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Justia › US Law › US Case Law › US Supreme Court › Volume 406 › Caplin v. Marine Midland Grace Trust Co.
Petitioner, the trustee of Webb & Knapp, Inc., under Chapter X of the Bankruptcy Act, does not have standing to assert, on behalf of holder of debentures issued by Webb & Knapp, claims of misconduct by an indenture trustee. Pp. 406 U. S. 417-435.
MARSHALL, J., delivered the opinion of the Court, in which BURGER, C.J., and STEWART, POWELL, and REHNQUIST, JJ., joined. DOUGLAS, J., filed a dissenting opinion, in which BRENNAN, WHITE, and BLACKMUN, JJ., joined, post, p. 406 U. S. 435.
of New York held that petitioner lacked the requisite standing, and the United States Court of Appeals for the Second Circuit affirmed en banc, with two judges dissenting, 439 F.2d 118 (1971). [Footnote 1] We granted certiorari, 404 U.S. 982 (1971), and we now affirm the decision of the Court of Appeals.
"any indebtedness resulting from money borrowed or from the purchase of real property or interests in real property . . . or purchase any real property or interests in real property"
"in case of default . . . to exercise such of the rights and powers vested in it by [the] Indenture, and to use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. [Footnote 5]"
on May 10, 1965. [Footnote 8] Marine's petition was subsequently approved and petitioner was appointed trustee in reorganization on May 18, 1965.
Having obtained the approval of the District Court, petitioner filed an independent action on behalf of the debenture holders against Marine seeking to recover the principal amount of the outstanding debentures as damages for Marine's alleged bad faith failure to compel compliance with the terms of the indenture by Webb & Knapp. Petitioner also filed a counterclaim in the same amount against Marine in the reorganization proceeding in which Marine had previously filed a claim for services rendered. In the reorganization proceeding, petitioner also filed an objection to the claim for services rendered, on the ground that, even if petitioner could not obtain an affirmative recovery against Marine on behalf of the bondholders, he could at least raise Marine's improper conduct as a reason why the claim for services rendered should be denied. [Footnote 11] Finally, petitioner moved to compel an accounting by Marine.
claim on behalf of the debenture holders, the District Court denied that motion also. Only petitioner's objection to the claim for services rendered was left standing. [Footnote 12] Petitioner appealed the dismissal of his claims and the denial of his motion for an accounting to the Court of Appeals. Marine filed a cross-appeal from the denial of its motion to strike petitioner's objection to the claim for services rendered. The Court of Appeals affirmed the decision of the District Court in its entirety.
The issue is a difficult one, and, as we point out later, it is one that is capable of resolution by explicit congressional action. Lacking a specific legislative statement on this issue, we must resolve it as best we can by examining the nature of Chapter X proceedings, the role of the trustee in reorganization, and the way in which standing to sue on behalf of debenture holders would affect or change that role.
Chapter X, enacted in 1938, stemmed from a comprehensive SEC study that disclosed widespread abuses under the then-existing provisions for business reorganizations. See Securities and Exchange Commission, Report on the Study and Investigation of the Work, Activities, Personnel and Functions of Protective and Reorganization Committees (1937-1940). This same study gave birth the following year to the Trust Indenture Act of 1939, 53 Stat. 1149, 15 U.S.C. § 77aaa et seq., which is discussed infra.
In enacting Chapter X, Congress had protection of public investors primarily in mind. SEC v. American Trailer Rentals Co., 379 U. S. 594 (1965).
"The aims of Chapter . . . were to afford greater protection to creditors and stockholders by providing greater judicial control over the entire proceedings and impartial and expert administrative assistance in corporate reorganizations through appointment of a disinterested trustee and the active participation of the SEC."
contradistinction to a bankruptcy proceeding where liquidation of a corporation and distribution of its assets is the goal, a Chapter X proceeding is for purposes of rehabilitating the corporation and reorganizing lt. Ibid. Chapter X proceedings are not limited to insolvent corporations, but are open to those corporations that are solvent in the bankruptcy (asset-liability) sense but are unable to meet their obligations as they mature. United States v. Key, 397 U. S. 322, 397 U. S. 329 (1970); 11 U.S.C. § 530(1).
