Kansas City Terminal Ry. Co. v. Central Union Trust Co.

• Decision Date: 07 July 1928
• Docket Number: No. 6457.,6457.
• Citation: 28 F.2d 177
• Parties: KANSAS CITY TERMINAL RY. CO. et al. v. CENTRAL UNION TRUST CO. OF NEW YORK et al.
• Court: U.S. Court of Appeals — Eighth Circuit

28 F.2d 177 (1928)

KANSAS CITY TERMINAL RY. CO. et al. v. CENTRAL UNION TRUST CO. OF NEW YORK et al.^*

No. 6457.

Circuit Court of Appeals, Eighth Circuit.

July 7, 1928.

COPYRIGHT MATERIAL OMITTED

Samuel W. Sawyer, of Kansas City, Mo. (Edward J. White, of St. Louis, Mo., N. H. Loomis, of Omaha, Neb., R. Bruce Scott and Gardiner Lathrop, both of Chicago, Ill., N. S. Brown, of St. Louis, Mo., W. F. Dickinson and H. H. Field, both of Chicago, Ill., and F. H. Moore, of Kansas City, Mo., on the brief), for appellants.

Joseph M. Bryson, of St. Louis, Mo., for appellee Missouri-Kansas-Texas R. Co., and Francis F. Randolph and Hugo W. Blumenthal, and Arthur H. VanBrunt, of New York City, for Randolph and Blumenthal (Albert Rathbone, of New York City, for Randolph and Blumenthal; Edward Cornell and Charles E. Hotchkiss, both of New York City, and Edward C. Eliot, of St. Louis, Mo., for Central Union Trust Co. of New York, trustee under consolidated mortgage and under trust agreement; Geller, Rolston & Blanc, of New York City, and Nagel & Kirby, of St. Louis, Mo., for Farmers' Loan & Trust Co., trustee under refunding mortgage and under St. Louis division mortgage; Hornblower, Miller & Garrison, of New York City, and Charles W. Bates, of St. Louis, Mo., for New York Trust Co., trustee under general mortgage; Boyle & Priest, of St. Louis, Mo., for Edwards, as trustee under general mortgage; White & Case, of New York City, and George H. Williams, of St. Louis, Mo., for Bankers' Trust Co., trustee under second mortgage; Masten & Nichols, of New York City, and Lee W. Hagerman, of St. Louis, Mo., for Columbia Trust Co. now Irving Bank-Columbia Trust Co., trustee under the first mortgage of M., K. & E. Ry.; Richards, Smyth & Conway, of Brooklyn, N. Y., and Charles A. Houts, of St. Louis, Mo., for Central Union Trust Co. of New York, trustee under second mortgage of Missouri, K. & E. Ry. Co.; King, Lane & Trafford, of New York City, and George C. Hitchcock, of St. Louis, Mo., for Central Union Trust Co. of New York, trustee under first extension mortgage; Charles P. Williams, of St. Louis, Mo., for Farmers' Loan & Trust Co., trustee under South Western Coal & Improvement Co. first mortgage; and Nicholas Kelley and H. C. McCollom, both of New York City, Allen C. Orrick, of St. Louis, Mo., and Roberts Walker, of New York City, of counsel, all on the brief), for appellees.

Before STONE and KENYON, Circuit Judges, and FARIS, District Judge.

STONE, Circuit Judge.

This is an appeal from an order and decree of the District Court made on February 9, 1923, holding that an offer to unsecured creditors in connection with a railroad foreclosure and reorganization was fair, just, equitable and timely, and made to and applicable to appellants; from an order and decree made on the same day confirming the foreclosure sale; and from an order and decree made on March 10, 1923, directing the execution and delivery of a master's deed to Missouri-Kansas-Texas Railroad Company and providing that the grantee should take free of all claims except as in the order provided.

The main questions are (a) whether the offer to creditors was made to and applicable to the appellants, and (b) if so, whether it was fair, and sufficient to relieve the new Missouri-Kansas-Texas Railroad Company from the obligations of certain operating agreements and stock trust agreements made by the old company with appellants.

The main proceeding was begun by a creditor's bill filed against the Missouri, Kansas & Texas Railway Company by the Railway Steel Spring Company, upon which a receiver was appointed. Afterwards the suit was consolidated with a suit upon a creditor's bill filed by D. B. Hussey and with several suits for the foreclosure of various mortgages of the Missouri, Kansas & Texas Railway Company, and the receivership was extended to the consolidated cause.

