Source: https://supreme.justia.com/cases/federal/us/310/132/
Timestamp: 2019-04-21 21:03:46+00:00

Document:
the amount of the deficit chargeable to the lessor and to impose a first lien on the leased property to secure it, and to do this after proceedings for reorganization of the lessor company under § 77 have been instituted in another district where the leased line is situate. P. 310 U. S. 140.
Certiorari, 309 U.S. 645, to review the affirmance of an order of the District Court in a railroad reorganization proceeding under § 77 of the Bankruptcy Act. The order fixed the amount of a deficit arising from the operation of a leased line and declared it a first lien on the leased property. Only the question of the bankruptcy court's jurisdiction to do this was brought here.
is not before us, for petitioners have brought here only the question of the Connecticut court's jurisdiction to determine the amount of the deficit chargeable to the Boston and Providence, and to impose a lien on its property to secure it. If the Connecticut court has that jurisdiction, it will determine whether the deficit is chargeable to the Boston and Providence when it determines the "existence and extent of the obligation" pursuant to the order of remand of the Court of Appeals.
The controversy has substance because of the contention of the trustees for the Boston and Providence that, as the court charged with the reorganization of that road (the Massachusetts District Court) has "exclusive jurisdiction" under Section 77(a) "of the debtor and its property wherever located," the Connecticut court cannot consider the claims of the New Haven and Old Colony trustees for operating deficits or impose a lien on the Boston and Providence property to secure them.
The lease of the Boston and Providence to the Old Colony is the type of lease covered by the order of June 18, 1936, by which the trustees of Old Colony were authorized to charge operating deficits against the lessor in the event of subsequent disaffirmance of the lease.
lease does not affect the force of the requirement that the operation must continue until a certificate permitting abandonment is issued by the Interstate Commerce Commission. [Footnote 5] The judicial functions of the bankruptcy court and the administrative functions of the Commission work cooperatively in reorganizations. [Footnote 6] Provision is made by the Bankruptcy Act [Footnote 7] for the operation of leased property on surrender. It is under this subsection that respondent claims to have become entitled to the amount sought in the motion for allowance and lien. This subsection modifies pro tanto the rule of the Interstate Commerce Act for operation.
was in the custody of the Connecticut court by virtue of the provision of § 77(a). [Footnote 8] By virtue of subdivisions 77(c)(10) and 77(c)(6), [Footnote 9] it is clear that leaseholds are in some instances to be operated by the lessee's trustees.
"to require that expenses which have contributed either to the preservation or creation of the fund in its custody shall be paid before a general distribution among those entitled to receive it. [Footnote 10]"
Such a power reposes in any court charged with custody of property. It is an in rem jurisdiction springing from possession of the property which is necessary in order that the court may adequately care for the property. Thus, a court having custody of a ship is able to secure wharfage by virtue of its power to decree a preferential payment. [Footnote 11] And here, the court is able to carry out the operation of the Boston and Providence by promising or granting a lien to those who carry out the operation.
"during the pendency of the proceedings under this section and for the purposes thereof, . . . exclusive jurisdiction of the debtor and its property wherever located."
Continental Illinois Nat. Bank & Trust Co. v. Chicago, R.I. & P. Ry. Co., 294 U. S. 648, 294 U. S. 667-675.
"Extension or abandonment of lines; certificate required. -- . . . and no carrier by railroad subject to this chapter shall abandon all or any portion of a line of railroad, or the operation thereof, unless and until there shall first have been obtained from the commission a certificate that the present or future public convenience and necessity permit of such abandonment."
Cf. Seaboard Air Line Railways Receivers Proposed Abandonment, 202 I.C.C. 543; Norfolk S. R. Co. Receivers Abandonment, 221 I.C.C. 258; Meck and Masten, Railroad Leases and Reorganization: I, 49 Yale L.J. 626.
Palmer v. Massachusetts, 308 U. S. 79, 308 U. S. 87, note 14.
"If a lease of a line of railroad is rejected, and if the lessee, with the approval of the judge, shall elect no longer to operate the leased line, it shall be the duty of the lessor at the end of a period to be fixed by the judge to begin the operation of such line, unless the judge, upon the petition of the lessor, shall decree after hearing that it would be impracticable and contrary to the public interest for the lessor to operate the said line, in which event it shall be the duty of the lessee to continue operation on or for the account of the lessor until the abandonment of such line is authorized by the Commission in accordance with the provisions of section 1 of the Interstate Commerce Act as amended."
Thompson v. Magnolia Petroleum Co., 309 U. S. 478; Ex parte Baldwin, 291 U. S. 610; cf. Isaacs v. Hobbs Tie & T. Co., 282 U. S. 734; Green v. Finnigan Realty Co., 70 F.2d 465, 466; In re Chambers, Calder & Co., 98 F. 865.
"The judge may direct the debtor or the trustee or trustees to keep such records and accounts, in addition to the accounts prescribed by the Commission, as will permit of such a segregation and allocation, as the necessities of the case may require, of the earnings and expenses between and to the divisions and parts of the railroad or other property of the debtor which are separately subject to the liens of the various mortgages or deeds of trust, or are separately subject to lease, and may refer to the Commission for its recommendations after hearings thereon if the parties shall so request and/or the Commission determine necessary or desirable, as to the method or formula by which such segregation and allocation shall be made, and thereafter such segregation and allocation may be made at the expense of the debtor's estate."
New York Dock Co. v. The Poznan, 274 U. S. 117, 274 U. S. 120-121.
It may be noted that Congress did not adopt the rule of Gross v. Irving Trust Co., 289 U. S. 342, in this situation. In the Gross case, property of a debtor had been in the custody of a state receivership court prior to the debtor's adjudication in ordinary bankruptcy. It was held that, because of the bankruptcy court's paramount jurisdiction, the administrative expenses of the receivership had to be proved in bankruptcy, and could not be declared a lien by the receivership court on property in its custody.

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