*1 PROTECTIVE COMMITTEE FOR INDEPENDENT FERRY, TMT
STOCKHOLDERS OF TRAILER ANDERSON, INC. v. IN TRUSTEE BANKRUPTCY, et al. Argued 38. 7-8,
No. November 1967. Decided March 1968. *4 Langbein argued Irwin L. the cause for petitioner. With him on the Irma briefs was S. Mason. Simmons, Jr.,
William argued P. the cause and filed respondent brief for Spitzer Anderson. M. James 418 al. Shaffer et With respondents cause for
argued Jack- J. Ronald him on the brief were Offenkrantz L. Peters. son Ferber, argued leave of by special
David Court, Commis- respondent Exchange for cause Securities General him briefs were Solicitor With on the sion. Friedman, Philip Griswold, Daniel M. Ralph Spritzer, S. Jr., Loomis, Paul Gonson. A. of the Court. opinion
Mb. Justice White delivered under corporate reorganization This case involves a 11 Bankruptcy Act, X of 52 Stat. Chapter proceedings1 In the most recent §§501-676. S. C. U. of reor- approved Court amended the District petitioner discharged Committee.2 ganization Fifth Appeals affirmed, for the Circuit The Court (1966). granted certiorari, 936 387 U. S. 364 F. 2d We presents important ques- (1967), because this case 929 bankruptcy laws. Since we believe under tions affirming of the Appeals the decision erred Court and remand judgment we Court, District reverse expressed proceedings the views further consistent below.
1
years.
10
has been in
federal courts for over
This case
Caplan
Ander
following:
reported
v.
decisions consist
earlier
Anderson,
1958); Caplan
(C.
259
son, 256
2d 416
A. 5th Cir.
v.
F.
Ferry,
TMT
Ander
Trailer
Inc. v.
(C.
1958);
5th
2d 283
A.
Cir.
F.
sub nom.
son,
1961),
(C.
455
denied
292 F. 2d
A. 5th Cir.
cert.
Anderson,
Ander
States v.
United
(1962);
S. 956
v.
368 U.
Shaffer
son,
(C.
Cir.),
denied,
cert.
I. TMT debtor, Trailer Perry, Inc., incorporated was principal 1954. Its transporting business is freight between Florida and Puerto pioneered “fishy- Rico. It back” transport, the ocean-going equivalent of “piggy- back” transport. Freight loaded into highway trailers is rolled on and off sea-going barges without rehandling. In its original operations TMT used tugs rented to tow Navy converted LST’s loaded with such trailers and other freight. Later it undertook to convert a self- propelled Navy LSD for use in its business. Substan- tial debts and losses arose from the unsuccessful con- version and consequent failure in service of this ship, Queen. the Carib dubbed
In addition, between 1954 more than 4,000,000 shares of TMT common stock were issued, many of acquired them at prices low by persons close company and disposed of to public rela- at tively high prices. As a result of these transactions and others, TMT became unable to meet its obligations, reorganization and a proceeding against was initiated by involuntary petition in June 1957. The debtor consented to reorganization, C. Gordon Anderson appointed trustee. The motion of the holders of preferred ship mortgages on the (the debtor’s vessels Caplan mortgage) to foreclose their hens was denied the trial court. appeal On from this order, it was pointed out that no of reorganization yet had been proposed, the possibility of successful reor- ganization had not been explored, and that no evi- dence had been support any received of the court’s Appeals orders. The Court reversed and remanded instructions the holders of the Caplan mort- gage permitted be to foreclose adequate provision unless to protect was made their interests or they unless would not be prejudiced delay. further *6 hearings. Upon appropriate remand trial court held being operated was It was determined that the debtor produce profits. in a manner which substantial would plan reorganization proposed A of was which would have given Caplan mortgage group all the common stock a reorganized company, portion substantial preferred and control of the board of directors. stock, February In 1959, hearing without called for that solely on the purpose records, basis documents and the trial court declared the debtor and held insolvent original that stockholders had no further interest reorganized corporation. plan In March 1959 the reorganization confirmed, resigned was and Anderson president as trustee to become reorganized com- A pany. new trustee was appointed, sought and he in effect to vacate the order confirming plan. His petition alleged the holders of the Caplan mortgage Dry and Merrill-Stevens Dock & Repair Co. (M-S), another substantial creditor, had entered into an undis- agreement closed in violation of 221 Chapter § X, 52 11 897, Stat. C. agreement § U. S. according to Caplan which the mortgage group pay would M-S in procure order to its consent plan reorganization. petition This was denied, the successor trustee was re- moved, and Anderson was reinstated as trustee. petitioner appealed Committee from the order confirming reorganization plan. Objection was .made to the failure of the trial court to order an investigation into the claims of certain creditors and to the failure to a hearing insolvency. conduct on While appeal was pending, Caplan supported group, by Anderson, peti- tioned the court to trial consummate the confirmed plan. The Securities and Exchange Commission, filed however, a petition in the trial seeking court an investigation.3 It
3 participated party The SEC as a in bath the District Court Appeals, appeared and the Court of and has respond as an unnamed ent before this Court. 52 890, 894, See Stat. §§572, U. S. C. alleged investigation that an would disclose that the corporation unfair because it turned the over per- extensively sons who had dealt in the stock of the debtor probably illegal. transactions which were It was agreed among parties an investigation should be made.
Anderson, in his re-established role as con- trustee, investigation. ducted the days hearings Fourteen held, 2,200 pages were of testimony transcribed, and *7 some 60 collected. Anderson’s from report exhibits investigation pages original covers 40 record. He concluded that the debtor’s business had been “wrecked by gross mismanagement, by unwise and unsound ex- pansion primarily through financed the sale of securities in disregard protective provisions of the Securities Act of 1933,” that the debtor had substantial causes of action against holders of Caplan mortgage. Upon recommendation Anderson, the trial court vacated its confirming order the 1959 plan, and the Court of Appeals affirmed.4
Early in 1962
plans
two new
of reorganization were
proposed. The “internal plan,”
by
recommended
Ander
son, provided for reorganizing the
by issuing
debtor
new common stock to creditors
“compro
and involved
Caplan
mises” of the
mortgage and M-S claims. The
plan”
“cash
entailed similar “compromises” as well as
selling the debtor’s assets for cash
persons
uncon
company
with the
nected
and distributing the cash
requested
express
608. This Court
the Government
its views at
petition stage,
(1967).
part
to creditors. Neither
supported by
pation by
Committee,
stockholders. The
from
SEC, objected
to the exclusion of stockholders
because it
plans,
opposed
plan
both
the internal
contemplated
president
that Anderson
become
would
hearings on
reorganized company.
