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Syllabus.

COMSTOCK v. GROUP OF INSTITUTIONAL INVESTORS ET AL.

NO. 451. CERTIORARI TO THE CIRCUIT COURT OF APPEALS FOR THE EIGHTH CIRCUIT."

*

Argued March 9-10, 1948.-Decided June 21, 1948.

After certain railroads had been in reorganization under § 77 of the Bankruptcy Act for more than ten years and a second plan of reorganization had been approved by the Interstate Commerce Commission and was before a Federal District Court for approval, petitioner, who had recently bought securities of one of the subsidiary railroads at ten cents on the dollar, objected to allowance of a previously unchallenged large claim of the parent railroad against that subsidiary. He contended that the parent had dominated and controlled the subsidiary and had mismanaged its affairs to the detriment of the subsidiary and its other creditors and that it would be inequitable to allow the claim. After full hearing, the District Court found that the parent had dominated and controlled the subsidiary but that its administration of the subsidiary's affairs had been in good faith and to the advantage of the subsidiary and its other creditors, that the claim was valid and should be allowed, and that the reorganization plan was fair and equitable and in accordance with law. It accordingly overruled petitioner's objections. The Circuit Court of Appeals concurred fully in the District Court's findings of fact and affirmed its ruling. Held:

1. In the absence of a very exceptional showing of error, the concurrent findings of fact of the two courts below are final in this Court. Pp. 213-214.

2. In view of the amount and position of the claim involved and the fact that the subject matter of the objections was such that it went beyond petitioner's individual interests and affected the fairness and equity of the plan, the District Court did not err in adjudging the objections on their merits-even though petitioner

*Together with No. 452, New Orleans, Texas & Mexico Railway Co. v. Group of Institutional Investors et al.; No. 453, Thompson, Trustee, v. Group of Institutional Investors et al.; and No. 454, Comstock v. Thompson, Trustee, et al., also on certiorari to the same

court.

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may have been barred by laches and other equitable considerations from asserting a cause of action in his own behalf. Pp. 226-227.

3. In view of the functions cast upon the bankruptcy court in such cases, it may, in its discretion, consider objections on their merits, even though they have not been presented to the Commission. P. 227.

4. The court should be diligent to protect itself and the public from approval of unfair plans, even by default, and may take for its own use evidence no party would have a right to force upon it. Pp. 227-228.

5. Even though the parent had dominated and controlled the subsidiary, the District Court's allowance of the claim was not an error of law-in view of its finding that the parent's administration of the subsidiary's affairs was in good faith and was beneficial and advantageous to the subsidiary and its other creditors. Taylor v. Standard Gas & Electric Co., 306 U. S. 307, distinguished. Pp. 228-231.

6. The claim was not invalidated or barred by the fact that, under control of the parent, dividends were paid by the subsidiary at a time when it was borrowing money represented by the claim— in view of the finding below that the dividends were paid out of current earnings or surplus, and not in bad faith or in violation of law or contract. Pp. 229-230.

163 F. 2d 350, affirmed; id. 358, certiorari dismissed.

In a railroad reorganization proceeding under § 77 of the Bankruptcy Act, the District Court overruled certain objections to a plan of reorganization. 64 F. Supp. 64. In No. 451 the Circuit Court of Appeals affirmed. 163 F. 2d 350. In Nos. 452, 453, 454 the appeals were dismissed. 163 F.2d 358. This Court granted certiorari. 332 U. S. 850. No. 451 affirmed; Nos. 452, 453, 454 certiorari dismissed, p. 231.

Maxwell Brandwen argued the cause, and William H. Biggs filed a brief, for petitioners.

Charles W. McConaughy argued the cause for the Group of Institutional Investors et al.; and Leonard P. Moore argued the cause for the Manufacturers Trust Co.,

211

Opinion of the Court.

respondents. With them on the brief were Clair B. Hughes and Sanford H. E. Freund.

Harry Kirshbaum argued the cause and filed a brief for the Convertible Bondholders Group, respondents.

MR. JUSTICE JACKSON delivered the opinion of the Court.

