Badenhausen v. Guaranty Trust Co. of New York
| Decision Date | 02 August 1944 |
| Docket Number | No. 5249.,5249. |
| Citation | 145 F.2d 40 |
| Parties | BADENHAUSEN et al. v. GUARANTY TRUST CO. OF NEW YORK et al. GUARANTY TRUST CO. OF NEW YORK et al. v. SEABOARD AIR LINE RY. CO. et al. |
| Court | U.S. Court of Appeals — Fourth Circuit |
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Abraham Mitnovetz, of New York City, and James H. Price, of Greenville, S. C. (Harry O. Levin, of Baltimore, Md., James D. Poag, of Greenville, S. C., and Llewellyn S. Richardson, of Norfolk, Va., on the brief), for appellants.
W. H. B. Simpson, pro se.
Edwin S. S. Sunderland, Leonard D. Adkins, and Irwin L. Tappen, all of New York City , for appellees.
Before PARKER, SOPER, and DOBIE, Circuit Judges.
This appeal is taken from a decree of the District Court in an equity proceeding, whereby a plan for the reorganization of the Seaboard Air Line Railway Company, prepared by a special master, was approved after it had been modified in certain particulars in accordance with proposals of a Conference Committee of representative secured creditors appointed by the court.
The Railway Company has been in receivership for more than thirteen years.1 On December 23, 1930 receivers were appointed in the District Court of the United States for the Eastern District of Virginia in an equity suit brought by an unsecured creditor; and on the same day the same receivers were appointed in ancillary proceedings in the District Court of the Southern District of Florida. During this period bills for foreclosure have been filed in the cause by the trustees under various mortgages secured by Seaboard property and all of these proceedings have been consolidated in the cause pending in the Virginia District.
Several efforts have been made to effect a plan of reorganization. In 1935 at the instance of the court the receivers made studies and proposals looking toward a reorganization, but the earnings of the Railway were so poor that the principal secured creditors opposed the formulation of a plan at that time. On October 27, 1939 the court appointed Tazewell Taylor of Norfolk, Virginia, special master to prepare and submit a plan of reorganization. He conducted extended hearings during forty days at various times in 1940, 1941 and 1942, took evidence, received statistical studies, plans submitted by parties in interest, and finally on July 20, 1943, after a prolonged study of the complex factual material, submitted his report. Proposed plans were filed with the special master by the Consolidated Committee, representing the holders of the First and Consolidated Mortgage, one of the general mortgages of the system, and by the Underlying Committee representing the bonds under ten separate underlying mortgages on the Seaboard system. The Consolidated Committee employed Miles C. Kennedy, an expert engineer or statistician, and the Underlying Committee employed William Wyer, likewise an expert in railroad accounting and reorganization. Both experts testified as witnesses in the case. Hearings in the District Court upon exceptions to the master's report took place at three sessions, aggregating thirteen days in October, November and December, 1943. In the interval between the second and third sessions a Conference Committee appointed by the court considered the testimony that had been offered, conferred with interested parties and recommended modifications of the master's plan, which the court approved.
The Seaboard's Secured Debt.
During the receivership the receivers have purchased approximately $34,000,000 of outstanding receivers' certificates and other secured obligations of the system, most of which were acquired under orders of the court without prejudice to the claims of the parties as to the application of the funds. The receivers have also spent more than $50,000,000 in improvements to the system.
The unsecured claims, principal and interest, amount to $1,193,723.97 as of August 1, 1942. The par value of the outstanding capital stock, preferred and common, aggregates $85,110,662.21.
The insolvency of the Railway Company is not disputed and the plan makes no provision for the participation in the new company of the preferred or common stockholders or the unsecured creditors of the old company. No objection to the plan on this account is raised on this appeal.
The New Capitalization.
The special master's plan of reorganization proposes that all of the properties owned by the Seaboard, all the wholly owned or partly owned subsidiaries, and all the leased lines shall be included in one railroad system. The plan involves two fundamental features: (1) A reduced capitalization for the new company composed of various kinds of securities; and (2) the allocation of these securities among the many classes of secured creditors of the present company. The proposed new capitalization is based upon the earnings, history and prospects of the Railway, as found by the special master. The operating revenues during the fifteen year period ending in 1940 were greatest in the year 1926 when $71,274,835 with a total gross income of $14,640,842 was received. The lowest receipts occurred in 1932 when these figures were $30,791,618 and $720,031 respectively. In 1940 they were $48,596,779 and $4,761,958 respectively. The average annual gross income for the ten year period 1931-1940 was $2,936,004 and for the five year period 1936-1940 $3,718,053. A marked increase occurred in the succeeding three years as is shown by the following tabulation.
Gross
Operating Gross
Revenues Income
1941 ........... $ 64,729,178 $10,664,016
1942 ........... 110,467,787 34,566,102
1943 (estimated) 137,000,000 28,000,000
It is of course recognized that this great increase is due to war activities which will not continue and that upon the recurrence of normal times a very great shrinkage is inevitable. With these facts in view the capitalization finally proposed by the special master as of January 1, 1944 is as follows:
Annual
Charges,
To Be Assumed Interest
or Issued on and
Title of Issue Reorganization Dividends
Rentals and misc. charges, undisturbed ......................... $ 110,000
Undistributed Receivers' Equipment Trusts ...................... $ 11,870,000 336,000
First Mortgage Forty Year 4% Bonds, Series A (distribution) .... 32,500,000 1,300,000
____________ __________
Total fixed interest debt .................................. $ 44,370,000
Total annual fixed charges ................................. $1,746,000
Capital Fund (discretionary, not in excess of 3¼% of Total
Railway Operating Revenues or $1,625,000, whichever
is greater .................................................... 1,625,000
Sinking Fund for First Mortgage Bonds Series A (1%) ............ 325,000
Total Annual Charges prior to interest on Income Mortgage
Bonds ......................................................... 3,696,000
Income Mortgage 50-Year 4½% Bonds, Series A .................... 52,500,000 2,362,500
Sinking Fund for Income Mortgage Bonds, Series A
($262,500) ............................................... ____________ __________
Total fixed and
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