Habirshaw Electric Cable Co. v. Habirshaw Electric Cable Co., Inc., 269.

• Decision Date: 22 January 1924
• Docket Number: 269.
• Parties: HABIRSHAW ELECTRIC CABLE CO. v. HABIRSHAW ELECTRIC CABLE CO., Inc., et al. BONDHOLDERS' COMMITTEE OF DECEMBER 1, 1921, et al. v. COMMITTEE OF CREDITORS.
• Court: U.S. Court of Appeals — Second Circuit

296 F. 875

HABIRSHAW ELECTRIC CABLE CO. v. HABIRSHAW ELECTRIC CABLE CO., Inc., et al.

BONDHOLDERS' COMMITTEE OF DECEMBER 1, 1921, et al. v. COMMITTEE OF CREDITORS.

No. 269.

United States Court of Appeals, Second Circuit.

January 22, 1924

Larkin Rathbone & Perry, Murray, Prentice & Aldrich and Rabenold &amp Scribner, all of New York City (Henry V. Poor, Winthrop W Aldrich, and Charles E. Scribner, all of New York City, of counsel) for appellants.

Lowenthal Szold & Perkins, of New York City (Max Lowenthal and Maxwell Brandwene, both of New York City, of counsel), for appellees.

Appeal by Potter and others, constituting a committee of bondholders, and Malcolm D. Whitman and others, constituting a reorganization committee, from an order entered by the District Court for the Southern District of New York on January 4, 1924, which 'ordered, adjudged, and decreed' that E. N. Potter and others, constituting a committee under a 'Deposit Agreement' dated December 1, 1921, and Malcolm D. Whitman and others, constituting a committee under a 'Plan and Agreement' dated June 20, 1923, and their agents, be 'enjoined from making any use whatsoever of the bonds and claims of the bondholders and claimants represented by' certain petitioners 'or from performing any act or thing as the attorneys in fact or representatives of the said bondholders and creditors, and from incurring any expenses or performing any other services on behalf or at the expense of said bondholders and creditors, and from in any manner pledging or otherwise incumbering the bonds and claims of said bondholders and creditors, and from borrowing any sums of money for which said bondholders and creditors may be or become liable'; that the said bondholders and creditors mentioned in the petition herein who have deposited their bonds, notes, claims and other securities with said committees, be, and they are, authorized to withdraw, and the said committee of December 1, 1921, and the said committee of June 20, 1923, be, and they hereby are, ordered and directed forthwith to return and to deliver to said bondholders and creditors the bonds, notes, claims, and other securities of said bondholders and creditors in the control of said committees or of each of them or their depositaries; that a lien and charge be, and it hereby is, declared on the interest of each of said bondholders and creditors respectively, in the property of the plaintiff and defendant companies, to the extent of the pro rata shares of such expenses, if any, of the committee or committees as are properly chargeable and apportionable to the bonds, notes, claims, and securities, respectively, withdrawn and returned; and that there shall be noted on each bond, note, assignment, or other security thus returned a statement that the distributive share of each bond, note, assignment, or other security in the property of the plaintiff and the defendant corporations is subject to a lien for the aforesaid charges; that if such charges and expenses cannot be agreed upon by the parties, 'any of the parties may apply to this court for a that connection as may be just and equitable.'

There were conflicting claims by the different classes of creditors as to their respective rights. The reorganization plan and agreement of June 20, 1923, was the result of long negotiations. The reorganization committee was composed of representatives from each class of creditors and, in the plan, different relative values were given to the respective classes of claims.

One of the difficulties which confronted the effort to reorganize was a large claim of the United States arising out of advances under contracts for the manufacture of war material, and this claim the United States asserted was entitled to priority.

The details of the plan need not be set forth. On September 14, 1923, about 79 per cent. of all the creditors (except the United States) had assented to the plan.

At a meeting of the reorganization committee on October 1, 1923, the deposited claims then amounting to 80 per cent., the committee declared the plan operative and notified the creditors accordingly on October 3, 1923.

To carry out the plan, a sale of the assets was necessary and the hearing of an application therefore was delayed pending negotiations for settlement of the claim of the United States. This claim was finally disposed of for $379,000.

