Source: https://supreme.justia.com/cases/federal/us/310/132/case.html
Timestamp: 2016-06-28 13:21:22
Document Index: 100133423

Matched Legal Cases: ['§ 77', '§ 77', '§ 77', '§ 77', '§ 77', '§ 77']

Warren v. Palmer :: 310 U.S. 132 (1940) :: Justia U.S. Supreme Court Center Log In
› Warren v. Palmer
Warren v. Palmer 310 U.S. 132 (1940)
U.S. Supreme CourtWarren v. Palmer, 310 U.S. 132 (1940)Warren v. PalmerNo. 643Argued March 29, April 1, 1940Decided April 29, 1940310 U.S. 132CERTIORARI TO THE CIRCUIT COURT OF APPEALS
Where a railroad system, in a reorganization proceeding under § 77 of the Bankruptcy Act, includes a leased line, operated at a loss and which cannot be operated by its owner, and where, by order of the court, the trustees have rejected the lease but have continued to operate the leased road for the account of the lessor, Page 310 U. S. 133 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. Page 310 U. S. 135
The Boston and Providence Railroad Corporation, in 1888, leased its property, a line of road running between Boston and Providence, for 99 years to the Old Colony Railroad. It has continued as a separate corporation, receiving and distributing its rent, and is not a subsidiary or affiliate of the New Haven or the Old Colony. In 1899, the Old Colony leased its lines, including its leasehold in the Boston and Providence, to the New York, New Haven, and Hartford Railroad for 99 years. The New Haven operated its own and the leased property until it was put into reorganization under Section 77 of the Bankruptcy Act [Footnote 1] in the District Court of Connecticut on October 23, 1935. The trustees of the New Haven operated the Old Colony under the lease until they rejected the lease by order of the court on June 2, 1936. Next day, the Old Colony filed under Section 77 in the same Connecticut court as a subsidiary debtor, the court appointed the trustees of the New Haven trustees of the Old Colony, and, on June 18, 1936, the court ordered the New Haven trustees to continue to operate the Old Colony as an integral part of the New Haven, the operation being for the account of the Old Colony. The order provided that, in the event leases of the Old Colony were later rejected, payments for operating the leased property and payments of rent under the lease would be deemed to have been for the account of the lessor, and could be recovered from the Page 310 U. S. 136 leased property prior to any mortgage or lien thereon. On July 19, 1938, the court directed the trustees of the Old Colony to reject the lease of the Boston and Providence and to continue operation of the road for the account of the Boston and Providence pursuant to Section 77(c)(6). On August 4, 1938, the Boston and Providence was put into reorganization in the District Court of Massachusetts. Previously the system had been operating at a loss, and the trustees of the New Haven and the Old Colony asked the Connecticut court to determine the amount of the deficit attributable to the Boston and Providence for the period from June 4, 1936, to December 31, 1937, and to declare that amount a lien on the Boston and Providence in favor of the New Haven and the Old Colony. On January 16, 1939, the Connecticut court decided that it had jurisdiction to grant the requested lien on the Boston and Providence, although that road was under reorganization in another bankruptcy court, and on April 20, 1939, the court entered an order fixing the amount of the deficit and declaring it a first lien on the property of the Boston and Providence. The Circuit Court of Appeals, holding that the Connecticut court had jurisdiction to determine the lien, affirmed the order of January 16, 1939, but concluded that the Boston and Providence had been given no chance to be heard on the merits of the question, and remanded the later order for a determination of the "existence and amount of the obligation." [Footnote 2]
The obligation on which the claimed lien is based arises, so the trustees of the New Haven and the Old Colony contend, from the operation of the Boston and Providence under Section 77(c)(6) by the Old Colony for the account of the Boston and Providence. Petitioners deny that Section 77(c)(6) was properly invoked, and claim that the deficit is not chargeable to them. This phase of the controversy Page 310 U. S. 137 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.
Railroad reorganization in bankruptcy is a field completely within the ambit of the bankruptcy powers of Congress. [Footnote 3] Under the commerce clause of the Constitution, Congress likewise has exercised its power to provide for the continued operation of interstate railroads such as petitioner. [Footnote 4] The fact that the operator operates under a Page 310 U. S. 138 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.
The property of the Boston and Providence came into the possession of the trustees of the New Haven and the Old Colony and remained there during the entire time covered by the claim. These roads were lessees of the property and debtors under Section 77 in the Connecticut court. It is immaterial what title the debtors had, whether a lease or a fee. The physical property covered by the lease Page 310 U. S. 139 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.
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. Page 310 U. S. 140
The "purposes" of § 77 include the development of a "fair and equitable" [Footnote 13] plan of reorganization. The Massachusetts court is left with jurisdiction to accomplish this, but is bound to recognize the priority of the lien declared by the Connecticut court. By § 77(c)(6), the Connecticut court was given jurisdiction Page 310 U. S. 141 so long as it continued to operate the road to grant a lien for operating expenses prior to any existing claims against the road. The decision of the Court of Appeals that the Connecticut court had jurisdiction to grant the lien sought by respondent is