Lowenthal v. Georgia Coast & P.R. Co.

• Decision Date: 13 July 1916
• Citation: 233 F. 1016
• Parties: LOWENTHAL v. GEORGIA COAST & P.R. CO.
• Court: U.S. District Court — Southern District of Georgia

233 F. 1016

LOWENTHAL v. GEORGIA COAST & P.R. CO.

United States District Court, S.D. Georgia.

July 13, 1916

C Henry & R. S. Cohen, of Augusta, Ga., and Max Isaac, of Brunswick, Ga., for plaintiff.

Adams &amp Adams and Hitch & Denmark, all of Savannah, Ga., for defendant.

SPEER District Judge.

The general nature of this case is, perhaps, sufficiently stated in the opinion on the demurrer rendered on yesterday and now of file. The hearing this morning is as to the necessity for a receiver. That the railroad of the defendant company is hopelessly insolvent is undisputed. When the bill was filed it was indebted to the state and county for taxes in the sum of $5,000 unpaid taxes; for the unpaid wages of laborers and operatives in an amount approximately the same; upon the liens of materialmen and similar liens having priority in the amount of about $15,000. The grand jury of the county of McIntosh, in its general presentments, had recommended that the county officers take energetic action to collect the taxes.

The bonds were issued to construct the railroad in 1912. In that and in each subsequent year the interest thereon was unpaid, and is now in default in the sum of $320,000. A portion of this interest was sought to be refunded by debentures, but the interest on the debentures was also unpaid. After this bill was filed and injunction granted, prohibiting such action, the defendant company obtained from certain bondholders who have entered into a scheme to which reference will be presently made, about the sum of $20,000, with which the taxes and other liens of high priority have been paid. This sum was obtained, however, by issuing additional debentures, which were taken over in New York, and, according to the statement of the comptroller general of the state, the liens thus taken up were deposited with the Railway Developing Company in New York City, and therefore are in full force and effect as prior obligations of the defendant company.

In addition to this, the railway property and particularly the trestle over the Altamaha swamp are shown to be in a condition gravely hazardous to the traveling public. Now one calamity might occur at this point, which, in the damages and loss of life resulting, might destroy or at least largely minimize the security upon which the plaintiff has the right to rely for the payment of his bonds. A far greater danger to that security, however, is to be found in the agreement between a majority of the bondholders of the defendant company or its solicitors and certain persons who term themselves 'The Committee,' which, if carried into effect, will not only obliterate the property itself, but confiscate the interest of the plaintiff and all others who do not enter into this cause. This provides that the Columbia Trust Company, which was the trustee named in the mortgage for all the bondholders, shall be the depositary under the agreement; that the committee, or the depositary at the request of the committee, may appoint agents to accept the deposit of the bonds, coupons, and funded interest notes, and assist in the performance of any other duty imposed upon the depositary, either by the agreement or by the committee. The securities thus deposited shall be held by the depositary subject to the order of the committee; that neither the depositary, nor the committee, nor its agents shall be held liable for any action taken on account of any mistake, loss, or liability, when such loss or liability of the depositary, or its agents, or the committee, or its agents, caused other than by bad faith, shall conclusively be deemed to be a part of the expenses of the committee; and these expenses, it is otherwise provided, shall be paid out of the proceeds of the road if the committee thinks proper.

The agreement constitutes the committee as trustee of an express trust, with legal title to all of the bonds, coupons, and funded interest notes which may be deposited. It is empowered to take all proceedings, legal or otherwise, as to it shall seem necessary or proper; that it may transfer the deposited securities to itself and its own members, or to any other person whom it may designate; that it may execute such papers and do such act as the committee shall consider judicious or proper; that it may demand, collect, or receive the interest for all the deposited securities; that it may elect to have them declared due and payable; that it may withdraw or revoke any such election; that it may exercise control over any suit or proceedings instituted, in which the holders of any class of deposited securities are, or may be, interested, whether by foreclosure or otherwise; may consent to the appointment of receivers, for the removal or substitution of receivers; may consent or oppose the issuance of receivers' obligations, and may, if the committee deems it advisable, consent that the lien and security of all obligations or certificates be superior to the lien of the first mortgage, or to any securities held or pledged thereunder, upon or in respect of all or any property covered thereby or subject thereto, and in general may do whatever the committee in its discretion may deem judicious and expedient in order to carry out fully and effectively the purposes of this agreement.

The agreement further stipulates that the committee may at any time and from time to time, at public or private sale purchase or cause to be purchased, or may contract to purchase, or may in any manner acquire or cause to be acquired, at such price or prices as the committee in the exercise of its discretion deems expedient, all or any of the property at any time subject to the first mortgage or the lien thereof, all obligations of the defendant company, all certificates of indebtedness issued by any receiver or receivers of the railroad company or of its property; but the committee shall not be bound to make...