# Opposition Brief — Philadelphia Co. v. Guggenheim > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386416_0717%3A06 ## Record - **Collection:** Supreme Court brief - **Document type:** Opposition Brief - **Published:** January 1, 1946 - **Citation:** 329 U.S. 731 ## Text SRPPESTES Pee he LE COPY IN THE Supreme Court of the United Ocrosper TERM 1946 s > IN THE MATTER OF PITTSBURGH RAILWAYS COMPANY, Debtor. No. 359 PHILADELPHIA COMPANY, Petitioner, ves. JULES GUGGENHEIM, et al. No. 360 PHILADELPHIA COMPANY, Petitioner, vs. CITY OF PITTSBURGH. No. 361 PHILADELPHIA COMPANY, Petitioner, vs. HORACB BAKER and JOHN A. BEATTIE, Protection Committee for the Southern Traction Company 50 year First Mortgage and Collat- eral Trust 5% Gold Bonds. No. 362 MONONGAHELA STREET RAILWAY COMPANY and PITTSBURGH AND BIRMINGHAM TRACTION COMPANY, Petitioners, vs. JULES GUGGENHEIM, et al. No. 363 MONONGAHELA STREET RAILWAY COMPANY and PITTSBURGH AND BIRMINGHAM TRACTION COMPANY, Petitioners, ve. CITY OF PITTSBURGH. No. 364 MONONGAHELA STREET RAILWAY COMPANY and PITTSBURGH AND BIRMINGHAM TRACTION COMPANY, Petitioners, vs. HORACE F. BAKER and JOHN A. BEATTIB, Protective Committee, etc. BRIEF IN OPPOSITION TO PETITION FOR CERTIORARI ee emeamienatelt aanemenneal \ JOSEPH NEMEROV, 135 Broadway, New York 6, N. Y., CHARLES B. PRICHARD, Grant Building, Pittsburgh 19, Pa., Attorneys for Jules Guggenheim, et al. MAURICE J. DIX, AARON SCHWARTZ, Of the New York Bar Of Counsel. TABLE OF CONTENTS MeN no i ccnccccewscbes se eeeweheeunseuanseus Tin, TRRINED oc. nk own ccccecdccasseeeneseenasues Pen onc iccccccccccnccccccccccscesececceses Question Presented ..........ccccccccccccccccuecs The FAM oc nnnccnnsaseccccccccsccescescucncans The realistic decision of the Circuit Court was plainly correct. The underliers’ juridical con- ception was properly sacrificed for the reason that only thus can we overcome a perversion of the privilege to do business in the corporate form. Unity of life of debtor and of all under- liers effected an equitable merger and an equi- table consolidation in the common undertak- ing for a unified system of transportation. The Circuit Court has not departed from the accepted and usual course in holding that the District Court has jurisdiction of, and a Reor- ganization Plan may treat with, all under- lier property, franchises and creditors (stock- holders) thereof, without the filing or approv- ing of separate reorganization petitions by or UTES WI nnn cdi ccnncccuccencnncs II. There is no conflict of decisions on the point DD TR hn Wak ee 6k hckeewaeeeseccntaounan III. The questions presented by petitioner are not of sufficient importance to require review by GED ND. Akh os ccnncccecenudacaeeenscaas Conclusion Aa 2 0 » 1l ii Cases Cited: Berkey v. Third Ave. Ry. Co., 244 N. Y. 84 at 85; re- argument at 244 N. Y. 602 .............. waebanen 13, 15 Anderson v. Abbott, 312 U. S. 349 .......... 13, 15, 19, 22 Centmont v. Marsch, 1 Cir., 68 Fed. (2) 460 ........ 13 Davis v. Alexander, 269 U. S. 114, 70 L. ed. 186 .... 15 Southern Pacific vy. Lowe, 247 U. S. 330, 62 L. ed. Cee C CU Esee hehe akGeb ne boas ah OES hECE SWE 15, 18 U. S. v. Reading Co., 253 U. S. 26, 64 L. ed. 760 .... 15 Chicago, ete. v. Minn. Civic, 247 U. S. 490, 62 L. ed. ETT TES TORTIE CLIC CET OCTCTETE TTC T TC 15, 16 NORE RA SINS cats, SRS an a 15, 16 U. S. v. Delaware L. & W. R. Co., 238 U.S. 516 .... 15 Linn & Lane v. U. S., 236 U. 8S. 574;59 Lied. 725... 15, 16 U. 8. v. Lehigh Valley, 220 U. S. 257, 55 L. ed. 458 .. 15 Southern Pac. v. I. C. C., 219 U. 8S. 498, 55 L. ed. 310... 15, 16 McCaskill v. U. 8., 216 U. 8S. 504, 54 L. ed. 590 .... 15 Lehigh Valley Railroad vy. Delachesa, 2 Cir. 145, Fed. iii PAGE New York Trust Co. v. Carpenter, 6 Cir. 20 Fed. G88, GTB occ cece cece e cere eee eeeneees TT TTT 15 Mills v. Central R. R., 41 N. J. Equity 1 ......-+++-- 19 The St. Paul M. M. Ry. v. Western Union, 8 Cir. 118 Sad, BBE ccccccrncccesscesansvansce adveadoune 19 Black y. St. Louis S. F. R. Co., 118 Mo. App. 198; BEB. We. OB onc ccccncccccccccsccnccccccvcccnes 19 Helvering v. Metropolitan Edison, 306 U. S. 522 .... 19 U. 8. v. Milwaukee R. T. Co., 142 Fed. 247 ......-. 20 Wabash Ry. v. American Refrigerator Transit (C. C. A. 8) 7 Fed. (2) 385 20... eee cece eee eee eee eee 20 Westinghouse y. Allis Chalmers, 176 Fed. 362, 367... 19 Minnesota Mutual vy. McGirr, 8 Cir. 263 Fed. 847 .... 19 Second Ave. Co. v. United Traction Co.—Appeal of Pittsburgh Railways, 328 Pa. 257; 195 Atl. 25 .... 21 Monongahela Street Railway Co. v. Philadelphia Com- pany and Consolidated Traction Co., 350 Pa. 603 ; 39 Atl. (2) 902 ...... cece rece cece ee eeeeees 19, 21 Continental Ill. Nat. Bank & Trust Co. vy. Chicago R. B., 204 U. 8. GAS 20... cece ewww cree eceee 22 Northern Securities v. U. S., 193 U. S. 197, 326; 48 L. edd. G79, COG 2... cece cee ec cee n cece cc enes 16 Luckenbach v. Grace, 4 Cir. 267 Fed. 676 .......... 16 iv Palmer v. Massachusetts, 308 U. 8S. 79 ........... y Wright v. Union Central, 311 U. 8. 273 ...... Acuna Weiser v. Mursam, 2 Cir. 127 Fed. (2) 344 ........ Darling v. Young, 8 Cir. 121 Fed. (2) 112 .......... Trustees System v. Payne, 3 Cir., 65 Fed. (2) 108 ... Stone v. Eacho, 4 Cir. 127 Fed. (2) 284 ........ es Simon v. Chambers, 5 Cir. 86 Fed. (2) 569 ........ Commerce Trust v. Woodbury, 8 Cir. 77 Fed. (2) 478 cert. denied 296 U. S. 614; 80 L. ed. 485 ...... Nelson v. Guaranty Trust, 9-Cir. 60 Fed. (2) 463 .. Central v. Caldwell, 8 Cir. 58 Fed. (2) 721 ........ In re Eiler’s Music House, 9 Cir! 270 Fed. 915, cert. Se Oe Ge hen wc cede cnn cussesieeens In re Riegers, Kapner & Altmark, 157 Fed. 609 .... In re Muncie Pulp Co., 2 Cir. 139 Fed. 546 cert. denied, sub non Great Western vy. Oppenheimer, ee Goa ee ES OA ls EE nc ccc an ewdbovensdvas Allen v. Philadelphia, 3 Cir. 265 Fed. 817 ....../. Cock v. Bailey, 146 Pa. 328: 23 Atl. 370 .....4.... Corn Exchange y. Klander, 129 Fed. (2) 894 ...... IN THE Supreme Court of the United States OcrToBER TERM 1946 = — IN THE MATTER OF PITTSBURGH RAILWAYS COMPANY, Debtor. No. 359 PHILADELPHIA COMPANY, Petitioner, v8. JULES GUGGENHEIM, et al. No. 360 PHILADELPHIA COMPANY, Petitioner, v8. CITY OF PITTSBURGH. No. 361 PHILADELPHIA COMPANY, Petitioner, vs. HORACE BAKER and JOHN A. BEATTIE, Protection Committee for the Southern Traction Company 50 year First Mortgage and Collat- eral Trust 5% Gold Bonds. No. 362 MONONGAHELA STREET RAILWAY COMPANY and PITTSBURGH AND BIRMINGHAM TRACTION COMPANY, Petitioners, v8. JULES GUGGENHEIM, et al. No. 363 we MONONGAHELA STREET RAILWAY COMPANY and PITTSBURGH AND BIRMINGHAM TRACTION COMPANY, Petitioners, vs. CITY OF PITTSBURGH. No. 364 MONONGAHELA STREET RAILWAY COMPANY and PITTSBURGH AND BIRMINGHAM TRACTION COMPANY, Petitioners, vs. HORACE F. BAKER and JOHN A. BEATTIE, Protective Committee, etc. a > BRIEF IN OPPOSITION TO PETITION FOR CERTIORARI Statement. In this bankruptcy reorganization pending since 1938, the petitions for certiorari are directed against a decision of the Circuit Court. which. acting on a petition of the City 2 Statement. of Pittsburgh, Pa., filed in the District Court in 1942, pierced the conpernti veil of the various corporate units or divisions of the system of transportation in Pittsburgh, Pa., unified for approximately half a century. The petitioners contend that separate reorganization petitions (25 in num- ber) should be filed by or against each underlier, which peti- tioners refuse to do, although that is within their power, The petitioners are: Philadelphia Company, parent of debtor and of 36 divisions, called the 36 Philadelphia under- liers; Monongahela, in which Philadelphia has a 24.7% in- terest stock, and Pittsburgh & Birmingham, with their sub. sidiaries. They are joined by Suburban, by Pittsburgh In- cline and by South Side Passenger. Together they are called the guaranteed underliers, 9 in number. The District Court said that “The system should be re- organized as a unit if it can legally be done”, acknowledged that the “general purpose of the (City’s) petition was to facilitate reorganization” and then dismissed the City’s petition as recommended by the Special Master. The Dis- trict Court’s opinion is reported at 60 Fed. Supp. 600. Three separate appeals were taken to the Circuit Court: No. 8964: Jules Guggenheim, et al. on behalf of our- selves and all similarly situated Public Secu- rity holders of debtor and of underliers, No. 8967. City of Pittsburgh. No. 8996. Horace F. Baker, et al., Debtor's Bondholder Committee. The three appeals were heard together. The Circuit Cou:t unanimously reversed; its opinion is reported at 155 Fed. (2) 477. No petition for rehearing was filed below. W. D. George, a trustee of the debtor, petitioned the Cir- cuit Court for clarification of its opinion. That petition, 3 Statement. restating arguments in the Circuit Court made by the peti- tioners and to this court was denied by the Cireuit Court. The Transcript of Record accompanying the instant peti- tions does not contain our opposition to the petition for clarification in the Circuit Court. The Circuit Court said (155 Fed. (2) 480, 482): “A]l the various corporate units or divisions, by what- ever name they are designated, are welded to the oper- ating company, Pittsburgh Railways (the debtor) * * *” “The community need for the operation of this public transportation system as an integrated unit is clear” (p. 480). “Ags we see the question, the issue is whether the demand of the facts is to control or whether obeisance must be made to the doctrine of separate corporate entities of these concerns, which from the business point of view, constitute one operation and one enterprise” (p. 482). “Since 1938 this system has been in the federal court and operated under trustees appointed by the court. This state of affairs cannot continue indefinitely and be utilized as a means of integration of a transporta- tion system” (p. 480). This, is but another chapter in the long history of vicissi- tudes of this unified transportation system. This is the second time, the debtor, with consent of its par- ent, Philadelphia, invoked the shelter of the District Court for the Western District of Pennsylvania. An episode of this chapter, over six years old, is presented by this controversy begun in 1942 by the City’s petition. Sa BAe cae mon eat Pu SO i 4 The Underliers. 1913: The Master’s finding 391-416 treat with the man- ner in which the instant parent petitioner, Vhiladelphia Company, adjusted the deficit of debtor and underliers. New securities were created, some of which came into the hands of the investing public. 