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IN RE NEW YORK

November 7, 1958

In the Matter of NEW YORK, ONTARIO AND WESTERN RAILWAY COMPANY, Debtor


The opinion of the court was delivered by: CONGER

Applications for compensation for services rendered and reimbursement of expenses incurred by parties in interest and their counsel from May 20, 1937 to January 30, 1957, in connection with the Debtor's reorganization proceeding (former § 77, sub. c(12), now § 205, sub. c(12) of the Bankruptcy Act, but herein referred to as § 77, sub. c(12).

The Debtor has had a long history under the Bankruptcy Act. The petition for reorganization of the Debtor was filed in 1937 and then through the years the proceeding continued until January 30, 1957, when this court dismissed debtor's reorganization proceeding. However, this court reserved jurisdiction to determine the amount of allowances and disbursements to be paid to the parties interested pursuant to the provisions of said § 77, sub. c(12). Various claims for allowances and disbursements were duly filed with the Interstate Commerce Commission (hereinafter referred to as the 'ICC') by the interested parties and application made thereto to have the ICC fix the maximum limits of final allowances of compensation for services rendered and reimbursement of expenses incurred.

 The matter came on to be heard before an examiner of the ICC. A full and complete hearing was had. His report was excepted to by some of the parties, and the ICC (Division No. 4) rendered an opinion dated May 8, 1958, setting forth the maximum limits of final allowances to be paid as reasonable compensation for services rendered to the Bankrupt estate and reimbursement for actual and reasonable expenses paid.

 From the very inception of this proceeding the United States has objected to the granting of any allowances.

 After the opinion of Division No. 4 of the ICC was entered the Government moved for a reconsideration by the entire ICC of the report and order of Division No. 4 and for a reversal of the grant of the allowances and disbursements by Division No. 4.

 On August 1, 1958 the Interstate Commerce Commission denied the petition of the Government. So the matter is now before me for final determination.

 At the outset, I shall first consider and pass on the Government's contention that the ICC erred in making any allowances for services and disbursements.

 The amounts allowed for services and disbursements totaled $ 112,083.31. There is in the estate now in the neighborhood of $ 8,500,000.

 The Government's main contention is that there can be no allowances paid out of the Debtor's estate for expenses and services 'in connection with the proceeding and plan' to parties in interest for voluntary expenditures and services when no plan of reorganization has been consummated; that no allowances should be granted where the Railroad has been held incapable of reorganization and the proceedings dismissed, and where because of futile proceedings and operations at a loss, the property of the Debtor has been so depleted that after liquidation the proceeds are insufficient to pay the liabilities of the Trustee arising out of said operations; that no allowances should be made to attorneys where the services have not only failed to contribute substantial benefit to the equitable owners of the proceeds of liquidation of the estate but have been largely to their detriment.

 There were several other objections by the Government to the report which I do not regard as having any weight or they are merged in the general objection that the ICC has erred in ignoring judicial decisions and the ICC's own prior decisions in regard to the construction and application of the language of § 77, sub. c(12).

 The primary and fundamental question here is: No plan of reorganization of the Debtor was ever effected, although several attempts were made. The ICC found that no plan of reorganization could be effected for the Debtor. Under those circumstances may allowances be granted to the parties and attorneys who, as they claim, performed services beneficial to the estate. We are all agreed that this question has never been judicially passed on.

 Division 4, in its opinion, very succinctly disposes of this question:

 '* * * While we agree with protestant that the 'contributive value test' is generally applicable to the determination of allowances under this subsection, we do not agree that the failure to effect a plan of reorganization is prima-facie evidence that parties to the proceedings have failed to contribute anything of benefit to a debtor's estate. The cases cited by protestant in support of its contention relate principally to the construction of the word 'benefit'. No case was cited which supports the proposition that under section 77(c)(12) no benefit can accrue to the estate unless the proceedings in reorganization have resulted in a consummated plan.

 'There is no basis in the language of section 77(c)(12), in its natural meaning, or in equity, for construing it as providing that successful consummation of a plan is a condition precedent to the grant of any allowance in the reorganization proceeding. In fact the language itself is inconsistent with that result. Subsection (c) commences with the phrase 'After approving the petition', and employs the phrase 'in connection with the proceedings and plan.' There is nothing in this language to indicate that approval and consummation of a plan are a prerequisite to the making of allowance under this subsection. And section 77(i) provides, among other things, that, upon the dismissal of a reorganization proceeding under this section, 'the judge may include in the order of dismissal appropriate provisions directing the trustee * * * to transfer possession of the debtor's property * * * upon such terms as the court in the proceeding under this section may deem equitable * * * for the payment of administrative expenses and allowances in the proceedings hereunder.' Obviously, conditions for the payment of allowances could not be imposed in these circumstances if consummation of a plan of reorganization were a condition prerequisite thereto.' (pp. 4-5) (emphasis supplied by ICC)

 I agree with the language of the opinion above set forth. As I wrote before, this is a new situation, under the Bankruptcy Act here pertinent. The Government does cite cases which it claims generally sustain its position. Those cases relate to another bankruptcy section not here pertinent. However, I go along with the ICC. There is nothing in § 77, sub. c(12) which gives support to the contention that consummation of a plan is a condition precedent to the granting of an allowance in this reorganization proceeding. There is nothing in the language of the subsection to indicate that there must be a successful plan before I may grant proper allowances. As the report of the ICC states, the Government's contention is not based on the words of the statute but on the premise that allowances under the subsection can be made only for services and expenses that have been of benefit to the estate and no such benefit could result in the absence of an effected plan of reorganization.

