# Opposition Brief — Atlantic Coast Line Railroad v. St. Joe Paper Co.

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Opposition Brief
- **Published:** January 1, 1950
- **Citation:** 339 U.S. 929

## Text

INDEX

Page
Summary of Proceedings 2
Summary of Argument 12
Argument 12
Appendix A 30
CITATIONS
Atlantic Coast Line R. Co. Purchase,

261 1. C. C. 820 5
Case v. Los Angeles Lumber Products Co.,

308 U. S. 106 (at page 114) 22
Comstock v. Group of Investors, 335 U.S. 211 23
Denver and Rio Grande Reorganization,

328 U. S. 495 (at page 509) 15, 25
Ecker v. Western Pacific R. Co.,

318 U. S. 448 1, 15, 19, 20, 23, 26
Geddes v. Anaconda Copper Mining Co.,

254 U. S. 590. 28
Harduval v. Merchants & Mechanics Trust and ;

and Savings Bank

(1920) 240 Ala. 187, 86 So. 52 15
Institutional Investors v. Chicago, etc. R. Co.,

(Milwaukee case) 318 U. S. 523.0. 1, 15, 20, 22, 23, 24, 28
In re Loewer’s Gambrinus Brewery Co.

(C.C.A.N.Y. 1948) 167 F. (2d) 318 7
In re Michigan Ohio Building Corp.

(C.C.A, Ill. 1941) 117 F. (2d) 191, 193 12
In re Schwartz, 89 F. (2d) 172 14
In re Chicago, R. 1. & Pac. Ry. Co.

D.C. Ill. 1943) 50 F. Supp. 835 24
Northern Pacific R. v. Boyd, 228 U. S. 482 14
Palmer v. Mass., 308 U. S. 79 (at page 87) 22
Piedmont & Northern Railway Proceedings

(1928) 138 I1.C.C. 363 8
Public Service Comm. v. Brashear Lines,

306 U. S. 204 14

Securities and Exchange Comm. v. Central
Illinois Sec. Corp.
69 S. Ct. 1377 26

Spangelo v. North Dakota Ry. Co.
(C.C.A.N.D. 1921) 276 F. 26 15

—

IN THE

Supreme Court of the United States
OCTOBER TERM, 1949

| Ra

Aruantic Coast Line Rattroap Company and the Deposit
Committee for First and Refunding Mortgage 5% Bonds
of Florida East Coast Railway Company due 1974,
Petitioners.
vs.

S Re JOE PAPER Com PANY, ET AL.
, >
Respondents.

On Petition For a Writ of Certiorari to The United States
Court of Appeals for the Fifth Circuit.

BRIEF FOR THE RESPONDENT
St. Joe Paper Company, in Opposition

This petition seeks to vacate an order entered by the
District Court for the Southern District of Florida (81 F.
Supp., 926) and upheld by the Fifth Circuit Court of Ap-
peals, (Unreported as yet), by which a plan of reorganiza-
tion of the Florida East Coast Railway Company under
Section 77, proposed and submitted by the Interstate Com-
merce Commission, was disapproved.

In brief, the Petitioners assert that the District Court’s
opinion proceeded upon an unwarranted application of
the powers of the Court over a plan of reorganization cer-
tified to the Court by the Interstate Commerce Commis-
sion in proceedings under Section 77. They aver that such
application conflicts with the decisions of this Court in
Ecker v. Western Pacific R. Co., 318 U. S. 448, and Insti-
tutional Investors v. Chicago etc., R. Co., 318 U. S. 523.

—¥

The background of the proceedings, giving rise to this
controversy, covers a long period of time and is not easily
summarized.

2
SUMMARY OF PROCEEDINGS

(a) Description of the Debtor and its financial situa-
tion.

The debtor in reorganization, Florida East Coast Rail-
way Company, owns and operates a railroad running from
Jacksonville to Miami, both in Florida. It has always
been independently owned and independently operated. Its
line is double-tracked, has been recently re-railed and is
in excellent condition. Its rolling stock is modern in every
respect. Its management is experienced and capable. Such
railroad, all parties concede, has been efficiently operated
and has rendered adequate and satisfactory service under
its independent management. Operating through one of
the most populous areas of the United States, it has but
one rail competitor, the Seaboard Air Line Railway Com-
pany. At its terminus in Jacksonville, it connects with the
Atlantic Coast Line Railroad, the Southern Railway and
the Seaboard.’

The financial setup of the debtor is comparatively simple.
Ahead of its common stock are but two mortgage debts.
The first—in the amount of $12,000,000—is embraced in an
issue of four and one-half percent mortgage bonds; the
second represents an issue of $45,000,000 five percent mort-
gage bonds. There is no controversy over priority of liens
between the two bond issues. The first mortgage debt has

i 1The Commission said in discussing the efficiency of operations of the
| debtor and that likely under the disapproved merger (R., Vol. I, p. 321):

“As to the promotion of efficiency of transportation services generally by
reason of improvements in the physical properties of the two carriers, the
record does not furnish a basis for a conclusion that it would be materially
affected whether the debtor’s properties are operated independently or as a
part of the Coast Line.”

At page 322, Vol. I, R., the Commission quotes counsel for the Coast Line
to this effect:

“Mr. Bourne (principal counsel for the Coast Line): We do not take the
position, and have never taken the position, that the Florida East Coast is
not an efficiently operated railroad today for an independent railroad. Our
position is that a single-line operation of the two roads would be in the pub-
lic interest.”

See, also, R., Vol. I, pp. 425-6 and 321.

4
]

_ ———
3

never been in default. Interest on the second mortgage
debt went into default in the early thirties. Unpaid in-
terest on such debt now amounts to about $35,000,000. See
Appendix A, R., Vol. III, p. 660.

(b) Institution of receivership and reorganization
proceedings of the debtor.

Shortly after initial default on the second mortgage
debt, the railroad was placed in receivership. This receiver-
ship continued until 1941, when the present proceeding in
bankruptcy was filed under Section 77 in the Federal Court
for the Southern District of Florida. See Note 1, R., Vol.
III, p. 529.

(c) Proceedings before the Interstate Commerce
Commission.

Immediately upon the filing of this bankruptcy proceed-
ing, a Deposit Committee for the First and Refunding five
percent bonds, composed primarily of representatives of
New York banks and national insurance companies, sub-
mitted a plan of reorganization of the debtor, which, in
turn, was referred to the Interstate Commerce Commis-
sion for consideration. R., Vol. III, pp. 529-30, Vol. II,
p. 321. This plan assumed that the permissible capitaliza-
tion of the debtor was less than the amount of the two
mortgage debts and that the real owners of the equity in
the debtor were the First and Refunding bondholders. R.,
Vol. III, pp. 539-42. While such plan was under considera-
tion by the Commission, the so-called duPont interests,
represented here by the respondent, St. Joe Paper Com-
pany, submitted an alternative plan of reorganization,
under which the first mortgage debt would have been un-
disturbed, the second mortgage creditors would have re-
ceived for their interest new bonds and common stock of
the reorganized debtor, and additional common stock would
have been sold at par for cash to the duPont interests to
secure new money to finance the needed improvements of
the debtor’s road. This additional common stock, to be
sold for cash under the alternative plan, would have
amounted to about fifty percent of the outstanding equity
capital of the debtor. R., Vol. III, pp. 543-8.

