Wheeling & L.E.R. Co. v. Carpenter

• Decision Date: 06 November 1914
• Docket Number: 2426.
• Citation: 218 F. 273
• Parties: WHEELING & L.E.R. CO. et al. v. CARPENTER et al.
• Court: U.S. Court of Appeals — Sixth Circuit

218 F. 273

WHEELING & L.E.R. CO. et al. v. CARPENTER et al.

No. 2426.

United States Court of Appeals, Sixth Circuit.

November 6, 1914

The Wheeling & Lake Erie Railway Company, a corporation of Ohio owning a large part of the stock of the Wheeling, Lake Erie &amp Pittsburgh Coal Company, a corporation of Ohio, controlled it as a subsidiary company, and through it had carried on the business of mining coal. Both were in the hands of the same receivers. The railway company was reorganized in 1900, under the name of the Wheeling & Lake Erie Railroad Company, a corporation of Ohio. The lands of the coal company containing coal mines, were adjacent to the railroad, which furnished the coal's only outlet. The receivers operated the coal mines. M. A. Hanna & Co. were sales agents for the receivers, and continued as such until January, 1902. There were outstanding against the coal lands a mortgage made by the coal company securing something less than $1,000,000 of bonds, and receivers' certificates and other debts prior to the bonds, the exact amount of which does not clearly appear.

January 25, 1897, an agreement providing for a complete plan of reorganization of the coal company was made between a committee of the bondholders, the Mercantile Trust Company and such bondholders as might deposit their bonds with the trust company for the purpose. April 11, 1900, the bondholders' committee submitted to the bondholders a plan of reorganization, and with it a circular of date April 19, 1900, prepared after consultation with representatives of bondholders and 'various interests concerned.' These interests were M. A. Hanna & Co., who were selling the coal mined by the receivers, and the railroad company, which controlled the mines and transported the coal.

The committee advised the bondholders of their belief that they had devised a method by which the necessary moneys could be raised and the future of the company made secure, which should be satisfactory to all the bondholders. The information in the circular to that end was:

'1. The moneys necessary to pay receivers' obligations and expenses for foreclosure and reorganization are provided for in this plan by the issue of temporary prior lien obligations, the payment of which is to be in large part made and in effect is to be guaranteed by the Wheeling & Lake Erie Railroad Company.

'2. The committee have now practical assurance that the moneys required to pay interest on the new issue of bonds, together with sinking fund, taxes, etc., can be raised by means of a lease of the mines to responsible parties, on a royalty of 6 1/2 cents per ton on the amount of coal mined, with a guaranty of a minimum output of seven hundred thousand tons each year.'

It was further said in the circular:

'In consideration of the large contribution to be made by the railroad company to the amount necessary to pay the receivers' obligations and the expenses of foreclosure and reorganization, the total of which it is estimated will be from $175,000 to $180,000, the capital stock of the new company, except so much of it as the committee in its discretion shall see fit to use in discharging the floating debt of the coal company, is to be turned over to the railroad company.

The expected minimum income of the new company under the proposed lease is . . . $45,500 00

The interest on the proposed new bonds, $634,500, at 4 per cent. . . . $25,380 00

The amount for sinking fund . . . 10,000 00

Estimated amount for taxes, etc. . . . 7,000 00 42,380 00

Surplus . . . $ 3,120 00

'- It is expected that this surplus, together with the contributions from the railroad company, will care for the interest on the prior lien obligations, and in a few years discharge them entirely, leaving the new bonds an absolute first lien upon the property. It is also expected that the output of the mines will be considerable in excess of the minimum to be stipulated for in the lease, in which case the payment of prior lien obligations will be proportionately hastened. * * * In order to bring the interest charges of the new company within the income which is expected to be assured under this plan, it has been necessary to give to the bondholders 75 per cent. only of the face of their present holdings; but inasmuch as the new bonds will have the prospect of a regular income, as well as the advantage of a sinking fund, it is believed that the result to the bondholders will be better than that attainable by any other method which the committee can devise.'