After
valua
tion, the District Court found the debtor insolvent
and feasible.
approved
plans
fair, equitable,
both
as
A
all
majority of
classes of
other than
creditors
accepted
plan,
the internal
the Dis
United States
February
confirmed
The
Court
1963.
Com
trict
supported
SEC, arguing
mittee
that the
appealed,
plan wrongly
improperly
excluded stockholders and
con
president.
Anderson would become
templated that
Appeals ruled,
reaching
Court of
without
the other con
permissible
plan
it was
to con
tentions,
template that Anderson would become president,5 but it
in a separate appeal
plan
held
that the
was defective for
giving priority
Government’s
nontax claims.6
accordingly
The case was
remanded to the District Court
for determination of whether the
would be feasible
*8
given
if the Government’s claims were
priority.
full
hearings
On remand further
were
District
held, the
if the
Court
found that
Government’s nontax claims
given priority
plan
were
would
feasible,
be
were
provided
amendments
authorized which
for imme-
payment
diate cash
Government.
The court re-
garded
Appeals
the failure of the Court of
reverse its
to
as in
an
other orders
effect
affirmance of
them, and
again
refused to
consider
contentions
the Commit-
accepted
tee and the SEC. The creditors
the amended
plan
objections
over the
and,
of the Committee and the
plan
that the
was not fair or
SEC
the District
equitable,
5
Ferry, Inc.,
(C.
In
TMT Trailer
re
334
2d 118
F.
A. 5th. Cir.
1964).
6
Anderson,
(C.
United States v.
334
2d 111
Cir.),
F.
A. 5th
cert.
denied,
(1964).
423 again appealed, Committee it. The affirmed Court had its earlier decision that ruled Appeals the Court and decided.7 discussed in terms all issues open left had con- Court the District fact that Passing over and em- perspective, legal in erroneous case sidered whether to determine obligation was its that phasizing reached or his discretion” “abused had judge the trial Court “clearly erroneous,” which were conclusions Stating that case. remand the to refused Appeals brought to long last be must at litigation .. . “[t]his judgments all affirmed Appeals Court of end,” the again Committee, District Court. orders of ques- a number of presented SEC, has by the supported view of the Court.8 Because to this on certiorari tions only the necessary consider it is to case, we take of affirm the District it was error of whether questions claims of substantial compromises approval Court’s affirm the error whether it was debtor, and against the was insolvent, the debtor judgment District Court’s considering the without was rendered judgment when that company. reorganized earnings of the estimated future 7 (C. A. 5th Anderson, F. 2d 939 v. Protective Committee 1966). Cir. succinctly length, argued at are issues, briefed The other brief filed the SEC: in the stated Bankruptcy Act, Chapter which X of the under “1. Whether reorgani- point focal of the trustee as the provides for a disinterested presidency assuming precluded from zation, trustee is contemplates company; reorganized and whether may be confirmed. result refusing consider the below erred the courts “4. Whether violations based on asserted claims of the stockholders’
merits laws. securities *9 discharging the Stock- erred district court “5. Whether proceedings reorganization were com- before holders’ Committee finding the debtor was insolvent.” of its pleted, on the basis 2, 3. for SEC Brief
424
II.
of
part
process
are “a normal
Compromises
Co.,
reorganization.”
Angeles
Case v. Los
Lumber Prods.
(1939).
administering reorga
308
130
In
106,
U. S.
practical
in an
proceedings
nization
economical and
arrange
manner it will
be wise
often
the settlement
of claims as to which there are substantial and reason
however,
able doubts. At the same
essential
time,
every important
reorganization
determination in
proceedings
“informed,
independent
judg
receive
bankruptcy
Surety
ment” of the
court. National
Co. v.
Coriell,
(1933).
requirements
289
436
of
U. S.
(2)
Chapter X,
174
221
52
11
891, 897,
§§
Stat.
(2),
plans
reorganization
621
§§574,
U. S. C.
“fair and equitable,” apply
compromises
be both
just
aspects
reorganizations.
to other
as
Ashbach
v. Kirtley,
(C.
159
A. 8th
Con
1961);
F. 2d
Cir.
way
Corp.,
(C..A.
v. Silesian-American
425 instance, of course, is the compare need to the terms of compromise likely with the litigation. rewards of It is here that we must present start in the case.
The Caplan mortgage, consisting of preferred ship mortgages on the debtor’s bears a vessels, face amount of $330,000. The paid holders $280,500 for it. Under the proposed compromise, the holders receive would $280,500 paid in five annual cash installments, plus interest from original due date.9 The claims filed against by debtor’s estate M-S totaled $1,628,284, of which $574,580 was said to be by secured maritime liens on the debtor’s vessels. Under the terms of the compromise, these claims are to be allowed in full, after reducing . them all to the status unsecured claims. As with other claims, they unsecured paid by would be issuing common reorganized stock company. M-S up would wind holding approximately of the stock 40% in the new company.10 glance A at these terms makes it clear that the compromises involve recogni- substantial tion of the by claims Caplan filed group and M-S against the debtor. Whether compromising on these terms was fair and equitable to the debtor, the other creditors, and the stockholders depends upon the proper assessment of the claims which the debtor allegedly had against both Caplan group and M-S. Caplan
The mortgage was the focal point of the 1960 investigation conducted the trustee, Anderson. The
9 The interest is to be payable treated as an unsecured claim common reorganized company. stock in the confirmed provide the court was later amended to holders Caplan mortgage $250,000 would receive in cash at the date of reorganization consummation of plan, $280,500 rather than over years. five voting Since the go rest of the stock will to the other numerous general creditors, petitioner scattered argues that M-S’ 40% ownership give working will initial reorganized control of the company. Petitioner’s Brief 29.
