Just carrying on further on his statements, and painting in with some bold strokes the essence of this picture, just let me elaborate on how right you are.

This 1940 plan was gotten out, as I said, on the basis of 1936 and 1937 hearings. When gotten out, we were so busted, cashwise, that if you will refer back to the plan, you will observe that there was $11,000,000 in a special set-up of new first mortgage bonds that was to be sold for working capital.

Now, mind you that the original plan that was still sought to be confirmed, had $11,000,000 to provide working capital.

At one of the subsequent auxiliary hearings, as I said, had by the Commission on the plan, what was up? A redistribution of the $11,000,000 that they did not need for working capital among the senior creditors. Just cutting up a little more pie.

And yet, since this earnings formula, the latest one of 1937, on which this 1940 plan with its few remodelings was gotten out, what has transpired?

In that 10 years, after paying out $300,000,000 on maintenance of way, maintenance of equipment, and I only mention the sum to show things were being kept in apple pie order as far as we trustees could do it with the war handicaps, after paying out $300,000,000 for maintenance, we put out $115,000,000 in new capital expenditures on road and on equipment.

We paid out $60,000,000 in discharge of indebtedness, such as could be done, and in payments to the creditors.

And we end up today with what? Eighty-three million dollars cash on hand.

Again, to comment on the antiquated set-up of this plan, the plan proposes twenty-six million some odd dollars of new first mortgage bonds, and $74,000,000 of income bonds. At the discount that could be had on the income bonds, do you realize that with our $83,000,000 on hand, we could discharge the first mortgage, in full, if it came out of reorganization, and almost the income mortgage, so that then you would have the road with preferred and common stock, and some nominal debt ahead of it. Now, is that a fair plan?

Senator REED. I understood that you made certain suggestions to the court and the court approved your suggestions along with the effort to send the plan back to the Commission.

As I interpret your statement, Mr. Colnon, that was for the benefit of the Commission, and when the plan goes back there for consideration, that is to be done.

Mr. COLNON. Right.

Senator REED. You did not intend that in a formal way?

Mr. COLNON. For a plan?

Senator REEd. No.

Mr. COLNON. In a formal way?

Senator REED. Yes, that is what I meant.

Mr. COLNON. Not at all, Senator.

Senator REED. That is the way I interpreted that.

Mr. COLNON. Yes. Let me make that clear.

Senator REED. Yes, sir.

Mr. COLNON. What I had in mind, I had made these introductory steps in reducing indebtedness that I could make, because, bear in mind, my hands were tied all along, but when the district court last

June refused to confirm the plan and referred it back to the mission for a new plan, then I thought, "Here we are. Now w do this thing right.'

And I thought, "Of course, there is no power under the section would enable me to get up a plan. Only the Commission can do that." But what was to prevent me from doing some spadework ahead of time that would shut off interest and prepare a way for the Commission so that there was a simpler job, and less to be talked about?

Consequently, I produced my petition to the court, on September 30, which I will go into later, that was approved by the district court, but again, everybody, all of the committees, appealed it to the circuit court at the same time that they appealed the failure to confirm of the district court and the circuit court would not let me proceed.

Senator REED. Mr. Colnon, there was some proceeding affecting the Rock Island, I think, that went before Judge Evans. Is he not senior judge?

Mr. COLNON. The senior of the circuit court.

Senator REED. Do you remember the remarks he made on some occasion when he turned down the Rock Island application? Mr. COLNON. I think it was in relation to the Milwaukee.

Senator REED. Was it the Milwaukee?

Mr. COLNON. Or the North Western. I know the remarks you mention, and it is in the record of the proceedings, Senator. Senator REED. I was depending wholly upon my memory. Mr. COLNON. You are right.

Senator REED. I got that from somebody in Chicago. I remember in the course of the hearing I handed it over to Senator Wheeler, and he was so astonished as to what Judge Evans said about the equities of this matter, that he had it put in the record.

Mr. COLNON. That is right, and it is in the record.

Senator REED. I wonder if this disapproval by the three circuit judges in the seventh circuit has the support of Judge Evans?

Mr. COLNON. Well, I would not know. He was not one of the three judges.

