In re Missouri Pac. R. Co., 6935.

• Decision Date: 15 November 1935
• Docket Number: No. 6935.,6935.
• Citation: 13 F. Supp. 888
• Parties: In re MISSOURI PAC. R. CO.
• Court: U.S. District Court — Eastern District of Missouri

13 F. Supp. 888

In re MISSOURI PAC. R. CO.

No. 6935.

District Court, E. D. Missouri, E. D.

November 15, 1935.

William H. Boyd, of Cleveland, Ohio, for Missouri Pac. R. Co.

C. M. Clay, James B. Alley, Max O'Rell Truitt, Jerome N. Frank, Peter R. Nehemkis, Jr., John Howland, and Robert A. Hefner, Jr., all of Washington, D. C., and Green, Henry & Remmers, of St. Louis, Mo., for Reconstruction Finance Corporation.

FARIS, Circuit Judge.

The Reconstruction Finance Corporation, to which reference may hereinafter be made by the use merely of the initials R. F. C., being a secured creditor of the debtor, heretofore filed a motion in this court, in effect averring that the debtor, through its then officers and board of directors, had on December 31, 1930, and prior to the commencement of this debtor's proceeding, made certain improvident and unlawful contracts with the Terminal Shares, Inc., and praying that an investigation be made thereof and the facts reported to the court, to the end that an order be entered requiring the trustees to disavow and rescind such contracts and to take such further legal steps as the facts and law touching recoupment should warrant.

This motion was, by an order of the court, referred to Marion C. Early, Esq., one of the regularly designated special masters of the Eighth Circuit and by this court appointed special master in this debtor's proceeding. This reference was had under the provisions of clause (9) of subdivision (c) of section 77 of the Bankrupt Act, as amended March 3, 1933, 47 Stat. 1474, 1476, wherein, it is provided that the judge "may on his own motion * * * refer any matters for consideration and report, either generally or upon specified issues, to one of several special masters," etc. Since the statute is broad in its terms, since it permits the judge to act on his own motion, since it includes "any matter," without modification or reservation, and since the reference may be either on general or special issues, it makes no earthly difference here that the R. F. C. neither asked for nor consented to this reference. Its status as a governmental agency confers on it no sacrosanct character, which puts it beyond the plain language of the statute, or which makes it obligatory to read into the statute conditions precedent not found therein. When the R. F. C. comes into court, it comes in on a parity with any other ordinary litigant and not otherwise.

The order of reference, among other things, provided that the special master should make and file a report showing:

"(a) The facts and circumstances with reference to the making and entering into of said contracts between the debtor and Terminal Shares, Inc.

"(b) The reasonableness of the consideration agreed to be paid by the Debtor under said contracts, and the reasonable prospective value to the Debtor of the subject matter of said contracts, in the light of the conditions then existing.

"(c) Any other pertinent facts bearing on the question as to whether or not said contracts are valid and legally binding contracts, or whether for any reason said contracts are voidable."

Much evidence was taken and returned by the special master, who, on February 14, 1935, filed a report, in which he considered the contentions made in the brief filed by R. F. C., and overruled them seriatim, save that contention that the burden was on Terminal Shares, Inc., to prove that the contracts in question were neither fraudulent, unfair, nor oppressive to the debtor; but the master finds that said contracts were executed in good faith, in accord with the resolution of the debtor's board of directors, and that the purchase price was such as that no profit accrued to the Terminal Shares, Inc. The above affirmative findings were made necessary (in view of the master's final conclusions and recommendations) by his antecedent finding, in effect that the Allegheny Corporation owned all of the stock of the Geneva Company, the optioning company, and all of the stock of the Terminal Shares, Inc., the selling company, as also a majority of the shares of the debtor, the buying company.