"The trustee upon his appointment and qualification -- "
"(1) shall, if the judge shall so direct, forthwith investigate the acts, conduct, property, liabilities, and financial condition of the debtor, the operation of its business and the desirability of the continuance thereof, and any other matter relevant to the proceeding or to the formulation of a plan, and report thereon to the judge;"
"(2) may, if the judge shall so direct, examine the directors and officers of the debtor and any other witnesses concerning the foregoing matters or any of them;"
"(3) shall report to the judge any facts ascertained by him pertaining to fraud, misconduct, mismanagement and irregularities, and to any causes of action available to the estate;"
the desirability of the continuance thereof, in such form and manner as the judge may direct, to the creditors, stockholders, indenture trustees, the Securities and Exchange Commission, and such other persons as the judge may designate; and"
"(6) shall give notice to the creditors and stockholders that they may submit to him suggestions for the formulation of a plan, or proposals in the form of plans, within a time therein named."
"Where not inconsistent with the provisions of this chapter, a trustee, upon his appointment and qualification, shall be vested with the same rights, be subject to the same duties, and exercise the same powers as a trustee appointed under section 72 of this title, and, if authorized by the judge, shall have and may exercise such additional rights and powers as a receiver in equity would have if appointed by a court of the United States for the property of the debtor."
Petitioner argues that these powers are broad enough to encompass a suit on behalf of debenture holders against an indenture trustee who has acted in bad faith, and who has, therefore, violated the indenture and he Trust Indenture Act of 1939, 15 U.S.C. § 77aaa et seq.
As pointed out above, the Trust Indenture Act was passed one year after Chapter X was enacted. Prior to its enactment, indenture trustees immunized themselves from any liability for either deliberate or negligent misconduct by writing exculpatory provisions into the indenture. Even in cases where misconduct by the indenture trustee was the proximate cause of injury to debenture holders, they found themselves impotent under the terms of most indentures to take action against the trustee. See generally 2 L. Loss, Securities Regulation 719-725 (2d ed.1981). This problem and others are specifically mentioned in 15 U.S.C. § 77bbb as establishing a necessity for regulation.
"report to the judge any facts ascertained by him pertaining to fraud, misconduct, mismanagement and irregularities, and to any causes of action available to the estate."
"(A) individual action by . . . investors for the purpose of protecting and enforcing their rights is rendered impracticable by reason of the disproportionate expense of taking such action, and (B) concerted action by such investors in their common interest through representatives of their own selection is impeded by reason of the wide dispersion of such investors through many States, and by reason of the fact that information as to the names and addresses of such investors generally is not available to such investors. [Footnote 18] "
Finally, petitioner asserts that to give him standing to sue on behalf of debenture holders will not encourage vexatious litigation or unduly deplete the resources of the debtor that he has been appointed to reorganize. He supports the first half of this proposition by noting that any action he takes is subject to the supervision of the District Court and to intervention by the SEC. The second half of the proposition finds support in the argument discussed above that petitioner already has a duty of investigation and that the minimal additional burden of prosecuting a lawsuit will not be great.
At first blush, petitioner's theory, adopted in the opinion of the dissenters in the Court of Appeals, seems reasonable. But there are three problems with petitioner's argument, and these problems require that his position be rejected.
money the property of the estates for which [he is trustee]."