Senator REED. No; he was not one of the three judges.

Mr. COLNON. No.

Senator REED. I read that opinion of the three judges.
Mr. COLNON. Yes.

Senator REED. I read that with a great deal of interest.
Mr. COLNON. Yes.

Senator REED. Of course, somewhere along the line here, there is an outrageous situation being perpetrated.

Mr. COLNON. That is right.

Senator REED. You get the expression even from the Supreme Court that all is not right, but here under the mandate of section 77, the Interstate Commerce Commission fixes capitalization upon the basis which the courts will not go beyond.

Mr. COLNON. That is right.

Senator REED. In the struggle to correct this situation, the central thought of this committee always has been to get these plans, so-called, back to the Commission.

The circuit court of the tenth circuit disapproved the district court in the Denver Rio Grande case. Judge Phillips wrote a concurring opinion in that case. It was a very fine opinion. This committee has

sort of adopted that philosophy as its own. That was one instance where a circuit court did undertake to improve the situation.

Mr. COLNON. That is right, but here we have got the reverse. Senator REED. When the D. & R. G. case came to the Supreme Court, they went on the theory that here was an official plan approved by the Commission. It was not a question of sending it back to the Commission. It was wholly a court question. But in the Rock Island case where the district court did start a plan back to the Commission. Mr. COLNON. That is right.

Senator REED. That is why your appearance here has a peculiar and particular interest to me as a Senator, and also as chairman of this subcommittee.

Mr. COLNON. Yes.

Senator REED. It is this return of plans that we have earnestly prayed for.

Mr. COLNON. Yes.

Senator REED. I want all of the details that you can put into the record as to why this was stopped, and how. Go ahead now, Mr. Colnon.

Mr. COLNON. Well, to go on, as I say, I have given you these perfectly astonishing figures as to what has transpired in the 10 years since these earnings formula, and subsequently the plan, were gotten up.

Senator REED. Well, give us your opinion. Our figures were that in the Rock Island situation there was about $60,000,000 which could be applied to the junior security owners and to some degree the stockholders. That was not an exaggeration.

Mr. COLNON. Not a bit. Not a bit. Entirely sound.

Senator REED. Our judgments of the facts were as they were presented to the committee.

Mr. COLNON. That is right. Now, an interesting thing, before we leave this whole plan, is this feature that was amentioned.

Senator REED. I certainly do not propose to let any people steal $60,000,000 if I can help that.

Mr. COLNON. That is why I am down here, Senator, to urge you in your efforts on this bill.

In fact, the petition that I filed last September 30, to which you referred, where I sought to pay off these divisional mortgages, to reduce the interest on our first mortgage, and dismiss it from the proceeding, was inspired by the proceeding held by you and your fellow Senators last year, and my following them, plus the opinion of the district court refusing to confirm the plan, plus President Truman's veto message, which over and above, said, "We have got to do a better job even than has been done."

Senator REED. That is what we are trying to do now.

Mr. COLNON. Exactly, and what I am trying to urge you to do, because it is a desperate situation.

This thing of the Rock Island, as presently set out, which they are seeking to perpetrate, is a travesty on justice.

Senator REED. I agree with that.

Mr. COLNON. Now, follow this: This plan that the Commission got out in 1940, the thing that you probably do not know, was formulated in New York by Willkie Bushby, the attorney for the Metropolitan Life Insurance Co., in this case, and a staff that he collected of railroad analysts, economists, experts, and what have you, and

came down in a big group with a prepared plan, submitted it to the Commission, and in that submission it contained basic allocations, went so far as to contain basic allocations of securities to the different creditors.

And that in the main, with very few modifications, Senator, is the present plan.

Senator REED. Most of these plans come from committees or individuals working cooperatively, representing the senior security owners, usually.

Mr. COLNON. That is right, but they are not taking care of the juniors or the stockholders. They let the devil take care of them.

Senator REED. One thing in this situation that interests me is that Mr. Hagerty, speaking for the Metropolitan Life Insurance Co. before this committee, a year ago, favored sending the plans back. Mr. COLNON. I will give you his exact quotation.

