St. Joe Paper Company v. Atlantic Coast Line Railroad Company Lynch/Opinion of the Court

Court Documents
Case Syllabus
Opinion of the Court
Dissenting Opinion

United States Supreme Court

347 U.S. 298

St. Joe Paper Company  v.  Atlantic Coast Line Railroad Company Lynch

 Argued: Oct. 15, 1953. --- Decided: April 5, 1954

The sole question for decision in this case is whether the Interstate Commerce Commission has the power under § 77 of the Bankruptcy Act to submit a plan of reorganization to a district court whereby a debtor railroad would be compelled to merge with another railroad having no prior connection with the debtor. Answer to this problem depends on understanding of a long legislative history. First, however, it is necessary to put the problem into its relevant context.

In August of 1931, the Florida East Coast Railway was thrown into equity receivership. It operated in this manner until January of 1941, when a committee representing the owners of a substantial portion of the debtor's principal bond issue filed a petition for reorganization under § 77 of the Bankruptcy Act in the United States District Court for the Southern District of Florida. The petition was approved by the court, and, as provided in the statute, proceedings were initiated before the Interstate Commerce Commission for hearings on a plan of reorganization formulated by the bondholders' committee. In re Florida East Coast Ry. Co., D.C., 103 F.Supp. 825.

In the course of the next ten years, many proposals have been considered by the Commission. Most of them were rejected for one reason or another, but three have in turn been certified by it to the District Court. None has as yet been confirmed by that court. The initial plan provided for a simple internal reorganization. It was rejected by the court, and the case was remanded to the Commission with directions to take account of an intervening improvement in the debtor's cash position. D.C., 52 F.Supp. 420. Atlantic Coast Line Railroad, the present respondent, first appeared on the scene in November 1944 when, after the Commission's hearings for the purpose of devising a second plan had been closed, one Lynch, joined by other bondholders of the debtor, sought to reopen the proceedings for the purpose of proposing a new plan whereby each recipient of stock in the reorganized debtor would be required to sell 60% of his interest at par to Atlantic, a connecting carrier, thereby giving that railroad operating control of the debtor. On November 30, 1944, Atlantic was allowed to intervene before the Commission in support of the Lynch proposal. The St. Joe Paper Co., on the other hand, which had by that time acquired a majority interest in the debtor's principal bond issue, opposed the Lynch plan. The Commission rejected the Lynch proposal, indicating that, in view of Atlantic's operating deficits over the past years, combining the two railroads would not be in the public interest at that time. 261 I.C.C. 151, 187.

The subsequent struggle for control of the debtor has been largely between these two interests-the St. Joe Paper Co., owner of the major interest in the debtor, and Atlantic, a connecting carrier anxious to acquire the debtor's coveted Florida east coast traffic from Jacksonville to Miami. Shortly after the Commission's rejection of the Lynch plan, Atlantic proposed its own plan providing for the merger of the debtor into Atlantic in return for the distribution of cash and various types of Atlantic's securities to the debtor's bondholders. St. Joe again opposed, as did various other bondholders, two competitors of Atlantic, an association representing the debtor's employees, and other interested parties. The matter was referred to an Examiner who, after a lengthy investigation, found that such a merger would not be in the public interest, and that the Atlantic plan would not constitute 'fair and equitable' treatment for all the unwilling bondholders who were in substance the owners of the debtor railroad. [1] The Commission, however, by a sharply divided decision overruled the Examiner and sanctioned a 'forced merger.' [2] 267 I.C.C. 295. [3] Circuit Judge Sibley, sitting in the District Court, set the plan aside on the ground that the Commission had no power under the statute to force a merger; in addition, he held the plan not 'fair and equitable'. 81 F.Supp. 926, 933. On appeal to the Court of Appeals for the Fifth Circuit, two judges sustained the Commission's authority to propose such a plan while the third agreed with Judge Sibley; but a majority agreed with the District Court that the plan was not 'fair and equitable'. 179 F.2d 538, 541.

The Commission then formulated another plan, which likewise provided for a forced merger of the debtor and Atlantic, 282 I.C.C. 81, and Circuit Judge Strum, sitting in the District Court, while bound on the question of the Commission's power by the prior Court of Appeals decision, again set the plan aside as unfair and inequitable. 103 F.Supp. 825. The Court of Appeals was now convened en banc. Three of its judges, without further consideration of the Commission's power, reversed the District Court and found the plan fair and equitable. The other two judges dissented and adopted the reasoning of Judge Sibley in the earlier case, i.e., that the Commission had no power under the statute to propose such a compelled merger plan. [4] 201 F.2d 325. Because of the importance of this question in the administration of § 77 of the Bankruptcy Act, we granted certiorari. 345 U.S. 948, 73 S.Ct. 866, 97 L.Ed. 1372.

