*1 OIL v. MIDDLE STATES PHELAN al. et CORPORATION al. et al. TUMULTY et
COHEN 214.
No. Appeals, Second Circuit. Court of
Circuit
March Rehearing on Denial of Revised
As April 16, 1946.
oso
SWAN, Judge, Circuit dissenting.
9S2
9S8 *12 Kraushaar, & Kraushaar New York City (Meyer I. Kraushaar David
Kraushaar, City, of both of New York counsel), appellants. Joseph Tumulty, Washington, D. P. C., Glass, Joseph City, of New York pro (Leslie Kirsch, City, se New York counsel). Sheppard Seipp, City & New York (John Sheppard, City, S. of New York counsel), for Middle States Petroleum Cor- poration. FRANK, CLARK, SWAN, Before Judges.
Circuit
FRANK,
Judge.
Circuit
brevity of
district
1. Because of the
no
opinion
made
because he
judge’s
arduously,
obliged,
findings,
have been
we
the par-
pertinent facts from
gather the
portions
ties’ affidavits and
presented
receivership records
voluminous
appeal.
this
What
parties
to us
say
should therefore be
facts
we
they may
understanding that
read with the
very
different
further
appear
after
Necessarily,
in the
hearing
court below.
make on
basis
whatever comments
incomplete record must
be read
of this
*13
991
court,
subjunctive
as well
par
in
the
they
written
the
all
interested
if
were
ties,”
right
expect
final decision.
have “the
entering no
that
its
We are
all
mode.
to
officers,” including
receiver,
the
will not
receivership
only
Since
in the
“fail
any
to
pertinent
reveal
information
discharging the receiv
was there an order
use
or
position
their official
for their own
accounts, our
final
approving
ers and
their
profit or to
the
of
further
interests
them
appeal
primarily with
is
concern on this
3
any
selves
associates.” A receiver has
denying access
receivership,
order
the
the
duty
“affirmative
endeavor to
to
realize
papers being
the
inter
to
receivers’ unfiled
largest possible
the
.for
amount”
assets of
re
locutory in
the other
affects
so far as it
the estate.4 If he
vital
has
information
cannot,
gen
in our
ceiverships.
we
But
which,
disclosed,
if
might bring a better
facts,
survey
disregard what
eral
of the
price
property
pursuant
which is sold
Glass,
appellee
For
in an
there went on.
order,
fully
to court
he
it
must
disclose
opposi
in
affidavit
in
district court
filed
“prior
the sale
the prospects
to
when
motions,
appellants’
stated that the
tion to
5
greater
bargaining.”
for successful
[are]
“were, prior
companies
re
numerous
to
failure
Since
to make such full disclo
business,”
ceivership, operated
single
aas
tendency
dampen
sure has “a
“honey-combed
in
advances and
with
6
sale,”
presumed
so,
it is
that it did where
ter-company
“the
He
accounts.”
added
the receiver had an
in the
interest
sale
practice
from
advances
making
of
any
in
parties
conflict with that of
other
corporations
parent
subsidiaries
to the proceeding, “regardless
whether
of
receivership was
which antedated
by
con
not,”
actually
had an adverse effect or
receivers”;
tinued
the receivers
particular
because “the
a
incidence of
con
companies]
unity”;
“administered
aas
[the
flict of interest
seldom be measured
can
plan
and that the
“was consummated and
7
any degree
certainty.”
with
of
A decree
parent
began
company
new
to function
confirming
exculpate
such a sale does not
1,
January
1930,
inextricably
on
before the
the receiver.8
When
receiver has
of
intertwined
the subsidiaries and
affairs
sale,
brought
property
about
and the
such a
parent companies
straightened
old
after
sale
transferred
has
to a
2a
been
by the receivers.”
out
company in which
of
interests
innocent
persons
vested,
mind
Having
usually
2.
such cases as third
become
have
Crites, Inc.,
Co.,
408,
v. Prudential
322
the sale will not be
aside
U.S.
set
if there is
1075, 1079,
1356,
practicable
64 S.Ct.
88 L.Ed.
and available the more
method of
below,
surcharging
general
others cited
think the
receiver for the
difference
principles applicable
price paid
here are as follows: between the
the value of
receiver,
property.9
A
pos
as “an officer or arm
Where
receiver has
of the
court,”
personal
is a
highest
sible
interest
trustee with
kind
duty
adverse
fiduciary obligations.
any parties
receivership,
He owes
it is usual
impartiality,
loyal
strict
“undivided
ly
participate
unwise for him to
in the re
persons
ty,” to all
interested in the
organization;
receiv
if he does so he must act
ership estate, and
caution;
must
“dilute” that with unusual
that the court has
loyalty.
fairly
He
“bound to act
acquiesced
participating
his
does
not re
openly
respect
every aspect
with
duty
him
lieve
of his
of disinterestedness.10
* *
proceedings before
court.
strayed
duty
A receiver who has
from his
practice
City
2a Headded tliat
this
Co.,
of “ad
Woods v.
Nat. Bank & Trust
supra;
supra;
vancing
necessary
Jackson v.
Smith,
cash
of subsidiaries
cf. as
carry
Sys
the business
entire
generally,
trustees
President
Direc
reorganization.
Kelby,
Cir.,
tem” continued after the
tors of Manhattan Co. v.
