In re Detroit International Bridge Co.

Decision Date05 April 1940
Docket NumberNo. 8527-8532.,8527-8532.
Citation111 F.2d 235
PartiesIn re DETROIT INTERNATIONAL BRIDGE CO.
CourtU.S. Court of Appeals — Sixth Circuit

John C. Bills, of Detroit, Mich. (Butzel, Eaman, Long, Gust & Bills, of Detroit, Mich., and Cook, Nathan, Lehman & Greenman, of New York City, on the brief), for appellants Butzel, Eaman, Long, Gust & Bills and Cook, Nathan, Lehman & Greenman.

Edward K. Hanlon, of New York City (Beekman, Bogue, Stephens & Black, of New York City, on the brief), for appellants Guaranty Trust Co. and others.

Clifford P. Case, of New York City (Simpson, Thacher & Bartlett, of New

York City, on the brief), for appellants Simpson, Thacher & Bartlett and others.

Robert H. Winn, of Washington, D. C., for Securities and Exchange Commission.

Before HICKS, ALLEN, and HAMILTON, Circuit Judges.

HICKS, Circuit Judge.

These appeals were heard together upon the original papers, Sec. 250, Chandler Act, 11 U.S.C.A. § 650, and involve the question whether the District Court abused its discretion (Dickinson Industrial Site, Inc., v. Cowan et al., Supreme Court March 11, 1940, 60 S.Ct. 595, 84 L.Ed. ___) in the allowance and disallowance of applications of: (1) counsel for the debtor; (2) a bondholders' committee and its counsel; (3) a debentures' committee and its counsel; and (4) depositaries, for fees, services and expenses in the reorganization of Detroit International Bridge Company.

The Bridge Company, debtor, a Michigan corporation, organized in 1927, owns and operates directly (and indirectly through a wholly owned subsidiary, the Canadian Transit Company, a Canadian corporation), the bridge known as the "Ambassador Bridge" across the Detroit river between Detroit and Windsor, Canada. The debtor owns that part of the properties on the American side and the subsidiary that part on the Canadian side of the international boundary. It is one of the world's largest bridges for vehicular and pedestrian travel. It was opened about the close of the year 1929 and was well managed, but, for reasons immaterial to relate, was not a financial success.

It became financially embarrassed early in 1931. It then had outstanding: $11,978,000 of first mortgage bonds, the joint obligation of the debtor and its subsidiary; $8,000,000 of gold debentures, the obligation of the debtor only; $1,405,300 of preferred stock ($100.00 par value); and 100,000 shares of no par value common stock.

In 1930 its gross operating revenue was $892,042.59 and in 1931 its annual interest charges were $1,338,570.00. It defaulted in the payment of interest on its debentures August 1, 1930, and, on its bonds in February, 1931. This gave rise to the organization in 1931 of both the bondholders' and debentures' committees. These committees have been represented since that time by appellants Beekman, Bogue, Stephens & Black, and Simpson, Thacher & Bartlett, respectively, as counsel.

Section 77B, 11 U.S.C.A. § 207, did not become effective until June 7, 1934, and reorganization in bankruptcy was of course not contemplated before that date, but early in 1938 the accrued and unpaid interest on the bonds and debentures amounted to $9,984,632.00. Taxes, including interest and penalties from 1930 to 1938, amounted to $884,073.94 and the liens therefor had priority over the bonds and debentures. The bridge property on the American side was about to be sold for these taxes. This was a matter of imminent peril not only to the debtor but to the security holders as well. Confronted with this situation, the debtor, in February, 1938, employed appellants Butzel, Eaman, Long, Gust & Bills, and Cook, Nathan, Lehman & Greenman as counsel.

Counsel for the debtor and security holders decided upon the following procedure: (1) to institute reorganization proceedings under Sec. 77B; (2) to institute concurrently a similar proceeding for the subsidiary, the Canadian Transit Company, in the appropriate Canadian court; and (3) to secure, if possible, a substantial reduction of past due taxes and a new method of assessment for the future by which the taxes would be sufficiently low to enable the debtor to pay them.

The reorganization plan was proposed by appellant attorneys. The preliminary work, no small task, incident to the preparation of the reorganization petition, was commenced early in 1938 and was participated in by all counsel. The petition itself was prepared by appellants Beekman, Bogue, Stephens & Black and filed on May 26, 1938, and on the same date the same counsel, assisted by Canadian counsel, filed a similar petition in Canada under "The Dominion Companies' Creditors Arrangement Act."

The tax matter was the crux of the situation. Unless it could be settled there would be nothing to reorganize. It was settled through the efforts of counsel for the debtor. It is unnecessary to detail the numerous meetings, hearings, conferences and negotiations with the various taxing authorities of Michigan and Detroit; conferences with the representatives of the bondholders and debentureholders, and with the officers and managers of the debtor itself, together with the preparation of numerous briefs and memoranda and writing of many letters, and many telephone conversations, all of which brought about the result. The negotiations were not only time-consuming but required tact, skill and patience.

The results were, first, a reduction in accrued taxes, interest and penalties of $623,055.38; and second, a new basis of assessment along the lines indicated in the City of Detroit v. Detroit & Canada Tunnel Co., 6 Cir., 92 F.2d 833, by which there was effected a saving in taxes of $68,000 annually for future years. The tax question out of the way, the reorganization could and did proceed swiftly and in order. The plan was confirmed June 27, 1939. The debtor emerged with $429,000 in cash and a bridge conservatively valued at $2,600,000 with the prospect of an annual net profit of $125,000. The security holders and stockholders all of course lost a large amount of money, since the bridge cost around seventeen million dollars, but each holder of a thousand dollar bond received sixteen shares of common stock and each holder of a thousand dollar debenture received two shares. Each holder of two shares of preferred stock received a warrant entitling him to subscribe for common stock at $12.00 a share, and each holder of forty shares of old common stock was entitled to subscribe for one share of the new at the same price.

Exclusive of the tax controversy, appellants Beekman, Bogue, Stephens & Black performed the principal share of the services incident to the reorganization. Messrs. Bogue and Soper of the firm were particularly skilled in reorganization matters. Counsel for the debtor and the debentures' committee, however, shared effectively in the promulgation and prosecution of the plan. Counsel for the debentures' committee filed intervention proceedings for their client. In the early stages large economies were effected and skilled management was insured by dispensing with the appointment of a trustee and continuing the debtor in possession and operation. The proceeding was unique...

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