As I read the briefs of those who favor the sustaining of the report of the special master, it is not contended that at the time the resolution of December 18, 1930, was passed, as well as on December 30, 1930, when the final contracts of purchase between debtor and Terminal Shares, Inc., were executed, there was not what is commonly called an interlocking directorate existing between Allegheny Corporation, and debtor, for that O. P. Van Sweringen was then a large stockholder in and director of each company. Nor is it contended that Allegheny Corporation did not then bodily own and wholly control Terminal Shares, Inc. As I read the record, these facts are hardly in dispute, and were substantially admitted by Van Sweringen in his testimony. On the point the special master, very probably as giving only his view of the law on the point, says this: "It is contended that the contracts in question are violative of Section 10 of the Clayton Act 15 U.S.C.A. § 20, and are therefore void. I find the evidence does not support the contention, and recommend that it be denied. (Citing cases.)"

Without taking up time to go further into the report, it is enough to repeat that, with the exception already noted, the finding was in favor of the sustaining of the purchase, so far as concerned attacks made on its validity, whether such attacks were bottomed on the law or the facts. Thereupon, the special master suggested and recommended that the trustees of the debtor disaffirm the contracts in controversy, "unless the purchase price be reduced to not exceeding fourteen million dollars as of the date of the contracts with interest and credits readjusted." (Italics supplied.)

To this report of the special master exceptions on many grounds were filed by R. F. C. And it is these exceptions, after a long hearing, a full argument, and after voluminous briefs have been filed, that constitute the matter in hand.

Since the controversy here does not presently involve the merits of these contracts, at least so far as concerns a solemn decree rescinding them and adjudging recoupment of moneys already paid, or per contra, it is not deemed necessary to go minutely into the many facts elicited in the hearing before the special master; for I have already set forth the matters and things submitted to him by the order which I quote above.

In 1929, the Allegheny Corporation, of which one the said O. P. Van Sweringen was a director, president, and large stockholder, obtained by stock purchases, or otherwise, a controlling interest in the debtor. About the same year it organized the Geneva Corporation of which said Van Sweringen was president, and perhaps still later it organized the Elfynhurst Company, the name of which was later changed to Terminal Shares, Inc. The Geneva and Terminal Shares aggregations were subsidiaries wholly owned and controlled by Allegheny Corporation. Some time in 1929 but prior to the stock market debacle in October, 1929, the Geneva Corporation acquired contracts, in the nature of options perhaps — though the precise nature is not now important — with the St. Joseph Stock Yards Company, (1) for all the capital stock of the St. Joseph Belt Railway Company, in consideration of the sum of $1,500,000; (2) with the Swift Family Realty Trust, and Armour & Co. of Delaware for two-thirds of the capital stock (the remaining one-third was and yet is owned by the Chicago, Burlington & Quincy Railway Company), of the North Kansas City Development Company (also certain notes of the last named); North Kansas City Bridge & Railroad Company (also certain notes of the last named), Kansas City Ferry Company, Parkside Land Company, Guinotte Land Company, North Kansas City Land & Improvement Association, all for the aggregate sum of $13,000,000; and (3) with the Union Terminal Trust (unincorporated and owned by Swifts), for all of the Capital Stock of the Union Terminal Railway Company of St. Joseph, Mo., for a consideration of $4,600,000.

The specific nature of these properties is largely indicated by the names of the corporations in which the stock and securities were to be acquired. The real estate interests to be acquired consisted of a two-thirds interest in some 1,900 acres of platted land in North Kansas City, and some 200 acres in Kansas City, Mo.; the latter bordering on the south bank of the Missouri river. This land seems to consist of lands suitable for railroad yards and tracks, lots for industrial sites, retail and wholesale business sites, and residential sites. In value these lands represented a very large part of the agreed purchase price of $13,000,000.

At some time between the dates of these contracts, to wit, October 16, 1929, and October 16, 1930, the Geneva Corporation assigned and transferred all of these several contracts to Terminal Shares, Inc., likewise, as said, a wholly owned subsidiary of Allegheny Corporation, and on the date last above, Terminal Shares, Inc., acquired full title from the several above-named sellers to all of the properties, stocks, and securities mentioned.

On December 18, 1930...