Case ID: misc_52/html/0195-01.html
Source: Caselaw Access Project
Author: {"author": "Pound, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

The Central Trust Company of New York, Plaintiff, v. The Pittsburg, Shawmut and Northern Railroad Company, Shawmut Mining Company, The Kersey Mining Company and Hamilton Trust Company, Defendants.
    (Supreme Court, Allegany Special Term,
    December, 1906.)
    Constitutional law — Provision relating to regulation of commerce ■— Railroads and other carriers.
    Receivers — Administration and management of the property — Author- and powers in general — Continuing business.
    AThere mining properties controlled by a railroad company are located in one State and it has a terminus in another State to which coal from its mines is transported, it is engaged in interstate commerce; and the provisions of the Hepburn Act, commonly known as the “ Rate Bill,” which was passed by Congress June 29, 1906, although all the coal mined by the railroad company is sold at the mine and all its title and interest in the coal cease before transportation, would apply and prevent the company or its receiver from transporting such coal into any other State, y AVhere, prior to the passage of said act, the receiver of the railroad was by order of the court authorized to issue certificates and expend jnoney for the purposes of opening and developing a new mine and improving a line of the road and connecting it with another road, upon the theory that such expenditures were necessary for the safe and present operation of the road, and the bondholders move to have the receiver’s authority rescinded, so far as it relates to said expenditures, upon a claim that, merely because of the changed conditions as to the future due to the said act of Congress, the court in its discretion is warranted in granting the modification asked for, such motion will be denied where it appears that the receiver, after said act takes effect, can profitably work the mines and market the coal without infringing the provisions of said act.
    Motion on behalf of certain bondholders to modify orders of May 11 and 19, 1906, entered herein and affirmed by the Appellate Division on June 1, 1906, permitting the receiver, in the above action to foreclose a mortgage, to issue certificates in the sum of $1,000,000.
    J. H. Metcalf, for motion.
    Frank Sullivan Smith and James McC. Mitchell, opposed.
   Pound, J.

The termini of the railroad of the defendant railroad company are located in Few York and Pennsylvania respectively. The mining properties controlled by it are in Pennsylvania. The railroad corporation is therefore engaged in interstate commerce.

This court has heretofore passed upon the advisability and necessity of the expenditures which the receiver is permitted to make under the orders authorizing and regulating the issue of the receiver’s certificates herein; and this application is based entirely upon the provisions of the Interstate Commerce Act, commonly known as the Eate Bill ” or Hepburn Act, which was passed by Congress June 29, 1906, and which took effect two months later.

The portion of said act bearing upon this application reads as follows: “ From and after May first, nineteen hundred and eight, it shall be unlawful for any railroad company to transport from any State, Territory, or the District of Columbia to any other State, Territory or the District of Columbia, or to any foreign country, any article or commodity other than timber and the manufactured products thereof, manufactured, mined or produced by it, or under its authority, or which it may own in whole, or in part, or in which it may have any interest direct or indirect except such articles or commodities as may he necessary and intended for its use in the conduct of its business as a common carrier.” ,

The moving bondholders contend that the effect of this act is to prohibit, after May 1, 1908, the operation of the coal properties as now operated by the railroad company; and they now apply to have the receiver’s authority to issue certificates and expend moneys rescinded so far as relates to the following purposes:

Opening and developing new mine at Knox-dale and constructing 100 miners’ houses. .. . $158,370
“ Improvements of line of railroad, Hyde to Shelvey Summit, and making connection with Brookville and Mahoning Railroad........ 405,000 ”

except so far as such expenditures have already been made.

It is submitted in the moving papers that, if this act had been in force and before the court for its consideration when these orders were made and if it had been known that the separation of the railroad property from these mining prop erties must be made by May 1, 1908, the court would not have permitted the receiver to expend these amounts, especially the sum of $405,000 for the connection with the Brookville and Mahoning road.

The railroad company defendant owns all the stock of the mining companies defendants, and that stock is covered by the mortgage lien. The foregoing expenditures were authorized on the theory that they were necessary for the safe and present operation of the road and that the value of the lien of the appellants would not be materially affected thereby.

The moving parties state in their brief that they do not base their claim for the modification of these orders upon the ground that the expenditures authorized by said orders will be illegal, or that the money cannot be spent without violation of the said act of Congress. They claim that the court is warranted in now exercising its discretion and granting the modification merely because of changed conditions as to. the future due to said enactment.

The court should be reluctant, in the absence of clear and convincing reasons, not speculative in character, to exercise its discretion to modify orders made after careful consideration and affirmed by the Appellate Division. To justify a modification of said orders it should first appear that the Elepbum Act above quoted applies to the facts disclosed in this case. In my judgment it does so apply.

The section applies, in spirit if not in letter, equally to railroad companies and to receivers of such companies. It cannot be assumed that the State court would permit its officer to disregard the act, even if it had the power- to do so.

The railroad company, owning as it does the entire capital stock of the mining companies, has an interest in the product of the mines. The coal is mined under its authority. Even if, as is set forth in the affidavits read in opposition to this motion, all the coal mined by the railroad company is sold at the mine and all title thereto and interest therein of said railroad cease before the railroad company transports said coal, the railroad company is forbidden by said act to both produce and transport it, and the act applies, the reason therefor not having ceased; i. e., the danger of concealed rebating, favoritism and discrimination which arises when the railroad company both produces and transports the commodity. N. Y., N. H. & H. R. R. Co. v. Interstate Commerce Commission, 200 U. S. 361. The provisions of said act will, therefore, when it becomes operative, affect and regulate the business as now carried on by the receiver.

But it should also appear, to justify the relief sought, that, although the Hepburn Act would apply to the present situation, the receiver cannot after said act takes effect practicably and profitably work the mines and market the coal without infringing its provisions. The act applies in this case only to the transportation of said coal by the railroad company from Pennsylvania into any other State. Congress has no power and has made no attempt to regulate commerce beginning -and ending within the limits of a single State. If the coal may be delivered by the railroad company at its destination within the State of Pennsylvania, or, if not so delivered, may be delivered absolutely without further responsibility therefor to connecting carriers within that State, the receiver can mine and market the coal without engaging in interstate commerce and so without violating the law. The prohibition is not that no railroad company engaged in interstate commerce shall transport coal mined by it, but merely that no railroad company shall transport from one State into another State coal mined by it or under its authority, or in which it has an interest.

The receiver in his answering affidavits establishes that it is possible profitably to mine and market the coal without also transporting it across the State line.

But, even if the receiver could not successfully operate the railroad and mining properties together without engaging in interstate commerce, it does not appear that the mining stock cannot be sold and profitably sold by the receiver prior to May 1, 1908, under the direction of the court, apart from the railroad itself, or that the value of the railroad and of the mines as separate properties will be less than their value' as one property.

In the last analysis, the sole question herein is whether the value of the mortgage lien will be diminished by such expenditures, by reason of the provisions of such act, and I find no facts established herein to justify such conclusion.

The moving parties also ask that the receiver be ordered to file a report showing the amount of certificates issued by him under the several orders of the court, together with the amounts expended by him and the purpose thereof. Such relief would be proper as ancillary to the modification of the original orders; but, independently thereof, it is not shown- how the bondholders generally can be benefited by such information at this time. . The receiver should not, in the absence of cause shown, be required to make such report in the midst of his proceedings under the orders.

Motion denied.