Document: 417 U.S. 467 94 S.Ct. 2504. 41 L.Ed.2d 243 George P. BAKER et al., Petitioners,v.GOLD SEAL LIQUORS, INC. No. 73—804. Argued April 23, 1974. Decided June 17, Syllabus Petitioners, trustees of a railroad in § 77 reorganization proceeding, brought suit for freight charges against respondent shipper, and counterclaimed cargo loss damage. The District Court granted petitioners' motion summary judgment entry one on their claim another the counterclaim, but set off other, resulting net petitioners some $11,000. Appeals affirmed. Held: erred allowing setoff, since it thereby preference to creditor that happened owe over other creditors did not, thus interfered with Reorganization Court's duty under 77e, 11 U.S.C. 205(e), approve 'fair equitable plan' duly recognizes rights each class stockholders does not discriminate unfairly favor any class. Pp. 468—474. 7 Cir., 484 F.2d 950, reversed. Paul R. Duke, Philadelphia, Pa., petitioners. Theodore J. Herst, Chicago, Ill., respondent. Opinion by Mr. Justice DOUGLAS, announced WHITE. 1 Penn-Central Transportation Co. is bankruptcy Bankruptcy Act, 205. Petitioners are its authorized collect assets, which owed bankrupt debtor. this was $8,256.61 amount undisputed. Respondent filed counterclaim $19,319.42 damage shipments debtor's lines. Its also disputed. 2 asking enter covering admittedly due claimed 3 Previously Third Circuit had prohibited various bank from offsetting claims 315 F.Supp. 1281. Prior decision instant case setoff affirmed Appeals, 453 520. Also prior ruling shippers setting amounts transportation claims. That order, 339 603, 477 841, Court, sub nom., United States Steel Corp. v. Trustees Penn Central Transp. Co., 414 885, 231, 38 137. 4 trustees' resulted $11,017.01. affirmed, we certiorari resolve conflict. 5 We reverse. 6 Ordinarily where court has primary jurisdiction parties subject matter, power clear. Indeed, Federal Rules Civil Procedure may be compulsory. Rule 13(a).1 procedure 68 108.2 problem somewhat different. Liquidation objective. Rather, aim financial restructuring put back into operation going concern.3 entails two basic considerations: First collection keep cash inflow sufficient operating purposes, at least survival levels. second design plan4 creditors5 claimants will approve, pass scrutiny Interstate Commerce Commission, meet fair-and-equitable standards required Act approval, preserve an ongoing public interest.6 8 Section 77a gives 'exclusive debtor property wherever located.'7 205(a). In furtherance long-range responsibilities enjoined secured selling collateral reduce claims.8 It then went bar enforcement liens debtor, taking possession property, or obtaining judgments except specified purposes.9 One seized upon last provision order says 'that suits damages caused trains, buses, provided part: 'All persons, firms corporations, holding heretofore pledged Debtor as security notes obligations account deposit balances credits them hereby (sic) restrained selling, converting otherwise disposing such collateral, credits, part thereof, same, obligation Debtor, until further Court.' 9 persons all whatsoever wheresoever situated, located domiciled, interfering with, seizing, converting, appropriating, attaching, garnisheeing, levying upon, enforcing manner disturbing portion goods, money, balances, choses action, interests, railroads, properties premises belonging to, owner, lessee otherwise, entering way said carrying business commencing continuing proceeding whether decree purpose, means prosecuted competent jurisdiction. . .' jurisdiction,' adjudicate merits declined allow setoff.10 But proof distinct preliminary stage determination what priority, if any, proved receives plan. There hierarchy claims, owner equity coming last. Wages owing workers running trains have high current priority. Secured law priority hierarchy. Unsecured usually pooled together. They receive new securities, perhaps stock. Allowance reduces form guiding principle governing priorities stated 77l(1), 205(e)(1): shall plan 'is fair equitable, affords recognition stockholders, conform requirements land regarding participation classes stockholders.' term equitable' long history Northern Pacific Boyd, 228 482, 33 554, 57 L.Ed. 931, Kansas City Terminal Union Trust 271 445, 46 549, 70 1028, whose fixed been carried 77e our decisions.11 terms product Commission working