In re Inland Gas Corp.

• Citation: 208 F.2d 13
• Decision Date: 04 December 1953
• Docket Number: No. 11828.,11828.
• Parties: In re INLAND GAS CORP. et al.
• Court: United States Courts of Appeals. United States Court of Appeals (6th Circuit)

208 F.2d 13 (1953)

In re INLAND GAS CORP. et al.

No. 11828.

United States Court of Appeals Sixth Circuit.

December 4, 1953.

Carlos L. Israels, New York City (Berlack, Israels & Liberman, New York City, Middleton, Seelbach, Wolford, Willis & Cochran, Louisville, Ky., on the brief; Leo T. Wolford, Louisville, Ky., David Grossberg, Brooklyn, N. Y., of counsel), for appellant.

Oscar S. Rosner, New York, N. Y., Charles J. Odenweller, Jr., Cleveland, Ohio, for appellees.

Oscar S. Rosner, of counsel; Baker, Obermeier & Rosner, New York City, on the brief, for Green Committee.

Roger S. Foster, Gen. Counsel, David Ferber, Sp. Counsel, Aaron Levy, Atty., Washington, D. C., Charles J. Odenweller, Jr., Cleveland, Ohio, on the brief, for Securities and Exchange Commission.

Selden S. McNeer, Huntington, W. Va., on the brief, for Ben Williamson, Jr., trustee.

Before SIMONS, Chief Judge, MARTIN and MILLER, Circuit Judges.

SIMONS, Chief Judge.

This much litigated reorganization proceeding has been before this court frequently since 1939, Hamilton Gas Company v. Inland Gas Corporation, 6 Cir., 102 F.2d 131; In re American Fuel & Power Company, 6 Cir., 122 F.2d 223, Columbia Gas & Electric Corporation v. United States, 6 Cir., 151 F.2d 461; In re Inland Gas Corporation, 6 Cir., 187 F.2d 813, and much applicable history is there revealed. The Bankruptcy Court, by orders dated February 12, 1953, has now approved a joint plan of reorganization for all three companies. The appellant filed a petition in the proceeding which, if granted, would increase the participation of Kentucky's creditors in the assets of Inland beyond the amounts allocated to them, require revision of the plan, and again postpone closing the proceedings. Four other appeals are also pending. We are not presently advised of their nature, though it is suggested that decision here may render their issues moot.

Appellant Kern though not an original bondholder of Kentucky Fuel asserts a claim on behalf of Kentucky against Inland, which companies are both subsidiaries of American Fuel. Kern's claim is based upon the purchase by Kentucky of certain gas-producing property from the American Rolling Mill Company in 1928 and he alleges unfairness to Kentucky in an intercompany contract between Kentucky and Inland. He avers that though Kentucky paid Armco for the property, the purchase was for the benefit of Inland and, so, Kentucky should be recognized as having an enforceable claim against it for the capital loss arising out of the investment. As ancillary to the proceedings, he seeks appointment of an independent trustee for Kentucky and, failing that, for appointment of independent counsel for it.

Uncontroverted facts follow. On December 15, 1927, Inland acquired the rights of the seller to a contract with Armco by which Armco agreed to buy its entire requirements of natural gas for its works in Ashland, Kentucky, over and above the gas which it should produce from its own acreage and which it might purchase from producers on neighboring property. The contract was to last for fifteen years. On June 8, 1928, Kentucky bought the natural gas properties of Armco for $3,000,000. It financed its purchase by a $4,000,000 bond issue, and Kern's bonds are part of this issue. It also secured from Armco a contract for supplying it with its entire requirement of natural gas over and above what was being supplied to it by Inland under the latter's contract for a period of fifteen years. Inland and Kentucky agreed that, under their respective supply contracts with Armco, Inland would supply the first 6,000,000 cubic feet per day of the gas requirements of Armco while Kentucky would suppy the remainder. While Inland and Kentucky had at that time no interlocking directors and Inland was not a stockholder of Kentucky both companies were under common control. Armco's gas reserves had been estimated by a recognized firm of engineers and geologists to be 212,000,000,000 cubic feet and a contemporaneous appraisal of the properties put their value at $6,251,055. Armco had plans for expansion of its plant facilities which if carried out would raise its natural gas requirements to 17,000,000 cubic feet per day. The directors of Inland and Kentucky approved the Armco purchase and the intercompany agreement at separate meetings. On November 6, 1930, Columbia acquired control of both companies and precipitated receiverships which gave way to the bankruptcy proceedings. This resulted in discontinuance of an effort to promote a Detroit project which was expected to provide a market for all of the gas reserves of both companies and the rest of the American Fuel System. During the pendency of the reorganization proceedings the major portion of Kentucky's Fuel leases were surrendered, its wells abandoned, and, on December 10, 1938, the remaining properties of Kentucky were sold under court order at public sale to the Inland Estate for the sum of $151,192.

Kern, a lawyer, began buying Kentucky securities on May 5, 1941. It became apparent from our decision in In re American Fuel & Power Company, supra, on August 15, 1941, that the large claims of Columbia would either be subordinated to the claims of other creditors or be entirely rejected. Our subsequent decisions gave finality to this foreshadowing and also pointed to the highly successful operations of the single trustee. Kern continued his purchase of Kentucky securities through the years until by his last purchase on January 10, 1952 he had acquired $303,300 face value of the bonds. He had attended and been heard at various hearings since the early part of 1948. Though the court had directed that all claims be presented at the hearings in 1948 and 1949, he filed no claim on behalf of Kentucky until his petition in this case, on April 25, 1952. It was opposed in the court below by the Green Committee representing security holders of American Fuel who will be adversely affected if Kern prevails. The Securities & Exchange Commission recommended the plan heretofore approved by the court, and its brief...