Argument for Petitioners.

PALMER ET AL., TRUSTEES, v. MASSACHUSETTS.

CERTIORARI TO THE CIRCUIT COURT OF APPEALS FOR THE SECOND CIRCUIT.

No. 7. Argued October 11, 1939.-Decided November 6, 1939.

1. Creditors of a railroad, debtor in a reorganization proceeding under § 77 of the Bankruptcy Act, petitioned the District Court for an order directing the reorganization trustees to discontinue certain local transportation service. The trustees had previously applied to the state commission for authority to discontinue the same service, which application accorded with requirements of the state law and was then pending and being given orderly hearing and consideration. Held, the District Court was without power to order discontinuance of the service. P. 88.

2. In the light of the history of the legislation, such power in the District Court may not be implied from § 77 (a), granting to the bankruptcy court "exclusive jurisdiction of the debtor and its property wherever located," or § 77 (c) (2), permitting the trustees, subject to the control of the court, "to operate the business of the debtor." P. 85.

CERTIORARI, 306 U. S. 627, to review the reversal of an order of the District Court authorizing the trustees of a railroad in reorganization proceedings to discontinue certain local transportation service.

Mr. Edward R. Brumley, with whom Messrs. Fred N. Oliver, Willard P. Scott, Oscar M. Shaw, and R. Ammi Cutter were on the brief, for petitioners.

The bankruptcy court may direct its trustees to discontinue intrastate passenger service, irrespective of authorization by the state regulatory body normally having jurisdiction, in order to preserve and rehabilitate the property of an intèrstate railroad, and to make and effect a plan of reorganization. Continental Bank v. Rock Island Ry., 294 U. S. 648, 676. Bankruptcy Act, § 77 (a) (c) (1), § 2, § 77 (o) (f).

Argument for Respondent.

308 U.S.

When Congress occupies the field it precludes all inconsistent state regulation, unless specific reservations of state powers are made. Colorado v. United States, 271 U. S. 153, 162–166; Transit Commission v. United States, 284 U. S. 360; and see New York v. United States, 257 U. S. 360; American Brake Shoe & Foundry Co. v. I. R. T., 10 F. Supp. 512; affirmed, 76 F. 2d 1002, cert. denied, New York City v. Murray, 295 U. S. 760.

The power of an equity court to protect property in its custody, In re Tyler, 149 U. S. 164; Wabash Railroad v. Adelbert College, 208 U. S. 94, was recognized in cases under the Bankruptcy Act prior to the enactment of § 77. Murphy v. Hofman Co., 211 U. S. 562; Isaacs v. Hobbs Tie & T. Co., 282 U. S. 734. Compare Ex parte Baldwin, 291 U. S. 610; Continental Bank v. Rock Island Ry., 294 U. S. 648; Board of Directors St. Francis Levee Dist. v. Kurn, 91 F. 2d 118; 98 F. 2d 394; Crawford v. Duluth Street Ry. Co., 60 F. 212; Iowa v. Old Colony Trust Co., 215 F. 307.

The legislative history of § 77 shows its broad purpose to facilitate and expedite interstate railroad reorganizations. Congress conferred jurisdiction upon the court, free from state laws and state regulations that interfere with reorganization.

Section 75 of the Judicial Code is inapplicable. In re Denver & R. G. W. R. Co., 23 F. Supp. 298.

Mr. Edward O. Proctor, Assistant Attorney General of Massachusetts, with whom Mr. Paul A. Dever, Attorney General, was on the brief, for respondent.

A railroad can not abandon the public service which was the condition upon which its franchises were granted and still retain them.

Power to permit or deny abandonment of service on intrastate lines is reserved to the several States in the absence of federal legislation displacing that power. This

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Opinion of the Court.

power is customarily exercised by state regulatory commissions.

Earlier than § 77, no federal legislation displaced the states' power to permit or deny partial abandonment of service on lines retained by the railroads, although the Interstate Commerce Commission was empowered to authorize complete abandonment.

Section 77 manifests intent that the Interstate Commerce Commission rather than the bankruptcy court be the arbiter of conflicting interests of the railroad and the public, and that partial abandonment shall be authorized only as a part of the reorganization plan, with the Commission's approval.