a

This alternative plan of the duPont interests was vigor-
ously assailed by the five percent committee because it
would have involuntarily transferred control of the debtor
from the First and Refunding bondholders—who were, it
contended, the real owners of the equity in the debtor—to
the duPont interests in violation of the constitutional and
equitable rights of such bondholders. R., Vol. I, p. 439.
Vol. III, pp. 550-1. In its First Report in this proceeding
(filed April 6, 1942), the Interstate Commerce Commis-
sion unanimously upheld this position of the Committee
that it would be alike illegal and inequitable to divest the
First and Refunding bondholders of their right of control
and their equity and disapproved the alternative plan.
R., Vol. III, pp. 564, 578. Under the plan approved by the
Commission at this time, the valuation or ‘‘permissible
capitalization’’ of the debtor was fixed at approximately
$37,000,000. R., Vol. III, p. 576. The first mortgage debt
was not to be disturbed, though provision was made for
the issuance of $6,000,000 additional fixed interest first
mortgage bonds to finance improvements of debtor’s line
or a total of authorized fixed interest debt of $18,000,000.
R., Vol. III, pp. 589-92. The First and Refunding bond-
holders were to receive all remaining capitalization, di-
vided into income bonds and common stock. All unsecured
indebtedness of and the stock in the debtor were found
worthless. This plan, which recognized and gave effest to
the ownership of the equity in the debtor by the First and
Refunding bondholders, was certified to the District Court
for approval.’

At this point in the proceeding, the duPont interests
purchased from the banks and insurance companies, whose
representatives composed the five percent committee, their
bonds and thereby became the owner of a majority of the
First and Refunding bonds. R., Vol. I, pp. 152-3. Since that
time, the Committee has claimed the right to represent an
insignificant number of bonds, the owners of which appar-
ently are not readily available or had refused to follow

rH a cn eR

?In this Report, the Commission said that “we find that, within the recom-

mended permissible capitalization and annual charges, the first and refunding
mortgage bond-holders are entitled to the —. ba 3 in ge ‘Sggetty remain-
: ing after satisfaction of prior indebtedness.” R., Vol. III,

tt

a — en
5

the Committee’s recommendation that they sell their bonds
to the duPont interests. R., Vol. II, pp. 353-4.

Before this first plan of reorganization was submitted
to the District Court, there was a substantial improvement
in the financial condition of the debtor. The Court accord-
ingly disapproved the plan and remanded the proceed-
ings to the Commission. R., Vol. I, pp. 151-2. :

When the Commission resumed its hearings upon this
recommital, all parties agreed—including the Safe Deposit
Trust Company which owns control of the Atlantic Coast
Line—that duPont control was in the public interest. See
R., Vol. I, pp. 153-4, 185, 347, 372; Atlantic Coast Line R.

Co. Purchase, 261 I. C. C. 820. The only plan considered
was one which provided for (1) the use of most of the ;
available cash, accumulated from earnings of the debtor,
to pay off in full the first mortgage debt and to defray
about $8,000,000 in improvements, and (2) the distribu-
tion of the permissible capitalization of the debtor, con-
sisting of bonded debt and stock of the reorganized debtor
among the First and Refunding bondholders, whose debt
exceeded considerably the ‘‘permissible capitalization’’ of
the debtor. R., Vol I, p. 173. After the hearings on this
new plan of reorganization had been concluded, S. A.
Lynch, the owner of certain First and Refunding bonds—
following negotiations with the Coast Line—filed a peti-
tion to reopen the hearing in order to permit the filing of
an alternative plan under which control of the debtor
would pass to the Coast Line. It was to permit the filing
of a supporting brief to this petition of Lynch that the
Coast Line was allowed to intervene. R., Vol. III, p. 747.
Under this alternative plan, the debtor would have issued
certain bonds and preferred stocks, all of which would
have been received and held by the First and Refunding
bondholders, and $6,000,000 par value common stock, of
which the bondholders would have been obligated to sell
$3,600,000—that is, control of the equity—to the Coast Line
for cash at par. R., Vol. I, pp. 187-93. This was much the
same proposal submitted by the duPont interests at the :
time of the consideration of the first plan of reorganiza- :
tion. '

| By

Again, this new attempt to take from the First and Re-
funding bondholders the control and ownership of the
debtor was promptly rebuffed by the Commission, which
said in its unanimaus opinion (R., Vol. I, pp. 191-2):

‘“‘The proponents of the Lynch plan contend that the
sale at a price of $100 per share of 60 percent of the
common stock allotted to the first and refunding
bondholders would represent the full value of the
stock based on the total capitalization provided for
in the plan and that the owners of the stock there-
fore would receive full compensation for the sur-
render of their shares and would have no legal right
to complain. We are not convinced by this argu-
ment. All the securities to be issued under the plan
taken at par will fall far short of satisfying the
amount of the claim of the first and refunding bond-
holders. If, in the view of such bondholders, the pros-
pects of future earnings or the control value are
such that the stock later may have a market value
in excess of par, and they desire to hold the stock
to realize the higher price, they should be at liberty
to do so, as they would not be reimbursed in full on
their claim by accepting $100 per share for stock
representing a part of their share of the debtor’s
estate.’’

It will be noted that thus, in two separate and unani-
mous opinions—one entered in 1942 and the other in 1945—
the Commission had found that it was both illegal and in-
equitable to transfer involuntarily—even for a considera-
tion—the railroad away from the First and Refunding
bondholders, that such bondholders were entitled to own
and control the railroad and that they had the legal and
equitable right to receive, without dilution through forced
sale to any other interests, all future enhancement and
appreciation in the value of the property.

After the filing of this Second Report of the Commis-
sion, the Coast Line, discarding Mr. Lynch and flanked
by Senator Pepper appearing as ‘‘Senator from Florida,”’
filed petitions with the Commission, asking that the pro-
ceedings be reopened to permit the consideration of a pro-

—

7

posal to transfer the debtor to another carrier, obviously
the Coast Line. After an oral hearing, at which Senator
Pepper and representatives of the Coast Line were heard,
the proceedings were reopened. R., Vol. I, pp. 295, 729;
Vol. III, pp. 776-8.

In preparing for the reopened hearings, the Coast Line
purchased two unsecured debts held by the Flagler Estate,
which in its prior reports the Commission had found worth-
less.’ These claims were acquired by the Coast Line ad-
mittedly to give it standing to propose in its own behalf
a plan of reorganization for the debtor. R., Vol. I, pp.
147-9. Accordingly, when the hearings were reopened, the
Coast Line in its new role of an unsecured creditor of
the debtor submitted a new plan of reorganization under
which the debtor would be ‘‘merged’’ with the Coast Line.
Such merger, it was asserted, would achieve substantial
savings for both debtor and the Coast Line, estimated at
about $1,000,000 per year; and it was this claim of sav-
ings through unification that was urged principally on
behalf of the ‘‘merger’’.

