In re Drainage Dist. No. 7 of Poinsett County, Ark.
| Decision Date | 27 December 1937 |
| Citation | 21 F. Supp. 798 |
| Parties | In re DRAINAGE DIST. NO. 7 OF POINSETT COUNTY, ARK. (LUEHRMANN et al., Interveners). |
| Court | U.S. District Court — Eastern District of Arkansas |
Chas. D. Frierson, of Jonesboro, Ark., for petitioner.
Archer Wheatley and A. P. Patton, both of Jonesboro, Ark., for W. B. Chapman, trustee, representing majority creditors.
Vincent Miles, Sp. Asst. Atty. Gen., for the United States.
Chas. D. Long, of St. Louis, Mo., and J. B. Daggett, of Marianna, Ark., for objecting bondholders Luehrmann et al.
C. T. Carpenter, of Marked Tree, Ark., and J. T. Coston, of Osceola, Ark., for objecting creditor.
The petition of Drainage District No. 7 of Poinsett County, Arkansas, was filed on September 15, 1937, accompanied by the written consent of W. B. Chapman, trustee, claiming to be representative of more than 90 per cent. of the holders of the original bonds and coupons of the district, and also to be the owner and holder of more than 80 per cent. of the judgments against the district.
On October 2, 1937, I ordered a hearing to be set for December 17, 1937, and, pursuant to Public No. 302 of the 75th Congress, being an amendment to the Bankruptcy Act, containing chapter 10, sections 81-84, inclusive, approved August 16, 1937, 11 U.S.C.A. §§ 401-404, I directed the publication of a notice in a local newspaper of Poinsett County, and also in the St. Louis Globe-Democrat, of St. Louis, Missouri, and also directed the clerk to mail out, at petitioners expense, copies of the notices to all creditors named in the petition and exhibits.
On December 17, 1937, the petitioner and objectors were ready to proceed, but this court was engaged in the trial of another cause and upon its own motion the hearing was continued to December 20th, at which time George E. W. Luehrmann and several other bondholders filed a motion to dismiss and, J. G. Haverstick, a judgment creditor, also filed a motion to dismiss, first being granted leave of court to withdraw the answer previously filed for the purpose of filing a motion, reserving the right to answer later if the motion to dismiss be overruled.
Being informed that the constitutionality of said debt composition act was drawn in question in this proceeding, I followed the provisions of Act of August 24, 1937, being Public 352 of the 75th Congress, 28 U.S.C.A. § 349a, which act provides that when the constitutionality of an act of Congress is drawn in question, and in the opinion of the court said question of constitutionality affects the public interests and that neither the United States nor any agency of the government is a party to said proceeding, the court shall notify the Attorney General and permit the United States to intervene, I rendered an order notifying the Attorney General, and the special assistant, acting for the Attorney General and being present in court, immediately waived the time granted for the filing of the intervention of the United States and filed the same forthwith.
And all the parties, including the United States by the Attorney General, the petitioner, the majority creditor, the objecting bondholders, and objecting judgment creditor, agreed that the first question necessary to decide was whether or not said amendment to the Bankruptcy Act containing chapter 10, sections 81 to 84, inclusive, 11 U.S.C.A. §§ 401-404, were constitutional, and all parties agreed that, in order to minimize costs and labor, the constitutionality of the act was the essential thing for speedy determination. The matter was argued very fully.
There is some repetition in the motions, but the various objections as to constitutionality are that the act is not a uniform law on the subject of bankruptcies; that it sets up an arbitrary definition of insolvency; that it transgresses section 8 of article 1 of the Constitution of the United States because it invades the sovereignty of the State of Arkansas and its governmental agencies; that it violates the Fifth Amendment because it authorizes taking of private property for public use without just compensation; that it permits a state agency to repudiate its debts; that it permits a state agency to impair its contract obligations; that it permits property to be taken without due process of law.
The petition recites that the district is a drainage district having also the power to construct levees and that its improvements are devoted chiefly to the reclamation and improvement of the lands therein for agricultural purposes, all of said lands within the district being located in Poinsett County and within this district, and the petitioner claims to be such an agency as is embraced within chapter 10, section 81, of Public 302, 11 U.S.C.A. § 401.