1918-1928: A consent equity receivership of debtor was instituted and withdrawn by Philadelphia Company (ff. 453-46) .(@) Equity Receiver Fagan opposed lifting the re. ceivership which had not effected any reorganization or any adjustment of the financial difficulties (f. 470) (R. 718). The other equity receiver did not oppose Philadelphia Com- pany’s application to terminate the receivership (f. 470) (R. 718). He was George, the debtor's present trustee (f. 470) (R. 718). 1938- ?: On May 10, 1938, debtor filed a voluntary petition for reorganization under Section 77B of the Bank- ruptcy Act (f. 1) (R. 613). On November 7, 1938, the Chandler Act was made applicable. The Underliers. Philadelphia Company's classification of the underliers is misleading (Phiadelphia petition, pp. 7-8). The under- liers were not so classified by the Circuit Court (155 Fed. (2) 479-480). Some of these 49 underliers are linked to the debtor by operating agreements that have been in effect since 1902. Others are tied by long term lease agreements (155 Fed. (2) 480). 36 Philadelphia underliers are directly or indirectly con- trolled by the common parent, Philadelphia (Company, (a) (“t” or “ff” followed by a numeral indicates the Master’s finding having that number.) 5 _ Pleadings. through stock majorities at various levels and interlocking directorates of various degrees (155 Fed. (2) 480). 9 guaranteed underliers transferred their property and franchises to the Philadelphia underliers in 1902 under 900 year lease device in consideration of the guarantee of such leases by Philadelphia Company. The stock of these 9 guaranteed underliers is publicly controlled. Since the reorganization Philadelphia Company infiltration has oc- curred in Monongahela, Philadelphia Company owns 24.7% of the petitioner guaranteed underlier Monongahela and 6.6% of the petitioner guaranteed underlier Suburban. 4 underliers transferred their property and franchises in 1896 to one of Philadelphia underliers under 950 year lease device without any guaranty thereof. These 4 are called unguaranteed underliers. The facts lay bare, that, the issue is not one of jurisdic- tion, but a contest between classes of creditors. Pleadings. The Trustee Reorganization Plan was systemwide. It provides that petitions for reorganization would be filed, not by all of the underlier companies but only by 25 com- panies (R. 614). Philadelphia underliers answer to a rule obtained by Trustees, on the underliers and indenture trustees why each underlier should not file a separate petition (f. 484) (R. 617), provided by Philadelphia Company, stated the condi- tions under which the Philadelphia underliers would go along. The “third condition” related to the guaranteed un- derliers and required assurances satisfactory to Philadelphia Company preserving any defenses it might assert in mitiga- 6 / Pleadings. tion of its annual liability of $516,422., exclusive of taxes under Philadelphia Company’s guarantee (ff. 29, 32, 33, 489) (R. 618, 619, 725). Subsequently in October, 1942, The City of Pittsburgh petitioned the District Court to exercise jurisdiction in bankruptcy reorganization over all underliers of the debtor —‘“to determine the rights and interests of all stockholders and as creditors thereof” (155 Fed. (2) 479). The guaranteed underliers moved to dismiss the City’s petition. Each separately stated that each (City Appendix pp. 92-98a incl.) : “makes no claim in the proceedings on account of dismantling, destroying, abandoning or wearing out by use of trackage power and transmission equipment, car barns or street cars * * * “Philadelphia Company is a strong corporation finan- cially and amply able to assume and perform its liability under said guarante®” “ The unguaranteed underliers conditionally joined in the prayers of the City’s petition. The conditions were that hearings be held for consideration of objections and amend- ments to the Reorganization Plan and to determine the relative substantation rights, priorities, liens, claims and interests of all creditors and stockholders of debtors and of underliers (ff. 891, 1018, 1078) (R. 804, 812, 832). No such hearings were held. Subsequently we instituted and have pending in the District Court, a proceeding to eliminate Philadelphia Company participation in the benefits of Re- organization Plan or to subordinate Philadelphia Company’s asserted claims to the claim of Public Security holders (63 7 Question Presented. Fed. Supp. 7; 64 Fed. 231). If we are successful and the underlier separate corporate form is dishonored, every pub- lic security holder of debtor and of all underliers will be paid in full. The result would be full payment for the pub- licly held guaranteed underlier stock instead of being wiped out under the Trustees’ Reorganization Plan. Separate petitions for each underlier is impossible with- out Philadelphia Company’s consent (see its answer to Trustee’s petition page 5 supra). If, similarly, statutory consolidation or statutory merger or any further conveyance or execution of any document were required from any of the underliers that, likewise, would be impossible without consent of the