Pintsch Compressing Co. v. Buffalo Gas Co.

• Decision Date: 03 April 1922
• Docket Number: 124.
• Citation: 280 F. 830
• Parties: PINTSCH COMPRESSING CO. v. BUFFALO GAS CO. NEW YORK TRUST CO. v. SAME. In re CHURCH.
• Court: U.S. Court of Appeals — Second Circuit

280 F. 830

PINTSCH COMPRESSING CO. v. BUFFALO GAS CO. NEW YORK TRUST CO. v. SAME. In re CHURCH.

No. 124.

United States Court of Appeals, Second Circuit.

April 3, 1922

Cross-appeals from a final decree of the District Court for the Western District of New York, entered May 9, 1921. One appeal is by George H. Church, intervener, and the other by William J Judge, assignee of the purchaser at foreclosure sale.

Defendant Buffalo Gas Company is a New York public utilities corporation, and prior to September 24, 1914, was engaged in manufacturing and supplying manufactured gas to the city of Buffalo and consumers therein. On September 24, 1914 plaintiff Pintsch Company filed its bill in equity in the District Court, on behalf of itself and other creditors of the gas company, for the purpose of sequestrating the property of the company and applying the same to the payment of its debts. Jurisdiction was based on diversity of citizenship. On September 25, 1914, receivers were appointed to take possession of the franchises of the company, operate the same, wind up the business, convert the property into money, and, after the payment of the valid debts and obligations of the company, distribute the residue among the stockholders. On the same day, the receivers qualified and entered upon the discharge of their duties.

After the sale, but before confirmation, Church filed a petition asking leave to intervene for the purpose of establishing his rights as a creditor of the gas company. The application was granted, and Church's claim was referred to Franklin R Brown, special master, to take proof and report. The major part of Church's claim is founded upon money loaned by him to the gas company and used by it for the purpose of paying the interest due upon its mortgage indebtedness on October 1, 1913, and April 1, 1914, the coupons being held by Church as collateral. These coupons are included in the amount found due by the foreclosure decree. Church's claim was liquidated and undisputed. In this petition Church asserted a lien upon the property of the gas company sold under the foreclosure decree, superior to the lien of the mortgages, upon the theory that the income of the gas company, which would otherwise have been available to pay the interest on the bonds, was diverted to make extensions and betterments, essential to enable the company to compete with natural gas, which extensions and betterments became subject to the lien of the mortgage and inured to the benefit of the bondholders.

Special Master Brown reported, in substance, that the gas company was indebted to Church in the sum of $243,550, principal (with interest to be added), for moneys loaned by him to the company; that Church held certain coupons as collateral security, and also had a secondary lien on $95,000 par value of the bonds of the gas company, which were pledged to a Buffalo bank as security for the note of $22,500 of the gas company, held by the bank; that Church subsequently purchased said note from the bank, and became entitled to the benefit of all of said bonds, so pledged, having acquired by purchase the interest of the bank therein, and thus having become subrogated to its rights. The special master reported against Church's claim to a lien superior to the mortgage upon the mortgaged property or proceeds thereof, and found that the detached coupons held by him were not entitled to share in the proceeds of the sale under the terms of the mortgage.

On September 11, 1917, an order was made and entered on September 25, 1917, confirming the report of Special Master Brown, but reserving for future determination the questions: (1) Whether the cash, materials, supplies, and accounts receivable in the hands of the receivers 'were or were not covered by the mortgage in suit and sold under the decree of foreclosure'; and (2) whether Church had or had not an equitable lien 'on such cash, materials, and supplies in the hands of such receivers.' In the same order it was provided that leave was given to Church to file a supplemental petition, claiming an equitable lien upon cash, accounts receivable, and materials and supplies in the hands of the receivers, and claiming that the mortgages and the judgment of foreclosure did not constitute a lien upon such cash, accounts receivable, and materials and supplies, and that the issues raised by such supplemental petition were to be referred to a special master thereafter to be appointed.