The only support petitioner finds in the relevant statutes is in that portion of 11 U.S.C. § 587 which gives reorganization trustees the additional rights that a "receiver in equity would have if appointed by a court of the United States for the property of the debtor." Petitioner relies on McCandless v. Furlaud, 296 U. S. 140 (1935), to support the proposition that a receiver in equity may sue third parties on behalf of bondholders. But the opinion of the Court by Mr. Justice Cardozo clearly emphasizes that the receiver in that case was suing on behalf of the corporation, not third parties; he was simply stating the same claim that the corporation could have made had it brought suit prior to entering receivership. [Footnote 19] The debtor corporation makes no such claim in this case. See generally 2 R. Clark, Law and Practice of Receivers § 362, at 619 (3d ed.1959).
petitioner's allegations of misconduct on the part of the indenture trustee are true, petitioner has, at most, described a situation where Webb & Knapp and Marine were in pari delicto. Whatever damage the debenture holders suffered, under petitioner's theory, Webb & Knapp is as much at fault as Marine, if not more so. A question would arise, therefore, whether Marine would be entitled to be subrogated to the claims of the debenture holders. The Court of Appeals thought that subrogation would be required, 439 F.2d at 122.
"It is necessary in the first instance to consider what effect a recovery by the Chapter X Trustee would have on the reorganization. On a superficial view, this might seem substantial -- if, for example, the Chapter X Trustee were to achieve a complete recovery, the debenture holders would be paid off and it might seem there would be that much more for the other creditors and the stockholders. But this pleasant prospect speedily evaporates when the law of subrogation is brought into play. As a result of subrogation, Marine would simply be substituted for the debenture holders as the claimant. Cf. ALI, Restatement of Security § 141 (1941). If the Chapter X Trustee recovered judgment in a lesser amount, the claim of the debenture holders would still be provable in full, with the division of the proceeds between them and Marine dependent upon the results of the reorganization, and other creditors or stockholders would not be affected."
"Each creditor, including the debenture holders, can prove the full amount of his claim, and only to the extent that a debenture holder fails to satisfy it from the bankruptcy estate will he suffer a loss which he can assert against the defendant through its failure to enforce the negative covenants."
In other words, debenture holders will not be able to recover damages from the indenture trustee until the reorganization is far enough along so that a reasonable approximation can be made as to the extent of their losses, if any. It is difficult to see precisely why it is at that point that the trustee in reorganization should represent the interests of the debenture holders, who are capable of deciding for themselves whether or not it is worthwhile to seek to recoup whatever losses they may have suffered by an action against the indenture trustee. Petitioner appears to concede that any suit by debenture holders would not affect the interests of other parties to the reorganization, assuming that the Court of Appeals is correct on the subrogation point. It would seem, therefore, that the debenture holders, the persons truly affected by the suit against Marine, should make their own assessment of the respective advantages and disadvantages not only of litigation, but of various theories of litigation.
holders upon request. Debenture holders would also be able to take advantage of any information obtained by the trustee in reorganization as a result of the investigation which the statute requires that he make. In addition, petitioner himself maintains that counsel fees would be recoverable if the action was successful. Brief for Petitioner 20; cf. 15 U.S.C. § 7nnn.
Thus, there is no showing whatever that, by giving petitioner standing to sue on behalf of the debenture holders, we would reduce litigation. On the contrary, there is every indication that litigation would be increased, or at least complicated.
For the reasons discussed above we conclude that petitioner does not have standing to sue an indenture trustee on behalf of debenture holders. This does not mean that it would be unwise to confer such standing on trustees in reorganization. It simply signifies that Congress has not yet indicated even a scintilla of an intention to do so, and that such a policy decision must be left to Congress, and not to the Judiciary.
arise in the context of litigation. Whatever the decision, it is one that only Congress can make.
The District Court delivered three separate opinions in this case. They are unreported, but are included in the appendix prepared by the parties at 58a-70a. The Court of Appeals heard the case en banc after a panel of three judges determined that it was inclined to overrule the case on which the District Court had placed almost exclusive reliance. 439 F.2d 118.
Those companies in the affiliated group include any corporation that was entitled to be included in a consolidated tax return of Webb & Knapp. See 26 U.S.C. § 1502. Section 1.1 of the Indenture gave Webb & Knapp authority to consider other companies as affiliates if it chose to do so.
Indenture of June 1, 1954, Webb & Knapp, Inc., to the Marine Midland Trust Company of New York § 3.6 (hereinafter referred to as Indenture).