The procedure by which the Commission is authorized to consider and approve a plan of reorganization and then submit it to the interested parties for acceptance, as well as the courts for judicial confirmation, is governed by an elaborate statutory scheme. See § 77 of the Bankruptcy Act, 47 Stat. 1474, as amended, 11 U.S.C. § 205, 11 U.S.C.A. § 205. Any question such as the one now here must be resolved by reference to this governing law and its underlying purpose, imbedded as that is not merely in the formal words of the statute but in the history which gives them meaning. If ever a long course of legislation is to br treated as an organic whole, whose parts are not disjecta membra, this is true of § 77.

The respondent relies on subsection b(5) to sustain the Commission's power to submit a forced merger plan of the type here involved. [5] This was subsection (b)(3) of the original § 77 of the Bankruptcy Act as enacted in 1933, 47 Stat. 1474, 1475. It then read, insofar as here material,

'(b) A plan of reorganization within the meaning of this section * * * (3) shall provide adequate means for the execution of the plan, which may, so far as may be consistent with the provisions of sections 1 and 5 of the Interstate Commerce Act as amended, include * * * the merger of the debtor with any other railroad corporation * * *.'

The permissive merger provision in plans of reorganization was thus made expressly conditional on compliance with the requirements of §§ 1 and 5 of the Interstate Commerce Act, 49 U.S.C.A. §§ 1, 5. The reason for this proviso, commonly referred to as the 'consistency clause,' was stated as follows by Commissioner Joseph Eastman, Chairman of the Legislative Committee of the Interstate Commerce Commission and one of the weightiest voices before Congress on railroad matters: [6]

'Explanation.-This act ought not to authorize railroad mergers * * * which are inconsistent with the applicable provisions of the Interstate Commerce Act, particularly the consolidation-plan provisions. These amendments are intended to avoid that possibility.'

In the ensuing floor debates it was further made clear that the purpose of the consistency clause was to subject mergers under § 77 to whatever restrictions obtained for mergers under the Interstate Commerce Act. Representative Hatton Summers, Chairman of the Judiciary Committee which had reported out the bill and floor manager of the bill, gave this assurance:

'Mr. Horr. May I inquire whether or not, where the word 'reorganization' is used, the gentleman is of the opinion that this would encourage consolidations of railroads?

'Mr. Sumners of Texas. They could not be consolidated in violation of the interstate commerce act.

'Mr. Horr. They would first have to go through that?

'Mr. Sumners. They would first have to go through that.' 76 Cong.Rec. 2909.

And Congressman Rayburn, Chairman of the Committee on Interstate and Foreign Commerce, put it thus:

'Fear has been expressed that with the enactment of this bill the powers of the Interstate Commerce Commission and the courts over consolidations and mergers would be expanded. It is my firm conviction that this proposal in specific provisions safeguards the present consolidation and merger provisions of the interstate commerce act and gives no additional authority to the commission or the courts in these matters.' 76 Cong.Rec. 2917-2918.

In view of this deliberate and explicit incorporation of the restrictions attending mergers under the Interstate Commerce Act into § 77 of the Bankruptcy Act, it is necessary to give some consideration to the merger and consolidation provisions of the former, 49 U.S.C. § 5, 49 U.S.C.A. § 5. The history of these provisions is long and tortuous; its detailed summary is relegated to an appendix. Suffice it to say here that one clear thread which runs through a course of legislation extending over a period of twenty years, as well as through the various commentaries upon it, is that only mergers voluntarily initiated by the participating carriers are encompassed by that statute and sanctioned by it. From the initial enactment in the Transportation Act of 1920, 41 Stat. 456, 480, to the most recent comprehensive re-examination of these provisions in the Transportation Act of 1940, 54 Stat. 898, 905, Congress has consistently and insistently denied the Interstate Commerce Commission the power to take the initiative in getting one railroad to turn over its properties to another railroad in return for assorted securities of the latter. The role of the Commission in this regard has traditionally been confined to approving or disapproving mergers proposed by the railroads to be merged. And this adamant position taken by Congress has not been for want of attempts to secure relaxation. Advocacy of giving the Commission power to propose and enforce mergers has been steady and, at times, strong, but it has consistently failed in Congress.