mortgage shortly was entered into petition before the bankruptcy was filed. It was cash needed to raise Queen. payments meet due on Carib After an investigation, extensive Anderson concluded that mortgage a fraudulent given transfer for fair *11 consideration. report succinctly Anderson’s stated the mortgage: unfairness of the terms the Caplan Group paid $280,500 “The cash for the mortgage to TMT paid expenses which all of the mortgage the transaction. The was for $330,000 payable in seven months and is convertible into common stock at the option the one share holders, of common for each principal $1.25 of amount of mortgage. gave the Caplan This Group an effective interest rate of per prior annum 30% maturity opportunity to straddle because of and the conversion feature. If TMT they prospered, mortgage could into convert common stock for they which paid would have $1.00 little more than per share; if TMT did not, Caplan Mortgage was in a senior position and a lien constituted on prime absolutely TMT’s assets, necessary to the Company’s operation. Queen Since the Carib had broken down, vessels encumbered the mort- gage were main producers of income for the company.” found
Anderson that there was “ample sup- evidence” to port this view of the mortgage, therefore mortgage be should treated as null and void. So treat- ing it would not release TMT from the obligation to repay money received, claiming but that amount mortgage the holders of the would have no higher status general than unsecured creditors.11 pay Accordingly, to Caplan holders of the mortgage $280,500 though only cash, even they paid the amount mortgage, for the In addition, report Anderson’s concluded prin- that the cipal holders of Caplan mortgage, Abrams, Shaffer, Erdman, had corporate opportunities diverted through flagrant abuse of their control, fiduciary or inside positions, and should be made to account for the profits they had Nearly made. half of roughly 4,000,000 shares of outstanding TMT common stock public reached the via purported private offerings through Abrams and Shaffer. These two men exercised a high degree of control over the affairs the company, and Erdman went along with them participated many of their transactions. Anderson found these occupied three fiduciary relationship with at TMT, least insofar as issuance of capital stock to them was “They concerned. took advantage of their posi- inside tion to obtain stock for less than the market price which they public sold any registration without under the Securities Act in apparent violation of pri- *12 offering vate exemption under which all of the stock was issued.” The activities of these three men substantially lessened TMT’s chances of obtaining financing from reputable financial by institutions “and the time the Caplan mortgage was they executed were in a position to dictate which TMT terms would be accept.” forced to Anderson’s report continued:
“It is opinion persons trustee that such as Abrams, Shaffer Erdman who come in as TMT creditors of under Caplan Mortgage . . . should be equity barred proceeding from profiting at TMT’s expense. Their claims should by be reduced profits they have made on sales of TMT stock they which acquired private for in- preferment would be a substantial of them reorganization when the plan general allows only pro unsecured creditors portion rata 1,300,000 some shares of new common stock in reorganized company. they
vestment but which sold in violation purposes, great profit of the law at themselves. These profits readily are either or admitted ascertainable company.” and should be returned to the Characterizing the of Abrams, conduct Shaffer, Erd- unregistered man in TMT acquiring stock with no inten holding tion of it for investment a “fraud,” as Anderson possibility liability indicated the under the SEC’s Rule 10b-5.12 Anderson said that aat minimum their claims should be subordinated those of innocent creditors.13
aAs result of report filed trustee Anderson, the order confirming the 1959 of reorganization was vacated. Both the trustee and objec- the SEC filed Caplan tions mortgage grounded claim, on the presented report reasons in the investigation. The District Court never hearings held on objections. these mortgage was not set aside as a transfer, fraudulent nor was it to use against decided the claims Abrams, Shaffer, and Erdman as setoffs or as a means of subordi- nating mortgage claims. Rather, the internal plan reorganization approved by the District Court, providing a “compromise” for of the Caplan mortgage along already the lines indicated. The holders of the mortgage were to receive in they cash what had put up plus the mortgage, interest on principal from original due date.14
Separate from the Caplan mortgage claims were the claims filed M-S, company in charge of convert- *13 5; promulgated 12 17 CFR pursuant § SEC to 240.10b— (b) 10 of Exchange the Securities Act of 1934, § 891, 48 Stat. 15 78j. U. S. C. § 13Such effectively subordination would eliminate their if claims TMT were as insolvent subsequently as court found. modified, These terms were later as supra. indicated in n. ing Navy LSD self-propelled into the trailership Queen. which TMT the Carib christened These claims totaled of $1,628,284, which over $1,000,000 unpaid Queen. converting balance due for Carib Maritime liens on other vessels owned TMT al- legedly $574,580 secured worth of these claims. The United States, position its aas substantial creditor of TMT, objections filed stating M-S claims, none them were entitled to status as claims secured “for the reason that they more than year arose one prior to the commencement of reorganization pro- ceedings herein.” It also contended that the claims had no status as secured lien claims, recog- for “it ais principle nized of Admiralty and Maritime law that claims for the construction or reconstruction vessels give do not rise to Maritime hens.” por- Whether the tion of the claims for which M-S secured asserts status actually entitled to that status has never been deter- “compromise” mined. The of the M-S claims amounted allowing them in entirety their as unsecured claims. Queen voyage On the maiden of the Carib series boiler failures caused the vessel to break and neces- down repairs. sitated extensive In November peti- 1958 the tioner Committee notified the District Court that in its opinion the “series of catastrophes” which had befallen Queen the Carib was due to “faulty design, inadequate inspection, defective work on the remodeling and later repair hasty the ship, improper preparations for voyage a hazardous sea and utilization of the ship in a service for which she was not fitted in an unsea- worthy thought Committee condition.” that TMT had causes action which could recovery lead money. substantial sums of Although report Anderson’s subsequent investigation on his of the affairs of TMT dealt with causes of action other than those associated *14 Caplan mortgage, any
with the it made no mention of TMT might against claims have M-S. The SEC ob- jected claims, stating grounds M-S that there were for disallowing them and that the matter should be a special investigation. referred master for Trustee sought Anderson also these a special reference of claims to September master. On 1, 1961, the SEC filed detailed specifications objections claims, its the M-S based investigation on its own into them. The SEC stated the debtor “has meritorious defenses and an or counter- offset (a) claim because properly M-S did not convert the vessel; (b) did comply with terms (c) contract; properly did not repair the vessel; and (d) performed certain work for and furnished cer- tain materials to no TMT, agreement as to price; M-S has failed to establish the value of such work and materials.”
The SEC described with particularity some the facts which had led it to this conclusion. important The most of these related to the boiler failure which occurred shortly Queen after M-S delivered the Carib for its voyage. maiden Within sailing 48 hours of from Jack- sonville, Florida, bound for Juan, San Puerto Rico, it was discovered boiler and several tubes were leak- ing. Tubes overheated, ruptured, and were distorted as a result of scale which formed on their had inner sur- faces. The SEC attributed the scale to negligence M-S’ in running the boilers with raw water. The SEC also stated the improper priming of the boilers that on the trip first was occurred due to installation of incor- rect baffles M-S. M-S had undertaken to make the required repairs, and the SEC stated that repair work performed negligently, leading to further tube fail- unpaid charges Part of the claims was for ures. M-S *15 on repair Septem- for this work. M-S filed answer Queen 1 Carib ber which admitted that when the suffering it was from “certain construction delivered any liability. contended that deficiencies,” but It denied per- its asserted hen claims were secured and that it had repair formed the work in a proper manner.
Although sought the SEC and the trustee reference had a special hearing, M-S claims to master for hearing Instead, no such was ever held. the trustee subsequently summary for allowance of moved the. ground only the claims on the a “remote” there was possibility materially reducing of by litigating them objections against the filed and them, such liti- gation “unnecessary delay.”15 would cause At hearing during presented which the trustee his motion allowing the in full, explana- M-S claims no further of provided. tion this recommendation was Counsel for the Committee that “this is not a protested report, this ais bare statement of conclusion.” The trial him- judge recognized importance self He question. said: myself.