On the same day an order was made confirming the report of the foreclosure sale, and providing, in effect, that upon carrying out his bid the special master should transfer and deliver to Gethoefer the foreclosed property, 'reserving, however, the cash, materials, supplies, and accounts receivable then in the hands of such receivers, the right to which shall be determined by the court, when such receivers file their final account and apply for a discharge. ' It was provided that the purchaser could elect to give a bond conditioned that he would pay the value of the reserved property, 'as fixed by the receivers as of the date of transfer,' to whomever was finally determined to be entitled thereto, and that upon giving such a bond the reserved property should be transferred to the purchaser. All questions concerning the right to 'the cash, accounts, bills receivable, and materials and supplies in the hands of the receivers' were reserved until the receivers finally accounted and applied for their discharge, and jurisdiction of the cause was retained until the final disposition of all reserved matters.

The purchaser elected to take over the materials and supplies, accounts, and bills receivable at the values fixed by the receivers, to wit, materials and supplies $123,443.72, and accounts and bills receivable $89,678.08 (as later corrected), and gave an appropriate bond to the receivers. No appeal was taken from either of the orders above mentioned. Thereafter the receivers applied for discharge, and on October 23, 1917, an order was made referring their account and all questions reserved in prior orders and decrees and arising out of Church's supplemental petition to George Clinton, Jr., as special master, to take proof and report as to who were entitled to share in the distribution of materials and supplies, accounts and bills receivable, and cash in the hands of the receivers, and in what priority and proportion.

The special master found against Church's claim for an equitable lien on earnings, and held that his status was that of a general creditor. It was stipulated between the parties that the amount of Church's claim was $251,629.97, with interest thereon from September 11, 1917. The special master found that the deficiency judgment in favor of New York Trust Company, as trustee for bondholders, was $4,638,049.48, with interest from July 16, 1917. The sole creditors were thus: (1) The trustee and (2) Church for the respective amounts above stated, and (3) the New York Central Railroad Company for a trifling claim of $7, with interest from November 1, 1916, unless the depositors, supra, were also creditors.

The special master, upon his theory of the case, failed to make any finding as to how much of the earnings of the gas company arose before and how much arose after the extension of the receivership to the foreclosure suit, and Church and Judge each excepted to the failure to make such finding. The reason why there are now only the creditors above noted is that all other claims existing prior to the sequestration receivership (aggregating $151,477.73) were paid by the receivers from time to time, pursuant to orders of the court from which there are no appeals.

Special Master Clinton took proof as to the meters in stock, horses, wagons, automobiles, fuel and lighting supplies, and other personal property which had not been included in the item of 'materials and supplies' covered by the purchaser's bond, and reported the same without opinion. The court, in an opinion filed March 14, 1921, held that these items of personal property were required in the operation of the gas plant and were subject to the mortgage lien, but at the same time the court held that the cash, materials, supplies, and accounts receivable, aggregating $293,208.06, were not subject to the mortgage lien, and did not pass to the purchaser upon the foreclosure sale.

On the coming on of the motion for confirmation of Special Master Clinton's report, it was contended on behalf of Judge that Church was not entitled to receive any dividend on the $95,000 bonds referred to supra, on the ground that such payment would be equivalent to giving priority to the claim for which the bonds were pledged. This contention was sustained by the District Judge. The decree, which confirmed the report of Special Master Clinton, as modified in accordance with the court's opinions, was entered May 9, 1921, and it is from this decree that the cross-appeals have been taken.

This decree provided, inter alia, as follows: That the receivers (not distinguishing between the sequestration and foreclosure receivers) were chargeable with the items of materials accounts receivable, and cash aggregating $293,208.06, supra, plus any increment since Special Master Clinton's report, that Judge pay for the reserved materials and supplies $123,443.72, and accounts receivable $89,678.02, aggregating $213,121.74; that $18,938.77, being the amount of consumers' deposit made prior to the sequestration receivership, with interest from September 30, 1917, be paid into the registry of the court, for the benefit of the persons entitled thereto. After providing for the consumers' deposits and various expenses, it was decreed that the receivers should make pro rata distribution of the balance among the...