This Coast Line plan of ‘‘merger’’ was bitterly op-
posed by (1) all the bondholders of the debtor appearing
before the Commission and representing upwards of eighty
percent of the outstanding First and Refunding bond-
holders, (2) the Railway Labor executives, (3) all con-
necting ard competing rail carriers other than the Coast
Line itself and (4) practically all the shippers to be served.
The supporters of the merger were, of course, the Coast
Line itself, Senator Pepper who appeared not as shipper,
owner of bonds or representative of labor, but under the
title of ‘‘Senator from Florida’’, and the moribund five

*The Commission said in this particular (R., Vol. I, p. 299):

“On October 18, 1945, shortly prior to the date upon which the Coast Line
presented its plan, and about 3 weeks prior to the commencement of the re-
opened hearings, the Coast Line procured assignment to it of two claims on
open account against the debtor, totalling $1,900.000, these claims being pre-
viously filed by Florida Coast Car Ferry Company and by the trustees under
the will of Mary Flagler Bingham.”

See, also, R., Vol. III, p. 747.

The Flagler Estate was the owner of all the common stock of the debtor.
The validity of the unsecured debts of the debtor, acquired by its sole stock-
holder—especially as against other creditors—is open to serious doubt. In re
Loewer’s Gambrinus Brewery Co. (C.C.A.N.Y. 1948) 167 F., (2nd) 318.

ag

can emg E IIT LN EE

——
8

percent committee, whose members had sold either for
themselves or their own institutions all their bonds sey-
eral years before and who were so disinterested that they
have now only an ‘‘acting secretary.’’ R., Vol. I, p. 352.

In connection with the hearings on this ‘‘merger’’ pro-
posal, it was for the first time suggested in this proceeding
that duPont or St. Joe Paper control of the debtor was
against the public interest. R., Vol. I, p. 308. This sug-
gestion did not come from shippers; it was not raised by
the competitor carrier, the Seaboard; it was not charged
by a bondholder. It was introduced by the Coast Line,
which now sought to acquire the property away from its
equitable owners, and by Senator Pepper. After a full
hearing, the Examiner for the Commission, who took the
testimony and observed the demeanor of the witnesses,
filed his Report, reaffirming the previous determinations
made unanimously by the Commission, including the de-
termination that duPont control of the debtor was in the
public interest.. Among other things, he found (R., Vol.
III, pp 797-8) :

‘‘The Commission should find and conclude that the
Coast Line has not shown that its proposals for
satisfaction of the claim of the debtor’s first and
refunding bondholders are fair and equitable and
afford due recognition of the rights which they would

*This claim of incompatible public interest against duPont control was so
tenuous that two previous unanimous decisions of the Commission had found
duPont control actually in the public interest. Unlike the Piedmont & Northern
ora ore (1928) 138 I.C.C. 363, referred to by the appellants at p. 10 of
their brief, the objector is not the debtor’s competitor, the Seaboard. In fact,
the Seaboard sees improper monopoly extended in transferring the debtor to
the Coast Line, thereby giving the latter complete control of the debtor’s inter-
change at Jacksonville. Seaboard objects to Coast Line control; it welcomes
duPont control. This is quite different from the Piedmont & Northern case,
as we have said. See R., Vol. III, pp. 786-90. Moreover, the dominating stock-
holder of the Coast Line had previously taken the position in this proceeding
that duPont control of the debtor was in the public interest. The suggestion
that duPont estate owned a paper mill, together with a telephone line and
small service railroad, located some three hundred miles from debtor's line
hardly fits into the concept of the “commodities clause.” It is true the du-
Pont estate owns control of three banks located in cities served by the debtor’s
railroad and has two or three office buildings. This is a far cry from the
situation required under the “commodities clause.” Basically, the Coast Line
rested its claim of incompatible public interest on the ground that the duPont
Estate is a charitable trust which should not own control of a railroad. This
argument overlooks the fact that the Coast Line itself is controlled by the
Walters trust, which largely is a charitable trust. Such an argument would
disqualify both duPont and Coast Line control.

waa

9

be required to surrender, including the right to con-
trol and manage the reorganized company. While
the Coast Line has stated that it will be prepared
to give immediate consideration to any modification
of the Coast Line plan or any other plan which the
Commission may approve and which will provide for
unification of the debtor with the Coast Line, the
situation here involved as disclosed by the evidence,
would not justify proposal by the Commission of a
modified Coast Line plan which would have the effect
of depriving the debtor’s bondholders of their right
to control the reorganized property and at the same
time speculation as to whether its terms would be ac-
cepted by the Coast Line, such acceptance, being a
necessary condition for the plan becoming effective.
Particularly is this true if the Commission should
find, as recommended herein, that a merger of the
Coast Line with the debtor is not required in the pub-
lic interest.’’

Upon exceptions to the Examiner’s Report, the Com-
mission, though adopting practically all the Examiner’s
statements of facts, reversed his findings based upon such
statements and, in a sharply divided five to four opinion,
found that a so-called ‘‘internal reorganization’’ of the
debtor was impractical and approved, with some modifi-
cations, the Coast Line’s proposed merger. Under this
proposed merger, the debtor’s equitable owners were to
receive the permissible capitalization of the debtor (which
was still fixed at $40,500,000),’ in securities of the merged
road of a par value of $36,375,000 and $4,125,000 cash.
On the other hand, the Coast Line was to receive the

*The "permissible capitalization” authorized in this Third Report was most
conservative. It will be recalled that in the First Report, the “permissible
capitalization” was fixed roughly at $37,000,000. At that time the debtor had
no real working capital and no funds to finance the railroad’s rehabilitation.
When this Third Report was filed, the debtor had spent millions on the im-
provement of its properties and still had a cash fund of $22,000,000—or cash
of considerably more than one-half the previous “permissible capitalization.”
Despite this large amount of cash and substantial improvements in proper-
ties—one of which alone, it was estimated, would increase the debtors’ normal
earnings several hundreds of thousands of dollars yearly—the Commission in-
creased the permissible capitalization of debtor but $3,500,000. Such conserva-
tive capitalization of debtor makes clearer the error of the Commission in re-
fusing to examine the capitalization of the Coast Line in connection with its
proposed “merger.”

a

10

debtor’s railroad free of lien, about $9,000,000 rehabilita-
tion fund and $3,100,000 in supplies and working capital.
There was no valuation of the Coast Line’s properties
made and no estimate of the Coast Line’s normal earning
capacity (which was the basis by which the debtor’s per-
missible capitalization was fixed), and no attempt to make
a fair allocation between the Coast Line’s and debtor’s
owners of the equities in the merged properties. No pro-
vision for sharing by the debtor’s bondholders in the an-
ticipated unification savings by the debtor’s bondholders
was made. All real chance of such bondholders for any
appreciation lay in their relatively insignificant owner-
ship of Coast Line common stock, to be receved under the
merger plan. R., Vol. I, pp. 295-391.

This Third Report of the Commission was reaffirmed
upon rehearing—again in a sharply divided six-to-five re-
port, wherein the Commission held (R., Vol. I, pp. 729-59) :

(1) That the proposed plan of reorganization was
valid and authorized,

(2) That there was provided in the plan ‘‘ Adequacy
of satisfaction of claims of first and refunding
bondholders’’ because
(a) The ‘‘probab!e market value of the securities

to be issued in the reorganization’’ was equal
to or slightly more than the current market
value of the defaulted First and Refunding
bondholders ;

(b) Since many of the First and Refunding bond-
holders purchased their bonds at substantial
discounts and will ‘‘reap substantial profits,”’
‘*that the claim will under the approved plan
be adequately satisfied is obvious.”’