2
3 Crites, Inc.,
Co., supra;
465, 476;
v. Prudential
147 F.2d
Restatement
City
Trusts,
Co.,
170,
Woods
§
v.
Nat.
& Trust
Bank
comment c.
8
262, 263,
493,
Crites, Inc.,
supra;
312
Co.,
U.S.
61 S.Ct.
85 L.Ed.
v. Prudential
Pangburn
820.
cf.
v. American Vault. Safe &
510;
508,
4
Smith,
586, 588,
Co.,
93,
Jackson v.
Gut
254 U.S.
Lock
205 Pa.
54 A.
201,
200,
65
41 S.Ct.
L.Ed. 418.
terson & Gould v. Lebanon Iron & Steel
5 Crites, Inc.,
supra.
Co.,
Co.,
C.C.,
72, 76,
v. Prudential
F.
151
77.
Id.;
6
9 Pangburn
v. American
Vault,
cf. Button v. Cities Fuel & Pow-
Safe
Cir.,
280, 299,
Co.,
supra
301,
;
Oo.,
4
er
F.
300
cer-
& Lock
Koontz
cf.
v. North
99,
Bank,
202, 203,
tiorari denied 266
45 S.Ct.
U.S.
ern
16 Wall.
21 L.
471;
Registry
L.Ed.
69
cago
Investment
v. Chi-
Ed. 465.
10
Cir.,
Co.,
Luster, Cir.,
& M. E. R.
212 F.
Martin
594.
85 F.2d
7 Crites, Inc.,
Co., supra;
v. Prudential
interested,
had
receivers
which the
in the formation of
anyone
injury
to the
formulation of
brought about),
when
surcharged
should be
can and
estate
reorganization
plan. The
accounting.11 reorganization
his final
approval
he
asks
prices
bid
to be
moti committee determined
must not
receiver
The rule that a
assets
judicial
for the United
prophy at the
sale
*14
is
by personal considerations
vated
lactic;
sale.
only bidder at that
committee,
A
the
surcharge.12
the
These
is a
its sanction
of
pro-rata amount
prices
fixed the
asks
who
the' estate
person interested in
paid,
part
plan
required
as
of the
of cash
to be
because
barred
surcharging is not
such
decree,
bondhold-
prompt and
to those United
the
reasonable
if
acts with
laches
he
accept
new securities
showing
did not
the
ers who
the facts
discovers
after he
ness
plan.
need to
the
There is
under
receiver.13
by the
offered
such misconduct
enquire
in order
to ascertain
further
receiverships
these
before
3. Just
closely with
worked
whether Glass—who
lawyer
the
had been
being,
into
Glass
came
by it as
and
selected
the committee17
was
in a
States
Middle
of
stockholders
for
stockholders’
company—
the chief executive of the new
company (a
that
against
suit
sale,
had,
agreed with the
in advance of the
in the
be-
apparently still
court
pending
suit
had,
prices.18
committee
those
If he
on
po-
represented interests
low).14 He thus
non-depositing
agreed
he
the
then
that
the
tentially
of
United
in
conflict with
paid
sixty-eight
be
bondholders would
but
all
States owned
For Middle
bondholders.
cents
the dollar.
on
Imperial,
directly and in-
and
stock of
the
directly,
United;
of
Eureka
all the stock
propriety
depended
of
figure
The
such a
United;
wholly-owned by
Im-
and
was
alia,
data,
(a)
on such
inter
the value
United.
perial
guaranteed the bonds of
had
stock,
depend-
which in turn
of the Eureka
ed
equi-
Supreme
has
that “the
said
The
ty
Court
part
physi-
the
of Eureka’s
on
value
in
represent
peculiarly
to
owner is
ill-suited
assets,
(b)
Imperial’s
of
cal
and
the worth
n
because
mortgagee
situations
the
in those
bonds,
guaranty
(c)
of
the
15 As
of interests.”
historic clash
their
of
against
of United’s claims
Middle
worth
Imperial,
States, of
of Middle
receiver
States,
depended
which in
turn
Eureka,
should have
of
Glass
of United
been
of
claims
worth
by
the securities and
owned
protect the
vigilant to
exceptionally
States,
depended
Middle
in
which
turn
whenever
bondholders
of United
interests
physical
on
by
the value of
assets owned
of Middle
with those
they conflicted
subsidiary companies.
In
divers
States.16
words,
sixty-
other
determine whether
to
reports, eight
know,
cents on the dollar was a fair
from the receivers’
amount
We
1929,
12,
paid
July
non-assenting
of
Glass’ letter
United bond-
and from
required
several holders
Glass,
knowledge
receiver
while
of these
both of
that
coopera-
part,
the values
underlying physical
an
of
.companies,
active
took
(the properties
committee
reorganization
underlying
tion with the
subsidiaries
supra.
Crites, Inc.,
Co.,
Wineman,
11
that misconduct.
Moon
Prudential
Cf.
v.
v.
415,
494,
Thus,
12
City
Trust
57 Minn.
59
v.
Bank &
N.W.
495.
Woods
Nat.
judge
160,
Co., supra;
Neary,
if learned of the misconduct
from
Weil v.
278 U.S.
Crites,
wholly
243;
(cf.
173,
144,
neutral
source
49
73 L.Ed.
Investment
S.Ct.