The plan, of great length and amplification of detail, was, in substance, that the foreclosure of the mortgage be brought about; the property bought in for the bondholders and paid for by the bonds pro tanto; a new corporation organized under the name of the Pittsburgh, Wheeling & Lake Erie Coal Company to take over the property; the issue of prior lien obligations at 5 per cent., maturing in 10 years, due July 1, 1911, not to exceed $200,000, to discharge obligations prior to the bonds, and $634,000 in mortgage bonds at 4 per cent. payable semiannually, due in 30 years from date, subject to the prior lien obligations, and $1,250,000 in stock. The provisions for the payment of prior lien obligations were:

'1. By applying thereto the surplus earnings of the new company, after paying or setting aside the sums required for the payment of the semiannual interest upon the said mortgage bonds and for maintaining the yearly sinking fund. * * *

'2. By the contribution by the Wheeling & Lake Erie Railroad Company to the said new company towards the payment and discharge of said prior lien obligations of a sum equal to one cent upon each ton of coal produced by the mines of the new company and transported upon or over the road of said railroad company for the first year after the date of said prior lien obligations; the contribution by said railroad company for the next succeeding year, for the same purpose, of a sum equal to two cents upon each ton of coal so produced and transported; and by the contribution by said railroad company for each year thereafter, for the same purpose, of a sum equal to three cents per ton upon each ton of coal so transported, until the entire principal and interest of such prior lien obligations have been paid and discharged-- it being understood that said railroad company shall not be required to make any contribution to the new company upon the coal produced b said new company and purchased from it by the railroad company for the latter's own use and consumption. * * * The contributions of said railroad company to said new company towards the payment and discharge of said prior lien obligations as aforesaid are to be provided for and made effective by such agreements with or guaranties executed by the said railroad company as the committee and their counsel shall determine.'

Provision was made for securing the prior lien obligations and bonds by mortgage; the right of enforcing the security to be given to the holders of either class of obligations; the mortgage to provide also for the establishment of a sinking fund from the earnings of the new company of $10,000 annually, which was to be used in the purchase of additional coal lands, or in the purchase and retirement of the bonds on allotment. The committee in their discretion were to use the preferred stock in settling prior claims, and any of such stock not so used and all the common stock were to be delivered to the railroad company in consideration of the contribution agreement 'based upon the amount of coal produced by the new company and transported by the said railroad company upon or over its railroad.'

The minutes of the reorganization committee of a meeting at New York August 16, 1901, show that all the outstanding bonds had been deposited with the committee, except 2; that the mortgage upon the property of the Wheeling, Lake Erie & Pittsburgh Coal Company had been foreclosed, and the same had been purchased on behalf of the committee for the upset price of $350,000 and the assumption of the receivers' liabilities; that a new company had been formed in Ohio, to be called the Pittsburgh, Wheeling & Lake Erie Coal Company, and that the papers had all been prepared for the transfer of the property so purchased on behalf of the committee to the new coal company; that a mortgage by the new company to the Mercantile Trust Company, to secure the bonds and prior lien obligations, was to be made under the plan of reorganization; that a lease of the mine had been agreed upon to the Wheeling & Lake Erie Coal Mining Company, guaranteed by M. A. Hanna & Co., on a royalty of 6 1/2 cents a ton, the lessee agreeing to pay on not less than 700,000 tons each year; that an agreement had also been entered into between the new company and the Wheeling & Lake Erie Railroad Company for a contribution to be made by the latter upon each ton of coal transported by the railroad, in accordance with the terms of the plan; that these papers had not yet been delivered, awaiting the completion of another agreement between the railroad company and the Wheeling & Lake Erie Coal Mining Company, which latter agreement was expected to be consummated the present week. (This agreement was for fuel coal.)

Thereupon it was resolved, among other things, in substance, that the chairman cause to have completed and delivered the necessary papers to carry out the transfer of the property to the Pittsburgh, Wheeling & Lake Erie Coal Company, theretofore formed, and to receive from it the prior lien obligations, bonds, and stock pursuant to the plan. And from the minutes it appears further:

'During the consideration of the foregoing resolution the following telegram was received, and ordered to be placed on file:

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