The appellants (who are the Kansas City Terminal Railway Company, the trustees under its mortgage, and various railway companies, which are owners of its stock and have contracted to use its facilities) filed in the consolidated cause their intervening petition, and later a supplemental and amended intervening petition, asking that certain operating and stock trust agreements between them and the defendant, Missouri, Kansas & Texas Railway Company, be held prior in lien and superior in equity to the mortgages of the defendant, Missouri, Kansas & Texas Railway Company, and binding on any purchaser at the foreclosure sale and for other relief.

These contracts provided for the construction of a union station and terminal facilities by the Terminal Company and for their use by each of the proprietary companies, including the Missouri, Kansas & Texas Railway Company, for a period of 200 years. Each of these proprietary companies covenanted by the contracts to pay an equal part of all interest on the Terminal Company's first mortgage bonds and of all taxes payable by the Terminal Company and, also, a part of the expense of maintenance and operation of the terminal facilities to be determined upon the basis of use. Each of the proprietary companies likewise retained an equal equitable interest in the stock of the Terminal Company and an equal voice in its control.

Upon entering a final decree of foreclosure on June 30, 1922, the court held that the contracts were not entitled to preference, and hence were not binding on the purchaser unless the purchaser should elect to adopt them, and entered a final decree of foreclosure which contained a provision that the purchaser should have one year after delivery of the master's deed within which to elect whether to adopt or reject contracts of the old company (including the contracts in question). An appeal was taken from this order and decree to this court, and the order and decree were affirmed. Kansas City Terminal Railway Co. v. Central Union Trust Co., 294 F. 32.

Article nineteenth of the decree of foreclosure contained the provisions following:

"Provided, however, that no sale hereunder of any property shall be confirmed to any purchaser who shall purchase said property on behalf of, or for the benefit of, any corporation organized, or to be organized, for the purpose or with the intention that it shall become the owner of said property, or any part thereof, or any beneficial interest therein, through any sale under this decree, pursuant to any scheme, plan or agreement whereby any stockholder or stockholders of the railway company shall receive any stock, bonds or other beneficial interest in such corporation on account of their stock in the railway company, although he or they may pay some other consideration in addition therefor, unless and until there shall have been made under, or pursuant to, or in connection with, such scheme, plan or agreement, to creditors (a) of the railway company who have presented their claims in accordance with the orders of this court in this consolidated cause, or in any constituent cause, and who have claims subordinate in lien and inferior in equity to the second mortgage, or to the extension mortgage, or to the Eastern first mortgage or to the Eastern second mortgage, or to the St. Louis division mortgage, or to the Southwestern mortgage, or to the refunding mortgage, or to the general mortgage, or to the consolidated mortgage, and * * * a fair and timely offer of cash, or a fair and timely offer of participation in such corporation through stocks, bonds or otherwise; and this court reserves jurisdiction to determine whether such an offer to such creditors has been made under, or pursuant to, or in connection with, any such scheme, plan or agreement, and jurisdiction to modify this decree in case it determines that no such offer has been made. The special master shall accept no bid from any one who shall not, prior to any offer by the special master for sale under this decree, file with the special master a statement whether he proposes to bid on behalf of any such corporation, and if so, also file a complete statement of any such scheme, or a copy of such plan or agreement, and a statement of any offers (other than offers to a class of secured creditors which have been accepted by all creditors of such class) which have been made to such creditors under, or pursuant to, or in connection with such scheme, plan or agreement."

A reorganization plan and agreement (dated November 1, 1921) had been promulgated before the entry of the above decree. Following the decree, the reorganization managers issued an offer to creditors (dated July 15, 1922) evidently in pursuance of the provisions of the decree. This offer was addressed "to holders of claims * * * which have been presented in accordance with orders of the United States District Court for the Eastern District of Missouri * * * or which have arisen or may arise after the entry of the decree of foreclosure and sale by said court in said consolidated cause," termed in the offer "general creditors." The offer made no specific provision for the appellants, nor the appellants' contracts, nor terminal and operating contracts generally, nor executory contracts, nor contingent claims.

On September 15, 1922, the appellants filed in the District Court an application for leave to file their supplemental intervening petition and objections to confirmation of sale. This pleading alleged that Missouri-Kansas-Texas Railroad Company had been organized for the purpose of buying at the foreclosure sale; that it was organized in pursuance of a reorganization plan and agreement, by which the stockholders of the old Missouri, Kansas & Texas Railway Company would receive stocks, bonds or other beneficial interests in the new corporation on account of their stock in the old company; that the interest thus preserved by the reorganization plan to the stockholders in the old company was of great value (upon "information and belief" in excess of $30,000,000); that the reorganization managers...