Full opinion text
STONE, Circuit Judge. These are five separate appeals from an order by the District Court for the Eastern District of Missouri approving a plan for reorganization of the St. Louis Southwestern Railway Company, Debtor. There is a consolidated record and, in addition to the parties immediately interested, the United States was heard on brief and oral argument as amicus curia. Three of the appeals are in behalf of or by existing stockholders. The two other appeals are by protective committees of mortgage bonds issued by wholly owned subsidiaries of the Debtor, payment of which was guaranteed by it. I. Jurisdiction. Before examining the merit issues in any of these appeals, a matter of jurisdiction must be determined. That issue arises from the situation now to be outlined. Judge Davis had conducted these reorganization proceedings from their inception. A Plan had been approved by the Interstate Commerce Commission and, with accompanying transcript, had been transmitted to the Court. Objections to the Plan were filed and evidence introduced in court. The evidence had been closed and arguments of counsel were being made. After all counsel (except for the Debtor and for Mr. Meyer) had presented arguments in chief, Judge Davis died. Thereafter, Judge Moore took over these reorganization proceedings. Judge Moore called a conference of all counsel to discuss the method of further proceeding in connection with the Plan. The original positions of counsel were as follows: Mr. Meyer urged that he wished and was entitled to a new trial before the court; the other counsel denied that a new trial was a matter of right but was, at most, a matter of discretion in the Court; most of these other counsel urged that the proceedings should not be reopened for additional evidence but should be taken by the Court on the existing record after full reargument by all parties; two of those counsel suggested, not very strongly, that the Court might reopen the case for evidence additional to that presented before Judge Davis. After much argument by all counsel, the Court took the view that a new trial was not a matter of right but that it was discretionary as to reopening the case. Mr. Meyer was the only party desiring to introduce further evidence although other counsel (while opposing reopening) thought that if the case was to be reopened for Mr. Meyer, similar opportunity should be given other parties. Later, it was suggested by counsel that Judge Moore set the case for argument “and then have the advantage of the record and all the arguments in determining whether the case should be reopened for further testimony.” The comment of the Court thereon was: “I assume when I hear the arguments I might know a little bit more about this matter. This is thrown in my lap without any opportunity to know very much about it.” Finally, suggestions (in rough form of an order) were made: (1) That the record before Judge Davis be submitted; (2) that oral arguments be heard on a specified date; (3) that “during or at the conclusion” of such arguments the Court would “entertain” motions by any party ■“respecting additional testimony or otherwise pertaining to the perfection of the record on the hearing of said plan.” It was emphasized by the Court that Mr. Meyer or any party could, under the last suggestion, present any motions to reopen the matter for further evidence. An order was made along the above line (April 23, 1943), including provisions that “the record on the Plan of Reorganization as certified to this Court by the Interstate Commerce Commission -and on the record as heretofore made before Judge Charles B. Davis be taken as submitted to this Court as of this date” and that “during or at the conclusion of said oral argument on May 31, 1943, the Court will entertain any motion or motions, if any be made by any party, respecting the taking of additional testimony or otherwise pertaining to the completion of the record on said Plan.” From this order, Mr. Meyer took an appeal which he later dismissed. Under the above order, arguments were made and no motion was filed by any party in connection with the arguments. Later, the Court entered an ■order approving the Plan. Based on the foregoing outlined- situation, Mr. Meyer presents the issue that a new trial on the Plan and objections thereto was a matter of right upon the death of Judge .Davis and, therefore, Judge Moore had no power to deny such to a party demanding that right. Various parties contend here that Mr. Meyer waived his right, if any, to object to the procedure followed by Judge Moore; and that, absent such waiver, no right to new trial existed but the matter was one of discretion. As to waiver. The parties rely upon any or all of the following: (1) Expressions of Mr. Meyer indicating acquiescence in the procedure adopted by the Court; (2) voluntary dismissal of appeal taken by him from the order of April 23, 1943; (3) participation in the arguments and filing brief at the hearing under that order. There were expressions by Mr. Meyer during the preliminary conference before Judge Moore which, taken alone, might be construed as approaching acquiescence in the procedure adopted; yet, throughout the conference, he made clear his preference for a new trial and, after the Court had announced the lines along which an order would be made, Mr. Chubb stated “we are adhering to the position, Your Honor, that we are entitled as a matter of right to a new trial or a rehearing of this matter” and Mr. Meyer stated “I understand under the law a new trial is necessary and the Court has no power to continue this proceeding.” In the light of these statements it is clear that there was no acquiescence by Mr. Meyer in advance of the entry of the order prescribing the procedure but quite to the contrary. This opposition is further evidenced, after the entry of order, by his appeal therefrom. Whether this order was of such finality as to be appealable is, at least, doubtful but we need not resolve that matter since that appeal was later dismissed. Whether the order, when made, was appeal-able or not, it is clear that it could be challenged in an appeal from the order approving the Plan and it is so challenged on the present appeal. Standing alone, the dismissal of the appeal from the order is not, in this situation, enough to be a waiver of the validity of the order. Nor is participation, by argument and brief, in the hearing under the order sufficient to constitute waiver even though Mr. Meyer did not therein reiterate his right to new trial. There is no solid ground for contending that any party or the Court has acted in the belief that Mr. Meyer, by any or all of these things, was waiving his objection to the action of the Court in entering or in acting under the order defining this method of proceeding. The facts do not support the contention of waiver. Right to new trial. Theoretically and actually, a “Court” is a continuing and continous institution. Life & Fire Ins. Co. of New York v. Wilson’s Heirs, 8 Pet. 291, 303, 8 L.Ed. 949, and see Hume v. Bowie, 148 U.S. 245, 254, 13 S.Ct. 582, 37 L.Ed. 438. Normally, matters therein flow uninterruptedly onward to finality. A change in personnel of judges during the course of litigation presents a problem of interruption. Such changes have occurred at different stages of suits and with varying results as to whether the successor judge could go forward or should retrace some of the ground' travelled