission,
demonstrate that in the case of seven major companies
the net current assets (the excess of current assets over
current liabilities) at the end of 1944 were 64 percent of
the interest in default at that time:

(In millions of dollars)
: - * -

St. Louis-San Francisco:
Matured unpaid interest at Dec. 31, 1944 a eterna Ca 96
UR, COIN, I OE e.g ainsi icine 25
Source: ICC, table VII.

A comparison of the amount of matured unpaid in-
terest with the cash on hand (including cash equivalents
in the form of short-term Government paper and the like)
is even more striking. The cash on hand at the end of 1944
exceeded the total amount of matured unpaid interest. The
figures, again in millions of dollars, are as follows:

(In millions of dollars)

+ a a a s

St. Louis-San Francisco:
Matured unpaid interest at Dec. 31, 1944.00... cece cetteeeeeteeeeeeeeeee 96
Cash and cash equivalents on hand at Dec. 31, 1944 40

Source: ICC, table VII.

The foregoing figures though impressive in themselves,
are less striking than will be the figures (still to be gathered
and published) as of the end of 1945. At the end of 1945
the net current assets, the cash on hand, and the income

(Page 55)

available for payment of interest will have greatly in-
creased by reason of the profits of the year 1945. In addi-

=

App. B, p.+19

tion, the net current assets and the cash on hand available
for paying matured unpaid interest will have vastly in-
creased by reason of the provisions of the tax law discussed
elsewhere in this report. Those tax provisions will prob-
ably enable the railroad industry to have net current as-
sets, as well as cash, greater than would otherwise have
been the ease, in the amount of $1,000,000,000, if not more.
Mention has been made of the cash which will be retained
by the companies under the amortization provisions of the
tax laws. In addition, there is the tax-refund provision.

Many of the companies still in the hands of the courts
(as well as many of the other railroad companies) received
from the Federal Government at the end of 1945 large
sums in the form of a refund of 10 percent excess-profits
taxes paid to the United States Treasury during the pres-
ent decade under section 210 of the Internal Revenue Code.
Seven railroad systems in court custody paid, in 1944 (the
year for which the separate figures for each company have
been published), about 14 percent of the industry’s $1,000,-
(00,000 excess-profits taxes.

In brief, the only basic obstacle to the release from
court, without any Commission proceedings or court re-
organization, of various major railroads now in court con-
trol is their unpaid, overdue interest; the companies, if they
could have used their funds, could have paid all this over-
due interest, but the courts and court-appointed trustees,
having control of the companies’ funds, used them in par
for other purposes; in any event, the earnings and the liquid
resources of these companies, together with favorable
money market conditions, would enable them to handle
the problem of overdue interest in a businesslike way—
if they were free from the section 77 proceedings and pro-
cedures which in fact tie their hands.

It is important to avoid the assumption that two quite
different conditions are in fact one and the same. A com-
pany’s temporary inability to pay tnterest charges ts not
synonymous with worthlessness of the company’s stock

App. B, p. 20

which, by definition of the Interstate Commerce Commis-
sion, means that the stock is a nonearner).

SECTION 77 PROCEEDINGS

Subsequent to the enactment of section 77 for railroad
reorganization and the entrance of a number of systems
into court custody under that statute, the theory was de-
veloped that companies in section 77 proceedings require
drastic reorganization; contrast was made with compan-
ies in proceedings under the Chandler and McLaughlin
Acts (eh. XV) which provide for mild reorganization.
Under the latter, stocks are not wiped out, whereas under
the administration of section 77 they are usually wiped
out. Thus, on the surface it might appear that companies
in section 77 proceedings are likely to be insolvent com-
panies, while those under chapter XV are solvent com-
panies.

Testimony at the hearings on S. 1253 indicates that
this is incorrect, and that the assumption is not justified
that companies in section 77 proceedings are inherently
weak and more in need of drastic reorganization than other
companies.

(Page 56)

In those years the statutory procedure was under sec-
tion 77. Chapter XV was not enacted until 1939; thereafter
major roads in need of statutory aid resorted to its pro-
cedure rather than to section 77. The need for such aid
usually arose out of the fact that a company’s bonds were
about to mature, or would mature within a year or two,
in a period when refunding was not available to it. This is
what forced the Baltimore & Ohio to resort to chapter XV;
testimony to this effect was given by the representative
of the insurance companies (hearings on §S. 1253, p 30).
The maturity dates of companies’ bonds, frequently re-
sponsible for decisions, both before and after 1939, to
seek statutory aid, were fixed many years earlier, when
the bonds were created. This coincidence, rather than in-

App. B, p. 21

herent weakness, brought various major roads under sec-
tion 77.

On this the following testimony was given by Mr. Pur-
cell, vice president and general counsel of the Chesa-
peake & Ohio Railway:

Most of the railroad bankruptey reorganization
proceedings have been caused by impending maturi-
ties of one or more bond issues during a period of de-
pressed earnings when railroad credit was inadequate
to permit of their refinancing. I look hack to 1937 when
the Nickel Plate Road was confronted with maturi-
ties of its Lake Erie & Western first mortgage bonds
and Nickel Plate first mortgage bonds. You will re-
eall that 1987 was a good year for railroad earnings.
Fortunately, Nickel Plate was able to refinance. Had
these bonds matured in 1938, a year later when rail-
road earnings were at a low ebb, Nickel Plate would
surely have gone into bankruptcy. Certainly its com-
mon stock, probably its preferred stock, and possibly
its outstanding unsecured notes would have been elim-
inated from any participation in a bankruptey reor-
ganization plan. Yet today the common is selling at
more than 50, the preferred at 130, and the unsecured
notes have been paid in full. What a vast difference
resulted from the pure coincidence that those who
decades ago caused the issuance of these bonds se-
lected a maturity date in 1937 rather than in 1938.

Similarly, we can all thank our lucky stars that
the Pere Marquette, about two-thirds of whose common
stock is owned by Chesapeake & Ohio, was not con-
fronted with maturities during the thirties when its
then outstanding high-interest bonds were selling at
very substantial discounts.

We look back today and are extremely thankful
that those particular bonds, by the rarest coincidence,

PREBLE A LEE OLO

an ra ee ee a te ee

App. B, p. 22

came due in 1937, because the Nickel Plate’s eredit in
1936 and prior years, and in 1938 and subsequent years,
was not such as would have made it possible to re-
finance those obligations in any year during the thir-
ties other than 1937.

(Page 57)

So that the Nickel Plate was saved from bank-
ruptey by the mere happenstance that someone, many
decades before, who had created that bond issue, caused
it to come due in 1937,

The misconception that the roads under section 77
procedure need that procedure, and in this respect are un-
like those which have had the benefit of the milder pro-
cedure of chapter XV, may be studied in the light of data
furnished to this committee by the Interstate Commerce
Commission. These data dispose conclusively of the view
that the former roads are essentially weaker than the lat-
ter or than their financial structures are fatally weak.

We shall consider first the more important of these
two criteria, the ability ef the roads in section 77 procedure
to earn their interest charges, as compared with those which
have proceeded under chapter XV. The number of times
that the annual interest charges are earned is a test not
only of the solvency of a railroad, but of the quality of

(Page 58)

its bonds; State laws apply this test to make sure that
only safe railroad bonds are purchased by insurance com-
panies, savings banks, and trustees for minors and others.
In the testimony before this committee, a vice president
of the Metropolitan Life Insurance Co., speaking in an-
other connection, used this test to indicate the inherent
soundness of the bonds of a temporarily distressed rail-
road company (hearings, p. 30).

The data furnished by the Commission at the request

1

App. B, p. 28

of this committee take a period of 514% years, January 1, f
1940, to June 30, 1945. In that period, the net earnings be- ;
fore interest and Federal income and excess-profits taxes t
were more than enough to pay the interest and taxes of E
those years, both in the case of roads under section 77 and '
those under chapter XV; in fact, the interest charges for }
many more years than those 514 years could have been :
paid out of those earnings. The number of times average
annual interest charges were earned per year during those
5'4 vears by roads which have proceeded under chapter XV
appears in the following table:
ENSURE fin ihe nka yer cs CREO ee ie be eRe RE 2.19
ES SN. Gir bo Wea a ena eS ee oa RRO 2.28
MONO 3 iy 29'c ya Sa kagewemk Maes eos 1.66
pe rer rer rT re serra eer 2.43
LO Peete eee Nee Con eee poe ee 1.95

The comparable figures for major roads under sec- 5
tion 77 proceedings are: f
Chicago, Milwaukee, St. Paul & Pacifie.............. 1.83 t
Chicago, Rock Island & Pacifie.......... ca eeatan von 3.21 ;
Denver & Rio Grande Western. ...........00:eeeeees 2.16 f
Gulf Coast Lines (5 years only)®.........00.0ceeeeee 3.90 i
by | Are Peeper ye Pa ee oe lO
New York, New Haven & Hartford............ pe oo Ee ¢
St. Louis-San Francisco (5 years only)*............ 1.86
St. Louis-Southwestern Railway System............. 6.98

Source: ICC table VI-C-1.

The average for the latter companies is 3.66, for the
former it is 2.52. Thus, both when compared individually
and collectively with the roads under chapter XV_ pro-
cedure, those which went into reorganization under section
77 prior to the enactment of chapter XV show up favorably ;

*Omits first half of 1945,

App. B, p. 24

collectively, they make a 68 percent better showing, on
this all important test.

The data furnished by the Commission, of earnings
per share during this same 514-year period, are as follows:

(Page 59)
The comparable figures for major companies under
section 77 procedure follow:
Earnings per share

.
St. Louis-San Francisco System (5 years only) :*
BIE TIIIIED 5a. ois scaneticnannthndlnsdiaetlonteneieminianiindagniebidpannlinceshhintiie $67.70
Source: ICC table ‘VEC.

Excess profits taxes in 1944—-per share of common stock
. . > . 7

St. Louis-San Francisco System:

ee Sk See Ce oiiikiniricnetnctnicneisiinntninndianamtiien $16.07
Source: ICC table VI-C-1; Monthly Comment, March 7, 1945, p. 3.
(Page 60)

The cereinge per share of common stock are here
given.

In the following list, three of the companies have al-
ready heen reorganized under section 77; the figures are
on the hasis, nat of the new capitalization, but of the
capitalization prior to reorganization, and show the earn-
ings on the shares wiped out under the reorganization plans.

