Commission of Department of Public Utilities of Commonwealth, of Massachusetts v. New York, N.H. & H.R. Co

CLARK, Circuit Judge

(dissenting).

Had my brothers affirmed upon the available, but narrow, ground of appellants’ failure on the present record to show any interest justifying the appeal, I should have been inclined to have quieted my doubts for the time being. But when they accept to the fullest extent possible appellee’s interpretation of the reorganization plan as accepted below, and go on to find it plainly correct and otherwise beyond possibility of question, I think something more should be said lest this — to my mind — delusive air of certainty should prove misleading to the many interests involved in the reorganization and vastly affected by such a holding. Such other interests have not been heard in this matter; at least until they are, I can hardly bring myself to believe that a plan with the history and purpose of this one can lead to the rather extraordinary conclusion now 'so strongly stated. For it now appears that, notwithstanding the carefully formulated devices worked out after years of effort to remove the crushing burden of the Old Colony from the system as a whole, a new management has the power at will to continue that burden, for the benefit of local Boston commuters, to the tune of a truly staggering loss of $3,848,484.62 for one year alone. Even stranger is the concept that merely *566because of a judicial reorganization one of the most regulated of industries becomes entirely free from regulation at a time when the public need is greatest.

Because of these grave doubts, and because, after all, this proceeding is actually brought as a part of the original proceedings in reorganization under the jurisdiction reserved in the order confirming the plan, I would think the legally correct, as well as practically desirable, course with reference to an issue of such far-reaohing importance was to return the case to the district court for a full hearing of all the parties, including certainly the present security holders and particularly the Interstate Commerce Commission as guardian of the public interest. Moreover, the interest of the Commonwealth of Massachusetts, while not here established, certainly lies pretty close to the surface, to- be brought to the fore whenever it chooses. To date— except perhaps for a more general claim in their last step, their reply brief — appellants have rather carefully avoided any suggestion that the Commonwealth may wish to exercise its option to take over the Old Colony system at salvage value for public operation. ,One can of course understand why a state will not undertake such a solution, even though all signs indicate its necessity, before the compulsion becomes clear. Until it chooses to stand upon its' option, however, I can see no standing in these appellants to appeal, since the plan cancelled all franchise obligations of the Old Colony. This means, too, that the district judge was not in error in refusing to recognize their claims to control the immediate operation of the road, so hastily and peremptorily expressed at a late moment on February 28, 1949. The Commonwealth’s option, however, cannot be nullified by any action of the New Haven in either running or not running Old Colony trains. Hence it, too, should be heard along with the other vital interests referred to at a real full-dress hearing such as the circumstances require.

Since such a hearing is not to be 'had, I must perforce go on to elaborate my grounds for questioning the assertedly 'simple and obvious construction now accorded the plan. In what I shall say I am not assuming to put forward a final and definitive interpretation of the plan or answer to the problem; this should not be attempted until the other interests, particularly the I. C. C., have been heard from. But I am bound to sítate that the general circumstances tend to suggest a result contrary to that set forth in the opinions below and here. As I see it, the conclusion which has-been reached rests almost wholly upon a logical or common-sense deduction that an “option” to discontinue operation in full must necessarily (because the greater includes the less) permit of partial operation. I do not regard the fragmentary quotations,, out of context, from mainly hearsay recitals of past happenings as adding any material support to the conclusion. But if we go beyond the surface to challenge this bit. of fireside logic and its premise of an “option,” the history and past and present circumstances of the reorganization seem to me to point the opposite way. When to this is added the dilemma — not faced so far as I can discover in the opinions here — of holding a regulated business to be freed of all necessary regulation by the device of reorganization, we have pretty serious-grounds for pausing before too ready acceptance of appellee’s present claim.

