*1 ty, italization based on a fair interpretation apparent- suggest r.eturn Only ly length. investment made at arms reconciles forti- there be and is interpretation this of Section fied general practice both in rate providing Power Act that the invest- making net analogous federal statutes ment of a licensee “shall not or be include and what seems to have the view been * * * will, value, good going affected expressed Commission in the words al- * * *” prospective revenues ready quoted Opinion from its 77. have any meaning. why It difficult to see 14 and Sections required 20 should have deduction of going concern, good-will prospective revenue played values if such values no determination of the investment net scribed 3(13) in Section “the actual legitimate original cost thereof as defined interpreted in the ‘classification of CLARKE BANK OF CITY v. CHASE NAT. * * * * * *, road issue of In- NEW OF YORK. ” terstate Only by Commerce Commission.’ No. 282. the most draftsmanship awkward could Congress sought by Section 14 to Appeals, Second Circuit Court of Circuit. reinforce the definition 3(13) by of Section July excluding items not included in net invest-
ment under the 3(13). terms Section expression “prospective revenues” is litigation, familiar to rate view and in that, of the fact purposes for rate making prospective logical- revenues should not and ly return, cannot be used to fix a fair has thought corollary to involve the purchaser that the rate base to a must either be zero or original the cost to the builder. By defining “net investment” in terms of classification, the I. C. C. investment Con- gress apparently original established base, cost to the licensee as the valuation 14, quite consistently Section modifies this investment base deduction elements of as regarded value which appropriate Good-will, fixing. to rate going prospective concern and earnings
values are the difference between what an pay particular investor will enterprise for a equal cost of providing the tangible assets. The latter factor is not
harder to reproduction cost, determine than the ascertainment of which is familiar to cases, and, indeed, rate gress required by Con- railway valuations. 49 U.S.C.A. 19a. suggested is not interpretation allow succeeding production purchaser a return based on the plant.
value of his The allowable basis for his return is the net investment he has made far does not exceed reproduction cost. It is true that certain verbal inconsisten-
cies ist, 3(13) between Sections ex- opinion majori- as noted in the *2 Hope, New York Milbank, & Tweed Mac- Bennett,
City (Lawrence Kinnon, A. Donald Paust, Eugene H. B. Einar counsel), Gordon, City, of all of New York York, New City of for Bank of Chase Nat. defendant-appellee. N. HAND, AUGUSTUS Before L. CHASE, Judges. HAND and Circuit HAND, Judge. Circuit AUGUSTUS N. Company Electric Associated Gas and petiton for (herein its Ageco) called filed Chapter X of reorganization under seq., Act, Bankruptcy 501 et U.S.C.A. § January plaintiff, Stan- ley Clarke, appointed an or- was trustee October der the District Court dated to the him with title vested debtor, property Ageco, and author- ized him in action due to collect all choses date of A later order under debtor. 15, 1940,provided should November that he a receiver in have such additional as equity appointed a court would have if property of the United States for the brought the debtor. Thereafter the Bank this suit the defendant Chase filed second amended al- and leging (stated five five causes of action counts) which the moved to dis- ground on the did not state miss any claims relief could be counts, granted, first and third to the and was without that the trustee lacked title capacity ju- to sue and that the lacked granted as to risdiction. The motions counts, given all five but the defendant An order the fifth count. leave to amend first, fifth counts dismissing the third and Conger by Judge second made and fourth dismissing the second order Judge Caffey. From made counts was appealed. plaintiff has each order February, count The first predeces- the defendant’s Ageco and covering indenture an is- sor executed an January Ageco due sue of debentures) (herein called mortgage therein not to Ageco covenanted property, with certain pledge or exceptions, ratably securing without See, also, Id., F.Supp. F.R.D. consolidate, also not 1949debentures convey portion a substantial merge causing property without its successor Dabney, Jr., City York of New Lewis M. supplemental indenture secur- Holmes, City, New York to execute a T. (William Clarke, all the Stanley ing Trustee observance counsel), original Co., plaintiff- indenture. conditions & Electric Gas Associated appellant. alleged that on It further June imminent, ent, insolvency another executed and the defendant A defendant. condition was known to the its deben- covering an issue indenture restore decree is deben- asked that (called herein tures due 1958 among the for distribution containing negative covenants tures) and Ageco, debenture-holders of in- Ageco in the similar to those made *3 of resulting the breaches losses from 1949 debentures. covering denture the trust. the be- alleged that at count further Hopson, dominant the ginning of 1932 one al- incorporated the The second count Systems, devised a figure in Associated the legations for a of the first and asked scheme, of the claims