Clarke v. Hot Springs Electric Light & Power Co.

• Decision Date: 18 January 1932
• Docket Number: No. 493.,493.
• Citation: 55 F.2d 612
• Parties: CLARKE et al. v. HOT SPRINGS ELECTRIC LIGHT & POWER CO. et al.
• Court: U.S. Court of Appeals — Tenth Circuit

55 F.2d 612 (1932)

CLARKE et al. v. HOT SPRINGS ELECTRIC LIGHT & POWER CO. et al.^*

No. 493.

Circuit Court of Appeals, Tenth Circuit.

January 18, 1932.

Fred R. Wright, of Denver, Colo. (Gail L. Ireland and Clarence L. Ireland, both of Denver, Colo., on the brief), for appellants.

C. R. Latham, of Chicago, Ill., and E. E. Enterline, of Casper, Wyo. (W. T. Alden, of Chicago, Ill., on the brief), for appellees.

Before COTTERAL and PHILLIPS, Circuit Judges, and POLLOCK, District Judge.

PHILLIPS, Circuit Judge.

This suit was brought to foreclose a mortgage on the property of the Hot Springs Electric Light & Power Company given to secure a bond issue of $200,000, and for the appointment of a receiver.

The Hot Springs Company was organized in 1907 under the laws of Wyoming for the purpose of operating an electric light plant at Thermopolis, Wyo. In 1908, the entire capital stock was purchased by H. J. Thompson for $30,000. Thompson caused the company to issue bonds of the face value of $30,000. These bonds were not sold, but Thompson occasionally pledged them as collateral security. Shortly after acquiring the plant, Thompson expended $90,000 in the construction of a hydroelectric plant and $10,000 in replacement of old machinery and equipment. In 1919, the stock of the company was sold to Maurice Singer for $145,000. Such bonds were also delivered to him. Immediately after the purchase Singer caused the company to issue bonds of the face value of $200,000, secured by a trust deed on the company's property, including its franchise. From 1923 until it ceased to operate in 1926, the company passed through an adverse experience. In 1923 the hydroelectric plant was destroyed by floods. It was not rebuilt. There were frequent interruptions in service due to worn out equipment. The transmission system was in poor condition, the wires were inadequate to carry the load of current, and the poles were so dilapidated they were continuously being blown down. There was considerable ill feeling toward the company on the part of its patrons and the town council, and numerous complaints were being made because of poor service. Its bond interest for two or three years prior to 1926 remained unpaid, and its taxes were delinquent.

The total cost of property added from the time Singer acquired the company in 1919 to February 1, 1926, and in service on the latter date, was $37,770. This included two Foos gas engines, which cost $14,650, and which were repossessed by the conditional vendor for default in payments.

On November 4, 1925, Paul Rothwell for himself, H. P. Rothwell, and Erwin Rothwell, entered into an agreement to purchase the assets of the company for $165,000 free and clear of all incumbrances. He also agreed to pay Singer $35,000 for disbursements alleged to have been made by Singer for the company. The agreement provided, among other things, that Nathan Haffenberg, president of the company, should obtain all the outstanding bonds, interest coupons, and capital stock for delivery and cancellation, and releases of all the outstanding indebtedness. Several conferences between Paul Rothwell, Singer, and representatives of certain bondholders followed. Ireland attended some of these conferences. The Rothwells were heavily indebted to him, and he gave as his reason for attending the conferences his desire to protect collaterals pledged to him by the Rothwells.

About the middle of December, Ireland received word from A. D. Johnston, his agent at Thermopolis, that the county treasurer was about to sell the personal property and franchise of the company for delinquent taxes. At a conference held in Chicago about December 17, 1925, between Ireland, Paul and Erwin Rothwell, Haffenberg, and Cuff, who represented certain bondholders, Ireland was persuaded to buy the property at tax sale, after being assured that he would be reimbursed by the bondholders. Ireland thereupon directed his agent at Thermopolis to bid in the property.

The agreement of November 4, 1925, was not consummated because appellants had refused to deposit their bonds, and the bondholders did not reimburse Ireland.

Upon returning to Thermopolis on January 29, 1926, Ireland was advised by his attorneys that, unless he took possession of the property, he might lose his lien under the tax sale. He learned that the Foos gas engines had been repossessed by the conditional vendor; that the company was not meeting its current operating expenses; and that its franchise had expired. The officers of the town complained that the company's service had been most unsatisfactory, and solicited him to apply for a franchise and to operate the electric light plant. Thereupon Ireland took possession of the property, applied for a franchise, and incorporated the Monument Hill Electric Company. He transferred to the new corporation the property purchased at tax sale, and made a contract with the Foos Gas Engine Company for the repurchase of the gas engines.

The Monument Hill Company from the time of its incorporation in February, 1926, occupied the premises of the Hot Springs Company. It used the power house until the fall of 1926, when it commenced purchasing power from The Northwest Transmission Company, which had completed a transmission line from Gebo, where the Owl Creek Coal Company, owned by Ireland, operated a coal mine. The Monument Hill Company built a new distribution system. The old distribution system was abandoned, and the poles were removed by order of the town council. In the summer of 1926, Ireland transferred the stock of the Monument Hill Company to the Northwest Power Company, controlled by the Rothwells, in return for stock of the latter company of the par value of $360,000. The Monument Hill Company's name was then changed to Thermopolis Northwest Electric Company. During the time that Ireland owned the stock of the Monument Hill Company, $80,000 was expended on the plant and system.

The trial court held that the tax sale was void and that Ireland had converted the property, but that a foreclosure of the mortgage would not afford adequate relief. In lieu thereof the court ordered that Ireland and the Thermopolis Company pay into court, for the benefit of appellants and other bondholders of the $200,000 issue, such sum of money as the court upon further hearing should find to be the value of the property and business of the Hot Springs Company, together with such other sums as it should find appellants and the other bondholders were entitled to, less the amount Ireland had paid at the tax sale. The $30,000 bond issue, which had never been sold, was ordered canceled.

After a further hearing the court found the value of the plant of the Hot Springs Company to be $60,000, and the franchise and going concern value to be $20,000. From the aggregate of such values the price paid by Ireland at the tax sale was deducted, leaving $72,000. Interest at the rate of 7 per cent. for four years was then added, making a total of $92,160. Appellants' attorneys were allowed a fee of $10,000 and their expenses out of the fund. Costs were taxed to Ireland and the Thermopolis Company.

The two original plaintiffs, Maurice G. Clarke and Henry T. Clarke, together with John T. Clarke and Ella R. Clarke, have appealed. The two latter appellants filed their claims as bondholders against the fund to be paid into court. Appellants make no objection to the form of relief granted, but complain of the amounts allowed.

The two main questions presented are: (1) Was the amount allowed to the bondholders by the lower court adequate under the circumstances? (2) Should the court have allowed to appellants from the fund recovered certain expenses incurred in connection with this litigation?

Appellants contend that Ireland and the Thermopolis Company should have been required to pay the amount of the purchase price under the contract of November 4, 1925. Ireland was not a party to that contract and was interested therein only indirectly because ...