The pithy dissenting opinion is printed as an appendix
hereto.
(d) Hearing on current certified plan of reorgani-
zation of debtor.

This ‘‘merger’’ plan of reorganization was certified by
the Commission to the District Court, before which the
debtor’s reorganization was pending. Seasonable objec-

11

tions to the ‘‘merger’’ as a plan of reorganization were
filed. Such objections came on for hearing before Honorable
Samuel H. Sibley, as District Judge Designate, on January
10, 1949. Considerable testimony was offered in support of
and in opposition to the fairness and equity of the proposed
merger. A new plan of reorganization was proposed by
St. Joe Paper Company, the fairness of which was be-
yond question. New evidence was submitted.

(e) Decision of the District Court disapproving
certified plan.

Upon the basis of the record made before it, as well
as the record certified by the Commission, the District
Court disapproved the certified plan of reorganization
upon three grounds:

(1) That the certified plan was illegal;

(2) That the plan was unfair and inequitable and did
not afford due recognition to the rights of the
bondholders.

(3) That the bondholders of the debtor should not be
coerced into acceptance of the certified plan under
the ‘‘cram-down’’ provisions of Section 77.

(f) Decision of the Circuit Court of Appeals af-
firming the decision of the District Court dis-
approving the certified plan.

Upon appeal by the Coast Line and the 5 per cent Com-
mittee, the decision of the District Court was upheld. The
prevailing opinions of Judges Hutcheson and Russell con-
curred in sustaining the District Court’s decision upon the
grounds that such District Court had properly reviewed
the certified plan for fairness and equity and that such
Court’s conclusion that the certified plan was unfair and
inequitable, and did not afford due recognition to the
rights of the bondholders was not clearly in error. In
fact, Judges Hutcheson and Russell went farther and
stated the categorical opinion that the certified plan was
unfair and inequitable and did not afford due recognition
of the rights of the bondholders, and joined the District
Court in remanding the proceedings to the Commission

;
i
t
;

12

to formulate a fair and equitable plan of reorganization,
just to the bondholders of the debtor.

By their petition to this Court, the petitioners seek to
review and reverse those conclusions. It should be ob-
served that this petition joins the Coast Line and its
‘*faithful ally’’, the five percent committee as petitioners.

SUMMARY OF ARGUMENT

So far as this petition is concerned, and at this junc-
ture of the proceedings, the only issues involved center
upon the right of the Petitioners to appeal and upon
whether the District Court had the power to review the
certified plan in the manner and to the extent expressly
provided by subsection (e) of Section 77 in order to de-
termine whether such plan ‘‘is fair and equitable, affords
due recognition to the rights of each class of creditors and
stockholders, and will conform to the requirements of the
law of the land regarding the participation of the various
classes of creditors and stockholders.’’

It is the position of this respondent that the Petitioners
have no appealable interest and that the District Court
had the power expressly given him by the statute to re-
view the fairness and equity of the certified plan. Either
fact is sufficient to deny the Petition.

ARGUMENT

A. The Petitioners have no appealable interest in the

proceedings.

The right of either the Committee or the Coast Line to
appeal was seriously assailed in the Circuit Court. That
Court chose to pass over such question and to decide the
cause on the merits. The right of the Petitioners to ap-
peal remains in dispute on this petition and is denied by
this respondent.

It is settled that ‘‘a party has an appealable interest
only when his property may be diminished, his burdens
increased or his rights detrimentally affected by the order
sought to be reviewed by the appeal.’’ In re Michigan-

13

Ohio Building Corp. (C.C.A. Ill. 1941) 117 F. (2d) 191,
193.

So far as the petitioner Committee is concerned, it
avers in its petition that ‘‘its sole interest’’ in this appeal
is to obtain the best possible treatment for the bondhold-
ers in whom it is interested. Page 6 of the Petition. But
the ‘‘sole basis for the affirmance’’ of the District Court
by the Court of Appeals was, as the Petition affirmatively
says, its conclusion ‘‘that the Plan was not fair and equit-
able to the bondholders (of the Florida East Coast Rail-
way Company) and does not afford due recognition to
the rights of refunding bondholders.’’ Page 15 of the Peti-
tion. The Circuit Court upheld the District Court’s re-
mand of the proceedings to the Commission in order that
‘‘better treatment’? might be accorded bondholders (in-
cluding those in whom the Committee asserts its interest)
through the formulation of a new plan which Judge Hutche-
son said, would be ‘‘really fair and equitable.’’

The effect of the order appealed from is thus to require
the Commission to prepare a new plan of reorganization
that will be more favorable to bondholders than the instant
certified plan. How can the Committee—if it is genuinely
interested in bondholders,—be aggrieved by such an
Order?

It is significant that the Committee, which busies it-
self so about this appeal, has never consulted its cestuis
que trustent, solicited their approval for its action or ob-
tained a specific authorization for its action in appealing,
by its own admission. And the members of the Committee
own no bonds of their own.

The only justification for its right of appeal, stated
by the Committee in the Petition, is that it ‘‘believes it
(the certified plan) to be the best available for the many
bondholders it represents.’’ Page 6 of the Petition. The
Committee does not assert that the certified plan, disap-
proved by the District and Circuit Courts, is the most
favorable plan for bondholders that can be formulated or
devised by the Commission. It limits itself to the claim
that the certified plan is simply the ‘‘best available’’ (i.e.,
is the better of the two proposed before the Commission).

. a

To sum up, the Committee has no right of appeal be-
cause the result of the-orders appealed from will be ‘‘bet-
ter treatment’’ for bondholders. It cannot be aggrieved
because its bondholders will not have any of their rights
diminished; such rights can only be improved. The Com-
mittee is actually seeking to appeal from a favorable de-
cree. See Public Service Comm. v. Brashear Lines, 306
U. S. 204; In re Schwartz, 89 F. (2d) 172. Nor is the Com-
mittee authorized to file this Petition by any of those who
as bondholders have any interest in this proceeding. Ac-
cordingly, the ‘‘small but faithful ally’’ of the Coast Line
can sustain no right of appeal.

The Coast Line is equally without an appealable in-
terest in this proceeding. On page 1 of the Petition, the
Coast Line states its appealable interest in its status as
the beneficiary of the proposed merger under the certified
plan and as ‘‘an unsecured creditor of Florida East Coast
Railway Company.’’ Heretofore in this appeal the Coast
Line has endeavored to gloss over its character of ‘‘un-
secured creditor’’ in order to escape the scope of Northern
Pacific R. Co. v. Boyd, 228 U. 8. 482. To establish an ap-
pealable interest, however, it proclaims itself ‘‘an un-
secured creditor.’’

But, under the certified plan, the rights of unsecured
creditors are not affected. See R., Vol. I, pp. 365-72 and
744. Their rights attach only to certain disputed assets.
The certified plan did not determine finally whether the
assets were available for unsecured creditors. That is-
sue was left for litigation, which has now been terminated.
Whether the certified plan is approved or disapproved
cannot affect this issue and the Coast Line cannot be
aggrieved as an unsecured creditor by the disapproval of
the certified plan, which makes no provision for unsecured
creditors.

