Court Opinion

ID: 5328530
Source: CourtListenerOpinion
Date Created: 2022-01-08 05:03:50.906926+00
Date Added: 2024-06-11T08:29:25.008449
License: Public Domain

Finch, P. J. (dissenting).
The question involved in this appeal -is whether a committee representing approximately twelve per cent of the bondholders should be allowed to intervene in an action brought by the corporate trustee to foreclose the trust mortgage under which the bonds were issued.
Intervention should not be permitted for the following reasons:
By the terms of the trust indenture under which the bonds in question were issued, it is expressly provided that every right of action, whether at law or in equity, is vested exclusively in the trustee. There is no claim upon the part of the petitioning bondholders for leave to intervene that the trustee is in any way delinquent in the performance of its duties as trustee, or that there is any bad faith on the part of the trustee, or that the interests of the bondholders will not be properly asserted through the trustee. The ground upon which leave to intervene is sought is that the default under the mortgage was brought about by certain stockholders in the expectation that upon a reorganization the stockholders would get the property back with the mortgage debt reduced. It is sought to litigate the relative merits of rival plans of reorganization to the end that the court should forbid the sale of the property to the highest bidder if the latter should advocate a plan of reorganization deemed by the court to be unfair.
All the foregoing matters are outside the scope of an action in foreclosure, which in this State is controlled by specific statutory provisions. Among these is the express requirement that the sale be made to the highest bidder (Civ. Prac. Act, § 986). The trustee *378may not, in the absence of any claim of fraud upon its part, be deprived of the statutory right to have the property sold to the highest bidder and thus the maximum sum obtained for the bondholders.
Great reliance is placed by respondents upon the case of Louisville Trust Co. v. Louisville, etc., Railway (174 U. S. 674), which it is claimed revolutionized the rules as to intervention in foreclosure actions and authorizes the relief granted in the case at bar. In that case, however, it Was charged that the plaintiff trustee was a party to a fraudulent scheme for defeating claims of unsecured creditors, to which end the foreclosure action was instituted. That case, therefore, worked no change in the established rule in cases where bondholders seek to intervene in foreclosure suits for the purpose of opposing a proposed plan of reorganization. This rule is clearly stated in Palmer v. Bankers’ Trust Co. (12 F. [2d] 747), as follows: “ One familiar class of cases in which intervention is frequently denied is corporate mortgage foreclosure cases. The general rule in such cases is that the trustee, being a party to the suit, represents all the bondholders, and that the latter will not be permitted to intervene unless a showing is made that the trustee is not unexceptionable; for example, that the trustee has or is repre- ' senting a financial interest in the litigation opposed to that of the bondholders, that the trustee is conspiring with someone to bring about unfair results, and that the trustee is guilty of fraud or is not acting in good faith.”
In the absence of any claim of fraud against the trustee in the case at bar, the contractual rights of the parties under the trust deed or mortgage are controlling. These, as before noted, vest in the trustee the exclusive right to maintain the action in foreclosure. (Batchelder v. Council Grove Water Co., 131 N. Y. 42; Greene v. New York United Hotels, Inc., 236 App. Div. 647.)
If bondholders deem themselves aggrieved by a particular plan of reorganization, full relief may be obtained in an action in equity brought directly for that purpose.
To permit the injection of such collateral issues in a foreclosure action where the right to a decree is not in issue, would directly violate clearly defined contractual rights, would complicate and delay the progress of the foreclosure action to an extent impossible to measure, and in addition possibly burden the property with greatly increased charges and expenses.
The order appealed from should be reversed and the motion denied.
Order so far as appealed from affirmed, with twenty dollars costs and disbursements to the intervening petitioners, respondents, against the appellant.