State v. Title Guarantee & Trust Co.

• Decision Date: 06 March 1935
• Docket Number: 56.
• Citation: 177 A. 617,168 Md. 376
• Parties: STATE v. TITLE GUARANTEE & TRUST CO. ET AL.
• Court: Maryland Court of Appeals

177 A. 617

168 Md. 376

STATE v. TITLE GUARANTEE & TRUST CO. ET AL.

No. 56.

Court of Appeals of Maryland

March 6, 1935

Appeal from Circuit Court No. 2 of Baltimore City; Eugene O'Dunne, Judge.

Action by the State of Maryland against Title Guarantee & Trust Company for the appointment of a receiver in which a petition was filed by James E. Hancock and others submitting a plan of reorganization and of reopening of the Title Guarantee & Trust Company, and in which the Fidelity & Deposit Company of Maryland and others were allowed to intervene. From a decree approving the plan, the State of Maryland appeals.

Decree dismissing petition of James E. Hancock and others affirmed and appeal from decree which was not final dismissed.

Argued before PARKE, SLOAN, SHEHAN, and JOHNSON, JJ.

Ralph Robinson and Isaac Lobe Straus, both of Baltimore (William Milnes Maloy, of Baltimore, on the brief), for James E Hancock et al., Petitioners.

William L. Marbury, Jr., of Baltimore, for John J. Ghingher, receiver of Title Guarantee & Trust Co.

Washington Bowie, Jr., and Harry E. Karr, both of Baltimore (Jesse N Bowen, of Baltimore, on the brief), for appellees Fidelity & Deposit Co. of Maryland, Consolidated Gas, Electric Light & Power Co., and Fidelity Trust Co.

Randolph Barton, Jr., Joseph Addison, and Clarence A. Tucker, all of Baltimore, for Board of Directors of Title Guarantee & Trust Co.

PARKE Judge.

The two appeals on this record bring up for review the action of the chancellor in dismissing the objections to the plan of reorganization and of reopening of the Title Guarantee & Trust Company that were made by James E. Hancock and other depositors of that corporation, and in later passing a decree approving the plan; and, consequently, involve a consideration of these acts in connection with the provisions of chapter 529 of the Acts of 1933.

On February 20, 1933, the state of Maryland filed its bill of complaint against the Title Guarantee & Trust Company for the appointment of a receiver for the defendant corporation. The defendant appeared and answered on the institution of the proceedings, and the state bank commissioner was immediately appointed receiver on the bill and answer. The receiver proceeded with the discharge of his duties, and the record discloses that, in the course of his administration, at least several plans of reorganization of the corporation were submitted, considered, and discussed. Eventually, George Forbes, the chairman, and seven members of a committee, who acted in behalf of a group of depositors, and Edgar G. Miller, Jr., a depositor, filed in the cause, on February 12, 1934, a petition which recited the failure of a particular effort to agree on a plan of reorganization, and expressed a conviction that any further effort would be futile, and prayed that the chancellor should direct the receiver to proceed at once with the liquidation of the corporation and should appoint a special counsel to scrutinize the conduct of its corporate affairs by its officers and directors as stated in a report made to the petitioners by their counsel, William Milnes Maloy, and to make known to the court in what respect, if any, such officers and directors had incurred a legal liability by their acts.

The Maloy report was filed with this petition and was, also, filed as part of the subsequent petition of James E. Hancock and seventeen other depositors. This second petition was filed in the cause on November 15, 1934. Hancock and three of the other petitioners had united in the first petition, and the second petition was filed for the benefit of not only the original petitioners, but also any other depositors of the same class who might thereafter join in the petition.