Registry
Chicago
Ry.
Co., supra;
Inc.,
Co.,
v.
& N.
su
Jackson
E.
v. Prudential
Magruder
Drury,
pra,
page
supra;
608),
Smith,
235
212 F. at
he should sur
v.
v.
among
77,
charge
119, 120,
108,
L.Ed.
S.Ct.
59
the receiver and distribute
35
U.S.
money owing
es
all interested
151.
by
supra,
13
Co.,
Crites, Inc.,
mis
receiver because of that
v. Prudential
tate
page
page
417,
at
64 S.Ct.
conduct.
994= 6, prices December sets; clerk on or before the fairness the court pertinent sale) if it brought may (ten days be state before “a other assets appears high- definitely that, showing describing assets fetched as had those ment up real- latest practicable have been something would as and made prices, er general Im- day reasonably practicable, bonds on but for holders ized sold, adding Mid- through debts of terms” be all of the assets to perial’s or guaranty “advisory companies this was to other of the statement still dle States only,” binding upon, nor and was not to be to United. release, a any should accuracies therein that on the fact much Appellees make pre 'purchaser decree also or bidder. This after months 9, (some four December sale, in notice of scribed the form the but week published and plan was paragraph reading, “For further cluding a. filed in sales), the receivers before the particular particulars, including a more ad statement of proposed detailed court a * * * description of the assets be sold claims, and that on intercorporate justed purchasers intending hereby referred are court, the re December * * * state decree and to the said solely notice and on petition, ceivers’ ment to be filed with the clerk of the court parties the en and to “the committees pre (b) directed.” sale said decree persons who had (i.e., to cause” *16 published, (c) scribed notice of On was ap entered an order appearances) tered 6, 1929, the filed December receivers But this state proving statement.22a this purporting with the clerk “Statement” a enlighten prospective bidders ment could respond to to Article Sixth of the decree. 2b non-depositing United bondhold 2 typewritten pages. It consisted of seventeen they it) as to if had known (even ers States, It facts as Im contained Middle to claims, in the absence of these the worth United; perial, Development, Oil and n especially of valua and balance-sheets facts as to Middle States covered .seven data; of a against the worth claim for tion typewritten pages; and as to short the other three obviously depends the value company on a companies, pages three such Moreover, order of the court assets. of its December above, quoted typical, each. We full as readjusted these approving portion dealing with United. It will be “subject expressly to read left them claims seen that it concludes a sentence read with by of the court further orders justment” upon ing, respect “Further information with to application by the receivers— further upon foregoing may be obtained re provision, exceedingly elastic which an quest, at offices of the receivers.”22c uncertain, kept the status of accounts Appellees maintain that this “Statement” availed them receivers which and of ' full was a disclosure. n confirma after the months several selves tion of the sales and the transfer of the pages agree. We cannot few deal The again company. Here the new assets to ing (which as typical) with we take markedly pertinent, re note, Glass’ as merely following: showed The amount plan effect “the that, cent affidavit in coupon sinking cash and fund ac parent and new com was consummated ; stock; ownership Eureka counts the 1, 1930, on pany began January to function miscellaneous accounts receivable in un inextricably intertwined affairs before of amounts; intercompany three determined parent com and the old the subsidiaries United;22d the outstand owing claims by panies straightened out re bonds; indebtedness of the re ing United ceivers.” amounts; ceivers, in unascertained by companies system other in the claims Appellees of the follow- make much also * * *— post-receivership “for advances facts, by ing them to demonstrate full said It amounts undetermined.” contained no prospective bidders and to disclosure data; sheets and no valuation balance Article (a) Sixth of the bondholders: information, such it relating to “free” was unin of sale without court’s decree respect sentence required the formative. The with assets receivers to file with companies published given 22a er three No was contained a notice similar petition approving concluding court’s sentence. or of the order 22d This skeletonized statement as to in the statement. tercorporate approving adequate 22b it claims was even The order was made less days statement, ap above, discussed before the sales. than the two by 22c proved statements to each of the the court December as oth two days before sales. '(cid:127) sume, arguendo, de not meet the did that it But information” should. how further reading the person ficiency. unenlightening A the “statement of For see: assets” (as any bondholder, find would have sale would published notice of been to such stated, uninformed, further otherwise “For we know from the noted) it above particulars, particular reports including more fact that the receivers in had sold, of previously be valuations, description of assets said that correct intending sale, purchasers by them, when received be would “used as terms * * * proper entries,” the basis decree book hereby making are referred to said * * * to, possible to be said receivers “for the statement time or first an record,” in said derly as accounting the clerk of said court filed and that “valua with he then read the tions If had decree directed.” balance sheets are essential be decree, virtually any fore reorganization told him would have can be worked 22g nothing know. If he he would want out.” there read the clerk’s officeand went to the sure, appellees suggest, personal To be filed December he would “Statement” non-depositing communication with hold- suppose that it contained the naturally ers of United bearer bonds was not feasi- important guide vitally facts intended to But, ble. had receivers desired to do prospective He would not nor bidder. everything practicable per- to inform such important mally facts that such believe data, they the valuation sons would have only by request could be learned pursued the time-honored conventional (made days ten before the receivers within course, i.e., they would have filed the bal- sale) any but would assume that addition reports ance sheets and valuation with the “request” al thus obtainable information published court clerk and then a notice that unimportant, relatively marginal; would they receivers, had done so. The in their *17 receivers, pre for he would think that the petition rehearing, brief and for have as sumably aiming competition in to stimulate yet adequately explained not why they did bidding, reveal, the would the State in but, steps not take these obvious instead, itself, they ment what considered the es adopted a course which would make it least helpful potential sential information to likely any non-depositor that