Court Opinion

ID: 9641416
Source: CourtListenerOpinion
Date Created: 2023-08-22 17:31:18.610763+00
Date Added: 2024-06-11T18:10:37.504363
License: Public Domain

HUTCHESON, Circuit Judge
(dissenting).
What is in question for decision here is not, as would appear from the opinion of the majority, a mere question whether in an ordinary bankruptcy proceeding the Court of Bankruptcy could enjoin proceedings in an in personam suit brought in the State Court. It is whether in a railroad reorganization proceeding the Reorganization Court, having issued an injunction-against the further prosecution by minority stockholders of a suit to enjoin a leased railroad, whose participation is vital to the reorganization plan, from approving the plan, is powerless to prevent a State District Judge from staying the whole reorganization proceedings by enjoining, in accordance with the prayer of the minority stockholders’ petition, the carrying out by the leased railroad of an approved reorganization plan which its officers, its directors, and the majority of its stockholders have accepted and which the Reorganization Court finds has been validly accepted.
In determining this ultimate question, three primary questions must be answered.
The first one is: After the minority stockholders have been enjoined by the Reorganization Court from proceeding with their injunction suit, can a State Court Judge, of his own motion, issue the injunction as prayed, staying the whole reorganization proceedings as to the leased railroad until the controversy between the minority stockholders and the company over the necessity for unanimous stockholders’ consent has been determined in the State Court?
The second one is: If the State Judge does issue such injunction, is the Reorganization Court bound to respect it, or may it, as it did here, determining for itself that under Georgia law the company could act by majority vote of its stockholders, issue its own orders nullifying the State Court injunction and protecting the officers of the leased railroad from the consequences of disobedience of it, thereby preventing the stoppage of the reorganization proceedings and the disrupting and failure of the plan?
The third question is: Was the District Judge right in deciding that unanimous consent of South Western’s stockholders was not necessary, that majority consent was sufficient ?
The opinion of the majority in stating the case as though the State Court jurisdiction had first attached, the State Court injunction had been first issued, that is as though it were the United States Judge, and not the State Judge,'who had been guilty of a gross breach of comity here,1 and, in failing to state that the State Court injunction *885was issued to stay action in the Reorganization proceeding after and in defiance of the issuance of the Federal Court injunction, puts the Federal District Judge in the invidious position in which the facts place the State Court Judge. In failing, too, to consider and decide the issue tendered and decided below, whether the judgment of the Reorganization Court, the court which, having jurisdiction of the reorganization res, had complete and exclusive jurisdiction of all questions as to the plan, its acceptance, and its carrying out, was right in declaring that, the majority of its stockholders consenting, the leased railroad had authority to accept under, and to transfer its property in accordance with, the reorganization plan, the opinion of the majority wholly fails to deal with and determine the real, the decisive question in the case.
The facts and issues, that is what really occurred below and what was contended and determined there, are set out with complete accuracy, and the legal conclusions which follow from them are stated with eminent correctness, in the findings of fact and conclusions of law of the District Judge. Their great length precludes me from adopting them, except by reference to the record, as my dissenting opinion. I can and will, however, setting them out in the- margin2 with the greatest possible brev*886ity, rely heavily on them, in pointing out the graceless enormity, the complete absence of power, of the state district judge in attempting to stay the reorganization proceedings, and the nature and scope of the error of the majority opinion in giving -aid and comfort to his obstructive acts, This error, which, as excerpts in the margin from the opinion3 show, proceeds from the view that the jurisdiction possessed and *887exercised here is no more and no less than would be exercised in an ordinary bankruptcy proceeding, and that the res of which the Reorganization Court is said to be possessed and to have jurisdiction is merely physical properties of the debtor instead of, as is the law, the res being the reorganization proceeding, including its controversies and questions and the plait it was instituted to bring about.
As the conclusions of law of the District Judge, excerpts from which I have set out in the margin,4 show, he saw with great clearness what the majority opinion not on*888ly failed to see but denied (note 3) that “A proceeding under section 77 is not an ordinary proceeding in bankruptcy. It is a special proceeding which seeks only to bring about a reorganisationt if a satisfactory plan to that end can be devised and to prevent the attainment of that object is to defeat the very end the accomplishment of which was the sole aim of the section, and thereby to render its provisions futile.” (Emphasis supplied.) Continental Illinois Nat. Bank & Trust Co. v. Chicago Rock Island & Pac. Ry. Co., 294 U.S. 648, 55 S.Ct. 595, 79 L.Ed. 1110.