Philadelphia Company which obviously cannot be had. No hearings have been held on the reorganization plan. It has not been submitted to security holders. Question Presented. Shall the demand of the facts control or must obeisance be made to the doctrine of the separate corporate entities of concerns which constitute one operation and one enterprise. The Facts. In 1902, the petitioner Philadelphia Company, brought about the unification of debtor and underliers (ff. 89, 95, 98, 100) (R. 639, 640) and welded them into one system in such fashion that a single route or a single passenger ride may involve the use of a number of the underlying companies’ properties. Ascertainment of a proper apportionment of 8 The Facts. the receipts of the system as a whole to the respective con- tributions of the underlying companies’ properties is ob- viously almost an impossible task. The unified transportation system functioned through a series of departments, all operated from one headquarters, The general departments which have been in existence for a great number of years, operate under the supervision of common general executives for debtor and all underliers (ff. 214) (R. 667). These general or joint departments in- clude the Secretary’s office, the Treasurer's office, the Ac- counting Department, the Adjustment Department, General Purchasing Agent, Director or Personnel and Advertising managers. The heads of these departments and certain of their employees are joint employees, in that they do not de- vote their time exclusively to the services of any one under- lier or even one of Philadelphia Company's numerous en- terprises (ff. 17, 214) (R. 667). Four primary functions of the operating departments are on a system basis (ff. 221) (R. 669). Before the commence- ment of this reorganization, the Trustee Fitzgerald, formerly of the Philadelphia Company, was General Manager of this system. Under him were many departments and divisions, including those which have charge of routes, schedules and fares, operation of transportation, maintenance and _re- newals; accounting for revenues and expenses; all these functions have been performed on a system-wide basis in about the same manner since 1902 (ff. 221) (R. 669). The Directors of Traffic Promotion in the Commercial Department has to do with the quantity and quality of services furnished, questions of routing and fare rates, ex- tensions and alterations of service and such matters as the location of car stops and the erection of shelters. The heads 9 The Facts. and staffs of the various divisions of the Commercial De- partment are not concerned with and do not know of the lines of demarcation between the underliers. In routing or scheduling or fixing fare zones, no weight is given to the original franchise locations of the underliers (ff. 222) (R. 669). The group of men in charge of car house operations receive the schedules from the Traffic Promotion Division, assign men and cars to the routes on the schedule so prepared and send out the cars manned and ready for operation (ff. 229) (R. 669). Once these cars leave the barns, they are under the control of the superintendent of road operations (ff. 230) (R. 670). The Chief Traffic Despatcher has charge of the entire oper- ation of cars (ff. 237) (R. 671). Maintenance and renewal of physical property of the System, consisting of overhead lines, cars, buildings, bridges and structures and under the charge of the Maintenance and Construction Departments which have 903 employees, exclusive of four supervisors, the General Superintendent and the head of three divisions (ff. 240) (R. 672). There is just one shop in existence since 1902. It is at Homewood. It is here that the cars are inspected and repaired. The others were closed (ff. 242, 248, 244) (R. 672, 673). “The employees who maintain the property have no knowledge of the underlier groups and franchises, * sailed (244). “In general, in performing any of the functions of maintenance and operation of the system, the manage- ment pays no attention to the underlying companies, except in maintaining records of replacements, renewals and retirements” (ff. 248) (R. 674). 10 The Facts. Fares are co-mingled. The Treasury Department * * * > counts the amount of cash and tokens so received and reports such amounts by car houses to the anditors of receipts in the Accounting Departments, another such general depart- ment” (ff. 251). The Auditor of Receipts allocates to each route a portion of the cash and total fares collected at the car barn. “Thus, if one car house served ten routes and each route had collected 1/10 the total number of fares (regardless of what percentage was actually cash or in tokens), then each route would receive, on allocation, 10% of the total actual collections in the car house” (ff. 251) (R. 674). “For general accounting purposes, however, all receipts from passenger revenues are lumped as one item * * *” (ff. 253) (R. 674). “All expenditures are also accounted for on a system wide basis except certain capital expenditures for under- liers * * *” (ff. 254) (R. 674). “The method of accounting does not reflect separately the revenues or expenses of the underlying companies other than inclines. No accounting whatever is maintained of the receipts of the use or facility of any individual underlier than the inclines or of the expenses with respect to the sum of such facilities” (ff. 255) (R. 675). 