Nor has the Coast Line any standing as one of the
parties to the merger contemplated by the certified plan.
The Coast Line is not a bondholder; it is one who seeks
to acquire the debtor on its own terms. It has submit-
ted an offer in the form of a proposed merger. That offer
has been recommended to the Court in the certified plan.

a ————

15

As Judge Sibley significantly remarked, ‘‘The very ag-
gressiveness of the Coast Line in proposing and defend-
ing this plan indicates that Coast Line in proposing and
defending their plan indicates that Coast Line thinks it
is getting a bargain; that what it gets is not the mere
equivalent of what it pays, but much more.’’ R., Vol. II,
p. —.

It has several times revised its offer to extend more
favorable terms to the bondholders. During the hearing
before the Examiner upon the Coast Line’s proposed plan,
the Coast Line modified its plan by offering to pay $3,-
000,000 in cash. After the Commission required addi-
tions to this, the Coast Line eagerly increased its offer.
It is an eager bidder, whose bid, upon consideration by
the Court, has been rejected by the Court. It has no right
of appeal from such rejection. Harduval v. Merchants &
Mechanics’ Trust and Savings Bank (1920), 240 Ala. 187,
86 So. 52; Spangelo v. North Dakota Ry. Co. (C.C.A.N.D.,
1921), 276 F. 26.

a

B. Theory of petition is that District Court was without
power to review the unfairness of the plan.

If, however, the right of the petitioner to appeal be
assumed arguendo, the Petition herein is without merit.
The theory upon which the Petitioners ask this Court
to review the decisions of the lower Courts is, basically,
that those Courts erroneously held the same view ‘‘as that
held by those who, prior to the decisions of this Court in
the Western Pacific and Milwaukee cases, asserted that
under Section 77 the Commission and the Court had co-
ordinate jurisdiction to determine whether a plan was
fair’’ (Brief, p. 21) and that such erroneous opinions
‘‘will not only substantially veto this Court’s opinions in
the Western Pacific, Milwaukee and Denver cases so far
as the Fifth Circuit is concerned, but that they will cause
confusion and uncertainty in other Circuits.’’ Brief, p. 22.

The Petitioners contend by their petition that the func-
tion of the District Court, in reviewing a certified plan of
reorganization under Section 77, is strictly limited to de-

_——

16

termining whether the Interstate Commerce Commission
‘‘had failed to follow the statutory mandates or lacked
material evidence to support its conclusions.’’ Brief, pp.
21, 26. Beyond that function, the District Court, it is con-
tended by the Petitioners, is vested under the statute with
no authority to consider or pass on the fairness and equity
of a plan of reorganization certified to it by the Interstate
Commerce Commission and, most particularly, it is not
permitted to exercise any ‘‘independent judgment’’ there-
on. In short, the Court has no greater power over the
certified plan of reorganization than the Circuit Court
of Appeals has over decisions of the National Labor Re-
lations Board, according to this argument of the Petition-
ers.

This attack by the Petitioners upon the right of the
District Court to review the certified plan for unfairness
and inequity presents the sole and exclusive basis for the
grant of the writ sought. That was, as we have seen, the
ground upon which the majority of the Circuit Court of
Appeals concurred in upholding the District Court. If the
District Court and the Cireuit Court were correct in dis-
approving such plan on that ground, it is useless to con-
sider the other and additional reasons assigned by the
District Court for its disapproval. Those other and ad- |
ditional grounds could be availed of by the appellees upon |
appeal solely to sustain the decision of the District Court. |

But whether correct or not, they will not support an
application by the Petitioners for certiorari, for the de-
cision of the lower Courts could be adequately sustained
upon the ground asserted by the majority of the Circuit
Court of Appeals. The petition herein must stand or fall
upon the Petitioners’ challenge to the authority of the
District Court to disapprove the certified plan for unfair-
ness and inequity, on the record.

The proper application of the ‘‘cram-down’’ provision |
of Section 77 and the relevancy of the Old Colony case to |
the legality of the certified plan, are accordingly beyond
the proper scope of this application and can only become
pertinent if the Petitioners have stated a ground for the |
writ sought on the basis of their contention that the Dis-

—7_—

17

trict Court improperly considered the fairness of the cer-
tified plan.

C. The Dictrict Court has authority to review a plan of
reorganization under Section 77 for fairness and equity.

It were well at the outset of this discussion to set apart
the powers of the District Court under Section 77 over
determinations of valuation and public interest by the
Commission from those dealing with the general fairness
and equity of the certified plan. Subsection (e) of Sec-
tion 77 confers on the District Court no authority to re-
view generally valuations and issues of public interest
resolved by the Commission in reorganization proceed-
ings. The rule urged by the Petitioners applies to such
judgments of the Commission Those determinations by
the Commission, it is settled, «re binding upon the Court
if arrived at in accordance with the statutory standards
and upon substantial evidence. So much the District
Court in this cause clearly recognized. At the very out-
set of his opinion Judge Sibley said (R., Vol. II, pp. 474
dD):

‘‘T have no function to review the matter of com-
patibility with the public interest of the plan, or the
valuation of the property involved unless on the
question of unconstitutional taking of it; but I should
independently consider those matters which the statute
requires me to be satisfied about.”’

It may be helpful, also, to ascertain the accepted defi-
nition of valuation within the contemplation of the fore-
going rule. In its Fourth Report in this proceeding, the
Commission said: ‘‘Value for reorganization purposes,
physical value, and market value, are each entirely dif-
ferent, and we can concern ourselves only with the first’’
(italics added). R., Vol. I, p. 736. The term ‘‘value for
reorganization purposes’’ which the Commission has said
was the only valuation made by it and with which it could
be solely concerned in this proceeding, was given this
fixed meaning by the Commission: ‘‘In any reorganization
‘value for reorganization purposes’ simply means ‘maxi-

. rT

mum permissible capitalization’ ’’. R., Vol. I, p. 735. Ac-
cordingly, the ‘‘maximum permissible capitalization’’ of
the debtor and the public interest involved in debtor’s oper-
ations are reviewable by the District Court only for ob-
servance of legal standards and for substantial evidence.

But, unlike its provisions with respect to permissible
capitalization and public interest, Section 77 is not silent
upon the power of the District Court over the fairness
and equity of the certified plan. On the contrary, it speaks
out with both clarity and directness in what Judge Hutche-
son so aptly described as ‘‘plain and unambiguous langu-
age.’’ The Petitioners themselves conceded in their brief
filed in the Circuit Court in this case that the District Court
had full power to review the fairness of a certified re-
organization plan under the plain language of the statute,
for the Coast Line argued at page 173 of its brief in that
Court that the District Judge had erred in ‘‘concluding
that the statutory provisions (giving the District Court
authority to review the fairness of the plan) were to be
followed as written.”’

This admission that the plain language of the statute
vests the District Court with authority to review the fair-
ness of the certified plan is demanded by the unqualified
words of subsection (e) of Section 77. This subsection
requires the District Court, preliminary to approval of
the certified plan, to satisfy itself that the certified plan
‘‘is fair and equitable, affords due recognition to the
rights of each class of creditors and stockholders and
does not discriminate unfairly in favor of any class of
creditors or stockholders, and will conform to the re-
quirements of the law of the land regarding the partici-
pation of the various classes of creditors and stockhold-
ers.’’ No support for the appellants’ argument is thus to
be found in the statute itself. On the contrary, the statute
contradicts their argument. So much they admit for, in
fact, their argument rests, as we have seen, largely upon
the contention that the statute has been construed and is
to be construed in contradiction of its plain import.

