Ex parte Equitable Trust Co. of New York

• Citation: 231 F. 571
• Decision Date: 29 March 1916
• Docket Number: 2755-2757.
• Parties: Ex parte EQUITABLE TRUST CO. OF NEW YORK. EQUITABLE TRUST CO. OF NEW YORK v. WESTERN PAC. RY. CO. et al. (CENTRAL TRUST CO. OF NEW YORK, Intervener). In re EQUITABLE TRUST CO. OF NEW YORK.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

231 F. 571

Ex parte EQUITABLE TRUST CO. OF NEW YORK. EQUITABLE TRUST CO. OF NEW YORK v. WESTERN PAC. RY. CO. et al. (CENTRAL TRUST CO. OF NEW YORK, Intervener). In re EQUITABLE TRUST CO. OF NEW YORK.

Nos. 2755-2757.

United States Court of Appeals, Ninth Circuit.

March 29, 1916

[Copyrighted Material Omitted] [Copyrighted Material Omitted] [Copyrighted Material Omitted]

Murray, Prentice & Howland and W. E. S. Griswold, all of New York City, and Jared How, of San Francisco, Cal., for appellant.

F. W. M. Cutcheon, of New York City, and John F. Bowie, of San Francisco, Cal., amici curiae.

Garret W. McEnerney and John S. Partridge, both of San Francisco, Cal., for appellee Western Pac. Ry. Co.

Pillsbury, Madison & Sutro, of San Francisco, Cal. (Frank D. Madison, of San Francisco, Cal., of counsel), for appellee intervener.

Before GILBERT, ROSS, and HUNT, Circuit Judges.

HUNT Circuit Judge.

The Equitable Trust Company of New York, as trustee, instituted foreclosure proceedings in the District Court in the Northern District of California to foreclose the first mortgage of the Western Pacific Railway Company, bearing date September 1, 1903, but acknowledged and delivered June 23, 1905. The trust company, as trustee, plaintiff in the court below, and appellant here, also asked that a receiver be appointed pendente lite. Jurisdiction was based upon diversity of citizenship.

The complaint sets forth that the entire amount of bonds secured by the mortgage sought to be foreclosed, $50,000,000, had been duly issued and were then outstanding, and the only default alleged was in the payment of one semiannual installment of interest which matured March 1, 1915, amounting to $1,250,000. The prayer, so far as it related to the appointment of a receiver, was substantially that a receiver be appointed to take possession of and to operate the properties of the Western Pacific Railway Company which are subject to the lien of the first mortgage, and to collect and receive the earnings, revenues, rents, issues, profits, and other income thereof, and to apply the net income thereof to the benefit of holders of bonds secured by such first mortgage as provided by the terms thereof, and with such other power and authority and with limitations of power and authority as to the court should seem proper.

The complaint was filed on the 2d of March, 1915. On that day the Western Pacific Company, then the only defendant, by answer admitted all the allegations of the complaint, and on the following day the District Court appointed two receivers, who were duly qualified and are still acting. The court made them receivers of all the property of the Western Pacific Railway Company, and directed them to protect title, take possession, to continue operation, to prosecute all such suits as may be necessary in their judgment for the protection of the property and trust vested in them, and to appear and conduct the prosecution or defense of any suit then pending in any court against the Western Pacific Railway Company, or any company operated in the interests of said railway company, where, in the judgment of the receivers, it was necessary for the proper protection of the property placed in their charge for the interests and rights of creditors. March 30, 1915, the Equitable Trust Company, through the trustee, filed its amended bill against the Western Pacific Company, and averred substantially the things contained in the original bill.

On October 25, 1915, Central Trust Company of New York, which had become a party to the suit by intervention, filed its answer and cross-bill. Thereafter a stipulation was made by Central Trust Company consenting to a decree of foreclosure and sale, so that it is not very important to state the contents of the cross-bill, other than that it alleged that Central Trust Company is the trustee under the second mortgage of the Western Pacific Railway Company, this second mortgage covering all the properties of the Western Pacific Company, but is subject and subordinate to the first mortgage; that under the second mortgage there are outstanding bonds, aggregating in par value $25,000,000, which bear interest at 5 per cent. per annum; and that under the terms of the second mortgage, and because of the order appointing receivers of the property of the Western Pacific Railway Company, the Central Trust Company became entitled to foreclose and collect the entire amount secured by its mortgage.

