190 F. 773 (N.D.N.Y. 1911), Gay v. Hudson River Electric Power Co.

Citation:190 F. 773
Party Name:GAY et al. v. HUDSON RIVER ELECTRIC POWER CO. et al.
Case Date:July 10, 1911
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit
 
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Page 773

190 F. 773 (N.D.N.Y. 1911)

GAY et al.

v.

HUDSON RIVER ELECTRIC POWER CO. et al.

United States Circuit Court, N.D. New York.

July 10, 1911

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Abram J. Rose and Geo. B. Curtiss, for receivers.

W. D. Loucks, for Eben H. Gay and Joseph W. Jackson.

Charles E. Hotchkiss, for Knickerbocker Trust Co.

Franklin H. Mills, for Morton Trust Co., now Guaranty Trust Co.

John G. Boston, for Trust Co. of America.

Morgan M. Mann, for New York Trust Co.

Alfred A. Cook and Mr. Heermance, for certain bondholders of Hudson River Water Power Co.

Charles H. Tyler and R. A. Pritchard, for Boston Bondholders' Committee.

L. Laflin Kellogg, P. M. Brett, and Mr. Pette, for National Contracting Co.

Horace E. McKnight, for McKnight and Medbury, as trustees.

Edgar T. Brackett, for creditors of Saratoga Gas, Electric Light & Power Co.

F. D. Corey, for intervener Green.

RAY, District Judge.

The bill in the equity suit was presented about October 26, 1908, and, on notice to all concerned, George W. Dunn, Charles W. Andrews, and Milton Delano were appointed receivers of the eight defendant corporations, and, having qualified, took possession of their respective properties and have been running them and continuing their business since.

Not long after the organization of the said Hudson River Water Power Company and the ability of its plant to do business had accrued, and about or prior to January, 1904, by purchase of stock, etc., the control and management of all the companies came into the same hands, and thereafter they were in effect and in fact run and managed as one concern. In the meantime and during the construction, extension, and improvement of certain of the plants, the trust mortgages involved in these foreclosures, except one, were executed and bonds issued and sold to raise money with which to prosecute and work, purchase rights, construct dams, power plants, etc. These bonds to the amount of several millions of dollars, etc. These bonds and most if not all of those so sold have passed to the hands of bona fide holders. The general scheme or plan of those who originally had control of the new plants being constructed, which are the main

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ones, and who subsequently, in the manner referred to, obtained control of the others, was to construct and obtain control of water rights on the Hudson river and at other points, erect dams and plants for the generation of electricity and electrical power, obtain control of or construct steam plants for the same purpose and also of gas plants when necessary, extending over a large territory; extending into Vermont, south from Glens Falls to Albany, Troy and Schenectady, and other points in that vicinity, and up the Mohawk Valley as far as Utica and to Oneida further west.

This scheme contemplated the erection of transmission lines, some of which were constructed, and the generation and distribution of electricity for furnishing light and power over this area of hundreds of square miles by water power in the main using the steam plants in case of low water only. This general plan and scheme was illustrated and shown by maps and printed statements, and on these representations, largely, the bonds of the companies were marketed.

As stated, for some years the plants were run as one concern under one management. The earnings of all the companies were massed and used for the benefit of all. Money borrowed and property and supplies purchased were used for the benefit of all. The proceeds of bonds sold went for the benefit of three or four of these corporations at least, and in some cases for the benefit of all. The same officers and the same employes in part did the work for all the companies. The Oneida plant was an exception in some respects. It is far from probable that it can ever be known what the equities are between these several corporations if torn apart, so to speak, and sold as separate concerns. Some, one at least, generate electricity and do nothing else. Some generate electricity and manufacture gas and do nothing else, while some transmit and others both generate and manufacture and transmit and sell. Connected and operated as one whole as a system, they are of great value. As single corporations some would be of little value. If these corporate properties are separated, go apart, and efforts are made by litigation, as would be inevitable, to settle their rights as between themselves and then establish business relations, the litigations would be ruinous and well-night endless. The claim of the National Contracting Company against the Hudson River Water Power Company has been in litigation for 10 years, and the end does not seem near. There are also reasons growing out of the making of the mortgages; one company guaranteeing those of another, etc., which make the consolidation advisable.