He saw, with complete clarity too, that under the controlling decisions of the Supreme Court of the United States,5 the res of which the Reorganization Court has exclusive jurisdiction is not merely, or even mainly, the physical properties of the debtor railroad. It is the proceeding for its reorganisation, including all claims, issues and controversies affecting or relating to the plan of reorganisation, the prime res in the proceeding, its formulation, acceptance and carrying out. Because he saw this so clearly he saw that the control, the jurisdiction, which as judge of the Reorganization Court he had and must exercise, was a jurisdiction absolutely exclusive and complete over all questions and controversies, the decision of which would or might affect, delay, consummate, or interfere with the consummation of, the plan. A few quotations from the controlling authorities will, I think, make this completely clear.
In Continental Illinois Nat. Bank & Trust Co. v. Chicago, Rock Island & Pac. Ry. Co., supra, at page 671 of 294 U.S. at page 604 of 55 S.Ct., the court said: “Section 77 advances another step in the direction of liberalizing the law on -the subject of bankruptcies. Railway corporations had been definitely excluded from the operation of the law in 1910 * * * probably because such corporations could not be liquidated in the ordinary way or by a distribution of assets. A railway is a unit; it can not be divided up and disposed of piecemeal like a stock, of goods. It must be sold, if sold at all,, as a unit and as a going concern. Its activities cannot be halted because its continuous, uninterrupted operation is necessary in the public interest; and, for the preservation of that interest, as well as for the protection of the various private interests involved, reorganization was evidently regarded as the most feasible solution whenever the corporation had become ‘insolvent or unable to meet its debts as they mature.’ ”
Then posing the question whether the bankruptcy court had authority to enjoin the sale of collateral, held under pledge by banks and the Reconstruction Finance Corporation, “if a sale would so hinder, obstruct and delay the preparation and consummation of a plan of reoganization as properly to prevent it”, the court answered the question in the affirmative, saying, at page 676, of 294 U.S., at page 606, of 55 S.Ct.: “It may be that in an ordinary bankruptcy proceeding the issue of an injunction in the circumstances here presented would not be sustained * * *. But a proceeding under section 77 is not an ordinary proceeding in bankruptcy.”
In Gardner v. New Jersey, 329 U.S. 565, 67 S.Ct. 467, a railroad reorganization proceeding, the court declared that the reorgan*889ization court had jurisdiction over all property of the debtor including that on which the State asserted a lien and could adjudicate all questions and issues raised by obj actions to the State’s claim, including the validity and priority of liens whether or not claimed by the State.
These decisions, bottomed as they are upon the view that the Reorganization Court has sweeping and all inclusive jurisdiction over all claims and controversies which arise out of or attend upon the formulation of a plan and its bringing to fruition, leave in no doubt whatever that the State judge was the intruder without right in the contest of jurisdiction below.
“It would fly in the teeth of § 77, sub. a, which grants the reorganization court '‘Exclusive jurisdiction of the debtor and its property wherever located.’ That jurisdiction is not limited to the prevention of interference with the use of the property by the trustee; it ‘extends also to the adjudication of questions respecting the title’. Ex parte Baldwin, 291 U.S. 610, 616, 54 S.Ct. 551, 554, 78 L.Ed. 1020; Thompson v. Texas Mexican R. Co., 328 U S. 134, 140, 66 S.Ct. 937, 942 [90 L.Ed. 1132]. It is the exclusive jurisdiction of the reorganization court which gives it power to preserve the railway as a unit and as a going concern and to prevent it from being divided up and dismembered piecemeal. Only in that way can continuous operation of the road be assured and a plan of reorganization be effected which not only safeguards the interests of the various claimants but is also compatible with the public interest. * * *
“When Sec. 77 is read against this historical background and in light of practical requirements, we cannot conceive that Congress gave the reorganization court power less replete than the sweeping language of § 77 suggests.” Gardner v. New Jersey, 329 U.S. at page 577 67 S.Ct. at page 473.
The majority opinion has not decided this case in the light of these broad and catholic views. It has treated it as an ordinary proceeding in an ordinary bankruptcy, and has pitched its decision of it on the small and meager, the wholly irrelevant, question of whether “the bankruptcy court had jurisdiction in rem of property the conveyance of which had been enjoined by the state court”, and its answer, that since South Western was not in bankruptcy, the court did not have. The question had no place in this proceeding. The answer to it, reversing the judgment in this case, was wrong.
