Scherck, Richter Co. v. Dysart

• Decision Date: 05 December 1941
• Docket Number: No. 11993.,11993.
• Citation: 123 F.2d 364
• Parties: SCHERCK, RICHTER CO. v. DYSART et al.
• Court: U.S. Court of Appeals — Eighth Circuit

123 F.2d 364 (1941)

SCHERCK, RICHTER CO. v. DYSART et al.

No. 11993.

Circuit Court of Appeals, Eighth Circuit.

November 17, 1941.

Rehearing Denied December 5, 1941.

B. L. Liberman, of St. Louis, Mo. (Lyle M. Allen, Burnett, Stern & Liberman, and Lewis, Rice, Tucker, Allen & Chubb, all of St. Louis, Mo., on the brief), for appellant.

David Levinson, of Chicago, Ill., and Rhodes E. Cave, of St. Louis, Mo. (Sonnenschein, Berkson, Lautmann, Levinson & Morse and Henry L. Kohn, all of Chicago, Ill., and R. H. McRoberts and Bryan, Williams, Cave & McPheeters, all of St. Louis, Mo., on the briefs), for appellees.

Before GARDNER, SANBORN, and THOMAS, Circuit Judges.

GARDNER, Circuit Judge.

This is an appeal from a decree entered in an equity receivership proceeding which approved the report of a bondholders' committee covering a proposed contract of sale of certain properties acquired by the committee in that proceeding. This proceeding may be considered as supplemental to and in aid of an equitable reorganization proceeding, the history of which will be found set out in great detail in the opinion of Judge Stone, speaking for this court, in Warner Bros. Pictures v. Lawton-Byrne-Bruner Ins. Agency Co. et al., 79 F.2d 804. This opinion is referred to as embodying the underlying facts out of which the present litigation arose. We shall not attempt a restatement of the facts except so far as it may be necessary to an understanding of the events occurring subsequent to our former decision.

On April 20, 1925, the Central Properties Corporation executed a mortgage on its properties to secure an issue of first mortgage bonds in the amount of $4,500,000. It later sold and transferred this mortgage property to the St. Louis Properties Corporation, which company under date January 15, 1928, executed a second mortgage mortgaging this same property subject to the first mortgage to secure its bonds in the amount of $850,000. On August 19, 1932, an equity suit in the nature of a creditor's bill was brought by Lawton-Byrne-Bruner Insurance Agency against the St. Louis Properties Corporation, and on August 22, 1932, a receiver was appointed in that suit. Following this proceeding, and on October 8, 1932, suit was brought to foreclose the first mortgage and at that time there were outstanding and unpaid bonds secured by that mortgage in the amount of $4,050,000. A suit was brought to foreclose the second mortgage, so that there was then pending the three suits, one a creditor's bill and the other two mortgage foreclosure suits. On November 18, 1932, these three suits were consolidated and the receivership in the creditor's bill suit was extended to include all of the properties described in the two mortgages sought to be foreclosed. At the time of the commencement of the suit to foreclose the second mortgage, there were outstanding bonds secured by that mortgage in the amount of $840,000. On December 28, 1933, decree was entered in the consolidated causes for foreclosure of the two mortgages and sales of the mortgaged properties. In the decree of foreclosure the court reserved jurisdiction to pass upon any plan of reorganization of the Central Properties Corporation that might be filed. On March 28, 1934, a committee known as the Central Properties First Mortgage Bondholders Committee was permitted to intervene, and on June 8, 1934, filed a plan of reorganization, the details of which need not here be related as they appear in the prior opinion of this court. Warner Bros. Pictures v. Lawton-Byrne-Bruner Ins. Agency Co., supra.

Skouras Bros. Enterprises, Inc., had guaranteed payment of the first mortgage bonds, and the plan for reorganization provided that if any recovery should be had on this guaranty, the amounts recovered should be distributed pro rata to the holders of the certificates of deposit to be issued to the first mortgage bondholders. The committee was to continue in existence and to perform its duties until the guaranty had been liquidated, or the committee had exhausted its efforts to enforce the guaranty. The court reserved jurisdiction for the purpose of supervising and carrying out the plan of reorganization. On appeal from the order and decree, with certain modifications not here important we affirmed. Warner Bros. Pictures v. Lawton-Byrne-Bruner Ins. Agency, supra.

