Court Opinion

ID: 9637171
Source: CourtListenerOpinion
Date Created: 2023-08-22 14:59:45.199509+00
Date Added: 2024-06-11T18:09:54.158914
License: Public Domain

AUGUSTUS N. HAND, Circuit Judge
(dissenting).
Upon reconsideration of this case on the petition for rehearing, I have become *530convinced that we seriously erred in our original decision. I can see no reason to suppose that the Guaranty Trust Company was guilty of a breach of any fiduciary relation which it assumed under the trust indenture.
In Article Four, Section 22, dealing with “Remedies on Default,” the trust indenture provided that in the event of any of the defaults enumerated “ * * * the Trustees may, and upon the written request of the holders of at least twenty-five per cent in principal amount of the notes then outstanding, shall, declare the principal of all the notes then outstanding to be due and payable immediately, and upon any such declaration the same shall become and be due and payable immediately, anything in this indenture or in the notes contained to the contrary notwithstanding.” In Article Seven, Section 33, the indenture provided that: “The Trustee shall not be answerable for * * * anything whatever in connection with this trust except for its own wilful misconduct”; also that: “Anyone holding the office of Trustee hereunder may from time to time purchase, acquire, hold, own and deal in any of the notes and may assert its rights in respect thereof in the same manner as any other noteholder hereunder. The Trustee or any company in which it or its stockholders may be interested or affiliated, or any officer or director of the Trustee or of any such company, may acquire and hold any of the notes and coupons, or may engage in or be interested in any financial or other transaction with the Company or any corporation -in which the Company may be interested * *
Under the foregoing provisions there was no duty on the, part of the trustee to declare or to procure a default, even though it might hold an adverse interest, as a creditor of the debtor, to some of the noteholders. The indenture gave the trustee the right to become a creditor. To procure a general liquidation by declaring a default would have been in the interest of no one connected with the enterprise, for all of the noteholders would have been likely to obtain less for their claims than by proceeding with the-50% plan offered by the debtor at the instigation of the trustee.. It is doubtless true that the trustee could not refrain from exercising any right it had to declare a default in order to secure an advantage to itself at the expense of the noteholders. But I think there is no reason to suppose that it did refrain for any such reason. If it had not promoted the making of the 50% offer to the noteholders and had allowed matters to drift and the debtor to continue to purchase the notes at 50 cents on the dollar or less, as it was doing, the lending banks, of which the trustee was one, would have received some $7,500,000 of cash from Vaness instead of the relatively trifling( sum which came to them out of the balance of moneys arising from the failure of the non-assenting noteholders to accept the offer. That it arranged to have the 50% offer made and thus sought to protect the interests of the noteholders showed its honest purpose. It seems impossible to suppose that a plan which yielded the banks only $106,000, and that because the non-assenting noteholders declined to accept it, was entered into in order that the banks should make money at the expense of any of the noteholders. I can see no duty to declare a default merely because the trustee, as a lender, had an interest in not having a default declared. The trust instrument gave the trustee the right to become such a lender and yet explicitly made the exercise of the power to declare a default permissive and discretionary. The Guaranty Trust Company was acting for the noteholders as a whole and if liquidation rather than acceptance of the plan would injure all of them, I can see no obligation to liquidate to the injury of the majority merely because some noteholders failed to accept when acceptance was to their advantage as well as to that of all the other noteholders and the lending banks. I do not think that a disclosure of the loans which the trustee was permitted to make under the trust indenture was either necessary or relevant to the only problem the non-accepting noteholders had which was whether or not to accept an offer that the debtor correctly advised them was to their advantage. To justify the plaintiff’s claim on the merits we must regard the promotion of the 50% offer, the trustee’s procurement of an extension of time to accept it beyond the original acceptance date, and the acceptance of the offer by 96% of the noteholders, as insufficient to show good faith on the part of the trustee. I think these factors negative any inference that the failure of the trustee to give explicit information as to the probability of serious loss to non-acceptors was in the hope that noteholders would re*531fuse to accept and thus bring some advantage to the lending banks.
But aside from any question as to the merits of plaintiff’s claim, 1 see no sufficient reason for not holding it barred by the New York statute of limitations, under which claims like the one sued on here would be barred if not asserted within ten years after they had accrued. Since the rule, announced in Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188, 114 A.L.R. 1487, and Ruhlin v. New York Life Insurance Co., 304 U.S. 202, 58 S.Ct. 860, 82 L.Ed. 1290, became law, I think the situation is most rare, when we should disregard the local statute of limitations because the proceeding is equitable. This seems implicit in the decision in Russell v. Todd, 309 U.S. 280, 60 S.Ct. 527, 84 L. Ed. 754, and while, because of the footnote to the opinion found at page 288 oí 309 U.S., at page 531 of 60 S.Ct., it seems probable that equitable claims may be asserted in extreme situations even if the local statute of limitations has expired, I cannot believe that the present is such an occasion. Any fault here lay in the omission of the trustee to warn the plaintiff of the loss she would incur if she failed to accept the debtor’s offer. That I regard as at most an act of negligence which was something far different from a deliberate concealment in order to prevent the non-accepting noteholders from bring- . ing suit. The plaintiff here must have known she had suffered a loss which she would not have suffered if she .had accepted the offer. She also was bound to know that the trustee had a right to have an interest either as a noteholder or lender in the assets of the debtor and its subsidiaries. Yet she took no steps to discover and assert any rights she had for more than ten years. In such circumstances I can see no reason for extending any indulgence to the plaintiff beyond the period of the New York statute of limitations. In my opinion it would be a mischievous practice to disregard state statutes of limitation whenever federal courts think that the result oí adopting them may be inequitable. Such procedure would promote the choice of United States rather than of state courts in order to gain the advantage of different laws. The main foundation for the criticism of Swift v. Tyson was that a litigant in cases where federal jurisdiction is based only on diverse citizenship may obtain a more favorable decision by suing in the United States courts. The exercise of a wide discretion as to whether to apply the state statutes of limitation would tend to promote the assertion of moral superiority on the part of the federal courts since they would be setting up rules of limitation which they would regard as more equitable than those of the state courts in situations where neither Congress nor the Federal Rules of Civil Procedure have prescribed limitations of their own. Moreover, any such practice will give rise to a new and difficult class of cases in which the United States courts in dealing with equitable claims will have to determine whether the rule to be applied is one of substantive law or of remedial rights.
In view of the foregoing I think we should hold that the plaintiff’s claim is not established on the merits and that in any event it is barred by the New York ten year statute of limitations. Accordingly the judgment of the court below should, in my opinion, be affirmed.