The reasons for this hostility to mergers imposed by the Commission derive largely from the disadvantages attributed by Congress to such fair-reaching corporate revampings. Employees of the constituent railroads would, it has been feared, almost certainly be adversely affected. Shippers and communities adequately served by railroad A may suddenly find themselves unfavorably dependent upon railroad B. Investors in one railroad would, contrary to their expectations, find their holdings transmuted into securities of a different railroad. As the Commission in its 1938 Annual Report said of consolidation:

'Projects of this character cannot be crammed down the throats of those who must carry them out or conform to them. Legal compulsion can be used with advantage to bring recalcitrants and stragglers into line, but not to drive hostile majorities into action.' (P. 23.) [7]

We therefore conclude that the Commission does not have under § 77 of the Bankruptcy Act a power which Congress has repeatedly denied it under the Interstate Commerce Act, namely to initiate the merger or consolidation of two railroads. In light of the continuously and vehemently reiterated policy against endowing the ICC with such a power under § 5 of the Interstate Commerce Act, it is inconceivable, wholly apart from the consistency clause, that such was the sub silentio effect of § 77, an emergency statute hurriedly enacted with scarcely any debate. The consistency clause serves but to strengthen this natural presumption against such a tacit grant. It would require unambiguous language indeed to accomplish a contrary result; yet nowhere in the committee reports and the debates on the original § 77, nor in any of the legislative materials relating to the thorough re-examination of that statute in 1935, [8]can we find so much as one word which conveys the impression that as to mergers under the Bankruptcy Act, Congress stealthily designed to jettison its longstanding and oft-reiterated policy against compulsory mergers. On the contrary, after the enactment of § 77 in 1933, the Commission in its annual reports, and the Federal Coordinator of Transportation in his several reports, had frequent occasion to discuss § 77 of the Bankruptcy Act and § 5 of the Interstate Commerce Act. It would indeed be strange for these railroad authorities to bemoan the Commission's inability to initiate mergers and consolidations [9] if it had been a fact that as to the substantial portion of the Nation's railroad mileage then in receivership or § 77 proceedings [10] the Commission clearly had this very power. Had it been the declared intention of the drafters of § 77 to confer such a power, it is fair to assume that, in view of the persistent opposition of organized labor and other groups to such attempts under the Commerce Act, [11] the statute would not have passed.

All this of course is not to say that mergers cannot be carried out in the course of a § 77 reorganization. It merely means that if they are, they must be consummated in accordance with all the requirements and restrictions applicable to mergers under the Act primarily concerned with railroad amalgamations, the Interstate Commerce Act. So far as here relevant, that means that the merger must be worked out and put before the Commission by the merging carriers. [12] It also means that one carrier cannot be railroaded by the Commission into an undesired merger with another carrier.

In short, the consistency clause of § 77 incorporates by reference § 5 of the Interstate Commerce Act, as amended. And the very heart of § 5 is that a merger of two carriers may be approved by the Interstate Commerce Commission only if it originates as a voluntary proposal by the merging carriers. This essential prerequisite for a merger between Florida East Coast and Atlantic Coast Line-two existing corporate entities-must be complied with, for by virtue of the consistency clause the command of Congress applies even if one of these carriers is in § 77 proceedings just as must as it would if neither of the carriers were in receivership or trusteeship. The legislative incorporation of § 5 into § 77 should not result in its judicial mutilation.

The most recent occasion on which the Senate Committee on Interstate Commerce comprehensively re-examined the subject of railroad reorganization was the report submitted in 1946 by Chairman Wheeler, the guiding spirit of most of the legislation here under consideration. [13] Much of what the Committee says there under the heading of 'Avoidance of consolidation statute' is highly relevant here:

'In view of (the) many interests, immediately and directly affected by any proposed consolidation, Congress has provided a series of safeguards and procedural steps, in section 5 of the Interstate Commerce Act. * * *

'This statute and its statutory procedure, statutory safeguards, and statutory rights have been set to one side in the proceedings under section 77 of the Bankruptcy Act. The institutional and other groups, and the Commission, have assumed that they could effect consolidations, not under the Interstate Commerce Act, but under the Bankruptcy Act; not under a statute dealing with transportation, but under a statute dealing with financial reorganization; not under a section which considers and specifies one single financial question, the effect of consolidation on fixed charges, but under a section which deals with all sorts of financial problems, most of them not related to consolidation. They have assumed to effect consolidations, not under legislation which deals primarily with the rights and interests of States, local communities, and employees, but under a bankruptcy law which deals primarily with the interests of securityholders.

