United States v. St. Joe Paper Company
| Citation | 284 F.2d 430 |
| Decision Date | 12 December 1960 |
| Docket Number | No. 18425.,18425. |
| Parties | UNITED STATES of America, Appellant, v. ST. JOE PAPER COMPANY, Appellee. |
| Court | United States Courts of Appeals. United States Court of Appeals (5th Circuit) |
David O. Walters, Lee A. Jackson and Meyer Rothwacks, Attys., Charles K. Rice, Asst. Atty. Gen., Dept. of Justice, Washington, D. C., John L. Briggs, Asst. U. S. Atty., Jacksonville, Fla., E. Coleman Madsen, U. S. Atty., Miami, Fla., for appellant.
John S. Nolan, Charles T. Akre, Washington, D. C., Robert N. Miller, Miller & Chevalier, Washington, D. C., of counsel, for appellee.
Before TUTTLE, Chief Judge, and RIVES and WISDOM, Circuit Judges.
The United States appeals from a judgment of the District Court allowing as a deduction from income tax attorneys' fees paid by appellee in its long struggle over the equity ownership of the Florida East Coast Railway Company. The basic facts upon which a correct determination of this question must depend are not in dispute. Nor are the legal principles which must apply. The appellant contends that the trial court drew the wrong conclusion from the undisputed facts. We are constrained to agree.
The Railway was placed in receivership in 1931. This receivership was "extraordinarily successful" in that it maintained the railroad in operation, improved it physically and also accumulated substantial cash. It also provided for payment of all current interest on the $12,000,000 first mortgage bonds. There was a default in the interest on the $45,000,000 5% first and refunding bonds. In 1941 a committee representing holders of the first and refunding bonds filed a plan of reorganization with the Interstate Commerce Commission. Under this plan holders of this series of bonds would receive new bonds and all of the stock of the reorganized company in lieu of their present defaulted bonds. Thereafter appellee's predecessor corporation and trustees of the Alfred I. duPont Estate, who owned and controlled such corporation and also owned and controlled appellee, acquired $3,500,000 of the first and refunding bonds. They then filed a plan of reorganization which also provided for the issuance of new capital stock, of which the duPont trustees would be entitled to a majority. The Commission approved a plan which in substance was that of the committee. During the consideration of the plans by the Commission, and after its approval of the plan which did place all of the reorganized company's stock in the hands of holders of its first and refunding bonds, St. Joe Paper Company, and its predecessor, and the duPont trustees acquired an additional $19,759,000 of the bonds.
It is clear from the entire history of the proceedings, and it was in fact conceded on oral argument in this Court, that these bonds were acquired by St. Joe Paper Company and its associated interests for the purpose of acquiring the equity or stock ownership of the railway company. The holdings of St. Joe ultimately totalled $25,000,000 in bonds acquired at a total cost of approximately $2,500,000. The Commission's first plan was disapproved by the District Court because no satisfactory disposition had been made of a large accumulation of cash. The plan was, therefore, returned to the Commission for further consideration. It is amply clear that in this posture of affairs St. Joe Paper Company had every hope and expectation that it would acquire ownership of the railway. Touching on this matter the Interstate Commerce Commission found:
"The St. Joe Paper Company owns about 56 percent of the $45,000,000 principal amount of the debtor\'s outstanding first and refunding mortgage bonds, which it acquired to that extent for the avowed purpose of obtaining control of the debtor\'s line of railroad upon its reorganization." (Emphasis added.)
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