In re Inland Gas Corp.

• Decision Date: 18 March 1954
• Docket Number: No. 11905-11908.,11905-11908.
• Parties: In re INLAND GAS CORP. HARBISON v. WILLIAMSON et al. VANSTON v. WILLIAMSON et al. KERN v. WILLIAMSON et al. GREEN et al. v. VANSTON et al.
• Court: U.S. Court of Appeals — Sixth Circuit

211 F.2d 381 (1954)

In re INLAND GAS CORP.

HARBISON v. WILLIAMSON et al.

VANSTON v. WILLIAMSON et al.

KERN v. WILLIAMSON et al.

GREEN et al. v. VANSTON et al.

Nos. 11905-11908.

United States Court of Appeals, Sixth Circuit.

March 18, 1954.

John L. Davis, Lexington, Ky., and Robert S. Spilman, Jr., Charleston, W. Va., for Clinton M. Harbison, trustee.

George W. Jaques, New York, N. Y., for Vanston Protective Committee.

Carlos L. Israels, New York City, Leo T. Wolford, Louisville, Ky., on the brief, for Paul E. Kern.

Oscar S. Rosner, New York City, for the Green Committee.

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

David Ferber, Washington, D. C., Henry L. Stern, Washington, D. C., C. J. Odenweller, Jr., Cleveland, Ohio, for Securities and Exchange Commission.

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

SIMONS, Chief Judge.

The history of this long drawn out reorganization is sufficiently disclosed, for present purposes, in Columbia Gas & Electric Corporation v. United States, 6 Cir., 151 F.2d 461, rehearing and modification denied, 6 Cir., 153 F.2d 101, certiorari denied, 329 U.S. 737, 67 S.Ct. 48, 91 L.Ed. 636, and In re Inland Gas Corporation, 6 Cir., 187 F.2d 813. A final plan of reorganization has now, after much study and amendment, been approved by the district court in its order of February 12, 1953. Its salient features provide for a reorganized corporation to be known as the Inland Gas Corporation. It will take over the subsidiaries of American Fuel and the assets of Inland, debtor. Claims against Inland will be paid in cash or assumed by the new corporation. The trustees of American Fuel and Kentucky, for their bond and note holders, will receive stock. The new corporation's capital stock will be placed in escrow to assure delivery thereof in the event of sale.

In our decision In re Inland Gas Corporation, supra, we directed the District Judge to subordinate the claims of Columbia Gas, because of its inequitable conduct, to those of the holders of Kentucky and American Fuel obligations. There was then a surplus in the assets of Inland over and above its debts and, since the security issues of American and Kentucky were based largely upon their holdings of Inland stock, we concluded that their holders were, in a realistic sense, creditors or quasi-creditors of Inland. We directed the residue of Inland assets to be assigned to American and Kentucky, according to their respective stock interests in Inland, which was 72.6% for American and 26% for Kentucky. Having perceived a creditor status for the holders of securities supported by Inland stock, we were unable to make any provision for a minor interest of 1.4% of the common stock of Inland held by private investors because they were in no sense creditors.

At the time of this direction, it seemed clear to all of the parties in interest that even with the subordination of Columbia's claims to those of all secured creditors, there would not be enough to satisfy the secured claims. It now appears that by reason of the successful operation by the trustee of Inland its surplus assets will be substantially greater than was at first supposed. It also appears that American has substantial free assets derived from the payment of Inland's debts to it and the fair value of its solely owned subsidiaries which are to be transferred to the new corporation. There will, therefore, be "overage" to American beyond what is needed to discharge its secured obligations. The plan provides that American's free assets be first applied to their payment and only so much of the 76% of Inland's surplus shall be allocated to American as is needed to complete payment. The balance remaining is to be assigned to the payment of Kentucky's secured obligations. This will give Kentucky something more than 26% of Inland's surplus but will still fall far short of liquidating Kentucky's securities.

Of the objections raised to the fairness of the plan, and overruled below, four are here presented in various related and overlapping appeals. Paul E. Kern is a bondholder of Kentucky, see In re Inland Gas Corporation, 6 Cir., 187 F.2d 813. He contends that the plan's provision for the distribution of Inland's surplus, based upon holdings of Inland stock by American and Kentucky, is unfair and urges that distribution should be made to the public creditors of these corporations according to the face amount of their claims. The Vanston committee which represents Kentucky bondholders takes the same position. Harbison, trustee of American, contends that American's share of Inland's surplus assets should first be applied to the payment of American's notes and that such of its free assets as are not required to pay the balance should be assigned to and become part of American's estate. The Green committee represents American's bond and note holders and contends that the valuation under the plan for Inland's properties is excessive, that the allocations based thereon are unfair to American note holders, and urges a revaluation of Inland's assets. Both Kern and the Vanston committee argue that, to the extent that American note holders are compensated in stock rather than in cash, a "step up" of 10% on the face amount of their claims is excessive. Objections are also made by various appellants, with respect to other "step ups," to the allocation of reorganization expenses and the failure of the escrow provision to provide for distribution in accordance with a future valuation rather than the valuation arrived at by the court. The SEC supports the plan as approved.

We shall not undertake to review again issues that have already been decided. In recognizing the security holders of American and Kentucky as quasi-creditors of Inland and assigning Inland's surplus to them in proportion to their stockholdings of Inland, we gave careful consideration to the interrelationship of the three corporations, reviewed their history and the details of their capital structure. We recognized them as independent corporate...