164 F. 753 | U.S. Circuit Court for the District of Eastern Virginia | 1908
(after stating the facts as above). The preliminary questions presented are (1) as to the right of the bondholders under the Richmond mortgage to the Central Trust Company to appear in their own behalf, and (2) whether the reorganization plan referred to can be considered. The ground on which it is claimed the reorganization should be taken into account is not for any merit or disadvantage there may he in it, or the right of any partir to join therein, but merely as to its effect upon the rights of parties in interest, as bearing upon the question of whether the court at this time should exercise its discretion to make sale of the property. For this purpose the plan of reorganization may be considered, as well as its relevancy to the charge made by the intervening bondholders against their trustee, and accordingly the same may be filed, as requested by the intervening bondholders. With the fairness and equity of the plan we have nothing to do. The persons joining therein manifestly have the right to do so, and the court, certainly upon the present pleadings, is without authority or jurisdiction to control them in their undertakings in that regard, or to say what may be the outcome of the same. The case of Farmers’ Loan & Trust Co. v. Toledo, etc., R. Co., 67 Fed. 53, a decision of the Circuit Court for the Northern District of Ohio, by Judge Taft, seems to be express aitlliority on this subject.
Just when and when not individual bondholders shall be allowed to intervene and be heard in their own behalf, is well settled under fed
The averments of the petition of intervention in this case relate more particularly to what may be termed the negligence of the trustee. They are to the effect that in this litigation, in which it is claimed that all but five of the 400 bonds of $1,000 each embraced in what is known as the “Manchester mortgage,” which comes immediately ahead of the mortgage securing the bonds held by the petitioners, have been paid off and extinguished, and no longer constitute as to them a paramount lien on the property. This question has been fully investigated before the master, and he has reported adversely to the claim that said bonds have been paid, which now amount to some $570,000 and constitute a lien upon the property. This report is excepted to by the junior lien- or, the Metropolitan Trust Company, and is one of the hotly contested issues in the case. The trustee in the mortgage under which petitioner claims has not joined in these exceptions, further than to raise the technical question that the validity of the mortgage and the bonds secured thereunder is not involved in the Central Trust Company suit, and that the proper parties to litigate that subject are not before the court, although the rulings of the court and of the special master in the combined causes and under the general order of reference are'to the contrary of his view. It is further charged that said trustee has failed to join in the contest as to the property alleged to have been diverted from .the lien of the mortgage.
These alleged omissions of the trustee relate to something pertaining to this litigation, of which the court has knowledge, and must take judicial notice of. While there are many things the trustee should exercise a broad discretion about, and be largely influenced, if not governed, by the directions of an overwhelming majority of those secured under the mortgage, still it may be seriously doubted whether he should be permitted to deprive the bondholders of the right of contesting the validity of a prior mortgage to the one in which they are secured, as well as the amount, due thereunder, if they desire to do so, and the trustee elects to act to the contrary. In Farmers’ Loan & Trust Co. v. Toledo, etc., R. Co. (C. C.) 67 Fed. 53, in discussing the question of whether or not stockholders should be admitted to interpose and in the name of the company contest the validity of bonds due under the mortgage on the company’s property, Judge Taft, speaking for the court, said:
“The refusal of the board of directors to make a valid and equitable defense to the foreclosure of the mortgage, and to the sale of all the properties and franchises belonging to the road, when the existence of such defenses is*757 brought to their knowledge, would of itself constitute such gross neglect or fraud on their part as to require the court to permit their interested cesíuis que trustent, the stockholders, to make the defense themselves”— citing Dodge v. Woolsey, 18 How. 331, 15 L. Ed. 401.
The principle stated seems to apply to the action of the trustee, where there appears to be a bona fide contest over the prior mortgage, as here, certainly to the extent that the court should allow the bondholders to cotnc in, make defense themselves, or require the particular or some substituted trustee to do so. In Skiddy v. A., M. & O. R. R., Fed. Cas. No. 12,922, 22 Fed. Cas. 274,286, it is said:
“It is nowhere alleged in this petition, original or amended, that the trustees or their counsel, so far as this suit has progressed, have not acted for the benefit of all the bondholders under the mortgage, without partiality or prejudice, hio single act of the trustee in the conduct of the suit is referred to as detrimental to or in antagonism of the interest of the petitioners.”
And in Bowling Green Trust Co. v. Virginia Passenger & Power Co (C. C.) 132 Fed. 925, it is said, referring to the bondholders:
“They will hare the right to * * * bring to the attention of the court any misconduct or dereliction of duty on the part of tlie complainant trustee, or others connected with the litigation or management of the property under the court’s control; and this may be carried to the extent of the removal of an improper, incompetent, or derelict trustee, and the substitution of others in his stead. But none of these things should be done, unless charges of unfaithfulness he specifically made and established, or unsuitableness clearly shown.”