which was the basis pay- the cree that the defendant restore counts, to in first and second set forth the 1932, May, ments it in March and received debenture-holders; Ageco the defraud rein- the condition that it should be 1931, December, Ageco’s consisted in assets general stated as a creditor. $670,- substantially stock of over and incorporated allega- The third count the subsidiaries, 000,000 of indebtedness tions of the first and second counts and Corporation Investing Associated Utilities claimed due for breaches of trust Inc.; pursuant Associated and Properties, plan by Ageco to the so-called announced defraud, Hopson’s Associated to to scheme May recapitalization, for its Corporation amended its Investing Utilities “Recap known as the Plan” under which charter, changing name Associated Ageco might holders of debentures ex- (herein Corporation Gas and Electric change (1) their debentures for one-half March, 1932, Agecorp), As- called in and principal Agecorp deben- the amount of Properties merged into sociated Inc. (2) equal prin- due for an in tures acquired Agecorp latter the assets cipal Age- income of amount of former; the and assumed the liabilities of equal princi- (3) co due in for an portion Agecorp’s the same time a of about pal sinking amount of fund debentures Ageco into was converted indebtedness Ageco alleged due in 1983. This count Agecorp issued to stock of which was Agecorp option the issuance of the deben- Ageco, and the balance of such indebted- negative tures was in violation of the cov- obligations ness was subordinated to other enants which the defendant as indenture July, 1932, Agecorp; that in the indebt- trustee should have enforced. As Ageco Agecorp was extin- edness first count a decree is asked the de- guished Agecorp’s issuance of further fendant restore to the for distribu- Agecorp Ageco; April, stock to among Ageco tion the debenture holders Agecorp issued debentures known as the resulting the amount of their losses from purported superior to 8s of ’40 which to be breaches of trust. obligations Agecorp; the sub- other incorporated allega- The fourth count Agecorp’s Ageco debt ordination of tions of the former counts and three Agecorp into stock and the conversion 15, 1933, May that on the defendant owned subsequent Agecorp’s ’40 issuance of 8s $4,249,000 Ageco’s debentures which it constituted violations of the covenants of exchange Recap refused Plan securing the indentures the 1949 and but, along we have referred to with other defendant, Ageco; debentures of inden- securities, 28, 1934, August transferred on trustee, prevent Ageco ture failed to from wholly Ageco’s to four of owned subsid- carrying the above out transactions iaries, receiving Ageco’s from subsidiaries failure constituted a breach of de- value, greater time seurities of fendant’s duties such trustee. knowing Ageco insolvent. A de- January, Age- alleged that further restore cree is asked $4,000,000; about defendant owed the co preference dealings realized from the 16, 1932, between at a conference March in the fourth set forth count. attorneys Ageco, defendant’s Hopson, alleged that the defend- fifth count attorneys defend- for the president, and $40,000 paid as trustee’s fees had been ant ant, agreed that the defendant it was fees) sought (which counsel included objection Age- issue of make no with interest because these to recover sums corp’s debentures of March 8% derelictions of indenture the various May, pay- the defendant received trustee. by Ageco above indebtedness ment summarize; charged in pro- It is the sec- $4,000,000, nearly all of it from To defendant, ’40; complaint that the of the 8s of ond sale amended ceeds of insolvency Ageco knowing the Ageco though when payment was insolv- received effect, See, tation of revival.” to the same debenture-holders the risks that Trust our recent decision in Manufacturers incurring, failed Kelby, 650, McCandless pledge cov- Co. v. violating negative from Furland, damage of v. 56 S.Ct. indenture, to the U.S. enants of third L.Ed. (first and the debenture-holders pay- received counts); that the defendant difference be But there is a real Ageco, its own ment of knowing claims in the fore tween the situation dealt with going inor im- insolvent the latter was alleged in cases and the facts insolvency (second danger minent first and third counts the counts. In these an un- made count) debenture-holders defendant- claim that the Ageco’s exchange of fair securities trustee, though knowing Ageco was in Ageco was in- at a when time subsidiaries *4 solvent, might steps failed to take the it that rea- (fourth count), and solvent prevent impair taken have to forth the set derelictions above son ing rights the of value the of the deben permitted to re- be should not ture-holders. Assuming bad faith on the for its serv- tain the it has received fees part of that the indenture-trustee the count). (fifth ices exculpatory pro of the indentures clause viding and third need not act objection An the first un to requested court be less to of the de argued in the do so counts 15% plain the benture-holders indem is that and furnished with low is reiterated here and nity action, would not party in interest and bar the causes of tiff is the not real yet the we cannot see rights arising from fail that the claims for breach cannot assert any part prop the of of the are ure of the indenture erty bankrupt of of