is made one way or the other. I do not think the State is wholly without the power to see if the condition in fact has been met.

Mr. HOBBS. The Interstate Commerce Commission has ordered the approval of this plan which so provides against your contention, and the court has approved that plan.

Mr. HOMIRE. Yes.

Mr. HOBBS. Well, then, there is not any other adjudication, is there?

Mr. HOMIRE. Well, as to whether or not it was a proper condition to be inserted in the plan, in the first instance, there is.

Mr. HOBBS. That is not review of the plan but the construction of the Interstate Commerce Commission.

Mr. HOMIRE. Then it is too late for that; in other words, the condition is in the plan itself.

Mr. HOBBS. Sure.

Mr. HOMIRE. Well, if it was an improper condition to put in the plan, then the relief that the people had was to ask that the plan be disapproved on the ground the condition in it was not a proper condition to put in the plan.

Mr. HOBBS. You don't think, then, that Commissioner Splawn spoke the right situation when he answered to my question of whether, under their construction of the law and under their authority thereunder, when I asked if they did not have the power to ask the Almighty God to get off His throne and give it to them-you do not think he stated the situation when he said it might have that effect, but, of course, he said with his smile, that "we would not abuse that power," even though it may be limitless-you do not think that is the situation?

Mr. HOMIRE. I am sorry to say I have not read or seen that discussion between you and Commissioner Splawn. I am not familiar with that.

Mr. HOBBS. I realize that is so, but what I mean is that this is not any different from what he said. It is a matter of fact that he said that; it is in the record. I just feel that way about it-that there is no way on earth for a court to review the decisions of the Interstate Commerce Commission; the only thing they can do is to send it back-it is battledore and shuttlecock-and nothing can be done with this supreme power of the Interstate Commerce Commission until the Commission itself says, "We have been wrong," and not until out of their omnipotence and omniscience they say it was one of their mistakes, does it come into any power of real review. Therefore, since they have approved this plan, is it not final, unless they say themselves it is a mistake?

Mr. HOMIRE. I think that is true, if you are asking me a question.
Mr. HOBBS. Yes.

Mr. HOMIRE. The power of the courts to review the orders of the Commission in these matters is too limited, although that is quite a big subject and there are differences of opinion.

Mr. HOBBS. And, therefore, pursuing this, if the railroad were to say that the condition occurred immediately and had been met and if they say they are going to abandon, would it not be utterly futile to appeal to any court to attempt to vary the terms of the plan that the Interstate Commerce Commission has promulgated and the court has approved?

Mr. HOMIRE. If you are dealing with the question of whether the condition of loss of revenues or money has been met, it probably would be true. The Commission would pass on the question whether the losses alleged by the railroad had in fact occurred, and I would assume in a question of that kind the Commission would give a fair ruling on it; but it would be true probably, in that as other cases, that the powers of review by the court would be somewhat restricted. In other words, the court could not try the case de novo; that is, if the railroad made a good and convincing case and the Commission accepted it and thought it was sound, there would be a rather limited review by the court.

Mr. HOBBS. Well, now, would you not say it is a question of such simplicity as this, that there could not really be room for review by anybody?

Mr. HOMIRE. Well, it is my understanding that with reference to changes in financial condition they took the position that they could not make any change in the plan on that account after it was in the hands of the court; that it would not be considered as a matter of fact. It is my understanding that they will not consider it after it is certified to by the court as an approved plan, and then it is out of the jurisdietion of the court, they have no power to modify it.

In the case of the Missouri Pacific the Commission suggested to the court there had been a change and they would be glad to consider it. I do not remember the precise language but it was not not sent out. Mr. HOBBS. What about the Cotton Belt case?

Mr. HOMIRE. In the Cotton Belt case the parties in the case were able to reach an agreement which made further reorganization unnecessary.

Mr. HOBBS. But the court did not and neither did the Interstate Commerce Commission stick to the original proposition as it was in their power, although they had the money to pay every cent.

