In re American Fuel & Power Co.

• Decision Date: 09 October 1945
• Docket Number: 9846.,No. 9845,9845
• Citation: 151 F.2d 470
• Parties: In re AMERICAN FUEL & POWER CO. et al. GREEN et al. v. VANSTON BONDHOLDERS PROTECTIVE COMMITTEE et al. EARLY et al. v. SAME.
• Court: U.S. Court of Appeals — Sixth Circuit

151 F.2d 470 (1945)

In re AMERICAN FUEL & POWER CO. et al.

GREEN et al. v. VANSTON BONDHOLDERS PROTECTIVE COMMITTEE et al.

EARLY et al. v. SAME.

Nos. 9845, 9846.

Circuit Court of Appeals, Sixth Circuit.

October 9, 1945.

COPYRIGHT MATERIAL OMITTED

Jay Raymond Levinson, of New York City, and Charles I. Dawson, of Louisville, Ky., for appellants.

Chas. I. Dawson, of Louisville, Ky., H. W. Bowers, of Charleston, W. Va., and Thos. S. Dawson and Woodward, Dawson, Hobson & Fulton, all of Louisville, Ky., on the brief, for appellants Carl B. Early et al.

Baker, Obermeier, Rosner & Rosenson and Oscar S. Rosner, all of New York City, on the brief, for appellants Louis A. Green and Robert Heilbrunn, known as Green Committee, and Morris Green, a creditor.

George W. Jaynes, of Morristown, Tenn., and Robert J. Bulkley and C. J. Odenweller, Jr., both of Cleveland, Ohio (Milbank, Tweed & Hope, of New York City, LeWright Browning, of Ashland, Ky., Robert J. Bulkley, of Cleveland, Ohio, and Richard B. Hand, of New York City, on the brief), for appellees.

Charles J. Odenweller, Jr., and Frank D. Emerson, both of Cleveland, Ohio, Roger S. Foster, Theodore L. Thau, David Ferber, and Alexander Cohen, all of Philadelphia, Pa., on the brief, for Securities and Exchange Commission.

Before HICKS, SIMONS, and MARTIN, Circuit Judges.

MARTIN, Circuit Judge.

The background of the present appeals need not be elaborated, for the reason that the historical setting has been fully revealed in Columbia Gas & Electric Corporation v. United States, 6 Cir., 151 F.2d 461. A brief resume should suffice.

The Inland Gas Corporation is a subsidiary of its parent holding company, the American Fuel & Power Company, which owned substantially all its stock as well as the controlling interest in other gas utilities, including the Kentucky Fuel Gas Corporation. By actions thought to be inequitable and in violation of the Anti-Trust Laws of the United States, the Columbia Gas & Electric Corporation, a huge natural gas utility, attempted to destroy the threatened competition of the American Fuel & Power Company system. In consequence of this effort, Columbia had acquired, by early December, 1930, nearly forty per cent of the $4,400,000 first mortgage bond issue of the Inland corporation and slightly more than forty per cent of the $4,000,000 first mortgage bond issue of the Kentucky Gas Corporation. Columbia had also acquired more than seventy per cent of the stock of the American Fuel & Power Company and a substantial amount of the debenture bonds of both its subsidiaries, Inland and Kentucky.

Columbia instigated an equity receivership for both Inland and Kentucky; and, later, a foreclosure bill was filed by the trustee for the first mortgage bondholders of Inland. A petition for sequestration of the latter's income for their benefit was filed simultaneously. The district court extended the equity receivership and sequestered the income of Inland, as prayed. On October 15, 1935, a representative committee filed, on behalf of some of the first mortgage bondholders, a petition for the reorganization of the Inland Gas Corporation in the same district court, that for the Eastern District of Kentucky. Shortly thereafter, the district court approved the petition for reorganization.

On February 4, 1939, the district court confirmed the sale of the physical assets of the Kentucky Fuel Gas Corporation to Inland for a consideration of $151,192.48. The Trustee for the debtor, Inland, served in like capacity for the debtor, Kentucky Fuel Gas Corporation.

In the reorganization proceeding pertaining to the debtor, Inland Gas Corporation, a petition was filed on November 3, 1943, by a committee, known as the Van Horn Committee, formed for the protection of the first mortgage bondholders of the debtor. Setting up that the trustee of the debtor corporation had on hand securities and cash in excess of two and a half million dollars, and that the item of cash was amply sufficient for the debtor's working capital, and asserting the first lien of the first mortgage bondholders on the assets, the petition prayed for a partial distribution of fifty per cent, on account of the amount due on each first mortgage bond. The Vanston Bondholders Protective Committee also represents holders of Inland's six-and-a-half per cent first mortgage sinking fund bonds, and, likewise, as evidenced by its position assumed on this appeal, desires a partial distribution to the first mortgage bondholders.

