Opinion ID: 1483191
Heading Depth: 1
Heading Rank: 3

Heading: Merits of Appeals.

Text: Of these five appeals, two (Nos. 12,884 and 12,885) present special problems applicable to the participation, accorded by the Plan, to the bondholders of the Central Arkansas & Eastern Railroad Company and of the Stephenville North & South Texas Railway Company, respectively. The three other appeals (Nos. 12,882, 12,883 and 12,886) present the broad contention that the basic valuation by the Commission is too low and improperly excludes the stockholders from all participation in the Plan. The matter now to be considered under this heading will be that urged by the above three appellants in behalf of stockholders. The appeal (No. 12,886) of Mr. Meyer attacks the valuation of the Commission as of the time it was made. All three appeals urge such changed conditions affecting valuation since adoption of the Plan, as require resubmission to the Commission. (a) The valuation by the Commission. The Commission found the value for new capitalization should not exceed approximately $75,000,000.00. Generally, this amount was (as stated by the Commission) the result of consideration of all the data of record on property valuation and past and prospective earnings. Included in the property valuation were: Investment in road and equipment less accrued depreciation ($116,980,340); book value, as of December 31, 1939 ($114,080,573); and reproduction cost less depreciation, as of December 31, 1935 (made by the Bureau of Valuation of the Commission) in a total of $68,523,903. As to past earnings, the ten year period of 1927-1936 was used as a basis although later earnings were also considered. There was a vast amount of evidence bearing upon earnings and upon matters affecting earnings going back as far as 1915. As to prospective earnings, the direct testimony was the estimates of witnesses for the Trustee as to operating revenues for the several years 1937 to 1941, inclusive, and the actual earnings for 1937 to the first four months of 1941. [7] Among other important matters considered were the existing fixed debt charges and the amount the road could safely carry following reorganization. This latter sum was placed at about $1,500,000.00 a year. A supplemental report of the Bureau of Valuation showed deferred maintenance of $3,173,500 had accumulated. After the original decision of the Commission was filed, the proceeding was reopened and much additional evidence introduced. The valuation in the original decision was challenged by several parties but was not modified. [8] This decision was made as of March 9, 1942. (B) Present challenges of valuation. These three appeals urge that change in conditions since such valuation are of such nature and extent as to invalidate the valuation even if it were proper as of the time it was made. Appellant Meyer challenges the valuation as of the time made. The broad difference in the position of Mr. Meyer and of the two other appellants (Debtor and Southern Pacific) is that Mr. Meyer urges strongly the invalidity of the valuation when made while the two other appellants  while not conceding that the valuation was then correct  base their contentions on the proposition that conditions have so changed since the valuation that it is shown to be presently wrong even if it were proper at the time made. This situation thus poses two major problems: (1) Mr. Meyer's contention that the valuation was unsound when made; and (2) the contention of the three appellants of the effect of changed conditions upon the valuation. (1) Validity of the valuation when made. The validity of the valuation of the Commission at the time it was made is challenged upon four general grounds as follows: First, it is contended that, during such period, there was diversion of freight from Debtor causing revenue loss to it, by other railroads controlling Debtor. Second, it is contended that, during this period, certain kinds of freight were forced upon Debtor by a controlling railroad (Pacific) and from carriage of which, Debtor suffered loss in revenue. Third, it is contended that during the period, there was wastage of Debtor's assets by a controlling railroad. Fourth, that there was a continuing conspiracy by those controlling Debtor to use Debtor for their selfish purposes to its harm.