149 Misc. 797 | N.Y. Sup. Ct. | 1933
This is an application by one Joseph Nemerov, an attorney, for permission “ to bring such actions at law or suits in equity as he may see fit in such courts of competent jurisdiction as he may select on behalf of the holders of guarantees and/or certificates issued and created by the New York Title and Mortgage Company to appoint a successor trustee of the underlying collateral against which said certificates are outstanding, in place of the New York Title and Mortgage Company, for the benefit of the certificate holders.” Similar applications are made by
Each, of these three motions is based upon an affidavit by Nemerov. The contents of each affidavit are exactly the same, triplicate originals being used — one for each motion. The affidavit states that Nemerov “ is the attorney for a large number of certificate holders who own in the aggregate many millions of dollars of guaranteed mortgage certificates of these companies.” It goes on to allege that the payment of such certificates is secured by bonds, mortgages and other collateral owned by the certificate holders and forming no part of the individual assets of the three companies; that the agency powers conferred upon the companies by the terms of their guaranties were conditioned upon their continued performance of such guaranties; and that George S. Van Schaick, the Superintendent of Insurance, despite the termination of these agency powers as the result of defaults upon the guaranties, continues to exercise dominion and control over said collateral. On the theory that “ the Superintendent of Insurance has no legal right to deprive the certificate holders of their property,” Nemerov asks that he be permitted to bring such actions or proceedings as he may deem advisable “ for the appointment of suitable trustees over such property of the certificate holders in the place of each company, and to restrain said Van Schaick from interfering with such property of the certificate holders in any way, shape or manner.” The reason assigned for seeking this court’s permission is that the orders of the court which directed the Superintendent of Insurance to take charge of the companies for the purpose of rehabilitation restrain “ the holders of such guaranteed certificates from bringing or prosecuting any actions at law, suits in equity, special or other proceedings against any of the companies or against the Superintendent of Insurance of New York, or in any way interfering with the Superintendent of Insurance of the State of New York in his conduct of any of said companies.” The claim is made that these injunctive provisions are illegal and void (a) because the orders were obtained without notice to the certificate holders and other creditors of the companies, and (b) because they deprive such certificate holders and other. creditors of collateral security which belongs to them, and not to the companies.
The contention that the restraining provisions above referred to are invalid for lack of notice to the certificate holders is without merit. Subdivision 2 of section 410 of the Insurance Law expressly provides that the court “ may at any time during a proceeding under this article [the article includes rehabilitation proceedings] issue such * * * injunctions or orders as may be deemed necessary
The claim that the Superintendent in taking over the companies for the purposes of rehabilitation had no right or authority to take possession of the collateral which secures certificates issued by the companies is likewise without foundation. In each case which has come to the court’s attention the guaranty has contained a provision conferring upon the guarantor an exclusive agency to deal with and foreclose the collateral securing the guaranteed indebtedness as well as provisions granting other rights to the guarantor. The agency thus bestowed upon the guaranty companies constituís a valuable asset of the companies. It is an agency coupled with an interest. In each case which has come before the court the exclusive right of the guarantor to administer and foreclose the collateral was expressly made a “ condition ” of the guaranty and was obviously intended as a protection to the guarantor. In Matter of Central Hanover Bank (149 Misc. 488) this court has held that a provision making the exclusive agency irrevocable was intended to apply only as long as the guarantor continued to perform its guaranty. It may be that in some instances the guaranties are so worded that the agency of the guaranty is not subject to revocation even where there is a default in meeting the guaranty. However, whether revocable or irrevocable, the exclusive agency, until properly revoked, is a valuable property right of the guarantor and as such it forms part of the assets to be taken over by the Superintendent of Insurance as rehabilitator of the guarantor. The agency does not, in the event of a default upon the guaranty, terminate automatically as by conditional limitation. The effect of the default is merely to render revocable that which was previously irrevocable. The owner or owners of the collateral
It does not follow, however, that the Superintendent of Insurance may continue to hold and exercise the agency indefinitely while those holding guaranties look helplessly on. This court has already permitted the owner of an entire mortgage to revoke the agency and to withdraw from the guaranty company the- bond and mortgage as well as the right to enforce it. (Matter of Central Hanover Bank, supra.) The court has also indicated that certificate holders, owning undivided interests in a bond and mortgage, may take appropriate steps to obtain thg,same relief. (Kline v. 275 Madison Ave. Corp., 149 Misc. 747.)^_A11 the certificate holders of a given issue, acting together, may revoke the -agency and take the bond and mortgage, together with the right to administer and enforce the same, from the possession and control of the Superintendent for the purpose of foreclosure or otherwise. They may likewise, by -unanimous consent, appoint a trustee to hold and enforce the bond and mortgage. They may also, acting in unison, substitute a new agent, either an institution or an individual, in the place and stead of the title company or other entity named as agent for the certificate holders in the certificates themselves (at least in the absence of an express agreement to the contrary). They may organize themselves into a corporate entity for the purpose of facilitating the expression and the carrying out of their collective wishes and at the same time retaining a voice in the management of the corporation through voting rights proportional to their respective interests in the guaranteed indebtednessJ In this way the certificate holders may act effectively and expeditiously in respect to the problems confronting them. What ah of the certificate holders, acting together, may do, may also be accomplished where it is impossible to obtain unanimity of thought and action. As pointed out in Kline v. 275 Madison Ave. Corp. (supra),j~an appropriate action or proceeding may be commenced by one or more certificate holders in which the remaining certificate holders are given an opportunity to present their views. If some resist or oppose, the court may nevertheless grant the relief sought if convinced that the equities of the particular case require it/ In determining what action to take the court will undoubtedly give due consideration to the question of the good faith or bad faith of the certificate holders expressing their views, as well as to the number of certificate holders for or against the relief asked and the aggregate amount of their certificates, pfnother course open to certificate holders is the adoption of a plan of reorganization approved by holders of certificates representing two-thirds in
