Court Opinion

ID: 6886995
Source: CourtListenerOpinion
Date Created: 2022-07-23 21:31:06.609683+00
Date Added: 2024-06-11T16:05:44.413204
License: Public Domain

DENMAN, Circuit Judge
(dissenting).
It is immaterial, so far as concerns the establishing of a dangerous and wrongful precedent, that the contention of the illegality of the plan is raised here by but a small percentage of the creditors.
“The fact that the vast majority of security holders may have approved a plan is not the test of whether that plan satisfies the statutory standard. The former is not a substitute for the latter. They are independent. See Case v. Los Angeles Lumber Products Co., supra, 308 U.S. [106], pages 114-115, 60 S.Ct. [1], 6, 7, 84 L.Ed. 110.” American United Mut. Life Ins. Co. v. Avon Park, 311 U.S. 138, 148, 61 S.Ct. 157, 163, 85 L.Ed. 91, 136 A.L.R. 860.
A. What the majority hold is that the debtor district, with 75 percent of the creditors, may be empowered to modify at any time within 37 years a plan affecting 25 percent of the creditors, without the district court retaining the power to determine whether the proposal of the 75 percent is fair and equitable and non-discriminatory to the 25 percent. The district court not only does not purport to retain such power, but it delegates the exercise of a power to make finally binding the modified plan of the debtor district and 75 percent of the creditors, without making any criterion for the modification,1 much less that it shall be that the modification is fair and equitable to the 25 percent of the creditors and shall not discriminate unfairly between them and other creditors of the same class. 11 U.S.C.A. § 403(e).
To me it seems to make a farce of the provisions for the fair and equitable and non-discriminatory finding by the district court, created under the Constitution as the bankruptcy tribunal, to delegate to the debtor, 75 percent of the bondholders and *555two state political bodies2 — the bondholders in election meeting and the California Districts Securities Commission — the power to modify the plan, and to modify it without any requirement that the modification shall have the required fairness, etc., necessary for the adoption of the plan.
To summarize, § 403(e) itself confines the court’s power to amend to proposals made “before a plan is confirmed,” and which have the fairness, equity and lack of discrimination required by the statute. The Act also limits all jurisdiction of the bankruptcy court to a period prior to June 30, 1946, 56 Stat. 377, 11 U.S.C.A. § 404. Here, in defiance of the statute, this and the district court (1) give to state political bodies bankruptcy powers to amend the plan (2) after confirmation (3) without the statutory requirement for fairness, etc., and (4) long after 1946, when no federal jurisdiction exists even to initiate such bankruptcy relief.
B. The delegation of modifying power is discriminatory on its face and violates § 403(e) of the Act3 The bonds and warrants are of the same class of debts.3
4 Nevertheless, the debtor may procure a further reduction of the plan’s reduced debt of the 25 percent of the bondholders and leave the debt of the warrant holders at the amount fixed by the plan; and the reverse. It is expressly provided that in the subsequent modification “No consent of the holders of said bonds shall be required to any amendment which affects only the warrants subject to the Warrant Retirement Plan and no consent of the holders of said warrants shall be required to any amendment which affects only the bonds subject to the Plan of 1932.”
Could it be imagined that the district court would be upheld if that court found as non-discriminatory a plan under which some of the debtors of the same class received a smaller percentage of its debt than others of that class? Yet, the majority hold that what the district court may not do, it may expressly authorize the debtor, 75 percent of the bondholders and two state political bodies to do to 25 percent of the bondholders.
*556C. The delegation of power to the modifying group is unfair and inequitable on its face. Since the modification is to be initiated by the debtor district, it is obvious that no modification will be sought which increases its indebtedness. Yet, though in the course of the 37 years of the expanding empire of California the district may become enormously prosperous and able to pay a much larger share of its indebtedness, no provision is made in favor of the creditors whereby they may initiate a proceeding for any increase in payment of their debt. I am unable to see anything more unfair and inequitable in the debtor-creditor relationship than to forecast their future relation only with reference to the benefit of the debtor.
Nor can I concur in the majority’s apparent reliance on the statement that the plan would have lacked the consent of the bondholders if the 75 percent and the district had not been given this control of the 25 percent. The demand for such control of one group over another, without the intervention of a judicial tribunal, seems to suggest unfairness rather than the warrant for our approval of the plan.
I dissent from the holding of the majority opinion with respect to these fundamentals that “We see no occasion for frittering away that power by analyzing the details of a complicated plan and holding that some of the details are inconsistent with the statute because not expressly provided for therein.”
Each so-called “detail” presented by appéllants here should have received the judicial consideration 'of the court with reference to the specific provisions of the Act which appellants claim to have been violated.
The decree approving the plan should be reversed¡