“I am concerned I do know that whoever Queen] turned that vessel Carib loose with the [the investigation The trustee reached this conclusion after an de by him in full trustee, scribed as follows: with the assistance “[T]he attorneys investigated counsel, alleged of in the office of his the facts specifications objections by in the of filed in SEC and the answer investigation of This Merrill-Stevens. consisted of an examination by during investiga of numerous documents assembled the SEC its tion, together copies by of statements made individuals which during investigation. had been obtained Also examined were numerous documents and statements furnished Merrill-Stevens support specifications objections by its answer to any findings SEC.” The trustee did not set out of fact which he “investigation,” provided arrived at in the course of this no explanation reasoning opin which had led to his “considered ion” that claims should be M-S allowed full. somebody made a I it,
boilers bad mistake. don’t know who it was.” put
The matter was the Com- subsequently over, Department mittee, supported Commission, the Caplan mortgage objec- Justice, group, filed Notwithstanding tions. these and the objections, doubts that he earlier expressed, had trial confirmed judge in full the claims as unsecured claims further without investigation M-S, them. under the confirmed plan, is to reorganized receive the common stock of the 40% company. July 11, 1962, opinion
On the trial court filed its *16 approving order both the internal plans and the cash reorganization. The internal provi- contained the “compromising” Caplan sions for the mortgage and M-S regard claims. With to these sets of the claims, trial court that “it apparent” stated that successful liti- gation of claims TMT against the had the holders of years these possibly claims “would take to conclude. . .”. The court continued: opinion
“It is the of the court that these compro- mises are fair equitable under the circumstances they hereby are for approved inclusion the Internal Plan. The approves court opinion ex- pressed by the attorney for the trustee no that better can compromises be obtained for the debtor, that prospect of material reduction in the amount of these claims does not warrant the extensive liti- gation that would otherwise be required, and that prospect beyond of recoveries the amount of the urged by claims as the Securities and Exchange Commission and the Stockholders’ Committee is too for remote serious consideration. . . . The alterna- approval tive to of these compromises is extensive litigation at heavy expense to the debtor and un- contrary reorganization necessary delay Bankruptcy X of the Chapter purpose intent Act.” word last,16 only, and
This statement constitutes the compromises the merits of the the trial court said on that ref- mortgage and M-S claims. Without Caplan of the or to had been filed any of the objections erence to tending to cast doubt facts in the the substantial record the court mortgage claims, and M-S upon Caplan despite trustee. This accepted the bald conclusions of the had once concluded the fact that trustee TMT had mortgage was null and void Caplan despite its This against sizeable setoffs holders. sought once reference fact that trustee had investigation. This special to a master for M-S claims placed never on the despite the fact that the trustee had any subsequent investigation facts of his record for In after the case had been remanded December Appeals, sought time the Committee the second Court of Queen, production relating Carib of documents an order against alleging they of action would show that TMT had a cause parties Caplan group. and the The Committee said these M-S manage “in old had acted collusion with members the debtor’s group control to defraud the Maritime Administration ment and by misrepresentation contract and the debtor of the reconversion *17 by premature proper price of the com and release vessel without pliance requirements contract. The with the of the reconversion compromises propriety also bear on the . . ..” same documents hearing appeared At the held on this motion it that these documents by Administration, objection Maritime had no were held the which turning them over but wished the court to issue a formal order parties court so that all could have access to denied them. nothing motion, saying the “there is the motion that shows that any are material to issue before this Court.” these documents reconfirming remand, the court after second When explanation nothing quoted text, for it errone- added ously approval already of the settlement had been concluded Appeals. affirmed the Court why he provided any explanation had never had and Although on completely reversed his field these claims. it point proceedings at this in the was clear that Anderson president reorganized was become company, though understandably the trial eager court and up protracted proceedings, these there nowhere wind appears explanation an adequate cursory, the trustee’s conclusory recommendation or “compromises,” these almost manner perfunctory, offhand, which court accepted that recommendation. quoted
If the statement of the trial been had court result of adequate and intelligent consideration of the merits claims, pursuing difficulties of the potential harm them, to the debtor’s caused estate by delay, of settlement, fairness the terms and then it question justifiable would without been have to approve proposed compromises. It is essential, however, reviewing that a court have some basis for dis- tinguishing between well-reasoned conclusions at arrived a comprehensive after consideration of all fac- relevant tors, boiler-plate approval phrased mere in appro- priate language but unsupported by evaluation of the or analysis facts of the law. Here is explana- there no tion of strengths how the and weaknesses of the debtor’s causes of action were evaluated or upon grounds what that a was concluded settlement which allowed the in major part creditor’s claims was “fair and equitable.”- Although we are told that the alternative to settlement litigation was “extensive heavy at expense” “un- necessary there is no delay,” evidence that this conclusion upon was based an educated estimate of the complexity, likely expense, duration the litigation. Litigation delay always are the alternative to settlement, and whether alternative worth pursuing neces- depends sarily upon reasoned judgment as to prob- litigation. able outcome of The complaint voiced
435 trustee’s to the Committee petitioner for the counsel a state- “this is bare that compromises, on the report applicable equally seems conclusion,” of ment compromises. those approving trial court’s statement aspect affirm that was error it to In circumstances these inclusion approving judgment District Court’s of plan internal in the compromises proposed reorganization. dealt with the District Court’s Appeals of
The Court Noting in five sentences. compromises approval of the were only and the SEC that that the Committee it was unlikely that it was remarking that complaining, solvency, result in compromises would disallowance a creditor single that not “significant it felt that it was 2d 364 F. compromise.” complained of either has ever returned insolvency will be question 936, 941. were compromises argument that shortly. The to objected creditors to no approved because properly court bankruptcy a dubious. When doubly them seems legal investigate potential to adequately fails either an ade- provide or refuses by debtor, claims held compro- approving basis quate explanation fail that creditors scarcely surprising mises, compromises. objections come forward reorganiza- plan a has this Court held Moreover, approved not be persons may to some which is unfair tion creditors though majority the vast court even it.17 approved have
17 (1939). Co., Angeles Prods. U. S. Lumber Los Case v. it can equitable matter of law as a plan is not fair and “[W]here required both Congress has approved the court .... not be security holders required percentages of each class be 'fair and plan be found to approve Id., at the latter.” substitute for is not a equitable.’ The former 114.