Since 1933 the Missouri Pacific, the New Orleans, Texas and Mexico Railway Co. and a number of affiliated railroad corporations have been in reorganization under the Bankruptcy Act, 11 U. S. C. § 205. A second plan of reorganization, approved by the Interstate Commerce Commission, was before the District Court for the Eastern District of Missouri. Comstock then, in 1944, made objection to allowance of a claim of approximately 10 million dollars by the Missouri Pacific, one debtor corporation, against another, the New Orleans, which, during the 10 years of proceedings, had been unchallenged. The issues raised by his objection were severed from other problems of reorganization which do not concern us here. After full hearing the District Court made findings and wrote an opinion, In re Missouri Pacific R. Co., 64 F. Supp. 64, overruling his objections. The Circuit Court of Appeals for the Eighth Circuit affirmed. Comstock v. Group of Institutional Investors, 163 F.2d 350.

The issues of fact, contested in a long hearing, are not before us for review. Petitioner assured us, in support of the petition for certiorari here, that "there is no factual controversy before this Court" and "we assume the findings of the District Court. Our challenge is directed only to the legal import of these unchallenged facts."

Much of petitioner's argument seems to depart from these assumptions and to invite us to reach conclusions from the voluminous record in the case, contrary to those reached by the two courts below. This we cannot do.

798176 O-49-19

Opinion of the Court.

335 U.S.

A seasoned and wise rule of this Court makes concurrent findings of two courts below final here in the absence of very exceptional showing of error. Stuart v. Hayden, 169 U. S. 1; Brainard v. Buck, 184 U. S. 99; First National Bank v. Littlefield, 226 U. S. 110; Baker v. Schofield, 243 U. S. 114; Second Russian Insurance Co. v. Miller, 268 U. S. 552; Texas & N. O. R. Co. v. Brotherhood of Clerks, 281 U. S. 548; Page v. Arkansas Natural Gas Corp., 286 U. S. 269; Pick Mfg. Co. v. General Motors Corp., 299 U. S. 3; Virginian R. Co. v. System Federation, 300 U. S. 515; United States v. O'Donnell, 303 U. S. 501; Anderson v. Abbott, 321 U. S. 349; Allen v. Trust Co., 326 U. S. 630; United States v. Dickinson, 331 U. S. 745. No such error is claimed by petitioner.

Since we are concluded by such concurrent findings, we can do no better than to adopt the statement of facts made in the opinion of the Court of Appeals, on the basis of which petitioner's propositions of law are predicated and must be decided. The essential facts so recited

are:

"It appears that the Missouri Pacific acquired the controlling interest in the capital stock of the New Orleans at the end of 1924 and at times relevant here owned from 58 to 93 percent of the total $15,000,000 par value of such stock, and from January 1925, until simultaneous commencement of reorganization proceedings in bankruptcy of both corporations in 1933, it managed the affairs of the New Orleans through Missouri Pacific officers who were given corresponding positions in the New Orleans corporation. An expansion program for both companies was carried on and throughout the course of operations the Missouri Pacific made advancements for improvements and betterments to the New Orleans. Some were repaid, but in February 1933, the

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Opinion of the Court.

New Orleans filed its application with the Interstate Commerce Commission under Section 20a of the Transportation Act (49 U.S.C.A. Sec. 20a (2)), showing that it was indebted to the Missouri Pacific for an accumulation of such advances over a period of years remaining unpaid in the sum of $10,355,226.78, and that it had been requested by the Missouri Pacific to issue demand notes therefor in the amount of $9,955,226.78 to the Missouri Pacific. It had partially complied by issuing one such note for $400,000.00, and one for $2,498,500, and after hearing the Commission made its finding as required by the statute,' 49 U.S.C.A. Sec. 20a (2), and authorized New Orleans to issue to the Missouri Pacific a note for the remaining $7,456,726.78. So that at the time of the bankruptcy of the New Orleans on the same date as that of the Missouri Pacific the notes of the New Orleans to the Missouri Pacific in the sum of $10,355,226.78 were outstanding and unpaid. Under authorization of the Interstate Commerce Commission, granted after hearing, the Missouri Pacific had pledged two of the notes aggregating $9,955,226.78 as security for loans made to it by the Reconstruction Finance Corporation. An additional pledge was made to Railroad Finance Corporation.

"After appointment of the trustees for the railroads

"1"*** that the issue by the New Orleans, Texas & Mexico Railway Company of a note or notes in an aggregate amount not exceeding $7,456,726.78, as aforesaid, (2) is for a lawful object within its corporate purposes, and compatible with the public interest, which is necessary and appropriate for and consistent with the proper performance by it of service to the public as a common carrier, and which will not impair its ability to perform that service, and (b) is reasonably necessary and appropriate for such purpose.' New Orleans, Texas & Mexico Railway Company Notes, Finance Docket No. 9817; 189 ICC 600, 601, (1933) (R. 20839-20840)."

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