'Those who are trying to bypass this statute and to consolidate railroads as part of a financial reorganization proceeding bring consolidation into the proceeding as something subsidiary, a mere tail to the main kite. When governors of States and representatives of communities and employees' organizations are invited to the proceedings by the Commission, they find the issue which primarily concerns them enveloped in all sorts of other questions of a financial and technical nature. If they should want to appeal to a court from a consolidation decision in this grab bag of proceedings, their task would be far more complicated and far more difficult than Congress intended when it passed section 5 of the Interstate Commerce Act. There is always the available cry-the courts should not disapprove any part of the reorganization plan, even though it be a consolidation matter, lest all the time and labor and expense which has gone into the reorganization proceeding be lost.

'The Commission justifies its course of action by citing two subsections of section 77 of the Bankruptcy Act. Subsection b lists a number of the substantive changes which can be made through a plan of reorganization under section 77. Then it lists a number of 'means for the execution of the plan,' * * *. Among these 'means for the execution of the plan's is included 'the merger or consolidation of the debtor with another corporation or corporations.' Subsection f authorizes the Commission, after the court confirms the plan, 'without further proceedings' to authorize the issuance of securities, transfer of property, sale, 'consolidation or merger of the debtor's property, or pooling of traffic, to the extent contemplated by the plan and not inconsistent with the provisions and purposes of the Interstate Commerce Act as now or hereafter amended.'

'Note should be taken of the Commission's position. It could, under its construction of the statute, authorize not only mergers, but also pooling of traffic, without complying with the requirements laid down by Congress in section 5 of the Interstate Commerce Act. Consolidations, mergers, and pooling of traffic have long been regarded as dangerous, if not carefully regulated and supervised; Congress has long had those evils in mind and sought to prevent excesses, while saving what is good in such transactions; to this end Congress carefully elaborated a considerable number of safeguards in section 5 of that act. None of those safeguards is elaborated in section 77 of the Bankruptcy Act.

'It may not be assumed that Congress intended, in section 77, to permit it to bypass the section 5 procedure and proceedings. Section 77 was hurriedly passed by Congress. It was not considered by either a subcommittee or full committee of the Senate, before being taken up on the floor. It was pushed through in the final days of the Seventy-second Congress on the plea that it would prevent receiverships. Congress would not, in such a manner, legislate out of existence, for companies requiring reorganizations, its carefully elaborated safeguards with respect to consolidations or traffic pools. If the Commission's construction of section 77 is sound, that it can avoid the necessity of considering consolidations under section 5 of the Interstate Commerce Act, it is obvious that the legislation enacted as section 77 of the Bankruptcy Act contained a 'joker' of serious and dangerous proportions.

'The most that the Commission may claim under section 77 is that, if it has approved a consolidation by an order under section 5 of the Transportation Act, it may perhaps be able to give effect to that action in the course of reorganization proceedings.

'This is of importance in administering both statutes. The procedure and safeguards of the Transportation Act must be preserved as a matter of law and of right; * * *.' (Emphasis added.)

The crucial question, therefore, is whether this merger plan meets the statutory requirements. Since it does not, as we have found, because it is sought to be imposed by Commission fiat rather than proposed by the merging carriers, it matters not that the security holders might ultimately accept it if it were put to them for a formal vote. The kind of Hobson's choice, more or less, to which security holders are put when voting on a merger plan is not to be put to them on a plan initiated by the Commission rather than by their own corporation. And so, if a plan does not satisfy the basic conditions which circumscribe the Commission's power, it has a congenital defect, and any interested party can object to its attempted effectuation.

Likewise, the so-called 'cramdown' clause, much relied on by respondent, has no bearing on this case. That provision was added to § 77 of the Bankruptcy Act in 1935, 49 Stat. 911, 919, 11 U.S.C. § 205, sub. e, 11 U.S.C.A. § 205, sub. e, because under the prior law a plan had to be accepted by at least two-thirds (in amount) of each class of creditors and stockholders affected by the plan. This enabled a small dissentient minority to block any plan of reorganization, no matter how 'fair and equitable,' in order to exact inequitable adjustments as the price of its acquiescence. Under the 'cramdown' provision the district court may, under the appropriate circumstances and after making certain required findings, confirm a plan despite the disapproval of more than one-third of each class affected. From the existence of this general power in the district court to confirm a plan despite the opposition of dissentient elements, the conclusion is sought to be drawn that the Commission must therefore have initial power to submit a compulsory merger plan to the court. Obviously this does not follow. Since the vast majority of § 77 proceedings involve internal reorganizations, the 'cramdown' provision has a purpose and scope of application wholly independent of mergers, and it therefore has no bearing one way or the other on the question at issue in this case. [14] It is true that in view of our holding here that merger plans cannot be proposed by the Commission under the Bankruptcy Act, the 'cramdown' provision can never be applied to such involuntary plans. But there is nothing particularly startling about this. Once its terms are found to be valid, a plan may be imposed on recalcitrant dissenters. But the validity of a plan cannot be derived from the existence of such 'cramdown' power. It is still true that a horse-chestnut is not a chestnut horse.