11 SUMMARY OF ARGUMENT I. The realistic decision of the Circuit Court was plainly correct. The underliers’ juridical conception was prop- erly sacrificed for the reason that only thus can we overcome a perversion of the privilege to do business in the corporate form. Unity of life of debtor and of all underliers effected an equitable merger and an equitable consolidation in the common undertaking for a unified system of transportation. The Circuit Court has not departed from the accepted and usual course in holding that the District Court has jurisdiction of, and a Reorganization Plan may treat with, all underlier property, franchises and creditors (stockholders) there- of, without the filing or approving of separate reorgani- zation petitions by or against underlier. Il. There is no conflict of decisions on the point in issue. Ill. The questions presented by petitioner are not of suf- ficient importance to require review by this Court. Argument. I. The realistic decision of the Circuit Court was plainly correct. The underliers’ juridical conception was prop- erly sacrificed for the reason that only thus can we overcome a pervision of the privilege to do business in —— 12 Argument. the corporate form. Unity of life of debtor and of all underliers effected an equitable merger and an equita- ble consolidation in the common undertaking for a unified system of transportation. The Circuit Court has not departed from the accepted and usual course in holding that the District Court has jurisdiction of, and a Reorganization Plan may treat with, all underlier prop- erty, franchises and creditors (stockholders) thereof, without the filing or approving of separate reorganiza- tion petitions by or against underlier. A Reorganization Court is the one in which an enterprise may be brought with a view of having its difficulties ironed out. In order to expedite reorganization, the Bankruptcy Act’s broad and general provisions suffice to confer upon the District Court power appropriate to adjust property rights in a debtor's estate to prevent a breaking up of an estab- lished enterprise. One trolley ride covers many different franchise segments belonging to ten underliers. Other routes use the franchises of thirteen different underliers. The petitioners’ contention is as unreal as that of the drayman’s team with each horse insisting he is separately incorporated and is working under a written operating agreement to pull the leased truck. Petitioner Philadelphia is blowing hot and cold. If the juridical conception of its 36 underliers is to be preserved, each of these 36 underliers should have been an appellee below and a petitioner here. Their battle is being waged by Philadelphia in its name and not in theirs. Thus. Phila- delphia and its underliers acquiesce in the disregard of the separate form of the 36 Philadelphia underliers. 13 Argument. In their motions to dismiss the City’s petition, the guaran- teed underliers petitioners Monongahela (in which Phila- delphia has stock interest) and Pittsburgh & Birmingham acknowledged inability to repossess property contributed to the common undertaking for a unified system of transporta- tion, and state they rely on the outstanding guarantee of Philadelphia Company (p. 6 supra). They do no business except that connected with the receiving of money derived from their connection with the unified system of transporta- tion and the paying out of it to security holders. In the Circuit Court the guaranteed underlier says: “The Debtor has been engaged in the business of operat- ing street railway properties. Monongahela and Bir- mingham have not been engaged in that business since 1902” (Monongahela brief, p. 70). With formal logic, they say, they do all the realistic acts which a careful lawyer would advise a corporation to main- tain its appearance of corporate individuality. Therefore, they conclude, that the separate corporate form must be honored. A difficulty with that conclusion is that “at times unity is ascribed to parts which at least for many purposes retain an independent life, for only thus can we overcome a perversion of the privileges to do business in the corporate form.” Cardozo, J., in Berkey v. Third Ave. Ry. Co., 244 N. Y. 84 at 85; reargument at 244 N. Y. 602. -inderson Vv. Abbott, 312 U. 8. 349 and Centmont vy. Marsch, 1 Cir., 68 Fed. (2) 460 pierced the corporate veil after the separate form had been honored in a former controversy. In the Ber- key case, Judge Cardozo pointed out that the New York Pub- lie Service Commission Law at Section 54 does not allow one carrier to use the franchise of another. The Pennsyl- 14 , Argument, vania statute is otherwise. The authority contained in the Pennsylvania Traction Act upon which petitioner relies does not require recognition of the form and disregard of the facts. The Pennsylvania statute is not an insulator. The evidence, at bar, is clear that, except for outstanding Philadelphia guarantee (1) there has been a welding, as- similation, merger of the properties of the debtor and of underliers in a single enterprise. (2) The day to day