436 principal argument respondent support-
The of the ing compromises approving affirmance of the order the thorough it a that “the district before is court had respect concerning the facts and issues with record Respondent’s of these two claims.” compromises the mortgage claim, Caplan Brief to the regard 38. With and circumstances points out that the facts respondent in Ander- surrounding thoroughly documented it were is difficult see report investigation. of his It son’s for however, strengthens respondent’s position, how this the carefully the conclusion that report the documented and that mortgage was a fraudulent transfer Caplan mortgage holders of the against the individual claims approval Court’s as The District could be used setoffs. face of the facts compromise the proposed more is report the trustee’s conclusions contained approval entered to understand than would be difficult that Respondent points also out on a blank slate. report, an Anderson’s had before it answer to trial court mortgage claim, objections filed various recommendations Creditors’ claim and the itself, favoring and the counsel trustee trustee’s Committee, the objections filed to proposed settlement. advisability compromise, against claim militate matters referred to consist either and the other however, conclusory state- liability or conclusory denials compromised. There that the claims should be ments provide which nothing in all these documents could against concluding claims sound basis If the and its holders were unmeritorious.18 mortgage report occupies pages Anderson seven filed to the The answer insufficient from bare statements facts in the record. Aside conceded, the trustee’s conclusions were found and that were wholly original plan reorganization vacating almost opposes judicata, estoppel, laches, res and reliance. The grounds on mortgage merely the terms of the and the amounts details claim itself trial court ever had before it facts which showed the against claims Caplan mortgage and its holders to be without if merit, or the court ever discovered sound grounds for thinking delay liti- incident gation or the unlikelihood of obtaining adequate recovery, compromise made advisable, nothing in this record indicates it. regard
With to the M-S claims, respondent contends *20 that the record “an contains of pleadings abundance and allegations” respecting Respondent’s them. Brief 33. To an make informed and independent judgment, how- ever, the court facts, allegations. needs not Respondent also contends that there were in sufficient facts the rec- ord, provides a long of places list references to the in the record where these facts can be found. If, indeed, adequate record contained support facts to the de- cision of the trial court to approve proposed compro- reviewing a mises, would properly court be reluctant to attack solely that action because the court ade- failed quately to set forth its reasons or the evidence on which they were deficiency based. The in case, however, a merely is not formal one. The evidence referred to respondent analyzed greater at length margin.19 in the due under it. The favoring only recommendations settlement stated that the merits of the examined, possibility claims had been that the recovery remote, litigation of was and that would cause “unneces- sary delay.” 19Respondent contends that the trial court could have rendered an compromise informed decision on the merits of the M-S on the following basis matters in the record: (1) summary proof (the proof M-S’ claim full not having record). merely been included in the This stated the amounts claimed M-S and the liens asserted to secure some the claims. (2) The 1958 letter the Committee to the Court. This from good against asserted that TMT had causes of action M-S which recovery. regard would result substantial With to the Carib Queen, “faulty design, inadequate M-S of inspection, accused remodeling repair hasty defective work on the ship, and later enough say to to Here it is the extent necessary record solid facts of sort contains appraising against M-S, the merits of the claims vir- to of valid tually point probable all them existence improper preparations voyage and for a hazardous utili- sea ship zation of the in a service for which she was not fitted and in unseaworthy condition.” report. (3) merely relating The trustee’s This a stated few facts Queen voyage, on to breakdown of the Carib her maiden Queen. expenses incurred connection the Carib with (4) specifications support objections The SEC’s report independent M-S claims. investiga- This was a of the SEC’s support- tion the M-S claims. It set out in some detail the facts ing good its contention that TMT had or defenses setoffs because (a) properly (b) “M-S did vessel; comply convert the not did contract; (c) properly repair with terms of did not vessel; (d) performed certain work for and furnished certain TMT, agreement materials price; no as to M-S has failed to establish the value of work such and materials.”
(5) specifications. The M-S principally answer these This was formal arguments. document and contained no additional facts dr Queen It suffering admitted that the Carib construction defi- ciencies when delivered TMT and that there was a boiler failure *21 voyage, on the liability. first but denied (6) The motion allowance the claim on for of filed behalf of trustee. proceedings relating This summarized the to the M-S Noting specifications claims. that the SEC had filed detailed of objections, special its that appointed by and master the court hearings, had held no it stated that attorneys trustee and his relating had examined the documents to the M-S claims. The motion unsuccessfully get stated that the had trustee tried to M-S claims, possibility to reduce its that recovering through of liti- gation litigation remote, unnecessary was and that delay. would cause expanded These upon conclusions were explained. neither nor (7) Objections the United to States the above motion. The opposed States grounds United the M-S claims on the that none They of them were entitled to secured status. had arisen more year prior bankruptcy than a to the proceedings, and claims for reconstructing give do vessels rise maritime liens. (8) transcript hearings The held on the motion allow- for transcript portion ance the- claims. The hearing of this of the Balancing are these action. facts causes of valuable and contrary general nothing assertions to the bald but appear. Par- nowhere which foundations conclusionsfor despite frequent ticularly noteworthy that, the fact question of how pages. of it devoted to the occupies five Most was filing a memorandum would be allowed much time the Committee compromise. The court was told that objecting proposed to the papers, that lawyers at the relevant his had looked trustee and litigation recovery remote, would possibility of was arguments support unnecessary delay. these No facts or cause objected presented. Counsel for the Committee conclusions were The report a bare of conclusion. this was not a but statement boiler had been at fault over the court indicated that someone breakdown. specification objections to the M-S (9) The Committee’s pages to the 35-page report, 22 of which are devoted
claims. This Queen independent contract, the result of an examination Carib into the M-S claims. The Commit- conducted the Committee repair faulty design, construction, charged tee M-S with Queen. ships regard other on which M-S With to two the Carib responsibility charged with TMT, the Committee M-S worked for failing get swamping trip, and with of one on its trial for the approval other. The Committee also claimed Coast Guard by pay- had been reduced maritime hens asserted M-S original management, M-S, TMT account, on and that ments together in a relation- had worked collusive and Abrams and Shaffer selling cheaply purchased large profits by ship designed to make public values. idea of the factual at inflated Some stock provided by objections is particularity of the Committee’s against subheadings charges in connection of their M-S abbreviated Queen. had stated that TMT the Carib Committee (a) failed to growing out of the fact that M-S causes of action completion affecting proper the classi- certificates work secure (b) crack- rating vessel, failed to fit riveted fication and produce 3,050 arresting (c) a vessel of shaft- seams, failed to speed speed p.'m., per shaft, propeller of 216 r. horsepower produce ship high enough *22 knots, (d) of of failed to in service 15% chemically, rating, (e) the failed to clean boilers classification and properly protected (f) wrongly the boilers had been assumed conversion, (g) water in up of failed to use distilled to the time boilers, (h) improperly the preliminary running of the connected its an for and requests investigation, notwithstanding pointed fact that the available evidence probably to valid investigation no against M-S, claims of these matters by was ever or It undertaken ordered the trial court. is imagine an independent difficult how informed and compromising in favor of decision the M-S claims in the full amount as unsecured claims could have been reached present on the state of the record.