would learn bidders, since the decree had directed the of the valuation data and balance sheets. filing of the “Statement” in order advise to Perhaps explanation such an will be forth- Why receivers such bidders. the did not hearings coming in further the the dis- include balance valuation the sheets court. trict reports thereof) (or summaries in their Strikingly in contrast with the receivers’ unexplained. filed “statement of assets” is non-depositing failure thus to inform bond- us, ap the now it On record before would fact, holders, repeatedly is this asserted in pear virtually they nothing to that did as appellees’ brief : The receivers—without However, potential purchasers.22e sist a any special “request” furnished this —had hearing, may perhaps it he further shown very (valuations and sheets) data balance that such was not the case. the committees which formulated and Although plan. plan decree shows that the the the As pub- endorsed the was designed primarily July was for lished this “Statement” “intending purchasers,” appellees urge information had given that thus been to the represent- committee regarded advising ing depositing bondholders, it as also non- United should be more United four depositing bondholders.22f We as than months before the receivers’ 22e Prospective pany; purchasers the and that of Eureka that notice contained the admittedly referring as- most sentence valuable “statement of stock — Wherefore, say appellees, of set vague United —did not receive assets.” even Cohen by filing hint “further information” and his wife that had notice mail of the might request” of that be obtained “on from the statement. Because of the insuf receivers; ficiency ordering (discussed above) for decree the sale of that notice as require adequate filing disclosure, did of that stock not need not here con any assets,” pub- whether, sufficient, nor sider “statement of did the had it been it any way of that refer in would have served as lished notice sale notice to Cohen as a unsatisfactory nondeposited holder of to the “Statement” even bonds. 22g
filed December What we said above toas the inade 22f Appellees quacy note Cohen that and his “further information” sen Development stock; respect prospective purchas Oil that tence wife owned with required applies nondepositing decree notice sale ers as well to the sales bond mailed to stockholders com to be that holders. Equally nec- In- should be fair. participate) filed. was December 6 “Statement” every make essary that receivers that this was it to contend deed, appellees seem it individual informing effort to that way feasible see appropriate
was the yet accepted be that, who had bondholders not They say because non-depositors: facts, important so that fully advised of all bondholders’ United these advices to they informedly that these could decide whether committee, is immaterial” “it files”; accept rather than the new securities placed in court not not “were data that, prices. pro as their rata shares of the sales assert, repeatedly, this they it, informed, approved the have it would On the record as we now committee, thus be as- that from prices, it must seem the receivers came far plan sales and the non-depositors making received such an effort. that sumed appellees’ posi- words, In other their due. background, With this we consider effect, receiv- be that the tion, seems to by appellants (charges, be charges made duty, owing fiduciary discharged their er understood, accept true as that we do bondholders, they made when to all United record). They charge incomplete on this represent- committee disclosure to full foreclosure of brought Glass about the course, deposited. Of who ing those sale of the Eute- the United bonds represented all The receivers is not true. stock, therefor, ka as collateral pledged depositing claim- as non-depositing as well way: have this foreclosure could.not That Fully to ants, did not. the committee but except pay over- failure to occurred non-depositors as much the was inform bonds, the- due interest on with United inform the com- as to duty the receivers maturity resultant acceleration very no committee fact that The mittee. But, appel- say foreclosure trustee. United bond- represented non-depositing lants, had as receiver of been Glass United obliga- an imposed on the receivers holders loyalty in- safeguarding with undivided informed, make keep fully them estate, tion to receivership terests of the easily accessible information as essential pay could have obtained funds been practicable. was such, say ap- to them interest.23 values pellants, fore- that had that default and the however, contend that Appellees, prevented, been thus bonds closure by the committee obtained all information ultimately paid have in full. would been *18 deposited bonds must United representing pursue But, they that charge, did Glass not here assume imputed to Cohen. We be instead, course; con- he allowed his other possible qualification) (without indicating judgment; to dominate his flicting interests capacity as a holder of Cohen, in that his wanted, personal financial and he for his bonds, respect deposited and with United president of the new advantage, to become having bonds, must as to such be treated (in plan company arising from a which or- But, “constructively.” knowledge such had security to desires of holders der meet the merely proof actually (not any absent that companies than Middle States and other of knowl “constructively”) such Cohen had United) to the serious detri- was contrived im agree be edge, do not that it to of non-assenting bondholders of ment the puted capacity as a holder of him in his to charged, end, collud- it is To that United. bonds, non-deposited person or the the to committee, he reorganization the ing with persons previously who those bonds. held pay steps to the deliberately failed to take also bonds. He the United commit interest on the United That bond committee, with the say appellants, plan agreed, to those whom the fair tee considered ’to accept price Eureka stock was at the would to a which represented persons who it — sale, judicial price a be, was sold at the securities —did and plan and receive new value, to Glass’ failure fair less its far than mean that the non- not at all treatment ac- full and record valuation enough put of depositors fair.22h was not was It pre- be the sales must counting data before plan accepted; be fair to those who that the maintain, sumed, appellants to chilled have necessary price also that sales was it reorganization only the bidding, for non-acceptors alone the would (in which 115, 1, Co., 106, Again 22h 60 appellees 308 U.S. 84 again, ber S.Ct. and refer L.Ed. 110. 'the fact that the United bond committee requires 23 is true knowl- Whether that a represented holders of such bonds. 94% outlined, i.e., edge previously large of the kind percen But is irrelevant that a inter-corporate knowledge approve ac- a tage of assenters of treatment un physi- counting comprising of the values and a small fair non-assenters system. properties Angeles minoritj'. cal in Los Lum- Cf. Case v.