The application for an order of sale came on to be heard before the court on October 25, 1923. At that time, there had been deposited under the reorganization plan of June 20. 1923, claims as follows:

Merchandise and sundry claims . . .	$1,403,217.21
Bank claims. . . .	1,589,208.01
Debenture bonds out of a total outstanding of $1,894,500 . . .	1,514,000.00
Total . . .	$4,506,425.22

The appellees here, a creditors' committee consisting of Randolph Whitman, Rollin Kirby, and B. J. Reis, represent $54,000 of the deposited debenture bonds and $12,082.61 of other deposited claims. They, with a stockholders' committee and a merchandise and sundry claims committee, representing claims aggregating about $165,000, opposed the sale and offered several objections.

The district judge concluded that a sale should not take place and in an oral opinion carefully pointed out the respects in which he thought objections were well taken. It had been contemplated under the plan to raise $1,500,000 new money based on the balance sheet of March 31, 1923. In November,

1923, however, the financial affairs of the receivership had improved to a point where the court thought that $1,000,000 would be sufficient, and thus the assessment on creditors correspondingly decreased.

No order was entered upon this opinion, but the reorganization committee promptly and unanimously adopted modifications to the plan to meet the objection as to the amount of new money and certain other objections.

The creditors were notified of these modifications in a letter dated December 14, 1923, in which it was stated that this letter constituted an informal statement of the modifications of the plan and its practical effect, subject to the formal papers embodying the same, which would shortly be mailed to them.

Randolph Whitman, as chairman of the committee of objection creditors, from the time of the first hearing on the reorganization committee's application for an order of sale, had circularized the creditors, both those who had deposited under the plan and those who had not and had called for proxies with which to oppose the plan, without any expense to the creditors. Immediately after the court's opinion of November 16th, he solicited from the depositing creditors proxies authorizing him to request the withdrawal of their claims. On December 5, he served on counsel for the reorganization committee a demand on behalf of $54,000 of bondholders and $12,082.61 of merchandise and sundry creditors for the return of their deposited bonds and claims, and, on December 10, 1923, he served a petition and notice of motion for an order requiring the return of such claims, and enjoining the further use or representation of them by the reorganization committee. This petition came on to be heard on December 14th, was argued before the District Court, and an opinion was filed.

In this opinion, it is stated that the bonds and claims may be withdrawn and shall be returned by the reorganization committee upon payment of the pro rata share of the expense of the reorganization committee up to that time. The order supra, entered thereon on January 4, 1924, however, which is the order appealed from, goes further than this and requires the return of the claims without payment of the pro rata share of such expenses, and merely charges the same as a lien on the interest of each of such bondholders and claimants, respectively, in the property of plaintiff and defendant companies, providing that there shall be noted on each bond or claim thus returned a statement that the distributive share of the property of the companies is subject to a lien for such charges.

In the opinion infra, the 'Supplemental Record' is not considered (1) because not stipulated by counsel for Potter et al., and (2) because the affidavits therein contained were not before the court when it made its order, having been verified thereafter. To avoid misunderstanding and further controversy on this point, it is stated that, had this court considered the supplemental record, the result infra would have been the same.

Before ROGERS, MANTON, and MAYER, Circuit Judges.

MAYER Circuit Judge (after stating the facts as above).

1. Appellees have moved to dismiss the appeal 'on the ground that the questions involved are moot and for want of jurisdiction, or to affirm.'

The order appealed from contains a restraining injunction and a mandatory injunction. Each is the complement of the other and, indeed, so intertwined as not to be separable. But, if we view the order as divisible in two parts, the restraining feature comes too obviously under section 129 of the Judicial Code (Comp. St. Sec. 1121) to require anything but the statement of that fact. It is contended that the provision as to declaring a lien on the returned or withdrawn claims and securities deprives the latter part of the order of finality. Courts seek not to mistake form for substance. Nothing could be more characteristically final than a mandatory order 'forthwith to return and deliver' the claims and securities referred to. The provision as to a lien is wholly incidental. The point is quite different from that considered in our recent decision in Perfection Cooler Co. v. Rotax Co., Inc., 296 F. 464, decided January 7, 1924, which fully reviewed an important question of procedure. Chadeloid Chemical...