The record before completely us leaves us uninformed as to whether trial court ever evaluated the merits of causes actions held the debtor, prospects problems litigating of those or the claims, fairness of compromise. More this, terms than the rec- of facts permitted ord devoid which would have a rea- (i) piping, plates, (j) installed incorrect baffle failed clean the adequately performing repair work, (k) boilers when failed to ventilating system (l) inadequate properly, install installed inappropriate evaporator, (m) put regu- failed to feed water pump governor proper working order, lator and the feed into (n) compound injector pump, (o) failed to install a boiler failed to provide equipment coping oxygen for with the excessive content system, (p) responsible of the water in the for deficiencies system. in the addition, electrical In the Committee stated that improperly claiming repair M-S was guar- work under done its obligation, antee and that M-S had included claims for work done agreed upon. as to which ever no amount had been (10) supporting The statement the SEC the Committee’s specification objections. SEC, necessarily agreeing while not of allegations all the Committee, and contentions felt that required the Committee had M-S demonstrated that be should prove judicial hearing. its at a claims record, respondent
In addition to these matters sev- refers to record, support pro- eral matters not which are said to priety compromises. accepting Matters not the record properly subject judicial notice cannot form the basis judicial reorganization. They confirmation of a are unavailing equally on review.
441 should be of actions claims that judgment soned conclusion, how- reaching this In fashion. settled no we intimate necessary emphasize is ever, it causes of action the debtor’s merits of as to the opinion compromises. proposed fairness to the actual or as is record present it is clear that contrary, To the a remand is assessing either, for inadequate Only held. hearings to be further necessary permit whether, can it be determined investigation after further compromised. claims should be terms, what these and on III. 897, 891, Stat. Chapter X, 221 52 (2), 174, §§
Under not to bankruptcy a court is 621 574, (2), 11 §§ U. S. C. unless is reorganization plan or confirm approve' incor- This standard equitable.” “fair and found to be cred- under which doctrine priority absolute porates the only in accordance may participate and stockholders itors plan any “in respective priorities, their creditors are entitled reorganization unsecured corporate of their full extent stockholders to the over priority Realty Improve- & States v. United . . . .” SEC debts partici- (1940). 452 Since Co., 310 S. ment U. claims of upon the depends interests by junior pation a plan of fully satisfied, whether being interests senior fair and interests excluding junior reorganization reorganized value of upon the depends equitable ex- case the District Court present In the company. because of its participation from the stockholders cluded Since the deter- was insolvent. the debtor finding made in accordance with insolvency was not mination approval neither the valuation, proper standards can stand. the confirmation nor valuing a company standard appropriate length in Con- reorganization was set out at undergoing solidated Rock Co. Du Bois, Products v. 312 U. S. 510, (1941): Mr. Galveston,
“As Justice Holmes said H. & Ry. S. A. Texas, *24 Co. v. 210 U. S. com 217, 226, The mercial of property value expectation consists the of income from it.’. . . Such ap criterion is the propriate here, one since dealing we are the of solvency issue arising connection with reor ganization plans involving productive properties. . . . The criterion of earning capacity is the essential one if enterprise the is to be freed from heavy hand of past errors, miscalculations or if disaster, and allocation of securities among the various claimants is to be fair equitable. and . . . Since applica its tion requires a prediction as what will occur in future, estimate, distinguished as from mathe matical certitude, is all that can be made. But that estimate must be based on an judg informed ment which embraces all facts relevant to future earning capacity present and hence to worth, includ ing, course, the nature and condition of prop erties, past earnings record, all circumstances which indicate whether or not record is a 20 reliable criterion of performance.” future In present case the book value of the debtor’s assets May on 31, was $1,887,185.77. Claims against the subject Further on the of valuation, Bonbright, 2see J. Valua Property tion of (1937); 880-881 Collier, Bankruptcy 6A 10.13 ¶¶ (14th 1965); and 11.05 ed. Corporate H. Guthmann Dougall, & H. Policy (4th 1962). Financial Epitheti 656-657 Frank, ed. See also Jurisprudence cal and the Work of Exchange the Securities and Commission in Chapter the Administration of Bankruptcy X of Act, Q. 317, 342, (1941): 18 N. Y. U. L. Rev. n. 68 “Value is the present anticipated earnings. worth of directly It is not future dependent past earnings; on important only these latter are as a guide prediction earnings.” of future debtor fair $5,477,370.05. totaled The actual value assets was their $2,238,387.62 debtor’s total Although net value $1,978,481.73. figures these they show that far assets, liabilities exceeded are not of controlling importance. recognized Court District going-concern value, appraisal not book or value, govern must determination of the fairness of the plans respondent concedes that reorganization, the value depended of TMT’s business “not on inherent value of its assets primarily maintaining high but on level earnings.” Brief for Respondent 42.
At the hearings valuation stated trustee that his analysis of financial structure and business of the going-concern debtor in a resulted of $2,031,403.72. value A presented valuation expert by the trustee estimated the going-concern at between value $1,607,692 $1,800,000. *25 He at by multiplying arrived his conclusion his esti- mate earnings company by of the future a 7.7, figure assumption earnings based on the that would be of presented value. The valuation expert by the 13% Committee concluded that estimated future earnings after taxes would be $327,500, multiplying by this a of price-earnings ratio 13.8, arrived at conclusion TMT a of had value The trial $4,519,500. judge took position. By intermediate projecting current earn- ings of the for the debtor first five months of 1962 over the remainder of the year, he concluded that pre-tax earnings $568,000. would be Reduced estimated capitalized yielded income taxes and at a 10%, going- $2,780,000. concern value of figure Since this fell well below the of $5,477,370.05 outstanding claims, he con- cluded that the debtor was insolvent. On this basis the plan, approved was and confirmed. of Appeals
When the Court remanded to the District Court for determination of feasibility of the reorga- giving nization plan priority after full to the Govern- merit’s the District Court concluded TMT claims, was “more now than in 1962,” insolvent it was for earn- ings high point had declined from the of and the pro- Court’s initial determination on the had been based year. jected earnings earnings for that The decline in though had occurred even the volume of business had grown substantially, competition large increased from steamship serving lines Puerto Rico had TMT forced margin to rates profit. lower its and thus its finding insolvency. District Court reaffirmed its On Appeals appeal, Court stated that it did have to finding determine whether or not Court’s the District insolvency accurately computed, merely but “clearly whether it was erroneous.” On this basis the insolvency conclusion of was affirmed. complex
In province a case of this nature it is not the attempt retry of this Court issues of fact which fully litigated have Indeed, been below. as the Court of Appeals stated, weight given much must be to the familiarity long Judge of the District with the debtor and to his evaluation witnesses who testified his In presence. conflicting expert the face of testimony as going-concern value of the debtor based on current trial earnings, judge adopted position in between. disposed are not dispute We the conclusion of the Appeals Court of this determination the trial judge “clearly was not erroneous.” However, examina- tion facts this case demonstrates that Dis- *26 trict Court it did have before all of the evidence testimony relating to problems and the future and pros- company of the pects necessary which were to assess its a going value as concern. the trial Indeed, judge stead- fastly refused to consider value of the company once reorganization it was proceedings. out In this error, there was and it was an error which infected the of the trial court conclusions debtor was insol- vent. Evaluations of evidence reached the accurate application legal of erroneous are erroneous standards evaluations.
