In re Western Pac. R. Co., 9714.

• Decision Date: 16 February 1942
• Docket Number: No. 9714.,9714.
• Citation: 124 F.2d 136
• Parties: In re WESTERN PAC. R. CO. WESTERN PAC. R. CO. v. RECONSTRUCTION FINANCE CORPORATION et al., and four other cases.
• Court: U.S. Court of Appeals — Ninth Circuit

124 F.2d 136 (1941)

In re WESTERN PAC. R. CO. WESTERN PAC. R. CO. v. RECONSTRUCTION FINANCE CORPORATION et al., and four other cases.

No. 9714.

Circuit Court of Appeals, Ninth Circuit.

November 28, 1941.

On Petitions for Rehearing February 16, 1942.

Frank C. Nicodemus, Jr., and Pierce & Greer, all of New York City, and C. W. Dooling, of San Francisco, Cal., for appellant Western Pac. R. Co.

M. C. Sloss and Sloss & Turner, all of San Francisco, Cal., for appellant Western Pac. R. Corporation.

Edward G. Buckland, of New Haven, Conn., and William J. Kane, of Baltimore, Md., for appellant Railroad Credit Corporation.

Pillsbury, Madison & Sutro, of San Francisco, Cal., Davies, Auerbach, Cornell & Hardy, of New York City (Felix T. Smith, of San Francisco, Cal., and Harold

C. McCollom, Orrin G. Judd, and Herbert A. Heerwagen, all of New York City, of counsel), for appellant Irving Trust Co.

Garret W. McEnerney and Andrew F. Burke, both of San Francisco, Cal., Whitman, Ransom, Coulson & Goetz and Robert E. Coulson, all of New York City, and Horace E. Whiteside, of Ithaca, N. Y., for appellant A. C. James Co.

C. M. Clay, Asst. Gen. Counsel, and Emmet McCaffery, Counsel, both of Washington, D. C., and James S. Moore, Jr., of San Francisco, Cal. (Claude E. Hamilton, Jr., Gen. Counsel, of Washington, D. C., and Brobeck, Phleger & Harrison, of San Francisco, Cal., of counsel), for appellee Reconstruction Finance Corporation.

Cravath, deGersdorff, Swaine & Wood, of New York City, Morrison, Hohfeld, Foerster, Shuman & Clark, of San Francisco, Cal. (Robert T. Swaine, of New York City, and Herbert W. Clark, of San Francisco, Cal., of counsel), for appellee Institutional Bondholders Committee.

Chickering & Gregory, of San Francisco, Cal., and Milbank, Tweed & Hope, of New York City (Donald M. Gregory, of San Francisco, Cal., and Orville W. Wood and J. Cummings Haslam, both of New York City, of counsel), for appellees Crocker First Nat. Bank of San Francisco and Samuel Armstrong.

Before DENMAN, MATHEWS, and STEPHENS, Circuit Judges.

MATHEWS, Circuit Judge.

These appeals are from an order of the District Court¹ which, in a proceeding by The Western Pacific Railroad Company, a railroad corporation (hereafter called the debtor), under § 77 of the Bankruptcy Act, 11 U.S.C.A. § 205, approved a plan of reorganization which had been approved and certified to the court by the Interstate Commerce Commission.² The debtor has outstanding:

1. Trustees' certificates issued pursuant to paragraph (3) of subsection c of § 77 in the principal sum of $10,000,000. These certificates are owned and held by Reconstruction Finance Corporation.³

2. First mortgage 5% bonds dated June 26, 1916, due March 1, 1946, in the principal sum of $49,290,100, with accrued and unpaid interest⁴ thereon of $13,143,776 — a total of $62,433,876 — secured by a mortgage (hereafter called the first mortgage) of which Samuel Armstrong and Crocker First National Bank of San Francisco are trustees.

3. General and refunding mortgage 5% bonds (hereafter called refunding bonds) dated January 1, 1932, due January 1, 1957, in the principal sum of $18,999,500, secured by a mortgage (hereafter called the refunding mortgage) of which Irving Trust Company is trustee.⁵ These bonds are pledged to secure payment of the notes hereafter mentioned. They have not been issued for any other purpose.

4. Notes in the principal sum of $2,963,000, with accrued and unpaid interest thereon of $899,870 — a total of $3,862,870 — secured by the pledge of refunding bonds in the principal sum of $10,750,000 and other collateral. These notes are owned and held by Reconstruction Finance Corporation.

5. Notes in the principal sum of $2,445,610, with accrued and unpaid interest thereon of $146,503⁶ — a total of $2,592,113 — secured by the pledge of refunding bonds in the principal sum of $4,000,000 and other collateral. These notes are owned and held by Railroad Credit Corporation.

6. Notes in the principal sum of $4,999,800, with accrued and unpaid interest thereon of $1,249,950 — a total of $6,249,750 — secured by the pledge of refunding bonds in the principal sum of $4,249,500 and other collateral. These notes are owned and held by A. C. James Company.

7. Unsecured indebtedness to The Western Realty Company in the principal sum of $50,000, with accrued and unpaid interest thereon of $11,667 — a total of $61,667.