business of debtor and of each underlier was not kept sepa- rate. (3) No formal barriers were maintained between the debtor and each underlier. (4) Individuals functioned in- discriminately for debtor and for all underliers. (5) Debtor and all underliers were represented at and since 1902 func- tioned as a single business enterprise with unity of life. (6) Each of the underliers surrendered its rights under its franchise to operate independent lines of transportation. (7) Each corporation in the common undertaking became an agent or instrumentality of the other to the debtor’s unified system of transportation. The Master’s fact findings establish : (a) complete unity of life of debtor and underliers for forty-three years—almost half a century; (b) that the identity of the underliers was obliterated in 1902, since which time there has been this unified system of transportation of debtor and of underliers; (c) that when remitted to the tests of honesty and just- ice, it is inequitable to disregard the substance and to honor the separate form ; (d) that sacrifice of the separate underliers’ form is es- sential to defend and uphold the public interest and public policy ; 15 Argument, (e) that control over all underliers was so complete, in- terference so obstructive that by the general rules of agency, each corporation in the system was an agent of the other in furtherance of the common enterprise—the unified system of transportation. In the light of these facts the Courts will not permit them- selves to be blinded or deceived by mere form. Anderson v. Abbott, 321 U. S. 349, 88 L. ed. 793; Davis vy. Alexander, 269 U. 8. 114, 70 L. ed. 186; Southern Pacific v. Lowe, 247 U. S. 330, 62 L. ed. 1142; U. 8. v. Reading Co., 253 U. S. 26, 64 L. ed. 760; Chicago, etc. v. Minn. Civic, 247 U. 8. 490, 62 L. ed. 1229 ; Chicago, etc. v. Des Moines, 254 U. 8. 196, 65 L. ed. 219; U. S. v. Delaware L. & W. R. Co., 238 U. 8. 516; Linn & Lane v. U. S., 236 U. 8. 574; 59 L. ed. 725; U. &. v. Lehigh Valley, 220 U. S. 257, 55 L. ed. 458 ; Southern Pac. vy. I. C. C., 219 U. 8S. 498, 55 L. ed. 310; McCaskill vy. U. S., 216 U. 8. 504, 54 L. ed. 590; Lehigh Valley Railroad vy. Delachesa, 2 Cir. 145, Fed. 617; Lehigh v. duPont, 2 Cir. 128 Fed. 840. The benefits of separate corporate existence may be de- stroved in the absence of any stock ownership, upon appli- cation of the rules of ageney (New York Trust Co. v. Car- penter, 6 Cir. 250 Fed. 688, 673: Berkey Vv. Third Avenue, 244 N. Y. 84, 95). Monongahela and Pittsburgh and Bir- mingham stress the time of their incorporation (p. 19). 16 Argument. Prior incorporation is not an insulator in a group of corporations engaged in a common undertaking. (Weiser v. Mursam, 2 Cir. 127 Fed. (2) 344; Darling y. Young, 8 Cir. 121 Fed. (2) 112.) The debtor was merely a facility, tool, part, segment, agency and instrumentality of each underlier in the operation of this comprehensive system of transportation (Compare Linn & Lane y. U. S., 236 U. S. 574), precisely as if the debtor has “built, owned and operated” the underliers and their property (compare Northern Securities vy. U. S., 193 U. 8., 197, 326; 48 L. ed. 679, 696). It is sheer sophistry to argue, that, because each underlier is a separate legal entity, it is an independent carrier in the conduct of its business free from the other underliers in this system (Chicago, etc. v. Des Moines, 254 U. 8S. 196; Chicago, etc. v. Minn., 247 U. S. 490). Southern Pacific v. I. C. C., 219 U.S. 498, 521). Where, as here, the debtor and the underliers carried on their common venture through the medium of these underliers, it makes little difference what such underliers may be called. While most of the cases in which the Courts have pierced the corporate veil involve a parent—subsidiary relationship —the rule is no different where affiliates are involved. ~~ Weiser v. Mursam, 2 Cir. 127 Fed. (2d) 344; Darling v. Young, 8 Cir. 121 Fed. (2d) 112; Luckenbach vy. Grace, 4 Cir. 267 Fed. 676. The same theories of jurisprudence—(1) Law of Agency, (2) Principles of Equity, and (3) Doctrines of Public Pol- icy—test the armor of every entity in a group of corpora- tions, even when the challenge is made in equity receiver- ship or in bankruptcy proceedings. 17 Argument. Trustees System v. Payne, 3 Cir., 65 Fed. (2) 103; Stone v. Eacho, 4 Cir. 127 Fed. (2) 284; Simon v. Chambers, 5 Cir. 86 Fed. (2) 569; Commerce Trust v. Woodbury, 8 Cir. T7 Fed. (2) 478 cert. denied 296 U. S. 614; 80 L. ed. 435; Nelson v. Guaranty Trust, 9 Cir. 60 Fed. ¢(2) 463 ; Central vy. Caldwell, 8 Cir. 58 Fed. (2) 721; In re Eiler’s Music House, 9 Cir. 270 Fed. 915, cert. denied, 257 U. 8. 