Kelley v. Everglades Drainage Dist

• Court: U.S. Supreme Court
• Writing for the Court: PER CURIAM; BLACK
• Citation: Kelley v. Everglades Drainage Dist, 319 U.S. 415, 63 S.Ct. 1141, 87 L.Ed. 1485 (1943)
• Decision Date: 01 June 1943
• Docket Number: No. 935,935
• Parties: KELLEY et al. v. EVERGLADES DRAINAGE DIST

319 U.S. 415

63 S.Ct. 1141

87 L.Ed. 1485

KELLEY et al.

v EVERGLADES DRAINAGE DIST.

No. 935.

Decided June 1, 1943.

Rehearing Denied June 21, 1943.

See 320 U.S. 214, 63 S.Ct. 1444, 87 L.Ed. —-.

Mr. Miller Walton, of Miami, Fla., for petitioner.

Messrs. M. Lewis Hall and Alfred E. Sapp, both of Miami, Fla., and John D. McCall, of Dallas, Tex., for respondent.

[Argument of Counsel from page 416 intentionally omitted]

PER CURIAM.

In this case we are asked to review a plan for composition of the debts of respondent, a drainage district organized under the laws of Florida. The courts below have confirmed the plan under § 83, sub. e of the Bankruptcy Act, 50 Stat. 653, 658, as amended, 11 U.S.C. § 403(e), 11 U.S.C.A. § 403, sub. e, upon the finding of the District Court, prerequisite to the adoption of the plan, that it is 'fair, equitable, and for the best interests of the creditors and does not discriminate unfairly in favor of any creditor or class of creditors'. 132 F.2d 742.

Petitioners are holders of interest coupons, detached from bonds issued by respondent, on which they have recovered judgments. According to recitals in the plan of composition, the debtor's bonds and the interest coupons, designated by the plan as Class I indebtedness, 'constitute a first charge against taxes levied * * * against lands in the District, and have preference over Class II Indebtedness'; the Class II indebtedness, consisting of various miscellaneous claims against the District, 'is payable from an ad valorem tax of one mill * * *, does not constitute a first charge against any fixed revenues of the District, and is not secured by any lien or pledge'. Under the plan the bondholders are to receive 56.918 cents in cash for each dollar of principal amount; holders of detached interest coupons, including coupons on which judgments have been recovered, are to receive 36.77 cents, and holders of Class II indebtedness 26.14 cents. The plan is to be financed by a loan from the Reconstruction Finance Corporation, evidenced and secured by the issuance to it of new 4% bonds of the District.

Petitioners contend here, as they did in both courts below, that the plan discriminates unfairly in favor of the Class II creditors. But we are unable to reach that question since we agree with petitioners that the record lacks the findings of fact which the statute and the General Orders in Bankruptcy require, and which are necessary to the determination of that question.

Section 83, sub. e, of the Act requires that 'At the conclusion of the hearing, the judge shall make written findings of fact and his conclusions of law thereon'. And Rule 52(a) of the Federal Rules of Civil Procedure, 28 U.S.C.A. following section 723c, made applicable to bankruptcy cases by General Order in Bankruptcy No. 37, 11 U.S.C.A. following section 53, requires the court to 'find the facts specially.' In Consolidated Rock Products Co. v. DuBois, 312 U.S. 510, 520-525, 61 S.Ct. 675, 682—685, 85 L.Ed. 982, this Court held that in the absence of findings as to the value of the assets subject to the payment of the respective claims of each class of bondholders, the courts were in no position to exercise the 'informed, independent judgment' necessary to the discharge of their statutory duty to determine the fairness of a plan of corporate reorganization under the old § 77B of the Bankruptcy Act, 11 U.S.C.A. § 207. In Ecker v. Western Pacific Railroad Corp., 318 U.S. 448, 63 S.Ct. 692, 87 L.Ed. —-, and in Group of Institutional Investors v. Chicago, Milwaukee, St. Paul and Pacific Railroad Company, 318 U.S. 523, 63 S.Ct. 727, 87 L.Ed. —-, decided March 15, 1943, we held the requirement of adequate findings applicable to railroad reorganizations under § 77 of the Bankruptcy Act, 11 U.S.C.A. § 205.

It applies with no less force to cases of municipal bankruptcy. And, as stated in the Consolidated Rock Products case, supra, the fact that only a very small minority of creditors have objected to the plan does not relieve the courts of the duty of appraising its fairness, and of making the findings necessary to support such an appraisal. As we said in the Chicago, Milwaukee, St. Paul and Pacific case, 318 U.S. at page 571, 63 S.Ct. at page 752, 87 L.Ed. —-, minorities under the various reorganization sections of the Bankruptcy Act 'cannot be deprived of the benefits of the statute by reason of a waiver, acquiescence or approval by the other members of the class.' The applicability of that rule to proceedings under Ch. IX is plain. We stated in American United Mutual Life Ins. Co. v. Avon Park, 311 U.S. 138, 148, 61 S.Ct. 157, 163, 85 L.Ed. 91, 136 A.L.R. 860, 'the fact that the vast majority of security holders may have approved a plan is not the test of whether that plan satisfies the statutory standard. The former is not a substitute for the latter. They are independent.'

The nature and degree of exactness of the findings required depends on the circumstances of the particular case. In the Western Pacific and Chicago, Milwaukee, St. Paul and Pacific cases, we pointed out that in cases of railroad reorganization, the duty of making basic evidentiary findings does not require a determination in terms of dollars and cents, of the value of the assets subject to the respective liens. We held that it was sufficient if the Commission's report set forth its conclusion as to the prospective earning power of the reorganized road, with findings supporting its apportionment of future earnings among creditors and stockholders so as to preserve their relative priorities, together with reasons for its conclusions and essential supporting data. Once the priority of liens has been determined, considered estimates of future earning power afford a substantial basis for appraising the interests of the respective lienors. As such estimates involve an element of prophecy, the reorganization of properties which cannot readily be liquidated requires resort to 'practical adjustments, rather than a rigid formula', Consolidated Rock Products Corp. v. DuBois, supra, 312 U.S. 529, 61 S.Ct. 686, 85 L.Ed. 982. Hence we concluded that findings of the future earnings of the reorganized railroad distributable to each class of security holders and creditors were an adequate substitute for findings of asset value in terms of dollars and cents, which we held could be dispensed with as affording no more than a delusive appearance of a certainty which the subject matter did not warrant.

Delusive exactness of findings is likewise not demanded in cases of municipal bankruptcy. But where future tax revenues are the only source to which creditors can look for payment of their claims, considered estimates of those revenues constitute the only available basis for appraising the respective interests of different classes of creditors. In order that a court may determine the fairness of the total amount of cash or securities offered to creditors by the plan, the court must have before it data...