The judgment is reversed and the case is remanded to the District Court for further proceedings in accordance with this opinion.

Reversed and remanded.

Mr. Justice BLACK and Mr. Justice CLARK took no part in the consideration or decision of these cases.

For dissenting opinion, see 74 S.Ct. p. 587.


A brief outline of the history of the consolidation provisions of theInterstate Commerce Act.

Prior to 1920, competition was the desideratum of our railroad economy. Section 5 of the original Interstate Commerce Act of 1887 forbade any agreements for the pooling of freights or revenues, [1] and the policy of the antitrust legislation was also applied to the railroads. [2]

In 1919, when the Government was planning to return the railroads to private ownership, many of the smaller railroads were in very weak condition and their continued survival was in jeopardy. [3] Hence, for the first time, governmental encouragement of railroad consolidation was discussed. It was agreed that the Interstate Commerce Commission should be directed to prepare a plan for the consolidation of the railroads of the country into a limited number of systems. But there was sharp disagreement over ways and means for carrying out this program. The House Committee opposed grant of power to the Commission to compel consolidations. [4] The Senate Committee, however, under the leadership of Senator Cummins, an ardent advocate of compulsory consolidation, recommended a bill providing for voluntary consolidation in accordance with a master plan for a period of seven years, but authorizing compulsory consolidations thereafter. [5] Although many groups, including virtually all the railroads, opposed the compulsory provisions, [6] the Senate passed the bill, 59 Cong.Rec. 952. But in conference, '(t)he Senate receded from the provisions for compulsory consolidation' and the House version was adopted. [7]

In 1921, the Commission promulgated a tentative consolidation plan. [8] Strong opposition immediately developed and long hearings before the Commission ensued. The upshot was that in 1925, the Commission, recognizing the unfeasibility of working out a national plan of consolidation, asked Congress to be relieved of this burden. [9] This request was left unheeded until 1940, and in 1929 the Commission adopted its final plan of consolidation. [10]

Meanwhile Senator Cummins renewed his efforts to give the Interstate Commerce Commission power to compel consolidations if after a certain number of years the voluntary program had made no progress. [11] This bill again met with strong opposition, [12] but prior to his defeat in 1926, Senator Cummins made two further attempts to endow the Commission with power to force consolidations. [13] All these legislative efforts failed.

In February of 1933, the drive for compulsory consolidation gained new impetus when the National Transportation Committee, headed by ex-President Coolidge, issued a report recommending legislation along these lines. [14] Again the opposition was so vigorous [15] that the Emergency Railroad Transportation Act of 1933, passed some months later, contained no such provision; on the contrary it had a special section designed to protect labor against further cutbacks in employment. [16]

The 1933 Act also established the office of a Federal Coordinator of Transportation to investigate the entire transportation problem and make appropriate recommendations. In his first Report, the Coordinator, Commissioner Joseph Eastman, reviewed the subject of railroad consolidations and concluded that the sweeping proposal of his legal adviser, Mr. Leslie Craven, for compulsory consolidation should not be followed, but that the remedy lay along lines of greater coordination and pooling, with some forced mergers on a 'trial' basis. [17] The third and fourth Reports reiterated the Commission's inability to compel mergers. [18] Again no legislative action resulted. [19]

In 1938, President Roosevelt appointed Commissioners Eastman, Splawn, and Mahaffie of the Interstate Commerce Commission to make another comprehensive study of the railroad problem. This 'Committee of Three,' after pointing out that 'voluntary consolidation of railroad companies may now be accomplished, subject to certain limitations, with the approval of the Commission,' recommended new legislation, giving the Commission 'authority * * * to require a unification, where it is sought by at least one carrier.' [20] Subsequently the President also appointed another Committee consisting of three railroad executives and three representatives of railway labor, known as the 'Committee of Six.' This Committee's recommendations were vastly different: [21]

'We do not think the country is ready for any compulsory system of consolidations. Whether ultimate resort must be had to the principle of compulsion is a question which we think it better to defer until after there has been an opportunity to see what can be accomplished if the railroads are relieved from these limitations and restrictions (of the consolidation plan). In our opinion the best results will be achieved by leaving all initiative in the matter to the railroads themselves, * * *.'

