Tennessee Pub Co v. American Nat Bank

Decision Date09 November 1936
Docket NumberNo. 48,48
Citation299 U.S. 18,81 L.Ed. 13,57 S.Ct. 85
PartiesTENNESSEE PUB. CO. v. AMERICAN NAT. BANK et al
CourtU.S. Supreme Court

Messrs. A. H. Roberts, A. H. Roberts, Jr., and Lewis S. Pope, all of Nashville, Tenn., for petitioner.

Messrs. Cecil Sims and William Waller, both of Nashville, Tenn., for respondents.

Mr. Chief Justice HUGHES delivered the opinion of the Court.

The Circuit Court of Appeals affirmed a decree of the District Court dismissing the petition of the debtor, Tennessee Publishing Company, and its plans of reorganization, in a proceeding under section 77B of the Bankruptcy Act (11 U.S.C.A. § 207). The court held (1) that the debtor's proposal was not a workable one and hence had not been presented in good faith as that phrase was used in the statute; and (2) that subsection (b)(5) of section 77B (11 U.S.C.A. § 207(b)(5), as applied to the adjustment of claims of nonassenting lienholders, was invalid under the due process clause of the Fifth Amendment. 1 In re Tennessee Pub. Co. (C.C.A.) 81 F.(2d) 463, 465. We granted certiorari. 298 U.S. 651, 56 S.Ct. 943, 80 L.Ed. 1379.

At the beginning of the proceeding the District Judge approved the petition for reorganization as having been filed in good faith, but by an order to show cause reserved to all persons in interest the opportunity to present their objections. Answers and motions to dismiss were filed by bondholders. Three successive plans of reorganization were submitted and opposed. Several hearings were had. It appears that for more than two years prior to this proceeding, the affairs of the debtor had been in charge of a receiver appointed by the District Court upon a creditors' bill. An appraisal of the debtor's property showed assets worth about $295,000. Outstanding bonds, secured by mortgage, were in default and amounted with interest to approximately $900,000. There were unsecured claims of about $300,000.

We shall not attempt to state the many details of the various plans. It may be said in a general way that the first plan, and the second presented 'as a supplement to, or alternate of,' the first, contemplated an appraisal of the property, the determination of the value of the bonds, and the issue of new bonds and the distribution of the proceeds of their sale, after payment of costs, expenses and preferred claims, among the secured and unsecured creditors and stockholders. By an amendment the debtor offered to pay in cash the amount of the appraised value of the property as it might be judicially determined, or to pay the 'actual cash value of all valid interests, claims or liens' as fixed by the court. The third plan looked to the retention of the property by the debtor subject to the lien of the bonds scaled to 80 per cent. of their face value, or, in the absence of assent, to an amount found by the court to be due. Provision was also made for the issue of preferred stock.

In his final opinion, upon the third plan, the District Judge said that it would 'manifestly be unjust to the bondholders' to undo what had been done in the equity case; that 'the validity and amount of the bonds outstanding' had been established in that case upon the report of the standing master, to which the debtor had not excepted; and that it was admitted that the debtor was 'notoriously insolvent.'

The District Judge was unable to see how the bondholders could realize the value of their bonds, or how that value could be ascertained 'except by a public sale' of the mortgaged property. He thought that the effect of the last plan was to disregard what had been done in the equity suit and to delay a final administration of the debtor's estate indefinitely. He found that none of the bondholders were willing to adopt the plan, and that more than two- thirds of the bondholders and more than 50 per cent. of the unsecured creditors had affirmatively declined to accept it. He expressed the view that in such circumstances the adoption of the plan would deprive the secured creditors of their constitutional rights. While again ruling that the petition for reorganization was filed in 'good faith,' he saw no alternative 'except to dismiss the petition and let the property be sold in the equity case.'

The Circuit Court of Appeals considered that the District Judge, in passing upon the issue of good faith, was guided mainly by a consideration of the debtor's honesty of purpose. The court believed that more was required; that the statute had in view the submission of a practicable plan with a reasonable prospect for the rehabilita- tion of the debtor, and that hence in the finding of good faith by the District Judge there was an erroneous application of the law. Despite that, the court recognized that the decree of the District Court should still be affirmed if right, however erroneous might be any given conclusion of law.

Although reaching the conclusion that the plan of reorganization was not a workable one and failed to meet the statutory test, the Court of Appeals proceeded to consider the constitutionality of subsection (b)(5) and held it invalid. This ruling was premature. The constitutional question was not necessarily presented, as with such a plan no case had been made for the application of subsection (b)(5). It is a familiar rule that the court will not anticipate the decision of a constitutional question upon a record which does not appropriately...

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