150 Misc. 89 | N.Y. Sup. Ct. | 1934
Petitioner, Sarah R. Heilbroner, has been the owner and holder, since April 2,1929, of a certificate in the face amount of $5,000 issued by the New York Title and Mortgage Company (hereinafter referred to as the “ company ”). This certificate constitutes part of an issue described as series F-l and represents an undivided interest in a group of bonds and mortgages deposited with a named depositary and guaranteed as to principal, and as to interest at the rate of five and one-half per cent per annum. As of November 30, 1933, there were outstanding series F-l certificates in the aggregate principal sum of $27,574,576.37. The number of series F-l certificate holders as of May 15, 1933, was 4,369. Petitioner’s certificate, as well as the other series F-l certificates, has been in default as to interest since April 17, 1933, on which date interest became due and was only partially paid. On August 4, 1933, the Superintendent of Insurance, pursuant to an order of this court, took possession of the property of the company as rehabilitator and he continues to act as such at the present time.
Each certificate provides that by the acceptance thereof the holder assents and agrees to all the terms of an agreement between the company and the depositary By the provisions of that agreement the company is appointed the irrevocable and exclusive agent of the certificate holders for the purpose of receiving, -collecting and suing for the interest and principal of the deposited bonds and mortgages and satisfying the same in its own name. The company is empowered, “ exclusively of all others,” to decide when and how to enforce any of the provisions of the bonds and mortgages, to
Petitioner contends that the broad powers thus conferred upon . the company constitute powers in trust within the meaning of the Real Property Law (§§ 131, 137, 138); that the Superintendent of Insurance is an unsuitable person to act as grantee of these powers in trust by reason of his obligation under the Insurance Law to represent conflicting and irreconcilable interests, namely, the certificate holders, who are creditors, and the company sought to be rehabilitated, which is the debtor (See Laws of 1933, chap. 745, § 3); that the existence of the conflict of interest referred to has already been evidenced by various actions of the Superintendent, such as his refusal to institute foreclosure suits for the proper protection of the collateral against which the certificates have been issued; and that the proper protection of the rights of the certificate holders requires /that the court exercise its inherent power to supervise and administer trusts by removing the Superintendent, in so far as he is acting as donee of the powers i-rj, trust, and substituting a trustee or trustees appointed by the court] Accordingly, petitioner asks (1) that the^nurt designate a substituted grantee of the powers in trust] (2) that the Superintendent be directed |o furnishrto petitioner r list of the names and addresses of the other holders jof series F-l certificates for the purpose of enabling petitioner to serve notice of the application for the appointment of a substituted trustee upon all such certificate holders, and (3) that in the meantime, pending the hearing and determination of the motion for the appointment of a trustee, the court appoint a/temporary receiver ) to take possession of and administer the bonds and mortgages against which the series F-l certificates have been issued.
Four similar applications have been made by persons owning certificates of the New York Title and Mortgage Company, each relating to a different series, viz., series B-K, series C-2, series Q and series B-l. In addition, an application has been made by one Louis A. Green, owning certificates of series F-l having an aggregate face value of $24,000, for an order directing the Superintendent to furnish a list of the names and addresses of the other holders of series F-l certificates for the purpose of enabling Green to apply to this court for the appointment of a trustee or else commence an action seeking that relief.
It is true that in the case of series F-l and series C-2, holders of certificates of a very substantial face amount have held meetings for the purpose of attempting to agree upon a plan of reorganization under the Schackno Act. The same does not appear to be true, however, in respect to the other three issues, as to which little definite progress appears to have been made. It is important to note that even in the case of series F-l the first meeting of certificate holders was not held until December 18, 1933, two days after the service of the present motion papers upon the Superintendent of Insurance. This is mentioned as some indication that the activity recently manifested on behalf of the certificate holders under the Schackno Act appears to have been accelerated by the making of the present applications and a somewhat similar previous application. (Matter of Nemerov, 149 Misc. 797.)
