Cameron County Water Imp. Dist. No. 1 v. Ashton, 7830.

• Decision Date: 03 March 1936
• Docket Number: No. 7830.,7830.
• Citation: 81 F.2d 905
• Parties: CAMERON COUNTY WATER IMPROVEMENT DIST. NO. 1 v. ASHTON et al.
• Court: U.S. Court of Appeals — Fifth Circuit

81 F.2d 905 (1936)

CAMERON COUNTY WATER IMPROVEMENT DIST. NO. 1 v. ASHTON et al.^*

No. 7830.

Circuit Court of Appeals, Fifth Circuit.

March 3, 1936.

W. B. Lewis, of Harlingen, Tex., and Vincent M. Miles, of Fort Smith, Ark., for appellant.

Palmer Hutcheson and W. P. Hamblen, both of Houston, Tex., and Joyce Cox, of Galveston, Tex., for appellees.

Before FOSTER and SIBLEY, Circuit Judges, and DAWKINS, District Judge.

FOSTER, Circuit Judge.

This is an appeal from a judgment dismissing on the ground of want of jurisdiction a proceeding brought by Cameron County Water Improvement District No. 1, an irrigation district of Texas, to have approved and made effective a plan of readjustment of its bonded indebtedness, under the provisions of the Act of May 24, 1934, c. 345 (48 Stat. 798).

The act is amendatory and supplemental to the National Bankruptcy Act of 1898, adding chapter 9, §§ 78, 79 and 80, to the act (11 U.S.C.A. §§ 301-303). It is somewhat lengthy and in considerable detail as to the plan of readjustment to be proposed and the action of the court thereon, but its salient provisions may be somewhat briefly stated, as follows:

Section 79 (11 U.S.C.A. § 302) limits the life of the act to two years after passage and vests jurisdiction in courts of bankruptcy over proceedings for the relief of political corporations, as provided in the act, in addition to their original jurisdiction in bankruptcy. Section 80 (11 U.S. C.A. § 303) provides that any municipality or other political subdivision of any state, including irrigation districts among others named, may file a petition stating that the taxing district is insolvent or unable to meet its debts as they mature and that it desires to effect a plan of readjustment of its debts. Jurisdiction is given to the court in whose territorial jurisdiction the taxing district or a major part thereof is located. The section further provides that the petition shall state that a plan of readjustment has been prepared, is filed and submitted with the petition, and that creditors to be affected, not less than 30 per cent. in the case of an irrigation district, have accepted it in writing; the written acceptances, with a list of all known creditors of the taxing district with their addresses, so far as known, and a description of their respective claims to be filed with the petition. Upon the filing of such petition the judge shall enter an order approving it as properly filed under the chapter, if satisfied that such petition complies with the chapter and has been filed in good faith, but dismissing it if not so satisfied. In the case of an irrigation district the plan of readjustment shall not be confirmed until it has been accepted in writing by 66 2/3 per cent. of the creditors affected. If the filing of the petition is approved, the judge may require the taxing district to give such notice as the order may direct to the creditors and cause publication to be made at least once a week for three successive weeks of a hearing to be had within 90 days after the approval of the petition, for the purpose of considering the plan of readjustment and any changes or modification thereof that may be proposed. If creditors holding 5 per cent. in amount of the debts sought to be readjusted shall, within 90 days after the first publication of the notice, appear and controvert the facts alleged in the petition, the judge shall decide the issues presented and, unless the material allegations of the petition are sustained, shall dismiss the petition. The act (section 80 (k), 11 U.S. C.A. § 303 (k) contains this important provision: "Section 80. (k) Nothing contained in this chapter shall be construed to limit or impair the power of any State to control, by legislation or otherwise, any political subdivision thereof in the exercise of its political or governmental powers, including expenditures therefor, and including the power to require the approval by any governmental agency of the State of the filing of any petition hereunder and of any plan of readjustment, and whenever there shall exist or shall hereafter be created under the law of any State any agency of such State authorized to exercise supervision or control over the fiscal affairs of all or any political subdivisions thereof, and whenever such agency has assumed such supervision or control over any political subdivision, then no petition of such political subdivision may be received hereunder unless accompanied by the written approval of such agency, and no plan of readjustment shall be put into temporary effect or finally confirmed without the written approval of such agency of such plans."

The suit was filed on July 17, 1934, after the passage of the act, but the original petition is not in the record. An amended petition was filed August 22, 1934. It substantially alleges that petitioner is an irrigation district having approximately 240,000 acres of land within its boundaries, wholly located in Cameron county, Tex., and has been in operation for something like 20 years, aiding and encouraging agriculture and supplying water to farmers to irrigate their lands and produce their fruit and vegetables; that about 2½ years prior thereto the country entered into a general financial depression, causing great reduction in the price which the farmers received for their fruit and vegetables, the prices being so low they did not pay the cost of production, thereby making it impossible for the farmers of said district to pay their flat rates and bond tax; that petitioner is insolvent and unable to meet its debts as they mature and desires to effect a plan of readjustment of its debts as provided by section 80; that petitioner has outstanding approximately $800,000 of bonds, bearing 6 per cent. interest and maturing serially, which are annual obligations against the district; that petitioner realizing its inability to meet its debts began to work out some kind of a plan to adjust them that would be fair and equitable to both the district and the bondholders and applied to the Reconstruction Finance Corporation for a loan to liquidate said indebtedness; that on January 13, 1934, the Reconstruction Finance Corporation authorized a loan to the district of $400,000, for the purpose of refunding these bonds at 49.8 cents on the dollar, which would enable petitioner to reduce its bond taxes at least two-thirds and would make the district financially sound; that the plan had been accepted in writing by the holders of more than 30 per cent. of the bonds; that petitioner will be able to secure the approval of more than 66 2/3 per cent. of all the bonds at a hearing, as provided for in section 80 (d) of the act (11 U.S.C.A. § 303 (d). The petition contained a copy of an order of the Reconstruction Finance Corporation authorizing the appropriation of the funds to be loaned and the conditions to be complied with as to the deposit and surrender of the bonds, a copy of the resolutions of the board of directors of petitioner accepting the loan for the purpose intended, a list of persons holding more than 30 per cent. of the outstanding bonds who had accepted the plan, with their addresses, and a copy of a letter to the bondholders submitting the plan.

On August 22, 1934, the court entered an order approving the petition as filed in compliance with the provisions of the act in good faith and directing petitioner to give notice as required by law to the bondholders, to publish a notice in the Bond Buyer of New York, for three successive weeks, and directing that a hearing be had on the petition at Houston, Tex., the 1st day of December, 1934.

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