Earnings per share of common stock of major railroads, 1941-44
(1) In Section 77 Proceedings

. . . . .
St. Louis-San Francisco System. sl FR ee

(Page 61)
These figures may be considered on various bases—
company by company, or average of the first 10 compared
with the average of the second 10, or geographicaliy.

Taking the averages, the section 77 roads show an av-

*Omits first half of 1945,

App. B, p. 25

erage of $59.09 per share, the roads not in any court pro-
ceeding show an average of $54.70 per share.

On a geographical basis, we may take the three sec-
tions in which major roads under section 77 proceedings
operate—northwest, southwest, and east and middle west.

These comparisons are important with respect to the
problem raised by forecasts which decree that companies
are insolvent, and that their stock is worthless. The ques-
tion is not whether the stocks of railroads in section 77 pro-
ceedings are worth less than at the time when they were
created, or are worth less than the stock of sound com-
panies which are not in any court or Commission reorgani-
zation proceeding, except as a comparison highlights the
essential solvency of the former companies and that their
shares have earning power and value. When a Govern-
ment decree wipes out the shares of stock of companies in

(Page 62)

section 77 proceedings, the decree is not that the shares are
worth less than those of other companies, but that they are
utterly worthless.

Comparison between the two groups of roads above
listed, those in section 77 and those which are not in any
reorganization, may also be made with respect to the ex-
cess profits they paid per share of common stock.

The comparison is even more revealing when each
group is taken as a whole. For the 10 roads not in reorgani-
zation listed above, the average of excess-profits taxes ac-
crued for 1944 was $23.31 per share of common stock. For
the 10 roads in section 77 proceedings, the average was
$34.35 per share of common stock. The roads in the hands
of the courts thus acerued an average of 46 percent more
excess-profits taxes per share of common stock than the
comparable roads not in court hands.

The share of the section 77 railroads above listed com-
pare favorably with the shares of the strong roads not
in court proceedings both as to net earnings per share

App. B, p. 26

after payment of taxes and deduction of all charges, and
as to earnings per share set aside for excess-profiits taxes,

The figures on excess-profits taxes per share. of com-
mon stock have a special bearing on the question whether
they are likely to have earnings in later years. As the Com-
mission reported to Congress in 1944, ‘‘the net income be-
fore deduction of income and profits taxes deserves at-
tention as indicating the earning power of a railroad with
the evisting rates, fares, expenses, and traffic volume”
(pp. 7-8). Since income taxes have not been greatly re-
duced, and excess-profits taxes have been eliminated, it
may be useful to limit a study of the per-share earnings for
1944 to consideration of the net income actually- earned,
and the excess-profits taxes per share. The figure for the
major roads in the section 77 groups follow: |

(Page 63)

1944 earnings per share of common stock
* . . * ~
St. Louis-San Francisco System:

I UII, I Nc ants ti Sch banssscnnvcsansesececanevtbacors eee et
MrmreU Gree SE GOT Tiana ssc ccc sesetserctsicecen un ARO
Aggregate of earnings set aside for excess-profits taxes,

I re ck ancient sinew 21,28

Source: ICC table VI-C-1; Monthly Comment, June 6, 1945, p. 6.

These figures are large; the earnings of the Companies
would have to drop to a very low point, and wold have
to stay that low, vear in and year out, before One could
say that the common shares of these companies ean have
no earnings at all in future vears.

The data presented above deal only with the. eommon
stocks. Even if there were a certainty that they could earn
nothing in the future, there would still be the question
whether the preferred shares could have no earnings in the
future; obviously, unless it can be demonstrated that the
preferred stock will have no earnings, it may not be as-
sumed that the companies are insolvent. Nine olf the ten
companies in the section 77 list above set out had jpreferred

App. B, p. 27

stock outstanding, and made large earnings per share of
preferred.

The comparisons above presented, with roads which
are not in reorganization proceedings, may be amplified
in one important particular. Those roads paid dividends in
a number of instances for each year of this decade, in other
cases for part of the period. Dividends were not paid dur-
ing the period on the stocks of the roads in section 77
proceedings.

This does not indicate that the one class of roads is
solvent and the other is insolvent, or that the shares of the
one have value, and the shares of the other are valueless.
In chapter XV proceedings, where the stock is saved and
is regarded as valuable and the companies are regarded as
solvent, limitations are placed on the payment of dividends.

Indeed, the fact that for a period of time dividends
were not paid only makes the assets of the companies
larger, and their shares more valuable.

(Page 64)

ADMINISTRATION OF SECTION 77 PROCEEDINGS BY THE
COMMISSION

With exceptions relating to a very small proportion
of the affected railroad stocks, most of the plans of re-
organization issued by the Interstate Commerce Commis-
sion in major cases arising under section 77 proceedings

(Page 65)

have treated the railroad systems under that section as
insolvent. The plans have proposed that the preferred and
common stocks of the companies be wiped out, on the
ground that the companies cannot earn enough in the fu-
ture to provide any yield or income on the stocks.

The issue which the Commission decided in these cases
was not whether there are earnings on the stocks of these
railroads at the present time; the decisions, as will appear

App. B, p. 28

shortly, were made in earlier years. If the issue were,
whether there are present earnings, the answer would be ob-
vious—there are big earnings on stocks—i. e., these stocks
now have a value—i. e., the railroads are not insolvent.

The issue the Commission considered in these cases
was whether the railroads would in the future earn any-
thing on their present stocks. That, in the Commission’s
opinion, was its duty under section 77—to fix, for the com-
panies under that section, a new capitalization based upon
its estimate of the future earnings of those companies.

The performance of such a duty confronted the Com-
mission with a dilemma, which makes clear the injustice
to any agency charged with such a duty. On the one hand,
if estimates of future earnings for purposes of new capital-
ization must be made, it is convenient to incline to the con-
servative if not the ultraconservative side; it is only nat-
ural to err in the direction of underestimating future good
news about earnings, rather than the opposite. On the
other hand, there is much to be said for the investors who
urge that their property should not be foreclosed, that esti-
mates made in 1939 and 1940 that the companies will not
he able to earn anything on their stock have already been
shown to be unduly low, and that in any event it is danger-
ous for anyone, particularly for a Government agency, to
destroy the property and investments of investors stmply
because the Government, no matter how well intentioned,
estimates that at some time in the future there may be no
mcome on those investments; the stockholders ask why
their securities, which are now, and for some years have
been, big money makers, should be now destroyed by Gov-
ernment fiat as presently worthless because a Government
agency estimates that at some time in the future these
securities will not be money makers.

The nature of such forecasting is indicated in one of
the Commission's decisions less than a year ago, when it
said: ‘**Any estimate of future traffie and earnings is, of
necessity, speculative’? (Baltimore & Ohio Railroad Debt
Adjustment, 261 I. C. 51, 81).

App. B, p. 29

What the Interstate Commerce Commission has felt
that it does in making the estimates which are the founda-
tion of its orders to wipe out stockholders was recently
explained by Commissioner Porter, the chairman of its
Finance Division, in testifying on H. R. 4779. The process
is one, to quote his testimony, of ‘‘making intelligent
quesses. For this purpose, we studied the past history that
was before us, we had the testimony of men who were re-
garded as in a position to make the most intelligent guess
as to what the future might hold. And starting from that
complete record up to the minute that it was submitted
to us, we tried to make up our minds as best we could on
that’’ (hearings, December 18, 1945.) The Commissioner
emphasized that the Commission looked to past years, and

(Page 66)

weighed in addition the testimony of men who were regard-
ed as experts in making their prediction as to what the
future might hold.

At the same time that the Commission recognized the
impossibility of making a forecast, it believed itself com-
pelled, under section 77, to make forecasts, and it was at
that very time engaged in proceedings to arrive at fore-
casts. Its forecasts were made in all important cases in
1939 and 1940, as indicated by Commissioner Mahaffie to
the committee considering H. R. 4779. In some of the cases
the plans were later revised, but the capitalization proposed

(Page 67)

by the Commission in 1939 and 1940 was not changed in
most of the larger cases, and if changed in any of them,
the change was minor. The Commission’s estimates of the
long future, on which its proposals of capitalization were
based were, so far as based on actual known earnings, made
in the light-of earnings to the end of 1937, and in a few
eases to the end of 1938 or possibly after looking at pre-
liminary figures for earnings in the first few months of

App. B, p. 30

1939; substantially speaking, when it fixed the capitaliza-
tion in the larger cases, it had before it the actual earn.
ings up to the close of 1938—the time when it frankly ad-
vised Congress of the impossibility of forecasting for the
long future.

The forecasts made in those years, with the resultant
proposals to eliminate 21% billion dollars of securities, and
to decree which security holders should be deprived of their
securities, could not, of course, have the benefit of knowl-
edge of fundamental changes of the near future. The hear-
ings on 8. 1253 treated of this fact, as follows:

The Chairman. Let me ask you this: Of course,
when the Interstate Commerce Commission set forth
their plans, they did not contemplate, or did not think
these railroads were going to have this windfall to
them on account of the war.

Mr. Hagerty. That is right.

Mr. Hagerty. The conditions were quite different
when the Interstate Commerce Commission approved
these plans * * * (hearings, pp. 34, 35).

In responsible quarters other than the Commission
the same difficulty of making such forecasts has been ex-
perienced. Thus, during the war period pessimism about
the future earnings of the railroads was based on various
assumptions about the future. It was assumed that the
railroads would in the future be subjected to a great in-
crease in taxes; this expression was made at a time when
the railroads were subject to 95 per cent excess-profits
tax, the highest in their history. In the very year when
such a future setback of their net income was being envis-
ioned, 47 percent of the total tax bill of the railroads was
due to the excess-profits tax—now eliminated; 21 percent
of their total tax bill was due to the Federal income tax—
now reduced in rate. In the following year these two Fed-
eral taxes were responsible for more than 70 percent of
the railroad industry’s total tax bill. A considerable por-

App. B, p. 31

tion of the balance of their taxes fluctuates, as does the
income tax, with the volume of their business, so that the
larger the amount of such taxes paid by the railroads,
the larger their net income (Statistics of Railways of Class
I, calendar years 1929 and 1936 to 1945, Statistical Sum-
mary No. 29, prepared by Association of American Rail-
roads, October 1945, at sheet 11).