 The ICC rejected that theory. I agree with it.

 The cases cited by the Government deal principally with the construction of the word 'benefit'. I agree with the finding of the ICC in that respect. See quotation, supra.

 A brief look at the picture of this proceeding for 20 years might help out. Over 1,100 motions were made; 1,100 orders were signed; and appeals from three such orders were taken. I came into this proceeding in the Fall of 1947.

 As I look at it now, it seems to me that there were motions before me at least every two weeks. These parties or their attorneys were present at practically every proceeding before me. The participation of the attorneys for the Bankers Trust Company and New York Trust Company started from the inception of the proceeding. These motions before me had to do with the running of the Railroad and covered many topics: sale of special property, sale of the entire property, leases of various properties, contracts with the employees (this last prolonged and numbers), settlement of a strike, and many other and varied items too numerous to mention. These attorneys appeared on practically all of those motions and participated actively. They were representing trustees under mortgage bonds and bondholders, all with a direct interest in the future of the Railroad, and as I look back at it now, they acted as prudent and experienced men of affairs would have acted in similar predicaments.

 Who can say that they did not benefit the Railroad? These various predicaments had to be solved to keep the Railroad going, with the hope that eventually a successful reorganization might be consummated.

 The Government advances several other reasons for refusal to make allowances here. I shall not refer to them because I regard them as not having any merit. I have passed on the main contention of the Government and find against it. I follow the opinion of Division No. 4 of the ICC.

 Re Amount of Allowances.

 The ICC has gone into this question with a great deal of care. This is evidenced by the opinion of Division No. 4. I have read this opinion thoroughly, also the petitions and briefs filed by the various parties. The ICC gave all of the interested parties opportunity to present evidence either in support of claims or in opposition. I have read this testimony.

 I feel that ICC, in coming to its decision, did not so after careful deliberation buttressed by its long experience in railroad matters and railroad financial difficulties. I feel that while the findings are not binding on me, I should accord great weight to the opinion of this highly specialized agency of the Government.

 In passing on the amounts to be awarded, I shall confine myself at the outset to the claims of White & Code; Willkie Owen Farr Gallagher & Walton; Mahlon Dickerson and Nathaniel M. Sokolski. Their principals, to whom I have already referred, are making no claims here. Their attorneys are making the claims for services rendered and for disbursements necessarily incurred.

 There can no be doubt that these attorneys rendered services and spent many hours on the problems that arose in the course of this proceeding. It would be a waste of time and energy for me to detail separately the services rendered by each of these attorneys. I shall treat them generally as a group.

 During my tenure as the judge in charge of this proceeding, these attorneys appeared before me many times. They were experienced lawyers, several of them well experienced in this type of legal jurisprudence. I found them at all times extremely interested, active and industrious. At times there were highly controversial matters. I cannot say that they always agreed with me, with the Trustee, or with his attorney. On various occasions a great deal of testimony was taken. My recollection is that from the time these attorneys entered this proceeding they rarely missed a motion before me and usually took part in it either by argument or the examination of witnesses.

 When one considers that there were 1,100 motions made by the Debtor's Trustee and 55 made by other parties, and that there were 1,100 orders entered and three appeals, one can see that there was opportunity for these attorneys to work if they would, and my observation is that they did care to and did perform voluminous services. Many of these motions were most important and required much study.

 The Cumulative Topical Index (May 20, 1937 to June 14, 1954) (Ex. A) attached to the affidavit of Jesse E. Waid (May 8, 1957) gives an idea of the number and variety of subjects handled. Before I came into the picture there was the question of getting rid of the steam locomotives and substituting Diesel engines. It was thought that this might be a great aid to the successful running of the Railroad. From my reading I gather that three of the attorneys here put much time and effort into that project. During my regime, it seems to me that every week or two there were motions before me. Many concerned items that had to do with the actual running of the Railroad. There were many others more important. We did have constant worry about the labor situation. There was actually one strike, which tied up the Railroad for several weeks. During most of the time there was pending an application for increased wages. And there were threats of another strike. I spent many hours in court and out of court with these lawyers and others in an endeavor to solve these labor difficulties.

 I can now say that the employees were most justified in seeking a higher rate of pay. I believe I wrote this on several occasions, but stated there was no money to pay them. I know these attorneys spent considerable time and effort on this labor question.

 Then very often there were propositions to sell separate parts of the Railroad, to sell equipment and rails. On many of these sharp issues were raised. Mr. Cohen (Mr. Sokolski's principal) entered into these. He frequently was able to ...


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