997
sales,
committee,
bought
portant
at the
knew
truth,
which
an
benefits
himself is
old
worth.
of the and
what
assets were
edge
by
Because
one whose
cannot be dulled
frequent
be
new com
agreement
that he was to
If the trustee
use.
here allowed
president, Glass,
pany’s
argue appellants,
judgment
its
by any
to be affected
such fac
tors,
duty
complete
a double
make
improperly.
it acted
Pepper
“was under
Cf.
v.
Litton,
295, 311,
238,
the true value of
assets
disclosure of
308 U.S.
60 S.Ct
84
sold;
position of
to be
lie was thus in the
L.Ed. 281.”25
conflicting
Because of his
24
being
purchaser
his
positions,
own sale.”
at
the burden
on
to show
rests Glass
Moreover,
appellants,
the United that
say
the defaulted interest could not have
bondholders —both those
took new se- been paid
who
prices
and
that
at
sales
plan
curities
who
offered
were fair.26
pro-rata
instead
share
took
question
crucial
thus becomes
justified
rely-
cash
bid at
sales —were
appellants
this: Have
prima
made out a
ing
they
on
belief that
were
Glass
case,
facie
appellees,
by
rebutted
that
they
entitled,
receiving
to which
all
values
were as
assert
they
? On that is
they justifiably
because
relied on
assur-
his
sue, appellants rely on the balance-sheets of
plan
them;
ance
was fair to
that the
Imperial
31,
December
assurance,
those who did
as to
not de-
(about
1929
the time of
reorganization)
posit
plan
under the
took their share of
but
contained in income tax returns filed with
price,
purchase
amounted
assur-
an
the federal
income tax
by
officials
the re
was
ance
foreclosure
unavoidable and
figures
ceivers. Accepting the
in these
prices
by
that the
bid
the reorganiza-
balance-sheets,
paid
United could have
its
tion
at the
committee
sales would be the
and,
full,
bonds in
not, Imperial,
if it could
reasonably
best
obtainable.
guarantor
bonds,
of those
could have met
moment,
Postponing,
any deficiency.
Appellees
deny
do not
appellees’
consideration of
contentions as the
figures
balance-sheets contain the
as al
estoppel
appel
laches,
by
we think that
leged
appellants.
they
Nor
offered
have
us,
charges
any
lants’
the facts now before
value data
figures.
to contradict those
require
contend,
have sufficient merit to
They
that,
full hear
however,
being but cost
ing in
they
the district court. “That
figures,
a trustee
are not reliable evidence of
loyalty
owes his beneficiaries undivided
any
en
evidence,
value. But absent
other
they
tirely untinged by
any
case,27
considerations
im
prima
do
show
certainly
facie
one
24
Trusts,
Cf.
conception
fidelity
Restatement
§
ed
that blurs the vi-
c; Tracy Willys Corporation,
comment
preserves
sion.
It
the free exercise nf
Cir.,
45
judgment
F.2d
uncontaminated
the dross of
allegiance
pre-
divided
or self-interest.
It
Guaranty
Co.,
Cir.,
York v.
Trust
operation
vents the
of an influence that
*19
503, 514, 515,
143 F.2d
reversed on oth
may be indirect but
that
is all the more
grounds,
99,
er
326 U.S.
998
guilty
have
judicial in not
to
They
further
seem
laches.30
to necessitate
sufficient
supplied
recently
no evidence
obtained
promptly
acted
when
Appellees
they
have
quiry.
'
relevant,
time,
showing.
reports.
lapse
It is
the
income tax
Mere
to contradict
this
engineers’ val
connection,
constitute
long,
no matter how
not-
that
in this
does
reports
laches;
Bogert, 250
v.
and the accountants’
Co.
reports
Southern Pacific
uation
1099;
appellants’
483,
533,
to rebut
L.Ed.
produced
U.S.
have not been
S.Ct.
ignored
Boyd,
contentions;
Railway
is not
228 U.S.
and it
to be
Northern Pacific
v.
931; Holmberg
by appellants to
Glass,
57 L.Ed.
when asked
S.Ct.
that
Armbrecht,
them,
in an affidavit that
claim for a breach
before
ass
courts,
The federal
ignment.39
holding
elf.40a
Parkersburg
503,
37 Glass,
receiver,
fiduciary
487,
po
Brown,
v.
