Opposition Brief — Worcester v. Chicago Transit Authority

Supreme Court of the United States

Ocroser Term, 1946.

In the Matter of

Cuicaco Rattways Company and Cuicaco Crry Ramway

Company, Debtors, et al.

BRIEF OF BONDHOLDERS COMMITTEES IN OPPOSITION.

Gorriies, SCcHWARTz & FRIEDMAN

231 South La Salle Street

Chicago 4, Illinois

~4 WouuamM J. Friepman

ww Mavrice ROSENFIELD ~-

Attorneys for Chicago City Rail-

way Company and Calumet and

South Chicago Railway Company

First Mortgage Bondholders Pro-

tective Committees

Grecory, GurxuTH & HuntTeR

105 South La Salle Street

icago 3, Illinois

TAPPAN GREGORY

por Ropent L. HUNTER

Attorneys for Chicago City and

Connecting Railways Collateral

Trust Bondholders Protective

Committee

Dated April 9, 1947.

Attorneys for Chicago Railways

Company First Mortgage Bond-

holders Protective Committee

Atpen, LATHAM, LUTKIN,

McConnext & Van Hoox

134 South La Salle Street

Chicago 3, Illinois

/*4 Cart R. LaTHaM

Attorneys for Chicago Railways

Company Consolidated Mortgage

Series A Bondholders Protective

Committee

CAMPBELL, CLARK & Muize

33 North La Salle Street

Illinois

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QUESTIONS PRESENTED ........... se eeeeeeeeeceeecees 2

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VON nace ce ccuccckssnktscacpecnsushounies 11

SOUT SIRO * 5.5 0's,c swadnnndechasraoneeceoten 13

Illinois Commerce Commission Approval........ 18

Bpomsoraliy OF Che FURR. onc nccciassnescdacevass 18

This Case Does Not Fall Within Rule 38........ 19

GUNN avis koko comer cates ccs tke 20

CITATIONS.

Case v. Los Angeles Lumber Products Co., 308 U. S.

M6 COORD wo occ cuaeacenck, dca Ree 3, 11

Consolidated Rock Products Co. v. DuBois, 313 U. S.

BOD CODER) occ cs knde wiicxatineecs teeeweneeueenes 11

Keker v. Western Pacific R. Corp., 318 U. S. 448 (1943) 11

General Picture Co. v. Electric Co., 304 U. S. 175

CEEDOD scnnecocauwskecebesckens Gk bebueteetuee 13

Group of Institutional Investors et al. v. Chicago M.

St. P. & P. R. R. Co., 318 U. S. 523 (1943).......... 11

Magnum Co. v. Coty, 262 U. S. 159 (1923).......... 19

Northern Pacific Ry. v. Boyd, 228 U. S. 482 (1912).... 11

RFC v. Denver Rio Grande, 328 U. 8. 495 (1946)...... 4

U.S. v. Johnston, 268 U. S. 220 (1925)..............

Brief of Bondholders Committees in Opposition.

OPINIONS BELOW.

The opinion of the Circuit Court of Appeals (7th) is not

yet officially reported; but it is printed in the CCH Bank-

ruptey Law Service, Current Volume, par. 55,799, p. 58,484.

Since it appears that the petitioners have not yet printed

the record here, we have supplied printed copies of the

opinion.

The district court’s findings and order of February 27,

1946, from which the appeal to the Circuit Court of Ap-

peals was taken and the district judge’s memorandum opin-

ion of February 15, 1946, are not officially reported. They

are printed in the CCH Bankruptcy Law Service, Current

Volume, pars. 55,599 and 55,601, pp. 58,082 and 58,096.

The advisory report of the Securities and Exchange Com-

mission to the district judge under See. 172 of Chapter X

of the Bankruptey Act (SEC Corp. Reorg. Release No. 65,

August 13, 1945) is printed in the CCH Bankruptcy Law

Service, Current Volume, par. 55,425, p. 57,683; the sup-

plemental report of the Commission to the district judge

(SEC Corp. Reorg. Release No. 66, February 7, 1946) is

printed in the same volume of the CCH Bankruptcy Law

Service at par. 55,583, p. 58,026.

JURISDICTION.

