Central Trust Co. v. Peoria, D. & E. Ry. Co.

BAKER, Circuit Judge. November 18, 1899, a decree was entered foreclosing a first mortgage and ordering a sale of the Peoria, Decatur & Evansville Railroad. After publishing notice as directed, the master sold the road on February 6, 1900, to Adrian H. Joline for $1,586,000. February 12, 1900, the master filed his report of sale. April 21, 1900, appellant filed objections to confirmation, substantially as follows: Appellant, not a party to the foreclosure suit, but a stockholder in the railroad company, on behalf of himself and all other stockholders who might desire to take the benefit of his objections, charged that the purchase was made by Joline under an agreement between the Central Trust Company, trustee in the first mortgage, and the Colonial Trust Company, owner of a large amount of second mortgage bonds of the railroad company, whereby the Colonial Company, after paying the first mortgage bonds, was to be permitted to reorganize upon the plan proposed by the Colonial Company, which contemplated that the Colonial Company should procure to be issued upon the faith of the reorganized property first mortgage bonds and preferred stock involving the annual payment of interest and dividends of not more than $190,000, and the issue of common stock of the reorganized company to the‘extent of $3,000,000, par value, and the disposition of the first mortgage bonds and of the preferred stock in such manner as the Colonial Company should see fit, and the issue of so much of the common stock as should be re [31] quired for the purpose to those second mortgage bondholders who had sold their, bonds to the Colonial Company for 50 per cent, of the face value of the principal thereof, payable in the common stock of the reorganized company, and the division of the remainder of the common stock among the Colonial Company and other assenting second mortgage bondholders in the proportion of three parts to .the .Colonial Company and one part, distributively to the assenting second mortgage bondholders; that this proposed reorganization excluded from participation therein all stockholders and all other creditors of the existing railroad company; that the plan was a collusive agreement between the trustee of the first mortgage bonds and the Colonial Company to acquire for the sole benefit of the Colonial Company and the assenting second mortgage bondholders the property of the Peoria, Decatur & Evansville Railroad Company; and that the method by which the reorganization was to be accomplished was a fraud upon the rights of the railroad company and its several creditors who were not parties thereto, and upon the stockholders, for these reasons: (1) The decree of foreclosure and sale was needlessly brought about through collusion of the Central Company and the Colonial Company, by procuring to be applied to the unnecessary improvement of the road all money earned by the receiver and not required for the ordinary or for the reasonable maintenance and repair of the property, whereby money properly payable on account of the interest on the first mortgage bonds, the payment of which would have prevented the entry of the foreclosure decree, was applied by the receiver to the betterment of the security. (2) The Central Company, represented by Joline, agreed with the Colonial Company, represented by its solicitor, David Willcox, that the purchase of the property by Joline should actually be for the benefit of the Colonial Company, whereby any competition between purchasers at the sale was prevented and a diminished amount realized for the property. And the Central Company advanced to Joline the money necessary to make the deposit with, the master required by the decree as an advance upon his bid. (3) A large majority of the first mortgage bondholders were represented by a committee of holders who had entered into a written contract with the Central Company for depositing with that company first mortgage bond's, second mortgage bonds, and stock of the railroad company under a plan of reorganization known as the “First Mortgage Committee’s Plan.” Under this plan the benefit of the reorganization was offered to the first mortgage bondholders, the second mortgage bondholders, and the stockholders of the present company; and no creditor of the company interposed any objection thereto. The Central Company continued to receive deposits of securities under this plan up to and including the 22d day of January, 1900. The sole representative of the Central Company at the sale was Joline, and it was his duty to use his best endeavors to acquire the property for the purpose of reorganization under the first mortgage committee’s plan, which preserved the interests of all classes of security holders who were willing to join therein. In pursuance of the agreement hereinbefore referred to, Joline bid for the purpose of enabling the Colonial Company to [32] reorganize Under its own plan as hereinabove set forth, and the so-called first mortgage committee’s plan was suffered to be, and was, a cloak for the design to purchase the property for the benefit of the Colonial Company, and was calculated to deceive and mislead, and did deceive and mislead, other security holders of the railroad company. This appeal is from an order overruling appellant’s objections and confirming the sale. The first ground relates to the validity of the decree. The question cannot be raised on objections to the sale. Appellant probably realized this when on January 30, 1900, he filed his intervening petition, in which he sought to open up the decree and to be let in to defend. For reasons stated in Central Trust Co. v. Peoria & D. E. Ry. Co., 43 C. C. A. 613, 104 Fed. 418, his petition was stricken from the files. In his second' and third grounds, appellant fails to exhibit any valid objection to the confirmation of the sale. If Joline bought for the Colonial Company, instead of for the Central Company, how was appellant harmed? He does not shoyv how much less was realized at the sale than would have been if Joline had bid on behalf of the Central Company, nor the value of the property, nor that les's- than the full value was bid, nor that, after payment of the first mortgage, any surplus would be left for the second mortgage bondholders and other creditors, to say nothing of the stockholders, nor that there is any probability of a better bid at another sale, nor that-he was ignorant of or misled by the action of the Central Company, nor that he applied for a postponement of the sale to enable him' to get the stockholders together to protect their interests at the sale. Appellant does not even allege that he accepted the offer in the written contract between the Central Company and the first mortgage bondholders whereby the stockholders were- to be included in a reorganization plan. But if he had alleged and proven the fact, it might show a cause of action against the Central Company and the first mortgage bondholders for damages, but certainly it would furnish no reason why the circuit court should retake the property and sell it again, as the court would be compelled to do, under a decree that is unassailable by appellant. The order is affirmed.