The fact that comparatively few certificate holders have hitherto attempted to take steps looking toward the withdrawal of their collateral from the guaranty companies or the Superintendent of Insurance is probably attributable in large part to the practical difficulty experienced by them in obtaining the names and addresses of other certificate holders. The result has been that one or more certificate holders wishing to obtain relief have found it impossible to take action because they were ignorant of the identity of the other certificate holders of the same issue. There appears to be no valid reason, however, for permitting this dilemma to exist to the detriment of the thousands of certificate holders who find themselves, as a consequence, unable to help themselves. Section 437 of the Insurance Law provides that “ lists of holders of such mortgages or certificates shall be furnished by such corporations or companies [referring to title and mortgage guaranty corporations and investment companies] to any other applicant therefor on condition, however, that such application shall be approved by the superintendent of insurance or the superintendent of banks as the case may be, who shall have the power to make such rides and regulations as to such applications as he shall deem advisable for the protection of the holders .of such mortgages or certificates.” It should be noted that the Superintendent's power to make rules and regulations in respect to the granting of approval is to be exercised ‘Lfor the protection of the holders of such mortgages or certificates.” Qn the event that the Superintendent shall refuse to approve an application by a certificate holder for the disclosure of a fist of his fellow certificate holders, the court will entertain an application by such certificate holder for an order requiring the companies or the Superintendent to disclose to the applicant the names and addresses of the other certificate holders of she same issue!) The court is under a duty in the distressing conditions which, now exist to provide a means whereby certificate holders shall be afforded an opportunity of taking over and managing the properties or other collateral against which their certificates are issued. The provisions of section 437, in so far as they require the approval of the Superintendent of Insurance, do not appear to have been intended to curtail or limit the power of a court of equity to permit the disclosure, upon a proper application of a certificate holder, of the names and addresses of his associate certificate holders. The purpose of the statute was apparently to broaden and enlarge the remedies of a certificate holder in respect to obtaining such disclosure by permitting him to secure a list
It is, of course, impossible, especially upon a motion of this character, to make a comprehensive statement of all the various remedies available to certificate holders. The language of the guaranties issued by each company differs from that of the guaranties issued by each of the other companies. It is quite possible that not all the guaranties issued by the same company are identically worded. The certificates representing undivided interests in the guaranteed indebtedness and in the guaranty itself also differ from each other, depending upon the company. Moreover, some of the certificates represent interests in a single bond and mortgage, while others represent interests in a group of bonds and mortgages. In at least some instances of the latter character the guaranty companies are given the right to substitute other bonds and mortgages for those originally deposited. It must be evident from the foregoing that it is difficult to generalize with respect to the rights of certificate holders and that much necessarily depends upon the facts of each particular case. Enough has, however, been said to indicate that fn many, if not in most, instances the holders of certificates who have* not been paid in accordance with the guaranty may (1) by one method or another withdraw from the possession or control of the Superintendent of Insurance the collateral held by the latter which belongs to the certificate holders, and (2) deal with such collateral in such manner as they may see fit, exercising all the rights and powers that go with ownership^ The Superintendent of Insurance has been forced by the statutes defining his duties to accept the position of acting for conflicting and antagonistic interests in the rehabilitation proceedings. He must perforce seek to conserve the assets of the various companies engaged in the business of guaranteed mort
The court sees no reason why the Superintendent should remain in control of the underlying securities when the owners thereof elect to take over the management of such securities for their own benefit. The embarrassing position in which the Superintendent finds himself as a result of his statutory obligation to represent conflicting interests will be very largely relieved if those owning collateral in the possession of the guaranty companies taken over by the Superintendent are granted the rights to which their ownership entitles them and are permitted to withdraw such collateral and deal with it as they see fit. In this manner the gigantic and stupendous problem which confronts the Superintendent at this time, by reason of bis duty to administer the vast amount of collateral securing guaranties issued by the companies will be reduced and simplified to a very considerable extent and the Superintendent will be enabled to confine himself primarily to the problem of administering the assets belonging to the guaranty companies in their own right as distinguished from the collateral which they hold in trust for others.
During the rehabilitation proceedings applications to lift the injunction orders so as to permit proceedings and actions against the Superintendent of Insurance have from time to time been granted, at times upon the consent of the Superintendent and at other times over his opposition. On each occasion, however,
Before concluding, a few words as to the general situation of the certificate holders may not be amiss. The court is fully aware of the distressing condition in which tens of thousands of certificate holders find themselves, many of them persons of small means. Scores of millions of dollars belonging to trust funds for the benefit of widows and children are invested in these mortgage certificates. Numerous defaults in interest and principal have occurred. The
The administration in Washington is making heroic efforts to restore confidence throughout the nation, and substantial progress is being made in the recovery process as is shown in statistics indicating increased car loadings, bank clearings, power consumption and re-employment, as well as by restorations and increases
The problem confronting the holders of guaranteed mortgage certificates is rendered acute by their failure to receive any interest on their investments and by their inability to sell the certificates or even to borrow thereon. Since this matter was presented to the court the public press announces that the Reconstruction Finance Corporation has agreed to make loans available to the certificate holders and active steps are being taken in many directions designed to alleviate the unfortunate condition in which many certificate holders now find themselves. There is sound reason for certificate holders to be hopeful and optimistic as to the outlook for the future.