106 U.S.
had a
page
respect
442,
(see
27
Unit
1 S.Ct.
L.Ed. 238
495
sition with
to the interest of
“equi
page
S.Ct.,
stock;
U.S.,
of 106
of 1
448
the ef
ed
the Eureka
he held the
ty” ;
Glass,
charged,
fect
dollar); Chapman
colluded
that the bonds were sold at
it is
80on
County
reorganization
bring
with the
committee to
v. Board
Douglas
348,
County,
sale
Com’rs of
107 U.S.
about the default which led to the
378;
360,
62,
price
2
was be
S.Ct.
L.Ed.
Board of
that stock and at a
which
27
Irvine,
Cir.,
low its
Commissioners
8
F.
real worth.
v.
126
689, 693,
Savings
694; Chelsea
Bank v.
difficulty,
As to the
under the New York
City
410,
Iron-wood, Cir.,
F.
413.
6
130
decisions,
determining
wrongful
when
39
Bank,
National
conduct
trustee involves a surrender
Elkind v. Chase
su-
pra,
App.Div.
page 666,
assets,
20
cf. President and Directors
259
at
N.Y.S.
Kelby, supra,
213; Hendry
2d
&
Manhattan Co.
F.2d
v. Title Guarantee
v.
147
Co., supra,
page
App.Div.
page
Trust
255
at
474.
at
500,
1001
inducing
be
accountability,
policy
care-
should
much to
officers
thwart the
own
relating
receivers.
discharge
by
decisions
ful
duties
hampered by state court
of their
receivers,
the United
of strict
doctrine,
When
ordinary trustees.41
The
relative
check, rights
opposition
that check
to divided
accountability,
States issues a
Tompkins
loyalties,
prophylactic;
304 U.S.
aims not mere-
R.
(despite Erie
Co. v.
is
114
817,
1188,
punisii
A.L.R.
where it
64, 58
L.Ed.
evil
cases
ly
82
actual
S.Ct.
by
“tendency
federal
than
to evil in
governed
rather
1487) “are
occurs but to
avoid
City
Co. v. United
Bank
Clearfield Trust
Nat.
&
local
other cases.” Woods v.
law”.
States,
573,
363, 366, 367,
Neary, supra;
Co., supra;
63
v.
318 U.S.
S.Ct.
Trust
Weil
supra;
575,
Crites,
Co.,
receiver
When a federal
Prudential
87
Inc.
L.Ed. 838.
v.
Jack-
Drury,
misconduct,
v.
through
Smith, supra; Magruder
obligations
incurs
son v.
77,
think,
is,
106, 119, 120,
to be de-
59 L.Ed.
similarly
we
235 U.S.
S.Ct.
title thereto
termined
35
by
“federal law.”
151.
applica-
then,
What,
is the “federal law”
suggested
purchaser (such
It
is
that a
question,
answering
In
ble here?
Cohen)
right against
no
should have
a
has
the New York
observed that
this undesirable
doctrine
purchaser
receiver because
will
otherwise
practical
The seller
result:
acquire windfall,
he,
since
like the
unaware,
hypothesi
seller,
of such bonds—ex
right
nothing
knew
of that
he
when
sale,
wrong
at
time of the
of the
purchased.
variety
great
But in a
of in-
fact
have stances,
trustee—in actual
can
purchasers
done
no notion of
permitted
are
to ac-
any
retaining
cause of action
windfalls,
quire
e.g.,
buyer
land on
trustee;
against
the seller
oil is
which
discovered after the
The
sale.
reads;
exceedingly
bond is
hard
Contracts,
bearer
to trace.
(2)
171
Restatement
§
consequence
practical
New
assign-
York
provided
“Unless otherwise
in the
rule
is that most of the claims
by agreement
therefore
ment
assignee
with
done,
against
wrong
especially
assignor
a trustee for
obligor,
or with the
an as-
bonds,
holders
never
bearer
will
be signee
assignment
an
under
effective
for
prosecuted
the trustee has surren-
unless
right
value has
any
the same
securities
dered trust assets. That rule thus often
assigned
for
right
that were available
serves, pragmatically, as
assignor, though
a convenient
to the
he has not bar-
exculpation.
them,
gained
assignor
means of trustee
as if the
had
agreed to transfer them.”42 If Glass was
guilty
Wc think that it
wrongdoing,
would
most
that Cohen’s estate
apply
to a
unexpectedly
unfortunate
such a rule
will
benefit can work no harm
receiver;
to Glass. Wc
reject
federal
it would
therefore
wrongdoing
do
the New
208,
Clark,
376;
Ct.
88
Law
L.Ed.
Hazel-Atlas Glass
cussed
State
in the Fed-
Hartford-Empire
Courts,
Co.,
(1940).
238,
Co. v.
55 Yale L.J.
322 U.S.
eral
267
246,
997,
We do
following
not here consider
64 S.Ct.
88
L.Ed. 1250.
suggestion:
bringing
Restrictions
41 See, e.g., as to “federal
law” in vari
actions,
of stockholders’
ns
such
im
fields,
ous
Clearfield Trust
v.
Co.
United
posed by Federal Rules of Civil Proce
States,
363,
573,
318 U.S.
63 S.Ct.
87 L.
dure,
23(b),
following
rule
28 U.S.C.A.
838;
Ed.
Garrett v. Moore-McCormack
723c,
statutes,
section
proce
or state
are
Co.,
239,
246,
317 U.S.
63 S.Ct.
87 L.Ed.
;
Sperry Corp.,
dural
cf. Piccard
Cir.,
v.