Perhaps the basic error of the majority opinion, the error from which all other errors flow, is its holding that the suit in the State Court, which the judgment appealed from enjoined, was a mere proceeding in personam. It was in fact in no sense such. It was a proceeding by use of the injunctive process of the State Court to bring to a complete stop all the proceedings in the Court of Reorganization and thus prevent the consummation of the plan. To prevent this direct and positive interference by force, the force of a state court injunction, with the whole in rem proceeding, the reorganization itself, the federal court was compelled to exercise its exclusive jurisdiction to stay the disruptive State Court proceedings and, taking cognizance of the controversy as to whether South Western could accept the plan and carry it out, determine that controversy for itself. It did determine it favorably to the acceptance of the plan. That determination was right, and the judgment should have been affirmed. I dissent from its reversal.

 Bryan v. Speakman, 5 Cir., 53 F.2d 463 at page 465; Farmers L. & T. Co. v. Lake St., 177 U.S. 51, 20 S.Ct. 564, 44 L.Ed. 667; Harkin v. Brundage, 276 U.S. 36 at page 43, 48 S.Ct. 268, 72 L.Ed. 457; 28 Am.Jur., Injunctions, at Sec. 217 et seq.

 Findings of Fact:
(1) Appellees are minority stockholders in South Western Bailroad Company.
(2) That company is a railroad company originally incorporated under an .act of the Assembly of Georgia in 1845, by a charter which makes no specific provision with respect to the sale of the company’s railroad properties.
(3) In June, 1809, the. company leased its railroads and their appurtenances to the Central Bailroad and Banking Company of Georgia for and during its entire existence.
(4) The properties of this company, including the leasehold estate passed at receivership sale to Central of Georgia Bailroad Company, the debtor in this case, and in October, 1895, the lease was renewed and modified for the term of 100 years, renewable in like periods for the same term forever, and Central continued to operate the leasehold property until Dec. 5, 1932, when a federal receiver was appointed.
(5) The receiver, adopting the lease, operated under it until June, 1940, when •Central filed this railroad reorganization proceeding, and the trustees appointed in it took over.
(6) A plan of reorganization of the ■Central, which the Commission had found to be “compatible with the public interest”, was promulgated by it, was .approved by the court on June 25, 1946. and no appeal was taken from the order of approval.
(7) This plan allotting to South Western, if it accepted under it, bonds of the reorganized company, provided that if South Western did not accept under the .plan, its lease should be disaffirmed as .of such time at or prior to the consummation of the plan as the court may .direct.
(8) South Western appeared specially in the reorganization proceedings: (1) to ask that its lease be adopted as part of the reorganization plan; (2) to contest before the Commission and the Court the allotment to it under the plan as proposed and finally approved; (3) to file (a) a claim for equipment which had not yet been determined, and (b) a petition for declaratory judgment as to its rights in the event its lease was rejected. This the court refused on the ground of the Commission’s exclusive jurisdiction of the matter.
(9) South Western is solvent, no bankruptcy proceedings have been instituted against, no contention has been made at any time that South Western could be compelled to accept the plan, and no effort has been made to so compel it.
(10) On Feb. 11, 1947, the Commission submitted the plan to the creditors and leased lines, including South Western, for their acceptance or refusal on or before midnight, March 28,1947.
(11) On March 13, 1947, the directors of South Western met and resolved that the plan be accepted subject to the assent of a majority of the stockholders and that when this had been given, “the officers of the company be, and they are hereby, authorized and directed to carry out the plan as authorized by Sec. 94-328 Code of Georgia Annotated, of 1983.”
(12) On March 25, 1947, Bentoii and another, minority stockholders of South Western, filed in the State Court of Bibb County a bill in equity against South Western and its directors, alleging that it was without power to accept the reorganization plan and carry it out by sale of its properties without the consent of all the stockholders, and praying that the stockholders be enjoined from meeting and accepting the plan, and if the stockholders be not restrained, the officers and directors of the company bo *886enjoined “from filing with the District Court or the Commission” any acceptance of the plan and that they “be enjoined from doing and performing any act in behalf of South Western Railroad Company which might tend to consummate the plan of reorganization of control of Georgia Railway with respect to the acquisition of the properties of the South Western Railroad Co.”