The Equitable Trust Company, as trustee, on November 1, 1915, answered the cross-bill of Central Trust Company, admitting the material averments of the cross-bill; and on November 22, 1915, the Western Pacific Company filed its answer to the cross-bill, admitting all the allegations thereof.

On January 13, 1916, the Equitable Trust Company filed its supplemental and second amended bill. The substance of the averments of this supplemental bill is that since the amended bill had been filed the defendant railway company had defaulted in the payment of a second installment of interest, $1,250,000, due September 1, 1915, that the trustee under the mortgage had declared the principal of the $50,000,000 outstanding bonds to be due, and that that principal and interest were due and in default. It was alleged, too, that the Boca & Loyalton Railroad, Mercantile Trust Company of San Francisco, as trustee under its first mortgage, and Chester L. Hovey, as receiver of the property of the Boca & Loyalton Company, claimed an interest in some 3 3/4 miles of track of the Western Pacific Railway, and that such interest was subsequent to and inferior to the first mortgage of the Western Pacific.

The Western Pacific Company, the Boca & Loyalton Company, and the Central Trust Company filed their respective answers, admitting the allegations of the supplemental and second amended complaint. The Mercantile Trust Company of San Francisco, as trustee, and Hovey, as receiver, filed their answers, and asserted a priority over the lien of the first mortgage of the Western Pacific Company of the interest of the Boca & Loyalton Company in the 3 3/4 miles of track referred to. On March 6, 1916, the Equitable Trust Company filed and submitted to the court certain stipulations:

(a) Stipulation between the Equitable Trust Company, as trustee, and the Western Pacific Company and Central Trust Company, waiving the right to take testimony, admitting the truth of the facts set forth in the amended bill and in the supplemental bill, and as recited in a form for foreclosure decree and sale attached to the stipulation, and consenting to the entry of such decree forthwith, or at the time of any such early hearing as the court should assign.

(b) Stipulation between the Equitable Trust Company, as trustee, and Boca & Loyalton Railroad Company, Mercantile Trust Company of San Francisco, as trustee, and Chester L. Hovey, as receiver, that a decree of foreclosure and sale might be entered forthwith, provided that it should contain a provision that such sale should be made subject to all then existing rights of such defendants to a trackage right over the 3 3/4 miles of track heretofore alluded to.

(c) Stipulations by the Southern Pacific Company and Utah Fuel Company, claimants against the Western Pacific Company, who had presented their claims as preferred claims, and whose claims had not been paid, consenting to the entry of a decree of sale in accordance with the prayer of the amended bill and the supplemental and amended bill, and consenting to the setting of the cause for hearing.

Counsel for the Equitable Trust Company, as trustee, moved the court for a decree of foreclosure and sale in the form submitted, or that, if such motion be denied, the cause be set for hearing, and for the entry of such decree at such early day as the court should assign. No party to the cause objected, but the receivers protested. The court allowed them to offer evidence, and over the objection of plaintiff's counsel continued the hearing until March 16, 1916.

With these motions counsel for the trustee submitted two affidavits-- one made by the solicitor for the trustee setting up the consent of all parties that a decree of foreclosure and sale should be entered forthwith, and that all creditors whose claims had been presented and allowed had been paid in full, and another made by counsel for the reorganization committee of holders of first mortgage bonds of the Western Pacific Company, setting up that on May 1, 1915, a bondholders' protective agreement had been framed; that on December 15, 1915, the holders of more than $37,000,000 of such bonds had deposited them under the agreement, and on that date a plan and agreement for reorganization had been framed under which the holders of more than $43,000,000 of bonds had deposited them; that in order to procure the underwriting required by such plan and agreement for the sale of $20,000,000 principal amount of bonds to be issued thereunder the committee had procured an undertaking of certain bankers to secure an underwriting syndicate agreement; that the undertaking had been performed, and that by the terms of the plan and agreement it must be declared operative before March 15, 1916; that by the terms of the underwriting agreement that agreement expires July 1, 1916; that in order to carry out the plan and agreement it is necessary that the properties covered by the Western Pacific Company's first mortgage should be sold and steps necessary for the enjoyment of the underwriting agreement should be taken before July 1, 1916; that if delay in the entry of a decree of foreclosure and sale should be had the bondholders who were parties to it must become liable for various large sums for underwriting, commissions, and expenses; that the plan...