Actually, the Interstate Commerce Commission assumes
for itself none of the broad powers asserted for it by the

a —

19

Petitioners and seemingly recognizes that the District
Court has the authority to review the fairness and equity
of a certified plan of reorganization under Section 77.
The dissenting opinion filed in connection with the Fourth
Report of the Commission herein was written by Com-
missioner Mahaffie, for years the head of the Finance Di-
vision of the Commission, who, along with Commissioner
Eastman, sponsored the enactment of the railroad re-
organization statutes (often spoken of as the ‘‘Mahaffie
Acts’’). In that dissenting opinion, filed on behalf of five
members of the Commission, Commissioner Mahaffie said
(R., Vol. I, p. 747): ‘*It should be remembered that the
‘fair and equitable’ finding is required to be made not
only by us but also by the court.’’ Beyond question, this
quotation shows that Commissioner Mahaffie and those
commissioners joining with him recognized that the Dis-
trict Court had full ‘‘concurrent’’ power to review the
certified plan for fairness and equity, and had the right to
exercise an independent judgment on such issues. To that
statement by Commissioner Mahaffie, the majority opinion
of the Commission took no exception. It seems fair to as-
sume then that it accepted Commissioner Mahaffie’s con-
struction of the District Court’s power.

Nor can the appellants justify their proposed construc-
tion of the statute by reference to the legislative history.
The legislative history of Section 77, as it deals with the
respective functions of the Commission and the Courts
in reviewing plans of reorganization thereunder, was care-
fully detailed by Mr. Justice Reed in his able opinion in
Ecker v. Western Pacific Ry. Co., 318 U. S. 448, at pages
469 to 475, inclusive. Preleminarily, he marked out the re-
strictions under the District Court’s jurisdiction over the
Commission’s determinations of permissible capitalization
and public interest. He then passed on to the District
Court’s power under the language of subsection (e) to re-
view the equity of a certified plan. After referring to the
failure of the House in its 1933 version of Section 77 to
include a provision for judicial review of the fairness and
equity of plans of reorganization, Mr. Justice Reed empha-
sized the subsequent Senate amendment endowing the

ee

20

Courts with a ‘‘concurrent’’ right with the Commission
to review independently the fairness and equity of the
plan of reorganization, saying (p. 470):

‘These amendments giving concurrent power to the
Court were adopted by the Senate and accepted by
the House and the bill became the Act of March 3,
1933, 47 Stat. 1475.’’ (Italics added.)

Mr. Justice Reed then turned to the amendments of
1935 and put the matter thus (p. 471):

‘“While the most important amendment was to furnish
means to avoid the obstruction of dissatisfied classes
of creditors or stockholders by making a fair and
equitable plan effective over dissenters, the require-
ments of coordinated action by Commission and Court
was retained.’’

This legislative history, so painstakingly reviewed by
Mr. Justice Reed, shows that it was the plain purpose of
the Congress that the District Court should have the
power of independent review of the fairness and equity
of the certified plan under Section 77.

Nor do the decisions in the Western Pacific (318 U. S.
448) or the Milwaukee cases (318 U. S. 523), upon which
the appellants wholly rely, violate this legislative history
or the ‘‘clear and unambiguous language’’ of the statute
or Commissioner Mahaffie’s administrative interpretation
with respect to the power of the District Court to review
the fairness of the certified plan.

In the Western Pacific case, the District Court, after
remarking on the limited right of review exercised by the
District Court in that reorganization over the ‘‘permis-
sible capitalization’’ of the debtor and over public in-
terest fixed by the Commission, said (p. 467, 318 U. S.):

“Upon the other findings of the Commission, the Dis-
trict Court exercised an independent judgment based
upon the record and the findings of the Commission,
together with additional evidence produced before
the Court by the parties.’’ (Italics added.)

eee

21

The action of the District Court in exercising in that
ease ‘‘an independent judgment upon all’’ findings of
the Commission other than those of valuation and public
interest was thus approved by this Court in the Western
Pacific case, as shown by the quoted sentence. The Western
Pacific case represents an unqualified approval of the
right of the District Court to review independently the
conclusions of the Commission on the fairness of a certi-
fied plan of reorganization. That was just what the lower
Courts did in this case. It cannot, then, be said fairly that
the decisions of the lower Courts in this case ‘‘veto’’ or
violate the conclusions reached by the Court in the Western
Pacific case.

That the decisions of the District Court in this case
conformed with the rule announced in the Western Pacific
case is similarly established by reference to the District
Court’s opinion in the Western Pacific case, which was ap-
proved by the Supreme Court. There the District Court
summed up the respective functions of Court and Com-
mission in these words (34 F. Supp. 493 at p. 504):

‘‘The two issues of (1) amount and character of
capitalization and (2) distribution of new securities are
closely related. The determination of the amount and
character of the capitalization (a legislative function
affecting the public interest) is exclusively within the
province of the Commission. The only qualification,
if any, is that the Court shall independently determine
whether, in the exercise of its jurisdiction, the Com-
mission has acted fairly, within the bounds of the
Constitution and not arbitrarily. The determination
of the questions relating to the distribution of the new
securities, including legal’ priorities and allocations,
involves private rights and is a judicial function, with-
in the province of the court. . . . While the decision
of the Commission in the premises is advisory only,
it was of inestimable value to the Court in enabling
it to see the whole picture and arrive at a decision.”’

To summarize, this District Court decision, which was
upheld by this Court, held that the permissible capitaliza-
ton of the debtor, and the public interest, were within

~ aan

22

the special province of the Commission, to be reviewed
by the Court for want of material evidence or failure to
observe the statutory standards, but in all other fields,
such as the equitable equivalence of the securities offered,—
in short, the balancing of all ‘‘private rights’’ along lines
of fairness and equity in the allocation of securities,—the
findings of the Commission are ‘‘only advisory’’ to the
Court, which should and will exercise its independent judg-
ment.

The Milwaukee case with equal clearness supports the
conclusion reached by Judge Sibley on his jurisdiction to
exercise an ‘‘independent judgment”’’ on the fairness and
equity of the certified plan. In that case, Mr. Justice
Douglas, after an extensive independent review of the
adequacy of the treatment of the general mortgage bond-
holders—in large part, one of the basic issues presented
to Judge Sibley in this case—, remanded the cause to the
District Court, saying (p. 571, 318 U. S.):

‘*The Commission and the District Court should de-
termine what the general mortgage bonds should re-
ceive in addition to a face amount of inferior securi-
ties equal to the face amount of their old ones, as
equitable compensation, qualitative or quantitative,
for the loss of their senior rights.’’ (Italics added.)

In determining the adequacy of a creditor’s treatment,
‘*equitable equivalence’’ and like questions, it will be noted
that the Court ‘‘brigaded’’ (Palmer v. Mass., 308 U. S.
79 at p. 87) the Commission and District Court, treating
them as having ‘‘concurrent’’ and ‘‘coordinate’’ jurisdic-
tion, charged, each obedient to its own procedure and in
accord with its own judgment, to pass on the issue. Cer-
tainly this language from the Milwaukee case does not
indicate that the role of the Court under Section 77 in
dealing with the fairness and equity of a certified plan is
that of a ‘‘rubber stamp’’ any more than it is that of ‘‘a
ministerial register of the vote of the several classes of
security holders’’ under old Section 77b. See Case v. Los
Angeles Lumber Products Co., 308 U. 8. 106 at p. 114. It
clearly shows that the District Court is expected to exer-

23

cise an ‘‘independent judgment’’ on the fairness and
equity of the certified plan.