Indenture § 10.1(a). This was also a statutory duty. See 15 U.S.C. § 77000.
Webb & Knapp showed a loss for tax purposes each year, although the company did show a gain on its books for 1961 attributable to a write-up of property owned by a wholly owned subsidiary of a company in which Webb & Knapp held 50% of the stock.
The SEC has supported petitioner throughout this litigation. The agency is "an unnamed respondent before this Court." See Protective Committee v. Anderson, 390 U. S. 414, 390 U. S. 420 n. 3 (1968). When referring to arguments made by petitioner, this opinion assumes, unless otherwise stated, that the SEC has made the same arguments.
The difference between this amount and the amount of the debentures originally issued represents the amount of the principal that Webb & Knapp had repaid.
These are merely allegation of petitioner, not findings of the lower courts. Because the District Court and the Court of Appeals held that petitioner had no standing, they had no occasion to consider the validity of the allegations.
In its capacity as indenture trustee, Marine also filed a claim on behalf of all the debenture holders for the unpaid principal on the debentures.
This objection differs from the other claims in one respect: i.e., it is an attempt to preserve the remaining assets of the debtor for all creditors other than Marine, whereas the other claims represent an attempt by the petitioner to increase the assets of the debtor for the benefit of a specific class of creditors, the debenture holders. Although Marine appealed the ruling of the District Court denying its motion to strike the objection, it did not seek review here of the decision of the Court of Appeals affirming the District Court on this issue. This issue is, therefore, not before us, and we offer no opinion on the propriety of the lower courts' ruling.
Petitioner and the two dissenting judges in the Court of Appeals argue that the issue was presented in Prudence-Bonds Corp. v. State Street Trust Co., 202 F.2d 555 (CA2), cert. denied, 346 U.S. 835 (1953), and that the decision of the court in that case by Judge Learned Hand overruled Clarke v. Chase National Bank, 137 F.2d 797 (CA2 1943), sub silentio. They also argue that the issue was presented and decided contrary to Clarke in In re Solar Manufacturing Corp., 200 F.2d 327 (CA3 1952), cert. denied sub nom. Marine Midland Trust Co. v. McGirl, 345 U.S. 940 (1953). But the majority of the Court of Appeals found these cases to be distinguishable, and Marine urges that the majority was correct. We do not intend to become enmeshed in this controversy, and merely indicate its existence.
"(a) The trustee of the estate of a bankrupt and his successor or successors, if any, upon his or their appointment and qualification, shall in turn be vested by operation of law with the title of the bankrupt as of the date of the filing of the petition initiating a proceeding under this title . . . to all of the following kinds of property wherever located (1) documents relating to his property; (2) interests in patents, patent rights, copyrights, and trade-marks, and in applications therefor . . . (3) powers which he might have exercised for his own benefit, but not those which he might have exercised solely for some other person; (4) property transferred by him in fraud of his creditors; (5) property, including rights of action, which prior to the filing of the petition he could by any means have transferred or which might have been levied upon and sold under judicial process against him, or otherwise seized, impounded, or sequestered . . . (6) rights of action arising upon contracts, or usury, or the unlawful taking or detention of or injury to his property; (7) contingent remainders, executory devises and limitations, rights of entry for condition broken, rights or possibilities of reverter, and like interests in real property, which were nonassignable prior to bankruptcy and which, within six months thereafter, become assignable interests or estates or give rise to powers in the bankrupt to acquire assignable interests or estates; and (8) property held by an assignee for the benefit of creditors appointed under an assignment which constituted an act of bankruptcy, which property shall, for the purposes of this title, be deemed to be held by the assignee as the agent of the bankrupt and shall be subject to the summary jurisdiction of the court."