by his predecessor. An examination of the reasoning underlying the opinions and producing their results is convincing that the flow of a suit is interrupted by changes in personality of judges only where justice — for which courts exist — seems so to require. Unless justice demands something else, a different judge takes up litigation where the former judge left off. Where this is not done, it is, broadly, because of something in the past course of the litigation which cannot be found in the status and record existing when the new judge takes hold and which it is necessary for him, in all fairness to the parties, to know. Where it is necessary for him to gain this absent information, he must set back the litigation to the place where hq can obtain it. How and by whom is the existence of such necessity to be determined? In some instances, the law speaks through some affirmative legal requirement. Malony v. Adsit, 175 U.S. 281, 20 S.Ct. 115, 44 L.Ed. 163, changed by 31 Stat. 270, 28 U.S.C.A. § 776. In other instances, the successor judge has power, through the exercise of a reviewable judicial discretion, to determine on the situation in which he finds himself. The present situation is similar to cases ruling the power of a successor judge to pass upon a motion for new trial and that power has existed in United States courts since Life & Fire Ins. Co. of New York v. Wilson’s Heirs, 8 Pet. 291, 303, 8 L.Ed. 949. This situation is, therefore, within that class where the successor judge has such discretion. Hence, this issue resolves itself into whether Judge Moore abused his discretion. That depends upon what he did and the situation in this litigation when he acted. The situation was that all evidence before the Commission had been steno-graphically reported and Judge Davis had only the paper record as transmitted from the Commission. As to this, Judge Moore was in the same position as was Judge Davis. This brings the matter down to the record on the hearing before Judge Davis. All that occurred before Judge Davis was transcribed and before Judge Moore. The only difference was that Judge Davis had seen the witnesses testify while Judge Moore had not. In short, all that Judge Moore lacked was the opportunity to estimate the credibility of these witnesses from their appearance and demeanor on the stand. . There was considerable oral testimony before Judge Davis but even more documentary. Such matters as bore upon credibility arose principally from claimed differences between oral testimony and prior written statements of a witness. Such differences speak from their face and little aid in judging credibility is gained by viewing the witness. For the most part, the principal witnesses were the same as before the Commission. While Judge Davis ruled that the evidence before him would be confined to matters subsequent to the hearing before the Commission, considerable earlier documentary evidence prior to that time was received. Considering this situation, we cannot say that Judge Moore abused his discretion in proceeding upon the record as it came to him. II. Motion to Stay Appeal or to Remand. Mr. Meyer has filed in this Court a “Motion that appeal be stayed or, in the alternative, that the proceedings be remanded to the District Court.” This motion was briefed and argued to the Court but, upon further consideration, the Court set aside the submission thereof without prejudice and set the motion for hearing in connection with presentation of the appeals. The grounds for the relief sought by the motion are stated thus: “(1) The greatly increased balance of assets over liabilities and the greatly improved financial condition and earnings of the debtor since the supplemental report of the Commission of March 9, 1942; and “(2) The suit by the Government under the Sherman Antitrust Act against The Association of American Railroads et al., and the facts revealed by the allegations of the complaint in the said suit and the ‘Western Agreement’ annexed as an exhibit to the said complaint.” As to the first ground. Three of the appeals (by Mr. Meyer, the Southern Pacific Company and the Debtor) directly present inter alia the issue as to “changed conditions” and challenge the Plan upon that basis. Changes in earnings and other conditions after promulgation of a Plan by the Commission are pertinent in consideration of the fairness and equity of such Plan. Ecker v. Western Pac. R. Corp., 318 U.S. 448, 506, 63 S.Ct. 692, 87 L.Ed. 892; Group of Institutional Investors v. Chicago, M., St. P. & P. R. Co., 318 U.S. 523, 542, 63 S.Ct. 727, 87 L.Ed. 959. Such changes may, of course, be shown in evidence before the District Court considering the Plan. Further, the appellate court may, within proper bounds, consider showing of facts later than the trial where such bear upon changed conditions. Ecker v. Western Pac. R. Corp., 318 U.S. 448, 507, 63 S.Ct. 692, 87 L.Ed. 892; Group of Institutional Investors v. Chicago, M., St. P. & P. R. Co., 318 U.S. 523, 542, 63 S.Ct. 727, 87 L.Ed. 959. In this situation, the logical and orderly procedure is to examine and determine in connection with the merits of the appeals the effect of any claimed changed conditions, giving consideration to any proper factual matters presented after the trial, rather than to attempt determination upon this motion. As to the second ground. The basis of this ground is that “the facts revealed by the allegations of the complaint * * * and the ‘Western Agreement’ annexed as an exhibit to the said complaint” in an Anti-Trust action filed by the United States against The Association of American Railroads et al., August 23, 1944, constitute newly discovered evidence relevant and important to the issues herein. This complaint and exhibit are attached to the motion as an exhibit. The prayer of the motion is to stay these appeals pending final disposition of this Anti-Trust suit; or, alternatively, to remand this proceeding to the District Court with directions to remand to the Commission “in order that the Commission may decide in its discretion whether to await further developments in the said suit of the Government against The Association of American Railroads and others, or to institute an investigation into the facts alleged by the Government in its said suit and the effect upon the earnings of the debtor of a successful termination of the said suit.’’ The complaint in this Anti-Trust action is against The Association of American Railroads (a voluntary organization composed of all the major steam railroads in the United States, operating over 85% of the railway mileage), The Western Association of Railroad Executives (a voluntary organization composed of representatives of most of the railroads operating west of Chicago), two investment banking houses (J. P. Morgan & Co. and Kuhn, Loeb and Company), forty-seven railroad companies or trustees thereof (being most of the railroads in the “Western District,” com-prising west of the Mississippi River and some territory in Illinois, Wisconsin and Michigan), and ninety odd individuals. It charges that defendants, from “some time prior to 1932,” have been engaged in a conspiracy in restraint of interstate trade through eliminating competition in rates and charges, services and facilities resulting in collusive rates, suppression of improvements in facilities and services. Also, it is charged they have conspired to restrain other competitive types of transportation. The complaint particularizes as to twenty ways in which the conspiracy has operated to prevent independent action by parties to the conspiracy in charges and operation of the member railroads. It alleges that defendant Western Association of Railway Executives (called WARE) originally formed in 1928, is an instrumentality used in carrying out the conspiracy upon which was “superimposed” an arrangement set forth in the “Western Agreement,” or “Commissioner Plan, Western District” (effective December 1, 1932), by which WARE has since functioned as a “separate entity.” A copy of this agreement is attached as Exhibit A. It is charged that after the Western Agreement was brought to the attention of the Department of Justice and a copy had been requested on April 9, 1943, the parties thereto stated that, by an amendment thereto of April 23, 1943, the Agreement had been cancelled but that nevertheless the unlawful practices inaugurated thereunder had been continued. The basis of the relief sought by the. motion is newly discovered evidence revealed by the complaint and attached exhibit in the Anti-Trust suit. The record in this reorganization proceeding establishes clearly that Mr. Meyer knew of the existence of this Western Agreement and that, in December, 1932, he voted (as a director of Debtor) for Mr. De Forest who was to represent Debtor on WARE which was to select the “Commissioner”. under that Agreement. Thus, several years before this reorganization proceeding, he had knowledge which would have enabled him to present to the Interstate Commerce Commission, during these proceedings before it, any matters now suggested by this Anti-Trust complaint, which he thought pertinent to this reorganization. Mr. Meyer did present an anti-trust issue before the Commission in these proceedings and it is one of the matters before us on the merits in this appeal. However, that matter had, for the most part, to do with claimed particular acts of certain named railroads which were in direct control of Debtor or of named individuals and railroads which influenced such controlling railroads in their attitude toward the Debtor. The motion must be denied as this is not newly discovered evidence. III. Merits of Appeals. Of these five appeals, two (Nos. 12,884- and 12,885) present special problems applicable to the participation, accorded by the-Plan, to the bondholders of the Central Arkansas & Eastern Railroad Company and of the Stephenville North & South Texas Railway Company, respectively. The three other appeals (Nos. 12,882, 12,883 and 12,886) present the broad contention that-the basic valuation by the Commission is-too low and improperly excludes the stockholders from all participation in the Plan.. The matter now to be considered under this, heading will be that urged by the above-three appellants in behalf of stockholders. The appeal (No. 12,886) of Mr. Meyer attacks the valuation of the Commission as-of the time it was made. All three appeals urge such changed conditions affecting valuation since adoption of the Plan, as require resubmission to the Commission. (a) The valuation by the Comwnissiotv.. The Commission found the value for new capitalization “should not exceed approximately $75,000,000.00.” Generally, this-amount was (as stated by the Commission) the result of consideration of “all the data of record on property valuation and past and prospective earnings.” Included in the “property valuation”' were: Investment in road and equipment less accrued depreciation ($116,980,340);. book value, as of December 31, 1939 ($114,-080,573); and reproduction cost less depreciation, as of December 31, 1935 (made.by the Bureau of Valuation of the Commisrsion) in a total of $68,523,903. As to past earnings, the ten year period •of 1927-1936 was used as a basis although later earnings were also considered. There was a vast amount of evidence bearing upon earnings and upon matters affecting earnings going back as far as 1915. As to prospective earnings, the direct testimony was the estimates of witnesses for the Trustee as to operating revenues for the several years 1937 to 1941, inclusive, and the actual earnings for 1937 to the first four months of 1941. Among other important matters considered were the existing fixed debt charges and the amount the road could safely carry following reorganization. This latter sum was placed at “about $1,500,000.00 a year.” A supplemental report of the Bureau of Valuation showed deferred maintenance of $3,173,500 had accumulated. After the original decision of the Commission was filed, the proceeding was reopened and much additional evidence introduced. The valuation in the original decision was challenged by several parties but was not modified. This decision was made as of March 9, 1942. (B) Present challenges of valuation. These three appeals, urge that change in conditions since such valuation are of such nature and extent as to invalidate the valuation even if it were proper as of the time it was made. Appellant Meyer challenges the valuation as of the time made. The broad difference in the position of Mr. Meyer and of the two other appellants (Debtor and Southern Pacific) is that Mr. Meyer urges strongly the invalidity of the valuation when made while the two other appellants — while not conceding that the valuation was then correct — base their contentions on the proposition that conditions have so changed since the valuation that it is shown to be presently wrong even if it were proper at the time made. This situation thus poses two major problems: (1) Mr. Meyer’s contention that the valuation was unsound when made; and (2) the contention of the three appellants of the effect of changed conditions upon the valuation. (1) Validity of the valuation when made. The validity of the valuation of the Commission at the time it was made is challenged upon four general grounds as follows: First, it is contended that, during such- period, there was diversion of freight from Debtor causing revenue loss to it, by other railroads controlling Debtor. Second, it is contended that, during this period, certain kinds of freight were forced upon Debtor by a controlling railroad (Pacific) and from carriage of which, Debtor suffered loss in revenue. Third, it is contended that during the period, there was wastage of Debtor’s assets by a controlling railroad. Fourth, that there was a continuing conspiracy by those controlling Debtor to use Debtor for their selfish purposes to its harm. (la) Diversion of Traffic The source of the claimed diversion of freight from Debtor is the control over Debtor by other railroads secured through ownership of stock in Debtor. Prior to March 11, 1925, Edwin Gould (son of Jay Gould) held the dominant stock interest in Debtor. On this date, the Chicago, Rock Island and Pacific Railway Company acquired this Gould stock. This stock, with other held by interests friendly to the Rock Island, gave it practical control of Debtor. May 4, 1925, the Rock Island applied to the Commission for authority to acquire control of Debtor under par. 2 of section 5 of the Interstate Commerce Act, 49 U.S.C.A. § 5(2). This application was referred to the Bureau of Finance of the Commission. Faced with a proposed adverse report by the Assistant Director of the Bureau, the Rock Island sold this stock to the Kansas City Southern Railway Company, in October, 1925. In July, 1926, the Southern applied to the Commission for authority to acquire stock control of the Debtor