Delatour v. Meredith

• Decision Date: 21 July 1944
• Docket Number: No. 396.,396.
• Citation: 144 F.2d 594
• Parties: DELATOUR et al. v. MEREDITH et al.
• Court: U.S. Court of Appeals — Second Circuit

144 F.2d 594 (1944)

DELATOUR et al. v. MEREDITH et al.

No. 396.

Circuit Court of Appeals, Second Circuit.

July 21, 1944.

Lloyd B. Kanter, of Brooklyn, N. Y. (Lewis, Marks & Kanter, of Brooklyn, N. Y., and Julius Silver and Jack L. Rappaport, both of New York City, on the brief), for appellants Bondholders' Protective Committee.

Percival E. Jackson, of New York City (Archibald Palmer, of New York City, on the brief), for appellants John Vanneck and others.

Eugene J. Keogh, of New York City (Halpin & Keogh, Edward S. St. John, and Charles J. Zinn, all of New York City, on the brief), for appellees Hunter L. Delatour and Raymond Reisler, as trustees, and Jerome Thralls, as additional trustee, of Realty Associates Securities Corporation, debtor.

Abraham Feinstein, of Brooklyn, N. Y. (Herrick & Feinstein and Arthur L. Feinstein, all of Brooklyn, N. Y., on the brief), for Bondholders' Directors Committee.

James B. Alley, of New York City (Auchincloss, Alley & Duncan and Charles R. Lowther, all of New York City, on the brief), for debtor.

George Zolotar, of New York City (Roger S. Foster, Sol., of Philadelphia, Pa., and Kiva Berke, of New York City, on the brief), for Securities and Exchange Commission.

Before L. HAND, SWAN, and CLARK, Circuit Judges.

CLARK, Circuit Judge.

This appeal brings up the validity of another order of the district court in the proceedings to reorganize Realty Associates Securities Corporation, one aspect of which we had under consideration in Meredith v. Thralls, 2 Cir., 144 F.2d 473, decided July 13, 1944. On November 10, 1943, five days before they were to file the list of the debtor's creditors and stockholders now required under Chapter X of the Bankruptcy Act, § 164, 11 U.S.C.A. § 564, the trustees appointed for the debtor by the court applied under § 166, 11 U.S. C.A. § 566, for an order impounding the list and prescribing terms for its use and inspection. Their petition alleged that promulgation of "the plan" by the disinterested trustees would obviate the necessity for many communications with the bondholders and that such an order would expedite the administration of the estate, preserve for the court that degree of control which Congress intended it should have over reorganization proceedings, and provide those who have reason to communicate with the bondholders, creditors, and stockholders with a manner of making such reason known to the court in making application to obtain authority to use such list for that purpose. The court immediately entered an order impounding the list; and then, after a hearing at which the Securities and Exchange Commission appeared pursuant to § 208, 11 U.S.C.A. § 608, and joined with bondholders in opposing the order, the court granted the petition and entered the order appealed from under date of January 7, 1944. In its opinion justifying the order, the sole ground which the court advanced was its fear that otherwise the bondholders might be induced to sell their securities for less than their true worth. In addition to impounding the list, the order provided that use of the list for the purpose of sending communications to security holders should be permitted only upon separate applications to the court to authorize specific communications, which applications should be on notice to all persons appearing in the proceeding and should request approval by the court of the proposed communications. The Bondholders' Protective Committee and several of the 2,300 individual bondholders of the debtor bring the present appeal, and the Securities and Exchange Commission has again appeared, urging reversal of the decision below.

The applicable statutes are all a part of the Chandler Act of 1938. Section 164 directs that, where a debtor is not continued in possession, the trustee shall prepare and file in court a list of the creditors and stockholders showing the nature of their holdings or claims and their addresses; while § 165, 11 U.S.C.A. § 565, grants power to the court to compel disclosure of such lists from third parties when they are in the possession of neither the debtor nor its trustee. Section 166, under which the court assumed power for the order, provides that the court "may, upon cause shown, direct the impounding" of any list filed under § 164 or § 165, but "shall permit their inspection or use * * * upon such terms as the court may prescribe" by any creditor or stockholder who acquired such status three months or more before the filing of the reorganization petition.

That the controversial order is appealable cannot be doubted. As pointed out in Albin v. Cowing Pressure Relieving Joint Co., 317 U.S. 211, 212, 63 S.Ct. 170, 171, 87 L.Ed. 212, § 24, sub. a, of the Chandler Act, 11 U.S.C.A. § 47, sub. a, makes appealable as of right virtually all interlocutory decrees in proceedings in bankruptcy such as we have here; and this order is surely of enough substance, denying as it does appellants' rights to communicate with other security holders without censorship by the court, to distinguish it from the few exceptions to the general rule of appealability, limited as they are to orders of a purely preliminary nature in advance of actual judicial action. See In re Hotel Governor Clinton, 2 Cir., 107 F.2d 398; Federal Land Bank of Springfield v. Hansen, 2 Cir., 113 F.2d 82, 84, 85. Turning then to the merits, we are of the opinion that there was no sufficient cause within the meaning of § 166 to justify the impounding order. A short survey of the background of that section is, we think, persuasive to that conclusion.

There is no doubt but that the legislation was developed as part of a reform program based on the view that receiverships and reorganizations were strictly inside affairs under the control of managements and investment bankers, wherein the average stockholder and creditor knew little of what was going on and there was no free participation by all those interested in the company in order to evolve the most equitable final arrangement. The key to this situation was held to be the sole possession by those on the inside of the lists of stockholders and creditors. Refusal to disclose these lists enabled the management to forestall any successful organization in opposition to its plan except through the almost prohibitively costly and, in any event, dubiously effective medium of extensive newspaper advertisements aimed at rallying together scattered minority interests. See testimony of Commissioner (now Mr. Justice) Douglas, Hearings before House Judiciary Committee on H. R. 6439 (amended and reported as H.R. 8046), 75th Cong., 1st Sess., 1937, 188. Recognizing the fundamental injustice of such a practice, the regulatory legislation of the past decade has included various corrective steps. First, the Securities and Exchange Commission, pursuant...