 “Section II. Amendments: The Plan of 1932 and said Warrant Retirement Plan and this Modification thereof, as set forth in this Resolution, may be amended, modified or altered at any time or from time to time hereafter, whether before or after the date on which this Modification may become operative, in the manner herein provided. The District, by resolution of its board of directors, may propose any such amendment, modification or alteration and shall submit the same to the electors of the District at a special election to be called and held for that purpose. Such election may be called or held as now or may hereafter be approved by law, or, in the absence of any express provision of law, may be called and held in substantially the same manner as provided by law for the holding of an election for the issuance of bonds of the District, except that only a majority vote of the electors need be required and except that the proposition to be submitted at such election shall be whether or not such amendment, modification or alteration shall be adopted. Such amendment, modification or alteration shall be subject to the approval of the California Districts Securities Commission or its successor in office at the time and (a) if such amendment, modification or alteration of the Plan of 1932 as modified by this Modification, the holders or owners of 75% in principal amount of the refunding bonds then outstanding, or (b) if such amendment, modification or alteration affects the Warrant Retirement Plan as modified by this Modification, the holders or owners of 75% in principal amount of warrants. No consent of the holders of said bonds shall be required to any amendment which affects only the warrants subject to the Warrant Retirement Plan and no consent of the holders of said warrants shall be required to any amendment which affects only the bonds subject to the Plan of 1932. The assent of the holders or owners of such refunding bonds or warrants shall be evidenced in writing in such manner as may be prescribed by the District or as may be required by law. Such amendment, modification or alteration effected in the manner aforesaid shall be binding upon the holders and owners of all of the then issued and outstanding securities affected thereby.”

 It is not necessary to discuss the question whether Congress has the power to delegate such bankruptcy powers to state tribunals. Congress has not done so, and it is beyond the jurisdiction of the courts so to create such power.

 “Confirmation of plan ; modifications; appeal
“(e) At the conclusion of the hearing, the judge shall make written findings of fact and bis conclusions of law thereon, and shall enter an interlocutory decree confirming the plan if satisfied that (1) it is fair, equitable, and for the best interests of the creditors and does not discriminate unfairly in favor of any creditor or class of creditors; (2) complies with the provisions of this chapter; (3) has been accepted and approved as required by the provisions of subdivision (d) of this section; (4) all amounts to be paid by the petitioner for services or expenses incident to the composition have been fully disclosed and are reasonable; (5) the offer of the plan and its acceptance are in good faith; and (6) the petitioner is authorized by law to take all action necessary to be taken by it to carry out the plan. If not so satisfied, the judge shall enter an order dismissing the proceeding.
“Before a plan is confirmed, changes and modifications may be made therein, with the approval of the judge after hearing upon such notice to creditors as the judge may direct, subject to the right of any creditor who shall previously have accepted the plan to withdraw his acceptance, within a period to be fixed by the judge and after such notice as the judge may direct, if, in the opinion of the judge, the change or modification will be materially adverse to the interest of such creditor, and if any creditor having such right of withdrawal shall not withdraw within such period, he shall be deemed to have-accepted the plan as changed or modified: Provided, 'however, That the plan as changed or modified shall comply with all the provisions of this chapter and shall have been accepted in writing by the petitioner. Either party may appeal from the interlocutory decree as in equity cases. In case said interlocutory decree shall prescribe a time within which any action is to be taken, the running of such time shall be suspended in case of an appeal until final determination thereof. In case said decree is affirmed, the judge may grant such time as he may deem proper for the taking of such action.”

 Finding LXIX is “That all of the claims and securities affected by the Plan of Composition, including said bonds not heretofore deposited in accordance with the provisions of said Plan and Agreement of 1932, and including said refunding bonds and including the deposited and the non-deposited registered warrants, are payable from assessments levied .against the lands within the Imperial Irrigation District, and that all of said claims are of a single .class.” (Emphasis supplied.)