and also of the Missouri-Kansas-Texas Railroad Company. In 1927, the Commission denied this application— stating that the acquisition of stock controls of Debtor and of M-K-T “without our approval, appear to have constituted violation of section 7 of the Clayton Anti-trust Act [15 U.S.C.A. § 18] and perhaps also of the Sherman Act unless section 5 of the Interstate Commerce Act, as amended by the Transportation Act, 1920, by implication allows such acquisitions in advance of the granting of authority to acquire control.” In 1928, the Commission brought proceedings to compel the Southern to divest itself of its stock interests in these two roads. On April 15, 1929, and while this proceeding was pending, the Southern holdings in Debtor’s stock was acquired by a syndicate composed of New York Investors, Inc., and others. From late in 1929, the Southern Pacific Company began buying stock in the Debtor on the market until, by April, 1930, it had acquired 42,600 shares of common, of which 171,861 shares were outstanding. July 15, 1930, Southern Pacific purchased 87,200 preferred stock in Debtor from the Syndicate — the outstanding preferred being 198,936 shares — and contracted with Kuhn, Loeb and Company (as intermediary) to purchase further from the Syndicate 59,380 preferred and 24,700 common stock in Debtor. All of the above purchases gave Pacific about 57% of the outstanding stock of Debtor. Also, Pacific applied to the Commission for authority to acquire stock control of Debtor which was granted. Under this grant of authority, Pacific was required to exchange its own stock, on a stated ratio, for outstanding stock of the Debtor not held by it. The final result was that, at the time of this reorganization proceeding, Pacific had acquired 87.37% of Debtor’s outstanding stock for which it had paid approximately $19,-493,000 and had exchanged 49,110 shares of its own stock. In addition thereto, Pacific had made good its guaranty of a loan from the Reconstruction Finance Corporation to Debtor by taking over the loan and paying $17,882,250 — a total cash outlay of approximately $37,375,000. The claimed diversions of freight traffic are alleged to have resulted from and during these controls of Debtor, successively, by the Rock Island, the Southern, the Syndicate and the Pacific. Unless one is an expert in railroad traffic matters or unless one has studied a record such as this it is highly difficult, if not impossible, to have much comprehension of the very great complexity of the subject. An understanding of such traffic involves so many and various elements which, alone or in some co-action, may influence the amount, character or revenue-producing value. Among these elements, may be stated: whether the traffic is purely local to the particular road, is interline (either originating or terminating on the road) or is “bridge” or “overhead” (where the road is an intermediate carrier) ; whether it is long or short haul on the road; whether there is a high or low return or a loss per ton mile in revenue; who controls the routing. Purely local traffic may be passed by as it is entirely moved on the one road. Where traffic originates or terminates upon a road, the existence of different junction points with other roads enters into the problem. Bridge traffic depends, within certain physical or geographical limitations, upon the route chosen at origin or destination. Debtor is largely dependent upon bridge traffic. Bridge traffic is the most susceptible to diversion where the bridge road has competitive routes between the termini of any shipment. Debtor has immediate (North and South) and connecting competitors who, one or the other, reach most of the important points on its road. Two maps are inserted — one showing the more immediate competitors in the Southwest or “Gulf” region and the other showing the larger picture of connecting lines which might use or might avoid use of Debtor as a bridge or as a terminal receiving line. From these maps and from the statement in the footnote, it is clear that Debtor is so located as to other lines that it is naturally subject to much competition whether the traffic originates distantly or not. Within these competitive areas, Debtor is naturally open to diversion of traffic both as to its important bridge traffic and, to a much less degree, as to traffic terminating upon its own line even though every effort be made by it or those controlling it to secure traffic. If this be true because of natural location, it is obvious that this situation might be much more precarious where Debtor was controlled by some other road or by those more interested in some other road. In short, such control affords opportunities for diversion when it is to the interest of the controller. But opportunity to do harm is alone not proof of harm done, although clearly it requires closer scrutiny of acts done. That the Rock Island, the Southern, the Syndicate and the Pacific had such opportunities to harm Debtor during the successive periods of control is true. Whether they, or any of them, took advantage of those opportunities and used such control to harm Debtor is the question. Our immediate concern is whether the showing before the Commission justified its determination that no improper material diversions of traffic resulted from such controls of Debtor occurred. In determining this matter, we act under definite limitations. We cannot, as would a court in an equity suit, take the evidence before the Commission and declare an opposite conclusion if, in our judgment, the weight of the evidence was against the determination of the Commission. The Commission is the agency selected by the Congress to determine such fact matters. If there is substantial support in the evidence for its determination, we must accept it as settled. Reconstruction Finance Corporation, et al., v. The Denver & Rio Grande Western R. Co., 66 S.Ct. 1282; Ecker et al. v. Western Pacific R. Co., et al., 318 U.S. 448, 473, 512, 63 S.Ct. 692, 87 L.Ed. 892. Intennediate Carriers of the Gulf Southwest and adjacent Regions and Southern Pacific Lines. Our examination involves, of course, a test comparison of the various essential fact statements of the Commission with the evidence bearing upon each material statement to ascertain whether there is substantial support for the finding in the evidence or the action of the Commission was arbitrary. Considering the great number of separately advanced particulars in each of which Mr. Meyer urges positive proof of diversion and the several thousand pages of evidence involved, these testing comparisons have required an enormous burden of reading, study and classification of the evidence. This burden has in no respect or particular been avoided. We have reached the conclusion that the results stated by the Commission are in every instance supported by substantial evidence and, therefore, the capitalization value of the Debtor as determined by the Commission must be sustained as of the time it was announced and, by supplemental report, later affirmed. In the footnote, is set out most, but not all, of the discussion by the Commission in its report and supplemental report on this subject of diversion of traffic by the four controllers of Debtor up to the filing of the supplemental report on March 9, 1942, on a submission as of October 8, 1941. We adopt this method of presentation in this opinion for several reasons. These extracts show the care, thoroughness