Section 77 does not empower the court to oust state regulatory bodies from their jurisdiction to determine what services the railroad may abandon, pending confirmation of the reorganization plan.

By leave of Court, Mr. Vernon W. Marr filed a brief on behalf of the Town of Scituate, as amicus curiae, urging affirmance.

MR. JUSTICE FRANKFURTER delivered the opinion of the Court.

October 23, 1935, opened another chapter in the long history of the vicissitudes of the New York, New Haven and Hartford Railroad Company.' By filing a petition for reorganization under § 77 of the Bankruptcy Act (47 Stat. 1474, as amended by 49 Stat. 911 and 49 Stat. 1969,

'Brandeis, "Financial Condition of the New York, New Haven and Hartford Railroad Co." (1907); The New England Investigation, 27 I. C. C. 560 (1913); In re Financial Transactions of the New York, New Haven and Hartford Railroad Co., 31 I. C. C. 32 (1914); Report of the Joint New England Railroad Committee to the Governors of the New England States. (Storrow Report.) (1923.)

Opinion of the Court.

308 U.S.

11 U. S. C. § 205), the New Haven invoked the shelter of the United States District Court for the District of Connecticut. There it has since remained. An episode in this new chapter, already four years old, is presented by this case. We brought it here, 306 U. S. 627, because it raises important questions under the railroad bankruptcy law, particularly where it intersects the regulatory systems of the states. The District Court assumed power to supplant the relevant authority of the statean authority which, apart from proceedings under § 77, has not been conferred by Congress either upon the federal courts or the Interstate Commerce Commission. The Circuit Court of Appeals, one judge dissenting, reversed the District Court, Converse v. Massachusetts, · 101 F. 2d 48.

A summary of the facts will lay bare the legal issues. On December 28, 1937, the bankruptcy Trustees of the New Haven, acting under the requirements of Massachusetts law, applied to that Commonwealth's Department of Public Utilities for leave to abandon eighty-eight passenger stations. Twenty-one hearings were held by

'Mass. Gen. Laws (Ter. Ed.) c. 160, § 128, provides: "A railroad corporation which has established and maintained a passenger station throughout the year for five consecutive years at any point upon its railroad shall not abandon such station . . . nor substantially diminish the accommodation furnished by the stopping of trains thereat as compared with that furnished at other stations on the same railroad, except with the written approval of the department [of Public Utilities] after notice posted in and on said station for a period of thirty days immediately preceding a public hearing thereon."

See also Mass. Gen. Laws (Ter. Ed.) c. 159, § 16, vesting general control over intrastate railway services in the Department of Public Utilities.

'The application also sought permission to effect certain other curtailments of passenger service. Some of the stations were situated on the lines of the New Haven, most of them on the lines of the Old

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Opinion of the Court.

the Department on the questions raised by this application. During the pendency of these hearings and before the Department had taken any action, the present litigation was initiated in the New Haven bankruptcy proceedings by creditors of the debtor for an order directing the Trustees to abandon these local services. The Trustees joined in the prayer, while the Commonwealth denied the jurisdiction of the District Court and asked that the proceedings before the Department be allowed to reach fruition. The District Judge ruled that § 77 gave him the responsibility of disposing of the petition on its merits and, having taken evidence, gave the very relief for which the Trustees had applied to the Department and which was still in process of orderly consideration.

Plainly enough the District Court had no power to deal with a matter in the keeping of state authorities unless Congress gave it. And so we have one of those problems in the reading of a statute wherein meaning is sought to be derived not from specific language but by fashioning a mosaic of significance out of the innuendoes of disjointed bits of a statute. At best this is subtle business, calling for great wariness lest what professes to be mere rendering becomes creation and attempted interpretation of legislation becomes legislation itself. Especially is wariness enjoined when the problem of con

Colony Railroad, and some on the lines of the Boston and Providence Railroad.

The New Haven in 1893 leased for 99 years all the properties of the Old Colony, including the Boston and Providence lines which the Old Colony had leased for 99 years in 1888. On June 1, 1936, the New Haven Trustees disaffirmed, as they were empowered to do under § 77, the Old Colony lease. After the disaffirmance the New Haven operated the lines on account of the Old Colony. On June 3, 1936, the Old Colony itself commenced proceedings under § 77. The Trustees of the New Haven were then appointed trustees for the Old Colony.