Pessimism, similarly arising out of the inherent dif-
fieulty of prophesying, was based, in quarters outside the
Commission, on the assumption that the years after World
War II would resemble those immediately after World
War J. In the actual event, when World War II came to
an end, it was found that the assumption earlier made was
the exact contrary of the facts—the physical and financial
condition of the railroads today ts extraordinarily good,
compared with their extraordinarily bad condition in 1918
and for some tme thereafter.

Doubts about the future have also been based on the
assumption that there would be a great increase in op-
erating costs—though improvements and constantly in-
creasing efficiency now point in the opposite direction.

(Page 68)

A fourth example may be mentioned. It has been as-
sumed that reduced interest charges in the future sup-
port pessimistic prophecies about the future earnings of
roads whose fixed charges are decreased. Those who make
that assumption state that the less the interest charges,
the less the deductions from gross revenue, for income-tax
purposes, and thus the larger the income tax paid. Such
forecasting overlooks the fact that net income increases as
interest charges decrease, and would regard one of the
greatest blessings that the industry can look forward to,
as a disadvantage.

In short, others who have undertaken to forecast in
this field have had the same experience as the Commission
has had, in discharging the duty of forecasting which it

App. B, p. 32

believes has been imposed on it by Congress. This duty,
as demonstrated by the experience of others besides the
Commission, is one which should not be imposed on a Gov-
ernment agency, when the inevitable consequence of pes-
stmistic forecasts is the destruction of existing property
rights.

The Commission, in its forecasts, sought to be con-
servative (Western Pacific Railroad Company Reorgani-
zation, 230 I. C. C. 61, 87). It is, of course, conservative to
forecast one’s own future income pessimistically rather
than optimistically, when contemplating one’s future ex-
penditures for, say, luxuries. But there would appear to
be some justification for the view of junior security hold-
ers that, if the consequence of one’s forecast is to wipe out
another person’s investments, the forecast which is con-
servative in the eyes of the forecaster is radical in the eyes
of the investor—more than radical; it is destructive of his
property rights.

The soundness of the Commission’s warning to Con-
gress about the impossibility of forecasting future earn-
ings was demonstrated every year after it had issued its
conservative forecasts that the companies would not earn
anything on their stock, with the consequence that the
stocks of those companies must be destroyed. Since the
completion of its forecasts and orders to wipe out the
stocks of the major railroads in section 77, every one of
those railroads has earned large sums on its stock every
year (except two of the companies, which missed out in
1941 and only in that year).

The entire series of forecasts in nine major cases, with
the conclusion that the stocks would have no earnings in
the future and must be destroyed, was completed by 1941;
most of the decisions were made in 1939 and 1940. The dates
follow:

. os . . *

St. Louis-San Francisco.................... July 6, 1940
Source: Hearings on H. R. 2857, p, 197.

App. B, p. 33

The earnings on the stock of these companies, in the
period after this series of forecasts was virtually com-
pleted (i. e., after 1940), were as follows (the figures were
furnished by the Commission in response to the request of
this committee) :

(Page 69)

Earnings on the stock (ordered by the Commission
to be wiped out), Jan. 1, 1941 to
June 30, 1945

St. Louis-San Francisco. ...........00.eeeeeee $36,321,158
Source: ICC table VI-C-1.

These are only the amounts of the recorded income.
The actual income was much larger. All but a small per-
centage of the cost of the wartime installations, though
deducted (for tax purposes) as an expense, was in fact
a capital addition to the property. The figures showing the
total for the nine systems listed abve have not yet been
compiled and published; a rough estimate would assign
15 percent of the total figure for the industry to those
companies (they operated about that percentage of the
raiload mileage; they paid that percentage of the indus-
try’s excess-profits taxes for 1944). On the basis of a total
expenditure of the industry for such installations in the
amount of 114 billion dollars, the unreported earnings on
the stock of the nine systems listed above, with respect
to the single item of amortization, would be approximately

225,000,000.

The actual income on the stock of those companies for
the years since the Commission’s no-earnings forecasts
must also take account of two other items—the refund of
10 percent of excess profits paid and any additions or bet-
terments charged as operating expenses.

It is perhaps not far from the mark to figure that the
actual earnings on the stocks of the nine systems since

App. B, p. 34

the Commission made its forecasts of no earnings on the
stocks are about $750,000,000.

These figures indicate that the valuations made some
years ago require revision, even if reorganizations are still
to be based on valuations, and valuations on forecasts.
When three-quarters of a billion dollars are added to the
assets, which prior to such addition, had been appraised
at a specified amount, that amount must be increased ac-
cordingly. Further, the very basis of the appraisal requires
modification, since it was based on a forecast of no earn-
ings on the stock, and business operations each year there-
after showed actual earnings on the stock.

On the question of changes subsequent to the Com-
mission’s making of an appraisal of value, the chairman of
this committee said at the hearings on S. 1253:

The Chairman. It seems to me that, when condi-
tions have changed to such an extent as T have in-
dicated, that railroad should have and does have the
inherent right to have those changed conditions recog-
nized (hearings, p. 76).

However, doubt has been expressed whether the In-
terstate Commerce Commission has the authority under
the statute to recall a plan of reorganization from the
courts, after it has been certified to them by the Commis-
sion. Doubt has been expressed whether the Commission
may even make representations to the district court to

(Page 70)

which a reorganization plan has been sent, stating that
changed conditions require modification of the plan in the
interest of justice. The Commission has resolved these
doubts against the exercise of such power by it, and, deem-
ing its authority strictly limited in this respect, has not
made necessary revisions of plans, no matter how impera-
tively required in the interest of justice, unless and until
the district courts have themselves found the plans to be

App. B, p. 35

unfair or unsound or have for any other reason returned
them to the Commission.

Such limitations obviously result in large difficulties
and injustices.

District and appellate courts should not be burdened
with proceedings to consider the fairness and soundness
of reorganization plans which the administrative commis-
sion may already know to be out of date. Furthermore, a
plan which is already out of date may nevertheless pass
the scrutiny of the courts because of deference for the
views of the administrative tribunal and out of ignorance
of the fact that members or staff of the Commission realize
that the plan pending in the courts is outmoded, and that
its effectuation would constitute a disregard of important
facts and of important considerations of justice. This is
apparently what happened in one railroad reorganization
which was consummated in 1944, and another in 1945, with
serious injustice to security holders who were wiped out
and with unjust enrichment of other security holders; in
each case a great increase in value of the securities had
taken place between the time of the Commission’s first
conclusion as to capitalization in reorganization, and the
time the district court finally approved that conclusion
and put into effect; these changes had demonstrated that
the holders of the securities wiped out under the plans ac-
tually had a genuine and valuable interest in the railroad
properties and were entitled to participate in the reorgant-
zations; since this fact, ascertainable subsequent to the
Commission’s decision, was disregarded, security holders
were unjustly subjected to forfeiture.

If, however, the Commission should be called upon to
revise its forecasts, it would be confronted by the same
difficulties as before.

Prudence calls for recognition of the wisdom of Com-
missioner Miller’s statement in one of the eases in which
the Commission was discharging the duty imposed on it
by Congress, the duty of making forecasts. The Commis-

;
‘
}
7
:

App. B, p. 36

sioner said: ‘‘We are not omniscient and cannot foresee
the future’’ (Chicago, Rock Island & Pacific Ry. Co. Re-
organization, 242 ICC 298 at 475).

The difficulty experienced by both the Commission
and others who have either been obliged or have ventured
to forecast for the long future, and the hazardous nature
of pessimistic forecasts in particular, are present today in
as full measure as before.

Any agency, governmental or nongovernmental, obliged
to make an estimate of future earnings, must answer many
questions which it is difficult to answer and on which, no
matter how earnest and informed the person or agency
may be, error cannot be eliminated. For example, to what
extent has the higher earning rate of the years 1940-45
affected the estimate which should be made for the years
thereafter? What will be the effect of the carry-back pro-
vis.ons of the present tax law? To what extent will future
earnings be benefited, by reason of recent surplus mainten-
ance, or by reason of current and recent underrecordings
of earnings? What dollars estimate shall be placed on post-
war consumer demands? What will be the effect of the

(Page 71)

elimination of excess-profits taxes? What will be the ef-
fect of the initial reduction just made in income-tax rates,
and what is the likelihood of future reductions?

Above all, what will be the future level of business of
the railroad industry? This is perhaps the most impor-
tant question of all.

It is only natural that forecasting should partake of
the mood of the period in which it is undertaken. This is
true, even in the case of the most expert and disinterested
forecasting. For example, it is interesting to compare the
pessimistic forecasts made at the end of the last decade
with the Commission’s statement to Congress early in the
same decade. In 1931, when the business depression had
run for only 2 years, the Commission stated:

ET rik RES OF Ms ee ne ee

App. B, p. 37

_* * * while the tide may be slow in turning, there

is no more reason for thinking that business will not
improve than there was in 1928 for thinking that de-
pressions were a thing of the past and that the coun-
try had entered an era of permanent prosperity. Too
much weight ought not to be attached, therefore, to
the present discouragement of investors. When rail-
road earnings take a sharp turn upward, as in due
time they will, railroad credit will also rise (annual
report for 1931, p. 115).

Reference has already been made to the statement in
the 1932 report of the Commission on the basis of which
it would appear that the railroads could make as large a
net income as in 1929 if their future volume of business
should be as much as one-half of the volume for the year
1944.

An additional question confronting individuals or
agencies which make estimates of the future earnings of
railroads is discussed in the concurring opinion of United
States Cireuit Judge Phillips in The Denver & Rio Grande
Western R. R. Co. et al. v. Insurance Group Committee
et al., on May 10, 1945, and in testimony received at hear-
ings on H. R. 4779, on December 26, 1945. The opinion of
the presiding judge, and the testimony on the bill, both
raise the question of effect on railroad revenues of a high
national income in the years ahead. As Commissioner
Mahaffie wrote to the House Judiciary subecominittee on
December 18, 1945, such a national income ‘‘ undoubtedly
has some relation to railroad revenues as a whole,’’ though
it cannot be conclusive with respect to the affairs of in-
dividual roads, other facts requiring consideration also.
Judge Phillips called attention to the effect of a greatly
increased postwar railroad traffie on the fortunes of the
road with whose reorganization under section 77 the court
of appeals was then dealing.

