Watters v. Hamilton Gas Co.

• Decision Date: 08 April 1935
• Docket Number: No. 2889.,2889.
• Court: U.S. District Court — Southern District of West Virginia
• Parties: WATTERS et al. v. HAMILTON GAS CO.

10 F. Supp. 323

WATTERS et al. v. HAMILTON GAS CO.

No. 2889.

District Court, S. D. West Virginia.

April 8, 1935.

Steptoe & Johnson, Stanley C. Morris, and W. E. Miller, all of Charleston, W. Va., for petitioners.

Frank Lively, of Charleston, W. Va., and Nathan A. Smyth, of New York City, for debtor.

McCLINTIC, District Judge.

This proceeding is before the court upon remand from the Circuit Court of Appeals for the Fourth Circuit, Hamilton Gas Co. v. Watters, 75 F.(2d) 176, for the purpose of taking evidence to determine the principal place of business of the debtor during the six months prior to the filing of the petition herein. On June 7, 1934, immediately after the President signed the act amending section 77B to the Bankruptcy Act (11 USCA § 207), a petition was filed in this court by certain creditors proposing a reorganization of Hamilton Gas Company. The petition alleged that both the principal assets and the principal place of business of the debtor were in this jurisdiction during the preceding six months. On June 18, 1934, an answer was filed by the debtor resisting the approval of such petition on the ground, amongst others, that on June 9, 1934, the United States District Court for the Southern District of New York had approved a petition filed on June 8, 1934, by the debtor itself, seeking a reorganization under the same section of the act. The jurisdiction of the New York court was predicated on the allegation in the answer that the company had its principal place of business in that district during the six months' period prior to the filing of the petition. On June 21, 1934, this court, upon consideration of the petition and answer, entered its order approving the petition filed here and taking exclusive jurisdiction of the property of the debtor. Upon appeal to the United States Circuit Court of Appeals this order was reversed and the proceedings remanded for the purpose of determining whether the New York court had jurisdiction to enter its order of June 9, 1934. 75 F.(2d) 176, 182. The Circuit Court directed: "If it should be found that the principal place of business of the debtor during the six months preceding the filing of the petition was not in the Southern District of New York, then the New York Court had no jurisdiction to pass upon the petition, and the court below should retain jurisdiction. In re Continental Coal Corporation (C. C. A.) 238 F. 113."

Hamilton Gas Company is a corporation organized in December, 1927, under the laws of the state of Delaware and duly admitted to do business in the state of West Virginia. It owns directly leases and leasehold estates for oil and gas purposes covering 18,353 acres of land in West Virginia, improved by 84 producing wells, and 27,510 acres in Kentucky, improved by 55 producing wells, or a total of 45,863 acres of land, improved by 139 wells. It also owns the capital stock of Larner Gas Company, a corporation created under the laws of the state of West Virginia on August 13, 1928, which, in turn, owns leases and leasehold estates for oil and gas purposes covering 28,463 acres of land in West Virginia, improved by 164 producing gas wells. It also owns the capital stock of Thompson Gas Company, a corporation formed under the laws of the state of Delaware on December 1, 1927, which owns leases and leasehold estates for oil and gas purposes covering 8,623 acres of land in Clay county, W. Va., improved by 26 producing wells. It holds the capital stock of Harshbarger Gas Company, a corporation under the laws of West Virginia, formed in August, 1931, which owns the franchise and small utility plant supplying gas at retail to approximately 500 consumers in the town of Milton, W. Va.

The debtor and its subsidiaries are engaged exclusively in the business of the production and sale of natural gas and oil in West Virginia and Kentucky. Access to the gas reserves is obtained almost exclusively by lease for such purpose from the owners of the mineral rights, usually owners of the fee, almost all of whom are residents of West Virginia and Kentucky and the great majority of whom actually live upon the leased premises. The business of the debtor consists of the development of the gas reserve by the drilling of wells, the laying of gathering lines and pipe lines from such wells to the pipe lines of the larger pipe line companies who purchase the gas at wholesale and remit monthly on the basis of meter readings maintained by them. All the sales of gas are at wholesale, except for the comparatively insignificant operations of Harshbarger Gas Company. The production and sale of oil constitutes less than 1 per cent. of the debtor's business.

