Wolf v. Roosevelt

Lehman, Ch. J. In October, 1935, the United States District Court for the Southern District of New York approved and confirmed a plan of reorganization of 59th Street & Fifth Avenue Corporation in reorganization proceedings brought under section 77-B of the Bankruptcy Act (See U. S. Code, tit. 11, § 207) in which the corporation was the debtor. The plan so approved provided that the debtor corporation should transfer its property to Sherneth Corporation, that all the capital stock of Sher *402 neth Corporation be deposited under a voting trust agreement and that the voting trust certificates be distributed among those entitled thereto under the reorganization plan. The plan was carried out. The voting trust agreement was executed on May 19,1936, but dated January 2,1936. It provided that it was made for a term of ten years beginning January 2, 1936, and ending January 2,1946, unless terminated sooner by unanimous vote of the voting trustees. The voting trust was, it is undisputed, valid at the time it was made. The term for which it is made has not expired and it has not been terminated by vote of the trustees. The plaintiff, a stockholder, challenges the present validity of the voting trust agreement solely on the ground that after this agreement was made the Legislature in section 130-c of the Real Property Law (L. 1936, ch. 900, effective June 8, 1936) provided that “ No agreement appointing trustees to vote the stock of any corporation formed or used under a plan of reorganization of property shall be valid, for a longer term then five years and unless it has been submitted to and approved by the court * * The primary question here presented is whether the Legislature intended that the statute should apply to voting trust agreements valid when made for a term longer than five years. ■ The defendants claim that the Legislature did not intend that the statute should impair the obligation created by existing agreements and that under the Constitution of the United States could not do so, especially where the agreement was made pursuant to a plan approved by a Court of Bankruptcy in bankruptcy proceedings. We may not consider or determine the scope of the limitations placed by the Constitution upon" the legislative power to nullify in whole or in part existing voting trust agreements unless we determine first that the Legislature intended to exercise such power. Even within the narrow • field where legislative power to nullify or change an existing agreement is unchallenged, a statute restricting the power of individuals to create or define their rights and obligations should not be construed in manner which would affect existing agreements unless the Legislature so provided in express terms or by plain implication. The Legislature has not so provided in section 130-c of the Real Property Law. It seems plain that the condition, imposed by *403 the Legislature to voting trust agreements,— that they shall not be valid unless “ approved by the court,” could not be applied to contracts made at a time when no such approval Vas required by law unless it was the intent of the Legislature to terminate all existing voting trust agreements. Even the plaintiff does not contend that the Legislature so intended, nor does the plaintiff contend that the Legislature intended that agreements valid when made for a term of more than five years should be invalid when five years of the stipulated term had passed. The plaintiff contends only that the Legislature intended that by force of the statute voting trust agreements should become invalid when five years had passed after the statute became effective. The Legislature certainly did not say that. The language of the statute is at least inept if the Legislature intended that it should retroactively restrict the power of stockholders to enter into voting trust agreements. The Legislature has not decreed that in the future voting trust agreements shall not be valid. It has attempted in the statute only to restrict the power of holders of securities to make such agreements in manner intended to safeguard them against dangers inherent at times in such agreements*. In the future holders of securities have the choice of entering into voting trust agreements, subject to such restrictions, for a limited time or of refraining entirely from entering into any voting trust agreement. If the statute is intended to apply to agreements already made those who entered into the agreement would be bound by limitations to which they did not agree, although they might never have consented to the plan of reorganization or the voting trust agreement if the agreement had been limited to five years from June, 1936. The judgment should be affirmed, with costs.