The Transportation Act of 1940-Congress' last word on the subject of consolidation-essentially rejected the recommendations of the Committee of Three and adopted those of the Committee of Six. The Commission was finally relieved of its duty to promulgate a national consolidation plan, and the power to initiate mergers and consolidations was left completely in the hands of the carriers. [22]

Perhaps the best insight into the prevailing attitude towards compulsory mergers can be obtained from the following statements of Chairman Wheeler of the Senate Committee on Interstate Commerce during the hearings on S. 2009, which ultimately became the Transportation Act of 1940. In response to some fear expressed by the General Counsel of the Brotherhood of Railroad Trainmen that the pending bill would encourage consolidations, Senator Wheeler said: [23]

'Of course, as you well know, some people maintain that we ought to give the Interstate Commerce Commission the power to force consolidations.

'There is a very strong sentiment on the part of a great many people that consolidation should be compelled. They say that nothing will be done until such time as that happens.

'The railroad executives do not want forced consolidation; they are opposed to it. The railroad men are opposed to it, generally speaking.

'After all, when you speak of that (encouraging consolidations), the Interstate Commerce Commission has studied it for years, and no consolidation can take place under this bill until such time as it is a voluntary consolidation. * * *

'I cannot understand why you are talking about consolidations before this committee, because there is nothing in this bill to indicate that we have taken the position that we are in favor of forced consolidations. There is nothing in the bill that will change the situation at all.

'As a matter of fact, much of the objection to this bill on the part of a number of people has been that it has not got some provision in it making it easier for consolidations; as a matter of fact, forcing consolidations and coordinations, or at least setting up in the Interstate Commerce Commission a committee that will go ahead and suggest how consolidations ought to be made.

'We have taken that out, and I have refused to adhere to that or to listen to agruments (sic) about it, buy you are coming in here and telling us that there is something in here about consolidations that you do not want.

'I have repeatedly said that you could not get a bill to force consolidations, or to have in here a provision that the Commission should have an opportunity of carrying on investigations of the subject to try to force consolidations, and so forth. So, as far as this committee is concerned, with reference to this bill, you are just wasting our time in talking about consolidations, because that subject is out the window.'

Thus, hostility to the consolidation of railroads except by the voluntary action of the merging roads has been the undeviating policy of Congress since 1920. In assessing the failure of the consolidation program initiated by the Transportation Act of 1920, most students of transportation problems agree that one difficulty was this persistent refusal on the part of Congress to give the Commission power to take the initiative in proposing and enforcing particular mergers. [24] Yet that is the policy deliberately and explicitly followed by Congress each time it considered this problem.

Mr. Justice DOUGLAS, with whom Mr. Justice BURTON and Mr. Justice MINTON concur, dissenting.


^1  Examiner Jewell stated that under the plan previously approved by the Commission 'control would vest in the St. Joe Company by reason of its ownership of a majority in amount of the debtor's outstanding first and refunding mortgage bonds, these bonds being the only securities of the debtor exchangeable under the plan for the new securities of the reorganized debtor.' R., VI, p. 736. The only other outstanding bond issue of the debtor was, under that plan, to be paid off out of available cash. Previously the Commission had decided that the claims of unsecured creditors and the equity of the stockholders could not be recognized, and that these parties would therefore be denied participation in the reorganization. 252 I.C.C. 423, 465.

^2  By 'forced merger' plan, or 'compulsory merger' plan, is meant a merger plan foisted upon one of the parties by the Commission, as distinguished from a merger voluntarily initiated by the participating carriers.

^3  Under the Commission's statutory power to revise an approved plan upon objections received within sixty days of its promulgation, 11 U.S.C. § 205, sub. d, 11 U.S.C.A. § 205, sub. b, this decision was shortly thereafter reaffirmed by another close vote of the full Commission membership. 267 I.C.C. 729.

^4  The Circuit Judges of the Fifth Circuit who have at some stage in these proceedings passed on this question of the Commission's power have thus divided evenly on the issue. Judges Hutcheson, Holmes and Rives concluded that the Commission had such power; Judges Sibley, Borah, and Russell concluded that it did not.

^5  'A plan of reorganization * * * (5) shall provide adequate means for the execution of the plan, which may include * * * the merger or consolidation of the debtor with another corporation or corporations * * *.'