TMT a minor in plays unique carrying goods but role between Puerto Rico and the United States. This do- is highly competitive generally mestic offshore trade unprofitable. high high density, high volume, operating-cost with in trade Puerto Rico flows Atlantic in through ports. TMT, operating the North triangle a Juan, Miami, Jacksonville, between San is confined to the low density, low investment South only Atlantic trade. TMT carries about 2% total trade with Puerto and the dominant car- Rico, in competition rier the market direct with it in port its home TMT Jacksonville. When entered carrying the market with its novel idea of roll-on and freight roll-off vessels, ripe towed the market was for an However, innovation this sort. which the ills plagued early years its TMT bankruptcy threw into in 1957. exigencies Prevented of the bank- ruptcy proceeding from capitalizing on the idea novel had TMT introduced, development it has watched the of container shipping, large which has taken a over share of Rico the United States-Puerto trade for which might hoped compete. otherwise have Nonetheless, only TMT remains the roll-on and roll-off carrier in the trade, and it has seen its own business rise 10% 20% year a frequency increased of direct inter- due change piggyback rail transport. Despite the in- ability capitalize of TMT to on its novel has idea, it strong competitive position. remained in a Trade with has steadily Puerto Rico increased and rapidly, and grown has commensurately. TMT’s business Despite rate war which markedly destructive lowered the rev- per voyage, enues earned TMT increased its revenue from when $3,801,000 insolvency first hear- *27 446
ing year the latest in the held, $4,779,000 1964, hearings record. Between the 1962 and the from to five and the fleet of vessels was increased three of truck trailers from 350 to Moreover, number 670. hearing manager report the 1965 the business could paid forthcoming after it recon- installment vessels, company version of one of its would no have TMT significant outstanding further has indebtedness. only continued to be the unsubsidized the South carrier only money. trade, Despite Atlantic one that makes in volume and the rate revenue, however, the increase rising war other factors such as costs caused net and they after earnings drop yet have not re- gained year. the level established that TMT’s tax-loss carry-over expired, earnings has with the result are substantially by federal general now reduced taxes. The picture trade between Puerto Rico and the United States applicable is in and the rates flux, trade are under- going continuing investigation. revision and The vessels TMT uses are old and in need of replacement. The supply nearly of LST’s has dried and it to be up, seems replacement understood that vessels will have to be built from scratch. TMT
In would seem to short, company be a which established, has preserved, increased its share of a highly competitive despite market competition intense major operates .internal crises. It in a market under- going change substantial and is itself faced with im- minent need to its fleet. In re-equip these circumstances, going-concern notion of the adequate value of TMT only by looking could be obtained to the future as well past. Against background as the we must examine the information which trial court had before it for assessing future prospects TMT. The basic source for information on these was, matters of course, manager. A trustee his business summary short *28 the highlights of their testimony as it related to future prospects of TMT will demonstrate the inade- quacy of the information provided judge trial for making this crucial determination.
At the first insolvency hearing the manager business attempted to estimate earnings of the company for the next four years, but he made projections his solely on the business as it then was. Although TMT had attained the maximum number of voyages possible with the fleet it then had, the business manager had not looked into the possibility of chartering additional vessels. The trustee testified that several vessels would replaced have be in the next two but years, admitted that he was predict unable to what such vessels would cost. When the trustee if was asked there was foresee- able room for expansion of TMT’s business, the Court agreed objection beyond that this was scope of the valuation hearing. The expert trustee’s on valua- gave tion opinion his as to going-concern solely value on the basis projection the trustee’s which earnings, in turn was based wholly past on earnings. Those earn- ings figures had up been drawn prior some time hearing, and it was conceded they might that have come differently out if the projection had been made at time of the hearing. valuation When if asked he would attempt to predict whether the company would be able pay dividends once it was out or reorganization, large whether capital would all up investments soak earnings, the trustee’s expert replied that he had not been asked to consider question that and did think legitimate. Although agreed reasonably he fore- changes seeable and improvements should be taken into in valuing account he company, stated he had given been no information on which to make such predictions. company, on hearing the value
At the second made no he had manager admitted that business income, or expenses, revenue, of future projection new business years passed had though three even Although markedly firm different. outlook from three to grown in interim TMT’s fleet had replace- an imminent need vessels, and there was five unable manager was ships, of the older the business ment acqui- earnings likely impact on predict the new stated that vessels sition of newer vessels. He stern, loaded from the towed craft would be *29 and $1,250,000 apt cost between they that were to and though studies However, each. some $1,500,000 no final or there were inquiries conducted, had been Although ships. drawings or for the new plans definite soon efficient were needed new, better, and more vessels in the competitive improve company’s situation, to years it would be two present planning state of after vessels reorganization out of before .new company was hearing, as at obtained. the second would be At give no estimate manager could first, the business running administration costs portion what Al- reorganization proceedings. TMT due to the was trade between the States though thought he that United not know how was he did increasing, Puerto Rico and Though thought TMT’s ways. he that much or what remaining compara- trade was of the Puerto Rican share He also did not know tively constant, he certain. present of TMT’s volume of portion know what did not interchange. piggyback attributable to direct business was manager and business the trustee his The data which regard past expenses income and to had submitted picture a clear what the com- undoubtedly provided past. Given, in the how- experiencing been pany had relatively young company a was small ever, it much in need of internal rebuilding operating in a market undergoing important economic technologi- cal change, gained was essential that clear be some idea of its future prospects. perfectly It seems obvious that the information at hearings introduced the two was inadequate for gaining rough even idea TMT’s prospects. future
The fundamental reason that there was insufficient evidence concerning the future of TMT prospects the trial unalterably court showed itself hostile inquiries to directed to TMT’s During future. the first hearing following interchange place took when the court off a question cut aimed determining at whether volume TMT’s southbound traffic could be during increased the off-peak season: “Q. But if enterprise were out from under the proceedings, it? would
“The Court. we Well, dealing organi- are with an zation that in. Let’s stay assume it will right try there get going It is not value. get out reorganized. until it is
“Mr. Mason. We get are the value trying when reorganized.
