Court Opinion

ID: 8801163
Source: CourtListenerOpinion
Date Created: 2022-11-26 14:32:53.781094+00
Date Added: 2024-06-11T17:03:54.497464
License: Public Domain

LEARNED HAND, District Judge
(after stating the facts as above). [1, 2] It was of course within the power of the referee not to Confirm the sale of August 31, 1916, and his refusal to do so in view of the larger possibilities of the situation was not only proper, but in justice necessary. The course he took, however, involved a situation which is at least anomalous in cases of this kind. He provided that any stockholders’ committee might bid the amount of the indebtedness of the corporation and of the expenses of administration and *493might receive a deed for the property from the trustees. Now under such an order two stockholders’ committees might each bid the amount of the indebtedness and expenses, and the referee would find it impossible to award the property to either one without scrutinizing the terms of the reorganization upon which stockholders were to be admitted. The result of such a situation would inevitably force into the reorganization which the court thought best all those stockholders who had attempted to go into the others, and all others who had not entered any committees. As there was no provision by which any committee could bid a sum greater than the amount of the indebtedness and expenses, the stockholders who did not enter the successful reorganization would be excluded from any interest whatever in the property. Yet it might be that the property had a substantial value above the indebtedness and expenses which would appear in a competitive cash bidding. If so, each stockholder would be entitled upon dissolution of,the corporation to his share of that surplus, which he might prefer to the rights he might get under the reorganization agreement. It must be remembered that as against a part only of the stockholders represented by a stockholders’ committee the corporate entity may not be disregarded. It is only when all the stockholders are represented in the purchasing combination that their interests are identical with the corporation’s, and that identity in the case at bar can be effected only by the short cut of saying that the opportunity of entering the successful reorganization is equivalent to a choice to do so. Stockholders have property rights which may not be dealt with in this way.
It was of course proper, since there had already been one sale, for the referee to provide that no stockholders’ committee should be allowed to bid except upon the condition that all the indebtedness and administration expenses should be paid, and that if there were no such bid, the sale of August 31, 1916, should be confirmed, but it seems to me that the order was incomplete in failing to provide that the sale should be competitive, and that the property should go to that committee which bid the highest figure. It could have been provided, as in the case of purchase by bondholders, that such a percentage of'the surplus as went to stockholders assenting to the successful reorganization might be paid by a m'ere credit' upon their certificates of stock, but the sale should be permitted only in case there be a form of bidding which will insure to dissenting stockholders any value in cash which the property might bring. Then the court has nothing to say as to the terms of the reorganization agreement; it becomes a voluntary association among the stockholders, checked by the possible value which another set might pay in competition against them. But if the court is to compel all stockholders to enter a given reorganization which it may choose, it must charge itself with the duty'of scrutinizing each agreement to see whether those terms are fairer than the possible cash value which might arise through their competition. This the court ought not to undertake.
[3] Now in fact there was only one bid accompanied by the necessary cash, and I think that the deficiencies in the order should be overlooked in view of that fact, since the referee has certified not only the *494order, but what took place under the order on November 20 and 21, 1916. In short, if all parties had adequate notice, and only one appeared ready to conform to the necessary condition of any successful bid whatever, it would seem a barren thing to require the bidding to be made again: To do so, one must say either that there had not been fair opportunity for bids, or that the form of order, so far as„ erroneous, had discouraged bidding. There is no reason to suppose the latter.
As a practical matter the question therefore seems to me to turn upon the actual notice which the unsuccessful bidders had or might have had of those conditions which they were bound to meet. The only bidder on the 20th of November, 1916, besides the successful bid, was the Central Trust Company committee, who had begun to receive stock under a reorganization committee as early as September 25, 1911, and certainly knew the amount of the incumbrances upon the property. The attorney for this committee did not suggest, at the hearings on November 20th or 21st, that he had insufficient notice of the necessity of producing the cash to pay the indebtedness, but only asked for further time. Indeed, he said that he supposed when he came that no bid would be considered without cash. Nor did the attorney for the Madison Real Property & Security Company, Mr. Bien, make any such suggestion. The whole matter had been before this court on September 1, 1916, when Judge Augustus N. Hand gave further time to the stockholders to combine for the protection of the property. That was nearly three months before final action was taken, and meanwhile there had been much agitation of the possibilities of redemption. I cannot think that justice requires any further delay, or that a third offer should be made of this property for sale. The referee should therefore accept the bid of the North American Liquidation Company, as the only one which conformed with the necessary conditions for any sale.
[4] In spite, therefore, of the irregularity of the order of November 6, 1916, it will be affirmed. It is true that the order directing Sykes as purchaser in foreclosure to accept the redemption and assign the sheriff’s certificate is beyond the powers of this court; but Sykes does not cotnplain of it, and that provision will not, therefore, be disturbed.
[5] So far as concerns the release of the stockholders from liability, it is proper, though hardly necessary, since that liability can in no event be available when all the debts have been paid. Even if it included mortgage debts, it would be extinguished. Nor will that provision be modified which directs the payments to bondholders to be indirect.
The proceedings will be referred back to the referee to accept the bid of the North American Liquidation Company and to execute the order of November 6, 1916, in accordance with its terms.