The debtor has outstanding first mortgage 6 1/8 per cent. bonds in the principal amount of $2,325,500, with interest accrued since December 1, 1931, unsecured 6 1/8 per cent. debenture notes in the principal amount of $756,000, with interest accrued thereon since December 1, 1931, claims of general creditors to the extent of approximately $278,500, preferred stock in the amount of 1,684 shares of the par value of $100 per share, and common stock in the amount of 925,079 shares of the par value of $1 per share. Its subsidiary Larner Gas Company has outstanding first mortgage 7 per cent. notes in the principal amount of $300,000, with interest accrued thereon since September 11, 1931. All the capital stock of Thompson Gas Company is owned by the debtor and pledged with trustees under the indenture of mortgage securing the debtor's first mortgage bonds. All the properties of Thompson Gas Company are located in Clay county, W. Va., and mortgaged by supplemental indenture to secure the debtor's bonds. All the gas produced from these properties is sold to the debtor, who, in turn, resells the gas to Hope Natural Gas Company at wholesale. All the stock of Larner Gas Company is owned by the debtor, and all its properties are located in West Virginia and subject to a mortgage securing $300,000 of 7 per cent. notes held by United Fuel Gas Company. Larner Gas Company owes the debtor $968,860.46 for advances made by the debtor for the purchase of properties and their development. All the stock of Harshbarger Gas Company is owned by the debtor or its subsidiary, Larner Gas Company.

Section 77B (11 USCA § 207) provides that the petition for reorganization shall be filed "with the court in whose territorial jurisdiction the corporation, during the preceding six months or the greater portion thereof, has had its principal place of business or its principal assets, or in any territorial jurisdiction in the State in which it was incorporated." The first question to which the court must therefore address its attention is the meaning of the phrase "principal place of business" as used in the Bankruptcy Act. That meaning is to be determined by an application of the principles of statutory construction and the pertinent decisions under the Bankruptcy Act.

Ordinary proceedings in bankruptcy are proceedings in rem, authorized by the laws of Congress for the purpose of preserving assets and insuring the equitable distribution of the proceeds thereof for the benefit of creditors of insolvent debtors who are thereby discharged of their obligations and permitted to enter into economic relations free of liabilities. These purposes are likewise served by proceedings under section 77B, 11 USCA § 207, for, although that section is a portion of the chapter of the Bankruptcy Act dealing with relief of debtors, it can hardly be supposed that the intention of the Congress was entirely to reverse the ancient order of things, turn liabilities into assets, and permit debtors to retain their assets whilst being shorn of their debts. The distinguishing feature of proceedings under section 77B is that a method is devised whereby with the consent of two-thirds of those having equities in the property of the debtor a liquidation of the debtor's estate may be avoided and its business continued as a going concern. In this way, a reorganization of a corporation's finances may be accomplished without the expense and losses incident to a judicial sale.

When the fundamental character of the proceedings is so considered, it is plain that the "assets" and "business" spoken of in the act must be the "assets" and "business" owned by the debtor at the time the petition is filed, from which is to be derived the earnings with which to pay the creditors and other security holders interested in the debtor's business. It is that business which it is the purpose of section 77B to preserve as a going concern by so flexing the corporate obligations as to place the corporate debtor beyond the hazards of fixed charges and matured debts. The conclusion is inescapable that by vesting jurisdiction in the court where the principal place of business existed during the six months prior to bankruptcy, the Congress intended to refer to the business which the debtor was authorized by its charter to conduct and the finances with respect to which were intended to be reorganized.

In this connection it is worthy of note that a sharp distinction exists between the phrase "principal office" and the phrase "principal place of business." In the opinion of the Circuit Court of Appeals in this case, attention is called to the fact that "it may be found that the principal place of business of the corporation, within the meaning of the National Bankruptcy Act 11 USCA, has been the place in which the greater part of the business has actually been conducted, rather than the place where, for convenience, offices have been maintained." This distinction has been recognized in other cases involving this precise question. In Dryden v. Ranger Refining Co., 280 F. 257, 259 (C. C. A. 5th, 1922), the court said: "The business of a corporation is its activities in the acquisition or production of that which its charter authorizes it to produce or acquire, and its dealings with its customers, not its...