The judgment of the Circuit Court of Appeals was en-

tered on January 4, 1947. The petition for writ of certiorari

was filed April 3, 1947. The jurisdiction of the Supreme

Court is invoked under Sec. 240(a) of the Judicial Code as

amended by the Act of Feb. 13, 1925, c. 229 §1, 43 Stat. 938,

28 U.S. C. § 347.

QUESTIONS PRESENTED.

Petitioners hold Series B bonds of Chicago Railways

Company, one of five companies whose jointly operated and

managed street railways and bus lines constitute the trac-

tion system of Chicago known as ‘‘Chicago Surface Lines.”

A plan of reorganization, approved February 27, 1946, and

confirmed June 17, 1946, provides for a sale of the trac-

tion system (exclusive of net general cash and current as-

sets defined as ‘‘retained assets’’) at an upset price of

$75,000,000 in cash; the plan includes an offer of Chicago

Transit Authority, a public agency, to bid the amount of

the upset price at the sale. The Series B bonds are ex-

cluded because the total proceeds available for security

holders, including the net assets retained, are not sufficient

to pay prior claims in full. The petition challenges the

valuation findings which led to the exclusion of the Series B

bonds.

If the upset price represents a fair valuation of the

properties to be sold, the exclusion of the Series B bonds

follows automatically under the strict priority principle of

Case v. Los Angeles Lumber Products Co., 308 U. 8. 106

(1939), since there is simply not enough to satisfy prior

liens. The district court’s findings that the price is fair and

that the Series B bonds have no equity or value are sup-

ported by two advisory reports of the Securities and Ex-

change Commission which recommended such rulings in

both its original report and supplemental report. A com-

putation of the district judge in his memorandum opinion

of Feb. 15, 1946, shows the shortage to be $42,600,000, since

$131,000,000 would be necessary to satisfy claims prior to

Series B’s as against estimated proceeds of $88,100,850

($75,000,000 purchase price plus net retained assets of

$13,100,850) under the plan. This computation, made in

February, 1946, reflects interest only to February 1, 1946

on prior securities. If an additional year and one-half’s

interest on securities prior to the Series B bonds is ac-

counted for, the total value necessary before the Series B

ponds could participate would rise from $131,000,000 to

over $139,000,000.*

In addition to the main valuation question, which con-

trols the right of the Series B bonds to participate in the

plan, petitioners present several subsidiary questions. The

first of these is whether the order approving the plan de-

prives petitioners of any rights under the 1907 franchise

ordinances from the City of Chicago to the Surface Lines

companies, under which the City of Chicago reserved an

option to purchase at a price of approximately $172,000,000.

1 There are two prior classes—the First Mortgage bonds and the

Series A bonds. Interest accrues on the First Mortgage bonds at

the rate of $2,087,062.50 per annum and on the Series A’s at the

rate of $784,000 per annum. One and one-half years’ interest

totals $4,306,593. Since approximately 52% of any increase in the

purchase price flows to the A bonds (the rest going to the South

Side Lines and to the Purchase Money bonds), an additional one

and one-half years’ interest adds an additional $8,280,000 to the

total amount necessary before the B’s could be entitled to partici-

pate.

4

The second is whether the plan was properly submitted to

the Illinois Commerce Commission. Finally, they raise the

question of whether the plan was presented and filed by a

party entitled to file a plan under Chapter X. The second

and third of these subsidiary issues are clearly moot so

far as petitioners are concerned if they are properly cut

off by a no value finding and suffer no deprivation of

alleged rights under the 1907 ordinances. Cf. RFC v. Den-

ver Rio Grande, 328 U. S. 495 at 520 (1946).

STATEMENT.

The five companies which collectively own the Chicago,

Surface Lines are Chicago Railways Company, Chicago

City Railway Company, Calumet and South Chicago Rail-

way Company, The Southern Street Railway Company and

Chicago and Western Railway Company. Chicago Railways

is known as the ‘‘North Side Lines’’ and the others are

known as the ‘‘South Side Lines.’’ The Chicago City and

Connecting Railways Collateral Trust owns 95% of the com-

mon stock of Chicago City Railway and 100% of the

stock of the three other south side companies; it has bonds,

secured by a pledge of its stocks of the four south side com-

panies, and preferred and common shares outstanding. The

capitalization of the five companies and the trust, including

interest arrearages on bonds to February 1, 1946, are as

follows:

Stock Bonds Interest

Chicago Railways Company :