646; In re Riegers, Kapner & Altmark, 157 Fed. 609 ; In re Muncie Pulp Co., 2 Cir. 139 Fed. 546 cert. denied, sub non Great Western V. Oppenheimer, 202 U. S. 621; 50 L. ed. 1175. As it was with these Siamese twins when they were well, so it must be now that they are ill. Disregarding that Bankruptcy Courts pierce the corpo- rate veil to reach and administer property, petitioners argue that the local Pennsylvania law requires the federal court to honor form and to disregard substance. None of the cases cited by petitioners sustain so absurd a contention. The cases in the guaranteed underliers’ brief, pages 23-25, do not support their contention that all property rights, treatment of leases and conveyances, in bankruptcy pro- ceedings are to be determined by application of state law. These cases do no more than apply the bankruptcy rule, that, unless the state law is satisfied, a lien is invalid against the challenge of a trustee, and an innocent third party. That does not arise at bar. tv piercing the corpo- rate veil of the indenture (contracting) parties and their privies, a merger is effected. (Cock v. Bailey, 146 Pa. 328: 93 Atl. 370 dealt with a union of obligor and obligees ). Circuit Judge Goodrich, who was a member of the Circuit Court majority in Corn Exchange V. Klander, 129 Fed. (2) 894, said at bar: 18 Argument. “The Pennsylvania statutes do not, nor could they for- bid or limit the jurisdiction of the federal bankruptcy court.” The unity of life of corporations engaged in a common enterprise, as here, effects a merger of them, which is not defeated by a lease between them giving to the one the opera- tion and control of the other. In Southern Pacific v. Lowe, 247 U. S. 330, the Court struck down the armor of separate existence of lessor and lessee and said: “While the two companies were separate legal en- tities, yet in fact, and for all practical purposes, they were merged, the former being a part of the latter, acting merely as its agent, and subject in. all things to its proper direction and control.” Allen vy. Philadelphia, 3 Cir. 265 Fed. 817, stated “that leases for 900 years were, for operative purposes, to be treated as practical ownership equivalent to ownership by the operator’. The preference for a lease instead of a statutory merger and consolidation might be termed psy- chological rather than procedural. Seven states provide for an appraisal of the shares of dissenting stockholders of the lessor in precisely the same manner as that appraisal is provided for in statutory merger and consolidation. (>) (b) Del. Rev. Code (1935) S 2178; Ind. Stat. Ann. (Burns 1935) S 55-2515; Md. Ann. Code (Flack 1935) Art. 23 S 221; N. H. Public Law (1942) Ch. 296 S 25; N. J. Rev. Stat. (1937) Title 48 Ch. 12 S 132: N. Y. R.R. Law § 161; Ohio General Code Ann. S 8810-8812. In other states including Conn., Idaho, Illinois, Missouri, Montana and Virginia, there are provisions in the railroad statutes which might give a dissenter the right to an appraisal. In some instances where a railroad was organized under a special act, the act would provide for the dissénting shareholders, sometimes those of the lessee as well as those of the lessor. Boston & M. R.R. v. Graham, 179 Mass. 62; 60 N. E. 405 (1901). 19 Argument. The essential idea in the leases and operating agreement for joinder of underliers with the debtor, like instruments in a merger and consolidation, is, that “lock, stock and bar- rel” went from all underliers to the debtor (Mills v. Central R. R., 41 N. J. Equity 1). The Courts have held that a merger is effected by lease, in the absence of intercorporate stock ownership or control. (The St. Paul M. M. Ry. Vv. Western Union, 8 Cir. 118 Fed. 497; Black v. St. Louts S. F. R. Co., 118 Mo. App. 198; 85 8. W. 96.) (None of the cases cited at pp. 21-26 of Monongahela brief are to the con- trary.) Equity supplies the gaps between strict legal rules and the realism of modern business (Helvering V. Metropol- itan Edison, 306 U. 8. 522). An equitable merger and an equitable consolidation arises as a natural consequence of the maxim “equity looks upon that as done which ought to be done’ (c). The parties to the leases understood that the underliers should go into a comatose condition. A “court of equity may well look behind the corporate screen—” (Westinghouse vy. Allis Chalmers, 176 Fed. 362, 367). “We are dealing here with realities not forms” (An- derson v. Abbott, 321 U. 8. 349, 363; 88 L. ed. 793, 803). We are here interested in things not in looks. We must apply the motto: “Esse quam videre” ; “to be rather than to seem.” Minnesota Mutual y. McGirr, 8 Cir. 263 Fed. 847, ad- justed equities of parties to a transaction for which corpo- rations should have been formed. The Court said (856) : “The agreement between the parties is one that a court of equity would not and could not specifically enforce, but it is a case for equity to treat as having been done that which ought to have been done.” Monongahela and Pittsburgh € Birmingham say, page 18: (c) Emmons Coal vy. Sir R. Ropner (3 Cir.), 31 Fed. (2) 948 affirming 17 Fed. (2) 386, cert. denied 280 U. S. 577; 74 L. ed. 628 was an action for demurrage charges as a condition of re- leasing a cargo. The bond on which suit was brought was con- sidered as given prior to release instead of after release. 