Ecker v. Western Pacific R. Corp.
318 U.S. 448 (1943)

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U.S. Supreme Court

Ecker v. Western Pacific R. Corp., 318 U.S. 448 (1943)

Ecker v. Western Pacific Railroad Corp.

No. 7

Argued October 13, 14, 1942

Decided March 15, 1943*

318 U.S. 448

Syllabus

1. Section 77 of the Bankruptcy Act, providing for the reorganization of railroads engaged in interstate commerce, construed with respect to the functions of the District Court and the Interstate Commerce Commission. P. 318 U. S. 466.

2. In respect of a plan of reorganization for the Western Pacific Railroad Company, certified to it by the Interstate Commerce Commission, the District Court functioned in accordance with the requirements of § 77 of the Bankruptcy Act. P. 318 U. S. 475.

3. In a railroad reorganization proceeding under § 77 of the Bankruptcy Act, the Interstate Commerce Commission's determination of value, supported by evidence and in accordance with legal standards, is not subject to reexamination by the court. P. 318 U. S. 472.

4. The determination of whether a plan of reorganization under § 77 is "compatible with the public interest" is for the Commission. P. 318 U. S. 473.

5. The phrase "compatible with the public interest" includes questions as to the character and amount of the capitalization of the reorganized corporation, and, so long as legal standards are followed, the judgment of the Commission on such questions is final. P. 318 U. S. 473.

6. In passing upon a plan of reorganization under § 77, the District Court acts only upon the issues specifically delegated by subsection (e). P. 318 U. S. 474.

7. Section 77(e) authorizes the elimination from participation in the reorganization of stockholders and creditors whose claims are

Page 318 U. S. 449

valueless. Such authorization is a valid exercise of the power of Congress in respect of bankruptcies, and does not deprive such claimants of property without due process of law. P. 318 U. S. 475.

8. Neither the Constitution nor the Bankruptcy Act requires the issuance of warrants to stockholders and creditors whose claims, found to be without value, have been eliminated from participation in the reorganization. P. 318 U. S. 476.

9. The mere possibility that earnings of the reorganized railroad may exceed expectations does not justify the issue of securities. P. 318 U. S. 476.

10. There was no violation of legal standards in the Commission's requirement of a capital fund for future routine additions and betterments; nor in the issue of stock to former holders of interest-bearing securities. P. 318 U. S. 476.

11. Although § 77 does not contemplate an independent examination by the court into the determination of value, it does require that the court be satisfied, upon the record before the Commission, with such additional evidence as may be pertinent to the objections to the Commission's finding of value, that the statutory requirements have been followed. P. 318 U. S. 477.

12. The Commission's conclusion that certain securities owned by the debtor, representing interests in two companies operating connecting lines (which securities the debtor had acquired in order that it might obtain a fair share of the business from and to those lines), were without value and not entitled to participate in the reorganization -- it appearing before the Commission that the debtor had, for ten years, contributed substantial sums annually to meet deficits of each of the companies; although, in the District Court, it was shown that the companies were useful auxiliaries to the business of the debtor -- was supported by material evidence, and was properly accepted by the District Court. P. 318 U. S. 478.

13. The provision of § 77(e) that the plan of reorganization need not be submitted to stockholders and creditors when the Commission shall have found their claims to be without value "and the judge shall have affirmed the finding" does not require the court to make an independent appraisal of the valuation found by the Commission. P. 318 U. S. 478.

14. The court properly affirms the Commission when it finds no legal objection to the Commission's valuation in determining whether particular claimants are entitled to participate in the reorganization. P. 318 U. S. 479.

15. Sound railroad reorganization requires consideration of the interest of the public in an adequate transportation system, properly

Page 318 U. S. 450

financed, and this must be balanced against the satisfaction of claims, without equity, by the issue of securities without reasonable opportunities to earn a return. P. 318 U. S. 481.

16. Consolidated Rock Products Co. v. DuBois,312 U. S. 510, distinguished. P. 318 U. S. 482.

17. In the circumstances here, the determination by the Commission of the aggregate amount of securities which may be issued by the reorganized company was, in substance, a finding of total value for reorganization purposes, and the lack of a valuation in dollars is immaterial. P. 318 U. S. 483.

18. It was not incumbent upon the Commission to produce data as to the reproduction cost of the debtor's property. P. 318 U. S. 483.

19. The allocation to holders of Trustees' Certificates and the First Mortgage, although senior creditors, of preferred and common stock, as well as income bonds, of the new company, while some of the new bonds are allocated to bondholders secured by the General and Refunding Mortgage, who had a first lien on some assets, did not violate the full priority rule. P. 318 U. S. 484.

20. Under the absolute priority rule, the stratification of securities issued to creditors need not follow invariably the relative priority of the claimants, so long as they receive full compensatory treatment and so long as each group shares in the securities of the whole enterprise on an equitable basis. P. 318 U. S. 484.

21. The treatment accorded the Reconstruction Finance Corporation in the allocation of new securities, in view of the money advanced by it to the debtor during the reorganization, held not inequitable to other creditors. P. 318 U. S. 485.

22. The Commission's allocation of securities in the plan of reorganization here was based upon the relative priority, value, and equity of the various claims of creditors, and its conclusions are in accord with the requirements and standards of subsections (b), (d) and (e)(1) of the Act. P. 318 U. S. 488.

23. In the interest of expedition, the Court considers here a question which, though not passed upon by the Circuit Court of Appeals, was fully presented by the petition for certiorari, and the decision of which is essential to a complete review of the District Court. P. 318 U. S. 489.

24. The District Court's conclusions adopting the Commission's tentative determinations as to the priority of the First Mortgage with respect to the debtor's equity in certain after-acquired rolling stock and equipment acquired under equipment trusts and a lease; the

Page 318 U. S. 451

debtor's interest in an after-acquired branch line, and the debtor's title to certain "non-carrier" realty, are here affirmed. Pp. 318 U. S. 489, 318 U. S. 503.

25. The provision of the plan directing that

"All collateral pledged by the debtor a security for notes to the Reconstruction Finance Corporation, the Railroad Credit Corporation, and the A.C. James Company shall be reduced to possession by the respective pledgees thereof, and shall be by them surrendered to the reorganized company and canceled"

is sustained. P. 318 U. S. 503.

26. The showing made before the District Court as to changed conditions since the certification of the plan by the Commission affords no basis for rejection of the Commission's plan. P. 318 U. S. 508.

27. The Commission's selection of January 1, 1939, as the effective date of the plan was within its authority under subsection (b) of § 77. P. 318 U. S. 509.

28. On this review of the action of the District Court, costs are here properly assessed against, the losing parties, without prejudice to an allowance for disbursements under subsection (c)(12). P. 318 U. S. 510.

124 F.2d 136 reversed.

Certiorari, 316 U.S. 654, to review the reversal of an order of the District Court approving a plan of reorganization for the Western Pacific Railroad Company, 34 F.Supp. 493. See also 230 I.C.C. 61; 233 I.C.C. 409, and 236 I.C.C. 1.

Page 318 U. S. 452

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