The SEC is given general supervisory powers over indentures in various sections of the Trust Indenture Act. See, e.g., 15 U.S.C. §§ 77ddd(c), (d), (e); 77eee(a), (c); 77ggg; 77sss; 77ttt; 77uuu. In addition, 15 U.S.C. § 77hhh provides that the SEC may order consolidation of reports or certificates filed under the Trust Indenture Act with information or documents filed under the Securities Act of 1933, 48 Stat. 74, 15 U.S.C. § 77a et seq., and the Securities Exchange Act of 1934, 48 Stat. 881, 15 U.S.C. § 78a et seq., the Public Utility Holding Company Act of 1935, 49 Stat. 838, 15 U.S.C.§ 79 et seq.
The provisions of the indenture discussed previously comply with the requirements of 15 U.S.C. § 77ooo. While the indenture trustee is not permitted by the statute to exculpate himself from liability for noncompliance with the indenture, the indenture trustee may rely in good faith on certificates or reports filed pursuant to the indenture and in compliance with the provisions thereof.
We assume, arguendo, that violation of 15 U.S.C. § 77ooo would give rise to a cause of action against an indenture trustee by debenture holders. If there is a cause of action, 15 U.S.C. § 77vvv would seem to give federal courts jurisdiction. The Court of Appeals inferred that such suits would be proper, 439 F.2d at 123 n. 5, but did not decide the point. Since we conclude that, even if such suits may be brought, petitioner lacks standing to bring them, we do not decide the question.
It should be noted that the Trust Indenture Act of 1939 was enacted on August 3, 1939. The Federal Rules of Civil Procedure were not even one year old. They were adopted by this Court on December 20, 1937, and they became effective on September 16, 1938, 308 U.S. 647. The class action was a comparatively recent phenomenon with respect to damage actions, and it was not tremendously helpful in the early days. See, e.g., Moore, Federal Rules of Civil Procedure: Some Problems Raised by the Preliminary Draft, 25 Geo.L.J. 551, 570-576 (1937); Kalven & Rosenfield, The Contemporary Function of the Class Suit, 8 U.Chi.L.Rev. 684 (1941). It could not be said that the class action was an efficacious remedy in 1939.
This point is especially clear in light of the fact that the Court split 5-4 on whether Old Dominion Copper Co. v. Lewisohn, 210 U. S. 206 (1908) (Holmes, J.), was binding in McCandless v. Furlaud. The issue in the controversial Old Dominion case was whether a corporation had a cause of action against promoter-director-stockholders.
If petitioner could sue on behalf of Webb & Knapp, the statute that requires that he report possible causes of action to the court would require mention of this cause of action. Moreover, petitioner has brought every conceivable claim that is available to him as trustee. Not only has he brought this action against the indenture trustee, but he has also sued former officers of Webb & Knapp charging them with waste. Brief for SEC 5-6. Certain settlements have apparently been made in some of these other actions. Brief for Respondent 45 n. 18.
Three private actions have been brought by debenture holders against Marine, one in federal court and two in state court. See Brief for Petitioner 21 n. 9. These suits make the same claims made by the petitioner in the instant case, as well as others which he has not made, including alleged violations of the securities laws.
The trustee may well have interests that differ from those of the bondholders. For example, petitioner has sued not only Marine, but also the former officers of Webb & Knapp. See n 20, supra. In settling the suits brought against the officers, petitioner may well take positions that conflict with those he would take in a suit against Marine. The conflict may at times be unfavorable to the debenture holders. One answer obviously is that the District Court and the SEC can take action to prevent any such conflict from developing, e.g., by denying the trustee in reorganization the right to sue on behalf of debenture holders in selected cases. The problem with this answer is that the conflict may not appear until the suit is well under way. In such a case, the debenture holders might regret placing their confidence in the trustee.