First Mortgage Bonds . $ 41,741,250 $ 1,043,531

Series A Bonds ....... 15,696,600 14,911,770

Purchase Money Bonds 3,969,155 3,770,697

Series B Bonds ....... 16,934,405 16,087,685

Adj. Income Bonds..... 2,379,136 1,808,143

Chicago City Railway Company :

First Mortgage Bonds. . 27,644,550 691,111

Capital Stock ......... 180,000 shares

Calumet and So. Chicago Ry. Co. :

First Mortgage Bonds . 3,332,550 83,314

Capital Stock ......... 100,000 shares

Southern Street Ry. Co. :

Capital Stock ........ 100,000 shares

Chi. and W. Ry. Co.:

Capital Stock ......... 720 shares

Chi. City and C. Rys. C. Trust:

First Mortgage Bonds . 20,616,000 19,585,200

Preferred shares....... 250,000 shares

Common shares........ 150,000 shares

peencenebes $132,313,646 $57,981,451

Ae A RS RIERA ST SE I a REI PLEO ETL II

6

The present sale plan was approved and confirmed after

twenty years of successive failures of five other plans, each

of which involved an exchange of the new securities of a

new private corporation for the outstanding securities of

the five operating companies and the trust. The last of

these failures was the Trustees’ plan' of February 29, 1944,

which was rejected as unsound and unworkable by the IIli-

nois Commerce Commission. At the same time that the Ili-

nois Commerce Commission rejected the Trustees’ plan, it

approved the present sale plan, which was then sponsored

by the City of Chicago on the condition that the Transit Au-

thority be substituted for the City as the purchaser. The

substitution of the Transit Authority was effected through

an assignment approved by the district court pursuant to

a provision for such assignment then contained in the plan.

Despite the fact that petitioners know of the Illinois Com-

merce Commission’s approval of this plan conditioned on

the Transit Authority’s substitution for the City, they nev-

ertheless state in their petition that the plan never went

to the Illinois Commerce Commission, and they actually

urge that as one of the grounds for the issuance of the writ

of certiorari.

Shortly after the Illinois Commerce Commission certified

its approval of the plan, the SEC rendered its first ad-

visory report, filed August 13, 1945, to the district judge.

The Commission advised the court that the Series B bonds

had no equity and should be excluded. It also recommended

that the offer of $75,000,000 would be fair if two changes

were made in the plan. The first change recommended was

1 Despite the fact that petitioners know of this plan and its re-

jection by the Illinois Commerce Commission (see petitioners brief,

footnote 8, page 38) they repeatedly state in their petition that no

plan was ever filed by the Trustees. They actually assume that this

plan is not a ‘‘plan’’ because they do not like its provisions for

unification with the elevated system of Chicago Rapid Transit Com-

pany whose trustees filed a corresponding plan in the Rapid Transit

7-B proceedings.

7

that the plan be amended to provide for a waiver by the

City of Chicago of its claim to a fund known as the ‘‘City

Compensation Fund,’’ in which $6,000,000 had been es-

crowed pending the court’s decision on the question of the

liability of the Trustees to the City for compensation for

the use of city streets by streetcars and busses. The sec-

ond change recommended by the SEC was that the plan

provide for the retention by the Trustees of net earnings to

the date of actual transfer instead of to an earlier cut-off

date then provided for in the plan. These changes were

subsequently made, whereupon the six bondholders com-

mittees, representing the six participating classes of se-

curities, approved, adopted and joined in the plan. In spite

of the fact that these six committees approved, adopted

and joined in the plan, and in spite of the fact that the ac-

tual owners (not committees) of $89,220,000 of bonds en-

titled to participate filed individual proofs of claims and

formal written acceptances of the plan, petitioners never-

theless contend in this court that the plan is not a creditors’

plan.

After lengthy hearings which ran from September, 1945

to February, 1946, the district judge again referred the

plan to the SEC for a supplemental advisory report. The

Commission reported to the court that, in its opinion, the

plan was fair and equitable. Thereafter, the district judge

set forth in a memorandum opinion dated February 15,

1946, his reasons for approving the plan. Detailed findings

of fact, conclusions of law and an order of approval were

entered on February 27, 1946. After this the plan was sub-

mitted to security holders for their vote. Approximately

98% of those who filed individual claims which were al-

lowed voted affirmatively to accept the plan, which, on

June 17, 1946, was confirmed. Two classes were excluded

by ‘‘no value’’ findings—the Series B bonds and the Chi-

cago City Railway stock. Each class was excluded because

8

prior liens were not satisfied in full. From the approval

and confirmation orders certain holders of Series B bonds

and holders of the minority stock of Chicago City Railway

Company perfected appeals. The Circuit Court of Appeals

affirmed on January 4, 1947 and the B bonds have filed the

petition for a writ of certiorari.

