legislation. We believe it would furnish a safeguard which we feel is very much needed.

That is all I have to say, Mr. Chairman, and I thank you.

Mr. REED. Are there any questions?

(No response.)

Mr. REED. There being no questions, that will be all, Mr. See, and we wish to thank you.

(Statement submitted by Mr. See is as follows:)

PREPARED STATEMENT OF HARRY SEE, NATIONAL LEGISLATIVE REPRESENTATIVE, BROTHERHOOD OF RAILROAD TRAINMEN

Mr. Chairman and members of the committee, my name is Harry See and I am national legislative representative of the Brotherhood of Railroad Trainmen, with offices at 130 Third Street SE., Washington, D. C. Our headquarters are located at Cleveland, Ohio.

The Brotherhood of Railroad Trainmen favors the enactment of H. R. 6012. We have contracts with and represent men in train and yard service on practically all of the railroads in the United States, both interstate and intrastate.

We believe that the enactment of this legislation would guarantee that the existing authority of State regulatory agencies would be retained by those agencies over carriers that are in bankruptcy. Many of the States have legislation giving their State regulatory agencies jurisdiction over intrastate rates, train schedules, and other services, and many other States have delegated to their regulatory agencies authority over certain safety rules and working conditions. For instance, in the State of New Jersey the public utilities board "may, after hearing, upon notice, by order in writing require any public utility to furnish safe, adequate, proper service and to maintain its property and equipment in such condition as to enable it to do so."

Other States have delegated even broader authority to their utility commissions. Several States have laws that delegate to their agencies authority to require that "every public utility shall furnish, provide and maintain such service, instrumentality, equipment, and facilities as shall promote the safety, health, comfort, and convenience of its patrons, employees and the public, and as shall be in all respects adequate, efficient, just, and reasonable."

Many of the States have issued orders prescribing certain conditions having to do with the safety of operation of trains, in respect to which the Interstate Commerce Commission does not have authority, and to deny to the employees and travelers on railroads in bankruptcy the protection and safeguards that have been set up for them by these State agencies would be decidedly unfair to these employees.

In addition to that, we feel that it would be decidedly unfair to deny to these States their right to regulate intrastate service or to fix intrastate rates, and should seriously concern that portion of the public who depend upon such service.

If this legislation should not be enacted and the State agencies have no authority over carriers in bankruptcy, who then will enforce such safety regulations as they may have or would promulgate in the future, or who would have authority to require these carriers to maintain an adequate instrastate passenger service, and who would have the authority to fix the intrastate rates that would be charged by these carriers'?

We urge this subcommittee to favorably report H. R. 6012, and also urge that the Congress take favorable action as promptly as possible.

Mr. REED. Mr. Dreier, do you want to call your witnesses in any particular order?

Mr. DREIER. Yes. I would like to call now Mr. Edgar E. Harrison.
Mr. REED. Very well, we will be glad to hear from him.

STATEMENT OF EDGAR E. HARRISON, ON BEHALF OF WESTFIELD, N. J., AND THE INTERMUNICIPAL GROUP FOR BETTER RAIL SERVICE

Mr. HARRISON. My name is Edgar E. Harrison, and I am an attorney and a member of the New York Bar and of the Bar of the United States Supreme Court. I live in Westfield, N. J., which is a community of some 22,000 people, and which is located along the New Jersey Central Railroad, and is a member of the Intermunicipal Group for Better Rail Service.

The situation we have here stemmed from an unfortunate remark of Mr. Justice Frankfurter in the case of Palmer versus Massachusetts. In that case the New Haven Railroad in reorganization applied to District Judge Hincks who was in charge of the case for permission to close some 88 stations in Massachusetts without regard to the Public Utilities Commission of the State of Massachusetts. The relief asked for was granted by Judge Hincks and on appeal to the United States Supreme Court, Justice Frankfurter reversed the lower court in these words:

In view of the judicial history of railroad receiverships and the extent to which section 77 made judicial action dependent on approval by the Interstate Commerce Commission, it would violate the traditional respect of Congress for local interests and for the administrative process to imply power in a single judge to disregard State law over local activities of a carrier the governance of which Congress has withheld even from the Interstate Commerce Commission, except as part of a complete plan of reorganization for an insolvent road.

Then there is a footnote reference to section 77 (f) of the Bankruptcy Act, the second sentence of which says:

Upon confirmation of the plan, the debtor and any other corporation or corporations organized or to be organized for the purpose of carrying out the plan, shall have full power and authority to, and shall put into effect and carry out the plan and the orders of the judge relative thereto, under and subject to the supervision and control of the judge, the laws of any State to the contrary notwithstanding.

Now, counsel in charge of the drafting of the New Haven plan quickly adopted the suggestion of Mr. Justice Frankfurter, and the provision was put into the New Haven plan for discontinuance of passenger service-that will be no doubt gone into by another witness. That was appealed to the Circuit Court of Appeals for the Second Circuit and they, confronted with the statement of Justice Frankfurter, said:

Now, can you be serious in contending this is an improper provision? Look what Judge Frankfurter said

and they thereupon confirmed that provision in the plan. The Supreme Court of the United States denied certiorari.