Chapter X, 11 U.S.C. § 616(2), provides that a plan for reorganization "may deal with all or any part of the property of the debtor." It also provides that the plan "may include provisions for the settlement or adjustment of claims belonging to the debtor or to the estate." 11 U.S.C. § 616(13). Despite these provisions, petitioner urges, in effect, that he can settle a suit on behalf of bondholders without binding them to the settlement. Reply Brief for Petitioner 7. But, as pointed out in the text, supra, petitioner only has authority to pursue claims belonging to the estate. Petitioner is thus caught on the horns of a dilemma: either he is incorrect in asserting that the statutory definition of duties should be read so broadly as to allow a trustee in reorganization to treat claims by debenture holders against third parties as sufficiently related to the estate that the trustee may sue on behalf of the debenture holders, or he is correct, and § 616 would appear to permit him to bind the debenture holders to a settlement. Even if petitioner can have it both ways, his inability to bind the persons on whose behalf he sues undercuts the utility of his suing. Because the debenture holders could bring a class action and bind all members of the class, they can make a binding settlement and avoid lengthy and expensive litigation. Petitioner cannot make such a settlement. Moreover, if a reorganization trustee does settle a suit that he has brought on behalf of debenture holders, he may find that, rather than serving as their representative, he is forced to oppose their interests when they bring independent actions to recover more than the settlement figure. In this event, the reorganization trustee would be forced to justify his settlement, and he would theoretically join the indenture trustee in opposing the action of the debenture holders. He would find himself on both sides of the same transaction.
Again we assume, arguendo, that the Trust Indenture Act gives a right of action to debenture holders under these circumstances. Obviously, if the debenture holders themselves have no cause of action, their surrogate is in no better position.
MR. JUSTICE DOUGLAS, with whom MR. JUSTICE BRENNAN, MR. JUSTICE WHITE, and MR. JUSTICE BLACKMUN concur, dissenting.
"the [reorganization] trustee is required to assemble the salient facts necessary for a determination of the fairness and equity of a plan of reorganization."
H.R.Rep. No. 1409, 75th Cong., 1st Sess., 43.
The requirements of "fair and equitable," which the court must apply, entail the application of the absolute priority rule which we discussed at length in Case v. Los Angeles Lumber Co., 308 U. S. 106, and which was followed in Consolidated Rock Co. v. Du Bois, 312 U. S. 510. It not only gives creditors full priority over stockholders, but protects senior classes of creditors against the claim that "junior interests were improperly permitted to participate in a plan or were too liberally treated therein." 308 U.S. at 308 U. S. 118. Unsecured creditors need not be paid in cash as a condition of stockholders retaining an interest in the reorganized company, for they may be protected by the issuance "on equitable terms, of income bonds or preferred stock.'" Id. at 308 U. S. 117.
"If the creditors are adequately compensated for the loss of their prior claims, it is not material out of what assets they are paid. So long as they receive full compensatory treatment and so long as each group shares in the securities of the whole enterprise on an equitable basis, the requirements of 'fair and equitable' are satisfied."
312 U.S. at 312 U. S. 530.
The face amount of the debentures in litigation here was $4,298,200. The damages sought against the indenture trustee are in the same amount. If we assume, arguendo, that there is merit in the cause of action and that the indenture trustee is fully responsible, one entire class of security holders is eliminated from any necessary consideration in the plan. Or if there is only partial recovery, there is a pro rata change in the relative positions of the various classes of creditors. A plan cannot be designed without a final determination of the status of the debenture holders vis-a-vis the indenture trustee, or at least an informed judgment concerning the value of that claim.
steps, he will not be able to formulate a plan of reorganization for submission to the court.
There is with all respect, no merit in the argument that, if the reorganization trustee recovers against the indenture trustee on behalf of the debenture holders, the indenture trustee will be subrogated to the debenture holders, leaving the total claims affected by the plan wholly unchanged.
"Where property of one person is used in discharging an obligation owed by another or a lien upon the property of another, under such circumstances that the other would be unjustly enriched by the retention of the benefit thus conferred, the former is entitled to be subrogated to the position of the obligee or lien holder."
It is not imaginable that any court would ever hold that an indenture trustee, found culpably responsible for the default on debentures, would be subrogated with respect to funds which otherwise would go to innocent creditors or stockholders on the ground that paying money to them, rather than to it, would constitute unjust enrichment. A person "who invokes the doctrine of subrogation must come into court with clean hands." German Bank v. United States, 148 U. S. 573, 148 U. S. 581.