cooperatively together, New Haven Inclusion Cases, 399 392, 431, 90 2054, 2078, 26 691. interest, well interests issue.12 RFC Denver & R.G.W.R. 328 495, 535, 66 1282, 1303, 1400. allowance disallowance seem minor architectural problem. extent allowed, grants others happenstance owes do not. discrimination policy opposed. As general rule administration Courts, should allowed.13 Reversed. STEWART, whom POWELL joins, concurring result. concludes would grant 'a not,' setoffs disallowed '(a)s administration.' Ante, page. While I agree permitted case, think broad adopted unnecessary reach result, prefer rest my conclusion narrower ground. judicial specifically straight cases, 108, no express approval appears statute reorganizations.1 Lowden North-western National Bank 298 160, 56 696, 80 1114 (1936), control reorganizations 'governs, all, indirection analogy according circumstances. accepted purpose enforced courts equity, differs chiefly greater flexibility, being framed adaptation standardized conditions, varying needs occasion, though remaining constant, like statute, absence deflecting forces.' Id., 164—165, 698.2 By announcing doctrine barring 'general rule' present adopts rationale inconsistent Lowden, quite clearly envisioned case-by-case analysis propriety attempted light considerations. Rather than replacing wholly applied cases involving setoffs, particular facts before us, adequately distinguish situation Lowden3 located.' (Emphasis added.) commonly federal 'property' within meaning section includes intangibles action. See W. Collier, 23.05(4), p. 485 (1971), there cited. follows, therefore, respondent's debt fell jurisdiction' immediately petition reorganization. empower enforce cause see id., 489—490; re Roman, 23 556 (CA2 1928) (L. Hand, J.), certainly protect immunize diminution through counterclaim. To hold function consolidate assets petitioning corporation. Callaway Benton, 336 132, 147, 69 435, 444, 93 553 (1949); Warren Palmer, 310 139—141, 60 865, 868—869, 84 1118 (1940); Ex parte Baldwin, 291 610, 615, 54 551, 553, 78 1020 (1934). matter free doubt, am persuaded fact enjoin debts Central.4 On basis join Court. REHNQUIST, dissenting. question Illinois, wherein money respondent, Seventh Circuit, petitioners, acted permissible limits discretion. most closely point 68a provides: '(a) mutual between estate balance only allowed paid.' dealing applicability reorganizations, said: '(T)he must gather going. exercise power, they find necessary sue, turn right set-off, hand. main initiated time when outcome still unknown unknowable, disposition controversy ex proprio vigore. governs, Northwestern 164, 698, (1936). 'When known, found offer excuse departure which, indicated already, generally, even always, well.' 166, 699. opinion supra, makes mention subsection l 205(l), provides pertinent follows: '(l) Jurisdiction court, duties same voluntary bankruptcy. 'In proceedings consistent provisions powers liabilities creditors, respect his adjudication entered day filed.' 77, turn, Mar. 3, 1933, c. 204, 47 Stat. 1467, added Chapter VIII Act. Any lingering doubt 'voluntary adjudication' refers ordinary dispelled examination 73, first Act: 'Sec. 73. Additional Jurisdiction.—In addition exercised involuntary adjudge bankrupt, original relief debtors, sections 74, 75, Act.' 1467. language more emphatically decision, unconditionally mandate application contained this. Subsection 205(a), giving located,' heavily relies, seems me virtually nothing case. actually constructively commencement proceedings, nor who submitted itself Eastern Pennsylvania. This simple contract trustees, sought concededly valid transit. undoubtedly plenary authority whatever funds might used satisfy trustees. chose action conceivable circumstances could authorize bankrupt's obligor, Lehigh Hudson River 468 430, 433 1972) (Friendly, C.J.). 'Even (the obligor's) refusal were better colorable, remained own; broken promise, and, promisor, liable damages. these means.' 556, 558 J.). Cases (1934), 1118, (1940), reaffirm well-established exclusive. touch chosen convert forum. (1949), fours can hardly support result reached state Georgia board directors corporation leased trackage Railway consenting proposed behalf Georgia, proceeding. litigation ground exclusive court. reversed saying: 'We held nondelegable possession. Thompson Magnolia Petroleum 1940, 309 478, 628, 876; Isaacs Hobbs Tie Timber 1931, 282 734, 51 270, 75 645. question, however, Congress give controversies affect estate.' U.S., 142, S.Ct., 441 (footnote omitted). If accept final word nowhere l, face carry bag baggage, here discretion allowed. Nothing flat effect unless stating allowed.' 