North American Car Corp. v. Peerless W. & V. Mach. Corp.

• Decision Date: 19 July 1944
• Docket Number: No. 389.,389.
• Parties: NORTH AMERICAN CAR CORPORATION v. PEERLESS WEIGHING & VENDING MACHINE CORPORATION. (ROCK-OLA MFG. CORPORATION et al., Interveners).
• Court: U.S. Court of Appeals — Second Circuit

143 F.2d 938 (1944)

NORTH AMERICAN CAR CORPORATION v. PEERLESS WEIGHING & VENDING MACHINE CORPORATION. (ROCK-OLA MFG. CORPORATION et al., Interveners).

No. 389.

Circuit Court of Appeals, Second Circuit.

July 19, 1944.

James V. Hayes, of New York City (Benjamin Lewis, Donovan, Leisure, Newton & Lumbard, and Laurence C. Ehrhardt, all of New York City, on the brief), for appellants.

Donald W. Smith, of New York City (Satterlee & Warfield, of New York City, on the brief), for appellee.

Before L. HAND, SWAN, and CLARK, Circuit Judges.

CLARK, Circuit Judge.

Appellee, North American Car Corporation, was the owner of $15,000 principal amount of the 6% ten year secured sinking fund gold bonds of General Vending Corporation when the latter petitioned on June 18, 1934, for reorganization under former § 77B of the Bankruptcy Act, 11 U.S.C.A. § 207. Thereafter, on March 11, 1935, North American filed a written acceptance of a proposed plan of reorganization for General — as well as for Consolidated Automatic Merchandising Corporation, whose subsidiary it was — under which its assets were to be transferred to a new corporation, Peerless Weighing & Vending Machine Corporation; and holders of its 6% gold bonds were to receive in exchange for each $1,000 principal amount ten shares of the preferred stock and twenty shares of the common stock of Peerless. As then drafted, the plan stated no time limit within which bondholders were required to exchange their bonds; but a modified plan of June 15, 1935, provided, among other things, that Peerless was not required to issue stock to bondholders who had failed to surrender their bonds by December 31, 1937. It was this modified plan which, with certain other modifications not here important, was finally confirmed by order of the District Court dated October 14, 1935. This order stated that the court "expressly retained" jurisdiction over the debtor companies "for all purposes" until the final determination of the court as to all claims against the debtors and the payment of such as were allowed, and until Peerless should have reported consummation of the plan and "have secured the final decree or order of this Court concluding these proceedings and closing the case." It further reserved "full right and jurisdiction to make from time to time such orders amplifying, extending, confirming or otherwise modifying this order and all other orders hereinbefore entered herein as to this Court may at any time seem proper." Accordingly, by order of December 31, 1937, the time for exchange of bonds for stock in Peerless was extended until July 1, 1938.

By that final date for making the exchange, holders of some $3,599,500 of bonds, out of a total of $3,715,000 principal amount, had taken advantage of the offer. Nothing, however, had been heard from North American. It was not until March 5, 1943, that the latter first wrote to Peerless requesting that its bonds be exchanged. Failing to obtain compliance with its request, it proceeded by notice of motion dated September 24, 1943, to apply for an order modifying the original confirmation order "by extending nunc pro tunc" its time to exchange its bonds, on the grounds that it had never received any notice of a final date for such exchange and that the debtors had never reported back to the court with respect to the consummation of the plan and the proceeding had never been closed. This motion was supported by affidavits, in opposition to which the president of Peerless made affidavit showing that he had sent out, and had made return under oath to the court, at least four communications addressed to George A. Johnson, Treasurer, North American Car Corporation, 327 South La Salle Street, Chicago, Illinois, between July 11, 1935, and January 31, 1938, any one of which would have informed North American of the existence of the time limit. These included copy and notice of hearing of the modified plan, notice of confirmation, manner of making exchange of the bonds, and finally the extension of time for the exchange until July 1, 1938. In addition, affidavits were filed on behalf of two stockholders of Peerless, Rock-Ola Manufacturing Corporation and Louis M. Mantynband, to the effect that they had purchased stock in reliance upon the limitation provision of the plan. Thus, Rock-Ola, through options obtained and purchases made between February 19, 1943, and May 3, 1943, without knowledge of North American's claim, had become the owner of over 70% of each of the issues of common and of preferred stock of Peerless; while Mantynband had a lesser interest, also acquired without knowledge of appellee's claim.

The court below, however, entered its formal order dated November 19, 1943, which extended and modified nunc pro tunc the time of North American to exchange its $15,000 bonds for 150 shares of the $3 noncumulative preferred stock and 300 shares of the common stock of Peerless to and including December 15, 1943, but with right only to dividends to be declared in the future. It wrote no opinion and filed no findings. Thereafter it granted Rock-Ola and Mantynband leave to intervene as parties, and they, together with Peerless, took appeals which have been consolidated here on stipulation of the parties. We thus have before us the question whether a plan of reorganization shall be modified eight years after its confirmation to make provision for a claim which has been barred for over five years.

We have had occasion before to deplore the tendency of District Courts to keep reorganized concerns in tutelage indefinitely by orders purporting to retain jurisdiction for a variety of purposes, extending from complete supervision of the new business to modifications of detail in the reorganization. See Clinton Trust Co. v. John H. Elliott Leather Co., 2 Cir., 132 F.2d 299; In re Flatbush Ave.-Nevins St. Corp., 2 Cir., 133 F.2d 760; Seedman v. Friedman, 2 Cir., 132 F.2d 290. Since the purpose of reorganization clearly is to rehabilitate the business and start it off on a new and to-be-hoped-for more successful career, it should be the objective of courts to cast off as quickly as possible all leading strings which may limit and hamper its activities and throw doubt upon its responsibility. It is not consonant with the purposes of the Act, or feasible as a judicial function, for the courts to assume to supervise a business somewhat indefinitely. Nevertheless the court must retain some jurisdiction after confirmation of a plan to see that it is consummated. We have, therefore, pointed out the existence of such complementary and auxiliary jurisdiction of the court to protect its original confirmation decree, prevent interference with the execution of the plan, and otherwise aid in its operation. Clinton Trust Co. v. John H. Elliott Leather Co., supra...