17 F. 760 (E.D.N.C. 1883), Matthews v. Murchison

Citation:17 F. 760
Party Name:MATTHEWS v. MURCHISON and others.
Court:United States Courts of Appeals, Court of Appeals for the Fourth Circuit
 
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Page 760

17 F. 760 (E.D.N.C. 1883)

MATTHEWS

v.

MURCHISON and others.

United States Circuit Court, E.D. North Carolina.

June Term, 1883

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John F. Dillon, McRae & Strange, and Russell & Ricaud, for complainant.

E. Randolph Robinson, George Davis, Merriman & Fuller, Edwards Patterson, D. J. Devane, and Stedman & Lattimer, for defendants.

SEYMOUR, J.

This action was commenced in the month of February,

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1882, in the superior court of New Hanover for the state of North Carolina, and was in July, 1882, on plaintiff's petition, removed to this court.

It is sought to declare void the present organization of the Carolina Central Railroad Company; to have the second and third mortgage bonds of the company canceled; and to enforce and carry into effect, by specific execution, a plan of organization which plaintiff claims to have been adopted by the first-mortgage bondholders of the Carolina Central Railway Company on the eighteenth day of May, 1880. It also seeks the removal of the trustees who now hold the stock of the new company, and the appointment of new trustees and of a receiver. It further claims, as against the defendant Murchison and the defendant corporation, the Seaboard & Roanoke Railroad Company, that they be declared trustees for the plaintiff of 615 of the second-mortgage bonds of the new company, with stock annexed. This claim is made upon the condition that these bonds were purchased by Murchison as plaintiff's agent, and by him sold to the defendant corporation, with notice. It is an alternative claim, set up as a right only in the case the court shall refuse to annul the present organization of the Carolina Central Railroad Company. The plaintiff is a married woman, domiciled in the state of New York.

We merely notice the fact that the bill is multifarious, in that it seeks inconsistent remedies, and is founded upon two conflicting theories. The parties appear to have desired to settle both in one action, and as no real difficulty has arisen, the court will not of its own motion make one.

The Carolina Central Railway Company, a corporation existing under the laws of North Carolina, owned in the spring of 1880 a continuous line of railroad from Wilmington to Shelby, a town in North Carolina, some 60 miles west to Charlotte. Its property was subject to two mortgages, upon both of which it was in default. An action was pending in the superior court of New Hanover county for the foreclosure of the first of these mortgages, and receivers appointed in said action were in possession of the road.

On the fifteenth of March a decree was rendered ordering a sale. At this date the plaintiff was owner of 1,194 of the 3,000 first mortgage bonds, and 2,550, or about nine-tenths, of the second mortgage bonds, of the company, each of the par value of $1,000.

The plaintiff had owned more than a majority of the first-mortgage bonds, but had, in December, 1879, sold 500 of these bonds to R. A. Lancaster & Co.

She had, at the same time and as a part of the same transaction, hypothecated 500 more of her bonds to F. O. French 'and associates' for $175,000, and had given to French and Andrew V. Stout and Arthur B. Graves a power of attorney, embracing the 500 bonds hypothecated, and 500 other bonds.

The power constituted them her attorneys to represent her with

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respect to one 1,000 first-mortgage bonds of the company, and was declared to be irrevocable for five years.

It was made, however, upon this condition: 'That the said French and associates shall severally consent to and approve the plan of reorganization of said railway, on the basis named in the schedule hereto annexed and marked 'A."

This agreement left the plaintiff the ownership of 1,194 bonds, subject to the power of attorney, embracing 1,000 of them. By virtue of their purchase and power of attorney, French and his associates controlled one-half of the bonds upon which the foreclosure suit was pending, subject to the condition of the power of attorney.

The plaintiff's endeavors were, of course, directed to the protection, in so far as she could protect them of her seconds. But it seems that it was impossible to obtain the consent of the first-mortgage bondholders to plan, Schedule A. All interests in the road were suffering under the disorganization and the receivership. In February, 1880, Mrs. Matthews consented to a second proposed plan of reorganization. This plan is also marked 'A,' p. 68. (The bound volume, containing the pleadings and affidavits on the motion for a receiver, is referred to, as it will be hereafter, by its red-ink paging, which runs continuously through the book.) Plaintiff's consent is evidenced by Exhibit E, p. 71. This plan failed to be acceptable, and on the fifteenth of May, 1880, Mrs. Matthews signed a paper, (Exhibit B, p. 62,) whereby she agreed that Francis O. French might designate a new plan for the reorganization of the road.