(IS) A rule having issued to show cause and hearings having been had on March 26 and 27, the State Court did not enjoin the meeting of the stockholders or their acceptance of the plan but reserved his decision on all the matters argued.
(14) On March 28, the stockholders met and by a two-thirds majority accepted the plan, and on that same day South Western in accordance with the resolution of its directors and stockholders mailed to the Commission its ballot accepting the plan.
(15) On April 18, 1947, no further action having been taken in the State Court suit, the trustee filed his bill in the Reorganization Court, calling to the attention of that court the pendency and nature of the Benton suit and asking that its further prosecution be enjoined as an interference with the reorganization proceedings, whereupon the district judge set the matter down, issuing the temporary injunction as prayed.
(16) On April 24, 1947, the judge of the State Court, reciting that the federal court had issued an injunction against the further prosecution of the suit, and, purporting to be acting on his own motion, issued a sweeping - in junction against the defendants in the State Court suit based on his opinion that South Western had no charter power to sell its railroad without the unanimous consent of its stockholders. This injunction, in most sweeping terms, stayed South Western “from carrying into effect any provision for the sale or lease of the railroad properties of the defendant railroad company pursuant to any acceptance of any plan or any such sale or lease not authorized by a unanimous vote of the stockholders defendant company”, and following precisely the prayer of Benton’s petition, further enjoined the officers and directors from filing with the United States District Court, or the Interstate Commerce Commission, any acceptance of such plan, from selling to the reorganized company or to anyone else the properties of the i-ailroad, and finally, it provided “specifically that such officers and, directors "be, and they are hereby restrained and enjoined from doing and performing any act in behalf of the defendant railroad company which might tend to consummate the plan of the Central of Georgia Railroad Company with respect to the acquisition by that company of the properties of the South "Western Railroad”.
(17) Whereupon, the trustee amended his petition to bring this injunction to the attention of the Reorganization Court and to present for adjudication by the Reorganization Court the question whether, under the laws of Georgia and the circumstances of this ease, unanimous consent of the stockholders of South Western is a condition precedent to the acceptance of the plan by that company and its consummation by the conveyance of its property to the reorganized company. There was a prayer that the order of the Superior Court of Bibb County be annulled and declared void and that when the plan is confirmed by the court such orders may be passed as will make effective South Western’s acceptance and' consummation.
(18) On May 26, 1947, the case was heard, the right of South Western to agree to the plan and sell its properties without the unanimous consent of its stockholders was declared, and the injunction theretofore issued was made permanent. The temporary injunction issued by the judge of the State Court was declared null and void as in excess of that Court’s jurisdiction and an invasion of the jurisdiction of the Reorganization Court.

 Contrast the statement of the majority opinion, that “Section 77 of the-Act, and kindred legislation, did not alter, lessen, or abolish the several distinct classes of jurisdiction exercised by the bankruptcy court. * * * The exclusive jurisdiction of the district court in reorganization proceedings is that which bankruptcy courts have customarily possessed. In entering the judgment in this, case, annulling and staying proceedings in the state court, the bankruptcy court undertook in a summary proceeding to exercise exclusive jurisdiction in rem as to property that the trustee did not own but was seeking to acquire.”

 These are in abbreviated form:
(1) South Western is a creditor of Central, and is a party to the reorganization proceeding and to the plan for all purposes connected with it.
(2) The purpose, and, if the state court injunction had been allowed to stand, the effect of the suit of Benton in the State Court, was to completely disrupt the reorganization proceeding by preventing the consummation of the plan.
(3) “The judicial process in bankruptcy proceedings under § 77 is, as it were, brigaded with the administrative process of the Commission”. Palmer v. Mass., 308 U.S. 79, 87, 60 S.Ct. 34, 38, 84 L.Ed. 93, quoted in Smith v. Hoboken R. R. Warehouse & S. S. Connecting Co., 328 U.S. 123, 132, 66 S.Ct. 947, 952, 90 L.Ed. 1123, 168 A.L.R. 497. “The judicial functions of the bankruptcy court and the administrative functions of the Commission work cooperatively in reorganization.” Warren v. Palmer, 310 U.S. 132, 137, 138, 60 S.Ct. 865, 867, 84 L.Ed. 1118.