and detail with which the Commission examined every one of the numerous matters bearing upon traffic diversion urged by Mr. Meyer. They show the great variety of elements presented and the complexity of the entire contention. When the character of our examination — to test the evidence to determine whether the findings of the Commission have substantial support therein — is considered and in view of our determination that there is such support, we think these extracts show ample reason why an unduly long and involved opinion treating separately each of these elements is not called for. In many instances, there was conflict in the evidence which the Commission might have ruled either way but such conflicts are for it, with its greater expert training and experience, to resolve and not for us. In other instances, suspicion, inference and possibility appeared in place of evidence of diversion. We desire to add but an observation concerning one matter of evidence which seems impressive to us and which was not accented by the Commission. These are the graphs or charts made part of Exhibit 322, and evidence related thereto, which show the comparative monthly movement of bridge and of terminated traffic over the Debtor and over the Southern originated by each of the forty-nine railroads in the United States from which Debtor received as much as $25,000 of freight revenue during the years 1924 to 1927, inclusive. These graphs and this evidence are convincing that there was no material diversion during the part of this period that Southern had control. (lb) Unprofitable Traffic. Mr. . Meyer contends that perishable freight forced upon the Debtor caused losses in 1928 of $695,023.76; in 1929, of $1,160,375.66; in 1930, of $1,304,965.19; in 1931, of $1,322,273.51 — a total loss of $4,482,638.12 in operating earnings during those years, thus materially contributing to impairment of earning and the financial condition of the Debtor. The “perishables” consisted of fruit, melons (principally cantaloupes) and vegetables (mainly lettuce). These were grown in the southern part of California for the most part, with some in Arizona. Shipments for such originated almost entirely on the Pacific. Transportation was in refrigerator cars of the Pacific Fruit Express —the stock in which was owned equally by the Pacific and the Union Pacific. Use of , these cars was upon a mileage basis with refrigeration (icing) to be cared for by user railroad. To understand this contention by Mr. Meyer, it is necessary to know the situation with which it deals. Prior to 1927, the normal routing for such traffic — in so far as Debtor participated therein — was Pacific to El Paso, Texas & Pacific (a Missouri Pacific line) "to Big Sandy, Texas, where Debtor took further carriage to Memphis or to St. Louis. May 5, 1927, Pacific and Debtor (then under Southern control) established a scheduled route for such traffic by Pacific to El Paso, Texas & New Orleans (a Pacific line) to Corsicana, Texas, whence Debtor carried to Memphi-s or St. Louis. This involved substitution of the Texas and New Orleans for the Texas and Pacific thus giving Pacific a longer haul by 897 miles (the Texas and New Orleans) and the Debtor a slightly longer haul (from Corsicana to Big Sandy). This new route is more circuitous than that using the Texas & Pacific and is somewhat farther south than that road — the Texas & Pacific being a fairly direct route in Texas from El Paso to Dallas or-Big Sandy while the Texas & New Orleans dips southerly from El Paso and nearer the Mexican border. Mr. Meyer contends loss to Debtor on this traffic occurring mainly through rental charges for Pacific Fruit Express cars, return cost of empty cars and extra icing required by more southerly route. Mr. Meyer urges that this traffic was forced upon the Debtor by the Pacific although at the time this arrangement was made Debtor was under stock control of the Southern. The evidence is that Debtor desired this traffic. May 5, 1927 the traffic manager of Debtor sent a memorandum to its vice-president in charge of operations that the Pacific desired to establish a ninety-three hour schedule El Paso to St. Louis via Corsicana and asked prompt authorization “so as to telegraph the Southern Pacific our concurrence, otherwise they will use the Frisco or M-K-T for this service.” The same day, the traffic manager wired Pacific it would join in schedule and asked advice “date first train leaves El Paso.” As to one feature of this traffic, cantaloupes from the Imperial Valley, the evidence is clear as to the vigorous solicitation by Debtor, beginning in 1927.. May 9, 1928, an official of Debtor wrote its traffic manager “Corsicana route had the honor of handling first car of cantaloupes shipped out of the Imperial Valley this year by freight.” Also, in 1928, after this route had been established for a year and while Debtor was yet under Southern control, Debtor was fearful that a speeded-up route then installed by Pacific to Shreveport might draw from this traffic via Corsicana. In 1938, during this reorganization, the general freight agent of Debtor at St. Louis became apprehensive that the cantaloupe traffic from the Imperial Valley was being taken .over by the Missouri Pacific and St. Louis-San Francisco. It is difficult to understand this solicitude of Debtor’s informed freight officials (during years of action under this schedule and at different times when not under Pacific control) to retain and guard this traffic if it was producing loss, much less the very substantial loss asserted by Mr. Meyer. Statements in the report of the Commission are as set forth in the footnote. The conclusion of the Commission is that this traffic was carried at a small profit. The evidence is conflicting and we find there is material evidence supporting the conclusion of the Commission. A related contention of Mr. Meyer is that the Debtor, as part of the Pacific system, is entitled to receive a share of the Pacific Fruit Express earnings, at least in the proportion Debtor contributed to such earnings. There is no foundation for this position. While Pacific owns a controlling stock interest in Debtor just as it owns a half stock interest in Pacific Fruit Express, there is no legal basis for requiring Pacific to share its earnings in either company with the other. All three companies are separate corporations and are operated as such. The stockholders in Pacific are to be considered as well as those of Debtor. (lc) Wastage of Assets. Mr. Meyer presses that there was wastage in the assets of Debtor resulting in reduced earnings and in reduction of assets which would otherwise have been available to produce income. He specifies three matters of wastage and two others he regards as related to wastage. (1) Reconstruction of Corsicana Line. The first of the three matters of wastage claimed is the reconstruction of the Mt. Pleasant-Corsicana line at a cost of $5,493,282.00 in 1928 to 1930. That the road was much improved and modernized by this reconstruction cannot be successfully questioned. The line was made suitable for heavy fast running. This line was the hand reaching out toward the Pacific for all kinds of freight traffic, either via Texas & New Orleans or via Texas & Pacific. On the face of the situation it would seem to have been a wise move by Debtor, a bridge railroad. However, the argument of Mr. Meyer is that this reconstruction was not for the general good of the Debtor. He