In re Surf Bldg. Corporation, 2502-D.

• Decision Date: 13 October 1934
• Docket Number: No. 2502-D.,2502-D.
• Citation: 11 F. Supp. 295
• Parties: In re SURF BLDG. CORPORATION.
• Court: U.S. District Court — Eastern District of Illinois

11 F. Supp. 295

In re SURF BLDG. CORPORATION.

No. 2502-D.

District Court, E. D. Illinois.

October 13, 1934.

Chas. Haffenberg, of Chicago, Ill., for creditors.

McInerney, Epstein & Arvey, of Chicago, Ill., for debtor.

Sonnenschein, Berkson, Lautmann, Levinson & Morse, of Chicago, Ill., for bondholders' committee.

LINDLEY, District Judge.

On August 28, 1934, 27 petitioners filed in this court a petition under section 77B of the Bankruptcy Act as amended (11 US CA § 207), against the Surf Building Corporation as debtor, alleging that they are creditors and seeking the relief provided in said act. Thereafter the Surf Building Corporation filed its answer denying that the petitioners are entitled to the relief prayed. Abel Davis et al., as representatives of a bondholders committee, and certain depositing bondholders filed an intervening petition in which they assert that the petitioners are not entitled to the relief prayed. Both the corporation and said interveners filed petitions for transfer to the United States District Court for the Northern District of Illinois.

The court has heard the evidence submitted upon the issues thus presented. Some of the petitioners appeared in open court and testified that they were dissatisfied with the results of the long pending litigation in the state court; that they were desirous of realizing something upon their bonds; that conditions were not to their liking; that they had conferred with counsel, had been advised of the benefits to be gained by action under section 77B and had authorized the proceedings to be brought in federal court under section 77B in order that speedy and efficient relief might be had.

Counsel for the petitioners testified that he had examined the state court records and ascertained that a bill for foreclosure had been pending in the state court for a period of three years; that during all said time a receiver had been in charge of the premises; that he had examined other records, talked with officials of the receiver, and of the trustee and with certain members of the bondholders' committee, and that after due consideration he had advised the petitioners to seek relief under section 77B.

It appears further that this corporation has forfeited its franchise for nonpayment of franchise taxes; that it has executed a conveyance to nominees of the bondholders' committee; that the receiver has attempted to operate the property; that losses have resulted; that three years have elapsed since the filing of the bill; that a decree of foreclosure has now been entered; that there has been no advertisement of property for sale; that the bondholders' committee is administered by the chairman of the board of the Chicago Title & Trust Company, which is likewise receiver in the cause in the state court; that 78.23 per, cent. of the bondholders have deposited their bonds with the committee; that 21.77 per cent. have not deposited their bonds with the depository; that many, if not all, of the petitioners have deposited their bonds with the committee but are dissatisfied and desire to proceed under section 77B of the Bankruptcy Act.

The evidence is that a proposed plan of reorganization has been assented to by a majority of the bondholders and that it is proposed that in the decree of foreclosure in the state court the court shall fix a price at which the property shall be sold at an adequate reasonable figure so that nonassenting bondholders may be fairly treated. Some of the witnesses testified that they had received no communication from the bondholders' committee for over two years and no interest upon their bonds at any time since foreclosure was instituted.

Upon these facts the court does not conceive that it would be justified in finding that this petition was not filed in good faith. I shall not attempt to decide whether petitioners' fears and dissatisfaction are justified, but when one observes the obvious benefits possible in reorganization of corporations by proceedings under section 77B as compared with effectuation of the same result by a court of chancery, whether it be in the state court or the federal court, it necessarily follows that one cannot be charged with bad faith because he approves that method which works with simpler machinery, less expense, greater saving of time and greater efficiency of result. In bankruptcy, the period of redemption of twelve months in favor of the debtor and of fifteen months in favor of creditors is avoided. In bankruptcy, a majority of creditors must control, and there is no necessity of a careful balancing of the rights of assenting and nonassenting bondholders when considering a just position toward one class as against another in a court of chancery. Unreasonable delay upon the part of unreasonable nonassenting bondholders is avoided; long protracted receiverships are done away with. But one purpose is served and that is the promulgation, with all due diligence, by the...