So, gentlemen, we can say that the matter in issue here has never been directly passed on. I think I can demonstrate that not only was it not intended by Congress that there be any such provision but, that on the other hand, the intent was quite to the contrary.

Section 77 (b) deals with the provisions which should govern a plan. There are five subdivisions, and the first four deal exclusively with the alteration of the rights of creditors and stockholders. The fifth sub

division deals with the means for the execution of the plan and closes with the following words:

* * * and may include any other appropriate provisions not inconsistent with this section.

Now, when we come to the procedure for the adoption of a plan, what do we find? We have subdivision (e), which sets forth a procedure to be followed when the plan has been approved by the Interstate Commerce Commission and certified to the judge. You find there is to be notice of hearing with respect to the plan and notice to whom? Public representatives, or any representative of the public? Oh, no. Notice "to the debtor, its trustee or trustees, stockholders, creditors, and the Commission."

There is here no provision for notice to be given to the public utilities commission of the State, no notice to the public generally, no notice to the Governor of the State. As a matter of fact, Judge Hincks in the New Haven reorganization said the public body had no right to intervene, that it was a matter of grace by the court.

Section 77, subdivision (e) then goes on to provide that when the judge shall approve of the plan, it shall then be submitted by the Commission to whom? Not to the public. To the creditors and stockholders of the debtor. Creditors and stockholders are given the opportunity to vote on the plan; the public has no opportunity for anything at all. We are not asking that the public have any ballot on it, but we feel that in these cases it should have a voice and Congress would have so provided had it intended that the service had discontinued as part of a plan. In every other case where is affected the rights of the public or of a State, at least the public utilities commission has the right to pass on it. But, not here. Is there any provision for them to pass on the plan? None whatsoever.

There is a basic requirement as à condition for the approval of the plan by the Interstate Commerce Commission, and that is that the plan should be compatible with the public interest before it is approved. Well a provision for discontinuance of service is not so "compatible." Let us, in the first place, assume that such a thing is proper-which, demonstrably, it is not. Now, how can anybody sit down today and say what the public interest will be 10 or 15 years from now?

In abandonment procedure before the Interstate Commerce Commission, the application for abandonment is always sent to the Governor, and it is published in newspapers, and there are public hearings and it is passed on in the light of the situation which exists when the application for abandonment is made. However, under this provision or any similar provision, the railroad may make money for the next 15 years. Well, then comes a depression, and we will say that for 2 years they reach a deficit figure. What happens? They can rearrange their schedules, they can close down trains, and all that without consulting anybody. The Interstate Commerce Commission. has no jurisdiction over passenger service; it has always refused that. But, under this, they would not even have to go to the public utilities commissions. There would be no controlling them at all.

To us it seems a very shocking circumstance, something that does not fit with the meaning of the words "compatible with the public interest." Historically the words "compatible with the public

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interest" refer to the capital structure of the railroad, and we think that is what those words are intended to cover here. I could demonstrate that by ample citations, but I do not believe you would want me to take your time.

The

We ask the question: Should the capital structure of a reorganized railroad be such that it must discontinue the giving of service to the public that it has theretofore given? That should not be so. primary purpose of the reorganization is the continuance of service to the public, and only what that has been made certain can the capital structure of the reorganized railroad be set up. The railroad cannot discard such service in order to carry the debt of the revamped capital structure. That puts the cart before the horse.

The Interstate Commerce Commission says that this amendment. proposed by H. R. 6012 is going to handicap its ability to reorganize the railroad.

I have specialized in my practice of law as counsel to trustees in reorganizations under the Bankruptcy Act, I have specialized in that practice for 15 years; not in railroads but under chapter 10 procedure. It is the job of the trustees to keep that railroad operating so that the plan can be formulated. And the trustees of the railroad can apply, as any railroad could, to the public utilities commission of the State. The Central Railroad of New Jersey has been in reorganization for 9 years, and that is certainly ample time to go to the Public Utilities Commission of the State of New Jersey.

They could have done that, they could have gone to the utilities commission to tell them what trains they wanted to take off, and what other adjustments they wanted, and if they did not get relief there, then they still would have had ample time to have gone to the Supreme Court, so that there would not have been in any way any handicapping of the reorganization of the railroad.

I beseech you gentlemen to give this bill your utmost consideration and speedy approval. I thank you.

Mr. REED. Thank you.

(Statement submitted by Mr. Edgar Harrison is as follows:)

PREPARED STATEMENT OF EDGAR E. HARRISON, ON BEHALF OF WESTFIELD, N. J., AND THE INTERMUNICIPAL GROUP FOR BETTER RAIL SERVICE

My name is Edgar E. Harrison. I am an attorney at law with offices at 25 Broad Street, New York City. I am a member of the New York Bar, and of the Bar of the United States Supreme Court.