Turning, therefore, to the provisions of the plan in the light of its history, I find nothing to indicate that anything short of complete abandonment of passenger service was ever contemplated by the I. C. C., the reorganization court, or the New Haven itself. Very early in the reorganization the court appointed a Committee of Experts to appraise the Old Colony, which even then-was recognized as a dangerous burden for the New Haven ito bear. After a study noteworthy for its completeness -and impartiality the experts submitted a report from which, as the historian of the reorganization has told us, only one inference could be drawn: that the Old Colony could not be successfully operated as a passenger line without a serious drain on the resources of the New Haven. Sunderland, A Brief History of -the Reorganization of the New York, New Haven & Hartford Railroad 43, 1948. Using this report as a basis for *567determining whether there was any possibility that the Old Colony might be operated profitably, and thus that the unexpired term of its lease to the New Haven might have value, the district judge said: “Nor is there room for the contention that some modification or abandonment of operations, lying within the range of any reasonable possibility, might give positive value to the remainder of the term. This possibility was thoroughly explored through the studies of the property made by the Committee of Experts.” In re New York, N. H. & H. R. Co., D. C. Conn. 30 F.Supp. 541, 547.

At this early date the conclusion appears to have been that retention of any part of the Old Colony’s freight, as well as passenger, service, would be unprofitable and would be a burden on the New Haven. Later the amount of freight traffic increased enough to make desirable the retention of freight service, at least as a feeder for the New Haven’s general freight business.

In its first report formulating a plan for the reorganization of the New Haven, the I. C. C. was unable to solve the problem of bringing in the Old Colony without casting too heavy a burden upon the lessee road, and hence it then made no provision for the Old Colony. When, however, it again took up the Old Colony problem later, it rej ected the earnest contention that acquisition of the Old Colony by the New Haven should be made only on condition of the abandonment of passenger service. Instead it said: “The record, however, does not justify us in making it an immediate condition of the acquisition of the Old Colony properties and assets by the principal debtor under the plan of reorganization that passenger service on the Old Colony as a whole or in the Boston group be discontinued. * * * A further trial period, in which the efforts on the part of all concerned to improve the situation may be continued, is warranted in all the circumstances.” First Supplemental Report, 244 I. C. C. 239, 264, 265. Hence it inserted in the plan a so-called “escape clause” intended to permit temporary continuance of Old Colony passenger service so long as the losses incurred were not too great.

Nevertheless, this “escape clause” met opposition from many quarters. Hence when the compromise committee, organized to settle the differences between the New Haven and the Old Colony, produced its controversial Joint Report, that report provided for acquisition of the Old Colony with a proviso similar to that of the final plan, allowing the New Haven to discontinue passenger service on the Old Colony if losses exceeded certain critical figures. The Commission’s comments on this provision are instructive : “It is to be noted, moreover, that the proposed conditions are coupled with á proposal to operate passenger service, if and so long as the passenger losses therefrom do not exceed the critical figures. In this connection, it will be recalled that while we found that the acquisition of Old Colony properties and assets was justifiable, we based our finding upon the premise that the passenger losses of the Old Colony would be eliminated or largely reduced.” Third Supplemental Report, 254 I.C.C. 63, 88.

The Commonwealth of Massachusetts objected strenuously to these provisions, and one of the proposals for modifying the plan which it made was to “permit no more discontinuance of passenger traffic on the Old Colony properties than is needed to reach the critical figures.” Fourth Supplemental Report, 254 I. C. C. 405, 421. This was an endeavor to have the plan authorize exactly what the New Haven now claims it has discretionary power to attempt, i. e., to curtail'passenger service until the losses are brought within reasonable limits, rather than discontinue it. But the Commission refused to accept ithis proposal. It said significantly: “It is likewise clear that to modify materially the provision of the Joint Report in respect of the Old Colony would be to nullify 'the compromise agreement reached after extended negotiations with little or no expectation that the suggested modification would prove acceptable to the interested parties.” Id. at 422.

So the plan went through to consummation. There is more of the plan relevant to *568our inquiry than is quoted in the majority opinion. Sec. N(2) (a) of the plan provides: “The charter of the reorganized company and of Old Colony shall be amended, and the franchises and statutory obligations of the reorganized company and of Old Colony shall be amended or superseded so that neither road will be under any obligation to operate passenger service on Old Colony lines. The reorganized company shall, however, undertake * * * a contractual obligation to operate for its own account passenger service on Old Colony lines if and so long as the losses therefrom do not exceed the critical figures provided below.” While Sec. N (3) (a) provides that “passenger service on Old Colony’s lines may be discontinued if during any of the periods described below passenger losses on Old Colony’s lines shall exceed the critical figure at the time in effect.” And that section goes on to give Massachusetts an option to buy the Boston-to-Braintree line for its salvage value if passenger service should be discontinued.