That a general financial depression has prevailed for several years, with adverse financial and agricultural conditions and with recurring floods, bank failures, and that the petitioner has been unable to collect taxes or special assessments, and the landowners have been unable to pay them and that the district has not been able to obtain sufficient revenues to meet its obligations as they mature, and in fact is insolvent and has been for several years last past.
That the principal asset of the district is the assessment of benefits levied on approval of the plans of the district against real estate therein, and all the funds of the district are derived from levies annually made against said assessment of benefits at a percentage rate thereof fixed in the order for said levy and from the proceeds of real estate forfeited under the law to the district in foreclosing the lien of said annual installments so levied against the benefits, and hence that all debts of the district are payable out of the same general fund.
That creditors owning not less than 90 per cent. of the bonds and coupons, and creditors owning not less than 88.5 per cent. in amount of the judgments and other evidences of indebtedness and securities of petitioner affected by the plan of composition, have accepted the plan in writing, which written acceptance and consent is attached as an exhibit. A list of creditors, with addresses, was submitted. Following this the petition recites alleged facts as to certain particular claims of judgment creditors and other claimants.
The plan of composition was exhibited, and said plan recites the issuance of bonds at the dates and in the principal amounts set out below alleging that all said bonds are secured by a pledge upon the assessment of benefits and revenues of the district established against the real estate therein. The plan recites the financial and physical difficulties confronting the district, and particularly that it was necessary to construct an entire new outlet for the floodwaters of the district in order to preserve all the structures of the district for the interest of all parties, and that the Reconstruction Finance Corporation had advanced $235,000 to hasten the completion of said outlet, and also the Reconstruction Finance Corporation had granted an emergency loan for other necessary rehabilitation for the protection of the entire structures and that these loans of the Reconstruction Finance Corporation should have priority, dollar for dollar, but that the original bonds of the district are on a parity with each other, and that said bonds bear interest coupons in default over a period of many years.
The following lists the dates and amounts of the bonds affected by the plan:
January 1, 1918 $1,400,000.00
August 1, 1919 2,200,000.00
February 1, 1923 1,440,000.00
December 1, 1924 150,000.00
February 1, 1926 150,000.00
Series A August 1, 1927 51,500.00
Series B August 1, 1928 54,000.00
Series C August 1, 1927 133,275.00
Series D February 1, 1928 131,987.50
Series E August 1, 1928 131,987.50
Series F February 1, 1929 130,637.50
The plan further recites that twenty-five judgment creditors have obtained judgments on account of alleged damage to property or damages for the taking of property caused by the works of the district, such judgments aggregating $174,493.00 principal and bearing interest annually at 6 per cent. from date of judgment till paid. That judgment creditors to the extent of 88.5 per cent. in value of principal have accepted and consented to the composition and one judgment creditor holding a judgment for $20,000 and interest only has objected.
The plan offers to pay all bondholders (excepting the refunding and rehabilitation issues dated January 1, 1934, and January 1, 1937, which are payable in full and are not affected by the plan) the cash sum of 25.879 cents flat for each dollar of the principal amount of the bonds, exclusive of interest. That judgment creditors be paid the same rate of cash for the face of their judgments without interest. The source of payment is to be a loan for the benefit of the district by Reconstruction Finance Corporation and if the composition be approved, refunding bonds will be delivered to evidence the new debt structure and bearing 4 per cent. interest per annum maturing serially, according to schedule approved by Reconstruction Finance Corporation.
The exhibits show that Reconstruction Finance Corporation advanced funds to Louis V. Ritter, trustee, upon his note for the purchase of the old securities of the district, and it appears that approximately 98 per cent. in principal of the old securities have been bought by the said Louis V. Ritter, as trustee, or by his successor, W. B. Chapman, all of which old securities are held as collateral to support the loan to the trustee for the purchase.
The majority judgment creditors, twenty-four in number (and excluding the objecting creditor, Haverstick), have assigned and transferred their judgments, aggregating 88.5 per cent. of all judgments against the district, to Louis V. Ritter, who is succeeded by W. B. Chapman, as trustee.
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