In the view taken by the court, it sufficiently appears that the Central Trust Company, trustee, is not now contesting, and does not in the future purpose to controvert, the matters referred to by the petitioning bondholders; and said bondholders, if they desire so to do, and at their own expense, should be allowed to intervene to protect their interests, particularly in view of the fact that the court is asked by the trustee to decree a sale of the entire subject-matter in advance of tiie ascertainment of the liens and settlement of the rights of the parties. After the foreclosure, unless by proper reservations at this time, it will be too late for these bondholders to make, or join with others in making, the contest they wish to respecting the amount due under the prior mortgage, or the alleged diversion of property subject to the lien of the mortgage under which the bonds are secured.
Considering the application for sale of the property in advance of the determination of the liens and ascertainment of the priorities thereof, presented by the exceptions to the master’s report, it may be said that this motion is one addressed to the sound discretion of the court, and in the exercise of which the court should be influenced and controlled in its action by what is fair and right to be done, having regard to the subject-matter of the litigation and to the rights of all parties in interest. That the court can decree a sale at this time in advance of settling any, if not all, of the questions involved in the various exceptions, seems clearly to be within the legal discretion of the court. Bank v. Shedd, 121 U. S. 74, 7 Sup. Ct. 807, 30 L. Ed. 877; Mellen v. Iron Works, 131 U. S. 352, 369, 9 Sup. Ct. 781, 33 L. Ed. 178; Wabash R. R. v. Adelbert College, 208 U. S. 382. 28 Sup. Ct. 182, 52 L. Ed. 379; Bound v. S. C. R. R. (C. C.) 50 Fed. 853; Compton v. Jesup,
In the exercise of its discretion, however, the court should as far as possible, by proper reservation in any decree of sale, preserve and protect the rights of the parties for future consideration. Viewing this application in this light, the objections most strongly pressed why the sale should not now be decreed will be considered. Those relating to the ascertainment of whether there has been any diversion of the property, or not, from the Richmond Passeng-er & Power Company to the Virginia Passenger & Power Company, and the validity of the undertaking on the part of the Virginia Passenger & Power Company to pay the debenture bonds secured in the .Metropolitan Trust Company’s mortgage, under the deed of the 23d of January, 1902, can undoubtedly be determined as well after as before a sale of the property. The sale of the property without settling the amount of indebtedness due under the Richmond & Manchester mortgage, the lien prior to that of the mortgage of the Central Trust Company, sought to be foreclosed, presents a greater complication, but in no respect an insuperable barrier to an immediate sale, especially as it is proposed to sell subject to the right hereafter to foreclose that mortgage. The property could doubtless be sold free and clear of the lien of that mortgage, leaving to the parties litigant the right to contest their rights against the fund arising from the proceeds of sale. But, since it is suggested that technically the trustee in the Manchester mortgage has not formally been brought into court, the better plan is perhaps to sell subject to said mortgage, and in that event the junior lienors would not be required to redeem as to the debt secured in the mortgage, and any purchaser could take into account the fact that there existed a dispute as to this liability against the property.
The sale-of the property of the Richmond Passenger & Power Company in advance of ascertaining the amount due under the Metropolitan Trust Company mortgage, and determining the validity of said mortgage, can doubtless be made. But whether it ought to be is a different question, and upon the whole case the conclusion of the court is that these questions respecting this particular mortgage, to the end that those interested therein may know whether they have anything to redeem for and the amount thereof, ought to be settled in advance of a sale of the property. Chicago, etc., v. Fosdick, 106 U. S. 47—71, 1 Sup. Ct. 10, 27 L. Ed. 47; Railroad Co. v. Swasey, 23 Wall. 405, 23 L. Ed. 136; Parsons v. Robinson, 122 U. S. 112, 7 Sup. Ct. 1153, 30 L. Ed. 1122; Morgan v. Railroad Co., 137 U. S. 193, 11 Sup. Ct. 61, 34 L. Ed. 625. This being done, and the amount of the Central Trust Company mortgage ascertained, as to which there is really no dispute, and that of the small prior lien upon which there is a balance of $123,-000 admitted by all parties, the Metropolitan Trust Company would know what had to be paid in order to redeem the property, and the sale could thus be had with little or no delay.
In reaching this conclusion that the property ought now to be sold, the court is not unmindful of the many objections there are to a sale
Believing that the reasons presented are sufficiently cogent and urgent to call for the sale of the property at the earliest practicable moment, the same will be ordered as herein indicated.