The Petitioners, in their brief, quote from Mr. Justice
Douglas’ opinion in this Milwaukee case. P. 17, Petition-
ers’ Brief. The point of such quotation for their argu-
ment is not clear. If the purpose was to throw light on
the judicial functions in railroad reorganization, it is
singular that Petitioners omitted the succeeding sentences
which dealt specifically with this question. To fill out the
quotation, Mr. Justice Douglas said at pages 565-6, 318
U. S.:

‘It is sufficient that each security holder in the
order of his priority receives from that which is avail-
able for the satisfaction of his claim the equitable
equivalent of the rights surrendered. That requires a
comparison of the new securities allotted to him with
the old securities which he exchanges to determine
whether the new are the equitable equivalent of the
old. But that determination cannot be made by the
use of any mathematical formula. Whether in a given
case senior creditors have been made whole or re-
ceived ‘full compensatory treatment’ rests in the in-
formed judgment of the Commission and the District
Court on consideration of all relevant facts.’’ (Italics
added. )

The Milwaukee case as the above quotation so clearly
shows, contemplates that the Court, equally with the Com-
mission, shall exercise an independent and coordinate juris-
diction to determine the fairness and equity of the certi-
fied plan and to determine whether bondholders have re-
ceived ‘‘full compensatory treatment.’’ The decisions of
the lower Courts in this proceeding followed with exacti-
tude that rule.

That this construction of the Western Pacific and Mil-
waukee cases, which we have outlined, is the proper one
seems settled by the language of this Court in Comstock
v. Group of Investors, 335 U. S., 211, where Mr. Justice
Jackson, speaking for a majority of the Court, said (pp.
226-7) :

‘‘We think that, in the reorganization proceedings,

ay

24

the courts may entertain on their merits objections
to a plan even if made by one who might be barred
from asserting a cause of action in his own behalf,
if the subject-matter of the objections is such that it
goes beyond the objector’s individual interests and
affects the fairness and equity of the plan....

‘‘In view of the functions cast upon the court in
such cases, we cannot say that it may not, in its dis-
cretion, consider objections on their merits even though
they have not been presented to the Commission. Some
circumstances might be disclosed to indicate a remand
for their consideration by the Commission. Th
might indicate that the courts would withhold ap-
proval, not out of deference to the objecting parties’
rights but because of the broad responsibilities laid
upon the court for the equity and fairness of the plan
as a whole.’’

Re Chicago, R. I. & Pac. Ry. Co. (D. C. IL, 1943) 50 F.
Supp. 835, represents an application of the rules enumer-
ated in the Western Pacific and Milwaukee cases on the
respective powers of Commission and Court. Leading
counsel for the Coast Line represented the Protective Com-
mittee for the general mortgage bonds of the debtor in
that case. He vigorously assailed the Commission’s find-
ing that the bondholders represented by him were receiv-
ing ‘‘full satisfaction’’ under the certified plan. See page
855, 50 F. Supp. He asked the Court, in the exercise of
its independent judgment, ‘‘to determine whether the senior
issue has received ‘full compensatory treatment’.’’ Page
856, 50 F. Supp. And the Court accepted counsel’s con-
struction of its powers, observing, ‘‘ Assuming this state-
ment to be a specific finding of full satisfaction, or full
compensatory treatment, it remains for the court to de-
termine whether the Commission was correct on this point.’’
Page 856, 50 F. Supp.

And the Court proceeded to find that there was not
‘full satisfaction,’’ ‘‘equitable equivalence,’’ ‘‘full com-
pensatory treatment,’’ because, while the senior creditors
were given securities of the par value of their full debt
with interest, the actual value of such securities was less

25

than the full amount of their debt with interest and junior
creditors could not accordingly take. Page 856, 50 F. Supp.

In reality, the Petitioners acted, during the proceed-
ings before the District Court, upon the assumption that
the District Court was charged with an independent re-
sponsibility for the fairness and equity of the certified plan.
They did not assume that the District Court was precluded
from inquiring into such fairness by the conclusions of the
Commission. They called as a witness before the District
Judge, Mr. Stott, a statistical employee of J. P. Morgan
& Company, filling in as the ‘‘acting Secretary’’ of the
petitioner Committee. Mr. Stott restated the estimate of
income return from the securities to be distributed among
the debtor’s bondholders under the certified plan incorp-
orated in the report of the Commission and, on the basis
of such estimates, gave his reasons for concluding that
the certified plan was fair and equitable. If the District
Court had no right to review the fairness and equity of
the certified plan, why did the petitioners call Mr. Stott
as a witness and offer his testimony on the fairness of
such plan?

And, as Judge Sibley sagely remarked, for that mat-
ter, why would the Act permit the District Court to re-
ceive such evidence as that of Mr. Stott, if that Act did
not intend that the District Court should review the fair-
ness of the plan?

Counsel for the Petitioners seeks to gather authority for
their position from this single sentence, detached from
its context, in the first opinion in the Denver and Rio Grande
Reorganization, 328 U. S. 495 at p. 509:

**‘To the courts, Congress confided the power to
review the plan to determine whether the Commission
has followed the statutory mandates of subsection (e)
318 U. S. at page 477, 63 S. Ct. page 709, 87 L. Ed.
892, and whether the Commission had material evi-
dence to support its conclusions. 318 U. S. at page 477,
concurring opinion at page 512, 63 S. Ct. at page 709,
concurring opinion at 725, 87 L. Ed. 892.’’

This quoted language, as the citation set forth therein
evidences, dealt with the Court’s power in connection with

26

the valuation, i.e, permissible capitalization, of the
debtor’s property. Page 477 of 318 U. S., to which the quoted
excerpt refers, is restricted to a discussion of the review-
ability of the valuation of the debtor made by the Commis-
sion. In fact, it is headed, ‘‘Method of Valuation.’’ The
Court’s discussion of the respective powers of Commis-
sion and Courts, on the other hand, appears on pages 471-4
of the cited opinion. This quotation is without applica-
tion to the District Court’s power to review a plan for
fairness and equity; it is limited to the problem of valua-
tion or permissible capitalization.

Petitioners, also, would bulwark their argument with
Securities and Exchange Commission v. Central Illinois
Securities Corp., 69 S. Ct. 1377. It must be noted that the
issue of reviewability of administrative determinations
under the Public Utility Holding Company Act of 1935
in this case turned upon the clear conflict between the
scope of judicial review provided in the case of voluntary
plans submitted by the holding company and that auth-
orized for plans imposed by the Commission. In the latter
case the reviewing court was bound by all factual findings
by the Commission, if supported by material evidence; in
the former case no such limit on judicial power was ex-
pressly included in the statute. The determination made
by the Commission, around which the appeal revolved,
dealt with valuations. The lower Court set aside such
valuations, assuming that since this was a plan submitted
by the holding company, it had the power to reverse the
Commission conclusions for ‘‘colloquial equities.’’

