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In re Chicago & N.W. Ry. Co.

June 6, 1941

IN RE CHICAGO & N.W. RY. CO.; CHICAGO & N.W. RY. CO.
v.
RECONSTRUCTION FINANCE CORPORATION ET AL.



Appeal from the District Court of the United States for the Northern District of Illinois, Eastern Division; John P. Barnes, Judge.

Author: Evans

Before EVANS and KERNER, Circuit Judges, and SULLIVAN, District Judge.

EVANS, Circuit Judge.

Appellant sought reorganization under Section 77 of the Bankruptcy Act, 11 U.S.C.A. ยง 205. In due course a plan of reorganization was approved by the Interstate Commerce Commission and then by the District Court. By this plan preferred and common stockholders of the debtor are eliminated, and given no interest in the new company. Appellant, in order to modify that part of the plan of reorganization, which excluded all stockholders, and to challenge the order refusing to refer the plan back to the I.C.C. to determine and certify values, applied to the Interstate Commerce Commission for a money allowance to carry its appeals to this court. Its petition was denied "without prejudice to renew it at such time as debtor is prepared to show actual expenses incurred and actual benefit to the estate."

The District Court was then asked for an order directing the I.C.C. to make such a maximum allowance for said expenses and, in case of the court's refusal to so direct the I.C.C., it, the District Court, was requested to fix the amount and order the trustee to pay the expenses of such litigation.

The District Court refused both petitions and entered two orders. One denied appellant's motion to direct the I.C.C. to make and determine the maximum allowance for expenses of printing the record on appeal, etc.The second order denied appellant's motion for allowance by the District Court of an expense authorization to cover the printing of said record.

The District Court based its denial on the ground that it "had no supervisory power over the I.C.C." and it lacked power to grant the relief refused in the second order.

It is estimated that $17,477 will cover printing and other expenses on said appeal. These estimates are substantiated by letters from the clerks of the District Court and this court, and cover all costs, including appeal to the Supreme Court, excepting only the cost of printing briefs, bond premiums, and attorneys' fees. Through stipulations, substantial parts of the record will be omitted from the printed transcript, thus shortening the same and lessening the costs of printing to an estimated $12,750.

It is from these two orders denying allowances to cover said expenses that these two appeals are taken.

The prayer of the debtor is joined in by committees representing the common and preferred stockholders. It is opposed by the I.C.C., the R.F.C., the Life Insurance Group Committee, and the Mutual Savings Bank Group Committee.*fn1 The counsel of the Chicago, Milwaukee, St. Paul R. Co., has, with the court's permission, filed a brief amicus curiae. It supports debtor's petition.

Grounds for sustaining the order of the District Court are:

(1) The expenses are not yet "incurred" as required by Sec. 77, sub. c(12).

(2) Appellate proceedings are not expense "incurred in connection with the proceedings and plan" as required by said section.

(3) Allowances may be made only to the extent to which the estate of debtor is benefied, and here no such benefit has been, or can be, shown.

(4) The debtor has no interest in appealing from the plan of reorganization, but the real parties in interest are the common and preferred stockholders whose stock is wiped out by the plan under attack. Since it is they who are interested in having the plan set aside on appeal, it is they who should pay the expenses of such appeal.

(5) Congress gave to the I.C.C. jurisdiction of railroad debtor reorganizations reserving to the District Court, as a court of bankruptcy, certain original and supervisory power over the debtor and the I.C.C. Sec. 77, dealing with this phase of bankruptcy, did not give the District Court power to compel the I.C.C. to make allowances to litigants who are aggrieved by the plan of reorganization or take money belonging to debtor's estate and pay expenses of appeal from orders by it made. Nor has the Court authority to direct a trustee to pay expenses upon appeal from an order by it made, fixing status to holders of securities of said debtor.

(6) The relief here sought is in effect mandamus which does not lie in this sort of case.

The I.C.C. decision was not unanimous. Four of its eleven members dissented. The majority, on reconsideration, expressed themselves thus:

"In fixing a maximum we, however, must decide how much is reasonable. To do that, it is essential to estimate the value of service or to determine the necessity of expense to the estate. If it were required that as part of the process of reorganization appellate decisions be procured as to all decisions and all appealable orders issued under section 77, then it would be appropriate that the estate be fully responsible in all instances for the cost of appealing such decisions or orders. If that were the case it might well be proper to provide for payment in advance of the determination of the outcome of the appeal. But there is no such provision in section 77. Furthermore, acceptance of the theory that appeals are free of cost to the appellant and may even be paid for in part in advance will not be likely to decrease litigation, nor to expedite the reorganization of bankrupt railroads. A party in interest may appeal any appealable question arising in the course of the proceeding, but whether the expense of such an appeal is a proper charge against the estate and the extent to which the expense should be borne by the estate can only be determined when we are able to determine the value of the litigation to the estate. Such an appeal may, of course, be worth to the estate all it costs, or ...


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