(4) The acceptance of the plan by South Western involves its merger or consolidation and conveyance of its properties to the reorganized Company. The plan expressly provides that this shall be done if the plan is accepted by South Western.
(5) The Bankruptcy Court and the Commission under the Federal Statutes have exclusive control of the matter of the merger or consolidation of South Western with the reorganized Company and the sale of the railroads of South Western to the reorganized Company. The proposal is made in the reorganization proceeding, and the acceptance or rejection must be made in the reorganization proceeding. What vote of stockholders is sufficient to authorize the South Western to act, the validity of its acceptance, and the validity of the acceptance, and the validity of the conveyance to bo made in consummation of the Plan are all questions for the Bankruptcy Court and the Commission.
“We hold that this Court as a Court of Bankruptcy, in connection with the powers conferred upon the Interstate Commerce Commission, has sole and exclusive jurisdiction in this matter, and that the attempt of the Plaintiff in the State Court suit to present the consummation of the Plan as it affects South Western, is an interference with the exclusive and prior jurisdiction of this Court.”
(6) “The Court, having exclusive jurisdiction of the subject matter, has power to issue an injunction to prevent defeat or impairment of its jurisdiction, and this power is inherent in a Court of Bankruptcy, as it is in a Court of Equity. Continental Bank & Tr. Co. v. Rock Island R. Co., 294 U.S. 648, 675, 55 S.Ct. 595, 79 L.Ed. 1110. Ex Parte Baldwin, 291 U.S. 610, 615, 54 S.Ct. 551, 78 L.Ed. 1020. Thompson, Tr., v. Magnolia Petroleum Co., 309 U.S. 478, 60 S.Ct. 628, 84 L.Ed. 876.”
(7) “In this matter the State Court acted in excess of its jurisdiction, and under the authorities such acts are void and can be annulled by the decree of the Court which has exclusive or prior jurisdiction. 21 C.J.S. [Courts, §§ 114— 116], pp. 176, 177, 178; French v. Hay, 22 Wall. 250, 22 L.Ed. 857; Kalb v. Feuerstein, 308 U.S. 433, 60 S.Ct. 343, 84 L.Ed. 370; United States v. Walker, 109 U.S. 258, 3 S.Ct. 277, 27 L.Ed. 927 and cases cited.”
(8) “South Western Railroad Company, in holding the stockholders meeting, was acting under Code Sections 94-328 and 94-329 of the Code of Georgia of 1933. * * * These Code Sections do not purport to amend any charter of any Corporation. They are laws of general operation and any corporation which comes within its terms may avail itself of the Code Sections. It is not necessary for the South Western Railroad Company by a vote of its stockholders to accept these Code Sections as a part of its charter. These Code Sections do not in any sense impair any obligation of the contract as between the stockholders themselves. In the exigencies stated in the Code Sections the Corporation may sell its property on the vote of a majority of its stockholders. This does not impair the contract among the stockholders. It is a safety valve for them, in case the corporation finds itself in the predicament stated in the Code Sections. Atlanta Loan & Savings Co. v. Norton, 149 Ga. 805, 812, 102 S.E. 536.”
*888“There is no law of the State of Georgia which requires unanimous consent of stockholders to enable a railroad company to sell its railroad. There is no law and no decision of the Courts of Georgia which hold that under no circumstances can a railroad or other corporation transfer all of its property without the unanimous consent of its stockholders.”
“The Code Sections are consent on the part of the State that under the circumstances stated in the Code Sections the Railroad Company may sell all of its railroad. So that with this consent on the part of the State, this quasi public corporation stands in the same position so far as the sale of its property is concerned, as would any private corporation.”
(9) “In the exigencies which confront the South Western, it clearly has power to sell its property to the newly Reorganized Company without the unanimous consent of its stockholders.”

 Continental Illinois Nat. Bank & Trust Co. v. Chicago, Rock Island & Pac. Ry. Co., 294 U.S. 648, 55 S.Ct. 595, 79 L.Ed. 1110; Thompson v. Texas Mexican R. Co., 328 U.S. 134, 66 S.Ct. 937, 90 L.Ed. 1132; Smith v. Hoboken R. Co., 328 U.S. 123, 66 S.Ct. 947, 90 L.Ed. 1123, 168 A.L.R. 497; and Gardner v. New Jersey, 329 U.S. 565, 67 S.Ct. 467.