Mr. HOMIRE. I understand that to be the case; but I understood some of the debt was extended rather than paid.

Mr. HOBBS. I am talking about where they had the money in the cash drawers to pay and the Supreme Court denied certiorari. Well, I beg you pardon for going into what might be called argumentative. I thank you.

Mr. HOMIRE. I want to say that I appreciate that, and the question you raised about the desirability of changing the court reviews of the Commission's orders is not a subject I came prepared to discuss. I am only talking from my recollection of the cases. I know it is a very large subject.

Mr. HOBBS. I want you to know we are very grateful to the organization you speak for. They have been of great help to us and have tendered this committee much assistance throughout the years. We have a very high regard for your opinion.

Mr. HOMIRE. Thank you, sir.

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

PREPARED STATEMENT OF JAMES L. HOMIRE IN BEHALF OF NATIONAL

BANKRUPTCY CONFERENCE

H. R. 6012 proposes an amendment to the Railroad Reorganization Act embraced in section 77 of the Bankruptcy Act. This amendment, if adopted, would deprive the Interstate Commerce Commission of power to approve or put into effect any plan of reorganization affecting the existing authority of State agencies with respect to service, operations, or rates.

If this bill be enacted into law, it will be a distinctly backward step in the development of Federal legislation with respect to interstate railroads. It is now the firmly established policy of the Congress to foster and encourage a strong national transportation system adequate for the needs of the whole country. In order to give effect to this policy the Interstate Commerce Commission has been empowered in various fields of national transportation to eliminate the encroachments of local demands directed mainly to the creation or preservation of discriminatory practices in favor of local interests but at the expense of the national transportation system as a whole. In this connection only a few examples need be cited. One conspicuous example is the power of the Interstate Commerce Commission to eliminate discriminatory local or intrastate rates which discriminate against interstate commerce and impose an undue burden on it. This power has been vested in the Commission not only with respect to railroad rates by virtue of part I, section 13 (4) of the Interstate Commerce Act, but also as to freight forwarders by part IV, section 406 (f) of the same act.

The Commission has also been given power to protect the national transportation system from the burdens of unnecessary local service. In this connection the Commission has been given power to prevent the construction of new lines and permit the abandonment of existing lines where the public convenience and necessity do not require the lines proposed for construction or abandonment. Power with respect to these matters is conferred in part I, section 1, paragraphs 18, 19, and 20, of the Interstate Commerce Act. See Colorado v. United States (271 U. S. 153).

So also interstate rail carriers are exempt from the requirements of State laws with respect to the issuance of securities by virtue of the provisions of section 20 (a) (7) of part I of the Interstate Commerce Act.

Section 77 has been construed as empowering the Commission, through a plan of reorganization approved by it (subject to confirmation by the Federal court) to relieve a bankrupt railroad from the requirements of State statutes and charter provisions requiring the carrier to provide burdensome local passenger service and to use a particular terminal at rates fixed by the State. This was done in the New York, New Haven & Hartford Railroad reorganization (147 F. 2 (d) 40, 51, 52; certiorari denied, 325 U. S. 884). The proposed amendment contained in H. R. 6012 would take away this latter power and thereby disable the Commission from taking action which might be, not only important, but indispensable in freeing the carrier from paralyzing financial burdens. Hence it might well be impossible, under such a restriction on the Commission's power, to frame a plan of reorganization which would be sound and in the public interest. For the existence of burdensome local requirements might be not only an important factor but the prime cause of the carrier's financial difficulties. It is, therefore, important for the Commission to have such a power if it is to carry out the main purpose of the act, which is to formulate and put into effect plans of reorganization that are financially sound, are in the public interest, and are consistent with the establishment and preservation of an adequate national transportation system. It is our conviction that the proposed amendment is, therefore, unsound and undesirable from the standpoint of established Federal policy with regard to national transportation and would be a serious impediment to the accomplishment of the main purpose of section 77. We urge the committee to recommend that H. R. 6012 should not pass.

