Court Opinion

ID: 9841902
Source: CourtListenerOpinion
Date Created: 2023-09-22 20:10:31.726203+00
Date Added: 2024-06-11T09:06:05.013869
License: Public Domain

*511Dissenting opinion by Mr. Justice Lubton,
in which concur
The Chief Justice, Mr. Justice Holmes and Mr. Justice Van Devanter.
I find myself unable to agree with the opinion of the court. The consequences which may result from the decision to the numerous reorganizations of railroad companies which occurred about the time of this reorganization or since, are, to my mind, alarming. Arrangements and agreements in advance of judicial sales between creditors interested for the commop benefit are the usual incidents of foreclosures, and if fairly and openly entered into and approved by the court are not subject to criticism.
Nor do X agree that every plan of reorganization which in any way includes stockholders of the reorganized company is for tlyat reason alone to be regarded as an illegal withholding from creditors of corporate property which should go to thé payment, of corporate debts. That corporate property inust be applied to corporate debts before shareholders can participate, is plain. But I think every case should stand upon its own facts, and the remedy be shaped to do justice and equity in the particular case, and not tried out by any hard and fast rule such as indicated when this court says that the invalidity of a judicial sale must turn upon the character of the reorganization: agreement and is not affected by actual. consequences to creditors. ' y
Here is a single creditor who comes forward many years after a judicial sale under a general creditors bill and a mortgage foreclosure bill which had been pending several years, and asserts the fight to ignore the judicial sale and the title resulting and asks to'have the property of the old company subjected to his non-lien claim, not because of any actual fraud in the sale, nor because he can show that he has in any way suffered a loss by reason of the plan of reorganization under which the sale was conducted, but *512solely and simply because the shareholders of the debtor company are said to have participated in some way in the benefits of the sale. I think this goes too far and that there is no just foundation for upsetting a judicial sale upon the complaint of an unsecured creditor of the debtor company in the absence of proof of fraud in the decree. The cases supporting this view which I venture to say should control this case are cited in the ' opinion of the court. It is not a case of the transfer by stockholders of one company to themselves as stockholders of another, The railroad company was hopelessly insolvent. Its annual deficit was about five million dollars. Its general creditors, represented by the general creditors’ bill, and its mortgage creditors, represented in the mortgage foreclosure proceeding, were endeavoring to prevent a disintegration and to bring the property to sale. The stockholders, represented by the company, were resisting. The receivership had already lasted for several years and the .situation was growing steadily worse. The lien creditors, to save themselves, devised a plan for the sale and purchase of the property by a new company which should assume their claims, so far as possible, and put the new company in shape to meet its . obligations. A large sum of actual money was necessary, and also the consent of the stockholders, to bring about a speedy sale. This money might he. in part procured by the sale of the bonds of the new company; but if fixed charges were to be reduced, and the; deficit of the old company turned into a surplus, the bonded debt and interest must be reduced. Therefore it was that most .of this necessary money must come from the sale of stock. That was not a hopeful outlook. The value of this new stock was obviously speculative. The very basis of the plan to receive any large sum upon stock sales, was believed to depend upon making a market among the stockholders of the old company. This was the motive that led to the proposal that they should exchange their *513shares for those in the new company, paying the price stated. This actually, produced about eleven of the twenty-five million dollars deemed essential to any arrangement which would save to the bondholders any large part of their debt. The price fixed turned out to be little below what the stock actually sold for on the open market for the year following the operation of the property by the purchasers. The subscription price to the . shareholders, as the situation then appeared, was deemed fair, full and just by the very court which had approved the plan and decreed the sale, as is shown by the opinion of Judge Jenkins in the Paton Case, 85 Fed. Rep. 838.
It is true that Boyd was not a party to that- suit. But it was a bill, filed after the decree and before the sale, attacking the reorganization plan upon the precise grounds here advanced, and is highly persuasive as to the good faith of the plan and the fairness of the subscription price.
The upset price of sixty-one million dollars was fixed by the court, — probably as large as could be expected at the sale. As observed by this court in Louisville Trust Co. v. Louisville &c. Ry., 174 U. S. 674, 683, “railroad mortgages, or trust deeds, are ordinarily so large, in amount that on foreclosure thereof only the mortgagees, or their representatives, can be considered as probable purchasers.” Hence it was that the upset price must be fixed at such a sum as was reasonably within the range of any bidding which the property might be started at by the only probable bidders. The case last cited goes to the very verge of the law, but in that case the denunciation of such a plan of reorganization goes no farther than to condemn any arrangement by which the subordinate rights of stockholders are saved at the expense of creditors. That was not done here. The sale price was about eighty million dollars less than the lien claims entitled to be paid before creditors of the class to which Boyd belongs. Many of his class were actual parties to the consolidated cause in which the reorganiza*514tion plan was approved and the salé decreed. They might have sought a larger upsét price, but did not. They might have objected to the plan upon the grounds now brought forward, but they did not. They consented to the decree. They were doubtless hopeless of any sale price which .could by any possibility save them, and therefore they stood aside. Technically Boyd was not a party, though under the order of the court every creditor was by publication, all along the line of the railroad, and in many States, notified to come in or be barred from-participation in the proceeds. He had actual knowledge of the pending of the foreclosure proceedings, and yét took no steps to assert his rights. I do- not find from the facts of this case any such diligence in his litigation against the real debtor company,- — the Cœur D’Alene, and the determination of his claim to ownership of the judgment against that company in the name of Spalding as to excuse the long delay in the assertion of his rights against the railroad company or its successor, and it is not explained why he did not intervene and set up his contingent claim before the sale, or, at least, after the sale, many years before he did. I think he waited too long, and that no court of equity should upset a judicial sale after such unreasonable delay. What was said by this court in Alsop v. Riker, 155 U. S. 448, 459, 461, applies with great force to this case:
“The record discloses no element of fraud or concealment upon the part of the trustees or of any of them. What they did was done openly and was known or might have been known by the exercise of the slightest diligence upon the part of every one interested in the, property of. the old corporation. The plaintiff unquestionably knew, or could easily have ascertained, before the trustees bought the property at the foreclosure sale, — at any rate, before they transferred it to the new corporation, — that their purchase would be, and was, exclusively for the-benefit of certificate holders interested in the trust. *515Although his bonds had not then matured, he could have taken steps to prevent any transfer of the property that would impair his equitable rights in it or instituted proper judicial proceedings, of which all would be required to take notice, to have his interest in the property adjudicated. He allowed the trust to be wound up, and postponed any appeal to a court of equity based upon an illegal breach of trust, by the trustees, until six out of the seven original trustee's had died.”
In Foster v. Mansfield &c. Rd., 146 U. S. 88, 99, 100, it was said:
“If a person be ignorant of his interest in a certain transaction, no negligence is imputable to him for failing to inform himself, of his rights; but if he is aware of his interest, and knows that proceedings are pending the result of which may be prejudicial to such interests, he is bound to look into such proceedings so far as to see that no action is taken to his detriment.”
Boyd had actual knowledge. If he had sought to intervene, I have no doubt he would have been permitted to do so. He chose to do nothing, and now asks a court of equity, after the purchaser has been for more than a decade in undisturbed possession and ownership, to declare the judicial «ale invalid as against him. The case is without merit, and the bill should have been dismissed.
The Chief Justice, Mr. Justice Holmes and Mr. Justice Van Devanter concur in this dissent.