This new factor, together with other new factors which
have come to the front in the last 4 or 5 years, after the
Commission initially fixed its presently outstanding pro-

1 RRO GE NI TE ALI EPEC ONE OR ME ANE RY SL,

AEN TRS ER

mee

App. B, p. 38

posals of capitalization, add even greater emphasis to
the pronouncement of the Interstate Commerce Commis-
sion in its annual report to Congress in 1938. The Com-
mission said:

Every reasonable effort should be made to pro-
tect existing security holders, but not where their
securities have clearly lost all value (p. 21).

It is obviously difficult to reach the conclusion that
junior securities of the railroads have clearly lost all value.

To wipe them out is in effect to say, at a time when
these stocks are earning as much as the strongest rail-
roads earned in the most prosperous years, these stocks
must be wiped out because a Government agency, having

(Page 72)
made the most intelligent guess it could, has guessed that

they may not be able to earn anything at any time in the
future.

(Page 73)

EFFECT OF COURT ADMINISTRATION ON THE FINANCIAL
POSITION OF RAILROADS UNDER SECTION 77

An additional difficulty arises out of the fact that for
many policy purposes, court-appointed trustees have re-
placed the managements of companies which are in section
77 proceedings. In important respects the trustees and
the courts decide, by their action or inaction, the extent
of the earning power of those companies and their stocks.
In particular, the courts and the trustees they appointed
decide whether to cut and how much to cut, the interest
charges for which the companies are obligated; the man-
agements of the companies are deprived of this crucial
power. The subject calls for mention of the provision of
section 77 making mandatory the substitution of trustees
for managements.

Section 77 was amended in 1935. One of the amend-
ments required Federal courts to appoint trustees of the

EE
App. B, p. 39

railroad properties of companies under section 77. The
purpose of this provision was to have independent investi-
gation and correction of any abuses prior to the court
proceeding (H. Rep. No. 1283, 74th Cong., Ist sess., Pp. 4).
Such investigations have long since been completed. But
the statutory provision has continued. It has ousted the
managements of the roads up to the present time. Jn the
last few years, and now, active and aggressive manage-
ment was and is critically needed in order to enable the
roads to make the fullest use of present-day opportunities
to reform their financial structures, reduce their indebted-

(Page 74)

ness, and reduce the interest rates of their bonds and their
total interest charges. The Interstate Commerce Commis-
sion has for some years been urging the railroads to take
such action. Railroads not under section 77 have done so;
railroads under section 77 have done so to a very limited
extent, and their managements have been unable to move
at all in securing the very results which the Commission
has wisely and repeatedly urged.

A third difficulty is due to the fact that the sights of
the courts and trustees, as well as of some of the bondholder
groups not injured by the wiping out of the stock, were di-
rected to reorganizations having such consequences. Eyes
were closed to the abundant opportunities of correcting the
financial structures on @ business basis, without such dras-
tic consequences. Business conditions made possible the
accomplishment, by mild procedures, of the major objec-
tive of drastic reorganizations under section 77—the re-
duction of interest charges. Business conditions also made
possible the accomplishment, by resort to business methods,
of the secondary objective of drastic 77 reorganizations—
the reduction of outstanding capitalization, But section 77,
the control of the properties by trustees, and the concen-
tration on drastic reorganizations to the exclusion of solu-
tions made available by business developments have all
stood in the way.

App. B, p. 40

On the subject of business conditions which have laid
the foundation for a reduction of interest charges, the
Commission has frequently spoken and advised action by
the railroads. It will be sufficient to quote briefly from four
recent decisions by the Commission, calling attention to
the developments in the money market. It noted, on July
6. 1945, ‘‘the favorable market conditions now existing”
(L. & N. R. R. Co. Bonds, F. D. 14959). It authorized re-
fundings at reduced interest rates because the railroads
thereby effected ‘‘a saving in interest by taking advantage
of the present low interest rates’? (Arkansas & Memphis
Bridge & Terminal Co. Bonds, F. D. 14918, decided July
30, 1945). It repeated its references to ‘‘present favorable
market conditions’’ (e. g., Union Pacific Railroad Co.
Bonds, F. D. 15035, October 5, 1945; Lehigh & New England
Railroad Co. Bonds, F. D. 15071, October 31, 1945).

A perusal of recent decisions of the Commission shows
that a iarge number of railroads have taken advantage of
those conditions to reduce interest rates and thus total
interest charges. The reduction in total charges is, of
course, due in part to lowered interest rates, and in part
to reductions of debt. The Commission frequently calls
attention to the substantial results achieved, in a business _
way, by taking advantage of present conditions. For ex-
ample, in one of the cases noted above, the Commission
described the success of one large road in reducing its
annual interest charges, over a period of years, by 46 per-
cent (L. & N. Bonds, F. D. 14959). Examples were discussed
at the hearings on S. 1253; Great Northern, partly through
retirement of debt and partly through reduction in inter-
est rates, cut its interest charges more than one-half
(hearings on 8. 1253, p. 9).

Of course, the more powerful and strongest roads have
been availing themselves of the opportunity at hand; by
refunding operations they have reduced the interest they
pay on substantial portions of their debt, the reduction
being in a number of cases as large as 1 percent or 1%

_

App. B, p. 41

percent, and in some instances being even large, one case
late in 1945 showing a reduction of more than 2% percent.

(Page 75)

Rates have been reduced to 3 percent and even less (e. 9.,
G. N. Ry. Bonds, F. D. 15014, September 11, 1945; No. Pac.
Ry. Bonds, F. D. 15028, September 19, 1945; So. Pac. R.
Bonds, F. D. 15020, September 19, 1945; T. € P. Ry. Bonds,
F. D. 14958, July 19, 1945; Un. Pac. Bonds, F. D. 15035,
October 5, 1945; Penn, Ohio & Detroit R. Bonds, F. D. 15063,
October 17, 1945; Western Maryland Ry., F. D. 15080, Oc-
tober 24, 1945; Terminal R. R. Association of St. Louis,
F. D. 15070, October 26, 1945; N. Y. Connecting R., F. D.
15078, October 26, 1945; Leh igh & N. Eng. R. R., F. D. 15071,
October 31, 1945; Maine Central R. R., F. D. 15127, Decem-
ber 14, 1945; C. B. € Q., F. D. 15125, December 19, 1945).

Other companies, of smal! size and not to be classified
in the group which can command the lowest rates in the
money market, have been making comparable progress.
For example, one small road was able to refund notes at
a 214,-percent interest rate (Wichita Falls € Southern R. R.
Co. Notes, F. D. 14954, July 11, 1945). Denver Union Stock
Yards Co. refunded 334-percent obligations and issued an
additional amount all at 3 percent, the entire transaction
being effected with one of the large life-insurance compan-
ies (F. D. 15055, October 5, 1945). Texas City Terminal
Railway refunded an obligation which carried 4-percent
interest charges, with a 10-year installment note carrying
interest charges of 2% percent (F. D. 15135, December
18, 1945).

Railroads which were in difficulties in the 1930's but
escaped section 77 have already made great strides in the
direction of reorganizing their financial affairs in this
major respect. For example, the Missouri-Kansas-Texas
Railroad Co., one of the companies which, though in straits
during the depression, avoided section 77 proceedings, has
been able to benefit by the changed conditions of the money
market. This company has just effected a 2-year bank loan

App. B, p. 42

at 134-percent interest, with the approval of the ICC, and
is going to use the borrowed funds to retire debt on which
it had been paying much higher interest rates (Missouri-
Kansas-Texas Ry. Co. Bonds, F. D. 9660, decided by ICC
December 27, 1945).

Nickel Plate, according to Mr. Pureell, vice president
and general counsel of Chesapeake & Ohio Railway, was
able to cut the debt and interest charges, since it was not
under section 77 procedure. He said:

The Nickel Plate, having escaped bankruptcy, was
able to devote its funds to retirement of its indebted-
ness, and just as soon as earnings permitted, the
Nickel Plate having somewhere in the neighborhood
of 145 million of bonded indebtedness outstanding, set
about to retire that indebtedness. And when it had
brought the debt down to about $100 million through
the application of excess earnings for the purpose, it
was able to refinance its high interest obligations, and
today it has two series of refunding mortgages out-
standing, one carrying 334 percent and the other 31,
pereent (hearings on S. 1253, p. 81).

Similarly, the Interstate Commerce Commission noted
in a recent report that Alleghany Corp., a holding com-
pany, had made excellent use of the opportunities afforded
by money conditions of recent times. First, it reduced the
interest rate on its indebtedness from 5 percent to 314 per-
cent; early in 1945 it arranged a large bank loan for a
period of a number of years at an interest rate of 214 per-
cent. Each borrowing at progressively lower rates, was
used to retire obligations incurred at higher rates of in-
terest (Chesapeake & Ohio Railway Company Purchase,
261 1. C. C. 239, 247).

Even trustees appointed by the courts to control rail-
roads in section 77 proceedings have participated in re-

(Page 76)

funding arrangements which reduced the interest rates

App. B, p. 43

paid by raidroads. This was done, not for the companies
in their control in section 77 proceedings, but for com-
panies controlled by those railroads. Thus, one company
owned by the Missouri Pacific, the St. Louis Southwestern
and the Rock Island, reduced its interest rate on a bond
issue from 5 percent to 234 percent, in a refunding opera-
tion: in the application to the Interstate Commerce Com-
mission to authorize this refunding, the court-appointed
trustees of the three railroads which jointly own the re-
funding company took part; the Commission was informed
that this refunding was undertaken ‘‘in order to effect a
saving in interest by taking advantage of the present low
interest rates’? (Arkansas & Memphis Railway Bridge &
Terminal Company Bonds, F. D. 14918, July 30, 1945).

In another recent case, a large bond issue (over $40,-
000,000) was refunded, reducing the interest coupon from
4 percent for the bulk of it, and from 33¢ percent for the
remainder, to 2% percent. The company which effected
the refunding is owned by 15 railroads, including 5 which
are in control of court-appointed trustees in section 77
proceedings—Missouri Pacifie, St. Louis Southwestern,
Rock Island, St. Louis-San Francisco, and Alton. The 15
proprietary railroads, 10 through their managements and 5
through court-appointed trustees, participated in the ap-
plication to the Commission, and guaranteed the new bonds;
each guaranteed one-sixteenth of the bond issue, except
the trustees of the Missouri Pacific, who in its behalf
guaranteed two-sixteenths (Terminal Railroad Association
of St. Louis Bonds, ¥. D. 15070, Oct. 26, 1945).