^6  Letter from Chairman Eastman to Senator Hastings, the sponsor of § 77, dated Jan. 31, 1933, reproduced in Hearings before the Senate Committee on Interstate Commerce on S.1869, 76th Cong., 1st Sess. 288, 300. As to Eastman's authority in the field of railroad regulation, see Fuess, Joseph B. Eastman-Servant of the People.

^7  See also the remarks of Senator Couzens, Chairman of the Committee on Interstate Commerce, at 74 Cong.Rec. 6041 et seq.

^8  In the course of the 1935 revision of § 77, the consistency clause was taken out of sub. b (3), combined with a similar clause in subsection e, and, as thus combined, placed in subsection f of the statute, 49 Stat. 911, 920. Judge Sibley indicated that he thought the consistency clause 'became accidentally misplaced in redrafting the Act.' D.C., 81 F.Supp. at page 932. However that may be, it seems quite clear that Congress did not intend to alter the deliberately established relationship between § 5 of the Commerce Act and § 77, sub. b (3) of the Bankruptcy Act merely by a change in the position of the consistency clause, unaccompanied by any explanatory comment. It would be a gross disregard of the meaning of legislation to be controlled by the bare words of the present merger provision detached from, and in defiance of, the whole history of the section.

In this connection it is interesting to note that in the course of a proposed comprehensive revision of § 77 in 1939, the question here in issue would have been made absolutely clear by the addition of the following proviso to the merger subsection:

'Provided, That nothing in this section shall authorize compulsory merger or consolidation * * *.' S.1869, 76th Cong., 1st Sess., March 20, 1939, p. 19. After extensive hearings before the Senate Committee on Interstate Commerce, the bill was reported out and subsequently passed by the Senate, 84 Cong.Rec. 6257. Even more extensive hearings were then held by the House Committee, but the bill was never reported out, probably because of the controversial provision in the bill establishing a special reorganization court for § 77 cases.

In the course of the House hearings, the Commission was requested to submit its views on the bill. After commenting in detail on various sections of the bill, not including the proviso above referred to, the Commission simply added that it deemed it 'unnecessary' to comment on the other 'minor amendments' included in the bill. Hearings before Special Subcommittee on Bankruptcy and Reorganization of the House Committee on the Judiciary on S. 1869, 76th Cong., 1st Sess., Serial No. 11, pt. 1, p. 571.

Cassius M. Clay, Assistant General Counsel of the RFC and intimately acquainted with problems of railroad reorganization, questioned the need for the proviso on the ground that the consistency clause in subsection (f) already covered the matter and that the proviso might be construed to prevent the merger of a parent and its subsidiaries. Hearings before Senate Committee on Interstate Commerce on S. 1869, 76th Cong., 1st Sess. 329.

^9  See, e.g., Report of the Federal Coordinator of Transportation, H.R.Doc.No. 89, 74th Cong., 1st Sess. 41 (1935); 52 I.C.C.Ann.Rep. 22 (1938).

^10  During the years 1933-1940 the percentage of railroad mileage representing roads in § 77 proceedings or receivership was as follows:

Year Percent Year Percent

1933......... 16. 193728

1934......... 16. 193831

1935......... 27. 193931

1936......... 28. 194031

(Figures computed from Table 1 of the ICC's Annual Reports on the Statistics of Railways in the United States for 1933-1940, and the cumulative Table 151 in the 1940 volume.)

^11  See Appendix.

^12  We are not aware of any case other than the present where this requirement was not observed. In all the reported cases of reorganizations involving mergers, the merger was either proposed by the debtor in conjunction with the other party, or the merger involved a parent and its subsidiaries, and was treated essentially as an internal reorganization. In any event, we are not now called upon to pass on the validity of the latter type of merger.

In this connection it is important to remember that a railroad in § 77 proceedings is not a defunct organism but remains a live and going concern. See the references throughout § 77 to 'the debtor' as an active entity; also Van Schaick v. McCarthy, 10 Cir., 116 F.2d 987, 992-993. During the entire period that the Florida East Coast has been in receivership or trusteeship there have been annual stockholders' meetings at which a Board of Directors was elected. See the Florida East Coast's Annual Reports on file with the Interstate Commerce Commission. Indeed the desire to provide a ready remedy for the overhauling of a railroad's financial structure without impairing its primary responsibilities as a regularly functioning carrier was one of the principal reasons for the enactment of § 77. See 5 Collier, Bankruptcy, § 77.02. Thus it follows from the consistency clause, when viewed in the light of this corporate continuity of a railroad in reorganization, that those who in the absence of § 77 would wield the corporate merger powers must initiate and work out the merger now. Cf. § 77, sub. d, which not only permits but requires the debtor railroad itself to file a plan of reorganization ('the debtor * * * shall file a plan'; certain other interested parties 'may' also file a plan).

