West Coast Life Ins. Co. v. Merced Irr. Dist.

• Decision Date: 15 October 1940
• Docket Number: No. 9242.,9242.
• Citation: 114 F.2d 654
• Parties: WEST COAST LIFE INS. CO. et al. v. MERCED IRR. DIST.
• Court: U.S. Court of Appeals — Ninth Circuit

114 F.2d 654 (1940)

WEST COAST LIFE INS. CO. et al. v. MERCED IRR. DIST.

No. 9242.

Circuit Court of Appeals, Ninth Circuit.

September 5, 1940.

Rehearing Denied October 15, 1940.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Chas. L. Childers, of El Centro, Cal., for appellant West Coast Life Ins. Co.

Hugh K. McKevitt, of San Francisco, Cal., for appellant Pacific Nat. Bank of S. F.

Clark, Nichols & Eltse and George Clark, all of Berkeley, Cal., for appellant Mary E. Morris.

Chase, Barnes & Chase and Lucius F. Chase, all of Los Angeles, Cal., for appellants R. D. and Belle Crowell.

Peter tum Suden, of San Francisco, Cal., for appellants Rigby and tum Suden, etc.

David Freidenrich, of San Francisco, Cal., for appellant Claire Strauss.

Herman Phleger and Brobeck, Phleger & Harrison, all of San Francisco, and Evan Haynes, of Berkeley, Cal., for appellants Moore et al.

W. Coburn Cook, of Turlock, Cal., for appellants Bekins et al.

Hugh K. Landram and C. Ray Robinson, both of Merced, Cal., and Downey, Brand & Seymour and Stephen W. Downey, all of Sacramento, Cal., for appellee Merced Irr. Dist.

Before DENMAN, MATHEWS, and STEPHENS, Circuit Judges.

STEPHENS, Circuit Judge.

Appellee Merced Irrigation District, an irrigation district organized under the provisions of the California Irrigation District Act, Cal.Stats. 1897, p. 254, as amended, Deering's General Laws, Act 3854, filed a petition for composition of debts under the provisions of Chapter IX of the Bankruptcy Act of 1898 as amended, 11 U.S.C.A. §§ 401-404. After a hearing of the petition, the District Court entered its interlocutory decree confirming the plan of composition proposed by the District. This is an appeal by certain bondholders of the District from said decree of confirmation.

The District is one of the largest irrigation districts in California, and was organized in 1919. To complete the development of the District three separate series of bonds, aggregating $16,190,000 in principal amount, were issued and sold. The first issue was in the principal amount of $11,940,000, dated January 1, 1922, due serially from 1934 to 1962, and bearing interest part at 5½% and part at 6%. The second issue was in the principal amount of $3,250,000, dated May 1, 1924, due serially from 1937 to 1964, and bearing interest at 6%. The third issue was in the principal amount of $1,000,000, dated April 1, 1926, due serially from 1965 to 1966, and bearing interest at 6%. The bonds were each in the amount of $1,000.

The District made all payments according to the maturities of its bond issues, including principal and interest, up to and including the payment due January 1, 1933. It defaulted on the July 1, 1933, payment.

Prior to such default and in March, 1932, a committee of representatives of the bond underwriters and an association called the California Irrigation and Reclamation District Bondholders Association, merged and thereafter those so merging functioned as a Bondholders' Committee. This Committee solicited the deposit of District Bonds under a deposit agreement dated March 1, 1932, and a major portion of the bonds, including those of some of appellants herein, were deposited with the Committee. After negotiations a refunding program was submitted by the Board of Directors to the electors of the District, and was voted upon favorably in November, 1933. This program provided for payment in full of the bond principal of the District with an extension of maturities and some reduction in interest.

After the enactment of Section 36 of the Emergency Farm Mortgage Act, 43 U.S. C.A. § 403, an application was made on December 16, 1933 by the District to the Reconstruction Finance Corporation hereinafter for convenience referred to as R. F. C., for funds with which to reduce and refinance the debt of the District.

The R. F. C. on November 14, 1934 adopted a resolution authorizing a loan to the District of not exceeding $8,600,000 plus 4% interest upon the amount to be paid thereunder. It was provided in the resolution that the loan should be made subject to certain specified terms and conditions, one of which was set forth as follows in the resolution: "5. * * *(c) All or any part of the Old Securities acquired or held by or on behalf of this Corporation (R.F.C.) through any disbursement of or from the loan authorized hereunder as well as all rights in or to such Old Securities, may be kept alive for a greater or lesser time and for any purpose the Division Chief and Counsel may deem necessary, but this Corporation may at any time require the Borrower District to issue its new 4% bonds and exchange the same for the Old Securities held by or on behalf of this Corporation. Until such Old Securities have been exchanged for New Bonds, all such securities as well as all rights in or to the same shall continue to be and constitute obligations of the Borrower for the full amount thereof and nothing in this resolution shall be deemed to limit the right of this Corporation to enforce or cause to be enforced full payment of principal and interest of such Old Securities as and when the Division Chief and Counsel shall deem it advisable to do so * * *."

