Clarke v. Central Railroad & Banking Co. of Georgia

• Decision Date: 30 June 1893
• Citation: 66 F. 16
• Parties: CLARKE v. Central RAILROAD & BANKING CO. OF GEORGIA et al. CENTRAL RAILROAD & BANKING CO. OF GEORGIA v. FARMERS' Loan & TRUST CO. et al. BROWN et al. v. CENTRAL RAILROAD & BANKING CO. OF GEORGIA.
• Court: U.S. District Court — Southern District of Georgia

66 F. 16

CLARKE v. Central RAILROAD & BANKING CO. OF GEORGIA et al.

CENTRAL RAILROAD & BANKING CO. OF GEORGIA v. FARMERS' Loan & TRUST CO. et al. BROWN et al. v. CENTRAL RAILROAD & BANKING CO. OF GEORGIA.

United States Circuit Court, S.D. Georgia, Eastern Division.

June 30, 1893

Calhoun King & Spalding, Leopold Wallace, and M. C. Butler, for the motion.

Lawton & Cunningham, Denmark & Adam, and N. J. & T. D. Hammond opposed.

Before JACKSON, Circuit Justice, and SPEER, District Judge.

JACKSON Circuit Justice.

The receiver is criticised for his connection with and approval of the Hollins & Co. scheme of reorganization, and is charged with the making of reports and representations as to the condition of the Central Railroad, which, it is claimed, have been misleading, and have had the effect to unduly depress the value of its properties and assets. These and certain specific acts of mismanagement constitute the general and special grounds on which the application for his removal is based.

It is not improper for a receiver, in cases like the present, to advise, aid, and encourage reorganization schemes, which offer the prospect of securing the largest measure of protection to the various interests connected with or concerned in the property and assets in the custody of the court, and in the possession of such receiver, for administration and distribution. If the court said anything at Atlanta that was construed to be in conflict with this proposition or idea, it made a wrong impression. What the court intended to say at Atlanta, and what it means to say here and now, is that its receiver, as an officer of the court, should not become a partisan in favor of any particular interests or classes; and that he should not so administer his trust as to represent and promote, either in his dealings with the property or in schemes of reorganization, one interest at the expense or to the prejudice of other interests equally entitled to the consideration and protection of the court and its officers that it was the duty of the receiver, as it was the duty of the court, to act impartially as between all interests. While this is his duty, it is right and proper, and the circuit justice has instructed the receiver (as he wishes the counsel to know) that he may with propriety and in the line of his duty endeavor to bring together the various conflicting interests here involved on some equitable basis or plan that will protect the properties and assets of the Central Railroad from wreck and ruin, and, as far as possible, save the debenture holders, general creditors, and stockholders from loss, or reduce their loss to the lowest minimum; that he could by advice and suggestions aid and encourage a reorganization scheme or schemes which would bring together the interests represented by the Farmers' Loan & Trust Company, the Central Trust Company, the Terminal Company Hollins & Co., Drexel, Morgan & Co., the Southwestern Railroad Company, the Augusta & Savannah Railroad Company and any and all other interested parties, including the Central Railroad, and hold out the prospect of affording the largest measure of security and protection to all concerned, and according to their respective rights, but that in doing this his action or actions should be impartial as between all interests. He may not, in his official character, favor a particular interest at the expense or to the detriment of another. If, in his approval and encouragement of the Hollins & Co. plan of reorganization, he has departed from this rule, he has done wrong. But after a careful examination of his conduct in relation to the Hollins & Co., transaction, and the scheme of reorganization they formulated, I see no evidence of partisanship on the part of the receiver. I fail to discover that in his approval of that scheme, and in his recommendation of its adoption, he was seeking to promote any interest at the expense or to the hurt and injury of other interests. The court may be permitted, after a thorough investigation of the situation, and the condition of the Central Railroad, to say that, in its opinion, it is a great misfortune that the Hollins plan of reorganization could not be carried out. An examination of that scheme since the matter was up at Atlanta has convinced the court that it would have afforded a larger measure of protection to unsecured creditors and stockholders than can be secured or realized from a foreclosure sale without some such scheme to prevent a sacrifice of the property. That scheme provided for the floating debt of the Central Railroad and its stockholders, or the greater portion of them. It did not provide for the Macon & Northern and other bonds on which the Central Company was guarantor, but those bonds had independent security, and, after exhausting such security, could have reached and subjected any surplus proceeds that might have been realized from the sale of the Central's properties and assets. The court does not mean to say that the holders of those guarantied bonds should not have been taken into the scheme of reorganization, and been provided for on some equitable basis, but merely that, in view of the situation, and the condition of the Central's properties and affairs, it is likely to prove unfortunate for the debenture holders, the floating creditors, and the stockholders of the Central Railroad that said scheme could not be carried out. This will be the result inevitably unless the various interests concerned shall come together on some equitable plan of reorganization, which shall seek to protect and promote all interests in the order of their relation and respective rights. Individually and as to a court I trust that this may be done. I have expressed my opinion about...