I agree with Judge Kaufman and Judge Hays, dissenting below, and would reverse this judgment.
"Where a trustee has been appointed the judge shall fix a time within which the trustee shall prepare and file a plan, or a report of his reasons why a plan cannot be effected, and shall fix a subsequent time for a hearing on such plan or report and for the consideration of any objections which may be made or of such amendments or plans as may be proposed by the debtor or by any creditor or stockholder."
"if, purposely or unintentionally, a single creditor was not paid or provided for in the reorganization, he could assert his superior rights against the subordinate interests of the old stockholders in the property transferred to the new company."
Id. at 228 U. S. 504. This principle came to be known as the "absolute priority rule." See Bonbright Bergerman, Two Rival Theories of Priority Rights of Security Holders in a Corporate Reorganization, 28 Col.L.Rev. 127 (1928). The rule was incorporated into equity receiverships. Kansas City Southern R. Co. v. Guardian Trust Co., 240 U. S. 166; Kansas City Terminal R. Co. v. Central Union Trust Co., 271 U. S. 445. Later, in Case v. Los Angeles Lumber Co., 308 U. S. 106, 308 U. S. 116, we held that the absolute priority rule was part of the gloss which the case law had placed upon the phrase "fair and equitable," language which had been used in § 77B(f)(1) of the newly enacted § 77B bankruptcy reorganization statute. 48 Stat. 919. We concluded that Congress had intended that the Boyd rule be carried forward. Consolidated Rock Co. v. Du Bois, 312 U. S. 510, 312 U. S. 527, reaffirmed this holding and further held that the requirement of absolute priority extended to cases where the debtor was solvent, as well as those where the debtor was insolvent. Later, we made clear that the Boyd requirement obtained under Chapter X. Marine Harbor Properties, Inc. v. Manufacturers Trust Co., 317 U. S. 78, 317 U. S. 85-87. As recent cases reflect, the absolute priority doctrine has been continued and is firmly entrenched in Chapter X law. E.g., Protective Committee v. Anderson, 390 U. S. 414, 390 U. S. 441; United States v. Key, 397 U. S. 322, 397 U. S. 327 (see also concurring opinion at 397 U. S. 333). The reach of that doctrine, however, has not been restricted to Chapter X proceedings but has also been applied to railroad reorganizations under § 77 of the Bankruptcy Act, Ecker v. Western Pacific R. Co., 318 U. S. 448, 318 U. S. 484; Group of Investors v. Milwaukee R. Co., 318 U. S. 523, 318 U. S. 535, 318 U. S. 571; Reconstruction Finance Corp. v. Denver & R. G. W. R. Co., 328 U. S. 495; to dissolutions under the Public Utility Holding Company Act of 1935, 49 Stat. 838, Otis & Co. v. SEC, 323 U. S. 624, 323 U. S. 634 (but see dissenting opinion concluding that the rule had not been faithfully followed, at 323 U. S. 648-649); SEC v. Central-Illinois Corp., 338 U. S. 96, 338 U. S. 130; to Chapter IX bankruptcy proceedings, Kelley v. Everglades District, 319 U. S. 415, 319 U. S. 420-421, n. 1; and to affirm a dismissal of a Chapter XI petition on the ground that a Chapter X reorganization would provide more protection for creditors than a Chapter XI arrangement, SEC v. U.S. Realty Co., 310 U. S. 434, 310 U. S. 452, 310 U. S. 456-458. And see General Stores Corp. v. Shlensky, 350 U. S. 462, 350 U. S. 466.
See Hearings on H.R. 8406 before a Subcommittee of the Senate Committee on the Judiciary, 75th Cong., 2d Sess., 126.
While the indenture trustee may rely on certificates or opinions concerning the truth of statements and the correctness of opinions "in the absence of bad faith" (15 U.S.C. § 77ooo(a)(1)), it is not exempt from liability "for its own negligent action, its own negligent failure to act, or its own willful misconduct" (15 U.S.C. § 77ooo(d)), save for errors in judgment made in good faith. Ibid.

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