American Engineering Co. v. Metropolitan By-Products Co., Inc.

• Decision Date: 16 November 1921
• Citation: 280 F. 677
• Parties: AMERICAN ENGINEERING CO. v. METROPOLITAN BY-PRODUCTS CO., Inc. BAILEY et al. v. GARVIN, District judge. MOFFETT v. SAME.
• Court: U.S. Court of Appeals — Second Circuit

280 F. 677

AMERICAN ENGINEERING CO. v. METROPOLITAN BY-PRODUCTS CO., Inc. BAILEY et al. v. GARVIN, District judge. MOFFETT v. SAME.

United States Court of Appeals, Second Circuit.

November 16, 1921

Davison & Underhill, of Brooklyn, N.Y., for petitioners Bailey and others.

Lewis &amp Kelsey, of New York City, for petitioner Moffett.

Before ROGERS, HOUGH, and MAYER, Circuit Judges.

ROGERS Circuit Judge.

Upon petition of George M. Moffett and upon a like application made on behalf of a committee of bondholders and preferred note holders, an order was issued on October 10, 1921 directing the Honorable Edwin L. Garvin, judge of the United States District Court for the Eastern District of New York and the said United States District Court for the Eastern District of New York to show cause on a day named therein why a writ of mandamus should not issue as prayed; the purpose being to require the District Judge to insert in two decrees entered in said District Court on August 5, 1921, a certain provision hereinafter more fully referred to.

The order to show cause came in due time to be heard, and counsel representing all the various interests concerned appeared before us, and the matter was argued at length.

In announcing the disposition which we think should be made of the application for the writ it is necessary to refer to certain facts that the matter of this application may be better understood.

The United States District Court for the Eastern District of New York, acting on the application of the American Engineering Company, appointed receivers of all the property and assets of the Metropolitan By-Products Company on November 19, 1917. The court authorized the receivers to manage and operate the business of the Metropolitan Company and to continue the performance of its contract with the city of New York, which was a contract for the disposal of the garbage of the boroughs of Manhattan, the Bronx, and Brooklyn.

On September 27, 1918, the receiver petitioned for leave to discontinue the business, stating that he was unable to continue the business at a profit, and the business was discontinued. For some time prior to discontinuance the business had been carried on at a loss. But during the period the receivers were operating the plant they had borrowed considerable money with the approval of the court, and receivers' certificates had been issued under authority conferred by the court. The question then arose as to the power of that court to give to the holders of the receivers' certificates priority over prior lien creditors, and as to the rights of special and general creditors of the receivers and the general creditors of the Metropolitan Company.

On November 26, 1918, an order had been made and entered in the creditors' suit brought by the American Engineering Company against the Metropolitan By-Products Company, permitting the Title Guaranty & Trust Company to institute in the District Court as complainant a suit against the Metropolitan Company and others to foreclose a certain trust mortgage under which the said Title Guaranty & Trust Company was trustee. And a second foreclosure suit was also brought in the same court by the Columbia Trust Company against the Metropolitan Company.

The matters in controversy in these suits and the respective rights of the creditors were referred to a special master. On the coming in of his report the District Court entered an order decreeing the foreclosure of the mortgage, directed that the property of the Metropolitan Company be sold, fixed and determined the relative rank and priority of the various liens and charges affecting the property, and directed the distribution of the proceeds of the sale in the manner set forth in the order. From that decree an appeal was taken to this court, and was determined by us in an opinion filed on June 23, 1921, 275 F. 34.

We held that the Metropolitan Company was a private, and not a quasi public, corporation, and that, being such, the lower court was without power to give the receivers' general creditors priority over the Metropolitan Company's prior lien creditors without their express consent. The lien creditors had a right to rely upon the liens they had contracted for. We held that debts contracted by the receiver, whether upon general credit or upon an express agreement with the receiver only for a lien prior to all other liens, were not entitled to priority; the theory being untenable that the indebtedness incurred was for the preservation of the property. And we indicated our belief that the indebtedness in this case was not incurred for the preservation of the property, but for the continued operation of the business, because the receivers believed it was about to become profitable. We indicated 'that a charge for actual preservation (of the property) from destruction, as for watchmen,' might be given a preference, 'because such services could not in the nature of things be had on credit. ' A like intimation was made as to a charge for premiums of insurance if insurance could not be obtained except upon such terms.

The decree as entered was reversed, and the court below was directed to enter a decree in accordance with our opinion.

Thereafter the attorneys and solicitors for the respective parties noticed for settlement a decree purporting to correct, amend, and resettle the decree in the lower court in conformity with our opinion.

Thereafter, and on August 5, 1921, the District Judge entered two decrees, one in American Engineering Company v. Metropolitan By-Products Company, Inc. and one in Title Guaranty & Trust Company, as trustee, v. Metropolitan By-Products Company, Inc., no doubt intending that such decrees should in all respects conform with the decision of this court above referred to. At the time these new decrees of August 5th were settled counsel for the Columbia Trust Company proposed to the District Court decrees substantially the same as those entered except for a single paragraph in each of the decrees. The paragraph as proposed by counsel was as follows:

'Nothing herein contained shall prevent application at the foot of this decree on account of claims not already adjudicated for disbursements made solely for the actual preservation from destruction of the mortgaged property; but this court does not decide whether such claims, if any, should be allowed priority over the liens of the mortgages and preferred noteholders.'

The court, however, modified the paragraph and made it read as follows:

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