20 Argument. “The disregard of the corporate entities of Petitioners would not result in their properties being vested in the debtor; and the objective aimed at by the City, and, apparently by the Circuit Court, would not be attained.” As authority for this erroneous contention they cite U. 8. v. Milwaukee R. T. Co., 142 Fed. 247. That case does not so hold. In that case the United States applied to enjoin the payment of alleged rebates on freight, not to the ship- ping corporation, but to a transit company, as commissions for obtaining the business. Piercing the corporate veil, the Court held that the bill was not subject to demurrer in al- leging that the Transit Company was controlled by the managing agent of the Shipping Corporation. The Court said, Sanborn, J. (p. 255) : “Tf any rule can be laid down, in the present state of au- thority, it is that a corporation will be looked upon as a legal entity as a general rule, and until sufficient rea- son to the contrary appears; but, when the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, the law will re- gard the corporation as an association of persons.” Judge Sanborn was a member of the unanimous court which in Wabash Ry. v. American Refrigerator Transit (C. C. A. 8) 7 Fed. (2) 335 said at pages 343-344: “There is no particular divinity surrounding the term ‘corporation’. The courts will look through the form to get at the real intent of the association of indi- viduals or corporations forming the organization, and, if rights of third parties have not intervened, will give effect to the real purpose of the organization in order to promote square dealing and effectuate justice.” 21 Argument. It is idle, for petitioners to say that disregard of the separate corporate form will not attain the objectives aimed at by the Circuit Court and by the City. Piercing the corpo- rate veil effects a merger (see pp. 17-19 supra). Quite apart from the fact that the Court did not test the armor of the juridical conception in Second Ave. Co. Vv. United Traction Co.—Appeal of Pittsburgh Railways, 328 Pa. 257; 195 Atl. 25 (Monongahela Petition p. 22) and that case was decided shortly before the present reorganiza- tion was begun, that case, as a precedent, is impaired by the fact that was a family controversy of Philadelphia sub- sidiaries and cannot be considered as a vigorously contested adversary litigation. In Monongahela Street Railway Co. v. Philadelphia Com- pany and Consolidated Traction Co., 350 Pa. 603; 39 Atl. (2) 902 at page 912: ‘“Monongahela—filed a bill of com- plaint against Philadelphia for specific performance of the covenant by Consolidated in the agreement of lease”. “As to the guaranty of Philadelphia with respect to the covenant to pay taxes; Philadelphia being a compensated surety any doubt as to the meaning of the guaranties is to be resolved against it” (916). That Court was not required and did not attempt to determine the effect of the instrument between the underliers. If the separate corporate form is to be honored, then this system must break up contrary to the public convenience contemplated by the Pennsylvania Public Utility Commis- sion. In Palmer vy. Massachusetts, 308 U. S. 79, this Court de- clined to permit destruction of a public convenience that had approval of the state regulatory body. If we look to the spirit rather than to the letter, if we re- gard the substance rather than the form, if we fix the judi- Fi 22 Argument. cial eye on essentials rather than incidentals, the debtor and the underliers are one, without need for any further in- struments or proceedings. As a result of this coalescence of this unity of life for about 50 years, it is as impossible to resurrect each under- lier as it is to make again sand, stone, pebbles, cement and water out of concrete. Each lost its separate identity. The petitioners’ arguments that the underliers are still the owners of the leased property rests on the legal construction of the leases and operating agreements, and ignores the equitable consequence of the merger and the consolidation that has taken place. The power of a Bankruptcy Court is not a rigid thing narrowly circumscribed by the Bankruptcy Statute (Conti- nental Ill. Nat. Bank & Trust Co. v. Chicago R. R., 294 U.S. 648). The Bankruptcy Act should be liberally construed to ac- complish the purpose for which it was enacted (Wright v. Union Central, 311 U. 8S. 273). The facts call for treatment of debtor and underliers as one entity, with unity of life. The Circuit Court was plainly correct in concluding that, with the exception of Philadelphia Company’s guarantee, all of the underliers property should be treated as if it were the property of the debtor without any further conveyance, or any statory mer- ger or consolidation and that the public security holders of the underliers should be treated as creditors of the debtor. “Tf the judicial power is helpless—then indeed it has be- come a handy implement of high finance” (Anderson V. Abbott, 321 U. S. 349 at p. 366.) _— Il. There is no conflict of decisions on the point in issue. Il. The questions presented by petitioner are not of suf- ficient importance to require review by this Court. The extent, if any, to which Philadelphia shall benefit in a fair and feasable reorganization plan, and how Philadel- phia shall clear up its guarantee is not of importance to burden this Court at this time. CONCLUSION It is respectfully submitted that the petitions for writs of certiorari prayed for should be denied. Respectfully submitted, JOSEPH NEMEROV, CHARLES B. PRICHARD, Attorneys for Jules Guggenheim et al. Maurice J. Drx, AARON SCHWARTZ, of the New York Bar Of Counsel. --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386416_0717%3A06. Public record. Not legal advice.