2
239; Sola Electric Co. v. Jefferson Elec
affirming D.C.,
1002 adopted elsew apply ganization York and the it, rule rule and, through the committee company, conspired here.42a new de- with Glass to prive non-depositing bondholders United appel Accordingly, we hold that of legitimate their of the share own benefit right, lants the for have 44 way assets on in a which involved a fraud other n non-deposited and that of holders of that, 42b court,45 may the it then be not- surcharged on ac bonds to have Glass withstanding decrees, com- the the new any. if so wrongdoing, his In count of pany will receivers. be liable with the that, ap even do mean if holding, we not Smith, v. supra; Ferguson v. pellants right, district court Jackson that the lacked 910; Irving Cir., Wachs, 7 96 cf. F.2d ap merits of disregarded have the should Company Deutsch, 2 F.2d Cir., Trust 73 pellants’ charges and against Glass should 123, 121, 125. investiga directing an refrained have from persons tion for the benefit of whatever undoubtedly, 7. We think that may alleged injured by Glass’ have been in connection counting ac with the receivers’ final however, fortunate, that misconduct. It is discharge, appellants and should standing requisite investigation, appellants and have the engineers’ access and account have to the it in since self-interest might the and, in reports indeed, anything ants’ to court other be for the difficult well papers the the books and in hands of of a obtain needed services to wise clear, Since, as receivers. Glass has made lawyer expert an accountant.43 companies in affairs of the various New Appellants that w;ere contend receiverships “adminis the several be company held should Middle States “inextricably unity,” tered as On oral together with the receivers. why intertwined,” liable every reason there supported this appellants conten- argument appellants in the United connection with by agreement made by an tion reference to receivership, to similar access should have company, with the in connection the new books, in the receivers’ files records and discharge the receivers’ to reorganization, receiverships all in the court below.46 not, on Appellees did obligations. accounting Appellees argue that final of question existence argument, oral receivership in stand on its each should not found agreement; have we such an but bottom. own But it would seem from one, there is record us. If it in before statement such a Glass’ that method'Would include the kind it not think would we might unduly artificial and highly be com imposed, sought absent to be liability here matters, plicate since facts revealed with indicating language other- specific fairly might receivership respect one so af question for the court We leave that wise. undesirably another as to necessitate fect the below. discharge reopening an of a order made. We course, orderly think ad theretofore it, (of however, appear' Should requires that ministration final ac will) when know that all do discharges countings and should be dealt court, the reor- before are facts U.S.C.A. pra. yer services Statute successful, who ing except ford-Empire basis needed. estate ue tion which 42b [44] 42a [43] 45 who would be For tlie Appellees We do not here Cf. may gee gee, and who Boyd L.Ed. 1250. Hazel-Atlas Glass Co. v. Hart The S. note 1§ payment) e.g., cases appellants physical an engage case. would under court et any Co., 13, contend that expert seq. (unlike E. supra. event merely the Chandler C. is not in such an undertak would paid properties; cited refer ask concerns the val- accountant insufficient, U.S. appellants’ look on a go unpaid in note appoint authorized the examina- contingent the Cohen 64 are doctrine Act, lawyer, 38, as the if S.Ct. law also un su- 11 ancillary davits they been want, and should be ed in telephone These receivers which the ceivers’ physical properties nection permit More such data with data drilling day developments, constant to the receivers that, “have respect discharged, important, concerning show, questions such examinations. with the interim receivers may conducted a wells and other ancillary touch those to the telegraph have an reported involved ancillary running reports appellants it will by daily correspondence, ancillary sale and in physical properties were in receivers have been other principal allowed, important bearing on June concerning the court here. properties and Glass’ receivers be affairs, But, storage receivers have seek jurisdictions; improper custody business.” office with access to 1925 as the re- no report- day below. relief since con- affi- but oil, *24 value United s re- bonds and to caused the have with dealt the court just with as e., the active, as bondholders who to cash i. elected take were ceiverships they when plan instead of new securities under the a unit. of reorganization, accept only 68 to cents and remanded. Reversed pay- dollar the instead of getting full ment of their these bonds. al- Assuming (dissenting). SWAN, Judge Circuit legations true, misrep- to be receivers’ in appeals from two orders are These duty resentation to was breach a orders receivership. One of the equity an of bonds mis- owners at the time when the accounting of and report final approved the representation made, is, was that a time at Cor- Producers Oil of United the receivers prior judicial $32,200 to the sales. The in discharged receivers poration and upon of bonds which Cohen received in their embraced matters respect of all acquired on the by cents were him dollar or- accounting; the other report and said unspecified at judicial some date after the discovery and motion for a der a denied misrepresenta- Hence sales. receivers’ and books of account inspection tions to their value as were not a tort ap- receivership. The papers of other against against Cohen but the owner W. William pellants are the executors in bonds November 1929. In Elias widow, deceased, bene- sole Cohen, his and Clarke, 640, 644, 143 F.2d we held that un- they Any rights will. ficiary under his der York New law claim a for fraud or surcharge the to receivers may have misrepresentation in connection with an papers of inspect to the books obligation debt, evidencing for a whether