Westinghouse Electric & Mfg. Co. v. Brooklyn Rapid Transit Co.

• Decision Date: 10 February 1923
• Citation: 288 F. 221
• Parties: WESTINGHOUSE ELECTRIC & MFG. CO. v. BROOKLYN RAPID TRANSIT CO. et al. CENTRAL UNION TRUST CO. OF NEW YORK v. SAME.
• Court: U.S. District Court — Southern District of New York

288 F. 221

WESTINGHOUSE ELECTRIC & MFG. CO. v. BROOKLYN RAPID TRANSIT CO. et al.

CENTRAL UNION TRUST CO. OF NEW YORK v. SAME.

United States District Court, S.D. New York.

February 10, 1923

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The following is the Report of Special Master E. Henry Lacombe, with certain parts omitted, as herein indicated:

The second cause above entitled is a suit to foreclose a mortgage of the defendant Brooklyn Rapid Transit Company, dated July 1, 1902, and known as first refunding gold mortgage, to secure an issue of bonds limited to an aggregate principal amount of $150,000,000, to mature July 1, 2002, and to bear interest at a rate of not exceeding 4 per cent. per annum. The cause came on before the District Court upon amended bill of complaint and various answers thereto. On October 20, 1920, that court ordered that the issues raised by said amended bill and answers be referred to the undersigned as special master, who was to hear proof and make report to the court of the same and of his conclusions thereon.

Said order further provided that the special master should give preference as to hearing of the proof touching certain specified issues and that he might, from time to time, make separate reports to the court upon such preferred issues. These preferred issues are specifically set forth in the order as relating to:

A. The execution and validity of the first refunding mortgage of Brooklyn Rapid Transit Company, the agreement between Transit Development Company, Brooklyn Rapid Transit Company, and Central Union Trust Company, dated March 29, 1907, and the indenture between Transit Development Company, Central Union Trust Company of New York, and Brooklyn Rapid Transit Company, dated July 4, 1918.

B. The amount of bonds validly outstanding under said mortgage.

C. Whether events of default thereunder have happened and the amount in default.

D. What real estate, stocks, bonds, certificates of indebtedness, and other property are subject to the lien of said mortgage, agreement, and/or indenture.

* * *

F. Any other matters which may be relevant to the right of said plaintiff to foreclose for the benefit of the holders of first refunding bonds its lien upon said properties.

* * *

In this report the several individuals, documents, etc., will be referred to as follows: The mortgage subject to this foreclosure suit as 'refunding mortgage'; the trustee thereunder whether original or successor, as 'refunding trustee'; the bonds issued thereunder as 'refunding bonds'; the Brooklyn Rapid Transit Company as 'B.R.T.'; the Transit Development Company as 'T.D.'; the mortgage by B.R.T. to Central Union Trust Company, June 1, 1918, as 'consolidated mortgage,' and the trustee thereunder as 'consolidated trustee'; the supplemental indenture B.R.T. to Central Union Trust Company, August 1, 1918, as 'supplemental indenture'; the committee of contract creditors as 'contract creditors'; the New York Consolidated Railroad Company as 'Consolidated Railroad'; the New York Municipal Railway Corporation as 'the Municipal'; the mortgage of B.R.T., dated October 1, 1895, as 'first mortgage'; the agreement dated July 1, 1912, securing the six-year 5 per cent. notes of B.R.T., as the 'note agreement'; the guaranty fund under the lease made by Brooklyn City Railroad Company to Brooklyn Heights Railroad Company as 'guaranty fund'; 'P.M.' means printed minutes of the testimony before special master.

Preliminary Statement.

B.R.T. was incorporated January 18, 1896, under the Business Corporations Law of New York, for the general purposes expressed in its certificate of incorporation of furnishing power and equipment to railroads and other works, or assisting any corporation so to do, and with power to acquire, hold, and dispose of stocks, bonds, and other obligations of other corporations. The second of these purposes--i.e., the holding of the stocks and securities of corporations--constituted the sole corporate activity of B.R.T. from its organization until its merger with T.D. on August 1, 1918. At the time of this merger B.R.T. possessed and still possesses a large accumulation of stocks, bonds, and certificates of indebtedness and other obligations, hereinafter referred to, of local traction companies, controlling directly or indirectly through such ownership practically all the street surface railway lines, operating in Brooklyn and Queens, as well as the elevated lines of the Consolidated Railroad and the subway lines of the Municipal.

