Court Opinion

ID: 6879102
Source: CourtListenerOpinion
Date Created: 2022-07-23 21:12:00.920597+00
Date Added: 2024-06-11T16:05:33.091366
License: Public Domain

CLARK, Circuit Judge
(dissenting).
The appellant was permitted to intervene below; the facts of the controversy it presented were examined by the district judge; a decision on the merits was reached adverse to appellant’s contentions. Now my brothers would dismiss this appeal, deny that a right to intervene ever existed, and command that, if ever a decision is to be had, the dispute shall be relitigated in some other court.
Such a result seems to me not in the spirit of modern procedure, which aims to view matters in their entirety, and not by separate bits, and also to put an end to litigation as promptly and completely as possible. I venture to believe that the view of intervention here suggested is quite out of keeping with the spirit of the new intervention rule of the Federal Rules of Civil Procedure (Moore and Levi, Federal Intervention, 45 Yale L.J. 565, 47 Yale L.J. 898; 2 Moore’s Federal Practice, § 24.01 et seq.), and there seems no reason why the bankruptcy provision for intervention should be more narrowly construed (ibid.)1 For in a practical sense.the appellant Association here had a claim and (if its facts were true) a real grievance; its assertion was that the source of supply for the pensions for its members was being scuttled under a plan now judicially sponsored. Here where the program was being conceived and executed would seem a natural place to air the grievance. So the district court thought. It granted intervention and heard the case. Under Stoll v. Gottlieb, 305 U.S. 165, 59 S.Ct. 134, 83 L.Ed. 104, the decision Éelow settles the matter, certainly unless we interfere.2 Even on the surface and without going beyond the facts I have just recited, I do not believe we would be usurping power if we followed the example of Judge Coxe and considered the matter on the merits.
But I would go further and say that on analysis of the situation here presented, I believe sound reorganization practice directs us, if it does not compel us, to go that far. Perhaps the Commercial Cable Corporation is not fully bound by the court order to carry out the plan, though that is not an uncomplicated issue.3 But this is *923primarily a controversy between the appellant Association and the debtors herein. And there are issues between these parties which it is hard for me to believe are left 'undetermined by the approval of the plan.
First, the Association, in addition to being a creditor of Commercial, is, at least potentially, a creditor of the debtor Associated.4 And as such creditor, the Asso-' ciation should have the privilege to present its claim for the consideration of this court.
This conclusion rests upon appellant’s primary position as a creditor of Commercial. Associated is the sole stockholder of Commercial. The assets of Commercial are about to be withdrawn, in a manner that appellant contends will render Commercial insolvent. These assets are to be withdrawn by and for the direct or indirect benefit of Commercial’s stockholder, Associated. And when the withdrawal takes place, appellant, if correct in its arguments as to insolvency, will have a cause of action against Associated, as a stockholder withdrawing assets from an insolvent corporation.
Is it an answer to say that, although appellant may become a creditor of Associated in the future, it is not a creditor of Associated now, since the transfer has not yet taken place? If we refuse to hear appellant at this time, we will forever deprive it of any future opportunity to proceed, as a creditor of Associated, against the assets of Associated. Under § 226 of the Chandler Act, 11 U.S.C.A. § 626, “the property dealt with by the plan, when transferred by the trustee to the debtor or other corporation or corporations provided for by the plan, or when transferred by the debtor in possession to such other corporation or corporations, or when retained by the debt- or in possession, as the case may be, shall be free and clear of all claims and interests of the debtor, creditors, and stockholders, except such claims and interests as may otherwise be provided for in the plan or in the order confirming the plan or in the order directing or authorizing the transfer or retention of such property.” 5 A reading of this section makes it plain that the assets of Associated, and also the assets of Commercial, will pass to the new corporations free and clear of all claims of appellant, in so far as appellant is conceived of as a creditor of Associated. If appellant cannot make its claim now, it can never again contend to be a creditor of Associated.
The plan makes no provision for appellant; the order confirming the plan (in the very words of the Chandler Act, § 224(1), 11 U.S.C.A. § 624(1) 6 is made binding upon “all creditors of the Debtors, secured or unsecured, whether or not such creditors are affected by the Plan, as amended, or have accepted it or have filed proofs of their claims and whether or not their claims have been approved (if filed), and whether or not their claims have been scheduled or allowed or are allowable.” If appellant’s claim of insolvency is valid, making it an imminent creditor of Associated, it is difficult to see why appellant is not a party aggrieved by the order of confirmation, .entitled to intervene .and to prosecute this appeal.7