A sale of the plan properties at $75,000,000 plus the re-

tained assets of $18,400,850 would result in total gross pro-

ceeds from all sources of $93,400,850. After provisions for

reserves under the plan for federal taxes, price adjust-

ments with the Authority and expenses and contingencies,

the sum of $88,100,850 is estimated as available for initial

distribution to security holders. The following chart shows

the proceeds available to each of the surface lines com-

panies from all sources, together with its retained assets

and reserves:

“BOA19801 JO} UOPJONPep sajouep ( ) syseqjueIEg

-(00'000'008'TS) —(00°000'000'FS) 00'OS8"00F'ZIS 00°000'000'9S

(00°000°008'T$) (00°000'009'IS) 00°Z86'88R'e $ 00'000'00F'ZS

(00'000'FZE_ =) (00'000'0R =) =—00'FON' LEN 00°000'09

ABAITBY U1leIse4y puB OF¥vd

UO PUB jool}g Ueq NOS 94 L

(00'000'8sz ) (00'000'69% ) OO'ESL'ESS'S 00°00F'FOF 'OOS*LTL* Auvdu0g Avaley

osBqO Yo, pus yourn[yD

(00°000'8T6 § ) (00'00F'0GZ'T ) O0'Sz9'D69 OO'O0N'SE6'T 04"268'906'F% **** “0D ABaTTEYN AND O3BI1qO

+ SoaPy] OPI WNog

(00°000'00F'Z$) —00'S98"L9S'8 $ 00°000'009'E$ 00°000'SLF' EFS

Sa1uasuIUO) (S6r ‘Ig 494 (Sr6t ‘Ie 29°C

pure swityy : 0} 38219} 38 Se poewNs

ome Joy pue

‘Tl PPHsy spun

SIUSUISNIpYy 10;

aasasoy s8a7] 38 SU Yse) IN

‘“NOLLOGIULSIG 'IVILINI YOU SAINVdWOO OL WIAVWIIVAV ROS qaLvALLsga

T @Iavii

10

The sum available to each of the companies, as shown

in Table I, is distributed to the security holders of each

of the companies in accordance with the rules of strict

priority. Two first mortgage bond issues—a $41,741,250

issue of Chicago Railways Company and a $3,332,550 issue

of Calumet and South Chicago Railway Company—are

paid in full. A third issue of first mortgage bonds—a

$27,644,550 issue of Chicago City Railway Company—re-

ceive $25,286,204, or approximately 91.47% of principal.

The Series A and Purchase Money Bonds of Chicago Rail-

ways Company, which are divisional second liens, receive

$10,918,596 and $1,525,666 in the aggregate, respectively, or

69.56% and 38.44% of principal. The holders of the Chi-

cago City and Connecting Railways Collateral Trust receive

$5,236,825 in the aggregate, or 25.40% of principal.

11

VALUATION.

Valuation is the crux of the case here, since that question

controls the right of the Series B bondholders to partici-

pate in a plan. If the value of the property does not ex-

ceed prior claims, the Series B bonds, which were issued

under a 1907 reorganization plan consummated five years

before the Boyd case’ was decided, not only may, but must,

be excluded. Case v. Los Angeles Lumber Products Co.,

308 U. S. 106 (1939).

The court below complied exactly with the standards

established by this Court in Consolidated Rock Products

Co. v. DuBois, 313 U. 8. 510 (1941), Group of Institutional

Investors, et al. v. Chicago M. St. P. & P. R. R. Co., 318

U. S. 523 (1943), and Ecker v. Western Pacific R. Corp.,

318 U. S. 448 (1943). The district judge based his valua-

tion findings on a capitalization of prospective earnings.

In the findings of fact and conclusions of law of February

27, 1946, the district judge found that:

‘*The court in the exercise of an informed and inde-

pendent judgment under all the circumstances and

upon all the data and upon specific consideration of

prospective earnings of the properties of Chicago Sur-

face Lines finds that the sum of $75,000,000 * * * is

a fair, equitable and reasonable upset price for the

plan properties.’’