My home is in Westfield, N. J., a residential community having a population of some 22,000 people. The great majority of the residents engaged in gainful occupation have their work outside Westfield, and are dependent solely on the passenger service offered by the Central Railroad of New Jersey, the only railroad serving Westfield.

I am Westfield's representative in the Intermunicipal Group for Better Rail Service, an organization of communities situated along the Central Railroad of New Jersey. I am making this statement in support of the passage of H. R. 6012, on behalf of the people of Westfield, and of the other communities which are members of the Intermunicipal Group for Better Rail Service.

In my practice of law, I have specialized in reorganizations under the Bankruptcy Act, as counsel for the trustee appointed by the court. The firm of which I am a member also acted as counsel for the committee representing the holders of the 4-percent refunding bonds of Seaboard Airline Railway, in its recently successful reorganization in equity receivership.

There is urgent need for the amendment of section 77 of the Bankruptcy Act as provided in H. R. 6012, in order that the historical right of each State to regulate railroad service within the State may be preserved inviolate. This will be

done without any curtailment of the powers of the Interstate Commerce Commission, except as those powers are now conferred by judicial legislation.

In the case of Palmer v. Massachusetts (309 U. S. 79), dealing with the New Haven Railroad in reorganization proceedings under section 77 of the Bankruptcy Act, the United States Supreme Court held that a district judge had no authority to direct discontinuance of railroad service during pendency of the reorganization proceedings, in disregard of State law. The Court suggested that the proper way to handle the matter was in a plan of reorganization. The following is from the opinion of Mr. Justice Frankfurter:

"In view of the judicial history of railroad receiverships and the extent to which section 77 made judicial action dependent on approval by the Interstate Commerce Commission, it would violate the traditional respect of Congress for local interests and for the administrative process to imply power in a single judge to disregard State law over local activities of a carrier the governance of which Congress has withheld even from the Interstate Commerce Commission, except as part of a complete plan of reorganization for an insolvent road." [Italics mine.]

The above quotation is followed by a footnote reference to section 77 (f), of the Bankruptcy Act, the second sentence of which reads as follows:

"Upon confirmation of the plan, the debtor and any other corporation or corporations organized or to be organized for the purpose of carrying out the plan, shall have full power and authority to, and shall put into effect and carry out the plan and the orders of the judge relative thereto, under and subject to the supervision and control of the judge, the laws of any State to the contrary notwithstanding." [Italics mine.]

Counsel in charge of drafting the New Haven plan adopted the suggestion given by Mr. Justice Frankfurter. The Plan of Reorganization which was finally proposed for the New Haven Railroad did contain provisions permitting discontinuance of passenger service on the Old Colony Division, a wholly intrastate line. The validity of these provisions was expressly sustained by the Circuit Court of Appeals for the Second Circuit, in January 1945 (147 F. 2d 240; cert. denied 325 Ü. S. 884), over protest by the State of Massachusetts. The court relied upon the above-quoted provision of section 77 (f) of the Bankruptcy Act, and referred particularly to the language of the opinion of Mr. Justice Frankfurter, quoted above.

Provisions analogous to those expressly sustained in the New Haven reorganization appear in the plan of reorganization proposed for the New Jersey Central, a prodeeding under section 77 of the Bankruptcy Act now pending in the United States District Court for the District of New Jersey. In brief, they provide for the elimination of suburban passenger service except by contract, which will stipulate that if the loss from suburban passenger service during any 24 months' period after the consummation of the plan exceeds $1,000,000 the railroad may curtail such passenger service and facilities as may be necessary to bring the loss within $500,000 annually. The only right afforded the Public Utility Commission of the State of New Jersey is to audit the railroads' figures. The sole test is the revenue from passenger service, without any regard to the offsetting revenues from freight service, despite the fact that the Central Railroad of New Jersey derives between 85 and 90 percent of its revenue from freight.

It is a foregone conclusion that suburban passenger service along the New Jersey Central will be drastically curtailed if this provision appears in the plan of reorganization as finally confirmed.

I respectfully submit that the Congress never intended to permit any such result, when it provided in section 77 of the Bankruptcy Act that the provisions of a plan of reorganization, upon confirmation, shall be put into effect, the laws of any State to the contrary notwithstanding. Section 77 was enacted to facilitate the alteration of a railroad's financial structure not the curtailment of service rendered to the public.

Subdivision (b) of section 77 lists the provisions which a plan of reorganization may contain. The first four provisions which are specified deal with the alteration of the rights of creditors and stockholders. The fifth provision specified deals with the means for the execution of the plan and ends with the words, "and may include any other appropriate provisions not inconsistent with this section " A provision in a plan of reorganization which provides for curtailment of passenger service can hardly be deemed to come within this catch-all phrase.

Subdivision (e) of section 77 sets forth the procedure to be followed when the plan has been approved by the Interstate Commerce Commission and certified to the judge. Notice of hearing with respect to the plan is given “to the debtor, its trustee or trustees, stockholders, creditors, and the Commission." There is no