8. Unsecured indebtedness to The Western Pacific Railroad Corporation (hereafter called the holding company) in the principal sum of $5,768,791, with accrued and unpaid interest thereon of $1,980,429 — a total of $7,749,220.

9. Six per cent preferred stock of the par value of $28,300,000 (283,000 shares of the par value of $100 each) owned and held by the holding company.

10. Common stock of the par value of $47,500,000 (475,000 shares of the par value of $100 each) owned and held by the holding company.

The plan provides, in effect, that the above-mentioned securities and obligations shall be canceled and that, in lieu thereof, the reorganized company⁷ shall issue new first mortgage 4% bonds dated January 1, 1939, due January 1, 1974, in the principal sum of $10,000,000, secured by a new first mortgage; income mortgage 4½% bonds (hereafter called income bonds) dated January 1, 1939, due January 1, 2014, in the principal sum of $21,219,075, secured by a so-called income mortgage; new 5% preferred stock of the par value of $31,850,297 (318,502.97 shares of the par value of $100 each); and 319,441 shares of new common stock without par value. These securities are to be distributed as follows:

To Reconstruction Finance Corporation, $10,000,000 of the new first mortgage bonds,⁸ $1,185,200 of income bonds, $1,777,800 of new preferred stock and 15,788 shares of new common stock;⁹ to the holders of first mortgage bonds now outstanding, $19,716,040 of income bonds, $29,574,060 of new preferred stock and 230,593 shares of new common stock;¹⁰ to Railroad Credit Corporation, $154,111 of income bonds, $241,681 of new preferred stock and 35,425 shares of new common stock;¹¹ to A. C. James Company, $163,724 of income bonds, $256,756 of new preferred stock and 37,635 shares of new common stock.¹² The Western Realty Company and the holding company are excluded from participation in the reorganization.

Objections to the plan were filed by the debtor, the refunding mortgage trustee, the holding company, Railroad Credit Corporation, A. C. James Company, The Western Realty Company and a bondholders' committee¹³ representing holders of some of the first mortgage bonds now outstanding. The objections were overruled and the plan was approved. The debtor, the refunding mortgage trustee, the holding company, Railroad Credit Corporation and A. C. James Company have appealed.

Neither the debtor nor the refunding mortgage trustee was adversely affected by the plan or by the order approving it. Hence neither of them was entitled to appeal. King v. Buttolph, 9 Cir., 30 F.2d 769; Loomis v. Gila County, 9 Cir., 101 F.2d 827; In re Western Pacific R.R. Co., 9 Cir., 122 F.2d 807. Their appeals are therefore dismissed.

The holding company objected to the plan on the ground that it is not fair and equitable,¹⁴ but is unfair and inequitable, in that it excludes the holding company from participation in the reorganization. The objection states that the debtor is not insolvent, but has property of a value greatly in excess of its liabilities. Obviously, if the statement is true, the holding company is entitled to participate in the reorganization, and its exclusion therefrom is unfair and inequitable. Thus, to determine the question raised by the holding company's objection, it was necessary to determine the value of the debtor's property as of the effective date of the plan — January 1, 1939. Consolidated Rock Products Co. v. Du Bois, 312 U.S. 510, 517-525, 61 S.Ct. 675, 85 L.Ed. 982.

Railroad Credit Corporation objected to the plan on the ground that it is unfair and inequitable, in that it discriminates unfairly in favor of Reconstruction Finance Corporation and the holders of first mortgage bonds now outstanding.¹⁵ A. C. James Company objected to the plan on the ground that it is unfair and inequitable, in that it discriminates unfairly in favor of Reconstruction Finance Corporation, Railroad Credit Corporation and the holders of first mortgage bonds now outstanding.¹⁶

That Reconstruction Finance Corporation, Railroad Credit Corporation, A. C. James Company and the holders of first mortgage bonds now outstanding should participate in the reorganization is conceded. Fairness requires that their participation should be in proportion to the value of their respective claims. The question raised by the objections of Railroad Credit Corporation and A. C. James Company was whether the plan complies with that requirement. To determine this question, it was necessary to determine, as of the effective date of the plan, the value of (1) each of the claims of Reconstruction Finance Corporation,¹⁷ (2) the claim of Railroad Credit Corporation, (3) the claim of A. C. James Company, (4) the claims of the holders of first mortgage bonds now outstanding, (5) the $10,000,000 of new first mortgage bonds, (6) the $21,219,075 of income bonds, (7) the 318,502.97 shares of new preferred stock and (8) the 319,441 shares of new common stock which the plan provides shall be distributed to said claimants.

To determine the value of the above-mentioned claims, it was necessary to determine the value of (1) the debtor's entire property, (2) the property subject to the first mortgage now outstanding, (3) the $18,999,500 of refunding bonds pledged to secure the claims of A. C. James Company, Railroad Credit Corporation and Reconstruction Finance Corporation and (4) the other collateral pledged to secure each of said claims. To determine the value of the refunding bonds, it was necessary to determine the value of (1) the...