What the Court held was that the two provisions for
review under the Act—both the one covering voluntary and
involuntary plans—were to be harmonized and that both
reviews should be subject to the same limitations, a ruling
which meant that the valuations made by the Commission,
if supported by material evidence, were binding upon the
reviewing court. Such a ruling the Court held was not an
unusual conclusion and instanced, in support of such
statement, the rule in the Western Pacific case, saying
(Page 1393, 69 S. Ct.):

‘*The Commission’s findings as to valuation, which

—_—_—_—_—
27

are based upon judgment and prediction, as well as
upon ‘facts’, like the valuation findings of the Interstate
Commerce Commission in reorganization under 877 of
the Bankruptcy Act, Ecker v. Western Pacific R. R.
Corp., supra, are not subject to reexamination by the
court unless they are not supported by substantial evi-
dence or were not arrived at ‘in accordance with legal
standards’.’’

And the language of the Court on ‘‘colloquial equities’’
is (p. 1406, 69 S. Ct.):

‘*In deciding the case on the assumption that ‘the
inquiry is one of relative rights based on colloquial
equity’ and that the Otis case accorded participation
to security holders in accordance with the standard
of colloquial equity, the District Court erred insofar
as by ‘colloquial equity’ it meant considerations which
do not bear upon the investment or going-concern value
the preferred would have absent the liquidation com-
pelled by the Act.’’

It is clear from the foregoing that the Court did not
disapprove of ‘‘colloquial equities’’ generally; it disap-
proved as irrelevant to the particular inquiry the specific
‘‘colloquial equities’’ envisaged by the lower Courts. This
ease dealt with a problem of statutory construction; it
was not concerned with the broad range of judicial power
imposed by subsection (e) of Section 77.

To summarize the conclusions of the cases reviewed,
the powers of Commission and Court, in reviewing plans
of reorganization under Section 77, are:

(1) In the fields of public interest and valuation, the
Commission acts independently of the Courts, which
have power only to review as to such determinations
for failure to follow legal standards and for absence
of material evidence. As the Court said at page 473,
318 U. S.: ‘None of the findings required of the judge
under subsection (e) relate specifically to valuation,’’
and we may add, public interest.

(2) In all other fields, including the broad equity and
fairness of the plan as a whole, the Courts have, by

28

express delegation under subsection (e) of the Act,
‘‘coordinate’’ and ‘‘concurrent’’ jurisdiction with the
Commission, though, ‘‘As to these,’’ the powers of
the Court ‘‘are negative. It may veto the plan in its
entirety but may improve it only by suggestion. It
becomes a necessary and important factor in railroad
reorganization. These reorganizations may be attained
only through properly coordinated action between the
Commission and the Court.’’ 318 U. S. 474-5.

It follows from the foregoing rules that the District
Court had both the power and the duty to determine the
fairness and equity of the certified plan and whether such
plan afforded due recognition to the rights of the bond-
holders. It had before it concededly an ample record on
which to base such determinations. It so determined the
issues adversely to the certified plan. Its decision was both
approved and reaffirmed upon appeal to the Circuit Court,
which held that the certified plan was not fair and equitable
and did not afford due recognition to the rights of the
bondholders. Such determination, so upheld by the Circuit
Court, should not be disturbed by this Court. In the Mil-
waukee Case (318 U. S. 523 at p. 564) Mr. Justice Douglas
said:

‘*But we are not performing the functions of the Dis-
trict Court under S. 77 (e). Our role on review is a
limited one. It is not enough to reverse the District
Court that we might have appraised the facts some-
what differently. If there is warrant for the action
of the District Court, our task on review is at an
end.’’

This issue of the fairness and equity of the certified
plan is one of fact. Such issue has been resolved by un-
equivocal concurrent findings of fact by the two lower
Courts. That concurrent determination will not ordinarily
be disturbed. As this Court said in Geddes v. Anaconda
Copper Mining Co. 254 U. S. 590:

‘*With this conclusion we agree, applying the settled
rule of this Court that in suits in equity concurrent
findings by two courts on a question of fact will be

29

accepted unless it be clear that their conclusion is
erroneous.”’

The Petitioners do not argue that the District Court
did not have a factual basis for its determination; it rested
its petition upon the legal ground that the District Court
was without power to review the fairness and equity of the
certified plan. It is thus conceded that there is warrant
in the record for the District Court’s determination. Ac-
cordingly, to use the language of Mr. Justice Douglas, the
task of this Court ‘‘on review is at an end’’ and the peti-
tions should be denied.

Respectfully submitted,

James F. Byrnes,
Gites J. Parrerson,
DonaLp RvussELL,
Attorneys for Respondent,

St. Joe Paper Company.
March, 1950.

30

APPENDIX A
The dissenting opinion as to the Fourth Report of the

Interstate Commerce Commission is as follows (R., Vol. I,
pp. 745-7):

‘Here the Atlantic Coast Line is an applicant seek-
ing to acquire the railroad property being reorganized.
It is certainly in no more favored position than would
be the holder of a junior claim or a stockholder. The
creditors under the plan now approved receive much
less ‘in value than the face of their claims.’ The re-
port relies on the theory that the creditors are entitled
to receive only the equivalent of the face amount of re-
organization securities as fixed by us, which equivalent
may be, and in this instance is, very much less in market
value than either the face of the claims or the value of
the property for reorganization purposes as found by
this Commission. The latter figure is $40,500,000. This
is based on the Commission’s estimate of normal future
earnings and is sometimes described as the capitalizable
value of the property. The effect of the finding is that
securities of that total amount may properly be issued
in the reorganization. The report attributes to the Coast
Line securities to be paid for the property a value of
approximately $31,000,000. The question presented is
whether the persons who normally would be entitled to
receive the $40,500,000 of securities found by us to be
properly issuable, and the resulting control of the prop-
erty, may be required to give up that control and to
accept instead Atlantic Coast Line securities having a
value much less than that amount. On this point the
holding of the Supreme Court in the Boyd case, supra,
is of interest:

‘If the value of the road justified the issuance of
stock in exchange for old shares, the creditors were
entitled to the benefit of that value, whether it was
present or prospective, for dividends or only for
purposes of control. In either event it was a right
of property out of which the creditors were entitled
to be paid before the sotckholders could retain it for
any purpose whatever.’ (Page 508.)

31

The Boyd principle is the authoritative test of what
is fair and equitable. It is difficult to see how it can be
subordinated, as seems to be done in the report, to the
Commission’s finding of what is required by the public
interest. It should be remembered that the ‘fair and
equitable’ finding is required to be made not only by us
but also by the Court. Apparently to buttress the public
interest finding the report adopts a novel theory as to
what treatment legally satisfies a prior claim. After
discussing at some length the prices paid by some of
the security holders for some of their holdings and their
possible profits on such holdings, the conclusion is
reached that ‘the preponderance of the creditors, instead
of suffering losses, will reap substantial profits.’ It is
then found ‘That the claim of the First and Refunding
bondholders will, under the approved plan, be adequate-
ly satisfied is obvious.’ This remarkable finding seems
to be based on an appendix attached to the summary
of the argument of counsel for the Coast Line. It is
not of record in this proceeding. And even if the facts
stated in it were proven they would not afford a valid
basis for the finding above set out.’’ (Italics added.)

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386417_0010%3A4. Public record. Not legal advice.