When these provisions are read in the light of the background stated and particularly the rejection of express provisions for the power now claimed by the New Haven, it is obviously difficult to accept the New Haven’s present view that a complete abandonment of passenger service was not intended. Even the words used point to the decisive and — under the circumstances — clean-cut step. The word “discontinue” is defined by Webster’s New International Dictionary, 2d Ed. 1939, as meaning “ * * * to put an end to; to cause to cease; to cease using; to give up” —meanings quite other than the connotations implicit in the word “curtail,” which it defines as “ * * * to 'shorten; abridge; diminish; lessen; reduce.” It goes on to give the meaning of “discontinue” at law as being “to abandon or terminate by a discontinuance” — an even more direct interpretation of the critical term. An interesting bit of support from the court itself for this view is found in Art. XI, s. 2(m), of the final Consummation Order and Decree, which reserved jurisdiction in the District Court: “To consider and act on any question respecting the ‘Critical Figures’ established by the Plan with respect to the termination by the Reorganized Company of passenger service on the Old Colony Lines.” A “termination” is quite different from a “reduction.”

In this light the provision substituting a contractual for a franchise obligation for the maintenance of Old Colony passenger service assumes understandable significance. A plan approved by the I. C. C. might properly provide for abandonment of service upon the happening of a stated event; the crucial factors of public interest have been weighed and evaluated just as they would be on a proposal for immediate abandonment, and only the final event, conclusively detrimental to the continuance of the road, is needed for operation of the announced step. Surely, however, no such consideration can properly apply to fihe substitution of a contractual undertaking so broad and general in its terms as to permit a railroad to cease, taper off, continue, or expand its operations at will. Should such a provision appear in even a fully consummated plan, I should think it still sufficiently unusual and vulnerable that its validity could not be considered conclusively determined. In this connection reference should be made to the New Haven’s claim of “option” even when the critical figures of loss are reached. A choice between continuing or abandoning the service is a much more limited one ■than the wide authority to operate substantially at will here asserted. But there is, indeed, little to indicate that even this choice was contemplated in the plan. About the only thing looking in this direction is the provision as to the option, inserted as an afterthought on the state’s insistence, giving Massachusetts the right to buy ithe Braintree line at salvage value in the event the passenger losses exceed the critical figure and as a result the road “shall elect” to discontinue the service. Definite interpretation of this might well awaiit the clearer light of fuller discussion; meanwhile I apprehend that it does not contemplate anything as extensive as a purely discretionary power in the officers of the road to continue incurring these losses as they choose. The lines of the device to *569be rid of ithe Old Colony ¡had been firmly fixed before this appeared; at most it should permit the road to operate after the happening of the stated event only with the consent of the vitally interested parties and the representative of the public so long as losses stayed near the critical figure. Anything beyond this would again tend to nullify the plan. It was certainly never contemplated that the passenger service would be continued when the losses incurred were four and a half time's as great as those specified as critical.

In reaching their differing conclusion, my brethren rely upon the circumstance that on a few occasions during this long reorganization the Commission or our court has spoken of a “curtailment of service” or of discontinuing passenger 'service “in whole or in part.” Neither by themselves nor in their contexts do these offhand characterizations or references appear to me to support the inference sought to be drawn from them. Indeed several are only statements of contentions or arguments presented and without further significance. True, the word “curtailment” has occasionally been used; but it must be recalled that in the total picture of Old Colony service, complete abandonment of passenger trains is only a “curtailment,” since freight trains are still to run. Thus it is that discontinuing passenger travel must be authorized by ithe I. C. C. under the bankruptcy power, rather than under its normal power over abandonment, since it constitutes only a partial abandonment. Moreover, no stress can properly be put on the Commission’s statement early in ithe proceedings that the public was “alive to the danger that service may be discontinued, in whole or in part.” 244 I. C. C. 239, 264. For this was soon after the time that the New Haven had been seeking a curtailment of Old Colony passenger service, rather than a discontinuance, in the form of its abortive attempt to close 88 passenger stations. The Commonwealth, various towns, and commuters groups had just finished fighting to prevent any curtailment of service, and were as aware of that as a danger as they were of discontinuance as a danger. See Rood, Protecting the User Interest in Railroad Reorganization, 7 Law & Contemp. Prob. 495, 1940. It is a fact that as early as 1939 the New Haven trustees had tried to discontinue passenger service on the Boston Group of Old Colony lines, and the efforts of the reorganization judge were required to induce them to hold off on this move while a satisfactory compromise was sought. Id. at 502.