The concurrence of the court’s findings and the SEC’s

advisory reports reflects the compliance of the district

* Northern Pacific Ry. v. Boyd, 228 U. 8. 482 (1912).

12

court with the standards established by this court, for

the SEC’s recommendations which the district court ac-

cepted are based entirely on an extensive analysis of all

earning capacity elements. We submit that the Circuit

Court of Appeals was clearly correct when it stated:

“Tt [the evidence] revealed that the present plight

of Surface Lines was largely the result of increased

expenses, bus competition, and the use of the private

automobile, and the court had before it exhibits and

testimony which translated this declining trend into

capitalized value by capitalizing the average net earn-

ings for the 15-year, 10-year, and 5-year periods be-

fore and including 1944. The net of the five years

through 1944 capitalized at 5.5% brought a value of

$77,428,000 and if capitalized at 7%, a value of $60,-

836,000. It is clear that the court considered every

proper factor suggested by the parties, and having in

mind that an estimate, as distinguished from mathe-

matical certitude, was all that could be made, Group

of Investors v. Chicago, M., St. P. € P. R. R., supra,

542, it bottomed its finding of value upon all the evi-

dence before the court. In addition it had the benefit

of expert and disinterested advice, rendered in con-

formity with a report of the SEC under sec. 172 of

Chapter X. True, the report was not evidence. It

was but advisory, intended to aid the court in the

solution of the many complicated financial and busi-

ness problems involved.

‘‘Under these circumstances we think the court ap-

plied the correct juridical concepts of value relevant

in reorganization cases, and since the court’s finding

of value was made on disputed evidence, we cannot

say that the finding of a value of $75,000,000 was with-

out support in the record; consequently, the orders

must be affirmed.’’

What then is the valuation issue on this petition for

certiorari? Shortly stated, it is that petitioners want this

court to turn appraiser in this case. But this court does

13

not test the lower federal courts’ application of general

princip:cs to specific facts by reviewing facts de novo.

“We do not grant a certiorari,’’ said Mr. Justice Holmes

in U. S. v. Johnston, 268 U.S. 220 at 227 (1925), ‘‘to review

evidence and discuss specific facts.’’ See also General Pic-

ture Co. v. Electric Co., 304 U. S. 175 at 178 (1938).

The valuation case against the Series B bonds is not a

close question. As we indicated above, in stating the ques-

tions involved, the valuation of $75,000,000 would have to

be increased by over $50,000,000 in order to produce total

proceeds of $139,000,000, sufficient to meet the deficiency

on senior securities, before the B bonds would be entitled

to participate. Thus, the district court, the Cireuit Court

of Appeals, and the SEC would have to be in error by that

amount, or 663% of the $75,000,000 price. There is nothing

in the record indicating that two federal courts and the SEC

could possibly have made such an error in their carefully

considered calculations.

Il.

THE 1907 ORDINANCES.

A. The ordinances do not contain any contract of the City

to buy at the ordinance purchase price. The City

reserved an option to purchase at that price. It also

reserved the right to bid at any sale.

Petitioners have attempted to create the impression that

the 1907 ordinances constitute a binding contract on the

part of the City to buy the properties at the ordinance pur-

chase price of $172,000,000 and that this obligation some-

how can be the subject of a specific performance decree.

Section 20 of the 1907 ordinances merely provides that the

’ This reflects one and a half years’ additional interest on securi-

ties prior to the B’s since the district judge’s computation of Feb-

ruary, 1946,

14

‘“City hereby reserves to itself the right * * * to purchase

* * * the entire street railway system * * *.’’ Likewise,

the provisions of Sections 21 and 22 made it perfectly clear

that the City has the right, not the obligation to buy.

It is expressly recognized in the ordinance that purchase

through the exercise by the City of its option is not the

exclusive means by which the City might acquire the prop.

erties. In Section 32, which provides that a purchaser

‘fat any foreclosure or other sale’’ acquires no greater

rights than his predecessor and holds the property subject

to the City’s option, there is this very significant pro-

vision :

‘“‘The City shall have the right to bid and become

the purchaser at any such foreclosure or other sale.”’