T.D. was incorporated under the Business Corporations Law on April 24, 1902, for the purposes, among other things, of supplying power and constructing and equipping railroads. All of its stock was owned by B.R.T. Thereafter, and on or about 1907, the various traction companies controlled directly or indirectly by B.R.T. found it inadvisable to maintain their own small and independent power plants, etc., as had been the practice up to that time, and they therefore entered into leases, contracts and pooling agreements with T.D., thereby obtaining the advantage of cheapened power and lowered repair and storage costs, which centralization and large scale production afforded. T.D. had early in its career become possessed of valuable real estate, and had acquired and developed extensive power, car repair, and storage facilities, and by virtue of the above-mentioned leases, contracts, and pooling agreements it became the lessee of substantially all the facilities theretofore possessed by the traction companies. On August 1, 1918, T.D. merged into B.R.T., which thereupon for the first time since its organization ceased to be a mere holding company and assumed the operating functions granted it by its charter.

On January 28, 1896, B.R.T. executed and delivered to a trustee (now succeeded by Equitable Trust Company) its mortgage, dated as of October 1, 1895, to secure an authenticated issue of $7,000,000 5 per cent. gold bonds.

On or about July 1, 1902, B.R.T. executed and delivered the refunding mortgage now in suit to secure an authorized issue of $150,000,000 100-year 4 per cent. gold bonds. Said mortgage was duly recorded in the office of the register of Kings county on July 9, 1902, and indexed against section 1, block 250, of the land map of Kings county. Apparently no one questions the proper execution or the validity of this mortgage. Whatever questions in reference to it have been raised before the special master relate only to its scope; i.e., whether certain specified items are or are not subject to its lien. The granting clause of this mortgage transferred and pledged to the refunding trustee all and singular the property and franchises of the said B.R.T. 'whether now owned by B.R.T. or hereafter acquired by (it) with the proceeds of said bonds (the refunding bonds). ' It includes particularly:

I. All the right, title, and interest which B.R.T. 'now owns or may hereafter acquire' in and to the stock of three separately enumerated railroad companies, and all other shares of capital stock, securities, and bonds of any corporation, which are now owned by B.R.T., or which shall be hereafter acquired by B.R.T. with the proceeds of bonds issued hereunder. The five separately enumerated items of stock are: (a) Brooklyn Heights Railroad, 2,000 shares, the entire capital stock; (b) Nassau Electric Railroad, 85,000 shares common stock (the entire amount); (c) Nassau Electric Railroad, 60,520 shares, preferred stock; (d) Brooklyn Union Elevated Railroad, 110,707 shares, common stock; (e) Brooklyn Union Elevated Railroad, 46,411 shares, preferred stock.

II. All the right, title, and interest which B.R.T. 'now owns or may hereafter acquire or become entitled to, * * * with all dividends, income, interest and increase thereon' to the entire capital stock of Brooklyn, Queens County & Suburban Railroad Company, 20,000 shares, subject, however, to any interest of the Brooklyn City Railroad Company therein.

III. All net profits of, or in any wise derived or receivable by, the Brooklyn Heights Railroad Company, lessee under lease of February 14, 1893, by Brooklyn City Railroad, and also all other income of the Brooklyn Heights Company under said lease, after discharging its obligations under said lease. All right, title, and interest in and to the guaranty fund, then consisting of $2,000,000 par value of first mortgage bonds of Brooklyn, Queens County & Suburban Railroad Company and $1,627,000 par value of the first consolidated mortgage bonds of the Brooklyn City Railroad Company, provided under the terms of the above-mentioned lease and called the guaranty fund. (Note.--Further provisions of this paragraph need not be set forth in this part of the report.) All the net profits and all other net income derived or receivable by B.R.T. from Brooklyn Heights Railroad Company under or by virtue of any lease of contract with any and all other corporations with which leases or contracts now exist or may be hereafter made by the Brooklyn Heights Railroad Company.

IV. All right, title, and interest heretofore acquired and now owned or hereafter acquired with the proceeds of bonds issued hereunder, by B.R.T. in and to the amount of the cost of all property, extensions, branches, additions, improvements, and equipment heretofore or hereafter acquired for use in connection with the operation of the railroads of Brooklyn Heights Railroad Company, Brooklyn City Railroad Company, Brooklyn, Queens County & Suburban Railroad Company, Nassau Electric Railroad Company, Coney Island & Gravesend, Railway Company, Sea Beach Railway...