The Trustee responded to the petition, reported the existing situation, and sought the court's determination of the questions presented. Various responses, petitions and objections were filed by interested parties, including second mortgage bondholders, Carl B. Early and others, and the so-called Green Committee, representing note-holders of the American Fuel & Power Company, and holders of certificates of deposit issued by the Lilienthal Committee for that company's notes; and by Morris Green, as creditor in both the Inland Gas Corporation and the Kentucky Fuel Gas Corporation proceedings.

The district court proceeded to a hearing of the application for distribution upon all the pleadings, and upon the record and proceedings previously had in the three bankruptcy causes, relating respectively to the American Fuel & Power Company, the Kentucky Fuel Gas Corporation, and the Inland Gas Corporation. After receiving evidence, hearing arguments, and considering briefs filed by the contending parties, the district court entered an order and judgment which embraced findings of fact and conclusions of law; but no opinion was filed.

These findings of fact were as follows:

"I. No intervening liens were perfected on any of the assets of the Inland Gas Corporation between the time of the appointment of the equity receiver of the said company and the appointment of the Trustee in Bankruptcy of said Company.

"II. The Mortgage or Deed of Trust, dated February 1, 1928, between the Inland Gas Corporation and the Chatham-Phoenix National Bank and Trust Company and James F. McNamara, Trustees, securing the Inland Gas Corporation First Mortgage 6½% Sinking Fund Gold Bonds, Series A, due February 1, 1938, by the terms thereof gave said Bondholders a first lien on the assets of the Inland Gas Corporation described in said Mortgage or Deed of Trust; and in addition thereto a first lien on all after acquired property and the net earnings from the conduct of the business of Inland Gas Corporation.

"III. The cash on hand and securities held by Ben Williamson, Jr., as Trustee of the Inland Gas Corporation, were acquired and accumulated through the operation by the equity receiver of the Inland Gas Corporation and by Ben Williamson, Jr., as Trustee of the Inland Gas Corporation and by his predecessor Trustee, (a) Through the operation of the gas properties which were owned by Inland Gas Corporation prior to the time of the appointment of the equity receiver of said Corporation, all of which property was subject to the first lien of the Mortgage or Deed of Trust hereinabove referred to. (b) Through the operation of the gas properties which were subsequently acquired by the equity receiver or the Trustee in Bankruptcy of said Inland Gas Corporation, pursuant to appropriate orders of this Court, and all of which properties were paid for with funds of the estate which otherwise would have been held for the benefit of the First Mortgage Bondholders of the Inland Gas Corporation. (c) Through the purchase of gas which was not produced from property owned or leased by the Inland Gas Corporation or the equity receiver of said Corporation or the Trustee in Bankruptcy of said Corporation, but which gas was paid for out of the funds which otherwise would have been held, subject to the orders of this Court, for the benefit of said First Mortgage Bondholders of Inland Gas Corporation and which gas was marketed and sold by the equity receiver or Trustee in Bankruptcy of said Corporation by the use of funds, property, and facilities of the estate owned and held by Inland Gas Corporation or the Trustee in Bankruptcy of said Corporation."

Upon these findings of fact, the district court, without citation of authorities, adjudged "the law applicable to the respective issues." This adjudication was in the form of conclusions of law.

The first conclusion stated that the terms and provisions of the mortgage "gave to the holders of the Inland Gas Corporation First Mortgage 6½% Sinking Fund Gold Bonds, Series A, due February 1, 1938, a first lien to secure the payment of said Bonds and the coupons attached thereto and interest thereon on all of the property of the Inland Gas Corporation described therein and on all after acquired property and net earnings of the Inland Gas Corporation, of the equity receiver, and of the Trustee in Bankruptcy of said Corporation."

The court's second conclusion declared that the first mortgage bondholders have a first lien on the properties acquired by the equity receiver and by the trustee in bankruptcy of the Inland Corporation, "which properties were acquired pursuant to appropriate orders of this court and paid for out of the funds which otherwise would have been applicable to the payment of said First Mortgage Bonds and coupons and interest thereon."

The third conclusion of law was thus stated: "The net earnings derived by the Trustee in Bankruptcy of said Inland Gas Corporation and by the equity receiver of said Corporation from the operation of the properties owned by the Inland Gas Corporation, including property acquired subsequently by said receiver and by said Trustee in Bankruptcy and further including the net income from the purchase and sale of gas by the receiver and by said Trustee, is subject to the lien of said Mortgage or Deed of Trust; and that said funds, subject to the orders of this Court, are held by the Trustee in Bankruptcy of said Corporation for the benefit of said...