The 1907 ordinance, therefore, recognized the possibility

of a ‘‘foreclosure or other sale’’ to satisfy the claims of

ereditors. In any such sale, the franchises granted under

the 1907 ordinances, which were included in the property

covered by the mortgage liens, would also be sold with the

other assets. The City, by the express terms set forth in the

foregoing quoted paragraph of Section 32, would be entitled

to bid and acquire the assets sold, including the 1907 ordi-

nance rights, like any other prospective purchaser.

The Cireuit Court of Appeals was clearly right in hold-

ing that the City has an option, not a duty, to buy at the

ordinance purchase price.

a

15

B. Section 23 of the ordinances of 1907 does not prevent

the Authority from buying the properties at their

fair upset price.

(1) Section 23 applies to a competing company, not to a

successor.

The last sentence of Section 23 of the 1907 ordinances

provides that if the City does not exercise its option to

purchase but grants ‘‘a right to another company to oper-

ate a street railway in the streets and parts of streets

constituting the said street railway system of the Com-

pany, such new company shall be required to and shall

purchase and take over the street railways, property and

rights of the Company at or after February 1, A.D. 1927

upon the same terms upon which the said City might then

purchase and take them over.’’ The petitioners point out

that the City of Chicago granted a franchise ordinance to

Chicago Transit Authority. They argue, therefore, that

Chicago Transit Authority has become liable for the full

ordinance purchase price.

The argument appears to be that the whole world (in-

cluding the City of Chicago) may bid at the sale, except

the Transit Authority; that the Transit Authority is sub-

ject to a special exclusion because its franchise from the

City and the provisions of Section 23 of the 1907 ordi-

nances make it liable to pay the City purchase price.

The franchise which the City granted the Authority was

given to it pursuant to Section 311 of the Metropolitan

Transit Authority Act, 1945 Ill. Rev. Stats., Chapter 1112,

Sec. 311. This statute requires the Transit Authority to

have a franchise from the City before it acquires the

Transit properties. The petitioners, therefore, pose this

technical dilemma: the Authority, in order to bid $75,000, -

000 for the properties under this plan must first have a

16

franchise; the instant it takes such a franchise so as to

qualify itself to bid $75,000,000, it automatically becomes

liable under Section 23 to pay the companies the City

purchase price of $172,000,000.

Section 23 was designed to protect the Surface Lines

from competition by another carrier in the same streets

on which they were granted franchises under the 1907

ordinances. If the City had granted the 1945 franchise to

the Transit Authority in order to enable the Authority to

compete with the Surface Lines in those streets covered

by the 1907 ordinances, then questions might arise as to

(a) the validity or interpretation of Section 23, (b)

whether the Surface Lines’ rights under that section sur-

vive the stated expiration date.

If, as and when the Authority, armed with its franchise,

undertakes a campaign to compete with the Surface Lines,

these questions—which will be moot if the present plan

succeeds—may be raised and faced in the state courts of

Illinois. But that is not this case. The Transit Authority

is not competing ; nor was its ordinance granted to it to per-

mit it to operate a competitive system. The ordinance was +

granted as a step in the consummation of the present plan

in anticipation of the Transit Authority’s purchase of the

properties. Section 23 applies when a grant is made to a

competing company, not when a grant is made to a corpo-

rate entity which is to succeed to the Surface Lines proper-

ties.

17

(2) The rights under Section 23 are released under the

plan and the strict priority principle deprives peti-

tioners of any interest in such a release.

When the properties were valued through a capitaliza-

tion of prospective earnings, it was assumed that the

properties, like an industrial corporation, would operate

indefinitely in the future. The projection of prospective

earnings into the future was not cut short at any arbitrary

point on any assumption that the. operating rights would

come to an end. It follows that the full measure of value

of the rights accruing to the companies under Section 23—

whatever they may be—were included in the enterprise

value of the Surface Lines System. After giving due

consideration for all the rights accruing under Section 23

and their effect upon the going concern value of the

system, based on a capitalization of prospective earnings,

the petitioner classes of security holders have been found

to have no equity and their claims are adjudged to be

valueless.

The grant of an ordinance to the Chicago Transit

Authority is but a step in the consummation of the plan—

the same plan that provides for a release of the 1907

ordinance rights. The granting of a franchise to the

Authority and the releasing of the rights accruing under

the 1907 ordinances should be viewed as steps necessary

to the consummation of the plan of reorganization and

not as separate and independent transactions. Valueless

classes of securities, if they have no right to participate

after a valuation on a capitalization of prospective earn-

ings basis, can derive no new rights under an act which

is but a step in the consummation of the plan from which

they were properly excluded.

es

————————eeerreererrrreae_eee

18

Ii.