urges it was made to facilitate movement of perishables entering Debtor at Corsicana from Pacific, via Texas & New Orleans, when the officials of Debtor knew there was a decided revenue loss to it on this kind of traffic. That this nefarious purpose existed seems inconsistent with the evidence. The exact date when the plan for this reconstruction was begun does not appear or has escaped us. However, it is clear that Debtor’s engineering forces were put in the field to make a detailed study and an estimate of cost of the plan in 1925 and construction under a plan started in June, 1928. Debtor was a Gould property until March 11, 1925, when the Rock Island bought the stock of Edwin Gould. The Rock Island retained the control until October, 1925, when it sold to the Southern which retained control until April 15, 1929, when it sold to the Syndicate. The Pacific did not begin serious buying of Debtor stock until late in 1929 and did not acquire stock control until July 15, 1930. This reconstruction was completed in June, 1930. Thus the plan for reconstruction was being worked out for several years before Pacific control and the construction under a plan was completed prior to such control. If handling perishable traffic from the Pacific was the moving impulse for this improvement, those who conceived this plan must have believed such traffic was desirable and profitable since Debtor was at none of this time within control of Pacific. In fact, the perishable traffic arrangement (via Texas & New Orleans) to Corsicana was not initiated until May, 1927. There is some further support in the situation that such traffic seems, as found by the Commission, to be profitable. (2) Acquisition of short lines. Mr. Meyer urges wastage of $3,428,000.00 in 1929 and 1930, for the construction and the acquisition and reconstruction of short lines in the St. Francis Basin. Before this improvement, Debtor’s line passed some miles west of Memphis and had access to that city only by trackage rights over the Rock Island from Brinkley. Brinkley was southwest of Memphis so that Debtor’s line from St. Louis to Memphis was somewhat circuitous and relatively much longer than other St. Louis-Memphis lines. By this improvement, Debtor’s St. Louis-Memphis line was shortened about sixty miles to 347.4 miles. This project was approved by the Commission. St. Louis S. W. Ry. Co. Construction, 150 I. C. C. 685; St. Louis S. W. Ry. Co. Acquisition, 158 I. C. C. 206 and 162 I. C. C. 625. A reading of these I. C. C. Reports convinces that the project seemed reasonable at those times and in the public interest. The fact that the project has not turned out to be as productive as hoped or has been eveñ unproductive is proof that experience is better than anticipation but it falls far short of proof of conscious wastage. (3) Excessive maintenance of way expenditures. Mr. Meyer claims that an average annual expenditure for maintenance of way and structures during the six years (1925-1930) of $4,550,773 was grossly excessive at a time when the revenues of Debtor were declining. He estimates that a more reasonable expenditure would have improved Debtor’s position at the end of this period by $6,000,000. In short, this contention would mean an average annual expenditure of $3,550,773 during this period. The exhibit from which Mr. Meyer takes his figures for actual expenditure is a “condensed income account and averages, years 1915 to 1937, incl.” This table shows that prior to 1918, such annual expenditures were less than $2,000,000. From then on to 1937, such expenditures have been as follows: 1918— $3,240,696 1928— $4,642,108 1919— $4,168,790. 1929— $5,177,658 1920— $6,385,071 1930— $3,351,655 1921— $3,962,520 1931— $1,963,175 1922— $4,299,557 1932— $1,838,052 1923— $4,251,897 1933— $1,438,431 1924— $4,232,984 1934— $1,507,456 1925— $4,626,890 1935— $1,733,466 1926— $4,864,847 1936— $2,461,053 1927— $4,641,477 1937— $3,412,747 While the expenditure for any particular one or two consecutive years might not be revealing unless something was known about the conditions necessitating such, yet several things may be fairly deduced from a comparison of annual expenditures over this continuous period of twenty years. The depression in this country came in 1930 and it may be reasonably assumed that the effect thereof was, for several years thereafter, reflected in a pronounced decrease in all expenditures wherever possible. This begins to show here in 1930 and becomes drastic during the following five or six years. Recovery in expenditures for this maintenance does not begin until 1937 and then is not quite up to the expenditure for 1918. The deferred maintenance of $3,173,500, found by the Commission as of several years after 1937, is a natural result of the under-maintenance during these lean years. It is unlikely that excessive over-maintenance of way and structures — ■ which have a certain element of stability— would have resulted in such deferred maintenance. If there was excessive expenditures during the six year period (1925-1930) they must have been fortunate in aiding the Debtor during the succeeding trying years by requiring less than normal annual outlay for such maintenance. Another matter is that Mr. Meyer seems to regard this road as well managed before the Rock Island came into the picture in March, 1925. During the six year period (1919-1924) immediately preceding the period about which he objects, such average annual expenditure was $4,550,137 — this is not far from the $4,550,773 which Mr. Meyer attacks. Mr. Meyer approaches this matter from another direction, namely, a comparison of Debtor with the four other main north-south roads in this Gulf territory. This comparison takes the form of percentage ■of annual (1925-1930) expenditures for maintenance of way and structures to total operating revenue. Such comparison standing alone has no probative value, since it depends upon all the variances and.influences and situations as to operating revenue and as to such maintenance applying to each particular railroad. (4) Purchase of M-K-T stock and provision for debt maturity. In conjunction with this subject and as illustrating “the entire lack of trustee spirit actuating those in control of the Debtor,” Mr. Meyer urges two matters: purchase by Debtor of M-K-T stock and lack of provision to meet an important debt maturity. This purchase of 100,000 shares of the M-K-T was to aid Southern and its bankers in acquiring stock control of that road. It was engineered by Southern during its stock control of Debtor and was a part of Southern’s plan to unify the three roads. The use of these funds of Debtor for this purpose was motivated by the desire of Southern to protect itself and was accomplished because of Southern stock control of Debtor. From the standpoint of Debtor, this transaction was indefensible. However, no actual loss was suffered by Debtor as Southern, under attack for this transaction, took over the stock at cost to Debtor and carrying charges. The other matter has to do with the maturity of $20,727,750 of Consolidated Mortgage bonds due on June 1, 1932. It seems to be Mr. Meyer’s contention that the failure to provide a sinking fund to meet this maturity resulted from deliberately contrived lessening of revenue and non-reduction of operating expenses. Just how far before this maturity, provision for such sinking fund should have begun is not definite beyond a quotation (several times repeated