As a matter of fact, the New Haven itself has regarded the plan as calling for discontinuance of passenger service if the critical figures were exceeded. This is demonstrated by the fact that as late as February 9, 1948, it gave notice to the Massachusetts Department of Public Utilities of its intention to abandon passenger service as soon as the trial period provided in the plan had elapsed. The present attitude of the road represents a very obvious and very definite change in its position. Of course so far as that represents a proper exercise of managerial discretion, it is no concern of ours. But since that is the point at issue, and its solution remains a matter of ithe utmost concern at least to New England, if not to the nation, it seems proper to refer to the avowed purpose of the new management, installed since completion of the reorganization, “ito take control from the outlanders of New York and Connecticut, and give the good people of Massachusetts an overdue break.” Capture of the New Haven, Fortune 86, 89, April, 1949. However laudable this objective, ithe public interest will hardly be subserved by giving the people of Massachusetts a break which may well break the New Haven itself. “The general public interest of keeping an interstate railroad running must override the local public interest of Massachusetts if the Commission thinks the two incompatible.” In re New York, N. H. & H. R. Co., 2 Cir., 147 F.2d 40, 51, certiorari denied Commonwealth of Mass. v. New York, N. H. & H. R. Co., 325 U.S. 884, 65 S.Ct. 1577, 89 L.Ed. 1999.

This balancing of conflicting interests cannot properly be left to the management of the New Haven. Nor, as Palmer v. Commonwealth of Mass., 308 U.S. 79, 60 S.Ct. 34, 84 L.Ed. 93, taught, can it be left to the discretion of the reorganization *570court. See Meek and Masten, Railroad Leases and Reorganization: I, 49 Yale L.J. 626, 657, 658, 1940. This is the kind of question which is in ibhe special competence of the Interstate Commerce Commission, and on which that body should be heard. And yet here all regulation is gone.* The District Court’s order, now affirmed, has enjoined the Massachusetts commission from regulating what passenger service, if any, the New Haven shall give. The I.C.C. has not been heard. The District Court has not considered the proposed railroad operations on their merits, but has, inferentially at least, denied its power to do so. This great railroad system therefore now exercises a freedom from governmental regulation which must be unique in modern annals.

The New Haven has suggested in argument that the Boston commuters from Southeastern Massachusetts ' should be grateful for the service it continues to give them. Indeed they should, and that is a proper answer to the interests these appellants assume to represent. Buit it is decidedly not an answer to the broader proposition whioh I think we should find involved and should face. When the loss reaches immediately the figure of $3,848,484.62 as against the critical figure of $850,000 set by the plan, a continuance of operation would seem to point only to new insolvency and renewed proceedings in reorganization. Whether or not -at this late date a mere modification of operation can spell a complete reversal of this dismal trend is of course beyond my power to divine. It has already been pointed out that the other forms of transportation in the area — the paralleling good highways, the rapid transit underground in Boston, with high speed trolleys and street railways connecting with motor bus lines — provide a complete network making railroad transportation no longer a necessity. See In re New York, N. H. & H. R. Co., D. C. Conn., 30 F.Supp. 541, 544—547. Weighing of the proper transportation values would seem properly the task of a regulatory commission. Complete freedom in the management to sub-serve local interests unduly may, however, quite conceivably spell the doom of the entire system.

I should add a word as to the power reserved to the court to resolve ambiguities in the plan. That usual and useful reservation can hardly go so far as to justify rewriting a fundamental feature of the plan; nor can it properly exclude appellate review. In common with my colleagues, I have the highest regard for the district judge and his patient and skilled execution of this difficult reorganization. But if there is any value in appellate review at all, it must be in the deliberative approach afforded on full records, briefs, and arguments, and not available to a district judge faced of an afternoon with a real crisis in railroading forced upon him by the precipitate and last-minute -action of this commission. Moreover, in the lonely task of judicial adjudication, -each of us must finally act as his own faculties demand.' I would reverse for the purposes indicated.