In another case, a railroad company owned by the
New Haven Railroad and the Pennsylvania Railroad re-
funded a bond issue of more than $25,000,000, reducing the
interest coupon from 314 percent to 27% percent; the
trustees of the New Haven, appointed by the court in sec-
tion 77 proceedings, joined the Pennsylvania management
in the ease, and both guaranteed the new bond issue (N. Y.
Connecting Railroad Company Bonds, F. D. 15078, Oct.
26, 1945). In another recent case, the reduction in interest

wal Soa a NO I

App. B, p. 44

rates was effected, without a guaranty by the three pro-
prietary roads, one of them the Missouri Pacific, con-
trolled by court-appointed trustees (J'exas City Terminal
Railway Notes, F. D. 15135, Dec. 18, 1945).

With the significant exception of one group of rail-
roads, the railroad industry has been making greater and
greater use of the opportunity at hand in recent years.
By September 30, 1942, the interest rate on over $1,000,-
000,000 of railroad debt had been cut more than 1 percent
(Annual Report of I. C. C., p. 27). The progress since then
has been large. New bonds issued in refunding operations
at reduced rates of interest are likely to be the subject
of further refundings at still lower rates of interest; bonds
issued in such operations during the latter part of 1945 are
already being prepared for further refunding, and the files
of the Commission now contain official notice that this
program is getting under way.

Every railroad which was in a position to do so has
been benefited by the improved money market conditions.
As the Interstate Commerce Commission reported to Con-
gress in 1943, railroads are alive to the opportunity ‘‘to
reduce the burden of fixed charges’’; the opportunity to
refund bond issues ‘‘at lower rates of interest’’ has already
been taken advantage of by—-

(Page 77)

most railroads in a position to do. It is gratifying to
report that more and more railroads in a position to
do so are voluntarily reducing * * * the burden of
fixed interest charges (annual report for 1945, p. 25).

Which railroads are in a position to make use of this
opportunity, and to give this gratification to all who are
interested in the health of the railroad industry? The
managements of those companies which had the good for-
tune to be free from heavy maturities in initial years or for
other reasons were able to avoid the section 77 procedure
have reduced their interest rates. Many companies which

WET PER AT EN LOR AE

App. B, p. 45

were under section 77 equally possess every facility for
naking use of this boon—except that the section 77 proceed-
ings tied their hands. These latter railroads have big cash
surpluses, they are big earners of profits, they operate in an
era in which other earners have reduced their interest rates
to as low as 3 percent or less. As the chairman of this
committee stated at the hearings on S. 1253, companies
in section 77 proceedings have been prevented from getting
“equality with other railroads”’ which have cut their i-
terest rates (hearings, p. 9). They could have worked out
their own reorganizations with their creditors if their man-
agements had heen free to manage their properties and
their financial affairs. Instead, however, some of their
creditors have enjoyed substantial windfalls by reason of
the inability of the managements to proceed with aggres-
sireness and dispatch in reorganizing their financial affairs
ona business basis, by business methods, and without resort
to the assistance or initial participation of Government
agencies. These creditors have been able to receive much
higher interest rates than have been justified by money
conditions of recent years and the present time.

It is not alone while railroad properties have been
in the control of the trustees under section 77 that the
managements of such companies have been unable to make
use of present-day money conditions. Even when the re-
organization machinery of section 77 is used and companies
are reorganized under that procedure, new bonds are
created in the reorganization process, and there ts an op-
portunity to fix the interest rates of the new bonds at
levels appropriate under present-day money conditions,
this is not done. Earlier in this report reference was made
to the case of one railroad (the Chicago & North Western)
in which some $54,000,000 of reorganization bonds were
issued at an interest rate of 4 percent when 3 percent would
have been far more appropriate. The result was that after
the reorganization was completed, the management of the
company had to go into the market and sustain the con-
siderable expense, which was wholly unnecessary, of re-
funding at a 3-percent rate (ICC table IIT).

PORES EN HOT St ATR IN a UMTS Ra ck ELLIE TPT A AS SMELT ELS PRINS AIF. SE ARTA,

App. B, p. 46

So far as some of the creditors are concerned, the wind-
fall they have been receiving at the expense of the com-
panies that are under section 77 and at the expense of their
stockholders is not deemed the only factor worthy of con-
sideration on their part. The representative of the savings
bank and security owners stated in the hearings on S. 1253:

* * * It seems to me it is better for us to take
what the property can produce temporarily, over a
period, than to go through this drastic reorganization
procedure provided by section 77 (p. 71).

Companies in section 77 proceedings have been at a
disadvantage in reducing their debt, as well as their in-
terest rates. Major companies in section 77 proceedings
have, and for several years have had, abundant funds for

(Page 78)

retiring debt. The Commission has urged all railroads to
use their excess funds for such purposes. The Commission
has indicated that one method is by purchasing of outstand-
ing bonds, on the bond market, at prices often below and
even far below par, with large savings to the railroad
companies (ICC Annual Report to Congress for 1943, p.
29). This opportunity was especially useful for companies
in need of reorganization, since their bonds were particu-
larly depressed in price.

Striking proof of the value of the method urged by the
Interstate Commerce Commission is to be found in the
data it furnished at the request of this committee. Three
important railroads which achieved reorganization under
the mild procedure of the Chandler and McLaughlin Acts
have had marked success in buying their own bonds prior
to maturity, at substantial discounts.

(Page 79)

Our committee asked for similar data with respect to
a number of roads in section 77 and equity-receivership
procedure. For each of the following 11 roads, the Com-

—_ AO NAAR EER SLO NRE TENS

App. B, p. 47

mission’s answer under the heading ‘‘ Amount of bonds
purchased”’ was ‘None.

These roads were in a position to save far more than
were the roads which went through the chapter XV_ pro-
cedure, and the roads which did not go into court or Com-
mission reorganization at all. The bonds of the companies
which were under section 77 or in equity receivership were
selling at far lower prices than the bonds of the other com-
panies; and, in addition, the bonds of the former carried a
number of matured, unpaid interest coupons which would
be included in the price paid; for example, a company not
undergoing court reorganization would buy for $485, as did
the Baltimore & Ohio, simply a $1,000 bond, without any
unpaid, matured coupons attached to it. But a road in
section 77 proceedings would buy, for the purchase price,
not only the $1,000 bond, but also a number of attached
matured, unpaid coupons, which might amount to $250 or
¢500 more. Thus the saving for the roads in section 77 pro-
ceedings and in equity receiverships would be greater than
in the case of the other roads, both because the market
price was lower and because the purchase included ma-
tured, unpaid interest coupons.

In some instances the courts have ordered the use of
surplus cash of railroad companies in their control to
pay off entire bond issues, or to make part payment of
bond issues, at 100 cents on the dollar. The trustees did
not use the surplus cash of the railroads to buy those bonds
in the market at less than 100 cents on the dollar, or to call
for tenders by bondholders. The result was that purchasers
of the bonds at less than 100 cents on the dollar, at a time
when the excess funds of the railroad companies enabled
the trustees themselves to make such purchases at less
than par, were able to turn in their bonds to the trustees
shortly afterward at 100 cents on the dollar. Several ex-
amples will serve to illustrate how the roads lost money
in this way.

ine tte. PAPE IAL I DELON RE PLS TEAR OL DRG 2 It ate TEES IED

App. B, p. 48

In October 1942 the trustees of St. Louis-San Francisco
Railway Co. petitioned the court which had appointed them,
to authorize them to pay in full, at 100 cents on the dollar,
mortgage bond issues on one of the divisions of this road
(the Kansas City, Memphis & Birmingham Railroad Co.
general and income bonds). The court gave the authority
to pay about $6,500,000 of these bonds, and they were paid
in November 1942 (ICC table VI-C-4 (1). Previously, in
1941, the bonds were the subject of trading on the Boston
Stock Exchange at prices ranging, for the general bonds,
from a low of 80 to a high of 874, and for the income
bonds, from a low of 74 to a high of 85. In 1942, to July 1,
the prices were a low of 83 and a high of 88 for the gen-

(Page 80)

eral bonds and a low of 18% to a high of 85 for the in-
come bonds (Moody’s Railroad Manual for 1942). Pur-
chasers who acquired these bonds in 1941 and 1942, when
the railroad had sufficient money to enable the trustees
to buy for it at those prices on the Boston Stock Exchange
and in the bond market outside that exchange, were able in
November 1942 to collect 100 cents on the dollar from the
trustees. Neither the company nor its management had
the power or liberty to use the funds of this railroad to buy
the bonds on the market, and apparently the trustees ap-
pointed by the court did not think they were ina position
to take such action.

(Page 82)

VI-C-5). For each of the years 1941 to 1945, inclusive,
data are presented with respect to bond issues of highest
mortgage rank now outstanding in the amount of $10,000,-
000 or over, and listed on the New York Stock Exchange;
figures were compiled showing the total of trading on that
exchange in each of the issues for each year, and the high
and low prices of each year (undeposited bonds and certifi-

RL TP RN A PENRO BLE WR LOD TONE LEE BIOL LE AAI

App. B, p. 49

cates of deposit for bonds are combined as one). Including
over-the-counter sales, the volume was, of course, far
greater than the figures here given.

(Page 83)

ad ° * * * Face or par
Sr. Lours-SAN FRANCISCO amount sold
Kansas City, Fort Scott & Excess-cash on New
Memphis refunding 4-per- at end York Stock High Low

cent bonds of 1936 of year Exchange price price
it. a Mee) ements & $10,959,727 $5,251,000 49% 32
FOOD... ccncccscapesconscassoenssenavesedensees : 12,952,445 9,717,000 691% 37%
FOES ccs cicnccccsscaissecssesecseseersacnonensess 13,897,429 10,193,000 91 61
FOEE cccinnccasoraccsccesssscccsnsonsssnnsaserse2- 15,454,650 5,291,000 90% 71%
eae CSE! a ea sida 5,412,000 9316 78

The prices at which purchasers bid up these bonds in
1945, and the volume of purchases at such prices, indicate
that the opportunity is no longer available to the companies
to purchase these bonds on the market or by eall for tenders,
with savings of the size available heretofore. It is evident
that investors now regard these bonds as prime invest-
ments: there can be little or no doubt that bonds of this
rank could be floated by the companies in the ordinary fi-
nancial channels. These facts constitute a tribute to the
soundness of the companies; ordinarily, as experts in this
financial field testified in the hearings on S. 1253, the
credit of companies in section 77 proceedings ts impaired,
and the prices of their bonds are considerably below their
true value (pp. 70, 116).