the would affect negative covenants the or the breaches of the reorganization. They argument plan of most trust indentures. The be the debenture- would a claim of the debenture-holders belong these holders, to be as the below found the bankrupt’s court not derived from estate the plaintiff. case, are through and not vested arising action the tortious if can be no the deben There doubt of the indenture trustee. We have held by property of the had been secured against guarantor tures that claims the of ob improperly had di pledgees and the ligations debtor of a debtor of are the plaintiff would security, property the have verted the debtor’s and do not have to be right of the de brought plan able to enforce the reorganization. been benture-holders to into a of See its value have or re Inc., it In re Nine North Church 2 Street security Cir., was worth 186, if less stored even the 82 F.2d in In 187. Likewise re and the 1,775 Broadway of the Corporation, 108, than the face F.2d 79 In Central had no assets. plan debtor other reorganization we excluded from a President, etc., of B. & T. Co. v. Hanover claims of note-holders of the debtor for 132; 130, In re Central Co., misrepresentations 105 F.2d M. fraudulent an inden Corporation, and In 75 F.2d Funding See, also, ture-trustee. In re National Pub 75 Corporation, F. Mortgage Corp., Cir., Securities re lic 2 Service 88 F.2d where a debtor can be we held 2d property already we held ap that had been equity lost all reorganized subject plied to claims of creditors was not Mortgage In re Secur As we said in value. reorganization. cannot see how the We page where Corporation, F.2d at 75 ities against claims asserted its interest in parted had with the plan at all. Each counts 3 affect the “ * * * the share property: mortgaged creditor, debenture-holders, including the creditors, and holders, the unsecured claim, prove full of his debenture-holder separate order secured, each a are to the extent that a unity; proper hierarchy; each has bankruptcy satisfy fails to it from the es remedy to allow is intended which he can section1 tate will he suffer a loss as to establish a of these classes or some through all against the defendant fail sert that dismember will avoid negative concourse to enforce covenants. The ure rem which other their first and difficulty interests ment fundamental they per no Thus can make dif are causes action is occasion. third edies debenture-holders and no shareholders has to the in a group sonal ference eliminated, reorganization. As plan definitely legal place either Corpo Bond collapse in In re Commonwealth here, such a said ration, transaction Cir., 309: “It expec F.2d no reasonable that there is in value SOI quite recently preclude participa- subrogation true that we have several either * * * tion as general times the district decided that creditor. The determina- questions proper control tion of these dis- some circumstances position property who the debtor among lienors hold creditors this fund Funding possession. prerequisite preparation In Central will be a re 256; In re Corporation, Cir.], F.2d a fair equitable reorganiza- plan [2 Cir.], Mortgage Corporation, tion. Securities For this reason we believe [2 Cor- Bonds funds F.2d In re Prudence recovered would be so far related to poration (Radin’s Cir.], Appeal) proposed reorganization [2 as to neces- ** * power But so exercised sitate their within inclusion the “extend- possibili- necessarily upon the founded ed meaning property,” debtor’s Cen- ty security, bringing President, suits tral etc., B. & Hanover T. Co. v. enjoined, plan Co., which were within a re- Cir., of M. 105 F.2d organization. Stays ancillary be must to authorize the trustee to reduce fund purpose proceeding possession main of the disposi- hold for such lawful when cannot contribute tion as proper. be found be Unlike plan.” to execution of sought the recoveries first and action, third causes of bankruptcy has Moreover the trustee in question funds in in the second and fourth no title to claims embraced in *5 clearly counts will prov- reduce the claims par- and third and is not the real counts by able the debenture-holders. According- ty by in interest whom such claims should ly the dismissing order counts two four be 17(a) asserted under Rule of the Rules should be reversed. Procedure, of Civil 28 following U.S.C.A. section 723c. Elkind v. Chase National The fifth count seeks recov Bank, App.Div. 661, 259 20 N.Y.S.2d ery compensation paid to Chase because 284 affirmed N.Y. 31 N.E.2d Ac- 198. it had been a faithless trustee and as such cordingly dismissing the order Counts First any was not entitled to fees. The be and Third be should affirmed. low dismissed this count and allowed the replead allege in order to a The second and fourth causes preferential fraudulent conveyance. or action stand on a somewhat different foot seems evident possible cause ing. indentures refer to Chase fees, of action to recover the throughout as a trustee and contain numer paid knowledge defaults, with full of all exculpatory ous quite superfluous clauses theory would be based one of a fiduciary a relationship unless existed be conveyance, fraudulent namely, that tween Chase and the debenture-holders. payments were made an insolvent of Even may the absence of res make a sums not earned because not allowable to a inapposite, the word “trustee” Chase was tortious