In the mean while, and on the twelfth of May, an agreement was signed by the owners of $2,717,959 in value of the first-mortgage bonds, including, of course, the plaintiff. This is marked 'Exhibit A,' p. 57, and has been called in the argument 'the bondholders' agreement.' It provided for a purchase and reorganization of the road, and appointed Francis O. French, David R. Murchison, Arthur B. Graves, and James L. Wheedbee, with power to add a fifth, (and A. V. Stout was shortly after chosen by them as the fifth,) 'a committee to represent and act for us, and for each of us, in all matters concerning the collection of the said bonds of the Carolina Central Railroad Company, and the foreclosure and sale of the property mortgaged to secure said bonds. * * * In case a vacancy shall at any time occur in the said committee by death, resignation, or otherwise, such vacancy may be filled by the other members of said committee, or a majority of them, by the selection and appointment of a substitute, being a bondholder.'

The second article authorizes the committee to purchase the road at the foreclosure sale.

The third reads as follows:

'Third. In case the said committee shall make the said purchase, * * * and when the same shall have been fully completed, they shall prepare and submit to the subscribers a plan or plans for the reorganization of

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the said Carolina Central Railway Company, or for the reorganization of a new company, and any plan or plans, when so submitted and approved, and signed by subscribers hereto holding two-thirds in amount of said bonds, shall be binding on all of the subscribers; and the said committee shall have full power and authority to carry such plan or plans into effect.'

On the eighteenth of May thereafter, before the time designated in the above paragraph, French drafted a plan of reorganization, Exhibit C, p. 63. This plan was circulated among the bondholders, and more than two-thirds, in the value of their securities, of the holders of 'firsts' signed the following statement annexed to it:

'We, the undersigned, holders of Carolina Central bonds in amounts set opposite our names, respectively, hereby authorize the construction committee to carry out the foregoing plan of reorganization.'

It is this plan that the plaintiff demands shall be specifically executed. By it there were to be issued two million of new first-mortgage bonds, and one million five hundred thousand seconds, which were to be income bonds. The holders of the three million old trusts were to receiver 60 per cent. of the face of their bonds in new firsts, and 40 per cent. in new seconds; the remaining firsts and seconds to be held in the treasury for construction, equipment, etc.

The holders of the old firsts were also to receive three millions of stock, 'to be held by the reconstruction committee'-- that is, the committee created by the bondholders' agreement-- 'for five years from November 1, 1879, in trust for the holders of new first-mortgage bonds; * * * but the same may be issued sooner, when full interest upon second mortgage shall have been paid, upon request in writing of two-thirds in amount of the first-mortgage bondholders. ' There were also to be one million five hundred thousand new third-mortgage bonds, to be given to the holders of the old seconds, after paying in such new thirds a note held by plaintiff. These were, like the seconds, to be income bonds, and not cumulative.

On the thirty-first of May, 1880, the reconstruction committee bid off the road at the foreclosure sale for $1,200,000. The sale and bid were duly confirmed, and on the twenty-ninth of June a deed was made by the commissioners.

After the purchase had been fully completed, the defendant French, on the ninth of July, 1880, reported a new plan of reorganization, and this plan was adopted at a bondholders' meeting held in New York on that day. A vote of $2,471,600 is reported as having been given for this plan, but of this amount 1,000 bonds were those of the plaintiff, and were voted upon by French. This plan is the one under which, with some variations, the company actually reorganized. Exhibit F, p. 71.

The amount of the various mortgage bonds, and their distribution, is the same as in plan, Exhibit C; the change made was in reducing the amount of the stock to one million five hundred thousand and annexing it to the new seconds. This plan gave the plaintiff the

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same proportion of the whole stock that she was to have received under the former plan. The nominal amount was less; or, to speak accurately, her 1194-3000 of the stock of the road was represented by a smaller number of shares than before. There was also this change made in the definition of the term 'income,' viz., an addition of these words: 'All questions of expenditures within discretion of the board of directors. ' The stock was to be held, as before, by the committee for five years. A stockholders' meeting held at Weldon, on the fourteenth of...

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