Thompson v. Texas Mexican R. Co.,
328 U.S. 134 (1946)

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U.S. Supreme Court

Thompson v. Texas Mexican R. Co., 328 U.S. 134 (1946)

Thompson v. Texas Mexican Railway Co.

No. 42

Argued October 9, 1945

Decided April 29, 1946

328 U.S. 134


1. By contract between two interstate railroads, both of which were subject to the authority of the Interstate Commerce Commission, one obtained trackage rights over the lines of the other at a specified rental. The contract was terminable by either party upon twelve months' notice. The grantee railroad subsequently petitioned for reorganization under § 77 of the Bankruptcy Act, a trustee was appointed, and stay orders pursuant to § 77(j) were entered. Thereafter, the grantor gave notice that it was exercising its right to terminate the contract. After the date when, by its terms, the contract would thus have been terminated, the trustee continued to operate trains over the lines of the grantor, and refused to pay more than the rental specified in the contract. Thereupon, the grantor brought suit in a state court to enjoin the grantee and its trustee from using the tracks of the grantor without the grantor's consent, and to recover $500 a day damages for such use or, alternatively, the reasonable value of the use. The state court denied an injunction, adjudged that the contract had been terminated, and awarded damages.

Held: that maintenance of the suit in the state court was not precluded by the stay orders issued by the bankruptcy court, nor by § 77 of the Bankruptcy Act, but that the state court should have stayed its hand and remitted the parties to the Interstate Commerce Commission for determination of the administrative phases of the questions involved. Pp. 328 U. S. 138, 328 U. S. 151.

(a) So far as the suit involved a money claim against the estate for acts of the trustee in operating trains over the grantor's tracks, it was maintainable in the state court under § 66 of the Judicial Code, which authorizes suits against the trustee, without leave of the bankruptcy court, "in respect of any act or transaction of his in carrying on the business." P. 328 U. S. 138.

(b) Maintenance of the suit in the state court is not inconsistent with the provisions of § 77 granting the reorganization court exclusive jurisdiction over the debtor and its property. P. 328 U. S. 139.

Page 328 U. S. 135

(c) The exclusive jurisdiction of the bankruptcy court is determined by the "main purpose" of the suit, which, in this case, evidently was an attempt on the part of the grantor to obtain a more favorable rental. P. 328 U. S. 139.

(d) The principle that the exclusive jurisdiction of the bankruptcy court extends to the adjudication of questions affecting title is inapplicable here, since the trackage agreement created only a personal obligation, and did not purport to grant any estate in the property of the grantor. P. 328 U. S. 140.

(e) The general rule in bankruptcy that the trustee takes the contracts of the debtor subject to their terms and conditions is applicable to proceedings under § 77 by virtue of the provisions of § 77(l). P. 328 U. S. 141.

(f) The qualification in 77(l) that the rule of bankruptcy be "consistent with the provisions" of § 77 made premature an adjudication by the court that the contract was terminated prior to a determination by the Interstate Commerce Commission that that step was consistent with the reorganization requirements of the debtor. P. 328 U. S. 141.

2. Prior to rendition of judgment on the merits, the decision of the Interstate Commerce Commission was necessary on certain phases of the controversy:

(1) Whether termination of the trackage agreement would interfere with the plan of reorganization to be formulated by the Commission under § 77 of the Bankruptcy Act. P. 328 U. S. 142.

(2) Whether the Commission should issue a certificate under § 1(18) of the Interstate Commerce Act that "the present or future public convenience and necessity" would permit abandonment of operations under the trackage agreement. P. 328 U. S. 144.

(3) What would be a reasonable rental to be allowed, under § 5(2)(a) of the Transportation Act of 1940 if the Commission decided that the trackage arrangement should be continued. P. 328 U. S. 149.

3. Until determination by the Interstate Commerce Commission of the administrative phases of the questions involved is had, it cannot be known with certainty what issues for judicial decision will emerge, and, until that time, judicial action is premature. P. 328 U. S. 151.

181 S.W.2d 895 reversed.

The respondent railroad company brought suit in a state court against the petitioner railroad company (which was a debtor in a reorganization proceeding under § 77 of the

Page 328 U. S. 136

Bankruptcy Act) and its trustee, and was awarded damages. The Court of Civil Appeals affirmed. 181 S.W.2d 895. The Supreme Court of Texas refused an application for a writ of error. This Court granted certiorari. 324 U.S. 838. Reversed, p. 328 U. S. 151.

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