trustee. count does not show at agent equally obligated least an to re payments made, at what dates the frain from 'competing principals, its corporation whether the was insolvent at the debenture-holders. There certain time, already or whether Chase had ly fiduciary a obliga relation to which the guilty any misconduct. We think applicable generally tions to trustees would properly a such dismissed apply. In re Union Real Estate Investment ap with leave amend. Since no order Co., page 331 Pa. 1 A.2d pears making to have been entered the dis Co., v. Loan & Rhinelander Farmers’ Trust final, appeal not missal does lie. Upon 172 65 N.Y. 499. re N.E. For the reasons the in order so ceipt preferences were, to the as far as it dismisses the and third counts debenture-holders, duty, a breach of its affirmed, in is so far as it dismisses the Chase became trustee a benefit. is second and fourth counts reversed. The In reorganization the course of the it will appeal dismissing from the order the fifth’ necessary par be to determine the relative jurisdiction. lack of is dismissed for count ticipations general of Chase as a creditor under its and of loans the debenture-hold HAND, Judge (dissenting Circuit L. perhaps preference ers after the mon part). debentures, ey applied has been may the indenture of subrogated I need consider Chase be to the holders’ 1928 is all that of rele- participate claims and a debenture- because as VI, creditor; particulars Article the same. general holder rather vant § than that, the debtor shall perhaps may whenever provides be found to behavior
802 restoration; I remedy be may, will in their trustee any promises violate alien be do not that can of bond- understand how proportion right and—when nothing must, reorganization. a to a There declare holders ask it to do so— a recovery and properly common between a default; provides such 3 that when § for de- protect right against trustee of action a “proceed to it indemnified must re ceit on In sale of bonds. rights rights and the enforce its Cir., Or rights Broadway Corp., 2 108. 79 F.2d holders”; provides that “all § *** action and an between such action this Indenture *** In re against guarantor the debtor. Trustee be enforced * * * Cir., Inc., Street, the Nine North Church instituted suit such name brought in its be Trustee shall I provisions of these In the face Trustee.” up- As to the case the trustee questioned be how can do not see merits, ordinarily agree on the I in trust rights action held some trustee not duties does default bondholders; they were a or that for the inaction; certainly mere not when it has irrele- My agree “res.” brothers protected itself these. such any in- retains vant whether the VI, IX, Article Article § res; indeed, they quote from terest in the pattern immunity; I do standard the debtor in which our decisions of actually conveyed question they protect trustee in equity. away all had In cases; open most but there can be Cir., Corp., Mortgage Securities re duty obligor’s and brazen breaches of that, means F.2d 261. That once becomes con- mere connivance active reorganization, jurisdiction aof gets court it will say charged I cert. do not that a trustee is the debt- adjust the mutual debtor, I with surveillance do If themselves. between or’s creditors as say strip he of all himself try that we shall to show we assume—as fiduciary peppering his duties after a whole *6 positive had some the trustee must—that fiduciary verbiage. document with Com- trustee, prevent the violation duty, plaisance bring after him notice indenture, the case of the covenants just charge “gross negligence” a or “bad my broth- with those cited on all fours faith”; is ers' and that will serve. Restatement held that it we have opinion, which Trusts, 222(2); (b) Comment Scott § com- reorganization to a proper Trusts, is a on 222.3. See also N.Y. § fund pel to restore the Law, Laws, Decedent Estate Consol. c. 13. had, had he would have which it go allegations The far this his On that derelict in duties. believe, confessedly not been enough, I meet this prevented should have theory the trustee description vague confessedly vague of a away siphoning its assets from duty. alleg- standard Article 26 of residual along bondholders creditors—the from its es that was variant,” advised In what general creditors. lawyers with the other “prior “differing that a allowing a way from debt- that differ details” the debt- does non-essential assets, mortgage, draining off or, sub- or’s scheme in violation “illegal duty it was differ- improper collateral? What stitute attempt procure fendant trustee to the beneficiaries of make that ence can injunction accomplish- question were here the covenants I ment.” That motion like this. good think should answer large— those—the creditors part of If the make can con- aggrieved the debtor’s who were allegations, I would hold the provided them- had not others duct? selves and have proceeding defendant liable in this for all interests, guardian over their with culpable losses which can be traced to its whom call no one ac- indifference. guard- Although measure of the count. count, As fifth I am not clear that losses, liability is that of his wards’ ian’s my say anything mean to brothers about bearing it that there were others what so, join them; If I do the merits. no claim to restoration? who merely appeal. dismiss the assets; the debtor’s loss nevertheless