Mr. REED. Are there any other witnesses to be heard on this? I have exhausted our list of witnesses. If anyone else here wishes to file a statement or make an oral statement we shall be glad to hear him.

Mr. SCOTT. May I inquire, Mr. Chairman? As I said earlier, I am of counsel for certain bondholders' groups of New Jersey Central Railroad.

I should like to have the opportunity to leave a statement in the file here later, if possible, in case we think it desirable to file a prepared statement of our own.

Mr. REED. If you desire to file such a statement, how long a time would you require?

Mr. Scorт. I would think a week or 10 days would be sufficient. Mr. REED. Very well, we will hold this hearing open then for another week, to give you that opportunity.

Mr. SCOTT. Thank you.

Mr. REED. And that applies to any others also, who wish to do that. Mr. Case, do you have anything further?

Mr. CASE. No, sir. I just want to thank you for the courtesy shown us. It does occur to me that if we are going to have statements filed later, we would like to have the opportunity, if it is proper, to make a reply, if felt necessary, to statements such as the one Mr. Scott proposes to file. We would like that chance.

Mr. HAMLEY. And we would also like an opportunity to see that and perhaps file a reply, say, in 5 days, after we have seen their brief. Mr. CASE. I wonder if Mr. Scott could be asked to send everyone who has appeared here a copy of the statement, and that then within 3 or 4 days after that, everyone may send in anything he wants to say in reply to that statement.

Mr. REED. Would that be satisfactory to you, Mr. Scott?

Mr. SCOTT. Yes; that is perfectly satisfactory. We may not even file a statement, Mr. Chairman, but we would like the opporunity to do so, in view of certain statements that have been filed and that have been made orally.

Mr. REED. Very well. Then, with that exception, the hearing is closed.

(Whereupon, at 12:10 p. m., the subcommittee adjourned.) (The following were submitted for the record:)

Hon. CHAUNCEY W. REED,

OLIVER & DONNALLY,

New York, May 21, 1943.

Chairman of Subcommittee of House Committee on the Judiciary,

House of Representatives, Washington 25, D. C.

MY DEAR CONGRESSMAN REED: Pursuant to the permission that you granted at the hearing held before the subcommittee of the Committee on the Judiciary on May 14, 1948, on H. R. 6012 to amend section 77 of the Bankruptcy Act, I am writing this letter for inclusion in the record, setting forth my views with respect to the advisability of enactment of H. R. 6012.

This letter is submitted for the purpose of suggesting for the consideration of the committee certain aspects of H. R. 6012 that were not fully developed at the hearing on May 14, 1948, by the proponents of the bill. I should add that the views herein expressed represent only my inaividual views.

H. R. 6012 is avowedly designed to amend section 77 of the Bankruptcy Act in order to prevent the Interstate Commerce Commission from including in the ultimate plan of reorganization of Central Railroad Co. of New Jersey a provision similar to that adopted in the New Haven reorganization which would enable the reorganized company, subject to conditions to be imposed by the Commission, to reduce the great losses incurred in local passenger service and thereby afford some greater degree of assurance that the carrier can continue to provide vital freight and through passenger service. I should like to refer to three aspects of the proposed bill.

I. CONTRARY TO THE ASSERTIONS OF THE PROPONENTS OF H. R. 6012, THE EXERCISE BY THE INTERSTATE COMMERCE COMMISSION OF ITS EXISTING POWERS UNDER SECTION 77 CONTAINS NO THREAT TO THE JURISDICTION OF LOCAL REGULATORY BODIES

The power of the Commission in connection with the approval of a plan of reorganization under section 77 to authorize an interstate carrier to effect changes in local passenger service in order to reduce unsupportable burdens in the furnishing of local passenger service has been exercised in only one case; namely, in the New Haven reorganization with respect to passenger service on the lines of Old Colony, a subsidiary of the New Haven. Although commuter service has been a substantial item in the service of a number of railroads in reorganization serving metropolitan areas, such as New York and Chicago, there has been only one case thus far, out of all the carriers reorganized under section 77, where the problem

has been so acute and the consequences so great that the Commission has felt it necessary to exercise its power of authorizing the reorganized company to effect changes in service without the consent of local regulatory bodies.