The object of this petition was to have the chancellor refuse to approve a proposed plan of reorganization of the corporation, which the petitioners anticipated would be subsequently submitted to the court for approval; and to direct and require the receiver (a) to enforce the statutory liability of the stockholders of the corporation on their corporate stock; (b) to enforce by appropriate suits and proceedings the alleged respective statutory liability of the directors and stockholders for the declaration and payment of unearned dividends upon the stock of the corporation for the years 1928 to 1932, both inclusive; and (c) to enforce against the directors the amounts for which they might be liable for losses sustained by reason of their neglect and default in the discharge of their official duties. On their petition eight other depositors came in and made themselves parties to the petition of James E. Hancock. On November 17, 1934, Raymond M. Duvall, who was a party to both the prior petitions, filed a separate petition in which he dissented from the proposed plan of reorganization and elected to take, and applied to the court for the ascertainment of, the fair liquidated value of his claim as a depositor and requested the payment thereof in cash. At the conclusion of his petition, Duvall stated that his dissent and election were an alternative to the relief prayed in the petition filed on November 15, 1934.

The anticipated plan of reorganization, and the proceedings had in respect to its adoption, were filed in the cause on December 3, 1934, in the form of a petition and report of the receiver. By these documents it was made certain that the board of directors of the Title Guarantee & Trust Company had proposed a plan for the reorganization and reopening of the company, and for the establishment of the Title Mortgage & Management Company; that the plan was filed with the bank commissioner of Maryland, pursuant to the provisions of article 11 of the Code of Public General Laws as amended by the Acts of 1933, ch. 529, of the General Assembly of Maryland; that the board of directors of the Title Guarantee & Trust Company had certified to the bank commissioner that notice of the approval of the plan and a summary of its terms had been mailed to all depositors and creditors of the company at their respective addresses as shown by its books; and that on October 17, 1934, the bank commissioner of the state of Maryland, under and by virtue of section 9C of article 11 of the Code of Public General Laws of Maryland, as added by chapter 529 of the Acts of 1933, had, after study and investigation, approved the plan of reorganization as submitted by the board of directors of the company, and that to the company's stockholders, depositors, and other creditors a notice of this approval and of the fact that a copy of the plan had been filed with the Bank Commissioner and was open for inspection in his office or in the office of the receiver, had been duly published in two daily newspapers of Baltimore City. The first publication was on October 19 and the last on November 2. The receiver, who under the law is the bank commissioner, called the court's attention to the circumstance that the depositor, who had objected to the plan and elected to take the liquidated value of his deposit, represents an amount of less than one-half of one per centum of the deposit liability of the company, and that the other depositors, who have objected to the legality and propriety of the plan, have an aggregate deposit of less than four per centum of such deposit liability.

The receiver further reported that under the plan of reorganization the present stockholders were required to subscribe not less than $250,000 to the new common stock to be issued according to the plan, but that this amount had not been subscribed, and suggested that, if the court adopt the plan, it should make it subject to the requirement that the full amount of said stock subscription of $250,000 be obtained within ten days from the date of the approval. The report, also, stated that the Reconstruction Finance Corporation might decline to make the loan provided for in the plan until the final termination of all litigation arising out of the petitions of the depositors, and that this litigation may be protracted, and that, therefore, the receiver recommended that, if the court should approve the plan, the condition should be prescribed that the Reconstruction Finance Corporation express its willingness to make the loan notwithstanding the pending litigation.

In addition to the prayer for the chancellor's approval of the plan, the receiver requested the passage of an order fixing and determining the present cash value of the interest of Raymond M. Duvall on the basis of a judicial liquidation of the company; and of such orders as the chancellor might deem proper with respect to the plan and the termination of the receivership.

On this state of the pleadings, the chancellor passed his decree on December 17, 1934, wherein he affirmed that, "counsel having agreed that said report should be treated as in the nature of a demurrer to the petition aforesaid" of James E. Hancock and certain other depositors, he had, after full argument and consideration, dismissed the petition mentioned. An appeal was taken from this decree and also from the decree passed on January 2, 1935. After reciting that the legal prerequisites to an adjudication had been met; that the full sum of $250,000 had been paid on account of the new stock to be issued under the plan; that Raymond M. Duvall, who had a claim as depositor in the sum of $13,305.74, had applied to the court for the ascertainment of the fair liquidation value of his claim; that no other depositor or unsecured creditor had made a similar application; that the plan of reorganization had been submitted for his approval; and that James E. Hancock and certain other depositors had objected to the approval being granted on the ground that the plan was illegal, but had requested the...