Though the earlier opportunity to purchase bonds of
topmost rank at the large discounts obtainable in prior
years has now been lost, the companies in section 77 pro-
ceedings can still reduce debt and effect substantial sav-
ings in so doing. Their second mortgage and similar bonds
are still selling at less than par, even though the interest
charges on these categories of bonds have been earned for
a number of years—as already noted, the interest charges
were earned two or more times per year, by many of the
major companies, for the past 5 years.

Se Os,

OMT EIS AE

RENIN ONE PM PENT

rss
4
i
é
3
¥
[

App. B, p. 50

Investors will undoubtedly continue to purchase these
bonds in large quantities, and at substantial discounts from
their par or face amount; this is demonstrated by figures
we here cite. The question which remains is whether the
companies will be permitted to avail themselves of this op-
portunity, or will be deprived, as heretofore, of the right
to reduce their indebtedness and to correct their financial
position, by this method.

(Page 85)

Face amount
of bonds sold
Face amount on New York
Fg aL ° of bonds Stock High Low
Sr. Louts-San Francisco outstanding Exchange price price
(1) Prior-lien 4-percent and
5-percent bonds of 1950. $117,448,597 00

ee ecenaneshaneintnsenenmeviien seinnmnentisesinnmn $26,625,000 16% 8%
Sa rteienapibcsiicries. inasntneniintaindnn 45,882,000 25% 10%
eg TN pinetniianiinpeinhinin 69,804,000 41% 18%
ee ecateitctiininnnniemiints enainmmnnanninnannan 64,585,000 54 32%
BaP ictinacnansscienienninnaiins ssnansenmnesnansone 61,489,000 71% 48
(2) Consolidated 4%-per-

cent bonds of 1978 ....... ae winnie wane ade
ey etsicmicindicwiieccnsedansinin: sanbsnnsniinnsannaaiin 33,328,000 16% 9%
Sn eee 46,426,000 23% 11%
1943. 72,809,000 39% 19%
ee icekacneaensensnmnnannininentss <innissinnieinmnentes 58,237,000 40% 2844
So crnsersisinccisateininantntnings sensi 55,936,000 51% 36%

Rarely, if ever, in the history of the railroad industry
has there been so valuable a conjunction of cireumstances—
low prices for buying in a company’s bonds and large
amounts of cash available for such purchases. Rarely, if
ever, has so invaluable an opportunity been lost, as it has
been lost, year after year, to the disadvantage of railroad
companies, helpless in the section 77 strait-jacket which had
been devised for other times and other needs.

The trustees in control of their affairs have not, of
course, had the same incentive as their managements and
owners to use the opportunity so constantly at hand. While
the trustees have listened to the views of interested security

App. B, p. 51

holders, they have given a greater degree of deference to
the spokesmen for bond interests than to the spokesmen for
the companies and thus of the industry.

The same may be said of a comparable method of re-
ducing debt by the expenditure of smaller amounts than the
principal and accrued interest of bonds outstanding—a
public call for tenders. This can be done during chapter
XV proceedings and would be available during S. 1253 pro-
ceedings; it is also available to companies which, like the
Nickel Plate, proceeded without assistance of statutory
aids.

Another method of reducing debt, that of paying prin-
cipal and all unpaid coupons, is available under all the pro-
cedures, statutory and nonstatutory. It has been used
by court-appointed trustees in the section 77 proceedings ;
as noted earlier in this report, the use has been a hesitant
and unduly limited one, with the consequent piling up, for
vears, of additional interest charges on bonds which could
have been, but have not been, retired. This unnecessary
burden on the companies and thus on the railroad industry
was criticized at the hearings on S. 1253 (pp. 9, 13, 75, 103-
104).

(Page 86)

The third obstacle earlier mentioned, the assumption
that companies in section 77 proceedings cannot correct
their affairs, in whole or in part, by using their cash pru-
dently to reduce debt and cut interest rates, should of
course be removed.

In the long run, it will be helpful if the finances of these
companies can be restored promptly under mild procedure,
in accordance with business methods, and on the basis of
present-day money conditions and of the cash surpluses of
the companies.

In order to enable the companies to proceed with the
utmost dispatch in reducing their interest charges and their

4

outstanding debt, it is necessary to unshackle their manage-
ments.

App. B, p. 52

(Page 87)

CHANGES APPROPRIATE IN ADMINISTRATION OF RAILROADS
IN HANDS OF COURTS

(1) One of the most important changes which should
be made is the discharge from trusteeship or receivership of
those companies which are able to pay their overdue inter-
est, without court reorganization of their financial strue-
tures. To this end the courts and their trustees and re-
ceivers should bend their efforts, as would a company not
in the hands of the courts. The advantage would be one
both for bondholders and stockholders. Bondholders who
are now being offered reorganization securities and are be-
ing asked to agree to substantial changes in their contrac-
tual right to receive income on their bonds currently are
entitled to retain those rights, with the exception of the
change in the rate of interest which money conditions and
the money market necessitate.

(Page 88)

(5) The administration of reorganization can range
from the drastic to the mild. Jt can be geared to changed
conditions —and the changes in the affairs of companies
still in the hands of the courts today present a very differ-
ent reorganization problem from that in the 1930’s. In
consequence, the very approach made to that problem in the
years prior to the vast changes in the affairs of the com-
panies during this decade is today outmoded. The com-
panies themselves, by playing a larger and indeed the lead-
ing role, can bring about just results for both creditors and
stockholders. For solving their financial problems, the
companies possess opportunities they did not have until the
last 5 years and today have in greater abundance than at
any time in the abundant 1940's.

The opportunity to bring about reductions in interest
rates is something new in their affairs; it is a substitute for

+

drastic reorganization. The possession of large funds to re-
duce debt, and thus to eliminate interest charges on the debt
retired, and to provide the basis for still further reduction
of the interest rates on the balance of the debt, is of course
of inestimable importance. The reduction in debt and inter-
est charges, the record of high earnings, the easing of fi-
nancial difficulties, the conversion of what seemed in the
1930’s to be a mountainous task into one that is now rela-
tively simple of adjustment between creditors and stock-
holders—all these indicate the desirability of substituting a
business approach for the governmental approach, and the
methods of business adjustment for the methods of fore-
casting. This practical method, in place of the speculative
approach, will result in basic financial reorganizations of
large magnitude.

App. B, p. 53

Just as at the time of the enactment of section 77, so
when the pattern of reorganization method and reorganiza-
tion plan was set in the 1930’s by Government agencies
and security holders, present-day money market conditions,
interest rates, and cash positions of the companies had not
been foreseen. These basic changes require basic changes
in the part Government plays in the recasting of the fi-
nances of the companies, as well as changes in the spirit and
viewpoint of Government authorities when they deal with
this subject.

Above all, means can and should be devised to bridge
the chasm between Commission and courts. The latter,
together with the court-appointed trustees, can, as has
been noted, advance or defeat the use by the companies of
their present unparalleled opportunities to solve their re-
maining financial difficulties. At the same time, in a sep-
arate compartment, the Commission is forced to operate
on reorganization matters, virtually in a vacuum; so long
as the courts and the trustees slow up and virtually defeat
the reorganization which any competent management in
possession of its own properties could effect, the Com-
mission is put in a position where, if it has to prepare re-

App. B, p. 54

organization plans it is dealing with a situation which disre-
gards present-day realities. The courts and their trustees,
on the other hand, take the view that reorganization is not
to be initiated by them, but by the Commission—although
nothing in the statue forbids court or trustee action to al-
leviate and improve the financial affairs of the railroads,
even to the point of enabling solvent railroads to secure dis-
charge from court without any need for the Commission’s
operation of the reorganization machinery created by sec-
tion 77.

(Page 89)

The court-appointed trustees are under the obligation
to conduct the business affairs of the roads in such manner
as to vield the largest income consistent with adequate pro-
vision of transportation service to the public. In the course
of so doing, the cash resources may become sufficient to
enable a company to pay its unpaid interest obligations and
to be discharged from court, without any reorganization
at all, and thus without effectuating any plan prepared by
the Commission under the provisions of section 77.

Similarly, the trustees should so order the affairs of
these roads that they may be reorganized on a business
basis, as fully as if the managements had been in control of
their properties, without the custody of any court or trus-
tee. Even if this did not result in wholly solving the prob-
lem of matured unpaid interest, it should be solved in part,
as fully as possible. The remaining task for the Commis-
sion then becomes a relatively minor and mild one.

In dealing with such matters, the trustees need the
advice of the interested security holders. Their viewpoints
and their interests diverge. The bondholders should re-
ceive payment of overdue interest, with appropriate re-
ductions to conform to money-market conditions; insofar
as payment is not presently made in full, protection for pay-
ment of the balance should be provided—this is the accepted

EEE

App. B, p. 55

and practiced method for solving such problems, as is
shown by the experience in the major cases under the Chan-
dler and McLaughlin Acts. Section 77 is broad enough for
the purpose.

The adoption, in the respects mentioned, of a changed
attitude and a changed approach will give the bondholders
their due. But it will put a stop to the forfeiture of the
stockholders’ rights and will prevent the transfer of their
property rights without compensation to some of the
bondholders, additional to the principal and interest which
constitute the sole rights the bondholders can claim.

These railroad companies whose properties are still
in the hands of the courts and which cannot presently pay
all past interest, and the security holders of such com-
panies, should endeavor to pursue the same methods, to
bring about the same results, which have been successful
in cases not under section 77—methods not requiring the
assumption of a difficult burden which may be doomed to
failure, the burden of estimating the future earnings of the
railroad companies and more specifically the burden of
estimating those earnings in definite number of dollars. In
consequence, it would seem desirable that the caution which
various groups of security holders as well as the Inter-
state Commerce Commission have at times felt to be neces-
sary should be exercised once again in this field; that the
security holders and the governmental agencies involved
should once more stop, look, and observe the new develop-
ments in the finances and the affairs of the railroad in-
dustry and these railroad companies.

(Page 94)

The original enactment of section 77, the enactment of
the 1935 amendment, and the development of reorganiza-
tion procedures thereunder were effected at a time when
present-day money market conditions, interest rates and
cash positions of the companies had not been foreseen. Now
that it is realized that procedures developed under quite

a
App. B, p. 56

different conditions and for other purposes, in the ad-
ministration of a statute enacted when conditions were
wholly different from those of today, actually serve to de-
feat the very purpose Congress and the railroad interests
had in mind, it is essential that changes be made to meet
the needs and the opportunities of the railroads at the
present time.

