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American Brake Shoe & Foundry Co. v. New York Rys. Co.

August 13, 1936


Appeal from the District Court of the United States for the Southern District of New York.

Author: Chase

Before MANTON, SWAN, and CHASE, Circuit Judges.

CHASE, Circuit Judge.

In a creditor's suit in equity brought in the District Court for the Southern District of New York against New York Railways Company, a receiver of all the property of the defendant was appointed on March 20, 1919. This receiver duly qualified, and thereupon numerous surface street railway tracks, franchises, and other property of the defendant in the city of New York went into his custody. Pursuant to his duty to determine within a reasonable time whether to accept all of said property or to renounce a part (Sparhawk v. Yerkes, 142 U.S. 1, 12 S. Ct. 104, 35 L. Ed. 915; American Brake Shoe & Foundry Co. v. New York Railways Company [C.C.A.] 282 F. 523), the receiver investigated the situation, and within such reasonable time secured an order from the court on September 12, 1919, providing in respect to the property described in the following partial quotation of the order that "* * he hereby is authorized to and directed for the time being and until further order of this Court to discontinue the operation of the storage battery car lines described in said petition and known as the Avenue C line, the Spring and Delancy Street Line, the Madison Street Line and the Sixth Avenue Ferry Line.

"2. Nothing in this order contained shall be construed as a direction or consent to the abandonment of any franchise or portion thereof comprised in the routes of any of the aforesaid battery lines."

After obtaining this order, the receiver did discontinue operation of the named lines and never resumed it. Nor did he thereafter keep those tracks or the pavement within and adjacent thereto in repair. The paving claims hereinafter to be considered in respect to these tracks are known as the class B claims.

There were also certain surface street railway tracks on which the defendant had discontinued operation before the receiver was appointed and which the receiver never operated at all. He did nothing to keep those tracks in repair or the pavement within and adjoining them. The paving claims relating to them are known as the class A claims.

There were also certain tracks in Madison avenue which ran down Fourth avenue and the Bowery to Park Row which the defendant had operated under a lease from the New York & Harlem Railroad Company, and in connection with this service had run cars to and from this line and the Williamsburgh Bridge over tracks in Delancy street. In January, 1920, the receiver was authorized by the court to abrogate the lease, and did so. Thereupon the lessor operated the leased line itself, but discontinued operation along a track in Delancy street. The receiver, being convinced that it was desirable to resume operation along Delancy street, applied for authority to do that, and on January 29, 1920, obtained it in an order of the court permitting him to operate storage battery cars thereon and over cross-overs in Spring street near Broadway and in Delancy street near Clinton street. The paving claims known as class C accrued on these storage battery tracks after the receiver was appointed but before January 29, 1920.

All of the claims rest upon the provisions of section 178 of the New York Railroad Law (Consol. Laws, c. 49), which reads in part as follows:

"Every street surface railroad corporation, so long as it shall continue to use or maintain any of its tracks in any street, avenue or public place in any city or village, shall have and keep in permanent repair that portion of such street, avenue or public place between its tracks, the rails of its tracks, and two feet in width outside of its tracks, under the supervision of the proper local authorities, and whenever required by them to do so, and in such manner as they may prescribe. In case of the neglect of any corporation to make pavements or repairs after the expiration of twenty days' notice to do so, the local authorities may make the same at the expense of such corporation."

All the claims are for the actual cost of the paving repairs made after the required notice had been given the receiver and he had neglected to make them. It appears to have been his practice to let the city make all such repairs and to pay for those which were not questioned -- a large part of all the paving claims presented to the receiver by the city.

Failing to collect on the claims now in issue, the city sued the receiver upon them in the state court. The receiver answered, and after considerable delay secured an injunction in the court below staying the prosecution of the actions in the state court. The city moved to vacate the injunction, but later withdrew its motion and came into the District Court for hearing on the merits, where all the class A claims and all of the class B claims accruing after May 1, 1925, were disallowed, and the city appealed from that part of the order; all the class C claims and those in class B accruing before May 1, 1925, were allowed, and the receiver appealed.

Liability as to all of these claims depends wholly upon the application and meaning of the statute above quoted in part and especially upon the construction to be given the phrase "so long as it shall continue to use and maintain any of its tracks." This portion of the statute formerly read "so long as it shall continue to use any of its tracks," but it was amended in 1912 by adding after "use" the words "or maintain." It was held in City of New York v. Linch, 161 App. Div. 292, 146 N.Y.S. 357, affirmed 213 N.Y. 638, 107 N.E. 1074, that a receiver was not liable for paving claims under the statute as it stood before the amendment when he had not operated cars on the tracks or taken any affirmative action toward the exercise of dominion over them. The amendment, however, was either a useless duplication of what had been covered by the word "use" in the original statute or it did change its scope either by way of limitation or extension. That there was no restriction in the field of application is clearly shown by the use of the disjunctive "or," and "maintain" certainly extends beyond what is use as defined in the Linch Case. So we conclude that the statute as amended was intended by the Legislature to cover instances not within it before and among them a situation where, as here, tracks were allowed to remain under conditions which left them available for use by the receiver whenever he might decide to use them in the performance of his duties in the administration of the receivership in accordance with the law. That is in accord with the effect given the amendment in The City of New York v. Dry Dock, East Broadway & Battery Railroad Co., 135 Misc. 678, 240 N.Y.S. 744, affirmed 225 A.D. 794, 232 N.Y.S. 715, affirmed 251 N.Y. 583, 168 N.E. 436, certiorari denied 280 U.S. 603, 50 S. Ct. 86, 74 L. Ed. 648, and serves to distinguish the Linch Case.

We have no hesitation in saying that the receiver was under the same obligation as to paving claims as the corporation in receivership would have been had no receiver been appointed and the situation in other respects had been the same. The imposition of liability under the statute is an exercise of the taxing power. People ex rel. Buffalo & Lake Erie Traction Co. v. State Board of Tax Commissioners, 209 N.Y. 496, 103 N.E. 776; The City of Rochester v. Rochester Railway Co., 182 N.Y. 99, 74 N.E. 953, 70 L.R.A. 773. And general liability of the receiver for taxes while operating the surface street railway system in receivership is plain enough. Michigan, by Haggerty v. Michigan Trust Co., Receiver, 286 U.S. 334, 52 S. Ct. 512, 76 L. Ed. 1136. Nor is that disputed here. With the exception of the objection that paving notices under the statute were given in respect to the class C claims before the receiver was authorized to or was actually operating those tracks, the entire issue of liability is whether the statute embraced the claims. As we hold, however, ...

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