*924Second, even if it has no immediate standing as a creditor of Associated, appellant nevertheless should be held to have a presently mature right to be heard in this proceeding. No matter how scrupulously we observe the niceties of corporate entities, it cannot be gainsaid that Associated owns all the stock of Commercial and is about to vote that stock in favor of the allegedly fraudulent transfer. The plan, which contemplates the transfer, has been confirmed; the order of confirmation authorizes the debtors, including Associated, to “take all action necessary to carry out the Plan under all applicable State and Federal laws.” What further order or justification does Associated need to vote its Commercial stock? Appellant, even as a mere creditor of Commercial, is aggrieved by an order allowing Associated to vote its Commercial stock in favor of an allegedly fraudulent transfer. Appellant would have the right to enjoin this threatened transfer in any competent tribunal. If it sued to enjoin Commercial, perhaps the district court would have no jurisdiction to exercise compulsion upon Commercial in this action.8 But when appellant asks the reorganization court to prevent Associated from voting its Commercial stock, as Associated so clearly threatens to do, it would seem that that court possesses jurisdiction of the most complete sort. It is certainly in a position to command the debtor Associated to do whatever it wishfes the debtor to do.9 If the district court has granted Associated leave to vote its stock in favor of a fraudulent transfer which will, when completed, make this appellant a remediless creditor of Associated, then this appellant has sufficient standing to request that it examine his claim on the merits and determine whether a fraudulent conveyance will in truth occur, and standing, therefore, to request that we review the determination so made.
Third, appellant will also be entitled to pursue the assets of Commercial into the hands of the threatened transferees — the new corporations to be formed under the aegis of the reorganization court. If appellant is or will be entitled to any relief against the new corporations, it should be within the power of that court to grant that relief. It is no answer to say that jurisdiction is absent because we cannot also bind Commercial. It is not necessary to bind Commercial. We can bind Associated and we can bind the new corporations. We can also bind appellant to whatever ruling is made on the merits. The cause of action should not fail if Commercial, one of several parties, is beyond the jurisdiction of the court. Appellant will be entitled to injunctive relief against all or any one of the parties to the contemplated transfer, if we will give it a chance to prove and it does prove the transfer fraudulent.10
If jurisdiction exists, the convenience of settling the matter seems evident. The decree below, for better or worse, settled all matters and gave the new plan a chance to survive. Now we cast a shadow upon it. The result helps neither side, for it is in the interest of all to settle these problems. True, reorganization proceedings are most complicated. But we are not'making them less so by forcing into some other court litigation which practically must be settled before the plan can be put into unjeopardized execution. It seems to me far more cumbersome to separate this matter from the necessarily comprehensive reorganization proceedings and send it to some other court rather than to dispose of all matters in a single proceeding. The reorganization court must pass on the feasibility of the plan. Cf. Case v. Los Angeles Lumber Products Co., Ltd., 308 U.S. 106, 60 S.Ct. 1, 84 L.Ed. —, Nov. 6, 1939. To arrive at an intelligent decision on feasibility, the district judge must have weighed the issue whether a fraudulent conveyance was about to occur, and the likelihood of a suit in another court tying up the execution of the plan. And conversely, when appellant, as it is now ordered, proceeds to seek its remedy elsewhere, the court selected will be utterly unable to determine the exist*925ence of a fraudulent conveyance unless it probes deep into the involved corporate network now being reorganized here. The voluminous data this other court will need are already in evidence in our own reorganization litigation. In future proceedings subject to the Chandler Act, the reorganization court will have the great benefit in cases of this kind of a report on the plan by the Securities and Exchange Commission. Chandler Act, §§ 172-174, 11 U.S.C.A. §§ 572-574.11 Congress has thus pointed a way to making reorganization less complicated for the courts-; but we, I fear, are turning in another direction.
Although we are nominally limited to the 77B petitions of two holding companies located in the Southern District of New York, we should realize that, no matter how we restrict our jurisdiction, we are in fact about to place some sort of judicial approval — more or less — upon the financial reorganization of a world-wide communications enterprise, involving some forty-odd corporations and hundreds of millions of investors’ funds. When a creditor of one of the many subsidiary corporations comes to the district court for relief, it seems idle to answer that his particular subsidiary corporation has filed no petition under 77B. Whether or not the subsidiary is being reorganized under a 77B petition pending below, the subsidiary is being reorganized for all practical purposes. Those who are reorganizing it have filed petitions in the court and can be made answerable to the court for any wrongs they are threatening to do to appellant.
I appreciate that the task of adjudication is a difficult one for an appellate court in circumstances such as are here presented. To disapprove of a plan so extensively supported as this is may perhaps deprive a great business of its only chance of future survival. Perhaps, too, a going concern, like the cable lines here, must be expected to contribute from its strength to its weaker sisters when a new start is made. It is difficult, indeed, to determine the point at which overgenerosity begins. Personally I am happy to be relieved of the burden of judgment, even against my convictions, but I cannot believe avoidance of that responsibility is really open to us on this record. Perhaps the record is too meager to decide the point appellant wishes to make, though I am not clear what new evidence can be produced and the Association was ready to stand on the record made. But if too meager, the remedy is to send it back to be completed, not to dismiss the appeal. Actually the record is being used to reach a decision, to wit, that no threatened insolvency of Commercial is disclosed, but only for the purpose of disclaiming jurisdiction. I believe decision should be made for the purpose of finally settling the litigation. Accordingly I believe the appeal should be disposed of on the merits.