The Schackno Act (Laws of 1933, chap. 745) expressly provides
“ L G W & E [Greenbaum, Wolff & Ernst] notifies Superintendent of name of attorney.
“2. GW & E receives approval.
“3. GW & E gets in touch with attorney, advises name has been suggested by Superintendent that he may or may not be retained by the new company, and finds out if he is available to represent certificate holders.
“ 4. G W & E notifies deputy in charge of company of designation.
“5. GW & E notifies G W & E’s attorney in company of designation.
“6. GW & E procures letter from attorney (a) as to absence of conflict; (b) as to working in cooperation with and • obtaining*95 approval of Protection Corporation; (c) as to understandings in respect to fees and disbursements.
“7. GW & E notifies Protection Corporation of designation.
“ 8. G W & E delivers set of forms to attorney.”
And a letter written by New York Title and Mortgage Company in rehabilitation to petitioner’s attorney states that “ the State Superintendent of Insurance has recently named attorneys for the following Series, to take charge of proceedings looking to the incorporation of a certificate holder’s corporation in each instance, to take over the entire Series and handle it on their own account.” (Italics the court’s.) Although any plan of reorganization initiated in accordance with this procedure is clearly, in practical effect, one promulgated by "the Superintendent and not by the certificate holders, the Superintendent has issued instructions to the attorneys selected by him to the effect that they are not representing him and may not hold themselves out to the certificate holders as acting on his behalf. Undoubtedly, these instructions are due to the Superintendent’s appreciation of the fact that the statute contains no provision empowering him to designate attorneys for the purpose of obtaining consents of certificate holders to a plan of reorganization proposed by him. On the contrary, the law expressly authorizes the Superintendent to promulgate a plan of reorganization without getting any consents of certificate holders and it outlines the method by which a plan thus promulgated shall be submitted to the certificate holders for their approval. (Laws of 1933, chap. 745, § 6.)
As previously observed, the Schackno Act authorizes certificate holders owning thirty-three and one-third in principal amount of the certificates of a given issue to promulgate a plan of reorganization of their own accord and without any assistance from or interference by the Superintendent. The procedure followed by the Superintendent does not give the certificate holders the rights which are theirs under the statute, for instead of permitting them to propose a plan of their own selection it imposes upon them a plan formulated either by the Superintendent himself, or by his counsel, or by the attorneys selected by the Superintendent or his counsel.
To a very great extent the Superintendent’s opposition to the present applications, in so far as they relate to the disclosure of lists, proceeds upon the theory that certificate holders should not be permitted to come together and suggest or propose plans of their own selection for the approval of their associates, while the Superintendent is making efforts, through attorneys designated by him, to obtain the certificate holders’ approval of a plan put forth by him or by such attorneys. Obviously, the Superintendent’s position
The fact that a certificate holder seeking to obtain the names and addresses of the other holders of certificates of the same issue may have no definite plan of reorganization to propose at the time of his ■ application is insufficient reason, in itself, for denying him the opportunity of coming into contact with the others for the purpose of endeavoring to work out such a plan. Nor does the Superintendent’s preference for a plan of reorganization promulgated by himself or his counsel constitute a valid reason for denying to the certificate holders the right given, them by statute to propose a plan of their own choosing. The Superintendent’s plan may never obtain the affirmative approval of holders of two-thirds in principal amount of the certificates, which is required by the Schackno Act before
It is true, as the Superintendent urges, that a liberal policy in regard to the granting of applications for the disclosure of the names and addresses of certificate holders may at times result in various abuses such as the solicitation of certificate holders by unscrupulous attorneys motivated by their own selfish interests and not by any solicitude for the welfare of the certificate holders themselves. The situation confronting the certificate holders today is such, however, that the danger of such abuses is far outweighed by the advantages to be gained through maintaining a liberal attitude towards applications for lists of certificate holders. It must not be forgotten that each certificate holder is the owner of an undivided interest in the bonds and mortgages against which his certificate is issued. To deny him the right to ascertain who his fellow owners are is to leave him helpless to take any steps for his own protection and to force him to remain inactive and quiescent until attorneys selected by the Superintendent have submitted a plan of their own for his approval or disapproval. As previously pointed out, in the case of most of the issues here involved, no real activity appears to have been exhibited until the various applications made to the court produced action. There is no way of telling when similar action will be taken in respect to the many thousands of other issues of guaranteed mortgage certificates now outstanding. The certificate holders should not be obliged to wait patiently and passively until steps are taken in their behalf by others. They have an express statutory right to take action themselves and their efforts in that direction should be encouraged and not hindered.
