In re Hotel Gibson Co., 11650.

• Decision Date: 30 April 1935
• Docket Number: No. 11650.,11650.
• Citation: 11 F. Supp. 30
• Parties: In re HOTEL GIBSON CO (RUTHERFORD et al., Interveners).
• Court: U.S. District Court — Southern District of Ohio

11 F. Supp. 30

In re HOTEL GIBSON CO (RUTHERFORD et al., Interveners).

No. 11650.

District Court, S. D. Ohio, W. D.

April 30, 1935.

Dolle, O'Donnell & Cash, of Cincinnati, Ohio, for Gibson Hotel Co.

Haveth E. Mau, of Cincinnati, Ohio, for intervener Albert G. Rutherford.

C. W. Broeman and Taft, Stettinius & Hollister, all of Cincinnati, Ohio, for interveners Amelia M. Adams et al.

H. C. Busch and John McCarthy, both of Cincinnati, Ohio, for intervener William A. Wanstrath.

Frank W. Cottle and Hubert T. Campbell, both of Cincinnati, Ohio, for First Nat. Bank.

NEVIN, District Judge.

On February 9, 1935, the Hotel Gibson Company, a corporation organized and doing business under the laws of the state of Ohio, as a debtor, filed a petition in this court under section 77B, chapter 8, title 11, § 207, of the United States Code (11 US CA § 207).

In its petition the debtor alleges inter alia that "the assets of the debtor consist of a perpetual leasehold estate with privilege of purchase in two tracts of land located at Fifth and Walnut Streets in the City of Cincinnati, and on which the Hotel Gibson stands." The petition contains allegations with respect to the boundaries of the property, the value thereof, and to the furniture and equipment and supplies in the hotel, together with a statement regarding the cash, accounts receivable, and miscellaneous current assets. The liabilities of the debtor, as shown by its books, also are set forth. Debtor alleges that on February 4, 1934, there was filed in this court a petition entitled "Albert G. Rutherford against The Hotel Gibson Company," in which, among other things, the court was asked to appoint a receiver for the Hotel Gibson Company, but that no receiver has ever been appointed. It alleges that Albert G. Rutherford is a holder of land trust certificates evidencing a beneficial interest in the northerly tract of real estate described in the petition. Debtor alleges that it is not insolvent, but that for certain reasons it is unable to meet its debts as they mature, and alleges that, in order to work out a readjustment of the payments to be made by it to the First National Bank of Cincinnati, as trustee, and for other reasons, "there is need for a prompt reorganization under favor of the provisions of Section 77B." Debtor prays the court to take jurisdiction of the cause, to approve the petition, and for other relief as set forth in the prayer.

On February 25, 1935, Albert G. Rutherford, by leave of court, filed his bill of intervention herein, alleging he is a citizen of the state of West Virginia; that on or about April 1, 1930, a written agreement and declaration of trust was executed by and between the First National Bank of Cincinnati, and such persons, corporations, etc., as became parties to said declaration by acceptance of certificates of equitable ownership issued under said declaration. He alleges that the equitable ownership and beneficial interest in the trust estate was divided into 30,000 indivisible equal interests, represented by "Land Trust Certificates," and that he is the owner of "50/30,000th equitable ownership" in the premises. He alleges that all 30,000 indivisible equal interests have been issued and are outstanding. This intervener further alleges that on or about April 1, 1930, the First National Bank of Cincinnati, as trustee, entered into a certain indenture of lease with the debtor, the Hotel Gibson Company, by the terms and provisions of which the First National Bank of Cincinnati, as trustee, leased the premises involved to the Hotel Gibson Company for a term of 99 years, renewable, at the option of the lessee, forever, with certain options of purchase, and that the debtor company agreed to pay to the lessor, as trustee, certain rentals; that the debtor company is now in default under the provisions of the lease on account of the rentals. Intervener Rutherford asks the court to protect his interests, administer all of the property, appoint a receiver, or a temporary trustee, and in due course a permanent trustee, and for such other orders as may be necessary and proper to protect his rights.