^13  S.Rep.No. 1170, 79th Cong., 2d Sess. 80-85.

^14  There is nothing in the legislative history of this provision to indicate that it was intended to have any effect on the law governing mergers in reorganization plans.

^1  24 Stat. 379, 380.

^2  26 Stat. 209, United States v. Trans-Missouri Freight Ass'n, 166 U.S. 290, 17 S.Ct. 540, 41 L.Ed. 1007; United States v. Joint Traffic Ass'n, 171 U.S. 505, 19 S.Ct. 25, 43 L.Ed. 259; 38 Stat. 730.

^3  See S.Rep.No.1182, pt. 2, 76th Cong., 3d Sess. 518-520; also Van Metre, Transportation in the United States, 80.

^4  H.R.Rep.No.456, 66th Cong., 1st Sess. 6: 'In our opinion, the interests of the public will be better served where the consolidations are voluntarily entered into, upon approval by the Interstate Commerce Commission, and where such consolidation or merger is in the interest of better service to the public, or economy in operation, or otherwise of advantage to the convenience or commerce of the people.'

^5  S.Rep.No.304, 66th Cong., 1st Sess. 15.

^6  See statement of Senator Cummins at 59 Cong.Rec. 226; see also Leonard, Railroad Consolidation Under the Transportation Act of 1920, 50, 61.

^7  H.R.Rep.No.650, 66th Cong., 2d Sess. 64; see also S.Rep.No.1182, pt. 2, 76th Cong., 3d Sess. 524: 'It will be noted that the whole rpogram of consolidation * * * was voluntary. Although the Commission could promulgate a plan, it was given no affirmative power to put the plan into effect. It was entitled merely to insist that any consolidations submitted to it for approval should conform to the plan. Thus the whole problem of initiating and developing actual consolidations was left in the hands of the carriers themselves * * *.'

^8  63 I.C.C. 455.

^9  For the Commission's letter to the Chairman of the Committee on Interstate Commerce, see Exhibit C-1814, S.Rep. No. 1182, pt. 3, 76th Cong., 3d Sess. 1578; see also 39 I.C.C.Ann.Rep. 13 (1925).

^10  159 I.C.C. 522.

^11  S. 2224, 68th Cong., 1st Sess.

^12  See Leonard, supra, note 6, at 135, 175-179.

^13  S.1870, 69th Cong., 1st Sess.; S.3840, 69th Cong., 1st Sess.

^14  Report of the National Transportation Committee, February 13, 1933, p. 11.

^15  See, e.g., 77 Cong.Rec. 4873 et seq.; Leonard, Railroad Consolidation under the Transportation Act of 1920, 221-222.

^16  48 Stat. 211, 214.

^17  S.Doc.No.119, 73d Cong., 2d Sess. 30-33, 36-37, 86-88.

^18  H.R.Doc.No.89, 74th Cong., 1st Sess. 41; H.R.Doc.No.394, 74th Cong., 2d Sess. 45-47.

^19  Shortly before the termination of his office in 1936, the Federal Coordinator, disturbed by the lack of initiative among the carriers, attempted to order the unification of 11 terminal properties. The orders met with considerable objection from railway labor and were ignored by the carriers. See Leonard, supra, note 15, at 233.

^20  H.R.Doc.No.583, 75th Cong., 3d Sess. 36, 39. For the adverse reaction of the Railroad Brotherhoods to these proposals, see id., at 67, 70.

^21  Report of Committee appointed Sept. 20, 1938, by the President of the United States to Submit Recommendations upon the General Transportation Situation, Dec. 23, 1938, p. 31.

^22  54 Stat. 898, 905.

^23  Hearings before the Senate Committee on Interstate Commerce on S.1310, S.2016, S.1869 and S.2009, 76th Cong., 1st Sess. 391-395.

^24  Leonard, Railroad Consolidation Under the Transportation Act of 1920, 267-269; Van Metre, Transportation in the United States, 86; Moulton, The American Transportation Problem, 857-858; Dearing and Owen, National Transportation Policy, 322, 342-343, 376.

This work is in the public domain in the United States because it is a work of the United States federal government (see 17 U.S.C. 105).