On May 25, 1937, the Central Properties First Mortgage Bondholders Committee filed a report of the result of its efforts to realize on the guaranty of the Skouras Bros. Enterprises, Inc. That report showed that in enforcing the guaranty of Skouras Bros. Enterprises, Inc., the committee had acquired property described as follows: 12,431 shares of Class A capital stock of St. Louis Amusement Company; 13,929 shares of Class B capital stock of St. Louis Amusement Company (this being 52% of the stock of the St. Louis Amusement Company); 600 shares of the capital stock of Buland Amusement Company; open account against Buland Amusement Company in the amount of $4,727.65; 519 shares of the capital stock of Education Pictures, Inc., $34,000 par value of first mortgage notes and trust deed securing the same on the West End Lyric Theater, St. Louis, Missouri; $45,653.83 par value of second mortgage notes and trust deed of St. Louis Amusement Company securing the same by the conveyance of various properties of the St. Louis Amusement Company, and some cash.

The committee presented to the court a plan for distribution of this recovery to those entitled to share in it. The plan may be summarized as follows:

1. That the committee would organize a corporation to be known as the Ambassador Investment Corporation, with an authorized capital of 36,557 shares of preferred stock of the par value of $12 per share and with 100 shares of common stock of the par value of $100 per share.

2. That the committee would transfer to the new corporation the following assets:

12,431 shares of Class A capital stock of St. Louis Amusement Company;

13,929 shares of Class B capital stock of St. Louis Amusement Company. This stock constituted 52% of the outstanding stock of the St. Louis Amusement Company and was subject to an option from the committee dated July 30, 1936.

600 shares of capital stock of Buland Amusement Company;

An open account for $4,727.65 against Buland Amusement Company;

519 shares of the capital stock of Education Pictures, Inc.

3. That the new corporation would issue and deliver to the committee 36,557 shares of its preferred stock and 100 shares of its common stock.

4. That the new company would assume and agree to pay the Arthur note and interest aggregating as of July 31, 1941, $12,874.46, and indemnify the committee against any liability thereon.

5. That the committee would distribute the 36,557 shares of the preferred stock of the new corporation as follows: 1875 shares to C. M. Turley in liquidation of his claim of approximately $15,000; the balance of 34,682 shares would be delivered by the committee to the holders of certificates of deposit at the rate of one share of preferred stock for each $100 par amount of bonds represented by the certificates of deposit.

6. That other assets of the committee, consisting of $41,000 par value of first mortgage notes and trust deed on West End Lyric Theater, St. Louis, $51,000 par value of second mortgage notes and trust deed of St. Louis Amusement Company with interest, and common stock of the proposed new corporation, will be transferred to the Ambassador Building Corporation for the following consideration:

(a) Cancellation of the indebtedness of the committee to the Ambassador Building Corporation in the amount of $35,000, and on Jeffries note and interest (the amount of which is not shown);

(b) Payment by the Ambassador Building Corporation to the committee of $22,000 with which to discharge the remaining obligations of the committee, and, in addition, payment by the Ambassador Building Corporation of the court costs and expenses involved in the issuance and distribution of the new securities;

(c) Agreement by the Ambassador Building Corporation to hold the committee harmless against any claim arising out of the plan;

(d) Agreement by the Ambassador Building Corporation to offer to purchase the shares of the preferred stock in the new company from holders of certificates of deposit who, prior to May 1, 1940, had sold the bonds of the Ambassador Building Corporation distributed to them under the original plan of reorganization, at a price of $8 per share of preferred stock, the offer to remain open 20 days after the date on which the offer was communicated to the holders of certificates of deposit.

It should be explained that the committee, in attempting to recover on the guaranty of Skouras Bros. Enterprises, Inc., determined that it was advisable to acquire certain of the assets of Skouras Bros. Enterprises, Inc., which in the meantime had gone into bankruptcy, and in doing so borrowed money with which to make the purchase.

The preferred stock in the Ambassador Investment Corporation was liquidating stock upon which no dividends were to be paid except by way of liquidation, and no dividends could be paid on common stock unless and until the preferred stock had been fully liquidated. No voting rights were granted the preferred stock and all voting power was vested in the common stock. Priority was allowed the preferred stock in the event of liquidation or dissolution to the extent of $12 per share. Whenever there should be an accumulation of net profits, surplus or capital of $74,000 in cash or liquid securities, the liquidating dividend on the preferred stock of $2 per share became payable.

The Ambassador Building is a seventeen-story down town office building, containing a large theater. The St. Louis Amusement Company operates twenty-six second-run moving picture theaters in St. Louis. In the original reorganization plan, a lease of the theater portion...