On March 14, 1935, an intervening petition was filed on behalf of Amelia M. Adams and others, who represent "that they are owners and holders of Gibson Land Trust Certificates, issued by First National Bank of Cincinnati, as Trustee, under an agreement and declaration of trust between said First National Bank of Cincinnati, as Trustee, and the holders of Gibson Land Trust Certificates." To this petition is attached, as Exhibit A, a printed copy of the agreement and declaration of trust just referred to, and as Exhibit B a printed copy of the indenture of lease between First National Bank of Cincinnati, trustee, and the Hotel Gibson Company, both of which are dated April 1, 1930. There is also submitted a plan of reorganization of the Hotel Gibson Company, marked Exhibit C, and other data also marked as exhibits. These intervening petitioners pray that the court "may find that the holders of all Gibson Land Trust Certificates, as a class, are secured creditors of the debtor, The Hotel Gibson Company, in the amount of $3,000,000.00, and unsecured creditors with claims in the amount of $262,500.00, as of January 1, 1935, together with interest," etc., that the claims of all other creditors are not affected by the plan of reorganization, and that a date for a "hearing upon the fairness of the plan of reorganization" be set, and for other incidental relief.

On March 15, 1935, an intervening petition and objections to the plan of reorganization were filed on behalf of William H. Wanstrath, administrator, in which he prays for "a full consideration of the objections" set forth in his petition.

On March 15, 1935, an intervening petition was filed on behalf of the First National Bank of Cincinnati, trustee, wherein, after referring to the lease of April 1, 1930, between the trustee and the debtor, it is recited that the debtor company has failed to keep and perform its covenants and agreements as in the lease set forth. Intervener prays the court to determine the amount of its claim and to protect its lien upon the leasehold estate of the debtor.

On April 1, 1935, the Hotel Gibson Company, debtor, filed a proposal of a plan for the reorganization of the debtor company, adopting the plan "heretofore submitted by Amelia M. Adams, et al."

On April 11, 1935, Dan W. Dettelbach, who alleges that he is a creditor of the debtor company in the sum of $32,394.42, filed objections to the plan of reorganization as submitted.

It is agreed that the last payment of rent made by the debtor was on April 1, 1933, and that on April 1, 1935, the debtor was in default for rent in the sum of $300,000 and for amortization in the sum of $30,000.

A hearing on the fairness of the plan of reorganization has been set for May 2, 1935. A question involving the jurisdiction of the court has been raised by counsel representing some of the interested parties. This preliminary jurisdictional question is, Are holders of Gibson land trust certificates creditors of the debtor for the purposes of this proceeding?

So far as the court or diligent and able counsel have been able to ascertain, the question involved herein has not heretofore been answered by the decision of any court. A proper answer to the question is one of very great and grave importance. It is important, not only in the instant proceedings, but also because the method of financing by land trust certificates has not been an uncommon one in this State. It is a matter of common knowledge that land trust certificates to the extent of many millions of dollars have been sold to the public in the state of Ohio, and that many companies were financed by such issues. Millions of dollars of such securities are outstanding. In the instant proceedings alone such securities to the extent of $3,000,000 are involved.

The intervener First National Bank of Cincinnati, trustee, asserts that it is the sole legal owner of the real estate described in the lease (commonly called the underlying fee), "which the Trustee is entitled — and obligated — to defend against all claims, including the claim implied in the Plan that some of the certificate holders have the power to deal with said underlying fee by consent or agreement of less than all of the certificate holders; that since this underlying fee is not `property of the bankrupt,' this Court is without jurisdiction in this proceeding to order its sale, transfer or conveyance under any provision of the Bankruptcy Law or any amendment thereof; that the Trustee is the sole owner of the debt of the bankrupt for money payments in default, which the Trustee is entitled — and obligated — to prove and assert throughout these proceedings, to the exclusion of any number less than all of the certificate holders." In support of its claim, the trustee urges that the bankruptcy court will follow the law of the state where real property is located, in determining questions of title to that property. Counsel assert that, even if the certificate holders are equitable owners of the underlying fee, nevertheless the trustee is the legal owner thereof. Counsel submit that there are two separate and distinct estates in the premises, to wit:

(a) The trustee is the owner of a fee-simple estate in the premises, commonly called the underlying fee.

(b) The debtor is the owner of a freehold estate in the premises, commonly called the leasehold estate, and that no provision of the Bankruptcy Law or any amendment thereto authorizes the court to take, sell, or transfer the underlying fee-simple title of the trustee, with the consent of any number less than all of the holders of the equitable ownership and beneficial interests therein.

Counsel for intervener Wanstrath submits that the land trust certificate holders are the real owners of the fee and stand before the court in that position, and that they...