Senator REED. Go ahead and read it for the record. I was here and heard Mr. Hagerty make that statement.

Mr. COLNON. This is from the proceedings at page 290 of the record:

I would just like to say that there should be another look taken at these plans of reorganization. I would prefer to have it done by the Interstate Commerce Commission, which I think is the only proper tribunal to consider this matter.

And yet when the district court refused to confirm the plan, ordered it sent back to the Commission, the Commission accepts it and sets a date for hearing, and what does Mr. Hagerty do? He instructed his attorney to go to the circuit court of appeals and oppose it. Senator REED. And finally successfully.

Mr. COLNON. And successfully.

Senator REED. So far as the circuit court is concerned?
Mr. COLNON. That is right.

Senator REED. I am going to watch the action of the Supreme Court of the United States on that case with a great deal of interest. Mr. COLNON. I think the whole country is going to, Senator. Senator REED. I hope so.

Mr. COLNON. There is a case. I tried to tell you that it is identical with the Denver & Rio Grande, but to my mind it is the exact reverse. In the Denver & Rio Grande, you had a case where it was the Commission that got out a plan. The district court approved it. And the circuit court, though I am not saying that they did not rightfully on the facts, but nevertheless did, the circuit court disapproved it.

Senator REED. That is right.

Mr. COLON. Here you have got a case where the Commission gets out a plan, the district court refuses to confirm it, and then the circuit court attempts to substitute its discretion for the district court in violation of what the Supreme Court has always said that they looked to the district court and the Commission as being close to the facts and knowing them, and in further violation, as I see it, of any license under section 77 to even hear that.

What right had the circuit court jurisdictionally, to take over, if you will read section 77?

And I will bow to your legal judgment against mine, which is very poor.

But I can find nothing in the section that gives them any jurisdiction.

Senator REED. I am not a lawyer, you know.

Mr. COLNON. I thought you were. Neither am I.

Senator REED. Just a newspaperman. But anyway, I agree, and my lawyer friends generally who discuss this matter with me do not think the circuit court has the power to interfere or supersede the discretion invested in the district court by section 77.

Mr. COLON. That is what I thought.

Senator REED. And that is the reason that I am going to watch the Supreme Court action on this with the keenest interest.

Mr. COLNON. And you will be joined with plenty of other watchers. We will not be as powerful, Senator, but you will have plenty of other watchers.

Senator REED. Of course, my lawyer friends who have to appear before these courts, they are a little hesitant at times to openly or vigorously criticize the courts. I am not. The courts are human just like the rest of us, and they make as many mistakes, perhaps, as we do.

But when a thing is as plain as this is, I am going to watch the Supreme Court's action and disposition of this matter, with, I repeat, the very keenest interest.

Mr. COLNON. And when we are discussing courts, may I not ask you a question then: I have felt, and I wonder how you have felt about the Supreme Court early in this game in the Western Pacific & Milwaukee cases endowing the Interstate Commerce Commission with infallibility as respects valuations and allocations of securities? You know, having due regard, Senator, for human nature, one is going pretty far when you say that even as efficient a Bureau as the Interstate Commerce Commission is infallible.

Senator REED. Well, I do not think that is true.
Mr. COLNON. No.

Senator REED. Let me say this: I am not a lawyer, but I am a qualified practitioner before the Insterstate Commerce Commission. I was chairman of the Kansas State Commission for 4 years, and while I was waiting to be Governor of the State, I opened an office for traffic and transportation at Kansas City, and did a lot of business.

I have tried large cases and small cases. I have tried some of the largest cases ever tried.

I have appreciated the faults of the Interstate Commerce Commission. Senator Wheeler and myself have been their defenders on the floor of the Senate.

Mr. COLNON. That is right.

Senator REED. And that gives me a license to criticize. I am their friend. This is criticism by their friends.

The Interstate Commerce Commission has plainly failed to do its full duty in the matter of the reorganization of these railroads. That is nothing new.

Mr. COLNON. No.

Senator REED. I have said that over and over again in these hearings. The Interstate Commerce Commission is primarily to be criticized, perhaps more than anybody else, because it is the expert body so recognized by the courts, and they have failed in their duty in these cases.