in the name of the Western Tool & Manufacturing Co. in the District Court asking that the company be given relief under Chapter X of the Bankruptcy Act (11 U.S.C.A. § 501 et seq.)'
The District Court dismissed the petition. The Circuit Court of Appeals reversed the District Court's decision, one judge dissenting. In re Western Tool Mfg. Co., 6 Cir., 142 F.2d 404. The question before the Court was whether stockholders have the right to file petitions under Chapter X; also, whether the bankruptcy court, as an incident of its bankruptcy powers, can give relief which could be obtained in another forum. The judgment of the Circuit Court of Appeals was reversed, the Court saying:
'Respondents may have a meritorious case for relief. On that we intimate no opinion. But if they are to be allowed to put their corporation into bankruptcy, they must present credentials to the bankruptcy court showing their authority.
'It is argued that circuity of action will be avoided and the adequacy of stockholders' remedies will be enhanced if the bankruptcy court is authorized to entertain petitions like the present one. That may well be true. But any such enlargement of the jurisdiction of the bankruptcy courts is for Congress. It has chosen to withhold from stockholders the right to institute these bankruptcy proceedings. In absence of federal incorporation, intercorporate disputes of the character presented here are, as we have said, governed by state law. The creation of a new basis of federal jurisdiction to hear them, pass on their merits, and adjudicate them is a legislative act.'
In the case of Chicago, Milwaukee, St. Paul & Pacific Railroad Company Reorganization, Feb. 12, 1940, 239 I.C.C. 485, the facts are somewhat analogous to the facts in the present case. The Commission, in its opinion, stated:
'The consolidation of the properties of the Terre Haute with those of the debtor would be consistent with the plan announced in Consolidation of Railroads, 159 I.C.C. 522, and from the point of view of corporate simplicity would be desirable. However, as point out by the group of owners of certain Terre Haute first and refunding mortgage bonds who were permitted to intervene specially, the Terre Haute is not a debtor in any section 77 proceeding now before us. Although the Terre Haute bondholders were recognized as creditors of the debtor by the court's order of July 6, 1935, which divided them into four classes, this group did not appear during the hearings. The trustees under the Terre Haute mortgages have filed claims against the debtor. But the Terre Haute bondholders' group argues that we do not have jurisdiction to approve any plan which would disturb the lien of the mortgage securing the bonds owned by the group, and that any plan so providing would not be binding upon them, citing Greenbaum v. Lehrenkrauss Corp., 2 Cir., 73 F.2d 285, in which it was held error under the intercorporate relationships there found to exist, to enjoin proceedings against a subsidiary of a corporation in receivership. To the same general effect is In re Adolf Gobel, Inc., 2 Cir., 80 F.2d 849, also cited, except that the parent company was the debtor in a proceeding under the former section 77B of the Bankruptcy Act (11 U.S.C.A. § 207). This group also raises similar jurisdictional questions as to our authority to approve a plan which would merge or consolidate the Terre Haute with the debtor or which would disaffirm the lease of the Terre Haute to the debtor. * * *
'This committee, in support of that part of its plan which provides that the Terre Haute bondholders be given securities of the reorganized company in lieu of their present bonds, argues that in view of the ownership by the debtor of 97 percent of the Terre Haute's capital stock, the existence of the 999-year lease under which the debtor has operated the Terre Haute's properties as part of the system, the assumption of the Terre Haute's bonded indebtedness and the guaranty of its income-mortgage bonds, the identity of many of the officers of the respective corporations, and other factors, the debtor's position is essentially that of owner of the Terre Taute, and the position of the Terre Haute is that of an instrumentality of the debtor, with the consequence that the assets of the Terre Haute are part of the assets of the debtor for purposes of reorganization. In support of its position the committee cites Central Republic Bank & Trust Co. v. Caldwell, 8 Cir., 58 F.2d 721; In re McCrory Stores Corp., 2 Cir., 69 F.2d 517; Commerce Trust Co. v. Woodbury, 8 Cir., 77 F.2d 478, certiorari denied 296 U.S. 614 (56 S. Ct. 134, 80 L. Ed. 435); and In re Hotel Gibson Co., D.C., 11 F.Supp. 30.
'We have carefully examined these cases and are not persuaded that any of them is of controlling or persuasive importance in the situation here presented. We agree with the group of Terre Haute bondholders that they are not such creditors of the debtor as would be bound as a class by a confirmed plan of reorganization which divested them of their existing liens upon the Terre Haute properties.
'The immediate accomplishment of a consolidation of these properties and the elimination of unnecessary corporate structures and intercompany arrangements, very appropriate at this time, is thus thwarted. However, the reorganization of the debtor on a sound basis must not be prevented on that account. Nor must the capital structure of the new company be too heavily weighted by Terre Haute obligations. * * *
'Under the circumstances, we shall approve, as part of the plan, provisions for dealing with the Terre Haute bonds in a manner which bears a fair and equitable relationship to the treatment accorded the bondholders of the debtor, does not require a consolidation of the properties, and yet accords to the Terre Haute bondholders the same security under the existing mortgage, respectively, as their present bonds hold. However, these provisions, in order to become an effective part of the plan, will have to be accepted by substantially all of the Terre Haute bondholders.'
The decision of the Interstate Commerce Commission seems to have been acquiesced in by the parties, as it was not raised in the appeal to the Supreme Court. Group of Institutional Investors v. Chicago, Milwaukee, St. Paul & Pacific Railroad Co., 1943, 318 U.S. 523, 63 S. Ct. 727, 87 L. Ed. 959.
Under the reorganization statute and the above decisions, the jurisdiction of this court is limited to the property of the debtor and does not extend to the property of the underliers. As the underliers have not filed petitions, their properties are not within the jurisdiction of this court, and this court has not the power in this proceeding to determine the substantive rights of the creditors and stockholders of the underliers.
The Master has made full findings of fact. He has also stated fully his conclusions of law. He has discussed the reasons and authorities in support of his findings. He considered that the property of the debtor and of the underliers have been operated as one system since 1902; that dominion over the property of the debtor and underliers has been exercised as if it were one system; that the officers and directors of 36 of the 49 underliers are officers and directors of the Philadelphia Company. He has considered the leases to underliers for 900 years or more; the changes that have been made in the property leased since 1902; the stock of the underliers that has been pledged; that the ownership of the 4 unguaranteed underliers and of the 9 guaranteed underliers is not in the Pittsburgh Railways Company or in the Philadelphia Company. He has considered their attitude toward reorganization and other material facts. He has found that this court has power to determine the title of the Pittsburgh Railways Company and the underliers in the properties leased and held under agreement. He has found that there was not such a confusion of property that corporate entities should be disregarded; that the manner in which the stock was owned and that the debtor, the Philadelphia Company, and some of the underliers had common officers and directors, did not create an agency; that mere convenience is not sufficient to confer jurisdiction; that the dominion the Pittsburgh Railways Company and the Philadelphia Company exercised over the properties of the underliers is not inconsistent with ownership of the underliers, with the result, that he has found that the title to the property of the underliers is not in the Pittsburgh Railways Company for the purpose of reorganization in this case. The facts and the law are so fully discussed in the Master's Report that further discussion is unnecessary on the part of this Court. We agree with the Master's conclusion that this court cannot take jurisdiction over the property of the underliers, and therefore that the petition of the City of Pittsburgh should be dismissed.
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