O'Gara v. New York Cent. R.

260 F. 742 | 7th Cir. | 1919

EVANS, Circuit Judge

(after stating the facts as above). [1] Appellant-sought to review this order, both by Way of appeal and by a petition to review and revise. Appellees insist that the remedy is solely by petition to review and revise, and that on such application O’Gara is barred from a consideration of the questions presented because of the record, which included the findings of fact made by the District Court, a part of which has been quoted.

We are convinced that, notwithstanding the matter was brought to the attention'of the court by the petition of creditors, the proceeding was in the nature of a composition, which, under section 14c of the Bankruptcy Act (Act July 1, 1898, c. 541, 30 Stat. 550 [Comp. St. § 9598]), upon becoming effective, would operate as a discharge in bankruptcy. As the granting or refusal to grant a discharge is by section 25a of the Bankruptcy Act (Comp. St. § 9609) made reviewable by appeal, we conclude the order here under consideration was properly reviewable by appeal. In re Friend, 134 Fed. 778, 67 C. C. A. 500.

[2] Appellant attacks the plan of reorganization as inequitable and unfair to the bankrupt company and its stockholders. We have examined the testimony and the record with some care, and have reached the conclusion that the findings of the District Court above quoted are amply supported by the record. In the absence of such findings we would have been unable to reach any other conclusion.

In so concluding, due weight has been given to the fact that the company was operating most successfully in 1918. But a profitable business was not the only factor to be considered in solving this problem. For example, to pay unsecured creditors it was necessary to use the accumulated cash, which was subject to the lien of the mortgage. Sufficient funds to pay off the mortgage were not available. A new loan was therefore the only alternative. And in 1917-18 current rates of interest had soared. Five per cent, bonds were at a discount. Besides, the expenses incident to floating such a loan was no small item.

[3] Appellant disputes bankrupt’s right to consent, claiming that the O’Gara Coal Company had no authority to transact any business, not even to elect its officers and directors, while its affairs were being conducted in the bankrupt court.

The provisions in the Bankruptcy Act providing for a composition clearly indicate that the Congress did not intend to deny to" corporations the right to protect their own interest, including the right to elect directors. To give the bankrupt companies the right to propose compositions is inconsistent with a denial of the right of stockholders and directors to maintain the corporate existence and to take action necessary to the submission of such proposals. Nor does the right of the court to control the affairs of the company, as was done in Graselli Chemical Co. v. Ætna Explosive Co., 252 Fed. 456, 164 C. C. A. 380, deny to the stockholders the right to act in case the court fails or refuses to exercise its supervisory power. S Thompson on Corporations, 5265.

Appellant contends that the bankrupt company did not consent to the plan of reorganization approved by the court, although he admits that at the regular annual meeting held March 6, 1918, a board of directors was chosen who in turn elected the officers that duly approved of the plan and joined in the petition to have the same approved by the court. Appellant contends, however, that the election of March 6, 1918, did not result in the selection of the directors who subsequently voted tlieir approval of the plan under consideration. This contention is made, first, because the four directors each secured 30,083 votes cast under a voting trust agreement dated December 14, 1917; second, because one of the four directors and later the president of the company had been appellant’s attorney, and it was a betrayal of the confidential relation existing between attorney and client that resulted in appellant’s loss of control of the company’s affairs.

[4] While conceding that a voting agreement was valid in the state of New York (in fact, authorized by the statutes of that state), appellant claims that this corporation was engaged in mining coal and had its principal offices and place of business in Illinois. We find nothing, however, in the statutes of Illinois or the decisions of its courts that would deny *to stockholders of a New York corporation the right to make valid voting trust agreements, and no statute or decision to show that Illinois excludes foreign corporations from doing business in the state on account of the corporation’s compliance with the regulations of the chartering state, and we reject as untenable the claim that these votes were illegally cast.

[5, 6] The claim that any one of the directors was chosen through the breach .of the confidential relation of attorney and client finds no support in the pleadings or in the proof. Appellant alleges that a director and a subsequent president of the company—

“who after contriving to have this respondent (meaning O’Gara) authorize him to act as attorney at law for this respondent with respect to the interests of this respondent in the O’Gara Ooal Company, looking to the reorganization thereof, acquired a large interest in the siock of the O’Gara Goal Company without the consent, knowledge, or approval of this respondent, for the purpose of using the said stock and the voting rights thereunder adversely to tiie interests of this respondent.”

This allegation clearly fails to set forth any fact which would defeat the action of the stockholders at their annual meeting. But appellant further alleges that the said director, while acting as appellant’s attorney and through and by virtue of such employment, induced various stockholders to join in the voting trust agreement, and cáused them to cast their lot with said director, believing that in so doing they were acting for and with appellant. Obviously the stockholders’ action cannot be nullified for the reason thus set forth, unless it be shown that a sufficient number of votes were thus controlled to determine the election.

It appears from appellant’s answer that there were eight candidates for membership on the board of directors, seven of whom were elected. The smallest number of votes cast for any of the four whose action is here challenged was over 31,000. The vote which the eighth candidate received was less than 8,000. It was necessary for the appellant to aver that, but for the fraudulent action on the part of the attorney, if there was (and there was no evidence received to support the claim), this eighth candidate would have been elected.

'[7] Moreover, the aggrieved party, if the facts supported his claim, would have had ready redress in the New York state court. Not having challenged the result in any of the ways open to him, his right to contest the action of the officers of the company chosen by this board of directors at this late date cannot well be recognized. We conclude the officers and directors were the de jure officers and directors of the O’Gara Coal Company at the time they gave the company’s consent to the proposed plan of reorganization.

.Concluding, as we do, that the record affirmatively shows consent on the part of the bankrupt to the proposed plan of composition and reorganization, we find it unnecessary to consider the various other contentions of the appellees in support of the order complained of— contentions involving the right of appellant to review the question here presented, the necessity of securing the consent of the bankrupt to the reorganization plan, the right of de facto officers to act for the company, and other interesting legal questions.

' The petition to review and revise is dismissed. Upon appellant’s appeal, the decree is affirmed with costs.