by Mr. Meyer) from a letter to the stockholders of Debtor by Mr. Pierce, Chairman of the Board, dated April 28, 1927. This letter was sent out in reply to one by Mr. Meyer to the stockholders soliciting proxies and which contained serious charges against the good faith of the existing officials of Debtor. This somewhat lengthy Pierce letter dealt with the matters of attack in Mr. Meyer’s letter — one of which was “Dividends” on common stock. In discussing this topic, Mr. Pierce wrote: “Dividends upon the Preferred Stock of the Company at varying rates and times were paid between the years 1909 and 1914. During the period between 1914 and 1922 no dividends were paid upon the preferred Stock of the Company. In 1922 the vastly improved situation, due to the use of surplus earnings in improvement and equipment of the property, was considered by the Board in connection with the then uncompleted program of betterment and equipment, and the conclusion was reached that while a resumption of dividends upon the Preferred Stock was justified, effective use of surplus could not be discontinued. Those who have long followed the fortunes of the Company will remember the discussion of its affair? and the announcement of its policies in the communication of November 23, 1922 of Mr. Edwin Gould, then Chairman of the Board, to the stockholders, which concluded with the statement that the formulated policies of the company should have preference in the following order: “First: A liberal budget for the maintenance of the property to a high standard of efficiency for the service of the public; “Second: "Seasonable provision, in proper'measure, by way of sinking fund, for an important maturity at an early year, which must be now taken into account as a definitely approaching exigency; and “Third: Dividends to stockholders in the order of their established rights. “The policy thus outlined, and which the company has pursued, has afforded the best promise of future and maintained dividends on the Common Stock and the appreciation of that stock itself is the best justification of that policy.” Mr. Meyer uses the “Second” paragraph of this quotation as proof that Mr. Pierce had in mind this particular maturity and recognized the necessity of providing therefor. The attack for failure to provide such sinking fund is apparently directed at the period following the stock sale by Gould, March, 1925, during which there was control of the Debtor by other roads. As to deliberate lessening of revenue, this must largely have occurred through diversion, which has been dealt with here-inbefore and not sustained. As to total operating expenses, there is, apparently, no serious departure from the years before this period — either positively or in relation to operating revenue. Maintenance of way and structures, an important item of operating expenses, has been separately examined hereinbefore. But entirely aside from what the figures and facts may show as constituting material evidence to sustain the conclusions of the Commission, the raw fact is that there resulted no ultimate detriment to Debtor from failure to establish this sinking fund even if it could have been established out of earnings — which it could not have. The maturing bonds were refunded under circumstances and upon conditions not harmful to Debtor. At this place we will deal with three matters: conspiracy, anti-trust action and lease by Pacific. Conspiracy. The basis of Mr. Meyer’s position in this entire controversy is a series of conspiracies by those successively in stock control of Debtor to its detriment. That there were opportunities, through these controls, for some or all of such conspiracies seems evident. The Commission, in its report, devoted much consideration to this subject. It concluded, correctly we think, that the existence of such conspiracies was material in this reorganization proceeding only as the effect thereof bore upon the earnings and assets of Debtor. If the net earnings were reduced thereby or if a recovery of damages resulting from illegal conspiracies — anti-trust damages — such matters would affect the valuation for reorganization capitalization purposes. Mr. Meyer has endeavored to show the actual harmful effects through diversion of traffic and the other respects which we have heretofore considered. The Commission found against Mr. Meyer in all of these matters and we have determined hereinbefore that there was material evidence to sustain such findings. Anti-Trust Action. As to statutory damages from claimed violation of the Clayton Act, 38 Stat. 730, and, possibly, the Sherman Anti-Trust Act, 49 U.S.C.A. §§ 1-7, 15 note, the Commission stated that “Any such cause of action might prove to be a valuable asset affecting permissible capitalization, and perhaps the distribution of reorganization securities.” The Commission then examined the evidence, as well as its own previous proceedings in other matters, to ascertain whether, as matter of law, there seemed any basis for a cause of action under the anti-trust law and concluded there was no substantial basis in the evidence upon which to found such an action. How thoroughly the Commission examined this and related contentions of Mr. Meyer may be surmised from the situation that, out of about 140 pages (as printed in this record) which it devoted to discussion of the contentions of all of the parties, approximately one-half had to do with these matters. The balance of the other half was devoted to other con-tentíons of Mr. Meyer except about ten pages. The United States has, by leave, filed a brief as amicus curia bearing upon this Anti-Trust action issue and counsel were heard orally. The concern of counsel is as “to the proper construction of the federal statutes forbidding restraints of trade and monopolization of interstate commerce.” The contentions of the Government are stated as follows: “The reorganization plan submitted by the Commission and approved by the district court involved an implicit assumption that the control of the debtor by the Kansas City Southern’Railway was not unlawful. The United States contends that such control was clearly unlawful, under the applicable provisions of the antitrust laws. If such control was unlawful, then the plan of reorganization submitted by the Commission and approved by the district court is imfair and unequitable in failing to recognize that the debtor had a valuable cause of action for triple damages under the antitrust laws which it was prevented from bringing during its subsequent control by Southern Pacific. Assuming the existence of such a cause of action against Kansas City Southern which was known to Southern Pacific, the latter’s refusal to permit the debtor to realize upon it, because inaction better served the interests of Southern Pacific, was a breach of trust which Southern Pacific is bound to account for in this reorganization proceeding. Such a breach, of trust should result in the subordination of Southern Pacific’s claims to those of the minority stockholders injured by Southern Pacific’s wrongful conduct. Taylor v. Standard Gas Co., 1939, 306 U.S. 307, 322, 59 S.Ct. 543, 83 L.Ed. 669; Pepper v. Litton, 308 U.S. 295, 306 (1939) ; In re American Fuel & Power Co., 6 Cir., 1941, 122 F.2d 223. “The Commission apparently decided that, because it did not find the existence of any ‘conspiracy,’ there was no cause of action which in the reorganization plan should be reserved and vested in a