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IN RE LONG ISLAND R. CO.

April 11, 1950

In re LONG ISLAND R. CO.


The opinion of the court was delivered by: KENNEDY

On September 8, 1949 the trustees applied for permission to retain as consulting engineers the firm of Coverdale & Colpitts (hereinafter referred to as Coverdale, or the Coverdale firm). The petition was opposed by the County of Nassau, the matter was argued and decision was reserved. Thereafter the County of Nassau asked me to take no action, and to delay decision until certain proceedings which it contemplated taking before the Interstate Commerce Commission had been perfected and concluded, proceedings which I am about to describe briefly.

In March 1949, after the filing of the petition to reorganize the railroad, I appointed three trustees. One of them (Smucker) was the person then in charge of the operations of the railroad as General Manager. Although a former employee of the Pennsylvania Railroad (the principal creditor) Smucker's comparatively brief tenure as General Manager of the Long Island Railroad had prompted the Public Service Commission to praise, in an official document, the improvements in service brought about during his administration. The other trustees named had no connection whatever with the Pennsylvania Railroad, were Long Island residents, and, on the basis solely of my personal knowledge of their character and competence, I believed them fully qualified to discharge the onerous duties I sought to place upon them. I say onerous, because the reorganization of the Long Island Railroad, a task complicated and of the greatest importance in itself, has been and is further complicated by criticism of the part played by Pennsylvania Railroad as a stockholder and creditor, and by a long history of intercorporate relationships between the two companies.

The Interstate Commerce Commission in part refused to confirm the appointments I made. On grounds of economy, the Commission decided (April 5, 1949) that no more than two trustees were necessary. It ratified the appointment of Smucker and of one of the 'public trustees'; it refused to ratify the third nomination. On September 22, 1949 the County of Nassau applied for rehearing. During the pendency of this application, counsel for Nassau asked for delay in the Coverdale proceeding on what I thought were highly reasonable grounds: that if the Interstate Commerce Commission should reverse itself, and approve the appointment of a third trustee, then all three should unite in the selection of a consulting engineer. I, therefore, granted the application of Nassau. But it was not until December 29, 1949 that the Interstate Commerce Commission decided the matter: it rejected the contentions of Nassau County, and specifically dealing with the case of Smucker, pointed out that his former connection with the Pennsylvania Railroad was no obstacle to his appointment.

 By this time I.had reached the conclusion that a hearing should be held on the question of the appointment of the Coverdale firm, largely because the papers in the case had become voluminous, and I thought that oral proof might produce a clarification of the issues. During January I consulted with counsel; after preliminary discussions it was found that the earliest date convenient for the holding of hearings would be toward the end of February. At about this time the trustees applied for a six-month extension of time to disaffirm contracts, the statutory period as extended being about to expire (March 2, 1940). The County of Nassau urged me to deny the application altogether at first, but then receded from this position and suggested that I grant the application only on condition that the trustees immediately disaffirm certain contracts between Pennsylvania and Long Island, although it was clear beyond argument that any intelligent action in this regard on the part of the trustees would require an examination into the facts by competent consulting engineers, and although appointment of the firm suggested by the trustees (Coverdale) had been delayed at the request of Nassau itself. I felt that this position was unreasonable and I extended the time of the trustees to file a plan until September 2, 1950.

 It is necessary for me to digress at this point for the moment and to say that constructive and affirmative action looking toward the reorganization of the railroad is, in my opinion, vital. But more than that, it is just as essential that such action shall be taken as speedily as circumstances permit. The delay in the selection of engineers between September 8th and the present is no one's fault, although inevitably the public will mistakenly charge it to the trustees. I mention this matter because it is and has been to me of paramount importance that needless bickering should not interfere with what I consider ought to be the prime concern of everyone connected with the reorganization: speedy solution of problems that affect the welfare of Long Island as a community and practically every individual in it.

 I turn not to the objection of Nassau to the granting of the petition authorizing the retainer of the Coverdale firm. I- their main brief submitted after the hearings counsel for Nassau took the position that there were six reasons why the Coverdale firm should not be appointed. I set these forth in the margin. *fn1" I shall for brevity refer to them as the claims of Nassau, and shall designate them by the numbers set opposite them in the portion of their brief which I have quoted. Claims 7 and 8 are obviously more argumentative than factual and proceed on the assumed basis that a 'disqualification' has been established, so that discussion concerning them can be postponed. Claims Nos. 3 and 6 are of such remote character that even their relevancy is doubtful, as I tried to point out to counsel for Nassau. There is a discussion in the record on this point, and speaking of these claims (3 and 6) or at least of the bulk of the 'specifications' to which they relate, counsel for Nassau said that they were 'cumulative' and 'simply add a little to the whole picture of the connection * * *'.

 The real issues therefore, as I read the record, boil down to the following contentions on the part of Nassau: (1) that the Coverdale firm should not be employed because many years ago four of the eight partners were employed either by Pennsylvania or by the New Haven Railroad (New Haven), (Claim 1); (2) that the Coverdale firm should not be retained because it had business relations with Pennsylvania, (Securities Syndicate, Seaboard Air Line and Richmond-Washington Co.), Claim 2); (3) that the Coverdale firm should not be retained because it was engaged by Pennsylvania to compile, and one of the partners, assisted by another, wrote a centennial history of the Pennsylvania Railroad, (Claim 4); (4) that the Coverdale firm should not be retained because it rendered services for New Haven in relation to compensation for the use of Long Island's Bay Ridge Division, (Claim 5).

 1.

 Personal Employment

 There are eight partners in the Coverdale firm. One of them (George H. Burgess) was employed by Pennsylvania between 1896 and 1905 as a rodman and later as an assistant engineer. A second partner (Kennedy) *fn2" was employed by Pennsylvania between 1922 and 1927 as a dreaftsman. A third partner (Slater) was employed by the New Haven between 1914 and 1925, originally as a statistician and finally as assistant to the general manager. A fourth partner (Gordon) was employed by New Haven 20 years ago (1916-1930) in the accounting and operating departments. None of the other four partners has ever been employed by either railroad.

 I suggest that there is probably no firm of consulting engineers in the country whose partners, in practically every case, have not begun their careers as railroad employees. To say that these persons, to say nothing of the firm of which they form part, are therefore 'disqualified' to investigate the railroads in question is, in my opinion, an utter absurdity. Such facts have no relevance either standing by themselves or in connection with other claims of 'disqualification'.

 2.

 Business Relations.

 In 1928 the Coverdale firm managed a securities syndicate organized to acquire Seaboard Air Line Railway Co. Pennsylvania was at that time competing with another railroad in the purchase of Seaboard securities. The Coverdale firm rendered a report to its client, Seaboard, forecasting the need for further financing. Thereafter Pennroad, a subsidiary of Pennsylvania, purchased a portion of the Seaboard interest acquired by Seaboard Syndicate. Unfortunately for everybody the plans to refinance Seaboard with Pennsylvania participation culminated into an agreement only a few weeks before the crash of 1929, and no public offering of the securities could be made (because of delay in approval by the Interstate Commerce Commission) until well after the crash. As a result, some years later (1941) the stockholders of Pennroad began an action against Pennsylvania (Overfield v. Pennroad Corporation et al., D.C.E.D.Pa. 1943, 48 F.Supp. 1008) which resulted (1943) in a district court judgment against the directors of Pennsylvania. This judgment was reversed, not on the merits but on the ground that the statute of limitations had expired. 3 Cir., 1944, 146 F.2d 889. But speaking for the third ...


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