ROI FEE Ties ET

—

App. C, p. 1

APPENDIX C
UNITED STATES CIRCUIT COURT OF APPEALS

Eientx Circuit

Nos. 13,105; 13,106; 13,107 St. Louis-San Francisco
Railway Matter, Appeals from the District Court of the
U.S. for the Eastern District of Missouri.

Before GARDNER, THOMAS and RIDDICK, Cir-
cuit Judges.

GARDNER, Circuit Judge, delivered the opinion of
the Court.

There are here three appeals, Nos. 13,105, 13,106 and
13,107, all from an order of the District Court approving
a plan or reorganization for the St. Louis-San Francisco
Railway Company. As these appeals raise substantially
the same questions and were consolidated for purpose of
presentation, they will be considered together. The plan
of reorganization reduced the capitalization of the Rail-
way Company from about $480,000,000.00 to about $247,-
000,000.00 The capitalization as so reduced is less than
the secured bonded indebtedness of the Railway Company
by over $110,000,000.00. The plan provides for the issuance
of new securities to go to the holders of the bonds. The
allocation and apportionment of these securities consist-
ing of first mortgage bonds, second mortgage bonds and
stock, among the secured creditors is not here material
because all the holders of the old bonds have accepted the
new plan. The old bonds were all secured by various mort-
gage liens on the property of the Railway Company. Under
the plan there is nothing apportioned to the unsecured
creditors nor to the stockholders.

The appellants are the Railway Company, represent-
ing its stockholders and unsecured creditors, and Lola
Brooks, Administratrix, and John E. Dikis, Administrator,
who are the owners of claims allowed in the proceedings in
the bankruptey court based upon judgments against the

TN IT EERE BF MAS TO CIE LIE NS Bee — o—_
ie

Railway Company on account of damages for personal in-
juries and death resulting from the negligence of the Rail-
way Company prior to the period of receivership and re-
organization proceedings.

App. C, p. 2

The debtor’s predecessor in interest was incorporated
in 1876 and went into reorganization in 1896. It was again
reorganized in 1916 at which time the debtor was organized
to take over the properties. The capital structure of the
debtor was a matter of adverse criticism by the Interstate
Commerce Commission as early as 1923. By 1932 its eredit
became exhausted, its taxes became delinquent and its fi-
nancial stability precarious. On its application for a Re-
construction Finance Corporation loan in 1932, the Com-
mission held that it was over-capitalized, and as a condition
to authorization of a Reconstruction Finance Corporation
loan the Commission required the debtor to agree to sub-
mit a plan for reduction of fixed charges. Such a plan
was proposed but did not become effective and receivers
were appointed November 1, 1932. On May 16, 1933, the
debtor filed its petition under Section 77 of the Bankruptey
Act. The 1932 plan was ultimately held inadequate to meet
debtor’s needs and thereaftei a new plan was proposed
by three bondholders’ committees. This plan, after wide
investigation and careful consideration by the Commission,
was submitted to the Court for its approval and it is from
the order entered November 16, 1944, approving that plan
that these appeals are prosecuted.

The substantial objection to the plan is that the new
capitalization is too low and that it should have been fixed
at an amount high enough to have satisfied all secured
claims and leave some equity to be allocated to the stock-
holders and unsecured creditors.

In the original brief filed on hebalf of the Railway
Company, its stockholders and unsecured creditors, the
questions at issue are stated substantially as follows: (1)
The Interstate Commerce Commission proceeeded on the
assumption that the rights and interests of the unsecured
creditors and the debtor in debtor’s assets were and are

aad PEIN RIESE RRL Re OE

App. C, p. 3

without value, such an assumption or finding being unfair,
inequitable, arbitrary and without support in the evidence ;
(2) that the burden of debt of the debtor as found or as-
sumed by the Commission was determined by the trial
court without correction and without any allocation of the
proceeds derived from the operation of the property dur-
ing reorganization, and such burden is grossly more than
warranted by the evidence or the applicable law; (3) that
if the earnings during reorganization period be properly
applied and the debtor’s earning power properly con-
sidered, there is no reasonable basis for a finding that
claims of unsecured creditors and the interest of the debtor
are without value.

In support of these contentions it is argued (1) that
it was beyond the power of the Commission to fix the total
new capitalization at an amount less than the total claims
of bondholders, and (2) that the total claims of the bond-
holders must be computed without regard to the interest
that has accumulated on their principal during the long
course of reorganization proceedings. In considering these
issues we must have in mind the province of the court as
distinguished from the province of the Interstate Commerce
Commission, as that question has been determined by con-
trolling decisions.

Ordinarily, the underlying necessity for the reorgan-
ization of a railroad company is that it can not support its
existing capitalization. Under the equity practice there was
no authority vested in the court to change or recapitalize
an overburdened railroad company, nor to pare down se-
cured debts without a sale of the security. With the adop-
tion of Section 77 of the Bankruptey Act, however, the
Interstate Commerce Commission was given the initial
power of determining the new capitalization of a reorgan-
ized railroad. The Act made it possible to eliminate the
foreclosure and sale under mortgages against the railway
property, and conferred upon the reorganization court the
power to determine the value of conflicting claims. The
Act also conferred upon the Interstate Commerce Commis-

App. C, p. 4

sion the duty and power of determining the new capitaliza-
tion. In the determination of this important question it is
necessary to ascertain the prospective earning power of
the Railway Company considered as a going concern.
While jurisdiction of the property of the Railway Company
and its management, maintenance and operation during the
process of reorganization is vested in the court, certain
matters were left to the determination of the Interstate
Commerce Commission, and its determination of those
questions if sustained by substantial evidence and not
violative of legal standards, is conclusive on the courts.
Ecker, et al. v. Western Pacific R. Corp., 318 U. S. 448:
Group of Investors v. Chicago, M. St. P. & P. R. Co., 318
U.S. 523.

Manifestly, if the value of the new securities does not
exceed the amount of the secured claims, then neither the
unsecured claims nor the stockholders can benefit by any
change in the apportionment of the new securities. The
general creditors and stockholders are confessedly junior
in all resepets to the claims of the bondholders. Louisville
Trust Co. v. Louisville, N. A. & C. R. Co., 174 U. S. 674:
Northern Pac. Ry. Co. v. Boyd, 228 U.S. 482; Case et al., v.
Los Angeles Lumber Products Co., 308 U. S. 106. In the
final analysis, the controlling if not the only question pre-
sented by these appeals is whether the action of the Com-
mission in determining the capitalization of the Railway
Company as represented by the new securities, approved
by the tral court, should be set aside in order to bring
about some allocation of the new securities to the general
ereditors and stockholders.

The Supreme Court, in Ecker v. Western Pacific R.
Corp., supra, and Group of Investors v. Chicago, M. St. P.
& P. R. Co., supra, has indicated the relative functions to
be performed by the Commission and the reorganizing
court. In the Eckert case it is said:

“These reorganizations require something more
than contests between adversary interests to pro-
duce plans which are fair and in the public interest.

—

a aan Se
App. C, p. 5

When the public interest, as distinguished from pri-
vate, bulks large in the problem, the solution is large-
ly a function of the legislative and administrative
agencies of government with their facilities and experi-
ence in investigating all aspects of the problem and
apprasing the general interest. Congress outlined the
course reorganization is to follow. It established
standards for administration and placed in the hands

of the Commission the primary responsibility for the f
development of a suitable plan. When examined to
learn the purpose of its enactment, Section 77 mani- ;
fests the intention of Congress to place reorganiza- f
tion under the leadership of the Commission, subject i
to a degree of participation by the court. ¢

rf

‘It is clear from the discussions and the statute
itself that there was recognition by everyone of the
advantages of utilizing the facilities of the Commis-
sion for investigation into the many-sided problems of
transportaton service, finance and public interest in-
volved in even minor railroad reorganizations and
utilizing the Commission’s experience in these fields
for the appraisals of values and the development of a
plan or reorganization, fair to the public, creditors and
stockholders. The resulting legislation was an at-
tempted balance between the power of the Commis-
sion and that of the court.’’

Serta

Again the court said:

‘‘The power of the court does not extend to par-
ticipation in all responsibilities of the Commission.
Valuation is a function limited to the Commission,
without the necessity of approval by the court. * * *

“The function of valuation thus left to the Com-
mission is the determination of the worth of the prop-
erty valued, whether stated in dollars, in securities or
otherwise. One of the primary objects of the bill was
the elimination of obstructive litigation on the issue
of valuation to that position as seemed to the drafts-

App. C, p. 6

men legally possible. Judicial reexamination was not
considered desirable. None of the findings required
of the judge under subsection (e) relate specifically
to valuation. Congress apparently intended to leave
the determination of valuation ‘of any property for
any purpose under this section’ to the Commission.’’

Again it is said:

‘‘Another restriction on court action is that the
determination as to whether the plan is ‘compatible
with the public interest’ rests, as valuation does, with
the Commission. * * *

‘“** * Capitalization is an essential factor bearing

on an efficient transportation system for shipper, in-
vestor and consumer, The development of the capi-
talization of the reorganized company which is ent-
trusted solely to the Commission under the require-
iment that the plan be compatible with the public inter-
est is that relating to the total amount of issuable se-
curities and the quality of the securities to be issued.
So long as legal standards are followed, the judgment
of the Commission on such capitalization is final.’’
(Italics supplied)

Again the court said:

*‘Assuming at this point that the Commission’s
valuation is sound and reached by allowable methods,
a matter discussed later in this opinion at page 477,
we hold that the elimination of the claims of stock-
holders and creditors which are valueless from par-
ticipation in the reorganization is in accordance with
valid provisions of Section 77 (e).’’

In Massachusetts Mutual Lfe Ins. Co. v. Securities &
Exchange Commission, 151 F., 2d 424, we said:

‘*Since there is a ‘rational basis’ in fact for the
finding of the Commission and no ‘clear-cut’ error of
law by either Commission or court, we are not in-
clined to disturb the conclusion * * *,’’

AIRTEL NS EIEN PGRN Ales mE. Det sa

App. C, p. 7

To the same effect see: Archer v. Securities & Ex-
change Commission, 8 Cir., 133 F. 2d 795; Board of Trade
v, United States, 314 U. S. 534.