trustee for the purpose of bringing suit. “The United States contends that'upon a correct construction of the anti-trust laws the control of debtor by Kansas City Southern was illegal per se. No ‘conspiracy,’ wrongful intent, or specific frauds, irregularities, misconduct or mismanagement, was a condition precedent to the existence of debtor’s cause of action against Kansas City Southern. ‘The mere fact of control in and of itself gave rise to a cause of action. “By failing to construe the antitrust laws correctly, and by failing to give effect in the reorganization plan to the consequences of the violations of those statutes, the Commission in effect approved the wrongful control of debtor by Kansas City Southern, even though the Commission has stated that it regards the question of whether this control violated the antitrust laws as an undecided question which need not be determined in this proceeding. However, it has, in effect, determined the question by approving a plan of reorganization which may not be regarded as fair and equitable if this control was illegal. » * * * * * “The Commission, and the trustee in his reports to the district court, in concluding that the debtor had no cause of action against the Kansas City Southern, impliedly assume that the acquisition of control of one road by a competing road for the express purpose of eliminating competition between them may be legal, even though approval of such control by the Interstate Commerce Commission is never obtained. “The serious consequences to the United States arising from the acceptance of such an unsound interpretation of the anti-trust laws is obvious. Such an erroneous construction would seriously impair the activities of the Government in its program of law enforcement in the transportation field. “The question of the legality of Kansas City Southern’s control has thus escaped decision so far by the Commission and has apparently not been expressly considered by the Trustee. We believe that its illegality is apparent and was apparent to the Southern Pacific at the time it assumed control of the debtor. Such a conclusion is obvious on the basis of itndisputed facts which were of record in prior Commission and judicial proceedings. But a determination of the question is essential to a correct decision on the reorganization plan. • ****» “The debtor’s management, while under Southern Pacific control, had ample time to bring suit under Section 4 of the Clayton Act [15 U.S.C.A. § 15] against the Kansas City Southern, et al., for the damages sustained as a result of its control of the debtor in violation of the antitrust laws. As this illegal control did not terminate until April 15, 1929, suit could have been successfully filed at any time up to April 15, 1934, approximately four years after Southern Pacific first obtained control of the debtor with full knowledge of the cause of action against Kansas City Southern. It is unnecessary to speculate here about the amount of the damages which might have been recovered but there is no dispute that the debtor’s average annual net railway-operating income for the three years 1927 to 1929, inclusive, was about $900,000 a year less than it had been for the preceding three-year period, from 1924 to 1926. The prima facie treble damages which the debtor was entitled to recover were thus considerable, especially in view of the fact that during the same two periods, the average net railway operating income for the Kansas City Southern was about $550,000 a year more for the latter three-year period than it was for the former. “No suit having been brought, it is admittedly impossible to determine at this time the precise extent of the damages which it might have recovered, but this difficulty is solely the result of the Southern Pacific’s refusal to let the proof be made in a law suit when the debtor was entitled to bring one. The damage to the debtor is now irrevocable except insofar as Southern Pacific may be held responsible for it in this proceeding, as the inaction of Southern Pacific has permitted those primarily liable to escape liability through the running of the statute of limitations. “The loss of earnings sustained by the debtor during the period of its illegal control by Kansas City Southern started it on the road to this reorganization several years before the depression which affected all roads began. The manner in which the control of the debtor was passed back and forth for speculative purposes without regard to the interests of the public or minority security holders was a wrong against the public for which a time of reckoning has now arrived. If respect is to be maintained for the antitrust laws in the railroad field, such conduct cannot have the express or implied approval of the Commission or the courts, and this Court should sound a warning to those who may be tempted to repeat such procedure by holding that such conduct is clearly illegal.” The practical effect of this position is that the Government thinks an antitrust action against the Southern for treble damages was maintainable but, through inaction of the Pacific such action has become barred by limitation and, therefore, the Pacific should be penalized by subordination of its claims to those of the minority stockholders of Debtor injured by Pacific’s wrongful conduct. In some respects, this last hour appearance of the Government is extraordinary. If it deemed the Southern had violated the Anti-Trust Acts why did it not prosecute therefor? Why did it wait until this reorganization was on appeal to this Court before it appeared to protect the minority stockholders rather than earlier to prosecute? Such appearance smacks of inspiration. However this may be, it should be examined if there is merit in its position. This position is not approved. If the Pacific destroyed, by preventing an Anti-Trust action against the Southern and others, there would be a breach of its duty to the Debtor and an action would lie to recover damages therefor. But without probability that such cause of action existed made to appear in this reorganization proceeding there would be no basis for its entrance into such proceeding. If such should be made to appear, the proper procedure would be to have such action placed in a trustee with proper provisions as to responsibility for expense and as to disposition of any recovery. With recovery and amount thereof uncertain, there is no proper basis for subordinating the Pacific claims to stockholders who may never recover and if they do, where amount of recovery is entirely uncertain. Faced with this situation, the Commission did the only thing it could do in this reorganization proceeding. It examined the evidence to ascertain the probability of existence of such cause of action. This examination was painstaking and thorough and it determined adversely. We have tested that determination by the evidence before the Commission and find there is material evidence to support the Commission. Lease by Pacific. Mr. Meyer urges that, after Pacific acquired control, it should have leased Debt- or’s lines. The evidence is that operation under a proper lease would have resulted in material saving to Debtor and a definite increase in earnings through making Debt- or’s line an integral part of the Pacific system. It is quite conceivable that such lease might have been advantageous both to Debtor and to Pacific. There existed, however, certain practical considerations which entered