Young & Vann Supply Co. v. Gulf, F. & A. Ry. Co.

• Decision Date: 03 March 1925
• Docket Number: No. 4459.,4459.
• Citation: 5 F.2d 421
• Parties: YOUNG & VANN SUPPLY CO. v. GULF, F. & A. RY. CO. et al.
• Court: U.S. Court of Appeals — Fifth Circuit

5 F.2d 421 (1925)

YOUNG & VANN SUPPLY CO. v. GULF, F. & A. RY. CO. et al.

No. 4459.

Circuit Court of Appeals, Fifth Circuit.

March 3, 1925.

R. H. Scrivner, of Birmingham, Ala. (Stokely, Scrivner, Dominick & Smith, of Birmingham, Ala., on the brief), for appellant.

William Fisher, of Pensacola, Fla., for appellees.

Before WALKER, BRYAN, and FOSTER, Circuit Judges.

FOSTER, Circuit Judge.

In this case the Young & Vann Supply Company, an Alabama corporation, brought its bill against the Gulf, Florida & Alabama Railway Company and the Muscle Shoals, Birmingham & Pensacola Railway Company, both Florida corporations, and against John T. Steele, individually and as receiver of the first-named railroad, seeking to recover for materials and supplies sold to Steele as receiver. On motion the bill was dismissed, and from that judgment this appeal is prosecuted.

The bill, with amendments and exhibits, is voluminous and somewhat diffuse. However, proceedings in equity are to be reasonably construed. Lockhart v. Leeds, 195 U. S. 427, 25 S. Ct. 76, 49 L. Ed. 263. Applying that rule, on analysis, the bill, stripped of surplusage, thus states the case.

The Gulf, Florida & Alabama Railway Company, with an authorized capital stock of $7,500,000, of which $4,660,000 was outstanding, was the owner of a railroad having some 154 miles of main line and 29 miles of sidings running from Pensacola, Fla., to Kimbrough, Ala., with docks, a coal tipple, and warehouses at Pensacola; the whole representing an investment value in round figures of $9,171,000.

The property was burdened with a mortgage to secure an issue of 5 per cent. gold bonds in the sum of $10,000,000, of which $4,410,000 were actually issued.

In May, 1917, receivers were appointed for the property by the District Court for the Northern District of Florida on a bill filed by Hubert C. Mandeville. This matured the mortgage, and the trustee, the Columbia Trust Company, brought suit to foreclose. The receivers first appointed resigned, and in January, 1918, John T. Steele was appointed receiver on the bill of the trust company.

Steel operated the railroad for about four years and purchased necessary materials and supplies from many persons including plaintiff. The receipts during the receivership exceeded operating expenses, and a considerable amount of money from that source was expended in the purchase of new equipment and in other permanent improvements. There is still due and owing to plaintiff a balance of $4,890.09, which the receiver repeatedly promised to pay in full. This claim was referred to a master, was reported on favorably, and passed to judgment.

Looking to the reorganization of the road, a bondholders' committee was organized, and over 80 per cent. of the outstanding bonds were deposited with it. In connection with this committee, a syndicate was also organized with Steele as its manager. This syndicate financed about $1,000,000 of receiver's certificates, the proceeds of which went into permanent improvements. In addition, a receiver's creditors' committee was organized by local creditors, and all creditors in the same class with plaintiff were required to unconditionally and irrevocably assign their claims to this committee in order to derive any benefit from the reorganization. Plaintiff did not assign its claim. The plan of reorganization worked out by these three committees acting together contemplated the organization of a new company to be known as the Muscle Shoals, Birmingham & Pensacola Railway Company, and also a Securities Company to hold all the securities of the new company; the obligations of the Securities Company to be issued to creditors of all classes in adjustment of their claims. It is unnecessary to state all of the details of this plan of reorganization, which was several times changed, although they are fully set out in the bill.

With this somewhat complicated plan of reorganization in view, the property was sold under a foreclosure decree. This decree provided that the money realized from the sale should be first applied to the payment of costs of the receivership, including the fees of the special master, fees of the receiver and his counsel, and ordinary costs of court, and second to the payment of claims such as plaintiff's and taxes, etc., and the receiver's certificates and the bonds were subordinated.

The three committees above named agreed among themselves to bid $90,000 in cash for the road, and the sale was made on November 26, 1921, for that price. William Fisher, ostensibly representing the receiver's creditors' committee, was the purchaser. He promptly assigned his bid to Steele, who in turn assigned to the new company which had been organized, and the deed was made directly to this company. Steele was president of this company. Steele, in addition to paying the $90,000 cash bid, which was all absorbed...