Court Opinion

ID: 9653427
Source: CourtListenerOpinion
Date Created: 2023-08-23 17:46:33.89143+00
Date Added: 2024-06-11T18:12:59.116643
License: Public Domain

L. HAND, Circuit Judge
(concurring).
I agree with my brother Swan’s opinion, and accept it as my own with one exception, and that leads me to the same result, though by a slightly different course. Under the decisions of the Supreme Court the Commission may appraise all the property of a railroad — “operating” and “non-operating” ■ — at a bulk sum; more than that, it may fix the price to be paid by an award in new securities, without translating into dollars either the value of the property transferred, or the value of the new securities acquired. In fixing such a bulk sum, not only is the Commission not confined to “operating” properties, but in appraising “non-operating” properties it may value the debtor’s claims against third persons, even when that involves the validity and amount of the claims, and when it depends upon questions of law, to which the Commission’s specialized skill and experience do not extend. It so happens, however, in the case at bar that Old Colony’s “non-operating” property, on which controversy has chiefly arisen is of an unusual kind. It is made up of four items: (1) The Union Freight shares; (2) the claim against the Bankers Trust Company; (3) the interest upon the Refunding Fours; (4) the claim for New Haven’s repudiating the lease. I lay aside the first of these at once; it is not in dispute and the Commission’s appraisal of it would be final anyway. The second would be merely a claim against a third person, except that the mortgage which secured the Refunding Bonds provided that, if the mortgage trustee became liable as such, whatever it had to pay should be added to the mortgage debt. Flence the claim against it was really a prior claim against New Haven; and so too of course is the interest on the bonds themselves. The last item is whether the credit to be allowed upon the claim for breach of the lease, shall be the amount of the settlement, or the face of the claim which it settles. Thus it appears that these three items are claims against New Haven, as well as assets of Old Colony. Subdivision c (7) of § 77 provides among other things that “the judge shall promptly determine and fix * * * the manner in which * * * claims may be filed or evidenced and allowed,” and § 77, sub. c, *430provides that only “allowed” claims shall share, or vote. I cannot divorce the three items here in controversy, in their aspect as assets of Old Colony, from their aspect as claims against New Haven, and in that aspect Hincks, J., had exclusive jurisdiction to determine their validity and amount; although only the Commission might set their value, when so liquidated, in terms of new securities.
I understand my brother Swan does not dissent so far; he and I differ only because he thinks it enough that the Sixth Supplemental Report does not show that the Commission in appraising the property in bulk did not take as the value of any of the three items a figure other than that at which Hincks, J., “allowed” them, or was content that they should be “allowed.” It is here that I cannot agree; I cannot understand why the Commission’s appraisal of all the assets in a hotchpot that includes the claims, will suffice, merely because the bulk sum is “permissible” — in the language of Hincks, J. — at whatever face amount the Commission may have liquidated the claims. The problem is of two possible variables over only one of which the Commission had power; and the fact that, if it decided wrongly as to the one that was beyond its powers, it might lawfully have compensated for its error by assigning a higher appraisal to the other, is to my mind irrelevant. It could become relevant only in case we might properly substitute for the actual appraisal of the other property, which the Commission made, and which it had power to make, an appraisal which it might have made, but did not. All parties are entitled to be judged by the value at which the Commission actually appraised what it had power to appraise, and by what the court would “allow” as the face of the claims. It must be possible somewhere in the record to learn at what amounts the Commission did take the face of the claims, before we can know whether it remained within its jurisdiction; the possibility that it did so, is not enough.
Nevertheless, in spite of this formal inadequacy, I think .that there is enough in the record to affirm the order, though I must own that I should have welcomed a clearer declaration in the report. The first of the items is the amount allowed for settlement of the claim against the Bankers Trust Company. I do not think that Hincks, J., had power to “allow” that claim at a figure half way between the offers of New Haven and Old Colony. When a claimant and the debtor agree upon a compromise, the bankruptcy judge may no doubt “allow” the claim at that figure, if he thinks it fair; but I know of no power by which he may cut the Gordian knot and force each party to accept a middle figure of his own choosing. However, in the case at bar we can avoid that difficulty, because neither New Haven nor the Old Colony bondholders object to the settlement figure- — $3,250,000— which incidentally is one of the few details, if not the only one on which the Commission has seen fit to commit itself. Therefore, the only question is whether we can learn what was the credit which the Commission deducted from the lease claim because of the settlement. As to that the Sixth Report is entirely silent, no doubt because the Commission supposed that the appraisal of the lease claim lay as much within its powers as that of any other asset. As my brother Swan says, the question is really of the terms of the settlement of the Bankers Trust Company claim itself; and these might, so far as I can see, have been of three kinds. The settlement might (1) extinguish merely the claim against the Bankers Trust Company, leaving the whole lease claim undiminished; (2) it might in addition extinguish the lease claim by the amount of the settlement; (3) it might extinguish the lease claim by the whole face of the claim against the Bankers Trust Company. I cannot see that any of these is inherently more probable than another; but I think that we have evidence that the Commission assumed that the settlement presupposed the second. The proposal first appears in the Third Supplemental Report of the Commission, where it is clear that the negotiations were of the second kind; and it is to the last degree unlikely that the Commission, starting with that understanding, should have in fact assumed that they shifted to either of the other two. It is true that in one passage in the Sixth Report the Commission mentioned the possibility that the settlement might reduce the lease claim by the full amount of the claim *431against the Bankers Trust Company; but that, like almost everything else in the report, was merely a discussion of one of the various hypotheses, which might justify the final result, and must not be taken as evidence that the Commission in fact was reading the negotiations as having changed to the third kind. For these reasons I think we are entitled to say that the lease claim was appraised at the amount at which Hincks, J., was willing to “allow” it.
The last is the item of interest on the Refunding Fours held by Old Colony. Hincks, J., had never decided whether the bank deposit was due to Old Colony, and indeed in his opinion he suggests a doubt about it. Since, however, New Haven does not dispute Old Colony’s right to it, the only question is whether there is satisfactory evidence that the Commission included it. The Sixth Report leaves the question open; but the First Report treated interest from June 2, 1936 as part of Old Colony’s claim, the bank deposit not yet being in existence. However, it had been created before the Third Report was filed, in the appendix to which, as in those to the Fourth and Fifth Reports, it was treated as a credit to be deducted from the interest due upon the bonds. This appears to me a particularly telling bit of evidence that, regardless of what Hincks, J., may have intended by keeping the bank deposit as a sort of “suspense” item, at least the Commission had several times allocated it unconditionally to Old Colony, since otherwise it would not have reduced the interest charge. Again, as in the case of the lease claim, it would be highly unreasonable to assume that, when it came to the Sixth Report, the Commission changed its mind.
I regret that in the form which the case comes before us, we should have to spell out the actual decision by such roundabout methods, when it would have indeed been possible to make our path easy by categorical findings. However, since, for the reasons I have tried to give, it appears to me that the Commission kept within the limit of its jurisdiction, I conceive that we have no reason for further prolonging a litigation which, as everybody agrees, has already far exceeded expectation, and which makes sadly ironical the hope that a reorganization under § 77 will necessarily be speedier than such reorganizations used to be. Nor can I think, because the Commission in the Sixth Report has come out with an appraisal of the Old Colony property at exactly the same figure as it did in the Fifth, that we should be justified in imputing to it any evasion of its duty. Indeed, in our last decisions we particularly declared that all we wished to be assured of was that the compromise had not been accepted without independent valuation, and we expressly said that it might turn out that no change in the award would prove necessary.