ILLINOIS COMMERCE COMMISSION APPROVAL.

Petitioners contend that the district court failed to sub-

mit the plan to the Illinois Commerce Commission for

its approval. This is not true. As heretofore indicated

in our Statement above, the plan was submitted to the

Illinois Commerce Commission and was approved by it.

At the time of its submission it was sponsored by the

City of Chicago and the Commission’s approval was con-

ditioned on an assignment by the city of its interest under

the plan to the Authority. That assignment was sub-

sequently made and approved by the district court.

IV.

SPONSORSHIP OF THE PLAN.

Petitioners state that the court’s Trustees did not file

a plan as required by Sec. 169 of Chapter X. The fact

is that the Trustees filed a plan pursuant to order of

court. That plan was thereafter referred to the Illinois

Commerce Commission and disapproved by it, as indicated

above in our Statement. This plan provided for the re-

organization of the Surface Lines through unification

with Chicago Rapid Transit Company. It was a plan

which in every way complied with Section 169 of Chapter

X. The law does not require the Trustees to file a plan

to which all parties will agree. The sole requirements of

Section 169 is that they file a plan of reorganization.

Plainly, they did file such a plan in this case.

Petitioners also argue that the present plan is not @

creditor’s plan. The City, when it originally filed it, was

19

a large creditor—its claims being released under the plan

in exchange for a similar release by the Trustees. The

six participating bondholders committees joined in and

approved the plan when it was assigned to the Authority.

The individual holders of over $89,000,000 of participating

classes of bonds, as indicated above in our Statement, filed

claims and formal written acceptances of it. Yet non-

participating bondholders claim it is not a creditors’

plan!

¥.

THIS CASE DOES NOT FALL WITHIN RULE 38.

This case presents no question of general importance

sufficient to warrant the issuance of the writ here sought.

There is not involved any question of lack of uniformity

of decisions, nor a conflict with prior decisions of this

court or the state courts. No important question of federal

law exists, nor was there a departure from usual or ac-

cepted procedure. No such claims are made by the peti-

tioners. The sole basis for the petition is that petitioners

disagree with the decision of the Circuit Court of Appeals.

None of the questions raised in the petition falls within

the reach of this court’s Rule 38, specifying the character

of cases in which certiorari will be considered.

The purpose of the writ is not to give the defeated

party another hearing. See Magnum Co. v. Coty, 262 U. 8S.

159 (1923).

None of the grounds alleged in the petition is sufficient

reason for the court’s exercising its discretion to grant a

writ.

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20

CONCLUSION.

There is no conflict in the circuit courts and no question

of general importance involved. The opinion of the Cir-

cuit Court of Appeals is clearly correct and the petition

for a writ of certiorari should be denied.

Respectfully

GorTTiies, SCHWARTZ & FRIEDMAN

231 South La Salle Street

Chicago 4, Ilniois

Wui114M J. FRIEDMAN

MAURICE ROSENFIELD

Attorneys for Chicago City Rail-

way Company and Calumet and

South Chicago Railway Company

First Mortgage Bondholders Pro-

tective Committees

Grecory, GILRkUTH & HUNTER

105 South La Salle Street

Chicago 3, Illinois

TAPPAN GREGORY

Rosert L. HUNTER

Attorneys for Chicago City and

Connecting Railways Collateral

Trust Bondholders Protective

Committee

Dated April 9, 1947.

submitted,

TENNEY, SHERMAN, Rocers & Guru-

RIE

120 South La Salle Street

Chicago 3, Illinois

Hewry F. TENNEY

Attorneys for Chicago Railways

Company First Mortgage Bond-

holders Protective Committee

ALDEN, LATHAM, LUTKIN,

McCoNNELL & VAN Hook

134 Souih La Salle Street

Chicago 3, Illinois

CarRL R. LATHAM

Attorneys for Chicago Railways

Company Consolidated Mortgage

Series A Bondholders Protective

Committee

CAMPBELL, CLARK & MILLER

33 North La Salle Street

Chicago 2, Illinois

J. ARTHUR MILLER

Attorneys for Chicago Railways

Company Purchase Money Bond-

holders Protective Committee