Under present conditions, the most important problem presented by the vast amount of guaranteed mortgage certificates now outstanding is the proper management of the properties securing the bonds and mortgages against which the certificates have been issuedfj The force at the disposal of the Superintendent of Insurance/rb is contended, is inadequate to manage these underlying properties as efficiently and economically as could be desired. At any rate, no matter how large a force the Superintendent might have available for management purposes, it is obvious that the certificate holders of each issue could obtain better results if they were able to take over the operation of the underlying properties from the Superintendent and intrust it to one directly responsible to them and subject to their control. Management by one having no real stake in the result cannot possibly be as successful and efficient as management by those directly and vitally interested in the outcome. The salvation of the certificate holders while real estate values remain at their present level lies in their ability to withdraw from the Superintendent to themselves the management
Where it appears that a person applying for the disclosure of the names and addresses of certificate holders purchased the certificate held by him in order to bring legal proceedings or for other improper purposes, the application will be denied. The same result will follow in a case where the certificate held by the applicant was purchased at a very low price for purposes of speculation, for example after the regulations issued by the Superintendent in March, 1933. ¿¡Where, however, the certificate of the applicant was bought in good faith and for a substantial sum with no improper motives, the court sees no valid reason for denying the application for the disclosure of names and addresses^ The petitioner Heilbroner appears to come within this category. The same is true of Green, who has made a similar application, decided simultaneously herewith. Her good faith is evidenced by the offer of her counsel to permit the Superintendent to mail the notices of her application for the appointment of a trustee to the various certificate holders at her expense without revealing their names and addresses to her. It is true that the petitioner failed to make a request of the Superintendent for a list of the names and addresses prior to the making of this motion. It appears, however, that such a request was made on December 19, 1933, prior to the return day of the motion, and that the same has not been granted. On the contrary, the Superintendent has taken the position that the petitioner is acting in bad faith and is, therefore, not entitled to a list of the names and addresses; It is clear that a demand upon the Superintendent prior to the making of this application would have been futile.
It is unnecessary at this time to discuss that part of the present motion which seeks the appointment of a trustee in the place and stead of the Superintendent of Insurance on the theory that the
Under these circumstances, the court is of the opinion that the present motion should be granted to the extent of directing the Superintendent to permit the petitioner, at her expense, to make a copy of the last known names and addresses of the other holders of certificates of series F-l, or, at his option, to furnish the petitioner with such a list. The petitioner is directed to serve notice of the application for the appointment of a trustee upon the Superintendent and upon all the other certificate holders of series F-l by serving notice of the application upon counsel for the Superintendent and mailing notices thereof to the certificate holders directed to the addresses furnished by the Superintendent, such mailing to take place at least ten days prior to the return date. In addition, a copy of the notice shall be published twice a week for one week in° newspapers to be designated in the order to be entered herein. The notices are to be returnable at the Additional Special Term of this court, at ten-thirty a. m. on the date fixed in such notices.
In so far as a temporary receivership is sought, the motion is denied. There is no immediate need or pressing demand for this relief. The Superintendent of Insurance, a statutory administrator is in possession and control and is handling the situation in such a manner that the rights of the petitioner and others similarly situated cannot be materially prejudiced during the short period of time elapsing prior to the return date of the notices.
In so far as the appointment of a trustee is applied for, the disposition of the motion is held in abeyance until the further order of the court. Settle order.