U.S. Supreme Court CONTINENTAL BANK v. ROCK ISLAND RY., 294 U.S. 648 (1935)

[Page 294 U.S. 648, 660]

Savings Bank, of Chicago, and Mississippi Valley Trust Company, of St. Louis. Each of the collateral notes contains a provision that it shall become due in case of, among other events, (1) nonpayment of interest, (2) insolvency of the debtor, (3) appointment of a receiver for the debtor. Each note held by a bank provides also that it shall become due in case of nonpayment of interest on any of the notes held by the Reconstruction Finance Corporation. And all the outstanding notes provide that: 'Upon default of any kind hereunder, the payee may sell in ... New York City, or elsewhere ... all or any of the security held for the payment of this note, at any broker's board or at public or private sale, without ... notice .... And the payee may be the purchaser of any or all property, rights and/or interests so sold ....'

None of the noteholders was a party to the proceeding. No noteholder was ever served with process; and only the two Chicago banks were residents of the district. But notice of the intention to present the petition for instructions had been sent by registered mail to each of the noteholders, and also to the five protective committees representing security holders of the system. [Footnote 3] All of these parties were represented at the hearing. The holders of the collateral notes appeared specially, and objected to the jurisdiction of the court on the ground that (1) it had no jurisdiction of the person; (2) no jurisdiction over, or possession of, the property, the sale of which was about to

[Page 294 U.S. 648, 663]

discriminate unfairly in favor of any class of creditors or stockholders, will be financially advisable ... and will be compatible with the public interest.' 11 USCA 205(d). The commission is required to state fully the reasons for its conclusions. The plan is then to be submitted to the creditors and stockholders of the debtor for acceptance or rejection. No plan may be finally approved by the commission until it has been accepted in writing by or on behalf of creditors holding two-thirds in amount of the claims of each class affected by the plan, and by or on behalf of stockholders holding two-thirds of the stock of each class.

Upon approval by the commission, the judge, after hearing, shall confirm the plan if satisfied, among other things, that the plan affords adequate protection for the realization by creditors of the value of their securities, liens and claims in one of the ways pointed out by the section. Upon confirmation of the plan, it is to be binding not only upon corporation and all stockholders and creditors generally, but upon all secured creditors of each class of which two-thirds in amount shall have accepted the plan. For convenient reference, various pertinent excerpts from section 77 (11 USCA 205) are reproduced in the margin. [Footnote 4]

[Page 294 U.S. 648, 685]

we understand that the injunction may at any time be dissolved upon application and proper notice and showing. It contemplates, as we have already suggested, only reasonable delay.

It is true that no plan has yet been consummated; and, so far as the record shows, none has been prepared or is in the course of preparation. If this long delay were without adequate excuse, the retention of the injunction for the long period which has intervened since it was granted could not be justified. But the delay is obviously due to the many doubts and uncertainties arising from the present litigation. Until they are finally resolved, the consummation, or even the preparation, of any definite plan is plainly impracticable. With those doubts and uncertainties now removed, the proceeding should go forward to completion without further delay, or be dismissed.

The delay and expense incident to railroad receiverships and foreclosure sales constituted, probably, the chief reasons which induced the passage of section 77; and to permit the perpetuation of either of these evils under this new legislation would be subversive of the spirit in which it was conceived and adopted. Not only are those who institute the proceeding and those who carry it forward bound to exercise the highest degree of diligence, but it is the duty of the court and of the Interstate Commerce Commission to see that they do. Proceedings of this character, involving public and private interests of such magnitude, should, so far as practicable, be given the right of way both by the court and by the commission, to the end that they may be speedily determined.

Decree affirmed.

Mr. Justice BRANDEIS took no part in the decision of this case. Footnotes

Footnote 1 The collateral pledged with the notes held by the Reconstruction Finance Corporation consists of the following securities:

Listed collateral: Chicago, Rock Island & Pacific Railway Company First and Refunding 4% Gold Bonds $7,575,000.00 St. Paul & Kansas City Short Line Railroad Company First Mortgage 4 1/2% Gold Bonds 9,374,500.00 Rock Island, Arkansas & Louisiana Railroad Company First Mortgage 4 1/2% Gold Bonds 3,862,000.00 ___

Total $20,811,500.00 Unlisted collateral: Chicago, Rock Island & Gulf Railway Company Extension First Mortgage 5% Bonds $6,927,000.00 Chicago, Rock Island & Gulf Railway Company Carrollton Branch 6% Bonds 331,000.00 Kankakee & Seneca Railroad Company 4 1/2% Bonds 352,000.00 Rock Island & Dardanelle Railway Company First Mortgage 5% Bonds 100,000.00 Rock Island Memphis Terminal Depot First Mortgage 5% Bonds 900,000.00 Rock Island Memphis Terminal First Mortgage 5% Bonds 400,000.00 Rock Island Omaha Terminal First Mortgage 5% Bonds 906,000.00 Rock Island Improvement Company: Blue Island Shops Bonds 199,000.00 Cedar Rapids Terminal Bonds 369,732.99 Little Rock Mortgage Bonds 278,492.49 Peoria Terminal Mortgage Bonds 290,247.86 First and Collateral 5% Bonds 3,310,000.00

Footnote 3 Protective Committee for the Chicago, Rock Island & Pacific Railway General Mortgage 4% Bonds; Protective Committee for the Chicago, Rock Island & Pacific Railway First and Refunding 4% Gold Bonds and Secured 4 1/2% Gold Bonds Series A; Protective Committee for the St. Paul & Kansas City Short Line 4 1/2% Gold Bonds and Rock Island, Arkansas & Louisiana 4 1/2% Gold Bonds; Protective Committee of the Burlington, Cedar Rapids & Northern Consolidated 5% Gold Bonds; Protective Committee for the Chicago, Rock Island & Pacific Railway, 30-year 4 1/2% Convertible Bonds.

Footnote 4 '(a) Any railroad corporation may file a petition stating that the railroad corporation is insolvent or unable to meet its debts as they mature and that it desires to effect a plan of reorganization. The petition shall be filed with the court in whose territorial jurisdiction the railroad corporation, during the preceding six months or the greater portion thereof, has had its principal executive or operating office, and a copy of the petition shall at the same time be filed with the Interstate Commerce Commission hereinafter called the commission: ... If the petition is so approved, the court in which such order approving the petition is entered shall, during the pendency of the proceedings under this section and for the purposes thereof, have exclusive jurisdiction of the debtor and its property wherever located. The railroad corporation shall be referred to in the proceedings as a 'debtor.' Any corporation, the majority of the capital stock of which having power to vote for the election of directors is owned, either directly or indirectly through an intervening medium,