Carey v. Houston & T. C. Ry. Co.

45 F. 438 | U.S. Circuit Court for the District of Eastern Texas | 1891

Pardee, J.

This cause has been submitted upon motion for an injunction pendente Ute. I have considered the bill, exhibits, affidavits, and arguments submitted, and refuse the injunction pendente Ute for, among others, the following reasons:

1. On the showing made the charges in the bill of collusion and fraud to the prejudice of the company and stockholders are groundless; in fact the contrary appears, to-wit: That in the proceedings sought to be reviewed the interests of the defendant company and its stockholders were considered and protected to a degree beyond just legal demands, and, by the decree complained of and the reorganization agreement referred to-in the bill, the stockholders are placed upon a better footing than would have resulted from the strict enforcement of the bondholders’ mortgage rights.

2. Defects and informalities charged in the bill as existing in the proceedings and decrees sought to be reviewed, if considered as well taken, do not, in my opinion, render the decree void, — at worst, only voidable, —and do not prejudice or injure the complainants to any such extent as would warrant granting the relief prayed for in the bill. Prom the showing made in the original case and on this hearing the Houston & Texas Central Railway Company had been, and long prior to the decree complained of was, insolvent. It had defaulted for years in the payment of its interest. At no time for years had it in any one year earned its fixed charges. It had exhausted its borrowing capacity. It had a large floating debt, running into the millions, and there was no reasonable hope nor fair possibility of its being able to pay its accrued interest and conceded floating debt without a sale of all its properties, so as to permit of a reorganization, which would secure and extend its bonded debt, anil reduce the rate of interest thereon, and provide the necessary means to pay off or satisfy its floating debt. Whether or not the principal of the debts represented by the several issues of mortgage bonds was due, it seems that the several bills for foreclosure allege such principal to be due, and it was to the interest of the company and all parties concerned that it should be declared due, so that on foreclosure sale and reorganization a lower rate of interest could be obtained, and means provided for the floating debt.

3. The principal, as well as the interest, on the issue of bonds known as the “income and Indemnity Bonds” was due. Interest was overdue on all tho issues of bonds, and floating indebtedness to the amount of several million dollars was due. A foreclosure for tho principal and interest of the income and indemnity bonds, or for the interest alone on any of the other issues, would have extinguished tho rights of the company, as there was no possibility of its raising the large sums necessary to prevent a sale. A forced sale of the lands would have impaired the already insufficient security held by the creditors, without in any wise benefiting the company. Borne of the mortgages covered all of the property, others covering only parts. Under these circumstances it was absolutely necessary, in order to prevent further confusion and complications and to save each set of creditors all their legal and equitable rights, to decree foreclosures for the entire debt, principal and interest, of each issue of bonds. Any other decree not cutting off the rights of some of the mortgage bondholders would have been impracticable. As the creditors were agreed as to tho decree rendered, and as the company was not injured thereby, tho stockholders ought not to complain.

4. The now complaining stockholders made no offer to provide for the largo sums of interest, amounting to millions of dollars, conceded to bo due, nor to pay the costs in executing the decree complained of. Their bill sets forth no reason why such offer is not made, nor any inability on the part of the complainants (excopt as can be inferred from tho large amounts involved) to provide for the conceded exigible indebtedness, Their bill neither shows nor suggests any methods or means by which the financial embarrassments of the company can be mot in case complainants obtain the relief sought in their bill; and it seems to me, after a consideration of the whole case, that to grant complainants tho relief they seek would not benefit them, but would unnecessarily injure and oppress the mortgage and other creditors of the company with the final result of more complications, — more indebtedness, — all to be finally settled by an absolute sale of all the property of the defendant company.

Tho arrangement provided by the reorganization agreement seems to have been the best possible for all the creditors of tho defendant company; also the best for the company and the stockholders, — -best for the stockholders, as it provides for refunding the bonded debt on longer time, at a reduced rate of interest, and allows each stockholder to retain his stock and his interest in the company, its railway and lands, upon paying his pro rata share of the floating indebtedness and the expense of tho reorganization. A foreclosure and sale for tho payment of interest would have closed out all the interest of the stockholders in the company. This result has been avoided by tho reorganization. Without payment of the floating indebtedness, tho stockholders could not hope to retain any interest in the company, and this floating indebtedness is practically all that they are required to pay. To this it may be added that, if any of the stockholders think the agreement is not beneficial, they need not accept it; and then, in my opinion, they are in no worse position than they would have been if foreclosure had been had for the mortgage interest conceded to be due. If any stockholder does accept the provisions of, the reorganization agreement, of course, in a proper suit, he can enforce, if necessary, the carrying out of the provisions of the agreement, and protect himself and the company from the allowance of fictitious or fraudulent floating debt.