Central Trust Co. of New York v. Chicago, R.I. & P.R. Co.

• Decision Date: 19 November 1914
• Docket Number: 157.,156
• Citation: 218 F. 336
• Parties: CENTRAL TRUST CO. OF NEW YORK v. CHICAGO, R.I. & P.R. CO. et al. (two cases).
• Court: U.S. Court of Appeals — Second Circuit

218 F. 336

CENTRAL TRUST CO. OF NEW YORK v. CHICAGO, R.I. & P.R. CO. et al. (two cases).

Nos. 156, 157.

United States Court of Appeals, Second Circuit.

November 19, 1914

Louis Marshall, of New York City, for appellant.

A. H Van Brunt and H. B. Stimson, both of New York City, for appellees.

Before LACOMBE, WARD, and ROGERS, Circuit Judges.

WARD Circuit Judge.

These are appeals from two orders of the District Court denying the petition of one Nathan L. Amster for leave to intervene in a foreclosure suit brought by the Central Trust Company as trustee against the Chicago, Rock Island & Pacific Railroad Company, and also motions by the trustee to dismiss the said appeals.

The Chicago, Rock Island & Pacific Railroad Company is the owner of $71,353,500, par value, of the capital stock of the Chicago, Rock Island & Pacific Railway Company outstanding to the amount of $75,000,000, which is substantially the only property it has. August 1, 1902, the Railroad Company mortgaged this stock to secure the payment of its 4 per cent collateral bonds due November 1, 2002, aggregating $71,353,000-- that is, one bond of $1,000 for every 10 shares of stock-- and appointed the Central Trust Company of New York trustee under the mortgage.

February 26, 1914, it being quite apparent that the Railway Company could declare no dividend on its stock, and therefore that the Railroad Company, which had no other source of income, would default on the interest of its bonds due May 1st. a protective committee of bondholders was formed. The president of the trustee became chairman of this committee, its counsel became the counsel of the committee, and the trustee the depositary for the committee. May 1st the Railroad Company defaulted in the payment of its interest. September 2d the Trust Company, the 90-day period having expired, provided in the mortgage, declared the principal of the bonds due and began a suit to foreclose the mortgage. September 16th the Railroad Company filed an answer admitting the allegations of the bill. Thereafter the Trust Company submitted the decree of sale to the court.

September 28th Amster, as owner of bonds to the amount of $350,000 and as representing the owners of bonds to upwards of $700,000 applied to the District Court for leave to intervene in the foreclosure suit and be made a party defendant. At this time there were deposited with the protective committee bonds to the amount of $18,000,000. The petition set up no defense to the foreclosure suit, but only objected to the mode of sale. It alleged as grounds of intervention that the trustee was not fairly representing the petitioner and the bondholders represented by him, but was acting in harmony with financial interests controlling the committee, which were irreconcilable with the interests of himself and the bondholders he represented. In respect to the proposed decree he objected that an immediate sale of the mortgaged stock at a time of such financial stringency would make it impossible for any third party to bid successfully against the committee, especially upon notice giving little time for the scattered bondholders to be heard from; that the sale of the bonds in one block would be destructive of the rights of the nondepositing bondholders; and that an upset price should be fixed.

October 10th the District Judge signed the proposed decree and denied the petition, on the ground that the trustee had done nothing justifying intervention. The sale has been fixed for November 28th. October 13th he allowed the petitioner's appeal.

October 17th the petitioner filed a second petition for leave to intervene, alleging that he represented $3,000,000 of bonds in addition to his own, and that since the order denying his first petition the protective committee had published a plan prepared by counsel who were also counsel for the trustee which he criticized as unfair to the nondepositing bondholders. At this time there were deposited with the committee not over 40 per cent. of the bonds. October 23d the District Judge denied this petition, saying:

'It is, of course, impossible to predict the result at the foreclosure sale; but, as heretofore pointed out, any bondholder will have the fullest opportunity to be heard upon any application to confirm the sale, and notice of such application is by the terms of the decree to be widely published. It must be assumed that the sale-- whether the purchase be made by the committee or by others-- will be confirmed only

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