“The Court. is of no importance That to me. Let’s value as it it now exists to determine what should be proceedings.” done these At a again later when time, sought counsel to establish the proper way to the company value try was to to determine foreseeable factors which would affect future earnings, the pre-empted court the answer remarking, Witness, possibilities.” “Mr. we do not want later, Still the judge said:
“All these into projections future going the are not to bother the Court. These creditors have waited this money. have long get their We too to had imagine I most of them years. thing years for given up.” or gone poorhouse to long since the have to the desire of a court easily sympathize can One for proceedings, reorganization bankruptcy terminate expedi- protracted. they frequently are need for abandoning a justification however, is tion, court’s to share easy It is also the standards. proper money promptly as their that creditors receive concern par- to of stockholders right the possible. However, as pro- valuation hung at on the result the ticipate all the inquiry all into sedulously eliminating ceedings; rights of have caused the may, context, in this future relinquished have to been default. the stockholders hearing, years elapsed next Although three before unwillingness permit to displayed same judge TMT. coun- prospects into future When inquiry following open up subject, tried for the SEC to sel dialogue occurred: but startling figures, no
“Mr. Gonsen. We have future relating possible a to questions series of company. prospects of pros- possible “The There is no future COURT. going possible what is on. other than It pects it is greatest fleet the world and will become in a few months. As go bankrupt possible if competition matter had succeeded fact, you problem they would have no plans, here, their sold. would have been I Do does
“Mr. Gonsen. understand Your Honor to examine not desire me as evaluation? “The You do.” Court. reading judge of the reluctance of the
Perhaps proper at go prospects hearing into future second *31 insolvency issue of in longer his view the no that in was the case. The of on Appeals Court had the ques- ruled tion of whether the president trustee could be the of the reorganized company and whether the Government’s nontax claims should be in allowed full without discuss- ing other In issues. the trial judge’s the Court view, of Appeals’ failure speak on other issues constituted affirmance. appeal On the from hearing, the second Court of however, Appeals pains took to point out in the error this conclusion. result the trial ruling court’s hearing general was to exclude from the insolvency issue of limit hearing ques- tion of whether developments between the first and hearings second had plan rendered the in unfeasible light necessity giving priority full to the Govern- ment’s nontax claims. In might such circumstances it expected be that the of Appeals would have exam- Court ined the record to see if supported the facts conclu- sion judge which the trial had having felt foreclosed from again, to make but which was fact still the case. Instead, however, Appeals merely quoted Court of length at from the trial court’s plan conclusions that the was feasible and stated ruling the com- clearly still pany insolvent was not erroneous. At the close of the second hearing the SEC and the argued vigorously Committee that the issue of valuation open prospects was still and that future should have been judge. Although considered its view the effect from appeal hearing first did not require it so, do court addressed itself to the merits of con- opinion approving tention its and order the amended reorganization: “The SEC insist, Stockholders Committee they during as hearings did the valuation in 1962, required the court should have evidence subsequent earnings, future to reorganization, based upon estimates expenses revenues and after sub- *32 and acquisition changes operations stantial equip- and other type vessels of new substitution expected expanded operations upon and based ment, However, private management. under place take anticipate the court can the trustee neither [n]or do, any will reorganized company what (cid:127) different cir- earnings under of future estimates speculative would be operation of cumstances unreliable.” or application statement a correct was not
This every it is case declared that Court has- This law. to consider “all reorganization court upon the incumbent . . includ- earning capacity future . relevant facts whether or circumstances which indicate ing all ... earnings] is a reliable criterion record past not [the Products Rock Consolidated performance.” of future Bois, supra. If is shown the record Co. Du v. per- a criterion of future past earnings not reliable court must form estimate future formance, all into foreseeable factors inquiring performance In forming this may prospects. affect future which expected “mathematical certitude” is neither estimate, nor required. engaged hotly a a company
In case we have a a severe rate market, experiencing market competitive standings probably alter relative war which would a witnessing The market as whole was competitors. and TMT itself technological change, was one substantial TMT’s prime principal market, innovators. undergoing expansion. was considerable Rico, Puerto It TMT without contradiction shown needed to present fleet with new and different replace ships. its It clear to the trial court that have been the cir- should brought hearings out cumstances at the two showed earnings past record was not reliable criterion and that sound evaluation of performance, future company going required as a concern examination prospects the future the company. The court was dealing with an company established in a static market, being nor was it asked value company’s prospects by future hypothesizing changes unforeseeable in operations or market It structure. was evident that specific certain predictable alterations have would *33 to be in made and equipment operations of the company order to in meet foreseeable alterations in market. trial eyes court shut its important to these developments in doing ignored and so a principle cardinal of proper evaluation.
IV. only past Because earnings upon were relied in this in determining case the value of the as a going debtor concern, we reverse and remand to the of Appeals Court to directions remand to the District to hold Court new hearings on valuation. any way Without in pre- issue, judging the it possible compro- when the mises in discussed Part II of this opinion reconsidered, are company and when the is properly by taking valued into account future prospects, company its will be found be finding to insolvent. Such permit would stock- to participate. holders There is, point no in therefore, considering this juncture question at presented petitioner concerning the stockholders’ claims under the federal securities laws. Since the will, Committee course, be participate entitled to the new hearings on valuation insolvency, the order of the District discharging Court is vacated. So doing, however, no opinion reflects on the merits the arguments pre- sented this Court petitioner as to itwhy should not discharged. have been Finally, there is necessity no determine whether it was improper to contemplate mak- ing president trustee of the reorganized company. A great passed deal of time since has that was deemed may intervening circumstances plan,
an advisable Since participants. views altered the have well insolvency will further on valuation hearings new put it seems advisable proceedings, these protract aside. question we reverse opinion, reasons stated
For the proceedings further Appeals for to the Court remand opinion. with this consistent remanded.
Reversed and considera- part no in the took Marshall Mr. Justice case. of this tion or decision Harlan, Justice Stewart whom Mr. Mr. Justice dissenting. Fortas join, and Mr. Justice which could be only question my opinion, In of this presence remotely justify even thought by virtue trustee, Court is whether case in this being from disqualified of law a matter was as office, his *34 The reorganized company. president as selected question. decide that does not however, Court, reorganization pro- in these massive record review years over 10 in the courts for have been ceedings, which at Appeals the Court of occasions before on six for appropriate an task my not in view stages, various this bodes little but Believing that this decision Court. proceeding to a bringing protracted delay in further writ voting dismiss the I conclusion, justified feel the case despite the granted, fact improvidently as unrestricted, an writ. Since here on brought I con- issue, “disqualification” reach the Court does not Justice, as individual inappropriate me, sider my upon own views it. express