It is clear that the Commission has the power to limit
total capitalization and its finding on the question of re-
organization value is not subject to review. It is urged,
however, that the Commission arbitrarily assume a value,
and complaint is made that the Commission did not, in
words at least, find or fix the value of the property in-
volved. In view of the very extensive investigation by
the Commission of every element or factor having any con-
ceivable bearing on the question of future earning capacity,
including the condition and nature of the physical prop-
erties, the past earnings record and all circumstances
which bear upon the question of future earnings or value,
it can not reasonably be said that the Commission assume
anything.

The Supreme Court, in Group of Investors v. Milwau-
kee R. Co., supra, speaking of the work of the Commission
as reflected by the record in that case, said:

‘It reviewed freight and total revenues, passenger
revenues and their trend, operating revenues and ex-
penses, and maintenance and efficiency of operation
for various periods ending in 1938. It gave considera-
tion to estimated future taxes, emergency freight
charges, and certain wage factors. It reviewed the
amounts of income available for payment of interest
in each of the years from 1921 to 1938. It considered
the original cost of the properties, the cost of repro-
duction now, the cost of reproduction less deprecia-
tion, and the value for rate making purposes—each of
which was substantially in excess of the capitalization
which it authorized.’’

The investigation made by the Commission in the in-
stant case has been as searching and as thorough as that re-
ferred to in the Milwaukee case. Here, as in the Milwaukee
and Western Pacific cases, the Commission based its de-

snepee PERT St

Seer

PAA oath “OR PR

App. C, p. 8

termination as to the capitalization largely upon the earn-
ing capacity of the railroad, and in the Milwaukee case the
court said:

‘Certainly there is no constitutional reason why
earning power may not be utilized as the criterion for
determining value for reorganization purposes.”’

For reorganization purposes the value depends upon
its earning capacity. ‘* * * * the commercial value of prop-
erty consists in the expectation of income from it * * *,”’
Galveston, H. € 8. A. R. Co. v. Texas, 210 U. S. 217. As
said by the Supreme Court in Consolidated Rock Product
Co. v. DuBois, 312 U. 8. 510,

**The criterion of earning capacity is the essential
one if the enterprise is to be freed from the heavy
hand of past errors, miscaleulations or disaster, and
if the allocation of securities among the various ele-
ments is to be fair and equitable.’’

These authorities dispose of appellants’ contention
that the original cost of reproduction should govern re-
organization value. The determination by the Commission
of the aggregate amount of securities that may be issued
is in effect a finding of total value for reorganization pur-
poses. The Commission, as has already been observed, had
before it and considered every element or factor affecting
value, including the evidence as to the original cost of re-
production of the physical properties. It held extended
hearings at various times between July, 1933, and Febru-
ary, 1944, and a perusal of the record makes apposite
what is said by the court below:

“The extent of the record on these questions is
appalling and it is difficult for the court to under-
stand how anyone could contend that the Commission
has omitted to go into every phase of the debtor’s
existence.”’

The trial court, in referring to the work and findings
of the Commission, further said:

App. C, p. 9

‘*The Commission has * * * gone exhaustively into
the history of the debtor corporation, including the
development of its physical and financial structure
and that of its subsidiaries; into the characteristics of
its properties and their condition and improvements;
into the traffic experience, year by vear, by commodi-
ties and revenue tons carried, and by flow of traffic
over various parts of the system, and by the prospect
for the future; into operating revenues for each year
since 1915 by classes and compared by ratios to the
total in the preceding year; into expenses and oper-
ating ratios since 1915, both maintenance and improve-
ment, and into taxation; into the net earnings avail-
able for interest since the debtor has been in exist-
ence; and elaborately into the elements of physical
value.”’

In the appeals of Brooks and Dikis, the same con-
tentions are urged as in the appeal of the debtor, but they
make some further contentions with reference to the Com-
mission’s findings. It is said that the Commission over-
looked certain wnmortgaged assets, namely, the cash on
hand at the time of the receivership, November 1, 1932, and
the cash thereafter collected by the receivers before the
order segregating income for the benefit of bondholders,
and it is urged that they should share in the cash assets on
a parity with bondholders. As compared with the claims
of bondholders, their claims are so small that their share
would be negligible, if indeed not infinitesimal. The Com-
mission found that the mortgage liens covered the entire
system and that the greater part of the cash at least was
subject to the lien of the various mortgages. Each of the
mortgages covers all income. The trustees under the mort-
gages made proper demand for the income, and the court,
by an order entered March 10, 1933, appointing receivers,
directed the trustees to hold the mortgaged property, in-
cluding the rents, issues and profits thereof. The bank-
ruptey court thereafter confirmed and adopted this order.
The lien of the mortgages related back to the inception of
the proceedings and was entitled to preference over the

App. C, p. 10

competing claims of general creditors. In Mortgage Loan
Co. v. Livingston, 45 F. 2d 28, we said:

“So here, the receiver, while not appointed in
a separate suit instituted by the mortgages, was
functioning on behalf of all creditors with due regard
to priorities of claims and liens on the property of the
bankrupt.’’

See, also: In re Wakey, 7 Cir., 50 F. 2d 869; Central
Hanover Bank & Tr. Co. v. Philadelphia & Reading Goal
& Tron Co., 3 Cir., 99 F. 2d 642.

Any equitable interest which Brooks and Dikis may
assert in the mortgaged property is subject to the payment
of the bonds, as the existence of a junior lien does not un-
settle the rights of the senior claimants. Louisville Tr. Co.
v. Louisville, N. A. & C. R. Co., supra; Case et al v. Los
Angeles Lumber Products Co., supra.

It is also urged by Brooks and Dikis that they were
in fact not general creditors, but entitled to some pref-
erential treatment. True, they may have liens in the states
in which their judgments were entered but these liens are
subject to pre-existing liens and certainly junior to the lien
of the bondholders. It is also urged that they were entitled
to priority of payment under the equity rule allowing pri-
ority to those who furnish material for the operation of a
railroad within a limited time before receivership. Pro-
ceedings to determine that question seem to be pending
and we do not believe a plan of reorganization should
embody an adjudication or classification of individual
claims, and we express no opinion on the question.

Again, it is urged that there are current assets of
the value of $50,000,000.00 which should be available to pay
debts. From the current assets on hand the court ordered
payment of the 1945 interest, and manifestly, the Railway
Company as a going concern can not, even for the purpose
of paying creditors, be left stranded for want of operating
funds. These so-called funds on hand belonged to the Rail-
way Company and while they may tend to enhance some-

App. C, p. 11

what the value of the new stock and bonds, these stocks and
bonds are held by those who have preferred claims and if
the funds could be taken from the company for the purpose
of paying debts they should be applied upon the remaining
unsatisfied preferred claims of the bondholders, so that
no possible benefit could inure to the stockholders or un-
secured creditors. The finding of the Commission as to the
amount due on the preferred claims is challenged and it is
argued that the bondholders were not entitled to interest
from the time of the initiation of the reorganization pro-
ceedings. The argument, however, overlooks the fact that
the property in reorganization was all subject to the mort-
gage liens and these mortgages cover not only the pay-
ment of the principal but also the payment of interest.
Interest on secured claims to the effective date of the
plan is entitled to the same priority as the principal. Con-
solidated Rock Products Co, v. DuBois, supra; Ecker v.
Western Pacific R. Corp., supra; Case v. Los Angeles Lum-
ber Products Co., supra; Louisville Joint Stock Land Bank
v. Radford, 295 U. S. 555; American Iron & Steel Mfg.
Co. v. Seaboard Air Line Railway, 233 U. 8. 261; Group of
Investors v. Milwaukee R. Co., supra. The time as of which
the claims of creditors should be computed was fixed as
January 1, 1944. From that time the interest on the se-
curities will be the new rate, but up to that time it will be
computed on the old securities at the contract rate. This
determination, we think, is reasonable and equitable and
violative of no legal principle.

In a reply brief filed by the debtor subsequent to
oral argument on leave of court, it is suggested that the
decision of this ease be held until it is determined whether
there will be an order of confirmation brought to this court
on appeal, and that such an appeal should be considered
before we decide the issues in the present appeal. We can
see no justification for further delay. We need not here an-
ticipate what questions for review might be presented on
such an appeal further than to observe that Section 77 pro-
vides that when a plan is approved by the Commsision and

App. C, p. 12

the District Court, it shall then be submitted to the se-
curity holders whose interests are of value and are affected
by the plan, and after vote by them it shall come again to
the District Court to be confirmed. If the plan is accepted
by more than two-thirds of those voting in each class to
which submission is required, then the District Court, we
think, will not again consider the merits of the plan. If
the plan has been accepted and the acceptance has been
properly obtained it will then be confirmed. In the instant
case, the plan has already been accepted by more than
two-thirds of those voting in each class to which the sub-
mission was required. Certainly, in those circumstances
there should be no further delay in this proceeding which
has already been pending for more than twelve years.

As the order appealed form is sustained by substantial
evidence and the Commission in reaching its determination
has applied proper standards as declared by controlling de-
cisions of the Supreme Court, it is affirmed.

App. D, p. 1
APPENDIX D
Remarks of Judge Evans of the Seventh Circuit in Rock
Island Reorganization, No. 8930.

JUDGE EVANS: One point which gives me some
anxiety is that in the Supreme Court it was said valuation
was a matter of income, in the St. Paul case didn’t think
that the question of valuation was to be determined by an
appraisal of the property, but by the income.

MR. BROWN: Yes, your Honor.

JUDGE EVANS: That income has changed so radi-
cally from the time that valuation was first fixed that it is
hard to assume that the valuation was correct.

MR. BROWN: Yes, that is perfectly true. But, in the
Milwaukee decision there was some war earnings. But, no
one contends that the Rock Island earnings of the last
three or four years are going to be earnings on which a
permanent plan should be based.

JUDGE EVANS: That might be, but it did show, ap-
parently, and lots of people have rather indicated that
they believe that increased or swollen income will be, in
part, carried on through because of what has taken place
in railroad management, in equipment, and so forth, dur-
ing the last ten years; in other words, valuation based upon
income. While railroad income during the war would be
greater than in peace, probably, that income will be larger
than the amount upon which the original valuation was
based.

MR. BROWN: I don’t think there is anything in the
record in this ease, I am sure there is nothing in the
record in this ease, hearing this appeal on its full merits
and full record upon which this Court could determine
whether the Rock Island ea

[Text truncated at 120,000 characters. The full text is on the page linked above.]

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386416_0624%3A2. Public record. Not legal advice.