Having this situation in view, and having in mind the possible results of independent sales of these properties at different times by several masters, I am constrained to grant the motion for a consolidation. I am unable to see how harm can come to any interest by so doing, and in the judgment of the court good will come and much needless litigation and expense be avoided by the consolidation. The court will retain control so as to compel a separate and speedy sale in a given case should there be in evidence any disposition to unduly delay the sale of all or any one of these properties. Opposition to consolidation

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comes from the trustees of the Oneida plant and the Saratoga plant.

I do not see any equity in the Oneida plant; but at the same time it will sell for more in my judgment if sold at the same time and place as the others. If the same party who purchases the others desires this as a future market, he or they will give more for it than its real present value as a single independent concern.

The Saratoga plant or corporation seems to be a solvent corporation. If there is any equity-- and I think there is-- after paying all debts, all creditors secured and unsecured, the surplus will go to the owners or owner of the stock or to creditors of one or more of the other corporations who are interested in various ways. I am not able to see that consolidation will seriously affect the rights of any one interested in the Saratoga Company.

Proof of Claims.

All claims of general creditors against the various corporations involved have been proved before a special master, except the claims of the one company against another or others. I do not see that it is essential to determine these claims, their validity and amount, prior to a sale of the properties. If one party purchases all the properties, it may be unnecessary to litigate these claims. If the properties go to different purchasers, the amount of a debt, not a lien, owing by the one corporation to another corporation, is immaterial to the purchaser. It in no way affects his title or the value of the property. If the purchase price is sufficient to create a surplus after payment of mortgage bonds, other liens, costs, and expenses, it will go to the general creditors of that particular corporation. This surplus will be in the hands of the receivers of the corporation applicable to the payment of all its unsecured debts. If it then appears that such one of these corporations is indebted to another of these corporations, or that it asserts a claim, it will be competent for the court in the equity action to direct that proof of such claim and its amount be taken. Here only one or two of these corporate properties, if any, will bring more than the mortgage liens, and as now informed it appears that such possible surplus is subject to other claims or liens. If one corporation has a valid claim against another, or more than one, and such corporations have nothing for general creditors, why go to the expense of establishing such claim or claims? There may be some property not subject to the mortgage liens. If there is enough of this to interest the general creditors, these claims can be then established by litigation. In any event, it seems clear to me that the granting of a decree in foreclosure and a sale under it should not be delayed pending a settlement of these questions which can be settled after the existence of a surplus and in a contest over the distributed of the surplus quite as well as prior to the sale. In fact, the surplus and other property may be so small that a contest will seem inadvisable. In short, I am pointed to no valid objection to a postponement of the settlement of these controversies until after a sale. This motion, also, will be granted.

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National Contracting Company Objects to Decree of Sale.

The Trust Company of America, by intervening cross-bill, the National Contracting Company answering, under which evidence has been taken and the report of the special master filed and excepted to, seeks a decree in foreclosure of a mortgage for $2,000,000, dated November 15, 1899, made by Hudson River Water Power Company to the Trust Company of America as trustee, to secure the payment of an issue of 2,000 bonds of the par value of $1,000 each. This mortgage was duly recorded and the bonds issued to the Water Power Company. The Hudson River Water Power Company was incorporated November 11, 1899, with an original stock issue of $2,000,000, increased December 23, 1902, to $5,000,000. It commenced the construction of a dam across the Hudson river at Spier Falls very soon thereafter, acquiring lands and water rights and purchasing materials, etc., and erecting a plant for the generation of electrical power, and such plant was put in operation. In its business it made...

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