Acken v. New York Title & Mortgage Co.
| Decision Date | 31 March 1934 |
| Citation | 9 F. Supp. 521 |
| Parties | ACKEN v. NEW YORK TITLE & MORTGAGE CO. et al. (two cases). |
| Court | U.S. District Court — Northern District of New York |
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Joseph Nemerov, of New York City (Max D. Steuer and Maurice J. Dix, both of New York City, of counsel), for complainant.
Greenbaum, Wolff & Ernst, of New York City, for defendants New York Title & Mortgage Co., George S. Van Schaick, and Edward McLoughlin.
Mudge, Stern, Williams & Tucker, of New York City (Joseph V. Kline, of New York City, of counsel), for defendant Bank of Manhattan.
Kramer & Kleinfeld, of New York City, for intervening defendant Isidor Silberberg in Series BK Suit.
Wagner, Quillinan & Rifkind, of New York City, for Reorganization Committee for certificate holders of Series F1, amici curiæ.
These two suits are exactly the same except that each relates to a different series of mortgage certificates and that certain attorneys intervene in one suit and certain other attorneys appear as amici curiæ in the other suit, and neither of these attorneys appear in both suits.
For the purpose of simplification, these two suits may be spoken of as a single suit.
This suit is brought as a class suit by a nonresident complainant on behalf of himself and all others similarly situated against the defendants, all of whom are residents of this state and the defendant superintendent of insurance and his deputy, the defendant McLoughlin, are residents of this district. The bill of complaint asks this court to appoint successor trustees of certain underlying bonds and mortgages against which the defendant New York Title & Mortgage Company issued so-called guaranteed mortgage certificates in series. Motion is made for preliminary relief by the appointment of temporary successor trustees and certain incidental relief. The jurisdiction is based on diversity of citizenship and a subject-matter cognizable by this court of equity.
The bill of complaint also charges that certain statutes of the state of New York are violative of the Federal Constitution. Inasmuch as no preliminary injunction has been asked based on the unconstitutionality of state statutes, which, if asked, would require the action of a statutory court of three judges, the preliminary relief as distinguished from the relief to be embodied from the final judgment must be based on the diversity of citizenship in a suit, of which this court has jurisdiction, apart from the alleged unconstitutionality of the state statutes.
The defendant, the New York Title & Mortgage Company, hereafter called the defendant company, created in series mortgage certificates in and by which the defendant company transferred and assigned to the certificate holder an undivided and coordinate interest to the extent of the amount of the certificate in underlying bonds and mortgages against which the certificates were issued. These securities were deposited by the defendant company with the Bank of Manhattan Company (or its predecessors in interest) as depository. The certificate of the depository indorsed on each certificate is that the depository holds the underlying bonds and mortgages for the certificate holder who is acknowledged thereby to be the co-ordinate owner to the extent of the principal amount of the certificate.
The complainant is holder of BK-6584 in the amount of $5,000, and of certificate F1-8431 in the sum of $10,000.
In and by each certificate, the defendant company (1) guarantees to pay the principal and interest of such certificate as therein stated; (2) guarantees the payment of the principal and interest of the underlying bonds and mortgages.
Each certificate in the series BK is alike. Each certificate in the series F1 is alike. The provisions of the F1 and BK series are substantially the same.
The certificates of the F1 series contain these provisions:
No reference to an 18 months' period of grace for payment of principal appears in this certificate, but it appears to be conceded that there was such 18 months' period of grace in practically all the series of certificates.
The only function of the depository is to hold the underlying security.
The defendant company is organized under New York Insurance Law (Consol. Laws, c. 28).
On March 15, 1933, pursuant to chapter 40 of the Laws of 1933, the defendant superintendent of insurance issued rules and regulations for the conduct by the defendant company of its business, wherein it was provided that: "Releases from guarantees shall be obtained whenever it is possible or desirable to do so."
The total amount of guaranteed mortgages and mortgage certificates of the defendant company outstanding on that date was $704,818,118.
Since that date holders of guarantees issued by the defendant company have released or agreed to release the defendant company from its guaranteed obligations to the extent of $270,157,918.18, leaving the guaranteed obligations outstanding to the amount of $434,660,200.27.
Whether or not any of the guaranteed mortgage certificate holders released the defendant company from its guarantee is disputed. Some inferences may be drawn from the superintendent's statements that there were some releases obtained.
About August 4, 1933, the defendant superintendent of insurance, acting under article 11 of the New York State Insurance Law (Consol. Laws N. Y., c. 28, § 400 et seq.), took possession of the property of the defendant company to rehabilitate the same and to remove the causes and conditions which made rehabilitation necessary. Further, the defendant superintendent of insurance and his deputy are now in possession of the property of the defendant company in rehabilitation.
The defendant company is now and for some time has been and will be unable to pay the principal and interest on the certificates according to their terms and to meet the obligations of its guarantees to pay the interest and matured principal of the underlying security for the reason it alleges that the owners of the property covered by the underlying security (bonds and mortgages) are and have for some time been unable or unwilling to pay the interest and installments or maturities as well as the taxes on the underlying mortgages.
It is contended by the defendant that the certificates provide that the guaranteed mortgage and mortgage certificates do not create a liability of the defendant company on its guarantee for nonpayment of principal or installment of principal until 18 months after the same shall have been demanded by the certificate holder, if interest is fully paid in the meantime. There is no grace period for the payment of interest.
There is at present outstanding and unpaid guaranteed mortgage certificates in said series BK in the sum of $13,301,132.
That said series BK consists of 172 bonds secured by first mortgages on real property of the aggregate amount of $13,264,525 as follows:
Property located in New York Co. — 11 mortgages — $1,295,125.
Property located in Bronx Co. — 27 mortgages — $2,316,750.
Property located in Kings Co. — 134 mortgages — $9,652,650.
Said guaranteed mortgage certificates of complainant are part of a series of said series F1 of like tenor issued by the defendant company to an amount not exceeding in the aggregate the principal sum secured by the deposited collateral.
There were on August 4, 1933, outstanding and unpaid guaranteed mortgage certificates in said series F1 in the sum of $27,574,576.37. There were 121 mortgages totaling $27,909,750 underlying the mortgage certificates of series F1.
Although interest on mortgages constituting the underlying security has not been paid by the mortgagors and taxes assessed against such mortgaged property have not been paid, owners are permitted to remain in possession of the mortgaged premises. For instance in series F1: 14 parcels in default for 1933; 16 parcels in default for the years 1932 and 1933; 8 parcels in default for the years 1931 to 1933; 1 parcel in default for the years 1930 to 1933; 1 parcel in default for the years 1929 to 1933.
A similar condition exists as to the underlying bonds and mortgages on the BK series.
On August 4, 1933, the arrears on the properties covered by the 121 mortgages underlying the F1 series were as follows, as reported by the superintendent of insurance:
Taxes ............................. $1,118,119.85
Interest .......................... 805,060.52
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