In re Tennessee Pub. Co., 7266

• Decision Date: 13 February 1936
• Docket Number: 7267.,No. 7266,7266
• Citation: 81 F.2d 463
• Parties: In re TENNESSEE PUB. CO. TENNESSEE PUB. CO. v. AMERICAN NAT. BANK et al. CARPENTER v. TENNESSEE PUB. CO.
• Court: U.S. Court of Appeals — Sixth Circuit

81 F.2d 463 (1936)

In re TENNESSEE PUB. CO.

TENNESSEE PUB. CO. v. AMERICAN NAT. BANK et al.

CARPENTER v. TENNESSEE PUB. CO.

Nos. 7266, 7267.

Circuit Court of Appeals, Sixth Circuit.

February 13, 1936.

Lewis S. Pope and Albert Roberts, both of Nashville, Tenn. (Lewis S. Pope, White & Howard, and Roberts & Roberts, all of Nashville, Tenn., on the brief), for Tennessee Pub. Co.

Cecil Sims, of Nashville, Tenn. (Bass, Berry & Sims, of Nashville, Tenn., on the brief), for American Nat. Bank and Paul M. Davis.

H. G. Fowler, of Knoxville, Tenn. (J. A. Fowler and S. F. Fowler, both of Knoxville, Tenn., on the brief), for receiver C. O. Carpenter.

Charles C. Trabue and Thomas H. Malone, both of Nashville, Tenn., for M. & O. Paper Co.

Pitts, McConnico, Hatcher & Waller, of Nashville, Tenn., for Ingram and Bradford.

W. E. Norvell, of Nashville, Tenn., for American Union Bank and others.

Before MOORMAN, SIMONS, and ALLEN, Circuit Judges.

SIMONS, Circuit Judge.

The main appeal is from a final order and decree dismissing the debtor's petition and plan for corporate reorganization under the provisions of section 77B of the Bankruptcy Act, as amended (11 U.S.C.A. § 207). The appeal was allowed by the District Judge, but the debtor later, conceiving the appeal to be governed by section 24b, as amended (11 U.S.C.A. § 47 (b), filed a petition with this court for leave. It appearing that the petition was timely, we treat the appeal as having been allowed, and an order to that effect may be entered. The cross-appeal is from a final order incorporated in the decree overruling a motion to dismiss the debtor's petition on the ground that it was not filed in good faith as provided by the statute. The cross-appeal was likewise allowed by the District Judge, but no petition, timely or otherwise, for its allowance here was presented. A motion to dismiss the cross-appeal is before us. Regarding the main appeal as properly allowed under section 24b, Vitagraph, Inc., v. St. Louis Properties Corp., 77 F.(2d) 590 (C.C.A.8); Credit Alliance Corp. v. Atlantic, Pacific & Gulf Refining Co., 77 F.(2d) 595 (C.C.A.8); Campbell v. Alleghany Corp., 75 F.(2d) 947, 955 (C.C.A.4); Humber v. Bankers' Trust Co., 70 F.(2d) 265 (C.C.A.6), and regarding it also, as will later appear, as raising the question generally of the validity of the decree, whether based upon valid or invalid grounds, we give no consideration to the cross-appeal, and it may be dismissed.

The Tennessee Publishing Company, designated as the debtor, according to the statute, had for many years published both a morning and an evening newspaper in Nashville, Tenn. On March 3, 1933, by general creditors' bill, its affairs were placed in charge of a receiver appointed by the District Court. The proceedings were filed by appellee Carpenter, receiver of a closed bank, which held $28,000 of the debtor's bonds, which were part of an issue of $750,000 dated November 1, 1928. The rate of interest borne by the bonds and their maturity dates nowhere appear, but they were secured by a deed of trust executed by the debtor, which provided that upon default in the payment of interest or principal the security might be foreclosed and sold at public auction, either through proceedings in equity or by advertisement.

The equity bill averred operating losses sustained by the debtor during the years 1929 to 1932. Losses continued during the receivership, but at a reduced rate. The usual reference to a master for consideration of claims followed, with the result that claims were filed in the total amount of approximately $1,500,000. A final hearing was set for June 6, 1935, and it was then the reasonable expectation of all parties in interest that a sale of assets would be ordered and the receivership terminated.

On June 5, 1935, Carmack, son of a former editor of the debtor's papers, acquired from the Leas, then its owners, all of the debtor's common stock. He immediately had himself elected president, and instituted the debtor proceedings here involved under section 77B. His first reorganization plan being objected to by the various classes of creditors, a second and a third plan of reorganization with modifications thereof followed. All were vigorously opposed by each interest concerned save for approval by a relatively small number of unsecured creditors. Not any of the bondholders gave assent to the plans proposed, and about 50 per cent. of the unsecured creditors have affirmatively opposed all reorganization plans.