by will receivership under the are derived rescission, damages or -pass does not with $32,200 of ownership of Cohen’s reason the transfer of obligation in ab- at by Cohen Unless United. bonds issued special assignment sence of a of the claim. (he rights in 1940 had his time of death Cohen a securities was broker in New on their con- against receivers based City York it is natural a inference appellants have receivers, the duct as such purchased so, that he the bonds here. If object to the final account- standing no to nor neither he acquired any executors his imperative, therefore, ing. It was right damages to claim for the receivers’ prove Cohen did have such them to predecessor tort to his If title.1 he ac- they make my opinion failed to In rights. quired them outside the State New York Consequently orders proof. such and in a state where the seller’s tort claim should be affirmed. pass special would without assignment upon appellants theory which The claim, upon it devolved his executors right object to the receivers’ ac- assert proof to make of that fact order to show guilty they were of a counting is that right object to the receivers’ final duty reporting fiduciary in not breach of accounting. They proof. offered no such and to district bondholders United’s The district they court held that were assets of sufficient court United’s were standing object “without to the final re- pay in full in con- the bonds value port accounting.” This conclusion sequence of the concealment of such in- right, was whether or agree not we with judicial formation the assets sold at reasoning which judge the district price. at in 1929 too low a sales Such Accordingly reached it. I equivalent think the orders said to concealment misrepresentation to the be affirmed. should fraudulent majority suggests passed opinion be- him the seller’s tort claim may against receivership we is a federal receivers. This cause this seems to me bonds, purchase of Cohen’s in direct hold that conflict with the rule of R. Erie Tompkins. York, if transfer occurred New Co. v. even cases cited notes See judge Cohen “had of the district that ment pra. knowledge with re- of what was done full may 33 We add that detailed informa- spect and “also to the assets” of United given judge privately to the not signifi- tion would complete appreciation had estop i»terested, necessarily judge to whom there,” that if meant cance 999 duplicitous alleged arranged Glass reorganiza values and as to Glass’ had with the occurred, was of tion (which, compa conduct if it become committee to the new ny’s judge) president, are substan- ,was influenced, course unknown to the or that he tially tions, appellants’ committee, in conten- working by with when with that his accord judge’s position. hide behind the desire to Glass cannot attain that As he was president becoming approval or his reorganizat decrees of Glass’ elected soon after president ion,35a company.34 perhaps of the new such an inference can be made; but we think fact that should that Although appellees suggest it, the not do way other, be determined, only one or the following argument might conceivably be after further evidence is adduced in the reorganization, respect in advanced: The think, however, that, district court. We Boyd bondholders, to United violated the although such a strengthen fact would 35 principle apparent case and this fact was against Glass, case it is necessarily not re plan; on predecessor Cohen’s the face of the as neither quired justify surcharge. a seasonably in title nor Cohen objected, sought by ex the relief Cohen’s argument Another upon 5. based against ecutors Glass is barred if he even New (not suggested York decisions or here wrongfully in consummating assisted in the court appellees), reject. below plan. There are several to that answers According decisions, to those a where trus suggestion. We mention but one: The tee, under an securing negoti instrument Boyd if principle case violated stock was bonds, able has violated his duties but in States, holders or with creditors Middle way such as not to involve or release adequate consideration, out received new assets, surrender of any right trust plan participation under in United as arising action wrongdoing from the be sets and if United bondholders longs persons to the who owned the bonds plan equivalent in pay offered at the time of the commission full, ment since even creditors wrong; right, and such a ex without an Middle States were not creditors of United press assignment thereof, pass does not creditors of a stockholder of United. but purchaser to a any bonds, al But, considering lack of information in though the seller had no knowledge what plan, files no United court ever of the trustee’s On dereliction.36 bondholder not the confidence the re ground, suggested it is that Cohen had no ceivers or of the committees could have dis against claim the receivers and that there violation, covered such a with sufficient fore his has standing no estate here. ap ease to be on notice thereof. this On suggestion this there To are sev peal, necessary we do not deem it to decide eral answers: It entirely is not clear that whether or not such a violation existed. conduct, appears receivers’ as it now on Appellants contend record, this did not constitute a release sales, that, should be inferred before the surrender of assets within the meaning of 36 asking made, Bank, was from Elkind no disclosure Chase v. National 259 surcharged. par- App.Div. 661, 213, This would be Glass 20 N.Y.S.2d affirmed ticularly judge 726, 198; true if relied Glass 284 N.Y. 31 N.E.2d Emmer him ich translate for the detailed data into v. Central Co., to summary Hanover Bank & Trust 570, 659; Hendry form did so mislead- 291 and Glass N.Y. 50 N.E.2d v. ingly. Co., App.Div. Title Guarantee & Trust 255 supra; 34 Luster, 497, 164, Martin Gutterson 8 N.Y.S.2d affirmed 280 N.Y. Co., 740, 515; Doyle Iron v. Lebanon & Steel 21 & Gould C. N.E.2d v. Chatham 76, 72, C., Bank, Phenix 369, F. & 151 National 253 N.Y. Boyd,
Notes
[35] 1405;
su
Pacific R. Co. v.
Northern
N.E.
71 A.L.R.
Smith v.
pra ; Chicago,
Co.,
I. & P. R.
v. How
R.
Co.
Bank
Continental
& Trust
292 N.Y.
117;
Wall, 392,
ard,
19 L.Ed.
Louis