On December 11, 1934, the District by resolution accepted the loan and agreed to the terms and conditions of the resolution of R. F. C. above referred to.

The loan from R. F. C. was calculated to pay 51.501 cents on the dollar of bond principal, with nothing for accrued interest. The proposal was submitted to the California Districts Securities Commission, and the Commission by its Order No. 54 on February 15, 1935, approved the issuance of the refunding bonds and the making of the contract therefor. Thereafter the proposal was submitted to the electors of the District, and they voted in favor thereof on March 20, 1935.

At this time the Bondholders' Committee submitted to the bondholders whom it represented a questionnaire to determine whether they desired to take advantage of the cash settlement proposition. The majority of the bondholders (63% of the total) indicated their preference for the cash offer plan. The Committee thereupon voted in favor of the plan, and notified all depositing bondholders that they could withdraw their bonds within thirty days upon payment of their proportion of the expenses of the Committee, otherwise the Committee would deposit all bonds in its hands under the plan. Certain of the bondholders, opposing the plan, withdrew their bonds from the Committee.

By April 18, 1935, 75% of the District Bonds had been deposited under the cash plan, and the District filed a proceeding under Section 80 of the Bankruptcy Act as then in effect, 11 U.S.C.A. § 303, for confirmation. We shall refer to this as the first bankruptcy case.

Arrangements were made to carry out the plan, and on October 4, 1935, over 86% of the outstanding bonds were deposited and surrendered and the owners thereof received their $515.01 per bond.

On March 4, 1936, the District Court rendered its decree in the first bankruptcy case confirming the plan. An appeal was taken to this court from said decree, in view of the decision of the United States Supreme Court rendered on April 29, 1936, in the case of Ashton v. Cameron County Water Improvement District No. One, 298 U.S. 513, 56 S.Ct. 892, 80 L.Ed. 1309, holding Section 80 of the Bankruptcy Act unconstitutional. We entered our memorandum decision on April 12, 1937 Bekins v. Merced Irr. Dist., 9 Cir., 89 F.2d 1002, certiorari denied 302 U.S. 709, 58 S.Ct. 30, 82 L.Ed. 548, reversing the decree of the District Court and remanding the cause with directions to dismiss.

During the pendency of said proceedings in the Supreme Court, the District, on July 20, 1937, filed a petition in the Superior Court of the State of California in and for Merced County under the provisions of California Statutes 1937, Chapter 24, for confirmation of the same plan of composition. In this case the R. F. C. filed its "consent" dated July 9, 1937. The case went to trial and was contested by substantially the same objectors as appellants in the principal case. The cause was submitted and the trial judge rendered an opinion on October 5, 1937, in favor of the District and ordered the preparation of findings and a decree in accordance with his opinion. No findings, however, were ever presented by the District and none was ever filed and no judgment has ever been signed and filed therein.

The present proceedings were inaugurated by the filing of a petition in the District Court on June 17, 1938, pursuant to Chapter IX of the Bankruptcy Act of 1938, 11 U.S.C.A. §§ 401-404.

Appellants raise the plea of res judicata by virtue of the decision of this court reversing the decree in the first bankruptcy case above referred to, as their "Ninth Proposition". They also raise, as their "Eighth Proposition" the pendency of the proceedings before the Superior Court for Merced County in bar of these proceedings. Other points raised by appellants may best be stated by quoting from their opening brief:

"First Proposition: The Reconstruction Finance Corporation is not a creditor affected by the plan of composition and its consent is not entitled to be considered."

"Second Proposition: Petitioner is barred from obtaining confirmation of its proposed plan of composition by reason of its lack of good faith and constructive fraud."

"Third Proposition: Petitioner herein is not `insolvent or unable to meet its debts as they mature'".

"Fourth Proposition: The plan of composition is not fair, equitable or for the best interests of the creditors, and it is discriminatory."

"Fifth Proposition: The claims were improperly classified as being all of the same class."

"Sixth Proposition: The decree unlawfully takes trust funds and vested rights belonging to the appellants."

"Seventh Proposition: By the terms of the statute the court was without jurisdiction."

"Tenth Proposition: Chapter IX of the Bankruptcy ...