 The broad rule of the new Chandler Act, § 207, 11 U.S.C.A. § 607, permitting intervention generally or specially to a party “in interest” was in force at the time of the order below. See 2 Moore’s Federal Practice 2350-2365; Moore’s Bankruptcy Manual (1939) 554, 555; Teton, Reorganization Revised, 48 Tale L.J. 573, 592.

 The opinion herein suggests that the Stoll case will apply, if we decide the Question. Tet the question has already been decided by a court prepared to take that responsibility; we must now go so far as to say that course was error to prevent the Stoll case from governing.

 As stated in the opinion, Commercial is a preferred stockholder of the debtor Associated, which, in turn, owns all Commercial’s stock, and Commercial owes the debtor Postal roughly $23,000,000. Its stock holdings of Associated have a book value just short of $4,000,000; while substantially all its liabilities — except *923for small current liabilities for taxes and wages and reserves for depreciation— run in favor of the debtors, Postal and Associated. And if Commercial respects the plan, its whole setup will be changed, with, among other things, nearly $50,000,-000 of assets book value being eliminated.

 “Creditor” means the holder of any claim; “claims” include “all claims of whatever character against a debtor or its property, except stock, whether or not such claims are provable under section 63 [103] of this act [title] and whether secured or unsecured, liquidated or unliquidated, fixed or contingent.” Chapter X, § 106(1), (4), 11 U.S.C.A. § 506(1, 4). Compare 77B, sub. b(10), 11 U.S.C.A. § 207, sub. b(10). See Gerdes, Corporate Reorganizations, § 1044; Foust v. Munson S. S. Lines, 299 U.S. 77, 82, 57 S.Ct. 90, 81 L.Ed. 49. But cf. In re Prudence Bonds Corp., 2 Cir., 79 F.2d 212, 215, semble.

 This is apparently but a succinct statement of the scattered provisions of 77B, in subs, g and h, 11 U.S.C.A. § 207 subs, g, h.

 Compare 77B, sub. g, 11 U.S.C.A. § 207, sub. g. The provisions of the Chandler Act, Chapter X, apply to proceedings wherein the petition was approved more than three months before the statute’s effective date “to the extent that the judge shall deem their application practicable.” § 276, sub. e(2), 11 U.S.C.A. § 676, sub. c(2).

 Appellant’s claim should not he' prejudiced by reason of the fact that it was not in existence at the commencement of reorganization proceedings. Appellant’s position is fairly analogous to that of a claimant under a tort committed during the administration of the estate. Such a *924claimant would have a preferred charge on the assets of the debtor-. Gerdes, Corporate Reorganizations, § 1180. Cf. § 77, sub. n. of the Railroad Reorganization chapter, 11 U.S.C.A. § 205, sub. n.

 Unless and to the extent that Commercial may be bound by the decree herein. See note 3 supra.

 In fact, the reorganization court could enjoin the commencement of a suit against Associated in any other court. Chapter X, § 116(4), 11 U.S.C.A. § 516(4). See Foust v. Munson S. S. Lines, supra.

 Threatened injury is then imminent if it proves not that Commercial must make the transfer, but only that Commercial threatens to make it. That the most immediate threat exists is readily apparent

 Indeed, it would seem that the Commission could have been most helpful in reporting on this plan, so extensive and far-reaching in nature. But the plan was dated “as of” September 21, 1938, one day before the Chandler Act became effective, although the supporting contracts were dated September 29, 1938; and the judge declined to apply the Act in full to those proceedings, though appellant so requested and now appeals from the refusal.