Section 77B provides for a scheme of corporate reorganization similar in many of its aspects to that provided for the reorganization of railroads engaged in interstate commerce by section 77 (11 U.S.C.A. § 205), discussed and held constitutionally valid in general scope and application in Continental Illinois Nat. Bank & Trust Co. v. Chicago, Rock Island & Pacific Railway Co., 294 U.S. 648, 55 S.Ct. 595, 79 L.Ed. 1110. It provides that upon the filing of a petition for reorganization the court shall enter an order approving its filing if satisfied that the petition complies with the section and has been filed in good faith. The plan of reorganization shall include provisions modifying or altering the rights of creditors generally, or any class of them, either through the issuance of new securities or otherwise. Subsection (e), of section 77B, 11 U.S.C.A. § 207 (e), in so far as pertinent, is as follows:

"A plan of reorganization shall not be confirmed until it has been accepted in writing, * * * and such acceptance shall have been filed in the proceeding by or on behalf of creditors holding two thirds in amount of the claims of each class whose claims have been allowed and would be affected by the plan: * * * Provided, however, That such acceptance shall not be requisite to the confirmation of the plan by any creditor or class of creditors (a) whose claims are not affected by the plan, or (b) if the plan makes provision for the payment of their claims in cash in full, or (c) if provision is made in the plan for the protection of the interests, claims, or liens of such creditor or class of creditors in the manner provided in subdivision (b), clause (5), of this section."

In so far as the reorganization permitted by section 77B requires approval by two-thirds of the creditors of each class and in so far as such approval is not requisite to confirmation from creditors whose claims are not affected or for the payment of which cash is provided, 77B follows substantially the provisions of section 77. It departs from that section in clause (c) of the proviso, which makes approval of creditors unnecessary "if provision is made in the plan for the protection of the interests, claims, or liens of such creditor or class of creditors in the manner provided in subdivision (b), clause (5), of this section." 11 U.S.C.A. § 207 (e) (1) (c).

It therefore becomes necessary to consider subsection (b), clause (5), 11 U.S.C.A. § 207 (b) (5), which provides that the plan of reorganization "shall provide in respect of each class of creditors of which less than two thirds in amount shall accept such plan (unless the claims of such class of creditors will not be affected by the plan, or the plan makes provision for the payment of their claims in cash in full), provide adequate protection for the realization by them of the value of their interests, claims, or liens, if the property affected by such interests, claims, or liens is dealt with by the plan, either as provided in the plan (a) by the transfer or sale of such property subject to such interests, claims, or liens, or by the retention of such property by the debtor subject to such interests, claims, or liens, or (b) by a sale free of such interests, claims, or liens at not less than a fair upset price and the transfer of such interests, claims, or liens to the proceeds of such sale; or (c) by appraisal and payment either in cash of the value either of such interests, claims, or liens, or, at the objecting creditors' election, of the securities allotted to such interests, claims, or liens under the plan, if any shall be so allotted; or (d) by such method as will in the opinion of the judge, under and consistent with the circumstances of the particular case, equitably and fairly provide such protection."

It will be observed that section 77B, unlike section 77, furnishes a method by which a reorganization plan may be put into effect in the event that the debtor is unable to secure consent to its plan of two-thirds of each class of creditors to be affected thereby, not only without their approval, but, by necessary implication, despite their opposition. The plan may provide under subsection (b) (5) for the sale of the property subject to lien, for its sale free of liens and the transfer of the liens to the proceeds, or for the method recited in clauses (c) and (d). With the first two of the methods incorporated in the subsection, we are not concerned, because the debtor does not desire to have the property sold either free from or subject to liens. It wishes to secure possession of the property and to resume its operation. We are concerned, therefore, only with the methods provided by which the debtor may regain its property without consent of creditors, have it appraised, and then relieve itself of obligation by paying each of them in cash, either (1) of the value of their interests, claims, or liens; or (2) at the creditors' election (of the value) of the securities allotted to such interests, claims, or liens, if any shall be so allotted; or (3) by such method as will in the opinion of the judge equitably and fairly provide such protection.

The present debtor's several plans of reorganization, particularly the third, are in recognition of the futility under existing circumstances of securing the consent of two-thirds of its creditors of each class. It proceeds upon the assumption that such consent is not necessary by framing its...