Under these circumstances, where the power has been exercised only once in so very many cases, it cannot reasonably be claimed that the existence of the power constitutes a widespread threat to the jurisdiction of State commissions. Although in a plan pending before the Commission in the reorganization proceedings of the Jersey Central it is proposed by certain parties that the power be exercised again, it can be assumed that the Commission will not do so unless the facts clearly justify the need for such a plan provision. If the power to include such a plan provision is exercised in the Jersey Central proceedings, this will constitute only the second case in which that has been done.

Moreover, the committee is aware of the fact that relatively few proceedings are now pending under section 77. There is no indication that this question has arisen or is even likely to arise in any other pending case. Furthermore, the committee is also aware of the fact that the adoption of the recent amendment adding section 20 (b) to the Interstate Commerce Act, which provides for railroad readjustments under a proceeding before the Interstate Commerce Commission, has made available another vehicle for financial readjustments, rendering less likely the employment of section 77 in the future.

In view of the foregoing, it is evident that for all practical purposes the effect of H. R. 6012 would be limited to restricting the powers of the Interstate Commerce Commission in dealing effectively with the particular needs of Central Railroad Co. of New Jersey in a plan of reorganization, and with possibly dealing with some similarly serious problem in the future.

Certainly no justification exists for contending that H. R. 6012 is necessary in order to protect the jurisdiction of State commissions, since it is not remotely conceivable that the exercise of this power by the Commission will be on such a scale in the future as to affect more than a very few special cases.

II. NO NEED FOR THE ENACTMENT OF H. R. 6012 HAS BEEN SHOWN BY THE PROPONENTS OF THE LEGISLATION

Even if it were conceivable that the Commission might be confronted with a number of cases in which it would feel constrained to authorize the reorganized carrier to limit the character of local service to be offered following reorganization, there is nothing whatever to indicate that this power would be improperly exercised by the Commission. It is an accepted principle not only that interstate commerce should be regulated in the national interest, but that purely local interests must likewise be subordinated to national regulation for the purpose of removing undue burdens upon interstate commerce and protecting the broader national interests. Thus, under section 13 of the Interstate Commerce Act, the Commission is authorized in proper cases to supersede the actions of State commissions with regard to intrastate rates. The Commission's power that is sought to be limited by H. R. 6012 is of an analogous character. In the New Haven case the Commission found "The conditions under which the Old Colony operates are such that it cannot endure the present heavy loss from passenger service. This loss must be eliminated or reduced to relatively small proportions, if a sound, feasible, and fair plan of reorganization, for the Old Colony is to be approved at this time.

*

Under these circumstances it is clear that the Commission's duty was to eliminate the unreasonable burdens imposed by local traffic and local regulation in order that the more important freight service furnished by the Old Colony could be continued. In other words, a threat to the continued existence of the carrier had to be removed in order that its vital functions might be preserved. If it may be assumed that the Commission will act reasonably and in the national interest in the case of superseding local regulation pursuant to section 13 of the Interstate Commerce Act, there appears to be no warrant whatever for assuming that it will not likewise so act in connection with reorganization plans under section 77.

In the section 77 proceedings, exhaustive records are developed containing all of the facts relevant to a decision by the Commission, and all parties are given opportunity to be heard. For example, in both the New Haven proceedings and the Jersey Central proceedings, both the local regulatory interests and the users of the carrier have had a full opportunity to present their case and to be heard at every stage of the proceedings. They have availed themselves of this opportunity. The exercise by the Commission of its existing power under section 77 enables it to meet the needs of a critical situation where State regulatory bodies have