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IN RE PITTSBURGH RYS. CO.

April 30, 1945

In re PITTSBURGH RYS. CO.


The opinion of the court was delivered by: MCVICAR

In the matter of the reorganization of the Pittsburgh Railways Company, debtor, the City of Pittsburgh filed a petition October 23, 1942, acting in the public interest and as a large creditor. The general purpose of the petition was to facilitate reorganization. The prayers for relief are set forth in six paragraphs numbered 1 to 6, inclusive. Only numbers 1 and 2 were pressed; consequently, consideration has been limited to these two prayers. The Tort Creditors Committee joined in the petition of the City. A number of motions were made to dismiss the petition and, also, a number of answers were filed. These are set forth in paragraphs I and II of the Special Master's Report, to whom the petitions and pleadings, aforesaid, were referred for the purpose of having his findings of fact and conclusions of law. The Special Master held a large number of hearings, extending over a considerable period of time. He took much evidence; he made a report of his findings and conclusions, together with his recommendation, which contains 229 printed pages. The Special Master exercised much care and study of the matter referred to him. A hearing was held by this Court on the Master's Report and the objections and exceptions thereto, March 28, 1945. The parties in interest were fully heard. Objections and exceptions to the Master's Report were made by the City of Pittsburgh, the Securities and Exchange Commission (which orally joined in the City's objections), the County of Allegheny, the Philadelphia Company, Jules Guggenheim, et al., and a committee for the bondholders of the Southern Traction Company.

The facts are fully set forth in the Special Master's Report. A brief statement of some of the material facts is set forth herein.

 All of the stock of the Pittsburgh Railways Company is owned by the Philadelphia Company. Forty-nine underliers of the Pittsburgh Railways Company are in this proceeding; 36 of them are underliers of the Philadelphia Company. Four of the unguaranteed underliers are not owned either by the Pittsburgh Railways Company or the Philadelphia Company. These companies have made leases for their properties to other underliers for a period of 900 years. Nine underliers holding guaranties from the Philadelphia Company for payment of lease rent, taxes, etc. are not owned by the Pittsburgh Railways Company or the Philadelphia Company. These guaranteed underliers have leases to other underliers for a period of 900 years or more. The Pittsburgh Railways Company operated the system, aforesaid, under leases and operating agreements. Less than 8% of the trackage in the system was owned by the Pittsburgh Railways Company.

 The 49 underliers of the Pittsburgh Railways Company can be divided into three groups: (1) Group in which the Pittsburgh Railways Company has some stock ownership and in which there are operating leases or agreements; (2) group in which the Pittsburgh Railways Company owns nearly all the stock and is known as the 'United Traction Group', and is operated by the Pittsburgh Railways Company under an agreement; and (3) group in which nearly all the stock is owned by the Philadelphia Company and is operated by the Pittsburgh Railways Company under agreement.

 The Philadelphia Company, by reason of its stock control and ownership in 36 underliers of the Pittsburgh Railways Company, has common directors and officers in said companies and is in a position to control, and does control, said underliers. No fraud or unfairness has been shown in said control.

 The leases to Pittsburgh Railways Company by the underliers, and between the various underliers, are bona fide leases which created the relation of lessor and lessee, and this relationship continues to the present time. Also, the operating agreements to Pittsburgh Railways Company are bona fide and continue to the present time.

 The underliers, since leasing their properties to the debtor in 1902, have elected directors and officers and made tax returns. The principal function of these companies has been to receive and distribute rent from their properties.

 The financial condition of the Pittsburgh Railways Company has been unsatisfactory since 1902. It has been in receivership proceedings in this court. It has received help from the Philadelphia Company several times. The unguaranteed underliers and all but 6 of the Philadelphia underliers are unable to meet their debts as they mature. It is evident from the past and existing conditions, that the capital in this system should be reduced in value, so that the owner or owners thereof will be solvent and so that a fair return may be made on the amount invested.

 The Pittsburgh Railways Company, together with its subsidiary, the Pittsburgh Motor Coach Company, have filed petitions for reorganization. The original property leased to the Pittsburgh Railways Company in 1902 has nearly all disappeared; substitutions have been made; some abandonments have occurred. At the oral argument no one was able to state what probably would result if this transportation system was not organized as a unit; or if the leases and operating agreements of the Pittsburgh Railways Company were disaffirmed, whether new leases and operating agreements could be made on a reasonable financial basis.

 The question that arises under paragraph (1) in the prayer of the petition of the City of Pittsburgh is, whether this Court, forthwith, should assume and exercise jurisdiction over all the properties and assets, or interests therein, of each of the underliers, or so much thereof, as may be actually or constructively in the custody of this court; and whether it should determine the rights of all creditors and stockholders of the underliers, as is set forth in said prayer; or in other words, has this court power to exercise jurisdiction over the property of the underliers in this reorganization proceeding?

 The jurisdiction of this court is limited to that conferred on it by the Federal Constitution and statutes. The rule is stated by Dobie on Federal Procedure, Sec. 16, page 25:

 'Every federal court is a court of limited, not of general, jurisdiction. All presumptions are against the jurisdiction of such a court, so that the facts disclosing the jurisdiction must affirmatively appear upon the record. Jurisdiction cannot be conferred by the mere consent of the parties to the suit, and the question of jurisdiction, whether or not raised by the parties, is always, during the progress of the case, before the federal courts, both trial and appellate.'

 Section 111 of the Chandler Act, 11 U.S.C.A. § 511, provides:

 'Where not inconsistent with the provisions of this chapter, the court in which a petition is filed shall, for the purposes of this chapter, have exclusive jurisdiction of the ...


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