Sartorius v. Bardo

• Decision Date: 21 March 1938
• Docket Number: No. 219.,219.
• Citation: 95 F.2d 387
• Parties: SARTORIUS et al. v. BARDO et al.
• Court: U.S. Court of Appeals — Second Circuit

95 F.2d 387 (1938)

SARTORIUS et al. v. BARDO et al.

No. 219.

Circuit Court of Appeals, Second Circuit.

March 21, 1938.

Hiram S. Gans, of New York City, for appellants.

Graham, McMahon, Buell & Knox, of New York City (William H. Hall, of New York City, of counsel), for appellee Bardo, trustee.

Alexander & Green, of New York City, and H. J. Wells, of New Haven, Conn. (Edward W. Bourne, of New York City, of counsel), for appellees Palmer and others, trustees of the New York, New Haven & Hartford R. Co.

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

L. HAND, Circuit Judge.

This case comes up on two appeals; one, of a committee of the first mortgage bondholders of the debtor, New York, Westchester and Boston Railway Co.; the other, of their counsel; each appeal is from two orders of the district court, the first, disallowing petitions for allowances and disbursements; the second, refusing to permit the petitioners to supplement their proof. The debtor is an intrastate railway, and therefore not within section 77 of the Bankruptcy Act, as amended, 11 U.S.C.A. § 205 and note; on November 13th, 1935 it filed a petition for reörganization under section 77B; this the judge at once approved and later appointed the appellee, Bardo, trustee. The committee at bar had been formed before petition filed to represent the bondholders, and they were allowed to intervene in the proceeding. They prepared a reörganization plan at considerable labor and expense, but were never able to get it accepted by enough of the bondholders to present it to the court for confirmation. After the proceeding had gone along for nearly eighteen months without progress, the judge on April 29, 1937, concluded that there was no reasonable expectation of its success, and ordered it dismissed, since under subdivision (c) (8), § 77B, 11 U.S. C.A. § 207 (c) (8), the debtor, a railway, could not be liquidated in bankruptcy. A creditors' bill had meanwhile been filed in the District Court for the Southern District of New York, and the final order in this proceeding directed Bardo, the trustee, to turn over the assets to receivers appointed therein. That order also permitted some of the claims against the debtor to be compromised, made allowances to Bardo and his attorneys, and denied them to all other parties, including the committee and its counsel.

During the pendency of the proceeding, and while it was still thought that a reörganization might be possible, the committee had been active, not only in preparing the plan, but in the administration of the debtor. On April 14, 1936, the trustee asked leave of the court to satisfy or assign a mortgage executed to the debtor by the Scarsdale Supply Co., on which the unpaid principal was $22,000, secured by property which had cost $63,000. The amount offered was only $17,500 and the committee successfully opposed the application. Later the trustees in reörganization of the New York, New Haven & Hartford Railroad, took over this mortgage at its face value as part of a settlement of the road's claims against the debtor; the committee demands some allowance for its service in preventing the trustee from selling at the lower price. The only other item of importance for which they wish to be paid is their services in aid of the settlement just mentioned. At the invitation of the trustee, they and their attorney participated in the preliminary negotiations during the spring of 1937 which led up to this, and continued down to August when the matter was concluded. The New Haven Railroad, which held substantially all the shares of the debtor, had lent it large sums, and had helped it in other ways; its claims in this proceeding were of three sorts: first, loans for operation made within six months of November 30, 1935, when this proceeding was begun, as to which the road's trustees claimed priority: second, a much larger amount of older loans, concededly only general debts: third, a claim for the use and occupation by the debtor of the Mamaroneck-Portchester Line, owned by the road. The committee asserts that they secured reductions in all of these claims, which, as we have just said, were settled in part by transfer of the Scarsdale mortgage. Finally, they asked reimbursement for their expenses in making ready the plan, especially those resulting from the employment of accountants and engineers (we cannot see that these stand upon a different footing from their putative allowance, or their attorney's). After the judge had denied the application in the final order, which terminated the proceeding, the appellants asked him to allow them to supplement their evidence by showing what they had done since the date of the first application. This he also denied.

A proceeding under section 77B seeks the rehabilitation of the debtor, and can have no further purpose; as soon as it appears that this is impossible, subdivision (c) (8) declares that the court "may" dismiss it, or proceed to liquidation. When either happens it becomes plain that the whole proceeding has benefited no one, just as the judge here declared. Possibly it might indeed be desirable to make some allowance, win or lose, to creditors who prepare a plan, since the hazard of going empty-handed if it fails, may deter them from preparing one, which might in the end prove successful. Moreover, a petition under section 77B in...