474. And answer observation preference, ante, 473, say Act's strictures preferences apply much force bankruptcies yet allows type 'preference' proper showing Illinois satisfied higher made content rely pretense considering matters case-bycase basis. was, opinion, justified authorizing correct affirming judgment. 13(a), compulsory-counterclaim rule, requires defendant plead 'arises out transaction occurrence opposing party's require presence third cannot acquire jurisdiction.' compulsory pending commenced, party attachment process personal rem quasi A thereafter barred, e.g., Mesker Bros. Iron Donata Corp., 401 275, 279. compulsory, ancillary ordinarily Great Lakes Rubber Herbert Cooper 286 631. Under 13(a)'s predecessor 'transaction' flexible comprehend series occurrences logical connection, Moore York Cotton Exchange, 270 593, 367, 720, generally followed lower construing Lakes, supra; Artists Masterpiece Productions, 221 213, 216. 13(b) permits counterclaims, although 'any arising claim.' Thus dispose arose 'same transaction.' Title 108 'a. paid. 'b. set-off (1) provable allowable subdivision g title; (2) purchased transferred him after filing four months filing, view use knowledge notice insolvent committed act bankruptcy.' trustee goes asserts claim, raise he issues difference. Cumberland Glass DeWitt, 237 447, 35 636, 59 1042, construed 'permissive rather mandatory' 'exercises principles equity.' 455, 639. Susquehanna Chemical Producers 174 783. dissent places mistaken reliance argue 68, necessarily applies 77. No cited novel construction indeed very wording clear 'consistent provisions' distinctive purposes different procedures For example, sale hinder obstruct preparation plan, stated: 'It issue injunction presented sustained. opinion. special seeks bring about reorganization, satisfactory end devised. prevent attainment object defeat accomplishment sole section, render futile.' Continental Nat. Rock Island 294 648, 676, 55 595, 606, 79 1110. 420, 2072, Ordinary aims liquidation business. continuation old capital structure respects relative claimants. 77b, 205(b), defines 'plan reorganization.' 'plan' governed 77d, 205(d). 'if receiver appointed approval' treated separate classes. 205(b). Gregg Metropolitan 197 183, 25 415, 49 L.Ed 717. St. Louis S.F.R. Spiller, 274 304, 311, 635, 637, 71 1060, '(B)y established practice, unpaid expenses incurred six appointment receivers. limit observed, few number exceptional character.' 2072. relevant 'If so approved, shall, during pendency located, conferred powers, purpose. Process extend served district.' STEWART correctly notes, infra, 476, settled 10 Baker Southeastern Michigan Shippers Ass'n, D.C., 376 149. Ecker Western 318 448, 477—483, 63 692, 709—712, 87 892; Group Investors Milwaukee 523, 539—541, 727, 737—738, 959; 516—520, 1293—1295, true 101 seq. (now X) 501 Consolidated Products Du Bois, 312 510, 61 675, 85 982. 12 13 1114, contrary. refused certified because know factual raised. Much fashioned field 1936, date decision. contours plans emerged given insight statutory words equitable.' shows justify discrimination. unable conclude, dissent, post, 479 480, mandates bankruptcies. dissent's ingenious reading provide easy semantic solution impressed neither nor, apparently, trial appellate considered bearing based legislative intent Congress, particularly briefing oral argument less-than-pellucid ascribed dissenting These statements concerning were, technical sense, dicta. came questions Eighth dismissed certificate without formally answering 'defective ..' reasoning availability viewed authoritative. See, 1972); Yale Express System, 362 111, 116—117 1966); 783, 787 (CA3 1949). 68.10(2), pp. 898—900, n. 17 (1971). Because need comment strong arguments unfair, see, F.2d, 434, those dealt today. initial approving Central's 21, 1970, following provisions: '9. All jurisdiction, provided, further, title rolling stock equipment conditionally sold take compliance lease conditional contract, affected order. '10. (is) off-offsetting

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